Regulation - What is it Good For? The Industry

Following the Rules When Choosing an ISP Partner

Local governments all over the country are choosing ISP partners and making grants from ARPA funds to help bring better broadband. Today’s blog is a warning to handle the awards of such monies in a way as to be safe from challenges from ISPs you don’t choose to fund. I’ve already heard of a few cases where such challenges have been mounted.

The reason for issuing this warning is that ISPs that don’t get funded can ask to see all of the records that are part of the process of choosing a partner and can sue a local government if they don’t believe the review and award process gave them a fair chance to win the awards.

It’s important to remember that although ARPA money came to local governments from a federal grant program, this is still local government money, and the process of spending the money is subject to at least some portion of government procurement rules and certainly is subject to all rules having to do with openness and transparency of records. An ISP merely needs to ask and can see all emails, correspondence, and any document created as part of the process of choosing who to fund.

What complicates this more than other government spending is that local governments are including broadband committees in the decision-making process of picking partners. These are folks who are not officially part of the government and are probably not familiar with government procurement rules. They probably don’t know that things they say in an email or things they write in notes can possibly be discovered by others.

This is an unusual circumstance because governments don’t normally include citizens directly in the process of spending government money. But local broadband committees have put so much energy into bringing a better broadband solution that it wouldn’t seem right to not have them be part of the process of deciding who will be the funding ISP in the community. It’s fairly obvious that whatever ISP is given funding to bring fiber to a rural area will effectively be the broadband monopoly provider there for many decades to come – so it’s an important decision.

One of the things I see a lot is local communities issuing invitations for ISPs to propose to get the funding. These might be in the form of an RFQ (request for qualification), an RFI (request for information, or an RFP (request for proposal). Be careful how you write these invitation documents because the government is going to be bound by whatever you tell ISPs about the selection process. My advice is to say nothing about how winners will be chosen.

For instance, if an RFI says that ISP winners will be chosen by a ranking scale based upon certain criteria, then the local government is bound to follow that ranking process. A local government can’t say it will pick somebody in a certain manner and then do something different. If ISPs are ranked on a grading scale, be aware that ISPs can later ask to see how they were graded – and that is where the chance comes that an ISP will take exception to the scoring process.

The worst thing that can happen is to have already chosen the winner before going through the process. There is a good chance in such a case that there are emails or other evidence that the choice was made before the process even began.

I strongly advise local governments to include an attorney and perhaps a trusted consultant who has been through this before in the process. A selection committee needs to get the speech about being fair, open, and transparent and warned not to create written records that are derogatory to any of the ISPs in the process. Governments have a legal obligation to be fair and aboveboard when choosing anybody who will receive public funding. I know that picking ISP partners feels like it is an extraordinary thing, but it is not somehow outside the normal government procurement processes.

The Industry

Small Cities Really Want Fiber

It’s obvious that small towns in America really want fiber and they are starting to take steps to try to get it. Just a few years ago fiber was one of the many things that City Councils around the country talked about from time to time. But lately it seems to have moved to the top of the list of things that towns think they need to thrive and survive.

There a number of towns that already have fiber. Most of these just happen to be lucky enough to be close to an independent telephone company or other business that has decided to invest in fiber in their neighborhood. And some towns have taken it upon themselves and have built fiber networks to everybody. But the vast majority of cities don’t foresee any options to get fiber, particularly if they don’t want to build it themselves, or if they live in a state where they are prohibited from building fiber.

I am starting to see a large number of RFPs (requests for proposals) from smaller town that are asking somebody to please come and serve them. I haven’t counted them, but I would not be surprised if I’ve seen 150 such RFPs in the last two years.

Sadly these RFPs rarely work. There are a few successes. For instance, the announcement that Google is coming to Huntsville AL started with an RFP looking for a partner. But Huntsville is a large metropolitan area and very different than smaller towns who issue the same plea.

The whole RFP process is an odd one and is almost guaranteed to fail. Generally small towns will describe everything they want from a fiber provider and then plead for somebody to come with their own private money and build fiber. This process demonstrates some financial naivete because the cities almost invariably present a list of ‘demands’ for how they want the fiber business to operate. They are failing to recognize that anybody with the money to build fiber is going to get to call the shots and that smaller communities have little role in the process other than to say yes or no to somebody who wants to build fiber. I also find it extremely unlikely that a serious fiber investor would negotiate in a public forum like an RFP. And even if they did, the investor would be the one telling the City what they need, and not the other way around.

But the existence of so many fiber RFPs shows the building level of desperation of cities to get fiber. I assume that before cities issue RFPs that they have already talked to potential nearby service providers and found no takers. I see these RFPs as a last ditch effort to find somebody willing to invest in the needed infrastructure in their City.

Cities are also looking at more creative solutions. I just saw last week that the City of Ammon, Idaho is looking to create what they call a ‘fiber optic district’. This would be a tax district similar to special districts established to pay for fire protection, water systems and all sorts of other public benefits. It’s an interesting concept in that it puts those living within a district on the hook to somehow help to pay for fiber. There have been a few other communities around the country who have obtained some kind of property tax lien or other pledge from citizens to pay for fiber. But this is the first time that I’ve heard it being considered as a special taxing district.

The Ammon idea has a twist, and if I read it right it’s a voluntary tax district in that only those that agree to pay for fiber would be on the hook. I know just enough about municipal law to see all sorts of problems in that part of the idea. But even if the way that Ammon wants to do this doesn’t work out as planned, the idea of putting citizens on the hook for part of the funding for fiber is a good one. Lenders always care about recourse – who is going to pay them back if a project fails. If the citizens of a city want fiber badly enough to be that recourse it’s going to be a lot easier to fund fiber.

It’s going to take more ideas like the Ammon one to get fiber to small-town America. As cities become increasingly desperate for fiber I expect to see more creative ideas being used to finance networks. There are a whole lot more communities that want fiber than there are overbuilders willing or able to invest, and that means communities have to go the extra mile to make it onto an overbuilder’s list of potential opportunities.

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