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Regulation - What is it Good For?

When Will We See BEAD Grants?

One of the most common questions I’ve been fielding is when we’ll be able to file for grants from the Broadband Equity, Access, and Deployment (BEAD) grants that come from the $42.5 billion funding that will pass from the NTIA and be administered through the states. The short answer to the question is that we can’t know yet. But we know all of the steps that must be taken by a state before it can start offering grants.

We have a date for the first step of the process. On May 15, the NTIA will release a Notice of Funding Opportunity (NOFO) for the BEAD program. This document will flesh out the NTIAs understanding of how the grant process will work. The legislation that enabled the grants included some specific requirements, and in this document, the NTIA will embellish and add details to those requirements. Note that the purpose of the NOFO is to inform the States what must be included in the grants the States will ultimately award. This NOFO will not be the rules for grant applicants – those rules will differ as each State adds its own twist on the basic NTIA rules.

After the NOFO is published, States will have to file a letter of intent (LOI) with the NTIA to describe the current state of broadband in the State and must describe the State’s plan for using and administering the BEAD funding. States are allowed to request up to $5 million at the time that they submit the LOI. This funding is provided to help States reach out to citizens, communities, and businesses. The funds can be used for a variety of planning purposes like data collection, developing a budget for operating the State grant program, materials for outreach to the public, etc. States that accept the $5 million of funding must file a 5-Year Action Plan to the NTIA. This document will describe how a State will set priorities for things like economic development, telehealth, or whatever priorities a given State feels are the most important. To clarify a question I’ve gotten a few times – this $5 million is strictly for the state to do planning and will not be turned into planning grants for anybody else.

The whole process is then on hold until the FCC releases updated broadband maps. This is the step I’m worried about because the new broadband maps will be the first time that ISPs will be using the new mapping system. I will be surprised if the first maps from the new process are not a messy disaster – and I’m not sure what happens if they are. It’s hard to think that the FCC will be ready to release the new mapping data before the end of this year, although the agency will be under huge pressure to get this done sooner.

At this stage, the purpose of the FCC maps is to count the number of unserved and underserved homes in each state in order to decide how much funding each state will get. It won’t be surprising to see a few states sue the NTIA at this point if they feel that the maps are erroneous and that their state is getting shorted on funding – recall that many states have had mapping programs and they think they already know the number of people without broadband.

Once the amount of funding to each state is known, States must file what is being called an Initial Proposal. This is the document where the State describes how it will administer the BEAD grants. The Initial Proposal will describe the detailed grant rules each State plans to use to choose grant winners and administer grants once awarded. Each State must issue a list of areas that it thinks are eligible to meet its proposed grant rules.

The NTIA will review each Initial Proposal. That’s a daunting task, and States that get the Initial Proposals in first will probably get reviewed first by the NTIA. There is no guarantee that the NTIA will approve a plan, particularly if a State’s plan violates any of the rules specifically proscribed by Congress – such as making grant awards available to municipalities. I believe the NTIA also must judge if a State has assembled a team capable of administering the proposed grants – something that many states are already behind on. If the NTIA doesn’t approve an Initial Proposal, then I assume that the State and the NTIA will begin a negotiation process. The way I read the rules, if a State doesn’t get approved, the State won’t be given any BEAD funding.

If the NTIA approves a State’s Initial Proposal, the NTIA will then release 20% of the BEAD funding allocated to that State. The next step might be messy because a State that receives this funding must next complete a challenge process where it gives incumbent ISPs a chance to dispute any areas that are listed as grant eligible. Some challenges will be easy – such as where an ISP has built fiber since the date of the data in the FCC maps. But the experience with similar challenges in the recent NTIA grants portends a big mess for State broadband offices if huge number of challenges are mounted. This could become a protracted battle if any ISPs take unsuccessful challenges to court. Note that this is the State reviewing the challenges, not interested communities and ISPs, and we will quickly see if a given State is biased towards incumbents or communities.

Once the challenge process has been fully resolved, a State must submit its Final Proposal. This will reflect any changes made as a result of the challenge process. The NTIA must then approve the Final Proposal and will release the rest of the BEAD grant funds to a state.

This process is overly complicated and seems aimed at moving slowly – but it was dictated by Congress to be that way. It’s impossible to guess a timeline for the process. It’s hard to envision the first State being able to announce a grant program until the summer of 2023 – but I predict that most states will be later than that. For communities waiting for broadband, it’s hard to imagine much construction starting before 2024, with many projects then requiring multiple years to build.

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Improving Your Business Regulation - What is it Good For?

The New e-Connectivity Pilot Grants

In March Congress passed a new $600 million grant/loan program to build rural broadband. The project has been labeled as the e-Connectivity Pilot and it’s expected that the specific rules for seeking the funding will be released early on 2019. The USDA sought public comments on the program in September and is now working out the details of how the awards will be made.

Anybody interested in these grants should get serious about it now, since it’s likely that the grant application window might not be any longer than 60 to 90 days. Getting ready means having a detailed and solid business plan as well as already having a source of funding for any parts of a project not covered by these grants. The grants are also likely to include provisions like getting a professional engineer to approve the network design – so designs need to be specific and not generic. It’s likely that the USDA will stick with their existing grant application process – and those forms have always been a bear to complete.

There is one huge hurdle to overcome for this program since an application can’t cover an area that has more than 10% of households with access to broadband speeds of at least 10/1 Mbps. Considering that the CAF II awards and more recent CAF II reverse auctions awards already will supposedly provide this kind of speed to huge swaths of the country, there are not a lot of areas left that will meet this requirement.

Claiming that an area meets the 90% unserved threshold will be also be difficult because grant applications can be challenged by carriers that serves the grant area today. I have to assume that CAF II reverse auction winners will also be able to challenge. The big rub is that the original CAF II award winners still have until 2020 to complete their build-out and they will certainly challenge awards for any CAF II area that has not yet been updated. The CAF II reverse auction winners have ten more years to complete their buildout. The USDA will likely be obligated to reject an application that encroaches on any of the CAF II footprint – even if those areas don’t have broadband today.

This gets even more complicated since the CAF II reverse auction awarded funding to fixed wireless and satellite providers. They were funded to serve specific little pockets of unserved homes, but it won’t be hard for them to claim that the CAF II award dollars will allow them to serve much larger areas than the tiny boundaries they bid on.

The process of proving a study area isn’t served will be further complicated by the USDA’s reliance on the FCC’s broadband maps, which we all know to be highly inaccurate in rural America. This all adds up to mean that an applicant needs to prove the area doesn’t have broadband today and will not be getting it over the next decade from one of the CAF winners. They will also need to overcome any errors in the FCC maps. This is going to be hard to prove. I expect the challenge process to be brutal.

From the instant I saw the 90% unserved test, I’ve assumed that the most likely candidates for these grants will be somebody that is already planning on building broadband across a large footprint. If such an applicant is careful to only identify the scattered homes that meet these grant rules, then this funding can help to pay for a project they were going to build anyway. The other natural set of applicants might be those companies that already took CAF II funding – they could use these grants to fill in unserved homes around those build-out areas. The industry is going to be in an uproar if a lot of this funding goes to the big incumbent telcos (who won’t challenge their own applications).

Another issue to consider is that the USDA can award funding as a combination of grants and loans. These awards will surely require matching funding from an applicant. Anybody that is already planning on funding that matching with bank or other financing might find it impossible to accept USDA loans for a portion of a project. USDA loan covenants are draconian – for example, USDA loans usually require first priority for a default, which will conflict with commercial lenders. It’s always been nearly impossible to marry USDA debt with other debt.

rant applicants should also be aware that the USDA is going to be highly leery of awarding money to start-ups or somebody that is not already an ISP. The agency got burned on such grants awarded with the stimulus grants and has indicated that they are looking for grant award winners to have a strong balance sheet and a track record of being an ISP. This will make it nearly impossible for local governments to go after the money on their own. Chances of winning will be greatly enhanced by public/private partnerships with an existing ISP.

I know my take on the grants sound highly pessimistic. Congress saddled these grants with the 90% unserved test at the coaxing of the big telcos who wanted to make sure these funds weren’t used to compete against them. Past USDA grants had the opposite requirement and could consider awards to areas that didn’t have more than 10% of houses with broadband. However, if you are able to identify a service area that can survive the challenge process, and if you have the matching funded lined up, these grants can provide some nice funding. I’m not taking any bets, though, on the USDA’s ability to award all of the money – there might not be enough grant applications that can make it through the gauntlet.

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