Tag Archives: IIJA

Technology Neutral

I cringe every time I see the term “technology neutral”. Over the last few years, NTIA has morphed the phrase into a euphemism to mean we should favor the cheapest technology over the best technology.

And it clearly is a euphemism meant to disguise the true nature of the broadband policy discussion from those not involved in the topic every day. Governments have gotten so good at developing such phrases that the euphemisms replace the right language and become common usage. We routinely hear phrases like revenue enhancement instead of tax increase, or negative growth instead of losses without fully realizing what is not being said.

The phrase technology neutral didn’t start as a euphemism. It comes from a policy paper issued during the Clinton Administration, “Framework for Global Electronic Commerce“, which used the term “technology-neutral” to warn that governments shouldn’t get involved in trying to steer the technology direction for the budding Internet industry. The Administration at the time believed that a hands-off market approach would best allow the Internet to develop. It turns out they were right.

It seems pretty clear that the term was tossed into the IIJA legislation as a bone for WISPs. They badly wanted to participate in BEAD and used the term technology-neutral to plant the idea that all technologies that could deliver speeds of 100/20 Mbps were all equivalent. Until Tarana came out with much faster radios, the fixed wireless technology at the time didn’t deserve to be considered for long-term grants – and sure enough, five years later, the older radios have already joined DSL and other older technologies in the obsolete technology trash bin.

I’ve been searching for a good analogy for the current use of technology neutral and think I have one. Consider a tiny village that is not connected to the power grid. There is a wide range of technology solutions for providing homes with heat and light. The village could be given a self-sufficient solar power farm. They could be connected to a nuclear power plant. They could be given an obsolete coal-powered plant being decommissioned from somewhere else. Each home could be given a gas generator. They could be provided with the low-tech option of fireplaces and axes to chop firewood.

The various technology choices are clearly different in terms of cost and effectiveness. The NTIA technology neutral position would say that all of these options are acceptable, as long as they deliver heat and light to the homes today and also will deliver heat and light in the foreseeable future. If there were a government grant to bring heat and light to the towns that operated under the NTIA rules, the decision would be made on cost, since all of the solutions are considered to be technology-neutral. I don’t think the rural residents would be thrilled with their government-subsidized axes.

Don’t mistake this as a rant for building fiber instead of other broadband technologies. In the example, it would be extreme to build the most expensive solutions, like a nuclear power plant. I don’t know anybody who supports the idea of spending huge amounts of money to bring broadband to a small number of places. Going back to the village in my example, there are a lot of options between a nuclear power plant and fireplaces.

The real problem I have with the term technology neutral is that it says that all broadband technologies are the same, and they clearly are not. Starlink is not equivalent to fiber for a small community. For one thing, fiber can be used for a lot of other purposes that can benefit the community beyond bringing home broadband. Using a euphemism is a way to disguise the real discussion that should be held at State Broadband Offices – what can be afforded for the funding that is available. I think States were mostly doing that, but the shift to the lowest-cost solution ended all logical deliberation.

As we saw in the first BEAD award from Louisiana, which was done under the original BEAD rules, the State still awarded satellite technology for some locations, because that was the most sensible solution for those places. But when the rules got reshuffled to impose technology neutrality, deliberate decisions of the broadband office were replaced with a simple cost comparison.

BEAD and the Economy

I’ve written about how the new BEAD rules impact County governments, broadband offices, and the general public. What’s not being talked about enough is the impact of building infrastructure on the overall economy. BEAD was part of the Infrastructure Investment and Jobs Act, which, while called an infrastructure bill, was foremost a jobs bill. Early on, NTIA envisioned that $42.5 billion was enough money to fund a lot of fiber construction and the jobs and economic benefits that go along with that construction.

I’m not sure if most people understand how labor-intensive it is to build rural fiber. Consider a BEAD project to build 1,000 miles of rural fiber to serve 5,000 homes and businesses. Such a project would involve the following labor:

  • The actual construction will require 50–60 man-years of technicians and supervisors to build the fiber network.
  • The project will require 10-12 man-years to construct fiber drops and install customers in homes and businesses.
  • There are probably 2 man-years of effort by the engineers, consultants, and others who design the network, order materials, obtain the grant, obtain permits and rights-of-ways, track construction, create maps and records, and report to the grant agency.

Direct labor is only the beginning. The benefits from constructing this project will spread through the local and national economy:

  • There is labor from employees of the vendors who manufacture fiber and electronics. With Build America rules, this labor is mostly in the U.S.
  • There is labor at the supply houses that warehouse, sell, and ship the materials.
  • There is work for truckers who deliver the materials from factory to supply house to construction site.
  • There will be half a dozen vehicles purchased or used to support the project. There are also computers, smartphones, test equipment, and related electronics.
  • There is work required by local people who locate buried facilities. There is work required at the electric utilities or other pole owners to coordinate adding facilities to their poles.
  • There is a huge boom for the local hotels, restaurants, gas stations, and other local merchants due to having contractors working in the local economy for an extended time.
  • There’s work for local electrical contractors to bring power to new electronics locations. Local contractors may be used to build or place huts and cabinets.
  • There is work at the banks and other firms that fund and insure the project.
  • There is work by the firms who will market and sell the new broadband to the people in the grant area.
  • This list could go on and on since the project will drive the ISP to spend money on software, office supplies, auditors, and a long list of other related expenses, all of which benefit somebody in the economy.

Finally, there are the permanent jobs created by the ISP that will operate the network. Depending on the size of the ISP who will operate the network, adding this network and customers will add 2-4 permanent technicians and customer service representatives along with the vehicles, office space, management, and benefits to support them.

That’s a huge amount of jobs and economic benefits from a single 1,000-mile fiber project, and the $42.5 might have funded the equivalent of 1,500 such fiber projects.

It’s clear that the new NTIA rules are going to greatly curtail the amount of fiber built with BEAD in favor of fixed wireless and satellite ISPs. The alternate technologies also benefit the economy, but at much lower levels. The major jobs benefit comes from building the physical infrastructure. Perhaps somebody has done the math, but I’m guessing that building a fixed wireless network probably brings only a tiny fraction of this benefit to the local economy. Giving  BEAD funding to satellite ISPs brings almost no benefit to the local economy.

I’ve seen economist estimates made over the years on how an infrastructure project like building fiber or a bridge brings 3-4 times the benefit to the economy than the local infrastructure spending. The changes the NTIA is will likely cut BEAD spending in half. It’s poor fiscal policy to focus on saving $20 billion in grant awards that might have brought $100-150 billion of benefit to the overall economy – and most of that benefit would have come to rural counties that most need it.

Broadband Labels are Here

On October 10, all ISPs in the country were supposed to have implemented and posted broadband labels. The labels were required as part of the Infrastructure Investment and Jobs Act. Large ISPs had to post labels six months ago, and now the requirement is for all ISPs.

I looked at the ISPs in a few counties I’m very familiar with and I found a few ISPs in each county that have not posted labels that I can find on their website. I expect that a few ISPs simply haven’t done this but that others are trying to game the system. Most of the ISPs with no link to labels tell customers they need to call to see if they are eligible for service. The purpose of the labels is to let prospective customers comparison shop, and the labels must be posted on the website for anybody to find. I’m pretty sure the FCC will find this practice violates the label rules. The FCC implies in its published guidelines for the labels that it is serious about the labels and threatens fines for ISPs that don’t create labels or who create labels that don’t comply with the rules. The FCC has recently fined some small ISPs for not reporting to the FCC maps, and I highly recommend creating and posting the label rather than becoming the poster child for the FCC.

While the labels seem simple, there is a lot of information that must be disclosed to the public, so ISPs should read the guidelines. I wrote a blog earlier this year that explains the label requirements in more detail. I didn’t write this blog to drum up business, but if somebody needs advice on creating the labels, please contact me.

ISPs face an interesting challenge in creating the labels, in that they must balance what is on the labels to what is reported to the FCC maps. That automatically causes a dilemma. The FCC allows ISPs to report ‘marketing speeds’ to the FCC maps. However, the labels require ISPs to list an approximation of ‘typical’ broadband speeds that is based on internal and documented network testing. I won’t be surprised if the FCC or State broadband offices start reaching out to ISPs asking for the data to back up the speeds reported on labels.

ISPs know that the public will likely never see what they report to the FCC maps, but a lot of people are going to see broadband labels that must be prominently displayed on ISP websites. My guess is that most ISPs will claim the same speeds in both places. An ISP that is greatly exaggerating speeds should feel nervous about doing so on the labels. I expect that some customers will complain to the FCC if an ISP advertises a speed or price on the labels but delivers something different.

The new labels look a lot like the nutrition labels that are on processed foods. The label requires basic information like the monthly price for standalone broadband, any special pricing that is in place currently and when that special pricing expires, a description of other monthly and one-time fees associated with the broadband, and the typical broadband speeds and latency. This means ISPs must prominently disclose hidden fees that are not part of any advertised price. It also means disclosing the specific details of special offers.

I’m really curious about what ISPs are going to report for upload speeds. There are a lot of ISPs claiming 100/20 Mbps on the FCC maps, but which speed tests show upload speeds significantly below 20 Mbps. How many ISPs are going to honestly disclose upload speeds under 20 Mbps, which would be an admission that their product is not broadband?

From the day I heard about the labels I wondered how ISPs using  DSL, fixed wireless, or FWA cellular broadband are going to report speeds. There are numerous factors for these technologies that mean that speeds vary significantly by customer.

I think the labels are a great marketing tool for ISPs that advertise honest speeds at a good price. These ISPs should make the labels prominent on their websites and challenge customers to compare to the competition.

NTIA Releases Digital Equity Funding

The NTIA recently announced $811 million in funding for digital equity that is available for States and Territories. This round of funding is part of the $1.44 billion Digital Equity Capacity Grant program of money that will go to States to administer digital equity grant programs. $60 million of this fund was allocated to States in 2022 for planning purposes. The NTIA has taken so long to deploy these funds that these disbursements represent the grant funding allocated for the law for years 2022 through 2024. There will be a few more future years of grant funding.

The total funding for digital equity in the IIJA (Infrastructure, Investment, and Jobs Act) was $2.75 billion. It’s expected that the NTIA will launch the $1.25 billion Digital Equity Competitive Grant Program this summer that will make grants directly available to entities like political subdivisions of states, non-profits, schools, libraries, and others.

States have two months to ask for their share of the funding. In this round of funding, $760 million is available to 50 states, Washington, D.C. and Puerto Rico, $45 million for Native entities, and $8.4 million is allocated for territories. The NTIA established a tentative award amount for each government entity. As expected, the largest amounts of funding goes to the states with the largest populations – California ($70 million), Texas ($55 million), Florida ($41 million), and New York ($37 million). Even states with small populations get a significant amount of funding, like North Dakota ($4.5 million), South Dakota ($5.0 million), and Wyoming ($5.3 million).

The States will use this money to make digital equity grants in each state. These grants are not intended for ISPs, but for non-profits, local governments, and related entities. Expect to hear about grant programs in every state as the summer progresses.

These grants are part of the larger effort of the IIJA to tackle all aspects of the digital divide. BEAD grants are intended to address the deployment and availability of broadband. The soon to be defunct ACP plan was intended to address affordability. It’s unfortunate that the NTIA has finally gotten around to spending money for the digital equity effort just as the affordability component is dying.

These grants are intended to tackle digital equity, with the stated purpose for identifying and solving barriers for people to use digital resources. It seems likely that most of the grants under this program will be used to get broadband devices into people’s hands and teach them how to use broadband. I expect to see a wide range of creative proposals made to States under this wide umbrella of uses.

Most States have been telling the public about these upcoming grants for years, and many of the entities that can use the funding have gotten prepared to file digital equity grants. But I have to imagine that States have varied in the effectiveness of this communication and there may still be non-profits, and others that haven’t heard of these grants.

A lot of communities have taken the approach of trying to consolidate all of the various stakeholders in a community into one grant application – with the reasoning that this might be the best way to be sure a community gets its fair share of funding. That might mean pulling in schools, colleges, libraries, and others to develop digital training classes and curriculums. It might mean pulling in the folks who are equipped to refurbish computers or distribute laptops to the public. Any community that has not considered this consolidated approach still has a little time, although it seems likely that we’re only months away from States announcing grant application cycles.

Removing Broadband Construction Barriers

One of the provisions of the IIJA legislation that created the BEAD grants is a directive that States should take steps to reduce costs and barriers to fiber deployment. The legislation lists specific ways that States can reduce the cost of BEAD grant project: promoting the use of existing infrastructure, adopting dig-once policies, streamlining the permitting processes, providing cost-effective access to poles, conduits, easements, and rights-of-way, and requiring reasonable access requirements.

The IIJA hoped that States would reduce barriers, reduce costs, and shorten timelines for BEAD project. The legislation not only wants States to make these changes for building along State highways but implies that States should ask counties and municipalities to make the same changes. The language also suggests making special exceptions for building BEAD infrastructure and not necessarily for other construction.

Anybody who has ever built fiber would agree on the benefits that come from most of the items on the list. The IIJA was enacted in November 2021, and states have had two years to react to these federal suggestions. I am sure that some States considered these recommendations in the last two years and perhaps even made a few improvements in processes. But I’ve seen very little evidence that most States have taken any action, and for the most part, States seem to have ignored the IIJA directive.

I’ve written many times about these same issues over the years, and I wonder if States have the ability or even interest to tackle these changes.

Use of Existing Infrastructure. I’ve been advocating this for years. There is a huge amount of unused fiber sitting in networks built by state highway departments, school systems, county and city networks, and statewide networks that could be a big benefit for commercial fiber deployment. But there are always reasons cited why governments won’t share fiber. There might be legislative prohibitions or restrictions from the original funding source that built the fiber. Governments might not want to expend the effort and cost to provide access to the fiber. Some governments worry about security.

Dig-once Policies. This is an idea that policymakers seem to love, but the market doesn’t value. There have been some successes with dig-once, particularly when an ISP already wanted access to fiber along a road that is under construction. But mostly, this policy goes nowhere. Road builders don’t want to incur any extra cost or schedule delays to accommodate fiber. Unless an ISP is part of the process, nobody wants to pay for conduit or access points. Even when conduit is built, it often doesn’t have the access points that ISPs want. Dig once builds disjointed stretches of infrastructure that don’t connect to other networks at the endpoints. To get infrastructure everywhere with dig once would probably take a hundred years.

Streamlining the Permitting Processes. This idea is at the top of most ISP’s wish list. While some states have worked to make it easier to build along state highways, in many cases, the state permits are the hardest to obtain. Most States have zero sway over influencing the processes for city and county roads, and trying to intervene or impose rules would set off an intense battle over state versus local rights.

Cost-effective Access to Poles, Conduits, Easements, and Rights-of-way. This is an interesting request in the IIJA because it conflicts with FCC jurisdiction over these issues. About half of the States still follow the FCC rules for these issues. The other half of States have their own rules but are only allowed to differ from the federal rules in relatively minor ways. States certainly can set fees for using State infrastructure but have limited power elsewhere.

One of the most interesting aspects of this legislative directive is that it is aimed mostly at State Broadband Offices. Most of the changes listed above either require legislative change or would mean making changes at embedded bureaucracies like State Highway Departments – two things that are far outside the reach and power of a State Broadband Office.

Defining Broadband Discrimination

One of the provisions of the Infrastructure Investment and Jobs Act (IIJA) is that it requires the FCC to “take steps to ensure that all people of the United States benefit from equal access to broadband internet access within the service area of a provider of such service.” In legalese, the term equal access, in this case, means that consumers should be able to expect to get the same speed, capacity, and latency as other customers buying the same product from the same ISP sold elsewhere. This new mandate has been labeled as a prohibition against digital discrimination.

The FCC is required by the IIJA to make a pronouncement of its interpretation of the discrimination rules in November. The FCC is going to have to define how it will identify digital discrimination and what remedies the FCC might have in mind for anybody who violates the principle. One of the interesting discussions on the topic is who this applies to, since the IIJ language doesn’t specifically mention ISPs. Might this also apply to landlords that own multiple apartment buildings? Might this apply to state or local government policies that promote discrimination?

I think a normal person reading this requirement might assume that Congress didn’t want ISPs to win the upcoming gigantic broadband grants and then discriminate against communities for any reason – but particularly because of a difference in income levels between communities. A number of the big ISPS have been accused over the years of redlining – of offering the best technology and prices to neighborhoods with the highest household incomes.

One of the challenges facing the FCC is to define what constitutes digital discrimination. As you might imagine, ISPs are taking a very different approach to the issue than public interest groups. ISPs think that the FCC should focus on intentional discrimination – against policies and practices by an ISP that are clearly intended to discriminate against the public. If the FCC’s standard is intentional discrimination, then the FCC would have to prove that an ISP is purposefully discriminating before it can take any action. If discrimination rules are based on this interpretation, then it’s hard to imagine many cases where an ISP would be found guilty of discrimination. It would probably require a believable whistleblower from inside an ISP to prove that an ISP was deliberately discriminating.

Public interest groups think that the FCC should instead concentrate on disparate market impacts where ISP actions have resulted in discrimination, regardless of an ISP’s intentions. Under this test, ISPs that always avoid building in low-income neighborhoods or that have different price policies for neighborhoods based on household incomes could be found to have violated digital discrimination. The proof of the discrimination would be found in the market results instead of the ISP’s intentions.

The FCC is required to deliver its digital discrimination policy to Congress and then act on the defined principle in the future. At a minimum, I would bet that ISPs are going to have to periodically certify to the FCC that they don’t discriminate. Beyond that, the agency is going to have to define the process by which it will identify discrimination and take action to remedy violations of the principle.

In practical application, many FCC policies only apply to giant ISPs – but I’m not so sure about this one. Is a small ISP discriminating if it only builds fiber to higher income neighborhoods? We’ll find out in November.

Criticizing BEAD

It’s not hard to make a list of things to dislike about BEAD or any other big-dollar federal program. As anybody who reads this blog knows, I have a laundry list of things I wish BEAD had done differently. Today’s blog looks at a report from the U.S. Senate Committee on Commerce authored by Senator Ted Cruz that highlights some of the problems and issues of the BEAD grant program. It’s interesting to see the issues with BEAD run through a political filter. This is not the first critique of BEAD from Congress, and various groups of Senators have sent letters with criticisms or suggestions to the NTIA.

The first criticism of BEAD in the report is that the NTIA BEAD allocation gives too much funding to places that have good broadband and don’t need the money – like Washington DC and Delaware. The report blames this on the Biden administration, but the allocation of the funding to States was specified in the IIJA legislation. For example, the legislation mandated that each state gets at least $100 million. I think most people would agree with the report that it’s a waste to give money to states that don’t need it, but the blame for this goes squarely to the folks in Congress who wrote the legislation. These are the same folks that created one of my big pet peeves – that the funding must be allocated using the FCC broadband maps.

The next big criticism is that the BEAD allocations did not account for other federal money being spent elsewhere for broadband. This criticism is totally accurate. I think it’s ludicrous that the FCC announced a new round of ACAM funding only a few weeks after the BEAD dollars were allocated. My guess is that the FCC did this on purpose to show that the agency is still relevant in the broadband deployment world. I think the FCC is still stinging from having the BEAD program given to the NTIA and is flexing its broadband muscles. The White House directed the FCC, NTIA, and the RUS to coordinate broadband issues, but obviously that directive is being ignored.

The FCC map used to allocate BEAD dollars was also not kept current for the many state and local grants being made using ARPA or general funds from states. It would have been relatively easy to require states and localities to tell the FCC when broadband grants were awarded.

The next criticism in the document comes in two parts. First, it says that the Biden administration bias in favor of fiber is going to means that there isn’t enough money to go around and that some homes won’t get broadband. The NTIA has clearly stated that it prefers fiber when the numbers make sense. But realistically, this is left up to the States. There are a number of states that have said they will fund wireless as needed to make sure the grant funding stretches far enough. While the NTIA has a stated preference for fiber, it also balances that off with a mandate to States to make sure that all unserved locations get broadband. This will likely result in a big tightrope walk for States, but the mandate to serve everybody is clearly a higher priority than building all fiber.

The second half of this complaint is that BEAD will be used to bring broadband to mansions, beachfront resort communities, and mountain vacation homes – and the report includes examples of a few such locations. This complaint is just silly. The legislation says that every place in the country that is classified as unserved or underserved should get better broadband. By definition, BEAD will cover some of the kinds of locations the report points out, but the vast majority of BEAD funding will go to places like where I live in Appalachia, that are both poor and have no good broadband. This same complaint was lodged against the RDOF program, because any big list of unserved locations is going to include some places owned by the wealthy. If this was a real concern, Congress could have excluded such locations in the legislation, but it didn’t. The NTIA has no legal authority to say that such places can’t be served with the grants – and frankly, these places need broadband like everybody else. Lots of States are struggling about what to do about places like vacation cabins – but if they are shown as unserved on the FCC map, they probably have to be served.

The report doesn’t mention my number one complaint about BEAD, that the grant rules say that anybody can apply for a grant – but the rules clearly favor giant ISPs over smaller ISPs, municipalities, and everybody else. I would not expect this issue to be highlighted in a report from Congress since the biggest ISPs are generous donators to elected officials. But to be fair, the report also doesn’t recommend giving all of the money to the big telcos and cable companies that want to build fiber – if anything, the report is somewhat biased towards wireless broadband.

Finally, Broadband Labels

At the end of August, the FCC gave final approval to the requirement that ISPs must provide broadband labels. The FCC had originally approved the broadband labels in November 2022 but then received three petitions to further modify the rules. The recent order makes a few minor changes to the original order but largely leaves the original broadband label rules intact.

The labels were required as a provision of the Infrastructure Investment and Jobs Act. ISPs with more than 100,000 customers will have to start using the new labels within six months. All other ISPs have a year to implement. I think ISPs with fiber networks ought to issue the new labels quickly – it’s a chance to brag and compare your symmetrical capabilities against other technologies.

The new labels look a lot like the nutrition labels that are on all processed foods. The label requires basic information like the monthly price for standalone broadband, any special pricing that is in place currently and when that special pricing expires, a description of other monthly and one-time fees associated with the broadband, and the typical broadband speeds and latency.

I can’t wait to see how the big ISPs are going to implement the labels. Marketing folks at the big ISPs must be dreading the requirement to disclose the list price of standalone broadband and the requirement to list extra fees like big charges for a WiFi router. It’s been standard practice for years for customers to buy broadband without getting even basic facts such as the price for the broadband after an introductory offer.

The labels are going to be a big challenge for the cable companies that still sell a huge number of product bundles. The cable companies have never told consumers the portion of the bundled price associated with any given product. But my interpretation of the label rules is that they will somehow have to identify the broadband price.

As usual, the FCC let the big ISPs off the hook on one of the major requirements. ISPs are only required to disclose the typical broadband speed and latency. I am willing to bet that the labels are going to look a lot like the marketing speeds that are reported to the FCC maps – and that can be very different than what is delivered. In the many surveys that my consulting firm has done over the years, consumers regularly tell us that they have no idea what speed they are supposed to be getting. From the many bills we’ve collected over the years, many ISPs also don’t disclose the speeds on the monthly bill.

I’m really curious about what ISPs are going to report for upload speeds. We’ve been seeing huge numbers of speed tests for ISPs that don’t deliver 20 Mbps, which has become the new practical standard to be considered as broadband – and which the new 5-Commissioner FCC is likely to soon make official. How many ISPs are going to honestly disclose upload speeds under 20 Mbps, which would be an admission that their product is not broadband?

There are ISPs using a few technologies that are going to really struggle with the label requirement. For example, there are a dozen factors that can influence the speed of DSL, and two adjacent homes can have a significantly different DSL experience. The speeds on all wireless technologies vary to some degree with differing environmental conditions. Speeds on the new FWA cellular broadband are highly dependent on the distance between a customer and the serving tower. Any ISP that has network bottlenecks will deliver different speeds at different times of the day, depending on how busy the network is.

ISPs also face the challenge of somehow balancing what they declare on the broadband label and what they report to the FCC mapping. ISPs know that most of the public likely never sees what they report to the FCC maps, but a lot of people are going to see broadband labels that must be prominently displayed on ISP websites. My guess is that most ISPs will claim the same speeds in both places. I think the whole intent of the labels was to invite public pushback against ISPs that are exaggerating performance.

A New Source of Financing

Buried deep in the Infrastructure Investment and Jobs Act is the opportunity for broadband projects to use a different form of financing. Section 80401 of the new law allows for the use of private activity bond financing for qualified broadband projects.

For those unfamiliar with that terminology, a private activity bond is a bond issued by somebody other than a government entity. Rather than borrowing money from a bank, bonds are sold directly to investors. Most bonds are purchased these days by Wall Street bond funds, although individual investors can also buy bonds.

It’s an interesting new form of financing that has never been easily available to commercial ISPs before. Before talking more about the bond process, I want to discuss what the law means by ‘qualified projects”. This bond funding can only be used for projects that fit the criteria for broadband projects that are covered by the other provisions of the IILJ. Specifically, the bonds can only be used to finance a project that:

A.  Is designed to provide broadband service solely to 1 or more census block groups in which more than 50% of residential households do not have access to fixed, terrestrial broadband service which delivers at least 25 Mbps downstream and at least 3 Mbps upstream, and

B.  Results in internet access to residential locations, commercial locations, or a combination of residential ad commercial locations at speeds not less than 100 Mbps for download and 20 Mbps for uploads, but only if at least 90% of the locations provided such access under the project are locations where, before the project, a broadband provider did not provide service, or did not provide service meeting the minimum speed requirement described in paragraph A.   

This means the projects can only be used for areas that have at least 50% coverage of homes with current broadband of 25/3 or less. That’s likely to mean that this bond funding is going to have a relatively short shelf life – once BEAD grants are done, there may not be a whole lot of the U.S. left that will meet this test. The bond option is clearly aimed at providing the matching funds for the upcoming BEAD grants. But this law would allow bond financing to be used for projects funded by state broadband grants or projects partially funded by ARPA funds.

There is an interesting hoop to jump through. Anybody who wants to use the bonds must query all incumbent providers in the grant area to see if they have plans to build a gigabit-capable network. There is no guidance on what happens if a current ISP says yes. This funding also is not available for incumbents to use in existing service territories.

What are the potential benefits of this funding option for an ISP?

  • It’s easier with bonds to finance projects over a longer time. It should be possible to get 25 or 30-year funding through bond financing.
  • The bonds can provide 100% financing, whereas many other funding sources require at least some equity.
  • Bond financing can also provide a cushion for the first few years by having no debt payments. This is done by deferring principal payments and by pre-borrowing the interest payment for the first few years of a project.
  • It’s possible that bond funding might have a lower interest rate – but that is strictly going to depend on the creditworthiness of the borrower. For instance, a cooperative with a great balance sheet might get a rock bottom interest rate while somebody else might pay a high rate.
  • There generally is less ongoing reporting as long as the borrower is able to make bond payments.
  • Finally, there is a chance that the bonds could be tax-free for bond purchasers, but that would be subject to IRS rules outside of this new law.

There are a few other provisions of the rule worth noting. Getting bond funding requires structuring the bond through a conduit borrower. That means that a state, a county government, or perhaps somebody like a government-based economic development agency would have to agree to sponsor the bonds. The government entity would have no ownership of the bond project, but would instead lend its name to the project to enable a project to qualify for using the bond market.

For those not familiar with the bond process, a borrower would work with a bond agent expert who is familiar with bond financing. You’d create an official statement, which is essentially the offering document that is shown to prospective bond buyers that would describe the project and describe the benefits and risks. This is similar to a document that is created by public companies before selling stocks to the public. The bond agent would circulate the official statement and solicit purchase offers from bond buyers. The bond market can work quickly, and assuming it’s an attractive bond offering that meets industry expectations, the bond sale is generally transacted within a relatively short period of time.

This is something worth considering for somebody who is looking to fund the matching portion of the various grants that are floating around the industry. It’s an interesting alternative to a traditional bank loan. The main reasons to consider it include 100% financing, possibly lower interest rates, a long term for repayment, and a period upfront with no debt payments. For some projects, those items can make a big difference in the willingness to pursue a grant.

Buy American and Federal Grants

Near the bottom of the Infrastructure Investment and Jobs Act, starting on page 2315, is a requirement that any infrastructure funded from federal funds must comply with the Build America, Buy America Act. This applies to the $42.5 billion in broadband infrastructure included in the IIJA, but also applies to all other infrastructure projects that includes federal funding. The IIJA says as of the date of enactment of this Act, domestic content procurement preference policies apply to all Federal Government procurement and to various Federal-aid infrastructure programs.

I think this clearly means that Buy American rules apply to federal infrastructure projects awarded after November 18, 2021, the date the IIJA was published in the Federal Register. This would include RDOF funding, ReConnect grants, the NTIA grants, and anything else awarded after that date. I’ll have to leave this up to the lawyers, but this also could apply to state and local grants awarded before that date but not yet constructed, such as CARES or ARPA projects.

The concept of buying American has been around since 1933, when the original Buy America Act was passed by Congress that applied specifically to federally-funded projects to build roads and railroads. That specific law was aimed at making sure that railroads used American-made iron and steel for rails, train engines, and railcars.

The Buy America concept was first applied to telecom in the 2009 ARRA stimulus grants. Those grants required that a substantial amount of the raw materials used to build broadband networks complied with the Buy America Act. At that time, it was nearly impossible to buy electronics that complied with the Buy America Act, and I recollect that the NTIA issued a blanket pardon from parts of the Buy America rules (but that’s subject to verification).

This new IIJA legislation puts a major emphasis on buying American. One of the intentions of the Act is to provide incentives for manufacturers to bring factories and jobs back to the U.S. Consider the following language from the IIJA:

United States taxpayer dollars invested in public infrastructure should not be used to reward companies that have moved their operations, investment dollars, and jobs to foreign countries or foreign factories, particularly those that do not share or openly flout the commitments of the United States to environmental, worker, and workplace safety protections; in procuring materials for public works projects, entities using taxpayer-financed Federal assistance should give a commonsense procurement preference for the materials and products produced by companies and workers in the United States in accordance with the high ideals embodied in the environmental, worker, workplace safety, and other regulatory requirements of the United States;

The Act lists specific materials and components that should be sourced to American companies, including steel, iron, manufactured products, non-ferrous metals, plastic and polymer-based products (including polyvinylchloride, composite building materials, and polymers used in fiber optic cables), glass (including optic glass), lumber, and drywall.

That list covers almost every component of building a fiber network. Fiber optic glass must be American-made, as must be the material used in fiber-optic sheaths. Conduit must be American-made. The definition of ‘manufactured items’ in the Act covers all electronics.

The IIJA goes on to define the specific rules for defining American-made. Construction materials like fiber optic cable and conduit must be 100% made in the U.S. At least 55% of the cost of the components for manufactured goods must be American-made. This last requirement is going to cause consternation for equipment vendors which are going to somehow disclose the source and what they pay for each component of electronics. In today’s complex supply chain this isn’t going to be easy. This gets even more complex for supply houses that buy and assemble various components into ready-to-use electronics assemblies. This will mean more paperwork for the industry – everybody that builds a project that uses federal funding must be ready to prove they comply with the law.

There are ways for federal agencies to get waivers from these rules – but the legislation makes it clear that waivers need to be exceptions and not routinely or easily granted. The intention of this law is to force vendors to change procurement practices and to buy raw materials and components from American sources. Since the law specifically called out the components of fiber optic networks, it’s not going to be easy to get waivers.

This is likely to cause disruptions in the short run as electronics manufacturers scramble to meet the 55% rule. It’s not hard to imagine that these rules might further disrupt the current supply chain problems as vendors scramble to meet these requirements. But in the long run, these rules are great. We need to buy from American companies, support American jobs, and move manufacturing back to the U.S.