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.

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.

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.

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.

Who’s In Charge of Broadband?

On July 24, the FCC authorized a new subsidy program, Enhanced A-CAM (Alternate Connect America Cost Model). This program will extend subsidies to small, regulated telephone companies at a cost of about $1.27 billion per year for ten years. The subsidy will be paid from the FCC’s Universal Service Fund.

The funding requires recipients to deploy voice plus broadband with speeds of at least 100/20 Mbps to 100% of the areas covered by the subsidy within four years. The order is technology neutral, so telcos could elect to meet this requirement with fiber or with licensed fixed wireless technology.

According to Mike Conlow, this order will bring broadband to almost 583,000 unserved or underserved locations that are already covered by the NTIA’s BEAD grant footprint. Today’s blog talks about the absurdity of the FCC making this announcement only weeks after the NTIA announced the distribution of the $42.5 billion in BEAD funds to states. This means that two U.S. agencies both announced funding to cover the identical half-million locations within a month of each other.

Think about what this means. A state that has some of these A-CAM locations was allocated BEAD grant money to bring broadband to these areas. The FCC order is then directly funding to build broadband to the same passings. This means that a state that has a lot of unserved and underserved A-CAM passings is getting a funding windfall. Conlow estimated that this double funding is bringing a funding windfall of $180 million to Nebraska – the state with the most unserved and underserved A-CAM locations. The downside of this is that if Nebraska and other states are getting a windfall from the FCC decision, then other states are receiving less BEAD funding than they would have if these locations had been excluded from BEAD before the NTIA allocated the $42.5 billion.

The FCC’s A-CAM order was released only three weeks after the NTIA announced the BEAD allocations to states. There is no way that the FCC didn’t do this deliberately. The FCC could have asked the NTIA to take these locations out of the BEAD process so that the $42.5 billion would have been allocated fairly.

Two years ago, the Biden administration directed the FCC, the NTIA, and the USDA to coordinate everything associated with federal funding for broadband. The FCC’s actions with this decision are the exact opposite of coordination.

I speculate that the FCC did this to reclaim relevance in the discussion of who is helping America solve the rural broadband gap. The FCC has taken a lot of criticism in recent years for botching the RDOF funding process and handing out wasted billions to the big telcos in the CAF II subsidies. The FCC was also largely cut out of the biggest effort ever with BEAD grants to solve the rural broadband gap, and that had to sting. The FCC can now say to the folks living in the A-CAM areas that it provided the funding to bring better broadband instead of the NTIA. I’m picturing FCC ribbon cuttings for projects that launch fiber in these areas. I can’t think of any other reason that this order would have been released so soon after the NTIA announcements of BEAD funding for each state.

The NTIA should react to this announcement by reallocating the BEAD funding to states because for every state that got a windfall like Nebraska from the FCC’s A-CAM order, other states received less BEAD funding. Unfortunately, reopening the allocation process could open a can of worms, so that likely won’t happen.

In my mind, the FCC has become a loose cannon due to its control of the Universal Service Fund. The USF for all practical purposes is a big slush fund that gives the FCC the ability to tackle anything it wants, outside of any control by Congress or the White House. After this announcement, it wouldn’t shock me to see the FCC announce another round of RDOF funding in the middle of the BEAD grant process next year.

Grant Funds are Still Taxable

In October 2022, I wrote a blog about a bipartisan attempt to exempt broadband grant funding from being taxable income. Unfortunately, Congress has still not moved this legislation forward. Any company pursuing any federal, and most state grants need to be aware of the tax implications.

In 2022 there was an attempt to push this through during the lame-duck session between the old and new Congress being seated. When that failed, there was a bipartisan bill introduced in both the House and Senate in February 2023, and those bills are still languishing.

On the House side, Representatives Jimmy Panetta (D-CA) and Mike Kelly (R-PA) introduced H.R. 889 – The Broadband Grant Tax Treatment Act. On the Senate side, Senators Mark Warner (D-VA) and Jerry Moran (R-KS) introduced an identical bill, S.341. Both bills would amend the federal tax code so that grants received from the Infrastructure Investment and Jobs Act and the American Rescue Plan Act will not be considered to be taxable income.

This would cover any funding that ultimately derived from ARPA funding, and I have to assume that it covers both state and local government grant awards made using ARPA funding. This would also presumably exempt ReConnect and NTIA grants that were funded through those two federal laws. But it might not exempt ReConnect funds that were directly funded in an Agricultural bill. The tax exemption would be retroactive for eligible grants awarded in 2021 and 2022.

In the past, the IRS had the authority to excuse grants from being taxable, and the agency excused the taxes on grants made from the NTIA’s 2009 BTOP and BIP grants. But the IRS lost that authority in the 2018 Tax Cuts and Jobs Act. It now takes specific action from Congress to forgive tax on grant income.

Most grant revenue is taxable. This makes sense because the majority of government grants are made to cover salaries for people like researchers – such grants are taxed as personal income like any other source of payroll. But there is a good argument to be made that grants for infrastructure are different. The whole point of the current broadband grants is to build infrastructure. A huge portion of the IIJA funding goes towards the labor of building a broadband network, a road, a bridge, a dam – and those payrolls from the grant funding are fully taxable. Most of the materials used in the grants are supposed to be made in America, and the profits from selling those materials is also taxable.

Fully taxing the infrastructure grant money and then also taxing the payrolls of the folks who build the grant-funded project feels like double taxation to me. We don’t tax corporations on gross sales. Corporations only pay taxes on profits, but most of the tax from sales to corporations comes from the taxes on the salaries paid to employees.

An argument can be made that grant revenue used for infrastructure isn’t taxable – but it involves an understanding of accounting to understand this. Corporations don’t get to immediately write-off the cost of building an asset. The cost of an asset, like a fiber network, is recognized as a tax deduction over time through depreciation. If a corporation depreciates a fiber network over thirty years, then it claims a little piece of the fiber asset as an expense for each of the thirty years.

But saying that an ISP will eventually get the money back ignores the practical impact of making infrastructure grants taxable. Grant money is given to ISPs as they build the network. If it takes three years to build a grant-funded fiber route, then the corporation gets the grant award spread over those three years. In each of those years the grant money is considered to be income. Assuming the corporation is already profitable, it will have to pay a 21% federal tax each year on the grant award. States with a state income tax will also expect the tax payment.

For sake of simplicity, let’s assume the total tax liability is 25%. If an ISP accepts a $40 million BEAD grant, it’s going to owe $10 million in taxes. Over the thirty years of deprecation its tax liability will theoretically get this money back, but the company will be required to write a big check to the tax authorities over each of the first three years. Note that taxes are more complex than this and that’s a simplified explanation.

That is a huge penalty for an ISP for taking grant funding. The company will have already made a 25% matching contribution to the grant project, which would be roughly be $13.3 million. In this simplified example, the ISP will have had to come up with $23.3 million to accept a $40 million grant.

This have huge implications for an ISP. First, while banks might fund the 25% grant matching, they are going to leery about funding the tax liability. ISPs in general don’t carry a lot of cash, so coming up with the tax liability is a big problem. This also makes the project a lot less profitable. My math shows that most rural grant projects are only minimally profitable even before considering this extra tax. BEAD grant areas, by definition, are sparsely populated, meaning there is not a huge amount of revenue generated. I honestly have not looked at a rural broadband project that could absorb this extra tax cost.

This extra taxation makes it a lot harder to justify taking a broadband grant. ISPs consider grant projects because they add customers and increase economy of scale. But nobody wants to take on a grant project that is a cash loser.

I can’t find any news about the topic. The House and Senate web sites show the bills still stuck in the Finance Committees. Perhaps this issue has been rolled into some other piece of legislation, but the folks I know who follow this haven’t heard about anything like that. If this legislation is still stuck in limbo, ISPs need to reach out to their congresspeople to reiterate the dire results of keeping these grants as taxable income. If this is not solved, it’s one more reason that many ISPs won’t be able to take BEAD grants. Only those ready to take on the extra tax liability can justify it – and most ISPs I know can’t afford this extra cost.

Cable Companies and BEAD Grants

The BEAD grant establishes a clear definition of areas that are eligible for grants as any place where broadband speeds are less than 100/20 Mbps. During the lobbying of creating the IIJA legislation that created the BEAD grants, the cable companies and WISPs lobbied hard to get that speed definition when there were pro-broadband members of Congress wanting to set that definition at 100/100 Mbps.

I’ve been wondering lately how State Broadband offices are going to deal with cable companies that don’t meet that speed today. In working around the country, I keep encountering cable networks that don’t meet that definition.

Some of the areas served by cable companies are clearly grant eligible. While the big cable companies have all said that they’ve upgraded all of their networks to be fast, there are still tiny systems owned by the big cable companies that are using older technologies. We were recently working in a county in New Mexico where Comcast was still reporting 50 Mbps speeds for a cable network in the county seat. This system was still operating at DOCSIS 2.0, but to Comcast’s credit, it is finally upgrading the technology to the latest DOCSIS 3.1. If Comcast didn’t make this upgrade, this network would be eligible for BEAD funding.

But the issue that is more normal is cable networks that don’t meet the 20 Mbps upload speed test. I’m seeing a lot of networks, particularly in county seats in smaller counties where the upload speeds can’t deliver 20 Mbps. Should an area where the cable network is only delivering 10 Mbps or 15 Mbps upload be eligible for BEAD grants?

In most cases, the cable companies report the upload speed as exactly 20 Mbps in the FCC maps. But speed tests often show that few households meet that speed. I’m working with a few communities that are up in arms over this because many of the homes and businesses struggle with the restrictions that come with slow upload speeds.

Businesses have embraced functions that need upload speeds. They might want to allow multiple employees to conduct separate Zoom calls at the same time. Businesses have embraced software that operates in the cloud that requires constant upload connections. Businesses have converted to VoIP and need upload bandwidth to maintain telephone calls. Businesses use security systems that upload videos from security cameras to the cloud. I’ve interviewed dozens of businesses that say that they feel restricted by problems with upload speeds – particularly on older networks with a lot of jitter and latency.

Communities are confused about how to deal with this issue. I’ve not heard of any communities served by a cable company that got reclassified as underserved in the flurry of map challenges over the last six months – if readers know of any such reclassifications, I’d love to hear about it. Many communities are hoping that State Grant offices will be open to allowing for BEAD grants in these communities – but that feels like a big uphill battle.

The reality is that when an ISP declares in the FCC broadband maps that it is exactly meeting one of the speed thresholds of either 100 Mbps download or 20 Mbps upload, there should be an opportunity for a community to challenge the FCC maps.

Clearly, a local cable network delivering 10 or 12 Mbps upload speeds does not meet the definition of being served. But I have to wonder about the practical chances of somebody getting a BEAD grant to overbuild such a community.

Broadband Grants and Affordable Rates

One of the things that I don’t hear discussed enough is that some of the ISPs chasing rural broadband grants have high broadband rates. I’m curious how much emphasis State Broadband offices will put on the retail rates of grant applicants when evaluating grant winners.

The two most easily identified ISPs with high broadband rates are Charter and Comcast. Charter rates for standalone basic broadband are now over $90 in many markets, and Comcast is nearing $100 per month. Both ISPs don’t give any indication that they are going to slow down with annual rate increases. In fact, now that broadband customer growth has slowed, rate increases are the best path for these companies to satisfy Wall Street expectations.

But these two companies aren’t the only expensive ISPs that are winning grants. Any other big cable companies that will be pursuing grant funding have rates similar to Charter and Comcast. Many of the RDOF winners have high rates. Nextlink has affordable slower speeds but charges $100 for 300 Mbps – the starting speed for cable companies. Resound Networks currently charges $99 for 100 Mbps. I’ve seen several smaller RDOF winners with base rates starting around $100.

We already know that the high broadband rates of the cable companies in cities are a major factor in the growth of broadband deserts where many households can’t afford broadband. Numerous studies have shown a direct correlation between household income and broadband adoption – high rates make it harder to afford broadband.

To be fair to the big cable companies, most have special low rates for low-income residents, but that also comes with slower speeds. But I have to wonder if cable companies will be as willing to connect low-income homes on a newly built fiber network where it can easily cost over $1,000 to add a new subscriber. It’s relatively inexpensive in cities to add a customer to a coaxial cable network, but will the cable companies be willing to make a significant investment for homes that will have low rates that will take many years to break even?

A lot of ISPs participate in the FCC’s ACP plan that gives low-income subscribers a $30 monthly discount. But the funding for that program will be gone around the end of the first quarter of 2024, and it’s anybody’s guess if a divided Congress will approve the continuation of a low-income program.

What is not being discussed enough is that most of the ISPs that participate in ACP or have their own low-income plan don’t aggressively push saving to low-income households. It’s easy for public relations purposes to have these programs but not let customers know the discounts exist. The ISP that brags the loudest about serving low-income households is Comcast. The company’s website says that it has brought its low-income product to 10 million people since 2011. That’s impressive and probably equates to something like 4 million homes. It’s less impressive when you realize that Comcast passes over 61 million homes. ACP is eligible to homes with household incomes up to 200% of the level of poverty. My quickie estimate is that perhaps 13 million homes in the Comcast footprint are eligible for the ACP discount (I’d appreciate other estimates).

But back to high rates. There is a significant level of poverty in many rural areas. In the states I’ve been working in recently, the level of poverty in rural counties is generally higher than the statewide average. How much good are we doing for rural counties when we fund broadband networks where the rates will be over $90? Even with the ACP discount the cost of broadband will be over $60.

I contrast this to many cooperatives and even the larger telco overbuilders. Most of them have broadband rates in the $60 – $70 range. If I’m a rural customer and some giant ISP is going to bring fiber using grant money, I’d prefer the rates from AT&T or Frontier over the big cable companies. But the surveys I’ve done show that folks prefer local ISPs over big ISPs – they are hoping that grants will go cooperatives, small telcos, and other local ISPs.

I expect the BEAD grants will have the most complicated scoring of any broadband grant program ever. There are so many requirements for qualifying for a BEAD grant that it’s hard to think broadband rates can play a significant role in determining who wins the grants. That’s unfortunate because, in the long run, rates might be the most important factor for an ISP that comes to a rural area.

FWA Mapping and BEAD Grants

There is one mapping issue that unfortunately messed up the NTIA’s count of eligible passings for BEAD, grants and that is going to be a real concern for folks who file BEAD grants. Over the last year, both T-Mobile and Verizon have activated rural cell sites that can deliver home broadband using licensed cellular spectrum that can be 100/20 Mbps or a little faster. According to the way that the NTIA and the BEAD grants determine grant eligibility, these locations are considered as served.

There are several reasons why this is going to be a practical problem in the BEAD grant process. First, the claimed areas claimed by the cellular carriers on the FCC maps are not accurate. Cellular broadband signal strength decreases with the distance between the cell tower and a customer. The easiest way to explain that is with an example. I talked to a farmer in Illinois who has the T-Mobile FWA broadband and is thrilled with it. The T-Mobile tower is on his farm and he’s getting over 200 Mbps download speed. He bragged about the technology to his neighboring farmers. One of his neighbors over a mile away is getting download speeds over 100 Mbps. But another neighbor over two miles away is getting speeds closer to 50 Mbps and doesn’t like the product.

At some future point, the FCC is supposed to require heat maps around each cell site to more accurately show the actual speeds that can be delivered, But for now, T-Mobile and Verizon are typically claiming speeds of 100/20 Mbps or faster for a sizable area around each cell site. This speed is true for the folks close to the tower, but at the outer fringe of each claimed circle are customers who are not able to receive 100/20 Mbps broadband. Those areas should be eligible for BEAD grant funding. I have no idea how State Broadband offices are going to deal with this. Any Grant office that decides to stick with the FCC maps will be condemning small pockets of folks to have worse broadband than everybody around them.

This is also another problem to deal with for an ISP seeking BEAD grants. I’ve described in the past how RDOF carved up the unserved and underserved areas in many counties into a jumbled mess, and FWA cellular coverage makes it that much harder to put together a BEAD serving area that makes both engineering and financial sense.

There is a more subtle issue that is even more troubling. The cellular carriers have no intention of serving everybody within the range of a cell site. There are constraints on the number of people they are willing to serve. This is similar to the constraints that Starlink has with serving too many people in a given small geographic area. This makes it hard to understand why NTIA rushed to define this technology as qualifying as served broadband. The willingness and ability to serve everybody ought to be one of the most prominent factors when declaring a technology to be creating served areas.

Even worse, T-Mobile says in the terms of service that it reserves the right to throttle usage on the FWA service. The bread and butter product for cellular companies is people with cell phones, and they are giving those customers priority access to the bandwidth at each tower. Any time cellular traffic demand gets too high, the usage to FWA customers will be restricted. That may not be a problem for low-population cell towers – but customers at any tower that has this restriction are going to be unhappy if broadband slows to a crawl in the evening.

My final issue with FWA cellular technology is that is expanding rapidly. Soon, it won’t just be Verizon and T-Mobile deploying the technology. UScellular, DISH, and AT&T are likely to start popping up in rural areas. I’ve been scratching my head wondering how State Grant offices and ISPs are going to deal with the technology if it’s activated during the grant review process. Cellular companies have every motivation in the world to intervene in grant applications and declare that areas are served and ineligible for grants. If the FWA carriers are allowed to make this claim for new cell sites, I can foresee numerous ISPs walking away from BEAD applications if the serving areas get carved up too badly.

This is a new technology, and, in my opinion, the NTIA rushed to accept these areas as served. The technology is so new that there was almost nobody served with cellular FWA back when the IIJA legislation enabled the BEAD grants. For the reasons I’ve discussed, it makes no sense to give cellular companies little broadband monopolies around their cell sites.

Another Twist in The BEAD Grant Process?

Word has been circulating that the NTIA recently informed State Broadband Offices that they must submit a final BEAD plan to the NTIA one year after receiving approval of the Initial Proposal of grant rules. That’s not a surprise since this language is straight out of the legislation, and the NOFO for BEAD – An Eligible Entity may initiate its competitive subgrantee selection process upon approval of its Initial Proposal and will have up to one year to conduct additional local coordination, complete the selection process, and submit a Final Proposal to NTIA.

The ugly twist is that the NTIA is expecting the Final Proposal to include a final list of all BEAD grant winners. Everybody has always assumed that the Final Proposal would be just that – a proposal that describes and fine-tunes the rules being used to award grants. Most State Grant Offices have assumed that they would have multiple years to pick BEAD grant winners.

Consider what has to happen once a state gets approval of its Initial Proposal:

  • A State Broadband Office must finalize the rules for awarding grants through attorneys and state leadership. Some states are going to be required to get the Legislature involved to approve grant rules. This will likely take 3-4 months for most states, but a few will take much longer.
  • The Grant Office would then be ready to announce the date for the first round of grant applications. They would typically give applicants 60-90 days to submit grant applications.
  • A Grant Office will need at least 30 days for the initial review of applications and to provide time to ask for clarifications from applicants.
  • Next, the detailed grant scoring must be done. The BEAD grants are complex, and it’s hard to see a state scoring and ranking grant applications in less than 60 days. There is a lot of complicated due diligence needed by grant offices that are often manned by first-time grant reviewers.
  • The State is then going to have to allow 15-30 days to post the grant applications and allow for protests and challenges. There would be another 30-60 days to resolve protests.
  • Finally, grant awards are announced, and it can easily take three months to negotiate contracts with grant winners. Inevitably, some winners will back out during this process.

The timeline above totals 16 months – and that’s if everything goes smoothly. The BEAD grants are complex, and reviewing and resolving grants that ask to serve overlapping areas is going to add a lot of complication to the process. To put this timeline into perspective, my state of North Carolina is 18 months into the $350 million ARPA grant process and still has not finished identifying all of the grant winners. And that’s with a capable and experienced Grant Office – some states are new to the grant process. The BEAD grants are for more dollars, are more complicated, and will take more time to review than ARPA grants.

The above timeline doesn’t reflect the added rules that are specific to BEAD. State Broadband offices have a mandate to bring broadband to every unserved location. They also must contend with special handling of high-cost areas. Both of these processes will require a lot more time than listed above for Broadband Offices to reach out to and negotiate with ISPs. States that are lucky enough to fund all unserved and underserved areas will need more time to figure out what comes next.

I’m fairly certain that any pressure to speed up the grant time frame comes from the recent White House emphasis on getting infrastructure money out the door quickly. I think everybody in the industry thinks that the BEAD grant process should have gone faster. But the BEAD process has been glacially slow and it’s been 19 months since the IIJA legislation was signed. It’s absurd that we are just now announcing the amount of money that states will get.

But we can’t make up for the glacial process of launching the BEAD grants by rushing at the end so that the money is shoved out the door without taking time to make sure that each State is getting the best long-term solution. States have been having a lot of internal debates about the technologies and types of ISPs they hope will win funding – any deliberation and chance of directing the funds responsibly will be cut short if the process is hurried. One of the most important parts of any grant process is to give worthy applicants a chance to refine and amend a grant request in a subsequent round. The BEAD grants are the first grants in my memory where the States had to reach out to stakeholders to get public feedback. If we rush, all that was learned in that process will be tossed aside.

If the NTIA really insists on a speedy timeline, it will be creating an RDOF-type disaster. The only way to get this process done in a year (or even 18 months) would be through a single round of grants – done hastily. With a tight time frame, the grants won’t be reviewed closely and grants that include errors will be pushed through. ISPs that aren’t really qualified will sneak through.

Having only one round of grants will feel a lot like the RDOF reverse auction. A giant pile of grants will be shoved into the funnel, and it’s likely that the grants will go to ISPs that ask for the lowest percentage of grant funding. A friend of mine has jokingly been saying that 95% of BEAD money will go to the large incumbent providers, and if there is a single-round grant process, he might not be far from the truth.

I’m hoping that this is just a trial balloon being circulated by the NTIA to get feedback, and if so, every State Broadband Office needs to push back hard. If the grants are going to be hurried, we’re going to end up with yet another disastrous federal grant program. I was hopeful that BEAD would avoid the mistakes of the past since the money was given to the States. But if the NTIA forces State Broadband Offices to rush the grant process, we’ll be watching a slow-motion train wreck over the next year.