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The Industry

Should You Pursue the BEAD Grants?

I took part in a webinar last week for the NRTC that talked about the good, the bad, and the money issues with the upcoming BEAD grants. It was one of the better webinars I’ve participated in, and the panelists were full of great ideas and perspectives. At the end of the session, the last question asked, “How do you reconcile some of the impractical aspects of the BEAD grant processes with the reality of the market?” That question referred to the long list of issues with accepting the BEAD grant funding that was highlighted during the webinar. To mention just a few of them:

  • There are a number of grant provisions that are going to increase the cost of the grant. This includes things like getting an irrevocable letter of credit, having to pay prevailing wages, having to conduct an environmental and historical review, having to comply with Buy America, and an extensive (and probably expensive) grant preparation process. These might significantly increase the amount needed for matching funds.
  • The grant NOFO rules encourage States to award grants that offer the highest amount of matching funds. This brings in a reverse auction feel to the grants where ISPs willing to contribute more can likely win the grants.
  • There is a possibility of big issues with the FCC mapping that an applicant will have to navigate.
  • Grant funds are considered to be taxable income.

Any potential applicant is going to have a problem with these or other aspects of the grants. The question is really asking how far an applicant ought to go out of their comfort zone.

My response to the question was to get immediately get involved with your State broadband grant office. The various State broadband grant offices are in communication, and there is hope that if enough States push back that the NTIA might soften some of the most troubling aspects of the grant rules. States also have another option, which is to build friendlier rules into the State grant rules since, at the end of the day, each State gets to decide who wins the grant funding. ISPs need to provide specific feedback to State grant offices now so that they understand how troubling some of the grant rules are for potential applicants.

I still stand by that advice, but the instant the webinar was over, I realized that is only half of the answer. At some point, an ISP is going to have to determine if it can live with all of the grant requirements.

I haven’t talked to any ISP that isn’t uneasy about some aspect of the grant rules. My first advice to an ISP considering the BEAD grants is to take the time to consider the aspects of the grants that you find troublesome – then categorize them. Some grant issues are just annoyances that will make it harder to ask for the grants. But other issues are more serious, and every ISP will have its own list. You should separate the troubling issues into two categories – issues that will cause big headaches and issues that are potential deal stoppers and might make you decide not to bother with the BEAD grants.

Obviously, an ISP needs to publicly communicate about the issues that might cause you to bow out of the grant program. The States and the NTIA need to hear this because it will be a national embarrassment if good ISPs don’t ask for the grant money. The NTIA does not want to be labeled as having created the next RDOF plan.

But this list also means that an ISP is going to have some hard decisions to make. I already know ISPs that have decided that it’s not going to be worth jumping through all of the hoops to pursue BEAD grants. I’ve advised them to at least wait until their State files a plan that might take the edges off of the provisions that are troubling.

But at the end of the day, an ISP should not take grant money that will ultimately harm your business. For example, you can’t take a grant if you know the math doesn’t work. There are plenty of examples of ISPs that have gone south because they bit off more than they could chew by entering a market where they were not successful. If the numbers look bad, don’t assume that some future magic will somehow turn that around.

The final gut check before saying no to the grant funding is to understand what happens if the grant goes to somebody else. For example, if you are an electric cooperative, will you be okay if the grant instead goes to AT&T, Frontier, or a giant wireless carrier? It’s highly likely that somebody is going to pursue and win the grants in most of rural America. If you are a rural ISP and you don’t take part in the BEAD grant, you may never have another chance to expand your rural footprint. This is what makes this such a hard decision – for many ISPs it’s going to be either take grant money that includes a lot of problems and issues or else be locked out expansion in the areas around you.

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The Industry

The BEAD Grant Dilemma

I’m seeing rural counties facing some interesting dilemmas about where to offer local support for the giant upcoming federal grant funds that will hopefully build broadband in their counties. I believe that counties that are willing to provide local matching grants from ARPA or other funds will rise to the top of the list of list of who gets funded. I’m fairly certain that most state grant programs are going to support an ISP that has strong local support, including local financial backing, over ISPs that don’t.

You may wonder why that matters. I think many counties fear that nobody is going to seek the $42.5 BEAD grant funding in their county – and some are probably right. But I also think there is a good possibility that some counties are going to see multiple ISPs seeking the big grant dollars in their county. There are seemingly a lot of companies considering the $42.5 billion BEAD grant program. It seems likely that an ISP that already won any significant RDOF award in a county will pursue the BEAD grants to fill in the nearby areas not covered by RDOF. We now know that big ISPs like AT&T, Frontier, Windstream, Charter, and likely others will pursue the big grant funding. I’m betting that new companies we’ve never heard of before, backed by private equity money, will pop out of the woodwork for this grant.

The dilemma faced by many counties is that they might not want any of these entities to win the BEAD grants and become the new monopoly ISP. Many rural areas are already dubious of RDOF winners that are bringing a wireless solution instead of fiber. They wonder if the wireless technologies will bring the futureproof broadband solution needed for the rest of this century.

Counties are rightfully leery about having some of the big ISPs win the BEAD grants, particularly the big telcos. The big telephone companies carry a lot of the blame for the poor condition of broadband in the rural areas. The telcos slowly abandoned rural America starting in the 1980s. They closed local customer service offices. They cut back on technician staff to the point where it is nearly impossible to get a problem fixed quickly, if at all. They stopped making any investments in rural areas, so in-place technologies were frozen at a time when technology everywhere else was being modernized in the rural areas served by smaller telephone companies and cooperatives.

The question that communities are wrestling with is if they should trust the big telcos again? What’s to stop the big companies from taking federal grants, building just enough to meet the letter of the law, underfunding maintenance going forward, and starting the cycle of ignoring the market all over again. If a new fiber network is not properly maintained, it will begin to see problems in a decade and could become a paperweight in two decades.

I also suspect most local communities are going to be leery of new investor-backed ISPs created just to take advantage of the BEAD grants. Even with grant funding, there is not enough margin in a rural ISP business to make the kinds of returns that investors are seeking. It seems likely that grant chasers will already have a seven-year plan to flip the property to earn the desired return. A community partnering with one of these new ISPs might end up with somebody they don’t want as the ISP in a decade.

Many counties already have one or more local ISPs they know and like. This might be a small telco or cooperative that is serving part of the county or in the county next door. It might be a local WISP that provides great customer service. Unfortunately, we’re going to see many cases where the smaller ISPs are unwilling or unable to pursue all of the big grant opportunities around them. Small companies all have a natural credit limit, and many have a weak balance sheet, and they might be unable to borrow the needed matching funds.

There are also counties with no natural local ISPs. If you look at a map of the footprints of the big telcos you’ll see plenty of counties that are not close to an independent telephone company or cooperative. Remember that companies like Frontier, CenturyLink, and Windstream grew by gobbling up hundreds of smaller telephone companies.

Counties should be having the conversation today with local ISPs to see if there is one or more they are willing to back. Counties also need to give serious consideration to contributing some local grants. The local matching could come from ARPA funding, but some counties consider broadband to be important enough that they are floating bonds to help pay for better broadband.

This is no guarantee that an ISP a county backs will be an automatic winner of grant funding. I’m sure we’ll see some well-funded big ISPs make plays to serve large contiguous swaths of counties – and grant offices might find that an easier grant to administer. But I think that counties that pick the ISPs they want to partner with and that put up local matching funds will have a high probability of getting the ISP of their choice. Counties who do nothing might end up getting a technology solution or a big ISP they don’t like – or no solution at all.

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Regulation - What is it Good For?

Giving the BEAD Grants to the States

One of the most interesting discussions running around the industry is asking why Congress gave the immense power of the $42.5 billion BEAD grants to the states. Large grant programs in the past have been controlled at the federal level. Of course, the only people who know for sure are those that crafted the language in the Infrastructure Innovation and Jobs Act.

Congress had a number of options for how to distribute this grant funding. They could have given a role to the FCC, NTIA, USDA, or to the States. They easily also have divvied up the money and given some to each of the above – with the concept that this is a chance to see what works the best. The Act has a little bit of spreading the money around. For example, the Act gave an extra $2 billion to the USDA and the RUS ReConnect Grants. The FCC will be riding herd over the $14 billion that has been allocated to the Affordable Connectivity Program that provides discounts on broadband for qualifying low-income households. But the big grant money is going to the states with overall grant rules administered by the NTIA.

I think the awards make it clear that Congress doesn’t trust the FCC to administer a big grant program. It appears that the FCC has sullied its reputation in the way it administered the RDOF awards. Congress has repeatedly heard how unhappy constituents are with that program. Back when the idea of a giant infrastructure bill was first circulated, there was serious discussion about letting the FCC distribute the money in a giant reverse auction – and the first draft of the House bill did just that. Thankfully some sanity prevailed in Congress since that would have been a boondoggle of unprecedented horribleness. The FCC made a lot of blunders with the RDOF awards (as they had blown the CAF II program in earlier years).

It makes sense not to give the money to the FCC. I think the FCC chose the reverse auction because the agency knows it doesn’t have the staff or expertise to review complex and overlapping federal grant requests. But the agency is not supposed to have that kind of staff – the FCC is a regulatory agency that makes and enforces rules. There is nothing in that job description that would entail having a large technical staff capable of administering billions of dollars of grants. I can only hope that somehow this new gigantic funding will dissuade the FCC from holding a second round of RDOF or a 5G reverse auction that is being contemplated at the agency.

It’s clear that some in Congress like the RUS, which is part of USDA, and there have now been several annual rounds of ReConnect grants. But the RUS also doesn’t have a staff capable of quickly processing tens of billions of grants. The ReConnect grant program is paperwork-heavy, and the RUS is known for being deliberate in awarding grants and loans. Deliberateness is a great characteristic when dispensing federal dollars, but it would be a challenge for the RUS to award BEAD grants quickly.

Congress could also have given the grant obligation to the NTIA directly, but the agency has even less staff able to review grant requests than the RUS. It’s hard picturing the NTIA staffing up quickly enough to dispense $42 billion in grants. However, Congress did trust the NTIA to set the policy for the new BEAD grants. It could have given that task to any of the three agencies. The NTIA recently set the policies for the recent ARPA grants, and this probably means that somebody in Congress appreciated that effort.

Giving the money to the states might be the only practical way to dispense this money with any sanity. I’m hearing that state broadband offices across the country are adding significant staff in anticipation of these grants. That will mean many hundreds of grant reviewers and administrators – far more than any of the federal agencies could have mustered in a short period of time.

But giving the money to the states was an interesting choice because each state will put its own stamp on how to spend the money. I know that the NTIA has been given the task of making sure that the grants meet the intentions detailed by Congress in the Act. But I’ll not be surprised to see states push the boundaries of the grant rules or even defiantly disregard them. States know that this is likely the only chance to solve the rural broadband problem, and I don’t picture states failing to award grant money to places that need it, regardless of how Congress wrote the rules.

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Current News Regulation - What is it Good For?

Grants for Low-Income Apartments

There is one section of the $42.5 billion Broadband Equity, Access, and Deployment  (BEAD) grants that cities should find interesting. These grants can be used for installing internet and Wi-Fi infrastructure or providing reduced-cost broadband within a multi-family residential building, with priority given to a residential building that has a substantial share of unserved households or is in a location in which the percentage of individuals with a household income that is at or below 150 percent of the poverty line applicable to a family of the size involved (as determined under section 673(2) of the Community Services Block Grant Act (42 U.S.C. 9902(2)) is higher than the national percentage of such individuals.

The BEAD grants are mostly aimed at solving the rural digital divide, but this is an open invitation for cities to seek grant funding to bring better broadband to low-income apartment complexes.

As is usual with most new laws, this one has one interesting incongruity. The BEAD grants establish a priority for States to follow – States should first use BEAD grants to bring broadband to unserved locations with broadband under 25/3 Mbps, then underserved locations with broadband slower than 100/20 Mbps, and finally to anchor institutions. My reading of the language is that serving low-income housing shares top priority along with rural unserved locations – the language says that grants can be used for unserved apartment buildings OR for low-income apartment buildings. This language seemingly gives low-income apartment buildings a higher priority than underserved locations. This language also implies that there is no speed requirement for low-income apartments to qualify for grant funding – the only requirement is the level of poverty.

It’s going to be interesting to see how States interpret this. States with big cities could see huge demand for broadband grants from cities that see this as the chance to solve the urban digital divide. I know that $42.5 billion is a lot of money, but it’s not going to stretch as far as Congress might have believed if every major city sees this as a chance to bring fiber to low-income neighborhoods.

The language is interesting in that it allows for bringing either Wi-Fi or reduced-cost broadband. The term Wi-Fi suggests what I call centralized Wi-Fi that floods hallways and common areas in apartment buildings. It’s a nice thing to have, but it is not the future-looking broadband that is needed for the next twenty years. I’d hate to see a lot of grants asking to install Wi-Fi instead of bringing real broadband to apartment units.

Bringing broadband to apartments will require an ISP. That could be almost anybody under the BEAD grants. Cities could be the ISP in a state that allows municipal ISPs. Cities could partner with the large incumbent ISPs or with smaller commercial ISPs. The most interesting idea is to partner with a non-profit ISP. It would even be possible for cities to hand these networks off to an urban cooperative. Anybody interested in the last two possibilities needs to be moving quickly to have the non-profit or cooperative formed by the time the grant requests are filed in a year.

A year is not a lot of time for cities to capitalize on this possibility. The specific apartments to be served should be identified. Somebody has to design and price out a technical solution. A city will have a better chance of winning funding if it has identified the ISP partner. And cities need to get active over the next few months to make sure that States build this option into the broadband plan that must be approved by the NTIA.

This $42.5 billion grant program is extraordinary in its size and scope – and it’s a once-in-a-lifetime chance to solve persistent broadband gaps. Cities need to marshal their resources quickly to make this happen because there probably won’t be another funding program for a long time aimed at solving the urban digital divide.

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Regulation - What is it Good For?

My Thoughts on the BEAD Grants

I’ve had some time to think about the $42.5 BEADA grants that will infuse a huge amount of money into building broadband networks. I summarized the most important rules in an earlier blog, and today follows up with some observations and predictions about how these grants will probably work.

Not the Same Everywhere. These grants will be awarded through the states. The NTIA will set the overall guidelines, but it’s inevitable that states will have a huge say in who wins the grants. If a state is determined to give these grants to giant ISPs, that state will be able to maneuver within the rules to do so – as will states that don’t want to fund big ISPs. States will definitely put their own stamp on who gets the funding.

Mostly for Fiber. WISPA and other trade associations lobbied hard to set the speed requirement for new grant-funded technology to 100/20 Mbps. This makes fixed wireless and cable company HFC networks eligible for grant funding. This might have been a hollow victory, and I believe that most states are going to give a huge preference to building fiber and will be hesitant to award funding to any technology other than fiber. Undoubtedly, some states will fund other technologies, but my prediction is that most states will give most of the money to fiber projects.

Defining Served / Unserved Areas Will be a Mess. The grants attempt to improve broadband in areas with existing speeds under 25/3 Mbps. This insistence in sticking with measuring speeds will create a huge mess. Communities know that rural speeds are slower less than this, but if the broadband maps remain wrong, they will have to somehow prove it. It would have been so much simpler for the grants to be eligible to overbuild DSL with no speed test. I’m sure these requirements came from lobbying from big telcos, and we also don’t seem able to break away from the dreadful FCC broadband map databases.

A smart state might base grant awards upon state-generated broadband maps, but even that is going to be controversial since incumbent telcos will have a chance to challenge any grant request. Huge parts of the country have been wrongfully locked out of federal grants in the past due to the FCC database, and this is the one big chance to put that behind us. Unfortunately, there will still be communities that get behind by these grants.

Many States are Not Ready for This Funding. A lot of the states only recently started to form state broadband offices, and the size of these grants and the sheer volume of paperwork will overwhelm the people who award grants. There is also a disturbing trend right now of the existing employees of broadband offices bailing to take jobs in the industry. Handling these grants properly is going to require grant reviewers with a lot of expertise to wade through the many grant requests. In this over-busy industry, I don’t know where states will find the experienced people needed to do this right.

Overlapping Grant Requests. The dollar amount of the grant pool is so huge that the states are going to get multiple grant requests that ask to serve the same areas. I’m predicting states will face an almost unsolvable puzzle trying to figure out who to fund in these situations. Just to give an example, I live in North Carolina, and I won’t be surprised if Charter files a grant request to serve most of the state. In doing so, Charter will conflict with most other grant requests – many of which will also overlap with each other.

Big ISPs Want to Be Major Players. Many big ISPs have been recently signaling that they will be seeking huge funding from these grants. AT&T alone said it hopes to use these grants to pass five million new homes. Big ISPs have some major advantages in the grant process. They will have no problem guaranteeing matching funds. They will likely ask for grants that cover large areas, which is going to be tempting for grant offices trying to award the funds. The push by big ISPs creates a dilemma for states since citizens clearly prefer local ISPs run by local people over the corporate indifference of giant ISPs.

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Regulation - What is it Good For?

BEAD – The $42.5 Billion Infrastructure Grants

The new acronym used in the title of this blog refers to the official name of the new $42.5 billion grant program just approved by Congress last Friday – The Broadband  Access, Equity, and Deployment program. Another new acronym is IIJA, for Infrastructure Investment and Jobs Act – the name of the bill just passed by Congress. Today’s blog will talk about a few high-level rules governing the BEAD grants. I’ll cover other issues of the IIJA in upcoming blogs – things like middle-mile grants and broadband adoption. Since the following provisions are in the legislation they will be in the grant – but there are always tweaks made for final grant rules that will emphasize some points and downplay others.

  • You don’t need to rush to be ready to file for BEAD grants. This funding is going to flow between the NTIA and the States before going to specific grant projects. The Act gives the NTIA 180 days to come up with a plan for inviting states to apply for the funding. After the NTIA approves state plans, the states will have to develop and announce grant programs. I find it highly unlikely that there will be any grant applications due to states until the end of 2022, more likely in early 2023. States will get at least $100 million each, with the rest distributed based upon the number of unserved households in each state. This is a good time to remind those who think that the lousy FCC maps don’t matter that the States with the worst FCC maps are going to lose funding.
  • Cross your fingers that your State is competent because there are several crucial steps that states must adhere to before funding is provided.
  • As expected, grants must adhere to two key definitions of broadband. Unserved are places with broadband speeds under 25/3 Mbps. Underserved are areas with speeds between 25/3 and 100/20 Mbps. Grants must first go to unserved areas before being used for underserved areas. Funding for anchor institutions is only to be considered after serving underserved areas.
  • Grant projects must provide speeds of at least 100/20 Mbps, but faster broadband speeds must be given priority. States must give priority to grants that are deployed in counties with persistent poverty. Projects that are shovel-ready will be given priority. Projects that pledge to pay Davis-Bacon wages will get priority.
  • States will likely not award all of the grants immediately, and the Act asks states to provide a 5-year plan for the use of the funds.
  • Grants don’t have to all go for broadband to unserved and underserved areas. States can use the money for data collection, broadband mapping, and planning. Funding can be used to bring low-cost broadband or WiFi to qualifying multi-family apartments.
  • Unlike the recent NTIA grant program, BEADA doesn’t give priority to any class of grant recipients. The grants can’t exclude cooperatives, nonprofit organizations, public-private partnerships, private companies, public or private utilities, public utility districts, or local governments from eligibility – but none get a preference.
  • There is a challenge process where incumbent ISPs can challenge the validity of a grant area. Interestingly, the NTIA can override States in these challenges.
  • Grant applications must provide at least a 25% matching for the cost of the project. Matching funds can include CAREs funding and ARPA funding – so hang on to those funds for a while! Matching can also come from state grants.
  • Deployed technology must only meet two 9’s reliability, meaning that a network can be out for two days per year and still be considered adequate – that’s a low standard for the industry.
  • Grants must cover every home in a grant coverage area within four years of receiving the grant.
  • Grant recipients must provide at least one low-cost broadband option for eligible households. The NTIA is expressly forbidden to regulate rates in any manner.
  • Interestingly, any fiber built along highways must include access points at regular and short intervals. This money is not for middle-mile fiber.
  • Grant recipients must carry out public awareness programs in grant areas extolling the benefits of better broadband.
  • There is plenty of paperwork. Grant recipients must file semiannual reports tracking the effectiveness of the grant funding.

This grant program dwarfs all previous grant programs combined, so there is going to be a lot of money coming to every State. What is still to be determined is how States will administer these grants – and there will be differences. But the legislation provides enough detail for communities and ISPs to start looking at how to be positioned for these grants.

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