Regulation - What is it Good For?

Universal Service Fund Under Fire

There have been several lawsuits over the last few years that challenge the legitimacy of the FCC’s Universal Service Fund (USF). A suit from a non-profit group called Consumers’ Research argues that USF fees are actually taxes and that the original creation of the USF was unconstitutional since it gave the FCC the power to levy taxes.

Several lawsuits have already been decided in favor of the FCC in the 5th and 6th U.S. Circuit Courts of Appeals. But in June, the 5th Circuit, based in New Orleans, agreed to rehear the case before the full court. That hearing was held last week and press reports say that the questions at the hearing seemed to be in favor of the petitioners who want to shut down the USF.

There is also an appeal of the other rulings that are pending before the U.S. Supreme Court. There is also a case from Consumers’ Research that is pending at the 11th Circuit and the D.C. Circuit Courts.

The Universal Service Fund has been popular with the public and many politicians because the FCC has been using the USF to tackle issues that are broadly referred to these days as the digital divide. The E-Rate program provides subsidized broadband to make sure there is connectivity in the poorest schools in the country. The Rural Health Care program subsidizes broadband connections for rural healthcare clinics.

A few of the USF programs have been more controversial. The Lifeline Program was originally used to provide a discount for telephone bills for low-income homes but has been repurposed to provide broadband discounts. Critics have charged for years that the program was rife with fraud, but the FCC finally instituted a portal that does a better job of verifying eligibility. The High Cost program has provided subsidies and grants to extend rural broadband. Among the programs have been a few that are controversial such as the CAF II program that gave subsidies to the biggest rural telcos to increase DSL speeds to 10/1 Mbps, and the more recent RDOF program that allocated subsidies to unserved parts of the country through a reverse auction. The FCC is considering using this fund to expand rural cellular towers.

The biggest issue facing the USF is that the funding mechanism is inadequate. The fees that fund the USF are assessed on Interstate telephone services and traditional Interstate regulated data circuits – revenue streams that continue to shrink. The USF fee on these items has continued to creep upward to make up for the shrinking and has grown to become a 30% fee on the services.

One of the obvious fixes to the funding would be to spread the USF fee over the huge number of broadband subscriptions in the country. This makes a lot of sense since the Universal Fund is used almost entirely these days to tackle broadband gaps. But the big ISPs have lobbied heavily against the idea and have instead been pushing for the fee to be assessed to big tech companies like Amazon, Google, Meta, and Apple. The big ISPs say it would be unfair for them to subsidize the web giants, It’s an argument I’ve never fully understood since the ISPs wouldn’t be paying the fees and would pass the fees on to consumers. The big web companies have an equally powerful lobby these days and have fought against this idea. This is an argument that has been going on for several decades but has been heating up over the last year as it’s becoming obvious that the Universal Service Fund cannot remain viable with the existing funding mechanism.

The USF seems to be popular with federal legislators, but there has been no noticeable movement in Congress to fix the USF funding mechanism. The original funding mechanism was established by the FCC from authority granted by the Telecommunications Act of 1996, which is badly out of date with the modern broadband industry. Congress could fix the funding mechanism at any time, but it doesn’t seem like legislators want to choose between the big ISPs and tech companies.

All of this could be made mute if a Court rules that the way that the FCC funds the USF is unconstitutional. The USF could theoretically be shut down quickly if the funding mechanism is turned off. That would mean the end of Lifeline discounts, of broadband payments to schools, libraries, and health care clinics, and a cessation of funding for RDOF and ACAM. Congress could fix the issue by creating an actual tax instead of a fee set by the FCC – and perhaps it will take a drastic court action to get Congress to act.

Regulation - What is it Good For?

BEAD and Buy America

The NTIA recently issued a clarification of its intentions for the Buy America rules that are part of BEAD. In a blog released on August 22, the NTIA said that it still plans to take a strict approach to enforcing Buy America. In practical terms, that means that NTIA intends to only seek minor waivers from the Buy America rules.

NTIA first adopted a strict position on Buy America after the State of the Union address this year, when President Biden stressed that one of the key principles behind the Infrastructure Investment and Jobs Act, which funded the upcoming BEAD broadband grants, was to use American materials and labor.

As a reminder, the rules that determine if something is manufactured in America are included in Section 70912 of the Build America, Buy America Act. The Act requires that the iron, steel, manufactured products (including fiber-optic communications facilities), and construction materials used in a federally-funded project are produced in the United States unless a waiver is granted. That Act defines to be produced in the United States if the final product is manufactured in the United States and that at least 55 percent of the total cost of components are mined, produced, or manufactured in the United States.

The NTIA is proposing that 90% of the materials used to construct BEAD projects meet that definition. The NTIA made this recent announcement to provide incentives for fiber vendors to bring manufacturing to the U.S. for key broadband components. The NTIA says it will be leery of asking for waivers for materials that meet the following criteria:

  • Strategically important technologies that ensure the security, integrity, and reliability of network data should be produced in America.
  • If a product’s domestic manufacturing line can be scaled quickly, it should be produced in America.
  • A product, like fiber-optic cable that comprises a significant portion of the overall network cost should be produced in America.

The NTIA recognizes that some of the chips needed for broadband might not be manufactured here in time to support that BEAD grant implementation and may file a limited waiver for chips. However, there is a lot of progress being made to move chip manufacturing to the U.S. But chip factories tend to specialize in specific kinds of chips, and there may not be anybody making enough chips here for fiber electronics in time to meet the BEAD timelines.

The good news is that there is a lot of movement to build fiber electronics in the U.S. to meet the BEAD requirements. For example, both Nokia and Adtran have announced manufacturing plans in the U.S. Calix doesn’t have a U.S. solution yet but recently announced it should have one by the time that BEAD grants are awarded.

There are new fiber cable facilities being constructed by Corning, CommScope, Prysmian, and Superior Essex.

Overall, the Build America requirements don’t appear to be the big bottleneck that was feared a year or two ago. It will remain to be seen if the new U.S. manufacturing will be able to keep up with the demand from BEAD. It looks like most states are going to try to award as much money as possible in 2024, which means that construction for BEAD grants across the country will all start within a fairly narrow time window.

Regulation - What is it Good For?

FWA Cellular Speeds

One of the most interesting things about getting access to a lot of speed tests is that it provides a way to test broadband issues you always suspected but couldn’t prove. If you can collect enough speed tests, you might find proof of a lot of different things. For example, speed tests might show that a broadband network is slower in the evening than during the night – something that customers have always complained about. Speed tests might show that an ISP delivers speeds that are far slower than what an ISP claims on the FCC broadband maps.

I’ve been trying to understand the speed characteristics of FWA cellular wireless. I’ve been interviewing folks for a few years who have FWA wireless, and they all told me that speeds are fast for those living close to a tower but slower as the distance to the tower increases. For example, the first customer I talked to who was using the FWA broadband from T-Mobile is a farmer who had a T-Mobile tower on his property and got almost 300 Mbps download speeds. He was thrilled with the product compared to the much slower WISP he had been using. But when he recommended the FWA wireless to his neighbors, they received a far different bandwidth product. A neighboring farm a little over a mile away was getting speeds closer to 100 Mbps, which they also thought was good. But some farms further away said that the FWA broadband was too slow.

I heard similar stories from elsewhere, but it’s hard to make any universal statements about the FWA product based on a handful of anecdotes from different parts of the country. I recently got access to enough speed tests to understand the performance of the FWA cellular wireless product.

The map below shows a lot of speed tests from Verizon tower in a suburban county. The yellow dots on the map are the locations of actual speed tests. The colored circles on the map show the distance from a cell tower – with purple showing locations within a mile of the tower, red showing locations between 1 and 2 miles, blue/greed showing speed tests within 2 and 3 miles, and the surrounding white areas at more than 3 miles. I didn’t cherry-pick this particular tower as the best example – there are more than a dozen other Verizon towers in the same county that show similar speed test results. I must note that speed tests are not a prefect indicator of broadband performance, and there might be explanations behind some of the slower readings. But I have to think that seeing this same speed pattern around multiple tower sites is a good indication that this is how the technology works.

This map demonstrates what the farmer told me to a tee. There are some locations close to the tower getting 300 Mbps. Customers just over a mile from the tower are getting slower speeds, with the highlighted ones around 75 Mbps. By the third mile band, speeds have dropped a lot closer to 25 Mbps download, and outside the three-mile circle, speeds drop significantly. There is no easy way to tell if the customers with slower speeds are buying FWA wireless, which uses the spectrum that Verizon labels as 5G, or the older Verizon hotspots that use traditional LTE spectrum.

On the FCC map in this county, Verizon reports two speeds – 300 Mbps or 50 Mbps. It’s not easy to understand how Verizon makes the distinction, but it seems like locations for a fairly good distance around towers are claimed at 300 Mbps.

Somebody who doesn’t understand the FCC mapping rules might think that Verizon is breaking the rules by reporting 300 Mbps speeds in places where actual speeds are a lot lower. But the FCC allows ISPs to report marketing speeds for the FCC maps as long as Verizon is advertising the claimed speeds. But that doesn’t mean that the Verizon FCC reporting is ethical. Customers who might refer to the FCC map when looking for an ISP, or customers that see Verizon advertising are hoping to get something close to the 300 Mbps speed – and many will not.

I have some major concerns about cellular FWA technology related to the upcoming BEAD grants. First, any state broadband grant offices that accept the claimed Verizon speeds in the FCC mapping might not award any grants where a fast FWA speed is claimed. That would be a travesty if folks who can’t get speeds of at least 100/20 Mbps with FWA are denied another broadband option.

It’s also possible that the cellular companies will challenge grants that come close to their towers. I knew this was likely going to become an issue the day that the NTIA said that it considers wireless broadband using licensed spectrum to be broadband for purposes of the BEAD program.

It’s also possible that Verizon, T-Mobile, AT&T, and others will try to win BEAD grant funding using this technology. At least in this county, there are very few customers outside of one or two miles from a tower who can get the 100/20 Mbps required for BEAD grants.

I hope that state broadband offices take a hard look at this. Many of them have purchased detailed speed test data, and they can search around towers in the same manner done above. I don’t think it will take much investigation for them to be convinced that FWA cellular broadband can meet the speeds required for BEAD – but only for short distances from cell towers. Broadband offices should also take note that both Verizon and T-Mobile warn customers that speeds can be throttled any time there is increased demand for bandwidth from cellphones.

I am not busting on the cellular FWA technology. If I was in a rural area without a good broadband alternative, I’d buy this product in a second. But I’d be unhappy if I was hoping for 300 Mbps and got 25 Mbps. What is being deployed today is the first generation of the technology, and I assume that it will improve over time. My only concern is the timing of the rollout of this new technology and how it might negatively affect an already complicated BEAD grant process.

Regulation - What is it Good For?

FCC Considering New Rules for Data Breaches

Back in January of this year, the FCC issued a Notice of Proposed Rulemaking in WC Docket No. 22-21 that proposes to change the way that ISPs and carriers report data breach to the FCC and to customers. The proposed new rules would modify some of the requirements of the customer proprietary network information (CPNI) rules that were originally put into place in 2007.

Since the 2007 CPNI order, all fifty states have adopted a version of the CPNI rules as well as rules from federal agencies like the Federal Trade Commission, the Cybersecurity and Infrastructure Agency, and the Securities Exchange Commission. The FCC is hoping to strengthen the rules on reporting data breaches since it recognizes that data breaches are increasingly important and can be damaging to customers.

The FCC completed a round of initial and reply comments by the end of March 2023, but is not expected to make a final order before the end of this year.

The current FCC rules for data breaches require carriers to notify law enforcement within seven days of a breach using an FCC portal that forwards a report to the Secret Service and the FBI. After a carrier has notified law enforcement, it can opt to notify customers, although that is not mandatory. One of the reasons this docket was initiated is that carriers have kept quiet about some major data breaches. The new rules would require carriers to provide additional information to the FCC and law enforcement. The new requirements also eliminate any waiting period, and carriers would be required to notify law enforcement and customers “without unreasonable delay”. The only exception to rapid customer notification would be if law enforcement asks for a delay.

The FCC is proposing new reporting rules that it says will better protect consumers, increase security, and reduce the impact of future breaches. There was a lot of pushback from carriers in comments to the docket that centered on two primary topics – the definition of what constitutes a data breach, and the requirement of what must be told to customers.

The FCC wants to expand the definition of data breach to include the inadvertent disclosure of customer information. The FCC believes that requiring the disclosure of accidental breaches will incentivize carriers to adopt more strenuous data security practices. Carriers oppose the expanded definition since disclosure would be required even when there is no apparent harm to customers.

Carriers also oppose the quick notification requirements. Carriers argue that it takes time to  understand the breadth and depth of a data breach and to determine if any customers were harmed. Carriers also need to be working immediately after discovering breach to contain and stop the problem.

Carriers are opposed to the FCC suggestions of what must be disclosed to customers. The FCC wants to make sure that customer notices include everything needed for customers to react to the breach. Carriers say that assembling the details by customer will take too long and could leave customers open to further problems. Carriers would rather make a quick blanket announcement instead of a detailed notice to specific customers.

One of the interesting nuances of the proposed rules is that there would be two types of notifications required – one for inadvertent leaks and another for what the FCC calls a harms-based notification. This would require a carrier to notify customers based on the specific harm that was caused.  Carriers were generally in favor of the harms-based approach but didn’t want to confuse customers by notifying them of every inadvertent breach that doesn’t cause any harm.

Consumer advocates opposed allowing only the harm-based trigger, because it allows a carrier to decide when a breach causes harm. They fear that carriers will under-report harm-based breaches.

These rules would apply to all ISPs and carriers, regardless of size. While it might still be some months before any new rules become effective, small ISPs ought to use this impending change as a reason to review data security practices and the ability to notify customers.

Regulation - What is it Good For?

Revisiting the BEAD Letter of Credit

I recently agreed to sign a letter to the NTIA that asks the agency to eliminate the BEAD requirement that grant recipients must have an irrevocable standby letter of credit (LOC) to apply for a BEAD grant. This letter was signed by over 300 folks in the industry including ISPs, local government, policy experts, and industry associations. I sign very few documents like this, but the letter of credit requirement is a terrible policy – and is a big concern to many of my clients.

To explain an irrevocable letter of credit in plain English, anybody winning a BEAD grant must set aside almost the same amount of cash as the amount of grant matching from the day that the grant is awarded through the completion of the grant construction process.

A letter of credit to satisfy the NTIA must come from an FDIC bank with Weiss rating of B- or better for 25% of the award amount. A letter of credit is a specific kind of negotiable instrument where a bank guarantees that the bank will fund any shortfalls if a grant fails in its financial obligation. If a grant applicant fails to complete the construction of the grant, the money in the LOC would likely be claimed by NTIA or the state grant office (still unclear on the details).

Banks will not issue a letter of credit without having liquid assets or collateral equal to the amount of the LOC. That means a grant applicant must not only have enough cash or borrowing for its grant matching fund commitment, but the applicant must also set aside a large amount of hard cash as a guarantee for the LOC. The letter to the NTIA uses an example of an ISP that want to fund a $10 million project using a 75% BEAD grant. In this example, the ISP would get $7.5 million from the grant. It would need to have $2.5 million available for the matching fund. It would need to set lock up another $2.1 million for the letter of credit. That makes it incredibly expensive for an ISP to seek a BEAD grant. And FYI, this example is too conservative – grant recipients also must finance the operating costs of launching a grant project since those expenses are not covered by grants.

To make matters even worse, banks charge interest on a letter of credit because the bank must set aside a corresponding portion of its own equity to support the letter of credit. The cashed tied up by a bank for an LOC can’t be used to make other loans – so the bank must charge interest.

This is a huge problem for many reasons. Anybody but the largest ISPs will have a hard or impossible time getting a letter of credit. Most ISPs don’t accumulate cash because the best use of cash for most ISPs is to continue to build more infrastructure. A large percentage of ISPs will not have the cash available up front to support the letter of credit. Many cities and municipalities are legally barred from buying a letter of credit.

There is some question if the banking industry as a whole is willing to float over $10 billion in letters of credit for BEAD grants. The banking industry is under a huge amount of stress due to high interest rates. Banks are far less interested in making any kind of infrastructure loans today when interest rates are high – because the bank’s risk is much higher than normal. I know ISPs that have been told by their current bank that they are not interested in issuing a letter of credit – and the chance of getting a LOC from a bank that doesn’t know an ISP is slim.

There is no reason for this requirement – or at least no reason for it to be so draconian. The NTIA is insisting on a letter of credit because it doesn’t want to be embarrassed by projects that don’t get completed. This requirement is a massive advantage for large ISPs over smaller ones, but even large ISPs hate this requirement. There are many successful broadband grant programs that don’t require a draconian letter of credit. There are other ways to provide assurance to a state grant office, like performance bonds or issuing grant funds in tranches as milestones are met.

Hopefully, the press from this letter will get the NTIA to reconsider its position. The requirement for the extreme version of a letter of credit is overkill. The letter of credit is going to stop a lot of ISPs from being able to ask for BEAD funds – the local ISPs that customers prefer. Maybe most germane is that requiring a letter of credit might actually drive more projects to fail as ISPs struggle to support the interest payments on an LOC.

Regulation - What is it Good For?

One More Mapping Challenge

There is still one more upcoming map challenge to try to fix errors in broadband maps for purposes of the upcoming BEAD grants.

The NTIA is requiring state broadband offices to have one more mapping challenge at the state level before the state can issue broadband grants. The NTIA issued a sample template for a state challenge process, but each state is allowed to develop its own challenge process. States are not required to wait for an update in the FCC mapping system before using any updated information when awarding grants.

The NTIA suggests that challenges can be made by ISPs who are considering asking for a BEAD grant. NTIA also suggests that states accept challenges from the public, and I assume that includes challenges from cities and counties as well.

This is the challenge that a lot of folks have been waiting for because there are still a lot of inaccuracies in the FCC maps. While some states did a vigorous review of the FCC maps and asked for map updates – many states did not. Some counties also put an effort into correcting the FCC maps – but many did not. This is the final chance to get locations declared as eligible for BEAD grants. I assume that States will not accept locations for BEAD grants that are not in the corrected maps.

This challenge is also the one that folks have been waiting for since the NTIA suggests that there can be a challenge against the claimed broadband speeds. A lot of the early map challenges had to do with getting the mapping fabric right – which is the database that is used to define the location of the homes and businesses in the country.

My consulting firm has been working with communities, and we are still seeing a lot of inaccurate information. In every county we have examined, we find ISPs claiming speeds of 100/20 Mbps or faster that are not supported by Ookla speed tests. We’re also finding coverage errors in the maps where ISPs are reporting homes as covered that are not. A lot of the earlier challenges fixed coverage problems that were grossly incorrect, but it takes a lot more effort to find smaller pockets of ten or twenty homes that can’t buy good broadband but for which some ISP claims coverage.

Many of the problems in the FCC maps are directly due to the FCC rules for ISPs to report broadband for the maps. ISPs are allowed to claim marketing speeds for broadband instead of the actual speed delivered. There are far too many cases where the advertised marketing speed is much faster than what is being delivered. ISPs can also claim areas as covered by broadband where the ISP can supposedly provide broadband in ten working days. Finally, we often find ISPs claiming broadband coverage where an engineering field review doesn’t find any of the claimed technology.

The mapping is only an issue for BEAD because the IIJA legislation that created the BEAD grants insisted that FCC mapping must be used to allocate grants. I’m sure that language was inserted into the legislation at the insistence of the big ISP lobbyists to make sure that grant funds were not used to ‘overbuild’ existing broadband. At the time the IIJA legislation was passed, the FCC maps were atrocious. They have now been improved to the point where I would say they are now merely dreadful – but nobody believes the FCC maps are accurate. Most people only have to look around their immediate neighborhood on the FCC maps to find a few overstatements of coverage. My team has looked in great detail at perhaps a dozen counties and found a lot of mapping errors. I can’t even begin to think what that means on a national scale.

Unfortunately, most people in the country have no idea how this complicated BEAD process works. After the grants have been awarded, I expect we’ll start to hear from unserved homes that are not going to be covered by a BEAD grant. I believe this is going to be a lot more homes than anybody at the NTIA, the FCC, or state broadband offices wants to acknowledge.

Hopefully, the ISPs who want to file BEAD grants will take a shot at cleaning up the map errors now. That’s the only way to get grant funding for locations that are underserved but which don’t show that on the FCC maps. Everybody interested in doing this needs to pay attention to the state broadband office. States will first issue a plan to the FCC describing the way it will conduct the mapping challenge. These plans will likely have a 30-day opportunity for public comments. If you don’t like the map challenge rules, holler! Sometime later, states will hold the mapping challenge, and most will likely have a narrow time window to file challenges.

Regulation - What is it Good For?

Defining Affordable Broadband

One of the requirements for the $42.5 billion BEAD grants that come directly from the Infrastructure Investment and Jobs Act legislation is that broadband should be affordable for middle-class families. The specific legislative requirement is that, “High-quality broadband services are available to all middle-class families . . . at reasonable prices.” The NTIA that oversees the BEAD grants has not defined a benchmark for an affordable middle-class price, so State broadband offices are on their own to decide how to handle this requirement.

Pew Charitable Trusts took a shot at defining affordable middle-class broadband in a recent study. Pew based affordability upon an FCC study in 2016 that concluded that the average middle-class family can afford to pay as much as 2% of household income on broadband. Pew is not recommending that States automatically adopt the 2% definition – instead, they looked at how that benchmark would be calculated in various parts of the country.

Pew defined middle-class household incomes to be between $40,000 and $150,000 annually. That’s a somewhat simplistic assumption in that the definition of middle-class also depends on the number of family members. Pew found that between 51% (in the South) and 57% (in the Midwest) of households are classified as middle-class using that income range.

Household incomes vary significantly across the country – but so does the cost of living. The Pew article calculates the monthly affordable broadband rate set at 2% of average middle-class incomes for both states and regions. The results are interesting. The highest affordable rate using the 2% definition is in the Northeast at $107.65 per month. In the South, the rate would be $84.79. The national average affordable rate set at 2% is $93.21. States vary even more widely – the highest affordable rate at the 2% benchmark is in Rhode Island at $150.73 per month, and is lowest in Mississippi at $68.53.

One of the reasons that Pew doesn’t like the FCC’s 2% definition is that there are a lot of middle-class homes that can’t afford the rate that would be established for their state or region. For example, 28% of middle-class homes in the Northeast that are considered to be middle-class could not afford the $107.65 rate.

Pew shows that States have another challenge in trying to meet this grant requirement. States have no good data on existing rates for broadband. ISPs have a wide array of ways that they price broadband that includes offering special rates to some customers for term contracts, burying broadband rates in a bundle so that nobody knows what broadband costs, and adding hidden fees like an expensive modem in order to buy broadband. It’s hard to set a benchmark rate for broadband when it’s nearly impossible to define what the public is paying today for broadband.

The big question is how States might use an affordable middle-class rate. Federal, state, and local governments have no regulatory authority to set or approve broadband rates. The FCC theoretically had this ability until the Ajit Pai FCC eliminated Title II regulatory authority over broadband. However, no past FCC ever considered regulating broadband rates, even when they had the authority.

This raises the question of what a States might do once it determines an affordable middle-class rate. A broadband office can’t require that ISPs have rates under any benchmark it establishes. It even seems problematic if a broadband office uses prices as one of the criteria for awarding grants.

The first day I read the BEAD grant legislation, I knew that middle-class affordability requirement was going to be a challenge. I’m not sure there is a good answer for how a State can do this, and I’m sure they are all still puzzled.

Regulation - What is it Good For?

The Power of a Letter of Support

The newly released Virginia proposed BEAD grant rules highlight an issue that was included in the original grant rules. The BEAD grants give significant power to local governments through local letters of support.

ISPs have always asked for letters of support for broadband grants, and most communities have handed them out like Halloween candy. There was no reason not to support anybody who wanted to build better broadband, so a community would reflexively give a letter of support to most ISPs who asked for one.

The BEAD grants are different, and communities need to carefully weigh giving letters of support. The Virginia BEAD grants rules – and I think most other states as well – are going to award a significant amount of grant scoring points for an ISP that gets a local letter of support. In the Virginia grant scoring, a letter of support represents 10% of the total points needed for an ISP trying to win a grant.

Since most BEAD grants are going to be awarded in rural areas, County governments are the local government entities that will matter the most for BEAD. A County needs to carefully think about the ISPs it want to support – if the County provides a local support letter for only one ISP, that ISP has an instant advantage over other ISPs in the grant scoring.

If a County gives every ISP a support letter, it’s the same as if you endorsed nobody because all ISPs will score the same in the BEAD grant scoring.

I’ve been working with counties all over the country, and many of them have a strong preference for who wins the grant funding. For instance, a County might have a strong preference for supporting fiber over wireless technology. A County might prefer to support local ISPs over large ones, or support a large ISP already operating in the County over a newcomer. Counties often have a strong preference, and the letter of support is a way to express these wishes.

The Virginia BEAD grant rules are also interesting because the State gives grant scoring points to ISPs that visit with local governments and explain who they are and their plans. There is no guarantee that other states will have the same requirement, but it’s a good one. If a County is going to decide which ISPs you want to support, you need to meet and hear from them. ISPs pursuing BEAD grants will differ in important ways. Technology differences are one obvious way, but there are many others. Counties care a lot about broadband prices and might strongly prefer an ISP that promises low rates. A County might care about issues like the location of technicians and customer service – will there be jobs created in the County?

If a County government wants to use the letter of credit to its best advantage, the County will have to choose the ISP or ISPs you are willing to support. Even if ISPs are not required to visit you, like in the Virginia rules, you are going to want to talk with them. In the past, I’ve seen ISPs ask for letters of support a week before grants are due – that is not going to cut it if the letter of support means something.

The bottom line is that BEAD grant rules are giving a County a power it never had before – a chance to influence who wins broadband grants. This is the equivalent of a County voting for the ISP it wants to win the grant – the County will be helping to pick winners and losers.

The one downside to the process is that it won’t be particularly comfortable for a County to tell some ISPs they won’t get a support letter. But if a County has a strong preference about who will provide broadband for the next fifty years, it should exercise this power.

Counties need to read the State broadband grant rules when they are published to understand the importance of the letter of support. A County has power if the grant scoring rules award points to an ISP for having a local letter of support.

Regulation - What is it Good For?

Virginia’s Proposed BEAD Grant Rules

Virginia just published its draft BEAD proposal that defines how the state plans to make BEAD grant awards. Virginia will be awarding almost $1.5 billion in BEAD grants using these rules. The plan is still a draft. Next is a public comment period on the proposed rules, and the final draft of the plan will have to be approved by the NTIA. But even as a draft, this is my first real peek into how the BEAD grants might happen. Note that each state is a distinct plan, and some of the features in the Virginia rules might not be in other state plans. This summary is from my first quick reading of the Virginia plan, so forgive me if I missed important nuances.

Following are some of the most interesting things about the Virginia plan:

  • Virginia plans to ‘deconflict’ multiple grants that ask to serve the same geographic area by requiring all grant applicants to file a pre-application that defines the areas they plan to serve. This will allow the state to determine distinct application areas before the full grants are due. The plan discusses a secondary process to find ISPs to serve areas where nobody has asked for grant funding.
  • Virginia plans to post everything filed by ISPs online. One of the biggest complaints about many past grants is that the process was done behind closed doors. It looks like Virginia is going to make everything available to the public. It will be interesting to see if they will allow for things like financial information to be kept confidential.
  • Virginia has a goal of awarding all of its BEAD money in 2024. I read this to mean that there will be only two grant steps – every applicant will file a pre-application with maps, and once the State has digested the maps, ISPs file the full application – this means one big grant round for everybody at the same time.
  • I think folks are going to be intrigued by the grant scoring. It’s different than any other grant I can recall. Virginia has two slightly different scoring plans, and here is the first one:
    • 45% for Program Outlay. This is essentially a one-round reverse auction. If more than one ISP asks to serve the same area, the ISP with the lowest cost per passing will get the full 45 points, and other applicants will get fewer points based on how much more they are requesting from the grant program. This has to be a concern for anybody who is thinking of asking for a full 75% grant.
    • 20% for Affordability. This is going to be based on the proposed price for a symmetrical gigabit of service. To get points, the price must be at or below $100. Prices are compared between applicants asking to serve the same area.
    • 10% for Fair Labor Practices. This will be based on the history and the proposed commitment to compliance with Federal labor and employment laws.
    • 5% for Speed of Deployment. Timelines for construction will be compared after accounting for delays such as complying with things like environmental studies.
    • 10% for a Local Consulting Meeting. An ISP must meet with local or tribal governments to explain its qualifications and plans for deploying BEAD.
    • 10% for Local Letter of Support. This requirement gives a lot of power to local governments. A government that only supports one ISP gives that applicant a big boost in grant scoring
  • All of the other BEAD requirements are not part of the scoring. Instead, it seems there will be a checklist of mandatory requirements. This includes a long list of BEAD requirements like environmental studies, extremely high-cost area plans, the technology being used, the letter of credit, the history and capability of the ISP, binding commitments from labor, credentialed workforce, affirmative action for vendors, climate plan, middle-class rate plan, cybersecurity, supply chain management, etc.

Since it’s hard to imagine an applicant not holding the local meetings, the rest of the scoring is a 90-point scale. Half of the grant scoring comes from the willingness to take the lowest level of grant funding. The next important is affordable rates. The local letter of recommendation takes on a high importance.

Since everything is going to be published and transparent, Virginia’s scoring plan seems to eliminate almost all discretion from the state grant office in choosing winners. I read this scoring to say that whoever gets the most points in a given grant area will win the grant.

It’s impossible to tell with these high-level rules how scoring will account for differences between ISPs. For example, how will these rules account for technologies that deliver different speeds? I assume before grants are due that the scoring will be explained in more detail.

These rules also open other big questions. Will there be a chance for a local community to prove that the FCC maps are still wrong, or will grant applicants be limited to asking for grants for areas shown as unserved and underserved on the latest FCC map?

In closing, note again that these are the proposed rules for Virginia – but no other state. Other states might use a totally different philosophy for scoring. I know there are states that are considering multiple rounds of grant applications. These rules are also a draft and could change in Virginia before they are final. But this is one view of how the BEAD grants will work – and it’s totally different than what I expected.

Regulation - What is it Good For?

Increasing the ACP Subsidy

I’m puzzled by the recent change to the Affordable Connectivity Program (ACP). The FCC recently implemented an increase in the monthly ACP subsidy in qualifying high-cost areas from $30 to $75. The reason for the change is easy to understand – this was codified in the Infrastructure Investment and Jobs Act legislation. The legislation required higher ACP payments be higher in  areas of the country designated as high-cost.

The NTIA has been working with State Broadband Offices to designate the high-cost areas in each state – because such areas are also eligible for special treatment and consideration in the upcoming BEAD grants. Now that high-cost areas are being defined, the FCC can implement the legislatively mandated ACP change.

What puzzles me is why this was in the legislation. The concept seems to be that areas with higher costs need additional support. To quote the recent FCC order on the increase, “the $75 monthly benefit would support providers that can demonstrate that the standard $30 monthly benefit would cause them to experience “particularized economic hardship” such that they would be unable to maintain part or all of their broadband network in a high-cost area”.

I agree with the concept that areas with particularly high costs might need some kind of broadband subsidy. For example, this is a big piece of the rationale for subsidy programs like ACAM.

But the extra ACP subsidy doesn’t help ISPs. ISPs use the ACP program to discount customer rates and then get reimbursed for the customer discount from the ACP funding provided by Congress. Whether the discount is $30 or $75, this is a net wash for the ISP. None of this support goes to the ISP and all of the benefit flows directly to the customer. It appears to me that the folks who wrote the legislation thought the ACP benefits ISPs and not low-income households.

I have a hard time rationalizing why this extra discount is only given in high-cost areas. Isn’t a low-income household located elsewhere just as worthy of extra help?

I guess you can make the argument that having a larger discount will make it easier to add more low-income customers to the network – and that would improve revenues for a rural ISP.

But realistically, having a higher customer discount also puts an ISP at greater risk if the ACP subsidy ever stops. The ACP discount only applies to customers who can demonstrate they are low-income or that they take part in one of several social programs. If a customer is getting free broadband because of a $75 ACP subsidy, is that customer going to be able to suddenly start paying for broadband if the ACP subsidy ends? That’s a valid question to ask since it looks like the ACP fund will run out of money some time in the second quarter of next year.

This extra subsidy would a little make more sense if ACP was a permanently funded program. But it seems like a rural ISP can be badly harmed if it relies on ACP and suddenly loses a lot of customers if the ACP fund runs dry.

I’m sure that the folks who drafted this requirement had good intentions, and some of the envisioned benefit might materialize if ACP is permanently funded. With a permanent ACP, ISPs in high-cost areas could justify making the effort to connect low-income households to broadband. But I have to advise ISPs not to aggressively pursue getting folks connected to the $75 ACP subsidy because the ISP stands to lose most such customers if the ACP program ends. There is a fixed cost to add a new customer to the network, and an ISP adding a new customer today won’t even recover that initial cost if the ACP subsidy ends early next year.

Perhaps the folks who inserted this language into the IIJA assumed that ACP would be so beneficial that Congress would permanently fund it past the end of the IIJA funding. But unless that commitment is made soon by Congress, I find it impossible to advise small ISPs to enroll new ACP customers.

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