Tag Archives: BEAD Grants

The Buy America Waiver for BEAD

If there is any upside to the interminable delays in the BEAD grant process, it’s that American manufacturers have had the time to gear up to build the components needed to build broadband networks in the U.S.

When the BEAD grants were first announced, there was a widespread expectation that the industry was going to need a lot of blanket waivers from the tough Build America, But America (BABA) rules. But in the last two years, a wide range of equipment manufacturers have begun making gear in the U.S. and gone through the process of being approved as a BABA vendor.

Early in the process, the NTIA announced that it hoped that as much as 90% of the materials needed to build networks would be made in the country. At that time, that sounded like an impossible goal. But vendors of all sorts now have an American-made product. In a recent NTIA blog, NTIA claims there are now reliable sources of fiber, fiber cables, electronics, and enclosures – the key elements of a fiber network.

The  Department of Commerce just announced a minor BABA waiver for BEAD that recognizes that U.S. chip manufacturing will not be ramped up in time to supply the millions of chips needed for BEAD. The limited waiver also covers some non-optic glass inputs that are used in the glass manufacturing process. The limited waiver will recognize the chip issue by relaxing the rule that 55% of optical terminals and optics must be U.S.

The bottom line of the limited waivers is that NTIA is still estimating that 90% of the materials used to build BEAD networks will be America-made. That is phenomenal, and it’s great to see a big chunk of the $45 billion in grants supporting American manufacturers.

This is a drastic change since the $2.5 billion BTOP grant program in 2009 that was funded by the American Recovery and Reinvestment Act. Those grants had to issue widespread waivers of the BABA requirements since there was not a lot of American manufacturing of fiber components at the time.

One of the best long-term consequences of the BEAD effort is that U.S. factories and jobs can continue to make network components in the U.S. The determination to adhere to the BABA rules is also being applied to a wide range of other components that are being funded by the Infrastructure Investment and Jobs Act. That’s going to pay dividends in the U.S. economy for decades to come.

 

Gaming the BEAD Maps

From all over the country, I’m hearing stories about ISPs who are gaming the FCC broadband maps in order to block area from being eligible for the BEAD grants. It’s relatively easy for an ISP to do this. All that’s needed is to declare the capability to deliver a speed of 100/20 Mbps in the FCC maps.

ISPs can largely do this with impunity since there is nothing wrong with them doing this. The archaic FCC rules allow ISPs to claim ‘up-to’ marketing speeds in the maps, and ISPs can self-determine the speed they want to declare.

A lot of ISPs decided to start claiming 100/20 Mbps capabilities in the last update to the FCC maps. This is being done across technologies. We’ve suddenly found rural DSL claimed at speeds of 100/20 Mbps and faster. Older DOCSIS 3.0 cable networks that previously declared upload speeds of 8 or 10 Mbps are suddenly in the FCC maps with 20 Mbps upload speeds. Some WISPs and FWA cellular carriers are claiming speeds of 100/20 Mbps across a large geographic footprint that doesn’t match the capabilities from its tower locations.

It’s not hard to understand the motivation for this. We’ve seen this before. Just before the FCC was to announce the eligible areas for the RDOF reverse auction, CenturyLink and Frontier declared that tens of thousands of Census blocks suddenly had the capability to deliver speeds of 25/3 Mbps. This was the speed in the FCC maps that would have made these areas ineligible for the RDOF auction. The FCC rightfully rejected these last-minute claims. But if the telcos had been less greedy and had declared a smaller number of Census blocks, they may well have gotten away with the deception. The motivation of these telcos was obvious – they didn’t want anybody else funded to bring broadband to their monopoly service territories, even though they were not delivering decent broadband.

The motivation to do this today is identical. When an ISP declares 100/20 Mbps speed capability, the area is removed from BEAD grant eligibility. The ISP operating in that area will have squelched a new competitor from entering the market using BEAD grants.

The ISPs aren’t finished with this effort. I know several communities where the cable company recently knocked on the door at City Hall to say they are going to upgrade the cable networks this year. These communities are expecting that the cable companies will try to kill BEAD eligibility by declaring the upgrades in the upcoming BEAD map challenges being done in each state.

The NTIA’s and the FCC’s response to this issue is that it is the responsibility of communities to police this issue and to engage in the upcoming state BEAD mapping challenges. I can barely talk about that position without sputtering in anger. Most counties are not equipped to understand the real speeds that are available from an ISP. From my own informal survey, I don’t think that even 10% of counties are considering a map challenge.

But even communities willing to tackle a map challenge will find an incredibly difficult time. First, many states only have a 30-day long map challenge process, and some of the challenges are already underway, with many more challenges to start very soon. Communities have to somehow convince customers of the suspect ISPs to take a speed test multiple times a day in a specific manner. That is hard to do under any circumstances, but particularly hard to do considering the short time frame and specificity of the challenge process.

Consider a real-life example of the difficulty of doing this. I know a county where a WISP claims 100/20 Mbps speed for over five hundred homes in a corner of the county. The county purchased trailing 12-months of Ookla speed test data, and there was only one speed test for this ISP in that area in the last year. If the State Broadband Office won’t accept that as proof for a valid challenge, the County can’t convince nonexistent customers to take a speed test.

This feels like another example of the NTIA ‘protecting the public’ by requiring a lot of proof for a map challenge. The fact is that the folks living in rural areas know the ISPS that work and don’t work. If a ISP appears with decent speeds in an area with no good broadband, word of mouth spreads quickly and a lot of people try the ISP. If a new ISP gains almost no customers, they are either making bogus claims of speed capabilities or they have prices that nobody can afford. Market success should be one of the criteria for a map challenge, and States should invalidate claims by any ISP who have only a sprinkling of customers in an area from blocking BEAD grants. Unfortunately, the FCC does not gather actual customer data in the same detail as the FCC maps – they only gather the speeds claimed by ISPs and the supposed capability to connect customers within 10 days.

The bottom line of all of this is that map manipulation is going to mean that a lot of areas will be excluded from the BEAD grants. Counties are ill-equipped to do the map challenges, and even motivated counties will have a hard time mounting a successful map challenge.

I expect my blogs in a few years will be full of stories of the neighborhoods that got left behind by BEAD and which still won’t have an ISP option with decent speeds. I’m predicting this will be millions of homes. Unfortunately, those homes will be scattered, and it will not be enough homes to drive another big grant program. I fear these folks will be left behind, served only by the ISP that exaggerated the speeds in the FCC map. In the case of the FCC maps, it seems that cheating pays.

The Sudden Mad Rush of BEAD

From an ISP perspective, the BEAD grant program has progressed at a glacial scale. The BEAD grants were signed into law on November 15, 2021, as part of the Infrastructure Investment and Jobs Act. The general anticipation is that it would take a year before State Broadband Offices would begin seeing the first 20% of funds and could begin awarding grants. Folks in the industry assumed that BEAD would follow a timeline similar to the earlier grants that were awarded using federal CARES and ARPA funding.

Certainly, the entire vendor community thought grant awards would start in 2023 with construction already underway this year. Fiber and electronics vendors cranked up production to meet the expected rush of orders. Construction contractors started freeing up slots in their work plans to accommodate BEAD grants. And then nothing happened.

The BEAD process got bogged down in paperwork and bureaucracy. The reliance on the new FCC maps has been a complete boondoggle, and the maps are still terrible in many ways. The NTIA required states to write extensive grant and policy manuals which were never required for earlier state grant programs. The paperwork process for states has been numbing.

So here we sit 28 months after the announcement of the grant program and no grant money has flowed to states. Communities who heard about possible federal broadband grants at the end of 2021 are still waiting for the grant process to start and much of the public now believes these grants will never happen.

What is most mind-boggling is that BEAD is part of an infrastructure program, and the whole point of the IIJA was to spend money quickly to improve infrastructure and spur the economy. There has been pressure from the White House since the beginning to get the BEAD money spent and broadband networks under construction.

After the delays and endless paperwork, States will now be under tremendous pressure to award the grants and quickly shove the money out the door. It’s scary to look at the proposed timelines in most states. Some States are proposing steps like announcing the geographic boundaries where they will accept grants and then expect grant applications a month later. ISPs will have to somehow scramble to determine the cost and economics to build to specific geographic boundaries in a timeline that most will not be able to meet. This one requirement will be the final straw for many ISPs since they can’t get the engineering and business plans done that quickly. Even the giant ISPs are going to get overwhelmed by the proposed short timelines.

If there is any one part of a grant program where the process should be careful and deliberative, it’s the process of choosing grant winners. States are now expected to rush through that process and award grants as soon as possible this year.

This is ironic in a program where the NTIA took a lot of slow and deliberate steps to craft policies that would shield them from states making bad grant awards. But it’s almost guaranteed that State Broadband Offices are going to make big mistakes when rushing through grant applications from ISPs that they really don’t know. Anybody who has ever reviewed grant applications knows that every application paints a picture of an ISP that walks on water, and it’s not easy for inexperienced reviewers to distinguish good proposals from shoddy ones. A fast award process means less time for due diligence.

Even after States pick winners, there is a huge amount of work to do before construction can begin. Some State broadband offices have a ponderous process for negotiating and approving contracts with grant winners. I’ve seen examples where this process took almost a year. Once a grant contract is in place, many BEAD grants will require that time-consuming environmental studies be performed before any work can begin.

There might be a few tiny BEAD projects that will start construction before the end of this year. If so, NTIA and politicians will make a big splash with ribbon cuttings to show that the BEAD process is working. But most BEAD award winners won’t be able to start design engineering and order materials until 2025. Then, the giant industry crush that everybody feared will begin. Vendors will get overwhelmed with orders, and we’ll suddenly hear stories of supply chain issues again.

I always expected that the States would be under very different timelines, which would have strung out the impact on the industry over several years. But every grant office is now using the same starting gun, and all are going to race to get grants awarded at the same time.

As many have already predicted, a hurried process this year will make it even easier for State Broadband Offices to take the safe pick and award money to the giant, well-known ISPs. Giving large grants to big companies means fewer contracts to negotiate and a lot less paperwork. The pessimist in me wonders if this has been the plan all along.

Can ISPs Absorb the End of ACP?

I’ve heard from a few ISPs who told me that State Broadband offices are asking ISPs interested in BEAD to self-fund a $30 discount for low-income customers after the end of ACP. Since this request came from multiple states, I have to imagine the idea came from NTIA. I can’t think of any better proof that policymakers are out of touch with the reality of rural business plans.

First, any ISP is going to lose money for the first two or three years of launching a new broadband market until that market gets enough customers for revenues to cover costs. The request is asking the ISP to fully fund the discounts for this period out of their pocket since the grant-funded market can’t fund the discount.

But more fundamental is the idea that ISPs will have excess margins in a rural market that can somehow be used to fund these discounts permanently. Even with a 75% grant, most rural market business plans are barely going to cash flow – and realistically, some BEAD-funded markets are going to lose money for twenty years until the debt used to fund the matching is retired. ISPs like Cooperatives are willing to wait that long to be profitable since they have a hundred-year outlook on the broadband business, but even they can’t be comfortable with self-funding these discounts.

Even ISPs that are successful in rural markets are going to have small margins. They will be lucky to build margins to 10% to 15% annually over time. These margins are needed to fund future retirements and replacements of electronics that will inevitably come in 12-15 years and to replace assets like vehicles a lot sooner than that.

It’s not hard to do the math on what this request means in terms of ISP margins. Consider an ISP that has an average revenue per customer of $65. If that ISP gives a low-income $30 discount to 10% of customers, that would equate to giving away 4.6% of its margin. For an ISP that was only going to make a 10% margin, that means giving away half of the margin. If the percentage of customers that get the discount is higher, then self-funding the $30 discount can get ugly in a hurry.

I’ve read reports of a few ISPs that have more than 70% of customers enrolled in ACP, and they obviously can’t self-fund this. But it’s ludicrous to ask an ISP with even 20% of customers using ACP to self-fund this discount.

There is another way for some ISPs to continue the discount, which would be to raise the rates for everybody else. Using the sample ISP discussed above, the ISP with 10% of customers on ACP could fund the ACP discount by raising rates on everybody else by $3.30 per month. The amount of rate increase grows to be gigantic if more than 10% of customers are on ACP. The idea of ISPs raising rates will likely horrify State Broadband Offices that are already pressuring ISPs to have low rates.

This whole concept stems from a mistaken assumption that all ISPs are fat with profits and that they can dig into excess earnings to fund things. That might be true for some giant ISPs, but even for them this is not true in rural markets. The policy makers have already stacked extra costs on top of ISPs in the BEAD grant process, and this just adds to the pile.

ISPs with a lot of ACP customers are in real trouble. They are likely to lose a lot of customers when the ACP ends. They can’t survive if they lose too many customers, and they can’t survive if they keep them by giving giant discounts.

Policymakers often wonder why some ISPs refuse to participate in federal programs like ACP, and I hope they now understand why. It’s truly a bad decision for an ISP to sign up a lot of customers in a government-subsidized program if there is no guarantee that the program will survive from year to year. Smart ISPs signed up for ACP because of the political pressure to do so, but they only enrolled customers who asked for the discount. ISPs that fully embraced and advertised ACP are now going to pay a big financial penalty for trusting a program that had a clear and expected expiration date.

I hope that no State Broadband Office makes it mandatory for BEAD winners to self-fund the $30 discounts. They are already worried about ISPs taking a pass on BEAD, and this will convince more to walk away from the grant program. ISPs pressured to do this just need to say no.

Will Small ISPs Pursue BEAD?

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

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

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

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

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

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

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

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

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

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

Another BEAD Mapping Mess

Now that State Broadband Offices are undertaking mapping challenges, I’m sure many of them are seeing the phenomenon that I’m going to describe in today’s blog. When the NTIA decided to allow licensed fixed wireless to be counted as reliable broadband, they made a monstrous mess of the BEAD maps and greatly drove up the cost per passing to implement BEAD.

Before expanding on that claim, let me show you a typical map. This map is a small part of a county where all of the homes would be considered to be unserved if licensed fixed wireless was not considered to be broadband. Every home on this map has zero landline broadband option, and before wireless carriers recently claimed to be providing service, their only broadband option was satellite.

On the map, the blue dots are locations that are still counted as unserved on the State BEAD-eligible map. But the orange locations are all shown as served due to a claim that the homes can be served with fixed wireless.

The map is a real hodgepodge of served and unserved homes. Anybody wanting to claim the BEAD funding for this area can only be funded to reach the blue dots. They can’t claim any costs or get any grant reimbursement for the orange dots.

The key thing to notice is that an ISP that wants to build fiber will still have to build along every road on this map. There is zero savings on fiber construction compared to a network where every home is considered to be unserved. This has a huge ramification for the BEAD grants. While the cost for building fiber is identical in both cases, the cost per passing is almost double when considering only the unserved blue dots. This is important because State Broadband Offices have calculated a target cost per passing to build broadband – and in situations like this one, the cost per passing might have doubled from something like $6,000 per passing to $12,000 per passing. The fiber doesn’t cost more, but the all-important cost per passing goes off the charts, and this area will be considered to be high-cost.

This wouldn’t be much of a problem if this is only found in a few places in a state. But I’ve been recently working with ISPs in several Midwest states, and we’re seeing this phenomenon everywhere. In one county I just examined, two-thirds of the county looks just like this map.

I think there are going to be several bad consequences of the NTIA ruling on licensed wireless. First, states have been doing back-of-the-envelope math to see if they have enough money to serve everybody.  If they have large areas similar to this example, the actual cost per passing will much higher than they have assumed, and they will not have nearly enough money.

This is going to be a nightmare when administering a grant in this area. Is a State Broadband Office going to meticulously make sure that it doesn’t pay for pedestals or handholes that might reach a served location? Is a Broadband Office not going to want to fund extra fibers and spices that are used to reach all of the homes?

This also has a huge impact on ISPs pursuing BEAD. A BEAD winner building fiber is clearly going to offer broadband to every home on this map. But that means they will have to cover the full cost of pedestals, drops, and electronics for the supposedly served customers. This means their actual out-of-pocket costs are going to be far higher than what the grant calculation will recognize. If the BEAD calculation recognizes that the ISP is contributing 25% of the cost of the project, the ISP will actually be contributing something much higher for this area.

As an aside, the BEAD map also includes oddities. In this case, the FCC fabric has placed locations far into the middle of farm fields where no homes exist. There are a few homes that don’t show up on this map. There are also a few places where there are multiple dots where there are not multiple homes. In two locations, the FCC has counted the same house as both served and unserved. But ISPs shouldn’t worry about this – the FCC and NTIA assure us that the BEAD maps are solid.

Even worse than all of this, the chances are that nobody knows if the wireless ISP can actually serve any of these locations. The FCC originally was going to require wireless ISPs to provide heat maps from each tower. They also originally had a requirement that a licensed engineer had to sign off that the claimed coverage and speeds are technically feasible. Unfortunately, the FCC excused these requirements, and wireless carriers can claim any coverage and put the burden on ISPs and communities to prove they are exaggerating coverage or speed capabilities – something that is nearly impossible to document. It might turn out that all of the orange dots on this map are unserved – but that’s a whole different BEAD disaster to consider.

Serving the Hard-to-Reach Areas

It’s clear in reading the various proposed BEAD rules that State Broadband Offices are following the lead of the NTIA and putting a lot of emphasis on making sure that everybody gets served with the grant funding. I’m not sure they understand the costly consequences of this emphasis. Let me use two real examples to highlight how hard this is going to be.

I was working with a County government that was providing an ARPA grant for ISPs to build fiber. The County and a cooperative were negotiating a grant that would bring broadband to about half of the unserved locations in the county. However, the proposed map from the cooperative left out a pocket of fifteen homes. The County really wanted these locations to be added to the grant because it was clear that after this grant that nobody else would likely consider building to this small pocket of folks.

The cooperative explained that the cost of getting to these few locations was astronomical and they didn’t want to ask for that much grant funding. This particular pocket has about every permitting issue you could imagine. The pocket is bounded on one side by an interstate highway and on the other by a major dual lane state highway. There are no exit ramps or underpasses nearby from either highway. There is also a railroad line that blocks getting to this area. Finally, the poles are in bad shape and this area is largely all rock. The cooperative said that it would cost over $60,000 per location to get fiber to these folks – and the County agreed that it was not willing to provide the needed funding.

This area could be served by a WISP, but there aren’t any WISPs serving close to this area today. Because of that, I’m not sure that building a new tower and figuring out backhaul would make any sense for these few locations. Would a distant WISP want to take on future truck rolls to this area?

I saw a similar situation in a rural county in New Mexico. There is an isolated part of a county with about one hundred passings that is far away from everybody else. This county has the extreme terrain you see on postcards of the West. The terrain is all rock and the utility poles are in bad condition. In many places there are no shoulders on either side of the winding roads. We figured the cost to bring fiber to this area is nearly $7 million (and that was calculated before the inflation of the last two years).

We instantly pivoted to see if fixed wireless made sense, but there are also a lot of impediments putting wireless in the area. It would require a whole string of towers to snake through the terrain, and there are major obstacles getting rights-of-way for constructing new towers because of the current use of the land. It also looks impossible to get electric power to the towers. Our estimate for building a wireless network was not much lower than the cost of building fiber.

I’m not sure that State Broadband Offices are braced for these extreme places. There are similar pockets of extremely high-cost areas in the majority of counties I’ve examined. When SBOs have budgeted the amount of money needed to get everywhere, I’m not sure they’ve built in the extreme examples where costs are $50,000 to $100,000 per passing, which can eat up a State’s BEAD money in a hurry.

The reason this is an issue is that the NTIA rules expect states to fund 100% of unserved locations – 99% coverage will be considered a failure. Serving these extreme locations has a priority over funding many more underserved locations and anchor institutions.

I don’t have an answer for this. If I was designing a grant program from scratch, I would probably conclude that super high-cost locations shouldn’t be funded unless there is excess grant funding – but the NTIA rules don’t leave any latitude for this decision.

These are the kind of places that would best be served by somebody like Starlink. But even Starlink doesn’t work for a lot of the homes in New Mexico that are nestled into rock cliffs. This leads me to conclude that there are some passings in the country that are largely unservable.

Many States are saying they don’t have enough funding to serve everybody, and when you consider that every state has some of these extremely high cost locations, it’s easy to believe them. Interestingly, a few states seems to be skirting this issue by only looking at the hardest-to-serve places after they’ve given grants for everybody else. I have to imagine that’s something that the NTIA will find fault with, but it’s the right approach to take.

ISP Upgrades in Front of BEAD

I’m working with several small cities that were recently notified that the existing cable company plans to upgrade the network. In these cities, the cable company still operates a DOCSIS 3.0 network. The networks have download speeds a little faster than 100 Mbps, and upload speeds are under 10 Mbps. These cities are currently considered to be underserved and are eligible for BEAD grants.

I talked to the State Broadband Offices in several states about the issue of announced upgrades coming just in front of the final BEAD map challenges. I was told that this is suddenly a common issue, and they are seeing claims of upcoming upgrades across their state. This is not just coming from cable companies, but there are telcos now claiming DSL speeds faster than 100 Mbps and licensed wireless providers claiming that fast speeds will be coming soon.

Apparently, this is so common that it has come to the attention of the NTIA. These State offices told me that NTIA is recommending that States only make mapping changes for promised upgrades if an ISP will sign a binding contract with the state that the upgrades are coming soon and are guaranteed to meet the faster speeds. Two of the state offices I talked to said that they will further require that ISPs agree to make any promised upgrades in the next twelve months. If an ISP doesn’t make the contractual guarantee, then the state will keep the areas as BEAD eligible.

This is not a new situation. Just before the FCC published the eligibility map for RDOF, CenturyLink and Frontier each changed the FCC maps to reflect tens of thousands of Census blocks that they suddenly claimed had speeds of 25/3 Mbps or faster. That would have removed these places from the RDOF auction. The FCC rejected the claims from both telcos and included all of the Census blocks in the RDOF reverse auction.

Part of this issue comes is due to the FCC mapping rules about how ISPs are allowed to claim broadband speeds. ISPs are allowed to declare marketing speeds instead of actual speeds. There is nothing to stop an ISP from declaring a speed capability of 100/20 Mbps but deliver something slower – maybe even a lot slower. This puts the responsibility on a community to somehow prove that actual speeds are slower than the claims – and anybody who has challenged speeds in the FCC maps knows how difficult that can be.

If your City or County is currently BEAD eligible and you are told by ISPs that upgrades are coming soon, you should talk to your State broadband office. It’s also possible that you won’t be notified of upgrades and that ISP will instead make these claims in the BEAD grant challenges that many states hope to begin in the first quarter.

The claims of upgrades could be real. A cable company that upgrades to DOCSIS 3.1 will be bringing gigabit speeds to the network. But the worst possible scenario is for an ISP to claim an upcoming upgrade to eliminate the BEAD funding and then make no upgrade. There is certainly a chance that some of these claims are just like when Frontier and CenturyLink tried to eliminate areas from RDOF. Cities and counties need to be vigilant during the map challenges to see if ISPs are suddenly claiming fast speeds that don’t exist or claiming pending upgrades.

Another situation to watch is for ISPs that only upgrade a part of a community. Many ISPS are not bringing fiber to an entire community. A city that gets fiber in half of a town will be glad to see the upgrade, but this creates a new digital divide when the other half of the community doesn’t get fiber. Anybody who has spent a lot of time looking at the FCC broadband maps has seen plenty of examples of partial fiber upgrades. There are no rules stopping an ISP from cherry-picking in this manner, but it creates a new set of problems for a community when half of a town still has inferior broadband. It’s something that big cities have seen for years, but it’s becoming common in smaller communities.

BEAD Grant Areas

When I first read the IIJA legislation that created the BEAD grants, my first reaction was this was going to be a grant program that a whole lot of my clients would choose to ignore. There are so many tough requirements described in the legislation that it seemed overwhelming. But over the last year, my opinion mellowed because I assumed that State Broadband Offices would soften some of the rough edges of the federal rules. SBOs were supposed to meet with ISPs and other constituencies to hear their concerns, and since ISPs are the ones that ultimately will accept the BEAD grants, I assumed that SBOs would try to make rules that will lure ISPs to participate. Unfortunately, this doesn’t seem to be the case – and many States are layering on additional rules that make these grants even less attractive to ISPs.

Consider the simple concept of establishing a grant study area – the area where an ISP proposes to seek grant funding. ISPs generally choose grant serving areas to meet a couple of operational, functional, and financial parameters.

  • Most ISPs want to serve grant areas that are adjacent or nearly adjacent to existing service areas. This allows for efficiency in the long-term operation of the grant area through the best use of locating technicians, hub offices, etc. BEAD grant areas are, by definition, rural and low-density, so taking advantage of existing operations is essential for an ISP to be financially successful in serving rural areas.
  • ISPs don’t want to have to construct middle-mile to reach pockets of unserved customers if there aren’t other opportunities along those routes – this drives up costs but not new revenues.
  • Some ISPs have a very specific agenda, such as an electric cooperative whose Board is only willing to build broadband to its current members using its existing poles.
  • Most importantly, ISPs choose grant areas they can afford to tackle. BEAD, like all grants, has a matching fund requirement, and ISPs can’t tackle a grant serving area or project that is larger than they can afford to finance.

I was frankly shocked to see State BEAD grant plans where the State dictates the grant serving areas. No ISP, large or small, wants the State to dictate where they can expand. Consider the following examples of ways that States are getting involved in defining study areas. This is just a sample of such rules and there are other states doing similar things.

As an example, Georgia’s grant scoring wants ISPs to agree to tackle an entire county. Florida says it will dictate study areas that haven’t yet been defined. Any grant rules that define study areas create massive heartburn for ISPs:

  • Dictated study areas ignore every basic principles that ISPs would use in designing their own study areas.
  • This feels like RDOF all over again, but is even stranger as States use various criteria to carve rural areas into study areas that make sense to them (without consulting ISPs).
  • A grant area, like a whole county, that covers both urban and rural areas is a nightmare scenario for every ISP. Every city and county seat has some unserved areas that the incumbent cable company has ignored for some reason – often because it is extremely costly to reach or has some construction impediment like a difficult right-of-way issue. Nobody wants to be forced to tackle these urban pockets along with rural areas in a single grant application. This has to be making even the giant ISPs shudder.

Other States are proposing rules that chop up the awards into pieces so that ISPs might end up being offered incoherent and unfeasible grant areas. For example, Virginia and a few other states will require ISPs to pre-file their proposed grant areas. Any place where more than one ISP is proposing to serve will be designated as a separate grant area, meaning a separate application and a separate scoring and grant award. It’s not hard to imagine an ISP only being offered a portion of the grant area it really wants to serve. If that occurs, expect a lot of ISPs to reject the offered grant if the study areas make no sense. At the end of a day, a grant area has to make operational sense.

I understand why State Broadband Offices are taking this approach. They are under pressure from the NTIA to get the money out the door quickly – and they think these rules will speed up the grant process. Unfortunately, these rules are not going to create the results that SBOs are hoping for. For example, I think a lot of ISPs, including the giant ones, might decide to pass on the countywide rules in Georgia – nationwide ISPS can take their money to another state. Grant rules that require multiple grant applications to cobble together one study area are too cumbersome and costly for ISPs, and I expect a lot of smaller ISPS are going to decide that this is the extra rule that makes BEAD too hard to consider.

It’s clear that these states did not sit with ISPs and discuss their ideas before publishing them. That is mindboggling because, at the end of the day, ISPs are the ones that can accept and implement grants. If grant rules don’t work for ISPs, they don’t work at all.

Cost Models and BEAD Grants

I have only thoroughly digested the proposed BEAD grant rules for about a third of the states, but just in the sample I’ve analyzed, two states are going to use a cost model as part of the grant review process – Arizona and Missouri. I have to imagine there are others.

A cost model is just what it sounds like. There are consultants in the country who have built complex models that are supposed to predict the cost of building broadband anywhere in the country. The models have to be loaded with specific inputs for any given location, and the models are then supposed to calculate what it will cost to build a broadband network.

As somebody who has helped to do the hard work of estimating the cost of constructing broadband networks for several decades, I can tell you unequivocally that there are no cost models that work – absolutely none. The cost of building a broadband network invariably relies on local factors and nuances that a cost model can never capture. A model might do a decent job guessing the cost of building broadband in the open prairies of the Midwest where farms are far apart, but even there the models are going to whiff sometimes.

Consider some of the reasons why cost models will never be accurate:

  • For aerial fiber construction, a model can never predict the percentage of poles that must be replaced or that need major make-ready work. I’ve worked on projects just in the last few years where the percentage of bad poles varied between 10% and 90%. The models can also never model the ease or difficulty of working with a given pole owner. An uncooperative pole owner can add a mountain of time to a construction project – and time is money.
  • A cost model is going to miss the unpredictable issues that can add big delays and significant cost. This might be rights-of-ways that are hard to obtain, especially for bridges, railroads, interstate underpasses, wetlands, and federal or state land. The cost model is not going to predict that the local folks in some counties are land-right advocates, and getting easements will be an uphill battle.
  • A cost model is not going to predict the need for an environmental study – or even if it does, it won’t know if the study will be easy and cheap or complicated and extravagantly expensive.
  • Cost models are not going to properly predict the prevailing wages that are needed for the BEAD grants. Most state prevailing wage tables do not specifically list all of the various job functions needed to build a fiber network. I’ve spent several days on a single project figuring this out.
  • Cost models are not going to know that existing poles are now fifteen feet inside the woods that have grown since the poles were built. A cost model is not going to know that a County Highway Department has an edict against putting fiber in drainage ditches. A cost model is not going to understand that some mountain and rural roads have zero shoulders on both sides of the road.
  • A cost model probably does not include the most current costs of both materials and labor for building fiber. Engineers who estimate the cost of fiber projects for a living have been updating their costs almost weekly for the last several years due to supply chain issues and inflation.
  • No cost model is going to understand the extra cost of buying materials that comply with the Build American rule – because nobody knows that yet.
  • I could easily list a dozen more such issues, but I don’t want the blog to get too long.

These two states are using the cost models in the worst possible way because they are using the costs suggested by the cost models to help pick grant winners. That means they are accepting the results from the cost models as a real metric and will reject grant proposals that are above or not within a certain range of the cost model estimate.

Cost models have a useful function in a grant office, which is to double-check construction estimates made by ISPs. I’ve known grant offices that have done this for years as a way to perform a sanity check on proposed grant costs. But I don’t see that process working for BEAD. Most of the States have said that the grant review process is going to go very quickly, meaning there won’t be time for a real analysis of an ISP’s proposal. That alone is very disturbing. State Broadband Offices are clearly trying to push the grant awards out the door with as little analysis as possible – and using a cost model can save a lot of time and effort. Real analysis requires industry experts with long-time experience who really knows if an ISP is exaggerating costs – something that many SBOs are unfortunately lacking.

I have no idea how these two states or others came to the decision to use a cost model. I have to assume some consultant sold them on the idea that they have a highly accurate cost model. But there is no such thing as an accurate cost model, and there never will be.

I fear that states that use cost models are not going to get the results they are hoping for. In places where the cost model predicts a higher cost than actual for a project, ISPs will gladly go along with the higher cost model number and ask for more money. ISPs simply won’t seek grants in areas where cost models predict a lower cost than what can be constructed. If the cost model suggested costs are too low – nobody might ask for a grant.

I give ISPs in states with cost models the same advice I am giving everywhere. Ask the the money you need to make a grant work, and nothing lower. At the end of the day, the States must award the grant to somebody, and your grant offer might be high and still be the best offer on the table. I have a hard time advising anybody to accept less than you need, because that is a path to financial disaster.