Tag Archives: BEAD

Our Balkanized Broadband Leadership

Congress inserted an interesting requirement into the bill that reauthorizes the funding for the National Telecommunications and Information Administration (NTIA). Both the House and Senate added language that would require that a national broadband plan be created that would try to put the FCC, the NTIA, USDA, and other agencies on the same page. This legislation makes sense, because it’s clear that the three agencies do not coordinate in trying to solve broadband gaps – if anything they are competing and trying to one-up each other.

The House version of the new legislation was sponsored by Reps. Tim Walberg (R-MI.) and Annie Kuster (D-NH). The Senate version of the language was sponsored by Sens. Roger Wicker (R-Miss.), Ben Ray Luján (D-NM), John Thune (R-SD), and Peter Welch (D-VT.).

The genesis of the plan came from a GAO report from 2022 that said that there was a balkanized approach to federal funding programs aimed at solving the rural digital divide. That is putting it mildly. The three agencies seems to be stepping over each other trying to get headlines.

Just consider the last year. The NTIA has been working on getting the BEAD grant program going (at a pace that has been widely criticized as being far too slow and meticulous). Immediately after the NTIA announced the amount of BEAD funding that was to be allocated to each State, the FCC announced the new EA-CAM subsidy program for small telephone companies that covered many of the same locations that are eligible for BEAD. There is no conceivable excuse for the two agencies not to have coordinated this – and had the FCC announcement been considered, the BEAD funding would have been allocated differently to States.

The USDA also recently closed a new round of ReConnect grants on the eve of States getting ready to finally launch BEAD grants. This puts State Broadband Offices in a quandary with how to treat areas with a pending ReConnect grant – they won’t be able to make any grant awards for these area until Reconnect is resolved.

The GAO’s use of the word balkanized is now my favorite word for describing the federal broadband effort. The FCC’s RDOF program was a disaster from the beginning. A third of awarded RDOF subsidies ended up being canceled by the FCC or turned back in by ISPs. There are still ISPs defaulting on BEAD several years later, with recent announcements by Charter and Altice walking away from some RDOF areas. Even where RDOF was awarded, it butchered the rural landscape by creating a checkerboard (or Swiss cheese) in many counties of places covered and not covered by RDOF – making it incredibly hard to design a broadband solution for the remaining unserved pockets. The FCC also gave ISPs far too long to implement an RDOF solution – in some cases until 2028 – and a huge number of counties are still wondering today if the ISPs that won RDOF in their county will show up.

All of the grant and subsidy programs suffer by relying on faulty FCC broadband maps. I would rate the maps used to allocated RDOF as maybe a 2 out of 10. The FCC knew these maps were faulty but blazed ahead with a subsidy program that pretended the maps were perfect. It’s impossible in many cases to see any difference between areas included in RDOF and neighboring Census blocks.

The maps being used for BEAD have probably improved to a 5 out of 10. The biggest flaw in the BEAD maps is the inexplicable decision of the FCC to still allow ISPs to claim marketing speeds rather than something closer to actual speeds. There is a large number of rural ISPs that miraculously claim a speed of exactly 100/20 Mbps in the FCC maps, which blocks others from pursuing BEAD grants. The FCC thinks they have accounted for this problem by allowing for a map challenge process, without realizing that the counties that have the biggest broadband gaps are also the ones with barely any staff or budget – so the places that should have undertaken map challenges are doing nothing. The NTIA piled on top of the situation by creating a map challenge process for BEAD that is so technical and obscure that even well-funded counties can’t come close to putting up a decent challenge for places that everybody agrees don’t have good broadband.

Local governments are increasingly irate with all three agencies tackling broadband. The word balkanized doesn’t come close to describing the behavior of each agency that not only ignores what the other agencies are doing but seems hell-bent on sticking a thumb in each other’s eyes.

I have very little faith that the broadband coordination proposed by Congress will do the slightest bit of good. When President Biden came into office, he ordered the three agencies to coordinate efforts, which obviously fell on deaf ears. The only way to make the three agencies work together would be to put them under the same boss – and that’s not likely to happen.

I’ve predicted for quite some time that BEAD is going to miss millions of homes that should be classified as unserved and underserved. I have to think the federal agencies are already planning on how to blame each other when BEAD doesn’t work as promised.

Wireless to Fiber

There is an interesting discussion that has been percolating in the industry for many years. Many wireless ISPs have extolled the benefits of building wireless networks as the first step to eventually build fiber networks.

For over a decade, I’ve been a big proponent of this business plan and have worked with many rural ISPs who entered new rural markets with wireless with the hope of eventually building fiber in the same areas. The business plan makes a lot of sense – get paying customers and pocket revenues to eventually fund the upgrade. ISPs with this business plan typically have built as much fiber as they could up front, such as building fiber to each wireless tower to extend fiber deep into the network. Many of the ISPs that have adopted this business plan have already started making the transition to fiber. Many of them have taken advantage of state and federal grants to accelerate the process.

As soon as I heard about the BEAD grants, one of my first thoughts was that this two-step upgrade business plan idea is dead. We are at perhaps the only point in the history of the industry when there is enough money to go straight to fiber by taking advantage of grant funding. Grant funding can provide an ISP with the same kind of cash up-front that they might have accumulated after operating as a WISP in a market for a decade or more.

I sat in more than a dozen presentations in the last year where a WISP asked a County government for ARPA funding to build a wireless broadband network. One of the best selling points in these pitches was that WISPs will have the broadband up and running a lot sooner than a fiber overbuilder. But in every single presentation, the WISPs also that they want to build wireless today but would eventually migrate to fiber.

I didn’t go to the WISPA convention this year, but I talked to one of the vendors that attended and asked him for the main takeaway. He said that everywhere he went, he heard talk of building wireless networks today as the first step to eventually get fiber.

I don’t doubt that most WISPs that promote this two-step business plan are sincere. There are a lot of WISPs that have already built some fiber and understand the long-term durability and reliability of a fiber network. But I suspect that a few of the WISPs who are making this pitch are not sincere and are just telling local government officials what they want to hear.

The issue really gets muddied by the pending introduction of 6 GHz spectrum into wireless networks and the promise of much faster wireless broadband speeds. If WISPs can upgrade to deliver really fast broadband, is there any incentive to ever build fiber? Perhaps there will be no need to upgrade, and perhaps the wireless network is the right long-term solution.

I’m still on the side of building fiber if an ISP can find the funding – and I’m the first to admit that’s my own personal bias. Fiber networks are going to last a long time. Forget the talk that fiber is only good for 20 to 30 years. I think most folks who build fiber today believe it will easily last 60 to 70 years, and where they’ve placed conduit, future upgrades will be a lot less costly than building from scratch. Fiber electronics vendors have also gotten a lot smarter, and you can new generations of electronics over an existing network without a costly rip and replace. This contrasts with wireless technology, which is changing at such a rapid pace that periodic rip and replace upgrades are still the norm.

Local government officials tell me that their two biggest fears of getting a wireless solution are that the network won’t reach everybody and that the WISP won’t make the needed upgrades in the future. To be fair, many of these same local officials are also leery about seeing grant money go to giant ISPs to build fiber, with the fear that these big companies won’t maintain the network.

The bottom line for me is that I am leery about accepting a claim that somebody building a wireless network today is going to eventually upgrade to fiber. But maybe fiber isn’t needed with a high-quality WISP that spends the extra money to reach everybody and who will keep radios up to date in the future. The real concern for rural communities should be how to avoid getting a WISP or a fiber ISP that doesn’t maintain the network – and identifying them is a whole different challenge.

Reinventing ReConnect

Your guess is as good as mine about whether Congress will ever pass the draft annual Agriculture Reauthorization Bill as written. It’s my understanding that the legislation includes new money for the ReConnect grant program that is administered by the Rural Utility Service (RUS), which is part of the Department of Agriculture.

This has been a successful grant program, and I know of quite a few rural projects that have been funded through these grants. The ReConnect grants only fund areas that are remote and include a test that gives priorities to grant areas that are the farthest distance from towns and cities.

There have been changes in the broadband industry that have made it harder each year to define a ReConnect grant area. The RUS grant rules favor grant requests that cover large contiguous areas. You can cobble together grant service areas that include multiple different geographic pockets of homes and businesses, but this involves a lot more paperwork.

It’s getting quickly harder to find big contiguous unserved areas. This started with the CAF II reverse auction and really came to fruition with the Rural Digital Opportunity Fund (RDOF). That subsidy program awarded subsidies by Census blocks, often widely scattered across a county. When I saw the first RDOF map, I quickly started thinking of RDOF as the Swiss cheese program. RDOF often chops rural areas into small pieces and leaves behind scattered pockets of homes that are not easy to aggregate into a grant like ReConnect.

This chopping up of grant areas continued as States and counties have been awarding broadband grants, often for grant areas that cherry pick the densest pockets of homes. This not only breaks the remaining unserved areas into more Swiss cheese, but it also makes it harder to justify somebody asking for a grant to serve the areas that are left over.

It’s going to get hard to find grant areas after BEAD grants start being awarded. The BEAD grants are supposed to bring broadband to all unserved locations in each state and hopefully also to the underserved. But I think everybody who understands the industry knows this will not happen as planned. There are already states that are saying that BEAD funding won’t cover everybody. There will be ISPs that don’t build everything they promised. There will be ISPs using technologies that won’t reach everybody as promised. There will be ISPs that financially fail and don’t finish the grant projects. And this won’t just be for BEAD – there are going to be plenty of areas supposedly covered by RDOF that won’t get the broadband they have been promised.

The biggest pile of places that won’t get broadband from BEAD are the millions of places that are still incorrectly identified on the FCC maps as served but which aren’t. These places won’t start to become apparent until after the BEAD grants are awarded and mapped and people living in areas with no good broadband start to make noise.

It’s very unlikely that the locations that get missed by RDOF and BEAD will easily fit into the current ReConnect grant template. ReConnect might be the only major ongoing grant program, and if ReConnect is going to reach the places left over from other federal grants, the RUS is going to have to make some significant changes.

First, it has to become easier to ask for funding for small pockets of homes. The RUS has purposefully given out a small number of large grants in each grant cycle to reduce its burden of monitoring the grant construction. But there are even more significant changes needed. For example, the RUS requires a substantial pledge of other assets to get an RUS grant. Unless somebody is already an RUS borrower, they are not likely to accept draconian collateral pledges for small grants.

Currently, the ReConnect grant is totally reliant on the FCC maps, and that has to change as well – because many of the places that will be missed with broadband will be incorrectly labeled as served by the FCC. The ReConnect process is complicated, it’s a challenge to input grant requests that must tie to penny while doing so in financial formats that nobody outside of the RUS understands.

In a post-BEAD world, any future grants are going to have to be creative, nimble, and able to bring solutions to small grant areas without a huge amount of paperwork. Unless the RUS is willing or able to change how it awards grants, this could be a grant program with very few future takers – and that would be a shame.

If BEAD Isn’t Enough

There are several States already estimating that the BEAD grant funding is not going to be enough money to reach all of the unserved and underserved areas. California, New Mexico, and Minnesota have estimated that BEAD will fall short. By the time the dust settles there will likely be more states.

I’m not surprised by this. Just since the BEAD grant program was enacted by the Infrastructure Investment and Job Act in November 2021, there have been some significant cost increases for building broadband networks. Network design engineers are telling me that costs have gone up in most places by 20% to 25% over the last two years. Part of this comes from inflation, which has driven up the cost of materials and labor. But a lot of the increase comes from perceived labor shortages in the industry, which has prompted construction contractors to raise prices faster than inflation.

The BEAD grant process also adds significant costs in some markets. I’ve done the analysis in some states where having to pay prevailing wages will increase the cost of a network by 10% to 15%. BEAD has other requirements that add significant cost. For many smaller ISPs the cost of obtaining a letter of credit is going to be expensive. There are environmental studies required for grant projects that add costs.

The various cost increases mean that BEAD funding won’t cover nearly as many locations as might have been supposed by whoever determined that $42.5 billion was enough money. As unbelievable as it sounds, we might have needed a BEAD pool of $60 billion or more to provide the same coverage as $42.5 billion in 2021 construction costs.

I think the problem is a lot larger than folks suppose because all of these estimates begin with the assumption that the FCC broadband maps are accurate. I think grant offices are going to be jammed with grant applications where ISPs and communities demonstrate the maps are wrong and the supposed FCC coverage doesn’t exist. I’m also coming to realize that there are a lot more underserved places in urban areas than are shown on the FCC maps.

There are also going to be grant projects that fail. The NTIA rules have gone far overboard to try to prevent failure, but we only have to look at the two-year-old RDOF program to see ISPs saying they can’t afford to build the projects with the funding they received. Some BEAD projects are going to take four years to build, and that’s four years of inflation eating away at the value of the grant.

Where might the money come from to cover these shortages? There are several possibilities:

  • There might be other grant programs that can plug some of the holes. For example, the Agriculture bill pending in the House and Senate has more funding for the USDA ReConnect grants. Hopefully, the USDA will change the rules a bit because ReConnect grants are not currently friendly to grant areas consisting of disjointed pockets of serving areas. Unfortunately, in much of the country, that’s what the remaining unserved areas look like on a map – scattered unserved pockets between areas built with other grants.
  • It’s always possible for the FCC to have another round of RDOF. I have to wonder if it learned any lessons from the first round of RDOF? Is there any hope that the FCC would give money to states rather than hold another reverse auction? Also, RDOF and other federal programs are also going to struggle if they insist on only funding areas identified on the FCC maps rather than areas that really need broadband.
  • Congress could always step up – but that seems like a remote possibility in the current dysfunctional Congress. Hopefully, if Congress provides the funding, it will give the money to the States again.
  • State legislators could come up with the funding. However, the vast majority of State funding in the last few years came from CARES and ARPA funding. The level of state broadband funding before those programs was relatively small. I remember joking with folks in Minnesota that the State’s broadband grant program at $20 million per year was a hundred-year plan to bring broadband everywhere.

Another Red Flag – the BEAD Labor Requirements

The BEAD grant rules established by the NTIA are going to be a difficult hurdle for many ISPs to cross. I think most ISPs reading the NTIA’s Notice for Funding Opportunities (NOFO) will find things on the list of requirements that will be hard or difficult to meet. If you are thinking of applying to BEAD, you should read these rules carefully after reading this blog. The rules start on page 56 of the NOFO.

Without trying to sound too critical, the labor requirements sound like something written by bureaucrats who are designing a hypothetically perfect labor system instead of written by folks who have ever built a broadband network and have dealt with broadband contractors. Let’s run through some of the requirements to make this point:

Those seeking grants must demonstrate that they intend to comply with federal labor and employment laws. I think every grant I’ve ever worked with has this same requirement, which is usually satisfied by having an officer of the applicant attest that they will follow the law. However, the NOFO goes much further than that. A grant office must obtain an applicant’s record of compliance with federal laws, as well as the records of any entities that will participate in the project, including contractors and subcontractors.

This will require an ISP to specifically identify contractors and subcontractors before filing for a grant. All of these entities must prove their past compliance with federal labor laws. This is not how the industry functions. The entire industry works on a system of primary construction contractors and a host of smaller subcontractor crews. Big ISPs like Charter and Frontier can easily identify their primary contractor because they will have them under contract to handle whatever future work comes along. Smaller ISPs typically find a primary contractor after they know they have a project – like after they win a grant.

I wrote a recent blog that talked about the problems that small ISPs are having in getting projects constructed. I gave an example of a financially stable ISP that couldn’t find a contractor in today’s market to build a few small projects funded by ARPA grants. This difficulty came after the ISP already had the projects and funding in hand. I can’t imagine rural contractors that will be willing to sign on to a grant project at the application stage when they don’t even know if the ISP will win the grant. This requirement shows a total lack of understanding of how small construction contractors function. Their number one goal is to always keep crews working. They choose projects based on the timing of the work, the level of payment, and the location.

It’s inconceivable to me that the typical contractor will agree to sign onto a grant project even before the grant application – that is forcing contractors to pick ISPs they think will win grants. This NTIA rules seems to want to make sure that all work is done by quality contractors by making applicants and contractors pair off even before winning a grant. I can think of a dozen ways how this can backfire on a contractor that agrees to work for a given grant project when it can’t possibly know if and when that grant will be awarded and when construction will start.

This requirement also shows a lack of understanding about the makeup of the construction companies that build broadband infrastructure. Underneath the prime contractors are normally a host of smaller subcontractors – even for projects built by the giant ISPs. Subcontractors are often single crews who hire on to projects. These small crews come and go. I’ve never heard of any sizable broadband project that could identify the small subcontractors that would eventually work on the project. Crews regularly leave and get replaced as needed during most projects. There is no way that these small 6-technician crews will sign on to theoretical grant projects two years before the start of construction. Only in a fantasy world can a contractor promise the make-up of the subcontractor workforce over the life of a multi-year construction project.

The NOFO suggests ways around this requirement, which it knows is hard, by suggesting that ISPs directly hire the labor force. I laughed out loud at that idea in an environment where ISPs are having trouble keeping existing staff or hiring new staff. Trying to build a grant project with employees might be the riskiest strategy of all. Most ISPs I know have an ethical problem hiring crews that will be let go in three or four years at the end of grant construction – and it’s hard to envision that an ISP can attract technicians who understand that work will be temporary.

Building networks with employees will also require buying expensive construction equipment that would have no use past the term of the grant. This idea is impractical since there is still a multi-year backlog in the supply chain for specialized fiber construction equipment. Plus, do we really want to require that an ISP must buy a million dollars of boring equipment just to win a grant? Can the NTIA please invent more ways to make it even more expensive to take the BEAD funding?

The NOFO also has a strong preference for using unionized contractors and getting a labor agreement specific to the grant project. The NOFO even suggests labor peace accords where workers agree to not strike or disrupt work during the life of the grant. It seems like a big stretch to get unions to make such agreements for theoretical grant projects that may not be built for many years into the future.

The NOFO also places a huge emphasis on having an “appropriately skilled and credentialed workforce (including by the subgrantee and each of its contractors and subcontractors)”. This means using a workforce where all members of the project workforce will have appropriate credentials, e.g., appropriate and relevant pre-existing occupational training, certification, and licensure.

For projects that don’t use union labor, NTIA wants to see that every employee, including contractors and subcontractors, has safety training, certification, and/or licensure requirements (e.g. OSHA 10, OSHA 30, confined space, traffic control, or other training as relevant depending on title and work), including whether there is a robust in-house training program with established requirements tied to certifications, titles; and information on the professional certifications and/or in-house training in place to ensure that deployment is done at a high standard.

Whoever wrote the NOFO has no understanding of the construction crews who build networks. There has been only a handful of certification programs around the industry for decades, and only a small percentage of technicians who build networks have any formal certification. I think every ISP will agree with me that they want a crew made up of construction veterans with a decade or two of experience rather than a crew that has technicians with newly minted certifications.

It’s hard to know if this is intentional, but like many of the BEAD requirements suggested by NTIA, these labor requirements greatly favor large ISPs over small ones. I think most smaller ISPs will be unable to identify contractors and subcontractors ahead of time and convince contractors to provide their history of adherence to federal law, have all certified employees, and jump through a mountain of paperwork. If I was a contractor, I wouldn’t touch a BEAD grant project with a 10-foot pole – there is plenty of other work available.

I hope that State Broadband Offices push back hard on these requirements to make them realistic. That won’t be easy because some of these rules seem mandatory – but not all.  I strongly urge State Broadband Offices to sit and talk with local ISPs and construction contractors about the hurdles created by these rules – because these requirements will stop quality ISPs from pursuing the BEAD grants.

Lets Stop Talking About Technology Neutral

A few weeks ago, I wrote a blog about the misuse of the term overbuilding. Big ISPs use the term to give politicians a phrase to use to shield the big companies from competition. The argument is always phrased about how federal funds shouldn’t be used to overbuild where an ISP is already providing fast broadband. What the big ISPs really mean is that they don’t want to have competition anywhere, even where they still offer outdated technologies or where they have neglected networks.

Today I want to take on the phrase ‘technology neutral’. This phrase is being used to justify building technologies that are clearly not as good as fiber. The argument has been used a lot in recent years to say that grants should be technology neutral so as not to favor only fiber. The phrase was used a lot to justify allowing Starlink into the RDOF reverse auction. The phrase has been used a lot to justify allowing fixed wireless technology to win grants, and lately, it’s being used more specifically to allow fixed wireless using unlicensed spectrum into the BEAD grants.

The argument justifies allowing technologies like satellite or fixed wireless using unlicensed spectrum to get grants since the technologies are ‘good enough’ when compared to the requirement of grant rules.

I have two arguments to counter that justification. The only reason the technology neutral argument can be raised is that politicians set the speed requirements for grants at ridiculously low levels. Consider all of the current grants that set the speed requirement for technology at 100/20 Mbps. The 100 Mbps speed requirement is an example of what I’ve recently called underbuilding – it allows for building a technology that is already too slow today. At least 80% of folks in the country today can buy broadband from a cable company or fiber company. Almost all of the cable companies offer download speeds as fast as a gigabit. Even in older cable systems, the maximum speeds are faster than 100 Mbps. Setting a grant speed requirement of only 100 Mbps download is saying to rural folks that they don’t deserve broadband as good as what is available to the large majority of people in the country.

The upload speed requirement of 20 Mbps was a total political sellout. This was set to appease the cable companies, many which struggle to beat that speed. Interestingly, the big cable companies all recognize that their biggest market weakness is slow upload speeds, and most of them are working on plans to implement a mid-split upgrade or else some early version of DOCSIS 4.0 to significantly improve upload speed. Within just a few years, the 20 Mbps upload speed limit is going to feel like ancient history.

The BEAD requirement of only needing to provide 20 Mbps upload is ironic for two reasons. First, in cities, the cable companies will have much faster upload speeds implemented by the time that anybody builds a BEAD network. Second, the cable companies that are pursuing grants are almost universally using fiber to satisfy those grants. Cable companies are rarely building coaxial copper plant for new construction. This means the 20 Mbps speed was set to protect cable companies against overbuilding – not set as a technology neutral speed that is forward looking.

The second argument against the technology neutral argument is that some technologies are clearly not good enough to justify receiving grant dollars. Consider Starlink satellite broadband. It’s a godsend to folks who have no alternatives, and many people rave about how it has solved their broadband problems. But the overall speeds are far slower than what was promised before the technology was launched. I’ve seen a huge number of speed tests for Starlink that don’t come close to the 100/20 Mbps speed required by the BEAD grants.

The same can be said for FWA wireless using cellular spectrum. It’s pretty decent broadband for folks who live within a mile or two of a tower, and I’ve talked to customers who are seeing speeds significantly in excess of 100/20 Mbps. But customers just a mile further away from a tower tell a different story, where download speeds are far under 100 Mbps download. A technology that has such a small coverage area does not meet the technology neutral test unless a cellular company promises to pepper an area with new cell towers.

Finally, and a comment that always gets pushback from WISPs, is that fixed wireless technology using unlicensed spectrum has plainly not been adequate in most places. Interference from the many users of unlicensed spectrum means the broadband speeds vary depending on whatever is happening with the spectrum at a given moment. Interference on the technology also means higher latency and much higher packet losses than landline technologies.

I’ve argued until I am blue in the face that grant speed requirements should be set for the speeds we expect a decade from now and not for the bare minimum that makes sense today. It’s ludicrous to allow award grant funding to a technology that barely meets the 100/20 Mbps grant requirement when that network probably won’t be built until 2025. The real test for the right technology for grant funding is what the average urban customer will be able to buy in 2032. It’s hard to think that speed won’t be something like 2 Gbps/200 Mbps. If that’s what will be available to a large majority of households in a decade it ought to be the technology neutral definition of speed to qualify for grants.

No More Underbuilding

Jonathan Chambers wrote another great blog this past week on Conexon where he addresses the issue of federal grants having waste, fraud, and abuse – the reasons given for holding hearings in the House about the upcoming BEAD broadband grants. His blog goes on to say that the real waste, fraud, and abuse came in the past when the FCC awarded federal grants and subsidies to the large telcos to build networks that were obsolete by the time they were constructed. He uses the term underbuilding to describe funding networks that are not forward-looking. This is a phrase that has been around for many years. I remember hearing it years ago from Chris Mitchell, and sure enough, a Google search showed he had a podcast on this issue in 2015.

The term underbuilding is in direct contrast to the large cable and telephone companies that constantly use the term overbuilding to mean they don’t want any grant funding to be used to build any place where they have existing customers. The big ISPs have been pounding the FCC and politicians on the overbuilding issue for well over a decade, and it’s been quite successful for them. For example, the big telcos convinced the FCC to provide them with billions of dollars in the CAF II program to make minor tweaks to rural DSL to supposedly bring speeds up to 25/3 Mbps. I’ve written extensively on the failures of that program, where it looks like the telcos often took the money and made minimal or no upgrades.

As bad as that was – and that is the best example I know of waste, fraud, and abuse – the real issue with the CAF II subsidy is that it funded underbuilding. Rural DSL networks were already dying when CAF II was awarded, mostly due to total neglect by the same big telcos that got the CAF II funding. Those billions could have instead gone to build fiber networks, and a whole lot of rural America would have gotten state-of-the-art technology years ago instead of a tweak to DSL networks that barely crawling alone due to abuse.

The FCC has been guilty of funding underbuilding over and over again. The CAF II reverse auction gave money to Viasat, gave more money for upgrades to DSL, and funded building 25/3 Mbps fixed wireless networks. The classic example of underbuilding came with RDOF, where the areas that were just finishing the CAF II subsidy were immediately rolled into a new subsidy program to provide ten more years of subsidy. Many of the areas in RDOF are going to be upgraded to fiber, but a lot of the money will go into underperforming fixed wireless networks. And, until the FCC finally came to its senses, the RDOF was going to give a billion dollars to Starlink for satellite broadband.

The blame for funding underbuilding lies directly with the FCC and any other federal grant program that funded too-slow technologies. For example, when the CAF II funding was awarded to update rural DSL, areas served by cable companies were already delivering broadband speeds of at least 100 Mbps to 80% of the folks in the country. By the time RDOF was awarded, broadband capabilities in cities had been upgraded to gigabit. The policy clearly was that rural folks didn’t need the same quality of broadband that most of America already had.

But the blame doesn’t just lie with the FCC – it lies with all of the broadband advocates in the country. When the ISPs started to talk non-stop about not allowing overbuilding, we should have been lobbying pro-broadband politicians to say that the FCC should never fund underbuilding. We’ve collectively let the big ISPs frame the discussion in a way that gives politicians and regulators a convenient way to support the big ISPs. Both at the federal and state levels the broadband discussion has often devolved into talking about why overbuilding is bad – why the government shouldn’t give money to overbuild existing ISPs.

Not allowing overbuilding is a ludicrous argument if the national goal is to get good broadband to everybody. Every broadband network that is constructed is overbuilding somebody, except in those exceptionally rare cases where folks have zero broadband options. If we accept the argument that overbuilding is a bad policy, then it’s easy to justify giving the money to incumbents to do better – something that has failed over and over again.

It’s time that we call out the overbuilding argument for what it is – pure protectionism. This is monopolies flexing political power to keep the status quo, however poorly that is working. The big ISPs would gladly roll from one subsidy program to another forever without investing any of their own capital to upgrade rural networks.

Every time a regulator or politician says that we should not be using federal money to overbuild existing networks, we need to prod pro-broadband politicians to counter that argument by saying we should not be spending any more money on underbuilding. Broadband is infrastructure, just like roads and bridges, and we should be investing any grant money into the most forward-looking technology possible. If the national goal is to make sure that everybody has good broadband, then we should be ready to overbuild anywhere the incumbents have underperformed, be that in rural areas or inner cities. It’s time we shift the conversation away from protectionism to instead prioritizing bringing broadband that will still be good a decade or two after the grant award. Let’s not spend another penny of grant money on underbuilding networks by investing in slow technologies that are inadequate and obsolete even before they are completed.

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.

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.

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.