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Regulation - What is it Good For?

Future-proofing Grants

There has been a lot of discussion in the last few months about how wonderful it was for Congress to have increased the speed requirements for broadband grant eligibility to 100/20 Mbps in the $42.5 billion BEAD grants. But is it really all that wonderful?

It’s obvious that the FCC’s definition of broadband of 25/3 Mbps is badly out of date. That definition was set in 2015, and it seemed like an adequate definition at the time. If we accept that 25 Mbps was a good definition for download speed in 2015 and that 100 Mbps is a good definition in 2022, then that is an acknowledgment that the demand for download broadband speed has grown at about 21% per year, which is shown in the table below.

Historic Download Speed Demand in Megabits / Second

2015 2016 2017 2018 2019 2020 2021 2022
25 30 37 44 54 65 79 95

We have outside evidence that the 21% growth rate makes sense. Several times over the last decade, both Cisco and Opensignal opined that the residential demand for download speed has been growing at that same 21% rate. Cisco said that it thought business demand was growing at about a 23% clip.

This raises an interesting question of how good it is for a grant program today to use a 100 Mbps definition for broadband? The main reason that this is a relevant question is that the BEAD grants aren’t going to be constructed for many years. My best guess is that the majority of BEAD grants will be awarded in 2024, and ISPs will have four more years to finish network construction – until 2028. The above table shows how much broadband demand for download speed grew from 2015 until 2022. What might this look like by the time the BEAD networks are fully implemented?

Future Projected Download Speed Demand in Megabits / Second

2022 2023 2024 2025 2026 2027 2028
100 121 146 177 214 259 314

If we accept that 100 Mbps download is adequate today as a definition of download broadband speed, then if broadband demand continues to grow at 21% annually, the definition of download broadband ought to be over 300 Mbps in 2028. I know many cynics will say that broadband demand cannot continue to grow at the historic rate, but those same people would have said the same thing in 2015 – and been proven wrong. In fact, there has been a steady growth curve for broadband speed demand back into the 1980s. There is no evidence I’ve heard that would indicate that the demand growth has slowed down.

We don’t really need to have this theoretical discussion of adequate broadband speeds because the market is ahead of the above speed growth curves. Since the early 2000s, cable companies have unilaterally raised the speed of basic broadband to keep ahead of the demand curve. The cable companies have raised minimum speeds every few years as an inexpensive way to keep customers happy with cable broadband.

The cable industry is in the process right now of increasing the speed of basic download speed to 200 Mbps – a number higher than predicted by the table above for 2022. There is a strong argument to be made that the cable companies have been resetting the definition of broadband while regulators were too timid to do so. I can remember when the cable companies collectively and unilaterally increased speeds to 6 Mbps. 12 Mbps, 30 Mbps, 60 Mbps, 100 Mbps, and now 200 Mbps.

This argument is further strengthened when considering that the big cable companies serve almost 70% of all broadband customers in the country today. When Congress gave the FCC responsibility for broadband in the 1996 Telecommunications Act, the requirement that the FCC has largely shoved under the rug was that rural broadband should be in parity with urban broadband. If 70% of new broadband subscribers in the U.S. are offered 200 Mbps broadband as the slowest basic product, it’s hard to argue that having a definition of anything under 200 Mbps today is not parity.

Congress wasn’t all that brave in setting the definition of grant-eligible at 100/20 Mbps. That is the lowest possible current definition of download speeds, and a number that is already starting to drift to be obsolete. Recall the gnashing of teeth in the industry last year while the legislation was being created – cable companies and WISPs both thought that 100/20 Mbps was too aggressive.

If we really wanted to future-proof the BEAD grants, then technology that won’t be built until 2028 should be required to deliver at least 300 Mbps download. Anything less than that means networks that the public will feel are inadequate as they are being deployed.

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Regulation - What is it Good For?

Another BEAD Grant Complication

I’ve been thinking more about the NTIA’s definition of Reliable Broadband Service that was part of the recently issued Notice of Funding Opportunity (NOFO) for the $42.5 billion BEAD grants. That definition says that any grant cannot be used to overbuild a reliable broadband technology that meets or exceeds the 100/20 Mbps speed threshold of the grants. The NOFO said that the grants can’t be used where speeds are adequate for the following technologies: (i) fiber-optic technology; (ii) Cable Modem/ Hybrid fiber-coaxial technology; (iii) digital subscriber line (DSL) technology; or (iv) terrestrial fixed wireless technology utilizing entirely licensed spectrum or using a hybrid of licensed and unlicensed spectrum.

The policy behind this makes sense – the NTIA doesn’t think that valuable federal grant dollars should be used where adequate broadband technology is already in use. That would make them a good shepherd of the federal dollars.

But this particular definition is going to cause some complications the NTIA might not have considered. I’ve been running into rural FWA cellular wireless broadband in rural markets. So far, I’ve only encountered the new technology from T-Mobile and Verizon. But this will also be introduced by Dish Network. AT&T says it also has plans to roll out the faster cellular home product.

The FWA technology is enabled when a cellular company beefs up cell sites to provide home broadband in addition to cell phone service. This is being enabled by the introduction of new spectrum bands. For marketing purposes, the carriers are labeling these new bands as 5G, although the technology is still 4G LTE.

The cell carriers have been offering a weak version of home broadband for years, marketed as a hotspot or jetpack. But that technology shared the same frequencies used for cell phone service, and the broadband has been slow, weak, erratic, and expensive. However, putting home broadband onto new cellular spectrum changes the product drastically.

Recently I heard from a farmer who is getting 200 Mbps download broadband from a rural T-Mobile FWA connection – this farmer sits right next to a large cell tower. According to the NTIA, this farm should not receive any grant subsidy to bring fiber broadband with a grant. But as is usual, real life is a lot more complicated than that. This same farmer says that his nearest neighbors, only a little over a mile away, are seeing speeds significantly below 50 Mbps.

This makes sense because that’s how cellular technology works. Most people don’t realize how quickly broadband signal strength weakens with distance from a cell site. In cities, practically everybody is within half a mile or a mile from a cell site, so we never notice. But in rural areas, most people live too far from a cell site to get decent bandwidth from this technology. Consider the following heatmap of a real cell site.

The fastest broadband speeds would be within a few thousand feet, like with the farmer. The area that might get 100 Mbps broadband is in the orange and yellow areas on the map. The speeds in the green areas are where speeds fall below 100 Mbps, and by the time the broadband signal reaches the light blue areas the speeds are almost non-existent. The purple areas show where a voice signal might carry, but only unreliably.

What does this mean for the BEAD grants? As T-Mobile and the other cell carriers start updating rural cell sites they are going to be putting heatmaps like the one above into the FCC mapping system. It’s worth noting that most cell sites don’t create a roughly symmetrical coverage pattern because the wireless signal gets disrupted by any obstacles in the environment, even small rolling hills. It’s also worth noting that cellular coverage is dynamic and changes with temperature, precipitation, and even wind.

Recognizing cellular broadband coverage (licensed) as reliable broadband will have several consequences. First, this disrupts grant coverage areas since there will be cellular areas in every county that won’t be eligible for grants. This will create a swiss cheese phenomenon where there are areas where grants are allowed next to rural areas that are not allowed. That will complicate the engineering of a broadband solution for the areas that are left. This is the same thing the FCC did with the RDOF awards – chopped up potential grant areas into incoherent, illogical, and costly swiss cheese.

This also might mean this farmer won’t get fiber. His neighbors who can’t get good speeds on T-Mobile might be covered by a BEAD grant, but an ISP might be unwilling to fund the cost to reach this farmer if the cost is not covered by a grant.

I doubt that the NTIA thought of the practical consequences of the new definition, just like I can’t imagine the FCC had the slightest idea of the absolute mess they made with RDOF coverage areas. The only way to justify building a new network in a rural area, even with grants, is to cover large areas with one coherent network – not by building a network that has to somehow avoid RDOF areas and cell towers.

ISPs interested in BEAD awards are now going to have to wait until the new broadband maps come out to know what this might do to their grant plans. I’m thinking that, at least in some cases, this will be the final straw that breaks the camel’s back and convinces an ISPs to walk away and not even try.

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Regulation - What is it Good For?

The BEAD NOFO – Financial Issues

The NTIA has established basic rules for the $42.5 billion BEAD grants in the recent Notice of Funding Opportunity (NOFO). One of most important aspects of the rules that potential applicants need to understand relates to funding and financing. Note that the NOFO instructs the States what it expects to be included in each state’s broadband grant program for the BEAD funding.

The first set of rules concerns the amount of grant funding. Since the IIJA passed Congress, the industry has been talking about BEAD grants offering 75% grant funding. It’s not that simple.

The NOFO says that states are required to incentivize matches of greater than 25 percent from subgrantees. That means states must make every effort to award less than a 75% grant. In fact, if two entities request building fiber to the same geographic area, the one asking for the smaller amount of money will automatically win, assuming they meet the basic grant requirement. This makes sense and will stretch the grant money further, but ISPs should be prepared for a sliding scale where the less the borrowing the greater the grant points.

The original Congressional language also held out a big promise for the layering of grants. The legislation specifically promised that an ISP could use ARPA or CARES funding from states and localities as matching for the BEAD grants. But the NTIA rules turn that promise on its head. States are encouraged to require a match from the subgrantee rather than utilizing other sources where it deems the subgrantee capable of providing matching funds. If a grant applicant has the ability to fund the grant matching, the NOFO rules suggest states should not allow the layering of local monies as grant matching. When that sinks in, it’s going to put a lot of public-private partnership discussions on hold.

The more disturbing requirement in the grant is that applicants must provide an irrevocable letter of credit along with a grant application. During the application process, prospective subgrantees shall be required to submit a letter from a bank . . . committing to issue an irrevocable standby letter of credit, in the required form, to the prospective subgrantee. The letter shall at a minimum provide the dollar amount of the letter of credit.

I have to wonder if the folks at NTIA understand what an irrevocable standby letter of credit (SLOC) means. Consider a grant application for $40 million, with a $10 million grant match. A bank must treat an SLOC as if were a bank loan. When the bank issues the SLOC, it ties up the $10 million on its balance sheet in the same way it would if it made a loan. The bank can’t loan that money to anybody else – it is frozen. While the bank is still holding the cash, it is not treated as a bank’s cash reserve since it is pledged. The bank will charge a minimal amount of interest on the letter of credit. In recent years that’s been something like 2% – hard to know what that might be with rising interest rates. If the interest rate is 2%, and the grant process takes a year to process, the ISP will have spent $200,000 in interest expense – even if it doesn’t win the BEAD grant.

It gets worse. When an ISP wins a grant it must then produce an irrevocable letter of credit for the life of the grant. This is even worse than the first letter of credit. Bank loans for fiber projects typically use construction financing – the same kind of financing used if you build a house. For a project built over four years, the ISP would take a draw each month as it needs funds and would only start paying interest on money that has been drawn. If a letter of credit must be created on the first day of a grant award, then using my example, interest rates for the full $10 million of matching would start when the letter of credit is issued. That completely negates the primary advantage of bank construction financing. My back-of-the-envelope math tells me that for a $10 million matching, the two layers of letters of credits could add $1 million to the cost of the project – all flowed to banks in the form of interest. None of this money is recoverable from the grant funding and comes out of the grant winner’s pocket.

To make matters even worse, a lot of smaller ISPs will not be able to obtain the letter of credit needed to apply for the grant. It’s a typical chicken and egg scenario. A bank won’t give an ISP a SLOC unless their existing balance sheet supports that much of a loan. But the ISP’s balance sheet won’t justify the SLOC until it wins the grant. This rule will definitely discriminate against smaller ISP – and by smaller, I’m including some fairly large companies like regional telephone companies and cooperatives.

The NOFO says there will be additional language coming to describe how municipalities will deal with the letter of credit issue. The NTIA is probably struggling with this because bond financing is more complex than a bank loan. A bond doesn’t exist until the day that bond buyers agree to buy the bond. It’s always possible that a bond issue won’t sell, so there can be no bank guarantees tied to future bond issues. I can’t wait to see this solution.

I don’t want to be dramatic, but this seems like massive overkill. It would appear that the NTIA is so fearful of having a few grant winners who will default on projects that they are imposing a billion-dollar industry cost to solve a million-dollar problem.

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Regulation - What is it Good For?

The BEAD NOFO – A New Definition of Broadband Technology

The Notice of Funding Opportunity (NOFO) for the $42.2 billion BEAD grants establishes new rules for the grants that might have a wider implication for broadband elsewhere. One of the most interesting aspects of the NOFO was the definition of a new term – Reliable Broadband Service.

The NOFO defines Reliable Broadband Service to means a broadband service that is shown to be providing broadband in the FCC maps using (i) fiber-optic technology; (ii) Cable Modem/ Hybrid fiber-coaxial technology; (iii) digital subscriber line (DSL) technology; or (iv) terrestrial fixed wireless technology utilizing entirely licensed spectrum or using a hybrid of licensed and unlicensed spectrum.

The key purpose of this new term is to define the technologies that can’t be overbuilt if the speeds on those technologies meet the BEAD speed requirements. For example, BEAD grants can’t be used to overbuild a cable network that has speeds today faster than 100/20 Mbps. However, there are some tiny rural cable systems that have speeds slower and that – and BEAD could be used to overbuild them.

The more interesting aspect of this definition is that the BEAD grants can be used to overbuild any other technology such as satellite broadband or fixed wireless networks using unlicensed spectrum. It doesn’t matter what the speeds are for these networks since NTIA has declared these technologies to be unreliable.

While this was expected and could be imputed from the Congressional enabling language, this is a clear blow to existing WISPs that are delivering decent speeds in rural places. The vast majority of WISPS use unlicensed spectrum – and I believe that this language also covers the use of CBRS spectrum – it’s lightly licensed but is not exclusive for a given ISP.

It’s also hard with this definition to think that anybody using satellite or unlicensed spectrum for fixed wireless will be eligible for BEAD grants, since those technologies have been declared by the NTIA as being unreliable. I don’t think it matters what speed these technologies can deliver – the NTIA has labeled them as unreliable.

This definition puts a label on those technologies that I’ve never seen used, but which is descriptive. Fixed wireless coverage varies in practice due to factors like temperature, humidity, and precipitation. The biggest issue with unlicensed spectrum is the possibility of debilitating interference. Not every home can see satellites due to terrain or tree cover, and satellite technology cannot guarantee serving everybody in a grant footprint – a key requirement in the NOFO for any grant winner. Earlier federal grants allowed for technologies that would reach most, but not all households – but the BEAD grants insist on total coverage.

Another part of the reasoning for the NTIA in coming up with this definition is probably the useful life of satellite and fixed wireless technology. It sounds pretty certain that low-orbit satellites will fall out of the sky after 5 – 7 years and will have to be replaced. The whole industry understands current fixed wireless technology to have a shelf life of around seven years. It’s easy to define these technologies as unreliable since there is no guarantee that a grant awardee will replace the technologies when needed.

This also raises an interesting question for elsewhere in the industry. Starting last year, the major broadband agencies in the federal government have been required to regularly communicate and coordinate. I have to wonder if this new definition might be the death knell for some of the big open RDOF awards that use satellite and fixed wireless technologies. If the FCC agrees that those technologies can’t serve everybody in an award area, then this new definition gives the FCC an easy way to cancel those awards.

This doesn’t mean that WISPs or satellite providers won’t still be in the market or even that they might not fare well – they are free to compete. But this new definition means that these technologies can be overbuilt with fiber or other technologies that satisfy the NOFO. And it seems likely that this means that satellite companies and WISPs using unlicensed spectrum are not going to be able to get BEAD grants.

Like every requirement in the NOFO, these rules will have to be interpreted by the fifty states. I think this particular language is fairly clear, but it will be interesting to see how states interpret this and the many other new rules and definitions created by the NOFO.

 

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Regulation - What is it Good For?

Let the BEAD Grant Process Begin!

The Notice of Funding Opportunity (NOFO) for the $42.2 billion BEAD grants came out late last week. I expect there will be dozens of summaries of the key grant rules published, and I’m not going to repeat that effort. Instead, I’m going to write a series of blogs that explore some of the nuances that potential grant applicants need to understand. Today’s blog is a high-level summary of the issues I’ll be exploring in more detail.

The Grants Draw a Firm Technology Line. The NOFO uses the term ‘reliable broadband service’ to mean existing technologies that are considered to be broadband. This includes only fiber-optics, cable company hybrid-fiber coaxial technology, DSL, and fixed wireless service supported by licensed spectrum. Every other technology does not count as broadband in terms of defining areas eligible for the grants. The NOFO means that grants can be used to overbuild areas served by satellite broadband or by WISPs using unlicensed spectrum – regardless of the speeds being provided.

The Grants Are Complicated. When I started to make a full list of all of the grant requirements suggested by the NOFO, I realized that these are going to be the most complicated broadband grants ever – more complicated even than ReConnect grants. It looks like the NTIA made a list of everything that could possibly go wrong with a project or an ISP and made each into a grant requirement.  Here are just a few of the new requirements I’ve never seen in a grant before: a cybersecurity plan, a climate resiliency plan, a supply chain risk management plan, a middle-class affordability plan, and a project workforce continuity plan if not using union labor.

The Grants Add a Lot of Cost to Projects. These grants layer on a lot of costs onto broadband projects that would not be there for an ISP building a rural project on its own. Some of the big ones include environmental and historical preservation studies; prevailing wages for grants over $5 million; bank letters of credit and a legal opinion on the lines of credit; construction contractors must certify commitments to workforce development, including participation in apprenticeship programs; buy America requirements that will drive up the cost of materials; heavy-duty reporting requirements that layer on work after taking the grant. Additionally, grantees must fund all non-grant eligible assets and costs, as would be expected. I also should remind folks that grant funds are going to be considered a taxable income by the IRS. The bottom line of all of this is that the real cost of taking one of these grants is going to significantly exceed the supposed matching fund percentage.

The Grants Are Clearly Stacked Against New ISPs. This is ironic because the rules as written by Congress and alluded to throughout the NOFO talk about favoring what the NOFO calls non-traditional broadband providers like non-profits, electric cooperatives, local governments, public utility districts, and Tribes – but the detailed grant rules are stacked against new ISPs in a dozen places.

The Grants Want to See Skin in the Game. While grants can be as high as 75%, the NTIA expects States to award grants to applicants that ask for the lowest amount of grant funding. And while the grants allow for matching funds from ARPA and state grants, the rules will favor ISPs who supply their own matching funds.

There are Some Gotchas In the Financial Requirements. There are financial requirements that are going to stop a lot of entities from requesting the grants. An applicant must get a bank letter of credit just to apply for the grant – something that’s expensive and not easy for many entities to get. This is then followed up with an irrevocable standby letter of credit for the full matching funds (even if some of those funds are being supplied with other matching funds or with in-kind matching. The NTIA also gives the government a lien on assets until the end of economic life – something that some commercial lenders will refuse to allow for loans.

This is Going to Overwhelm State Broadband Offices. Remember that these grants are going to be administered by fifty separate grant offices. The complexity of the grant rules will overwhelm most state grant offices, which are often newly staffed. I think the NTIA thinks all of the extra requirements will make it less likely to make bad grant awards. I expect the complexity will do the opposite since inexperienced reviewers will have trouble distinguishing the few requirements that really matter from the many that are peripheral.

Penalties for Non-performance. The grants seem to have some teeth for non-performance, something that’s been lacking in grants in the past. Penalties against non-performing grant recipients can include the imposition of additional award conditions, payment suspension, award suspension, grant termination, de-obligation/clawback of funds, and debarment of organizations and/or personnel from using future federal funds. We’ll have to wait to see if these penalties are actually ever imposed, but it’s promising that the penalties are listed.

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Regulation - What is it Good For? The Industry

What Happens After ACP?

It seems that almost every ISP going for broadband grants is promising to offer a low-income program by promising to take part in the Affordable Connectivity Program (ACP), which provides a $30 monthly discount on broadband rates for qualifying households. The discount is available for households earning less than 200% of the federal poverty level.

I love the idea of the ACP program. It certainly makes a bigger difference for households than the $9.25 Lifeline subsidy provided by the FCC. But I think it’s already time to start the discussion of what happens when the ACP program runs out of money.

Congress put $14.2 billion into the ACP fund effective January 1, 2022. That money was bolstered by about $2.2 billion left over from the Emergency Broadband Benefit program that came out of the CARES Act funding. I did a little math to see how long the funds will last. By my quick math, the ACP fund will have paid out about $1.3 billion by the end of this April 2022.

As of April 16, there are almost 11.6 million enrollees in the ACP program. That equates to a monthly draw of $348 million per month. And the draw is growing. This year the number of plan participants has been growing by over 700,000 per month. If fund participants keep growing at that rate, then the ACP fund will run dry in 25 months. If growth in fund participants slows to 500,000 per month, the ACP only last two additional months. If I had to make a bet, I would think that the number of new participants per month will accelerate even more than the current 700,000 per month. Even if nobody new enrolls in the ACP, the funding will be gone in a little less than four years.

If the ACP fund runs out of money, the subsidy will stop. If the fund participants grow at the current rate, then 28 million homes would see an immediate $30 rate increase – one that, by definition, most of them can’t afford. The only way for the ACP to continue is for Congress to continue to fund it. If there are 20 million ACP participants, that’s a new annual federal subsidy program of $7.2 billion per year. At 30 million participants, it’s $10.8 billion per year.

This sounds like the kind of subsidy that will draw a lot of political controversy. There have been major critics in Congress for years about the FCC’s Lifeline program, which costs only a fraction of the ACP numbers.

This also creates a dilemma for ISPs. Most ISPs will tell you that the cost to connect a new household to a fiber network can cost between $1,000 and $1,500 in cities depending upon whether drops are aerial or buried, and even more in rural areas with longer drops. Can an ISP justify making that kind of investment for a home getting the ACP discount if that discount will disappear in two years? Obviously, not everybody getting an ACP discount would drop service without the subsidy, but a lot will have no choice.

What’s also ironic is that the ACP program was designed as part of the Investment, Infrastructure, and Jobs Act and was meant to provide a subsidy to go along with the $42.5 billion in broadband grants in the BEAD grant program. My best guess of the timeline is that the ACP will be out of money by the time that BEAD grant households start coming online.

There are a whole lot of folks putting energy today into digital equity, and many of them tell me that the $30 discount really makes a difference to families. I’m sure many of them have done the same math as me and must be worried about what happens when the ACP runs out of money. Two years is almost no time in political terms, and anybody who wants the ACP fund to last more than two years needs to already be lobbying for the replacement funding.

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Regulation - What is it Good For? The Industry

Following the Rules When Choosing an ISP Partner

Local governments all over the country are choosing ISP partners and making grants from ARPA funds to help bring better broadband. Today’s blog is a warning to handle the awards of such monies in a way as to be safe from challenges from ISPs you don’t choose to fund. I’ve already heard of a few cases where such challenges have been mounted.

The reason for issuing this warning is that ISPs that don’t get funded can ask to see all of the records that are part of the process of choosing a partner and can sue a local government if they don’t believe the review and award process gave them a fair chance to win the awards.

It’s important to remember that although ARPA money came to local governments from a federal grant program, this is still local government money, and the process of spending the money is subject to at least some portion of government procurement rules and certainly is subject to all rules having to do with openness and transparency of records. An ISP merely needs to ask and can see all emails, correspondence, and any document created as part of the process of choosing who to fund.

What complicates this more than other government spending is that local governments are including broadband committees in the decision-making process of picking partners. These are folks who are not officially part of the government and are probably not familiar with government procurement rules. They probably don’t know that things they say in an email or things they write in notes can possibly be discovered by others.

This is an unusual circumstance because governments don’t normally include citizens directly in the process of spending government money. But local broadband committees have put so much energy into bringing a better broadband solution that it wouldn’t seem right to not have them be part of the process of deciding who will be the funding ISP in the community. It’s fairly obvious that whatever ISP is given funding to bring fiber to a rural area will effectively be the broadband monopoly provider there for many decades to come – so it’s an important decision.

One of the things I see a lot is local communities issuing invitations for ISPs to propose to get the funding. These might be in the form of an RFQ (request for qualification), an RFI (request for information, or an RFP (request for proposal). Be careful how you write these invitation documents because the government is going to be bound by whatever you tell ISPs about the selection process. My advice is to say nothing about how winners will be chosen.

For instance, if an RFI says that ISP winners will be chosen by a ranking scale based upon certain criteria, then the local government is bound to follow that ranking process. A local government can’t say it will pick somebody in a certain manner and then do something different. If ISPs are ranked on a grading scale, be aware that ISPs can later ask to see how they were graded – and that is where the chance comes that an ISP will take exception to the scoring process.

The worst thing that can happen is to have already chosen the winner before going through the process. There is a good chance in such a case that there are emails or other evidence that the choice was made before the process even began.

I strongly advise local governments to include an attorney and perhaps a trusted consultant who has been through this before in the process. A selection committee needs to get the speech about being fair, open, and transparent and warned not to create written records that are derogatory to any of the ISPs in the process. Governments have a legal obligation to be fair and aboveboard when choosing anybody who will receive public funding. I know that picking ISP partners feels like it is an extraordinary thing, but it is not somehow outside the normal government procurement processes.

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Regulation - What is it Good For?

Earmarks – a New Source of Broadband Funding?

The current Congress stuck almost 5,000 earmarks costing almost $9 billion into the $1.5 trillion budget that was recently signed by President Biden. An earmark is when each member of Congress gets to designate funds directly to pet projects.

Earmarks have an ugly history. Earmarks were used in last year’s budget after an absence of over a decade. In the past, earmarks have often been labeled as pork-barrel spending, and there are many cases in the past when earmarked spending went unfairly to friends and backers of politicians.

But on the plus side, having earmarks again seems to have sped up the otherwise contentious budgetary process since each member of Congress has a vested interest in getting a budget passed.

There is no reason that earmark spending can’t be used for broadband infrastructure, and it’s likely that there were broadband construction projects buried inside of the 4,962 projects that were just funded this way. The recent earmark awards averaged a little over $1.8 million each, but there were some earmarks over $100 million. Each member of Congress awarded an average of $16.8 million in earmarks.

However, the dollars of earmarks allowed to any given member of Congress is not preset. The amounts are negotiated. It was the trading of political favors to gain earmark allocations that gave the process a bad name in the past.

The idea of getting an earmark for broadband is intriguing because I’m not sure anybody knows what rules would apply. If a member of Congress gives an earmark to build fiber in a specific part of a city, I don’t think it would matter what broadband speeds are already there. It probably doesn’t matter if other grants are already promised in the same geographic area. For example, I can imagine earmarks being used to overbuild an area with unawarded RDOF funding.

If earmarks are here to stay, then communities need to add this As a tool for funding broadband. In much of rural America, the lack of broadband is the number one local issue. A member of Congress might be able to provide the money to build broadband in a whole county – and be a local hero for doing so.

If you are going to pursue earmarks, you have to treat it the same as going after the grant. You must do your homework first and have a shovel-ready project that will come in on budget. That means doing the engineering and market research so that you know the cost of construction. You must be ready to jump on a project and build quickly if earmark spending comes with a deadline for spending the funding.

You’ll have a lot of questions about earmark spending that you’ll have a hard time getting answered. For example, I’m pretty sure that a federal project funded by an earmark would still be subject to the Buy American laws. You’ll want to understand upfront if an earmark-funded project would be subject to any other rules such as needing an environmental review or having to pay prevailing wages.

In the end, an earmark is a grant that bypasses the competitive grant process. If your community has a good enough broadband story to tell and a local member of Congress as an ally, then this idea is worth considering.

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Regulation - What is it Good For?

When Will We See BEAD Grants?

One of the most common questions I’ve been fielding is when we’ll be able to file for grants from the Broadband Equity, Access, and Deployment (BEAD) grants that come from the $42.5 billion funding that will pass from the NTIA and be administered through the states. The short answer to the question is that we can’t know yet. But we know all of the steps that must be taken by a state before it can start offering grants.

We have a date for the first step of the process. On May 15, the NTIA will release a Notice of Funding Opportunity (NOFO) for the BEAD program. This document will flesh out the NTIAs understanding of how the grant process will work. The legislation that enabled the grants included some specific requirements, and in this document, the NTIA will embellish and add details to those requirements. Note that the purpose of the NOFO is to inform the States what must be included in the grants the States will ultimately award. This NOFO will not be the rules for grant applicants – those rules will differ as each State adds its own twist on the basic NTIA rules.

After the NOFO is published, States will have to file a letter of intent (LOI) with the NTIA to describe the current state of broadband in the State and must describe the State’s plan for using and administering the BEAD funding. States are allowed to request up to $5 million at the time that they submit the LOI. This funding is provided to help States reach out to citizens, communities, and businesses. The funds can be used for a variety of planning purposes like data collection, developing a budget for operating the State grant program, materials for outreach to the public, etc. States that accept the $5 million of funding must file a 5-Year Action Plan to the NTIA. This document will describe how a State will set priorities for things like economic development, telehealth, or whatever priorities a given State feels are the most important. To clarify a question I’ve gotten a few times – this $5 million is strictly for the state to do planning and will not be turned into planning grants for anybody else.

The whole process is then on hold until the FCC releases updated broadband maps. This is the step I’m worried about because the new broadband maps will be the first time that ISPs will be using the new mapping system. I will be surprised if the first maps from the new process are not a messy disaster – and I’m not sure what happens if they are. It’s hard to think that the FCC will be ready to release the new mapping data before the end of this year, although the agency will be under huge pressure to get this done sooner.

At this stage, the purpose of the FCC maps is to count the number of unserved and underserved homes in each state in order to decide how much funding each state will get. It won’t be surprising to see a few states sue the NTIA at this point if they feel that the maps are erroneous and that their state is getting shorted on funding – recall that many states have had mapping programs and they think they already know the number of people without broadband.

Once the amount of funding to each state is known, States must file what is being called an Initial Proposal. This is the document where the State describes how it will administer the BEAD grants. The Initial Proposal will describe the detailed grant rules each State plans to use to choose grant winners and administer grants once awarded. Each State must issue a list of areas that it thinks are eligible to meet its proposed grant rules.

The NTIA will review each Initial Proposal. That’s a daunting task, and States that get the Initial Proposals in first will probably get reviewed first by the NTIA. There is no guarantee that the NTIA will approve a plan, particularly if a State’s plan violates any of the rules specifically proscribed by Congress – such as making grant awards available to municipalities. I believe the NTIA also must judge if a State has assembled a team capable of administering the proposed grants – something that many states are already behind on. If the NTIA doesn’t approve an Initial Proposal, then I assume that the State and the NTIA will begin a negotiation process. The way I read the rules, if a State doesn’t get approved, the State won’t be given any BEAD funding.

If the NTIA approves a State’s Initial Proposal, the NTIA will then release 20% of the BEAD funding allocated to that State. The next step might be messy because a State that receives this funding must next complete a challenge process where it gives incumbent ISPs a chance to dispute any areas that are listed as grant eligible. Some challenges will be easy – such as where an ISP has built fiber since the date of the data in the FCC maps. But the experience with similar challenges in the recent NTIA grants portends a big mess for State broadband offices if huge number of challenges are mounted. This could become a protracted battle if any ISPs take unsuccessful challenges to court. Note that this is the State reviewing the challenges, not interested communities and ISPs, and we will quickly see if a given State is biased towards incumbents or communities.

Once the challenge process has been fully resolved, a State must submit its Final Proposal. This will reflect any changes made as a result of the challenge process. The NTIA must then approve the Final Proposal and will release the rest of the BEAD grant funds to a state.

This process is overly complicated and seems aimed at moving slowly – but it was dictated by Congress to be that way. It’s impossible to guess a timeline for the process. It’s hard to envision the first State being able to announce a grant program until the summer of 2023 – but I predict that most states will be later than that. For communities waiting for broadband, it’s hard to imagine much construction starting before 2024, with many projects then requiring multiple years to build.

Categories
Regulation - What is it Good For?

Revisiting the Definition of Broadband

There has been talk for over a year that the new FCC under Chairwoman Jessica Rosenworcel is planning to raise the definition of broadband to 100/20 Mbps. It looks like that probably doesn’t happen until Congress approves a fifth Commissioner.

As much of a welcome relief as that would be, I think we also need to understand that a 100/20 Mbps definition of broadband is not forward-looking and will start being obsolete and too slow from the day it is approved. I’ve always argued that we need a mechanism to change the definition of broadband annually, or at least more often than we have been doing.

Consider a few facts that ought to be part of the discussion of the definition of broadband. The first is that the need for faster speeds has been growing since the 1980s, and there is no reason to think it will stop growing today. If we accept that 25 Mbps download was a decent definition of speed when it was adopted in 2015 and that 100 Mbps is a decent definition in 2022, then that is an acknowledgment that the public’s need for speed has increased by 21% annually during those years.

As it turns out if we look back at history that the demand for broadband speed has been growing at the same pace for a long time. The FCC set the definition of broadband at 200 kbps/200 kbps in 1996 and upped the definition to 4/1 Mbps in 2010. Plot those on a growth curve, and we can see the steady and inexorable growth of broadband since the dial-up days. You’d have to be a fool to think that we’ve reached the end of that growth curve. We’re finding new ways to use broadband in our homes every year, and the demand for better broadband keeps growing.

We have other evidence that the public demand for faster broadband continues to grow. That is evidenced by the new customer adoption statistics announced by OpenVault for December 31, 2021.

Dec 2021
Under 50 Mbps 9.4%
50 – 99 Mbps 7.6%
100 – 199 Mbps 36.9%
200 – 499 Mbps 28.5%
500 – 999 Mbps 5.5%
1 Gbps 12.2%

According to OpenVault, only 17% of broadband subscribers are buying broadband products with advertised speeds under 100 Mbps. 46% of all households are buying broadband of 200 Mbps or faster – and that’s going to climb quickly as the big cable companies push faster speeds on all of their customers.

What do these statistics say about using 100 Mbps download as the definition of broadband? First, I think the market has already told the FCC that 100 Mbps is quickly becoming last year’s news. Within a year, when 60% or 70% of the public is buying broadband speeds of at least 200 Mbps, it will be obvious that 100 Mbps broadband is already in the rearview mirror for most Americans.

But we can also go back to the historic growth curve. If the demand for broadband keeps growing at the rate it’s grown since 1996, then the future demand for download speeds will be as follows:

Download Speeds in Megabits / Second

2022 2023 2024 2025 2026 2027 2028
100 121 146 177 214 259 314

Hopefully, the FCC doesn’t change the definition and then rest on its laurels. Even by the time of the next presidential election, the definition ought to be 150 Mbps, and by 2028 would be expected to grow to over 300 Mbps.

Unfortunately, the definition of broadband has political and financial overtones. It determines who can win grants. A higher definition of broadband can declare that certain technologies are no longer considered to be broadband. In a perfect world, directed by the public demand for broadband, the definition of broadband would increase every year, something like the above.

 

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