In a recent article in FierceTelecom, U.S. Commerce Secretary Gina Raimondo was quoted as urging small ISPs to participate in the upcoming BEAD grants. She was quoted in the article in a speech made to small ISPs saying, “We want you to apply. We need you to apply. We will work with you and hold your hand so that you can apply. The message is: Prepare to compete and win. You can win.” She went on to say that small ISPs are the only ones who will likely be interested in serving some of the most remote places in the country.

I was honestly floored by these quotes. I’ve been working with broadband grant programs for decades, and the requirements for BEAD are massively over the top compared to other broadband grant programs. Raimondo is quoted as saying that the grant requirements have been crafted to “protect taxpayers.” The first day I read the legislation I knew that small ISPs would have huge problems making these grants work.

I’ve been hoping that State Broadband Offices would soften the harsh requirements that were suggested or mandated by NTIA. Unfortunately, most State Broadband Offices did just the opposite and doubled down and made it even harder to justify pursuing a BEAD grant. As an example, the legislation offered that BEAD grants could fund as much as 75% of the cost of building a rural project. However, most state grant scoring rules are pushing that number a lot lower. There are states that only give worthwhile grant points to somebody taking a 35% or 40% grant. It’s not hard to understand the reason for this. A lot this comes from pressure from the NTIA to make sure that the BEAD money can be spread around enough to serve all unserved locations. But all of the policy folks don’t seem to understand the basic financial fundamentals of serving broadband in rural areas. This one issue alone is making it impossible for many ISPs to even contemplate a BEAD grant.

But it doesn’t end there. The requirement to have an irrevocable letter of credit that feels like punishment to small ISPs. I have one client that would struggle to somehow come up with $3 million needed for the BEAD matching requirement. The letter of credit adds over $1 million in additional investment for this small ISP – and that breaks the financial model. The folks who made this requirement don’t seem to realize that a lot of small ISPs could never qualify for a letter of credit of this magnitude.

The most expensive requirement might be the requirement to pay prevailing wages that are being required by many states. In all of the business plans we’ve examined, this requirement increases the cost of building a network by 15% to 20% (which then also inflates the matching and the letter of credit).

I understand the federal goal of the NTIA to protect the public, but are they really protecting the public when the grant rules favor huge companies over small ones? It was clear from the first day of the process that NTIA is more worried about not having any BEAD failures than it is about having wide participation by ISPs – you can’t have both. The funny thing is that the three items listed above have added so much cost to building a BEAD-funded network that the chance of an ISP failing is far higher than it would have been without these requirements. Networks that cost too much to build are going to be at risk in future years when ISPs realize that it was a mistake to take the grants.

In addition to the high costs that come from the NTIA being super-cautious, the paperwork process for reporting on the grants is also way over-the-top. A lot of ISPs who take this money are going to regret it when they see the volume and frequency of reports that are going to be due for years after taking the money.

On top of all of this, the grant maps are a mess in many places due to the decision to allow licensed fixed wireless ISPs to claim a monopoly for rural locations simply by reporting a speed of 100/20 Mbps to the FCC. It’s virtually impossible to dispute this kind of claim in areas where the WISPs don’t have many active customers. The FCC BEAD map in many rural areas is a jumbled mix of served, underserved, and unserved households in the same rural neighborhoods. It’s almost impossible to make a workable business plan out of the mess that has been created by the FCC maps along with the residual mess created by RDOF.

There are going to be small ISPs who will brave BEAD and win grants. But a lot of ISPs cannot tackle BEAD even if they wanted to. Their balance sheets are not iron-clad enough, and they don’t have the borrowing power for the matching and letter of credit. Many can’t find a coherent service area due to the mess created by the maps.

I had to laugh at the “we will hold your hand” quote. Is the NTIA going to go to the bank with a small ISP to convince the banker that they should take a chance on lending a lot of money to a small company? There is only one way that the NTIA could increase participation in BEAD – and it’s something that other grant programs have done. If NTIA wants small company participation, it could give State Broadband Offices the ability to waive the harshest rules for smaller ISPs. I’m pretty certain that is not being discussed.