Another BEAD Grant Complication

I’ve been thinking more about the NTIA’s definition of Reliable Broadband Service that was part of the recently issued Notice of Funding Opportunity (NOFO) for the $42.5 billion BEAD grants. That definition says that any grant cannot be used to overbuild a reliable broadband technology that meets or exceeds the 100/20 Mbps speed threshold of the grants. The NOFO said that the grants can’t be used where speeds are adequate for the following technologies: (i) fiber-optic technology; (ii) Cable Modem/ Hybrid fiber-coaxial technology; (iii) digital subscriber line (DSL) technology; or (iv) terrestrial fixed wireless technology utilizing entirely licensed spectrum or using a hybrid of licensed and unlicensed spectrum.

The policy behind this makes sense – the NTIA doesn’t think that valuable federal grant dollars should be used where adequate broadband technology is already in use. That would make them a good shepherd of the federal dollars.

But this particular definition is going to cause some complications the NTIA might not have considered. I’ve been running into rural FWA cellular wireless broadband in rural markets. So far, I’ve only encountered the new technology from T-Mobile and Verizon. But this will also be introduced by Dish Network. AT&T says it also has plans to roll out the faster cellular home product.

The FWA technology is enabled when a cellular company beefs up cell sites to provide home broadband in addition to cell phone service. This is being enabled by the introduction of new spectrum bands. For marketing purposes, the carriers are labeling these new bands as 5G, although the technology is still 4G LTE.

The cell carriers have been offering a weak version of home broadband for years, marketed as a hotspot or jetpack. But that technology shared the same frequencies used for cell phone service, and the broadband has been slow, weak, erratic, and expensive. However, putting home broadband onto new cellular spectrum changes the product drastically.

Recently I heard from a farmer who is getting 200 Mbps download broadband from a rural T-Mobile FWA connection – this farmer sits right next to a large cell tower. According to the NTIA, this farm should not receive any grant subsidy to bring fiber broadband with a grant. But as is usual, real life is a lot more complicated than that. This same farmer says that his nearest neighbors, only a little over a mile away, are seeing speeds significantly below 50 Mbps.

This makes sense because that’s how cellular technology works. Most people don’t realize how quickly broadband signal strength weakens with distance from a cell site. In cities, practically everybody is within half a mile or a mile from a cell site, so we never notice. But in rural areas, most people live too far from a cell site to get decent bandwidth from this technology. Consider the following heatmap of a real cell site.

The fastest broadband speeds would be within a few thousand feet, like with the farmer. The area that might get 100 Mbps broadband is in the orange and yellow areas on the map. The speeds in the green areas are where speeds fall below 100 Mbps, and by the time the broadband signal reaches the light blue areas the speeds are almost non-existent. The purple areas show where a voice signal might carry, but only unreliably.

What does this mean for the BEAD grants? As T-Mobile and the other cell carriers start updating rural cell sites they are going to be putting heatmaps like the one above into the FCC mapping system. It’s worth noting that most cell sites don’t create a roughly symmetrical coverage pattern because the wireless signal gets disrupted by any obstacles in the environment, even small rolling hills. It’s also worth noting that cellular coverage is dynamic and changes with temperature, precipitation, and even wind.

Recognizing cellular broadband coverage (licensed) as reliable broadband will have several consequences. First, this disrupts grant coverage areas since there will be cellular areas in every county that won’t be eligible for grants. This will create a swiss cheese phenomenon where there are areas where grants are allowed next to rural areas that are not allowed. That will complicate the engineering of a broadband solution for the areas that are left. This is the same thing the FCC did with the RDOF awards – chopped up potential grant areas into incoherent, illogical, and costly swiss cheese.

This also might mean this farmer won’t get fiber. His neighbors who can’t get good speeds on T-Mobile might be covered by a BEAD grant, but an ISP might be unwilling to fund the cost to reach this farmer if the cost is not covered by a grant.

I doubt that the NTIA thought of the practical consequences of the new definition, just like I can’t imagine the FCC had the slightest idea of the absolute mess they made with RDOF coverage areas. The only way to justify building a new network in a rural area, even with grants, is to cover large areas with one coherent network – not by building a network that has to somehow avoid RDOF areas and cell towers.

ISPs interested in BEAD awards are now going to have to wait until the new broadband maps come out to know what this might do to their grant plans. I’m thinking that, at least in some cases, this will be the final straw that breaks the camel’s back and convinces an ISPs to walk away and not even try.

The BEAD NOFO – Financial Issues

The NTIA has established basic rules for the $42.5 billion BEAD grants in the recent Notice of Funding Opportunity (NOFO). One of most important aspects of the rules that potential applicants need to understand relates to funding and financing. Note that the NOFO instructs the States what it expects to be included in each state’s broadband grant program for the BEAD funding.

The first set of rules concerns the amount of grant funding. Since the IIJA passed Congress, the industry has been talking about BEAD grants offering 75% grant funding. It’s not that simple.

The NOFO says that states are required to incentivize matches of greater than 25 percent from subgrantees. That means states must make every effort to award less than a 75% grant. In fact, if two entities request building fiber to the same geographic area, the one asking for the smaller amount of money will automatically win, assuming they meet the basic grant requirement. This makes sense and will stretch the grant money further, but ISPs should be prepared for a sliding scale where the less the borrowing the greater the grant points.

The original Congressional language also held out a big promise for the layering of grants. The legislation specifically promised that an ISP could use ARPA or CARES funding from states and localities as matching for the BEAD grants. But the NTIA rules turn that promise on its head. States are encouraged to require a match from the subgrantee rather than utilizing other sources where it deems the subgrantee capable of providing matching funds. If a grant applicant has the ability to fund the grant matching, the NOFO rules suggest states should not allow the layering of local monies as grant matching. When that sinks in, it’s going to put a lot of public-private partnership discussions on hold.

The more disturbing requirement in the grant is that applicants must provide an irrevocable letter of credit along with a grant application. During the application process, prospective subgrantees shall be required to submit a letter from a bank . . . committing to issue an irrevocable standby letter of credit, in the required form, to the prospective subgrantee. The letter shall at a minimum provide the dollar amount of the letter of credit.

I have to wonder if the folks at NTIA understand what an irrevocable standby letter of credit (SLOC) means. Consider a grant application for $40 million, with a $10 million grant match. A bank must treat an SLOC as if were a bank loan. When the bank issues the SLOC, it ties up the $10 million on its balance sheet in the same way it would if it made a loan. The bank can’t loan that money to anybody else – it is frozen. While the bank is still holding the cash, it is not treated as a bank’s cash reserve since it is pledged. The bank will charge a minimal amount of interest on the letter of credit. In recent years that’s been something like 2% – hard to know what that might be with rising interest rates. If the interest rate is 2%, and the grant process takes a year to process, the ISP will have spent $200,000 in interest expense – even if it doesn’t win the BEAD grant.

It gets worse. When an ISP wins a grant it must then produce an irrevocable letter of credit for the life of the grant. This is even worse than the first letter of credit. Bank loans for fiber projects typically use construction financing – the same kind of financing used if you build a house. For a project built over four years, the ISP would take a draw each month as it needs funds and would only start paying interest on money that has been drawn. If a letter of credit must be created on the first day of a grant award, then using my example, interest rates for the full $10 million of matching would start when the letter of credit is issued. That completely negates the primary advantage of bank construction financing. My back-of-the-envelope math tells me that for a $10 million matching, the two layers of letters of credits could add $1 million to the cost of the project – all flowed to banks in the form of interest. None of this money is recoverable from the grant funding and comes out of the grant winner’s pocket.

To make matters even worse, a lot of smaller ISPs will not be able to obtain the letter of credit needed to apply for the grant. It’s a typical chicken and egg scenario. A bank won’t give an ISP a SLOC unless their existing balance sheet supports that much of a loan. But the ISP’s balance sheet won’t justify the SLOC until it wins the grant. This rule will definitely discriminate against smaller ISP – and by smaller, I’m including some fairly large companies like regional telephone companies and cooperatives.

The NOFO says there will be additional language coming to describe how municipalities will deal with the letter of credit issue. The NTIA is probably struggling with this because bond financing is more complex than a bank loan. A bond doesn’t exist until the day that bond buyers agree to buy the bond. It’s always possible that a bond issue won’t sell, so there can be no bank guarantees tied to future bond issues. I can’t wait to see this solution.

I don’t want to be dramatic, but this seems like massive overkill. It would appear that the NTIA is so fearful of having a few grant winners who will default on projects that they are imposing a billion-dollar industry cost to solve a million-dollar problem.

Get Ready for Middle-mile Grants

Alan Davidson, the Administrator of NTIA, recently held a press conference and webcast talking about the $1 billion middle-mile grant program. The biggest takeaway from that conversation is that the NTIA is likely to make these awards much sooner than the awards from the $42.5 billion BEAD grants for last-mile broadband. Mr. Davidson was not specific about the dates of these grants, but anybody wanting to request one of these grants should start getting ready.

It’s worth noting that the last-mile BEAD grants will not fund middle-mile fiber. The early NTIA rules indicate that the grants will expect any constructed fiber to have closely-spaced and regular access points. This is what distinguished last-mile fiber from middle-mile fiber. Middle-mile fiber is aimed at connecting two points, be that fiber huts, electric substations, core fiber sites, or two communities. It’s a lot more expensive to build fiber that has a lot of access points. It costs labor and extra materials every place that fiber is spliced off to a handhole or MST. While a fiber route can be built to serve both purposes, the assumption of the BEAD grants is that the fiber is used to serve those living close to a fiber route.

Recent experience from both state and federal grants shows that the entities awarding grants are allowing for a relatively short window from the date of announcement of a grant until grants are due. On state grants, I’m seeing grant requests that are due within six weeks of the announced opening of a grant. The NTIA grant window will likely be a little, but probably not a lot longer.

This means anybody interesting in the grants should already be figuring out the engineered cost of the desired middle-miles routes. You are not going to have time once the grants are announced to determine costs.

More importantly, anybody wanting the middle-mile grants needs to craft a good story about why a specific middle-mile grant is needed. $1 billion might sound like a lot of money, but on the national scale, it’s not a lot. This works out to an average of only $20 million per state. If you assume an average cost of middle-mile fiber at between $35,000 and $50,000, that’s only 400 – 575 miles of new fiber, on average, per state. To put this grant program into perspective, California has established a $3.5 billion middle-mile grant program just for within the state.

Another thing that must be considered is that the NTIA has a history of making fewer numbers of larger grants rather than a lot of little grants. It’s hard to picture the agency awarding hundreds of grants because the work needed to administer the grant is nearly the same for a small grant and a large grant. If that history holds true, these funds are more likely to go to larger projects that connect distant rural communities than to projects that connect places relatively close together in a middle-mile project. I picture grants that connect a dozen communities being far more attractive to the NTIA than a project connecting a dozen local fiber nodes or electric substations.

Finally, it’s fairly clear that the NTIA is currently favoring non-profit entities more than commercial ISPs. I’m sure some of this grant will go to commercial entities, but I’m going to bet that collaborations of local governments will have a better chance of winning these grants. I’ve written a few times about project THOR in northwest Colorado, which is a consortium of local governments that built middle-mile to connect 14 communities with fiber. The benefits of this fiber for anchor institutions like hospitals were seen almost immediately after the first fiber routes were connected.

I envision that the projects with the biggest chance of success will be similar to Project Thor, which was organized by local communities, or to projects done by states to reach remote areas like is being done by ConnectMaine.

People are often surprised about the lack of middle-mile fiber in rural places. It’s hard to justify building last-mile fiber to an unserved rural community if there is no affordable way to connect that community to the Internet. I’m guessing that the NTIA will look hardest at projects that can make these connections.

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.

Will Some States Not Accept Broadband Funding?

The upcoming BEAD (Broadband Equity, Access, and Deployment) grants bring a huge once-in-a-generation grant to states to solve the digital divide and build broadband infrastructure. The average state will get over $800 million dollars, with the exact amount per state still to be determined.

It seems almost too absurd to imagine for communities with poor broadband, but there are some states that may end up not getting this funding. I’m working with communities all over the country who are working to put together the partnerships with ISPs to be able to win and use this funding – and who will be shocked if their state turns the money down. But this seems like a real possibility.

The BEAD grant funding will flow from the NTIA through states, and states get to decide who wins the grants. But states need to take steps first to get this funding. They must decide who in the state is going to administer the large grant program, and states must demonstrate that they plan to hire the staffing needed for this – using funding supplied by BEAD.

States also have to file a detailed plan that shows how the grant program will function – who is eligible, how the grant winners will be chosen, how funding will be distributed to grant winners, and how the state will ensure that grant funding is spent wisely. Many of the details of how this will work were spelled out in the Internet Investment and Jobs Act that enabled the grant program.

And that is where the rub will come in for some states. In almost any instance where large federal money flows to states, there is arm-wrestling between some states and the federal government over the rules of the funding, which is often referred to at the state level as federal mandates. There are many examples where states have refused to accept federal mandates and have not been given funding. The most recent major example is the Affordable Care Act funding which provides funding to bring affordable health insurance. There are still twelve states that have not accepted the rules of this plan and which have subsequently passed on billions of dollars of federal funding.

There is proposed legislation in Illinois that would probably stop the NTIA from agreeing to give the funding to the state. State Senator Patrick Joyce has introduced a bill (SB 3683) that would establish the rules for administering the BEAD grant funding. That step of requiring legislative approval is needed in most states to accept the federal funding, so having a bill like this is a normal procedural step.

But the proposed legislation adopts some language that is clearly in conflict with the funding rules established by the U.S. Congress. Some of these conflicts include:

  • Excluding local government from grant eligibility. Congress clearly stated that this funding is available to all sorts of entities including local governments.
  • Uses the funding only in unserved areas. This violates a few of the goals established by Congress such as making sure that public anchor institutions get access to gigabit broadband. This would also likely restrict funding from going to low-income areas in cities that have poor broadband adoption rates.
  • The law would oddly eliminate from BEAD grant eligibility any entity that has partnered with the state in setting goals and priorities for broadband access and deployment.
  • Eliminates any rate regulation, meaning that grants can’t consider an ISP’s willingness to participate in programs for providing discounts for low-income households.
  • Doesn’t allow the layering of grants. Congress explicitly intends for BEAD grants to supplement both state grant awards and local grant awards using ARPA funding.
  • The state BEAD grant couldn’t be used to enhance or expand current grant-funded projects.
  • Finally, the new law would limit the awards to $10 million per ISP. That’s absurd when the cost of bringing broadband to the rural area in many counties is far more than that. This would also stop ISPs from participating in partnerships with multiple counties.

It’s hard to imagine that the NTIA could approve the BEAD funding to Illinois if this law passed. The law is contrary to almost every key position taken by the federal legislation that approved the BEAD program.

Illinois is not the only state facing this problem. There is new proposed legislation in New York (S 8008 B) which could be a problem. Other states, including North Carolina, where I live, have existing prohibitions against local government funding and building broadband infrastructure. NC and other similar states will have to make a legislative exception to current state rules to be eligible for the BEAD grant funding. It will not be surprising to see some legislatures decide that sticking with existing state laws is more important than getting the grant funding.

I’ve been advising communities to get active and to make sure you know where your state stands in the ability to receive the BEAD grant funds. I believe that funding of the magnitude we are seeing now may not come along for another decade, if ever. A future Congress might not be sympathetic about providing broadband funding to states that turned it down this year.

The Challenge of State Broadband Plans

One of the most interesting aspects of the upcoming BEAD (Broadband Equity, Access, and Deployment) grants is that the money is going to flow through the states. In many of the states I’ve been following, it looks like the money will be distributed by passing the money through existing state broadband grant programs.

States with existing broadband grant programs are going to find that some aspects of the BEAD grants will differ from the current state grant rules. A good example is in the definition of unserved and underserved – the BEAD definition is going to be different than the definitions used in almost every existing state grant program. Since the federal legislation that created the BEAD grants rules is so specific, there will be numerous ways that the BEAD grant will differ from a state grant program.

The obvious solution is for states to adopt the federal rules. There is certainly a huge amount of incentive for states to make this work since every state will get at least $100 million while most will get much more. The $42.5 billion in funding averages out to $850 million per state.

Unfortunately, it’s not automatic that states can or will accept the federal grant rules since the grant rules in many states were prescribed by the state legislatures. In such cases, the legislatures will have to have to take steps to modify the state grant rules. Anybody who has ever worked with a legislature on broadband issues knows that this won’t always be a cakewalk. The specific rules baked into existing state broadband grants are often the results of difficult wrangling and negotiations in the legislatures.

The politics of broadband varies widely from state to state. There are states where the broadband grant rules are heavily influenced by the large incumbents, while other state grant rules are more consumer-oriented. I imagine there are state legislators who are going to bristle at the idea of having to swallow grant rules handed down by the federal government.

Add to this the fact that states have a time clock running. The NTIA will publish final rules for the state to follow by May 16, and then states will have a window to file state plans. That timeline means that legislatures need to agree with changes in grant programs before a state can file a BEAD broadband plan. For some legislatures, this will feel like acting at the speed of light. I’m positive that there will be states where accepting the revised grant rules will be heavily debated.

Perhaps a bigger challenge comes from the states without a formal broadband grant office. These states must first decide who in the state is going to tackle writing the state plan to obtain the grant funding, and then it’s still likely that many of these states will still need the legislature to act. For a state without any staff dedicated to the broadband issue, the process of getting a state plan filed with the NTIA sounds like a serious administrative challenge.

The process doesn’t end when a state files a broadband plan with the NTIA, since the NTIA will have to approve each plan. It’s going to get interesting if the NTIA disagrees with the provisions of a state plan. It’s not inconceivable that a state legislature might have to get involved a second time if a filed state plan has to be modified.

It’s not unusual for the states and the federal government to wrangle over the details of federal spending programs. There are numerous examples of states turning down huge amounts of federal money when states didn’t like the rules attached to the funding.

Because of the prominence of the rural broadband issue in most states, it’s hard to think states won’t do whatever is needed to get the BEAD grant funding. But the state legislative process is not always logical, and there will likely be a few states where legislative intransigence could put the grant money at risk.

I strongly urge ISPs and local governments in every state to take the time to find out what your state is doing. Many states are currently inviting comments and involvement in the creation of the state broadband plan for these grants. This is the time to make sure your state is doing this the right way.

Mapping and Broadband Grants

Hopefully by now, most communities with poor broadband will have heard about the gigantic federal grants on the way to provide broadband solutions. The largest is the $42.5 BEAD (Broadband Equity, Access, and Deployment) grants that will be administered by states, with the funding and the rules established by the NTIA.

There is one provision in the enabling legislation that established these grants that makes me nervous and should concern everybody. The federal grants give priority to locations that are unserved (broadband speeds under 25/3 Mbps) and can also be used to fund underserved locations (speeds between 25/3 and 100./20 Mbps). The troubling provision is that Section 60102 of the legislation makes it clear the determination of eligible locations will rely upon the FCC maps.

Commerce Secretary Gina Raimondo, the agency that oversees the NTIA and the grant program, acknowledges that this is a problem. In an interview with CNBC, the Secretary admitted that grants might not be awarded until sometime in 2023 after the FCC maps have been updated.

I think it’s a huge problem if we need corrected FCC maps before we can decide which parts of the country are eligible for these grants. I fully expect the first version of the new FCC maps to be a disaster. ISPs will struggle with changing from reporting simple tallies by Census block to drawing complicated polygons around customers who are served or who can be served within ten days after a request. There will be a lot of honest mistakes made in the first few iterations of the new mapping as ISPs adapt to the new reporting methodology. It might take a few rounds of reporting until ISPs get the new maps right.

But the real problem will come from the big telcos who distort the current broadband maps by over-reporting broadband speed capabilities. Several of the big telcos have notoriously been reporting speeds of 25/3 Mbps or greater to shield monopoly areas from grants. ISPs today are largely free to claim any speeds they want. The current FCC rules say that ISPs can report marketing speeds – something the ISP can determine. There are huge parts of the country where speeds of 25/3 Mbps are claimed in the FCC maps when actual speeds might be a few Mbps.

The new FCC maps will not stop this practice. The big telcos can still claim fast speeds that don’t exist. In fact, if it stops the award of the BEAD grants, the telcos are likely to report even more areas as having 25/3 Mbps capability. Recall that just before the RDOF reverse auction, Frontier and CenturyLink tried to change tens of thousands of Census blocks to speeds of 25/3 Mbps, which would have kept them out of the RDOF auction. The FCC rejected most of these claims, but the attempt demonstrates the blatant deceptions that the big ISPs are willing to take to keep customers and revenues.

There is currently no penalty at the FCC for overreporting speeds, and some of the big telcos have found this to be a convenient tool to use to maintain monopoly service areas. The BEAD grant might be the last big grant program for a long time, so I can’t see any motivation for the big telcos will suddenly become honest and create honest maps.

We’ve seen in the challenges to the current NTIA grants that the big telcos have no shame. The telcos have been challenging grant eligibility in huge numbers of Census blocks where they know that speeds are poor  – these grant challenges are all about keeping out competition.

If there is any glimmer of hope, it’s that the BEAD grant funds will funnel through the states. Many of the states that already have grant programs have become tired of the games played by telcos and don’t pay them much heed. There are some states that have created their own broadband maps that they believe to be more accurate than the current FCC maps. We’ll have to see how much leeway the NTIA will allow for states to use the better mapping data. Unfortunately, the grant language in the BEAD legislation is fairly clear that the mapping that matters for this map is the FCC mapping. The grant legislation says that broadband data maps are the maps created under section 802(c)(1) of the Communications Act of 1934 (47 U.S.C. 642(c)(1)).

It’s already a shame that the mapping issue is immediately going to delay the BEAD grants from being awarded this year when millions of homes are waiting for better broadband. This mapping issue will easily add six months to a year until grants are awarded – and that means a longer time until there is a broadband solution deployed. The worse travesty will come if parts of the country continue to be denied grant funding due to dishonest maps. I think we’re only going to have one chance to get this right – and I’m not optimistic about this first basic step of defining who is eligible for the grants. I hope somebody proves me wrong.

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.

Broadband Adoption Grants

The recently enacted Infrastructure Investment and Jobs Act (IIJA) created two new grant programs to address digital equity and inclusion. This section of the IIJA recognizes that providing broadband access alone will not close the digital divide. There are millions of homes that lack computers and the digital skills needed to use broadband. The grant programs take two different approaches to try to close the digital divide.

The State Digital Equity Capacity Grant Program will give money to States to then distribute through grants. The stated goal of this grant program is to promote the achievement of digital equity, support digital inclusion activities, and build capacity for efforts by States relating to the adoption of broadband. I haven’t heard an acronym for this grant program – it’s likely that each state will come up with a name for the state program.

The Act allocates $1.5 billion to the States for this program – that’s $300 million per year from 2022 through 2026. Before getting any funding, each state must submit a plan to the NTIA on how it plans to use the funding. States will have to name the entity that will operate the program, and interestingly, it doesn’t have to be a branch of government. States could assign the role to a non-profit or other entity.

The amount of funding that will go to each state is formulaic. 50% will be awarded based upon the population of each state according to the 2020 Census. 25% will be awarded based upon the number of homes that have household incomes that are less than 150% of the poverty level, as defined by the U.S. Census. The final 25% will come from the comparative lack of broadband adoption as measured by the FCC 477 process, the American Community Survey conducted by the U.S. Census, and the NTIA Internet Use Survey.

The second new grant program is called the Digital Equity Competitive Grant Program. These are grants that will be administered by the NTIA and awarded directly to grant recipients. The budget for this grant program is $1.25 billion, with $250 million per year to be awarded in 2022 through 2026.

These grants can be awarded to a wide range of entities, including government entities, Indian Tribes, non-profit foundations and corporations, community anchor institutions, education agencies, entities that engage in workforce development, or a partnership between any of the above entities.

This will be a competitive grant program, with the rules to be developed by the NTIA. While the broadband infrastructure grants in the Act include a long list of proscribed rules, Congress is largely letting it up the NTIA to determine how to structure this grant program.

That’s going to make for some interesting choices for entities involved in digital inclusion. They can go after funding through the state or compete for nationwide grants. I doubt that anybody can make that decision until we see the specific grant rules coming out of each program.

I’ve been hearing about digital inclusion at every conference I’ve attended for the last fifteen years. For many years we talked about this as finding ways to solve the digital divide. We’ve known for all these years that there are homes that don’t have broadband because they can’t afford a broadband connection. We’ve known that homes can’t afford computers or other devices. And we’ve known for a long time that a lot of people don’t have the digital skills needed to use broadband.

There have been efforts over the years to address the issues, mostly done at the local level and mostly through non-profits. This is the first time that real funding is being aimed at solving these issues. It’s going to be interesting to see what comes out of this funding. I’m sure there will be some dazzlingly successful programs as well as some that will fizzle – but these grants will provide the grand experiment to find out what works the best. I like that these grants make new awards each year for five years – and I hope Congress pays attention because some of the best programs that get this funding will deserve to be funded when these grants are over.

We are only going to best thrive as a nation when everybody comes along for the ride, and this is the first set of grants that will take a serious shot at bringing broadband to those who are not benefitting from broadband technology.

New Middle-Mile Grants

One of the new programs established by the Infrastructure Investment and Jobs Act (IIJA) is $1 billion in grants to build middle-mile fiber. The grant program will be administered directly by the NTIA. The grant program defines middle-mile as any broadband infrastructure that does not directly connect to an end-user location. Projects that might be considered for the grants include building fiber, leasing of dark fiber, submarine cable, undersea cables, transport to data centers, carrier-neutral internet exchanges, and wireless microwave backhaul.

The amount of funding is disappointingly small. For comparison, the California legislature created a $3.25 billion middle-mile fund just within the state. Rural America is woefully underserved by middle-mile infrastructure. Rural communities can all attest to the pain of losing broadband, cellular coverage, and public safety systems anytime the backbone fiber into a rural area goes out of service.

The stated purpose of the grants is to reduce the cost of connecting unserved and underserved areas to the Internet and to promote resiliency – which is the phrase currently being used as a surrogate for redundancy. Resiliency means bringing a second transport route into an area so that a single fiber or microwave failure won’t strand a community without broadband.

The federal grants will provide up to 70% of the cost of constructing middle-mile connectivity. Priority will be given to projects that:

  • Leverage existing rights-of-way to minimalize regulatory and permitting challenges.
  • Enable the connection of unserved anchor institutions.
  • Facilitate the creation of carrier-neutral interconnection facilities (places where multiple carriers can meet and exchange traffic).
  • Improve the redundancy of existing middle-mile infrastructure.

Grant applicants must demonstrate financial, technical, and operational capability to be eligible. Grant applicants must also satisfy at least two of the following conditions (and more than two would be better):

  • Has a fiscally sustainable middle-mile strategy.
  • Will offer non-discriminatory access to other carriers and entities.
  • Projects which identify specific last-mile networks that will benefit.
  • Projects with identified investments or support that will accelerate the construction and completion of a project.
  • Projects that will benefit national security interests.

The NTIA is directed to prioritize grant applications that:

  • Connect middle-mile infrastructure to last-mile networks that plan to serve unserved areas.
  • Connect non-contiguous trust lands.
  • Offer wholesale broadband service to other carriers and entities.
  • Can complete the buildout in a timely manner.

It’s likely to be until late 2022 until the grant program is taking applications. While not gigantic compared to other parts of the infrastructure bill, this grant would still translate into 20,000 miles of middle-mile fiber at $50,000 per mile. These grants are going to most easily be awarded to solid financial recipients that have assembled a consortium of entities that will pledge to use the new middle-mile routes. I strongly suggest that regional groups start talking now to be ready when these grants when announced. At only $1 billion, it seems likely that there will only be one grant cycle.