Categories
Current News

Lobbying the BEAD Rules

Thirteen Republican Senators sent a letter to the NTIA asking the agency to change its approach in administering some of the provisions of the $42.5 billion BEAD grants. This is just one of the first of what I think will be many attempts to influence how the grant funding is awarded. We can’t ignore that there will be politics involved in determining who gets grant awards. That became inevitable for a grant program of $42.5 billion that also involves the States.

The letter specifically asked for changes related to rate regulation, technology preference, provider preference, workforce requirements, middle mile deployments, and the application review process.

Rate Regulation. The Senators point out that the legislation has a specific prohibition of the BEAD program suggesting or requiring broadband rates. The letter argues that the NOFO for the program suggests several requirements that will set or restrict rates, such as a suggestion that there should be a low-cost option established at $30 along with a still-undefined middle-class affordability plan.

Technology Neutrality. The Senators take exception to the NTIA’s clear preference for fiber and want to make sure that fixed wireless and cable technologies can be considered for grants.

Preferences for Grant Recipients. The Senators are concerned that the NOFO for the program insists that there is an equitable and nondiscriminatory focus for choosing grant winners. They fear that this is going to push state grant offices to favor non-traditional broadband providers instead of existing proven ISPs.

BEAD and Digital Equity Participation. The Senators want to make sure that there is no automatic link between a State participating in both the BEAD program and the Digital Equity program. This is the first time I’ve heard of this issue, and this means there are States considering not accepting the funding that will be used for getting computers into homes and offering digital literacy training.

Workforce Preference. The Senators believe that the BEAD rules favor ISPs that use a ‘directly employed workforce’ as opposed to contractors and subcontractors. That observation was a new one for me and will send me back to reading the NOFO more carefully. The Senators are also worried about the requirement that projects greater than $35 million must enter into a project labor agreement – something they say will be challenging in a market with a skilled labor shortage.

Middle-Mile Deployment. The Senators don’t like the requirement that any project that includes middle-mile routes must allow for interconnection with other carriers that want to use the fiber routes.

Unnecessary Burdens. The Senators say there are requirements that add burdens on grant applicants that were not included in the legislation. This includes issues such climate resiliency and system hardening for the useful life of fiber. They say such requirements add unnecessary costs and will delay the deployment of networks.

It’s an interesting list of objections. A few of the objections are on everybody’s hate list of the grant rules. Grant applicants do not want to figure out a climate resiliency plan and will be fearful if they do it poorly, they might not win a grant.

A few of the requests are clearly in favor of incumbent ISPs, such as any requirement that might force a State broadband office to consider non-traditional ISPs like cities.

And a few requests are things that concern all ISPs, such as the NTIA requiring broadband rates that are too low to make a business plan work.

Just as interesting are the items not included on the list. Small ISPs are worried about the requirement to have a certified letter of credit – something that doesn’t concern large ISPs. Not having this on the list makes me think the Senators are being prompted by big ISPs.

This blog is not meant as a criticism of the Senators’ suggestions. Every constituency in the country is going to have its own wish list of things the BEAD grants should emphasize or deemphasize. I’m hoping to collect these as I see them – it will be interesting when the dust clears to see who had the most influence on the BEAD rules.

Categories
Regulation - What is it Good For?

Averting a Mapping Disaster?

Alan Davidson, the head of the National Telecommunications and Information Administration, recently announced that the agency is canceling plans to use the first iteration of the new FCC maps that the FCC says will be available by early November. Davidson says that he feels obligated to let the FCC’s challenge process play out before using the mapping data. I’m sure this wasn’t an easy decision, but it says that it’s better to hold out for a more accurate map rather than settling for the first iterations of the new FCC maps.

This decision will clearly add more time and delay to the $42.5 billion BEAD grant program. But the decision to wait recognizes that using incorrect maps would almost inevitably mean lawsuits that could delay the grant program even longer.

The timing of the new maps became unfortunate when Congress mandated that the FCC maps must be used to allocate over $38 billion in grant funding to states. The FCC has been stating all summer that it hopes that the new maps will be relatively accurate and will fix many of the obvious problems in the current broadband maps. If it wasn’t for the pressure of the BEAD grant program, the FCC would have had several cycles of the new maps to smooth out kinks and errors in the reporting before they had to bless the new maps as solid. The NTIA decision to delay relieves the pressure to have the first set of maps be error-free – which nobody believes will happen. I have a hard time recalling any cutover of a major government software system that was right the first time, and the FCC’s assurances all summer have felt more like bravado than anything else.

Over the last few weeks, I’ve been talking to the engineers and other folks who are helping ISPs with the new maps. I didn’t talk to anybody who thinks the new maps will be solid or accurate. Engineers are, by definition, somewhat cautious folks, but I expected to find at least a few folks who thought the new maps would be okay.

I’ve been saying for six months that the likelihood of the new maps being accurate is low, and I was thinking about not writing anything more about mapping until we see what the new maps produce. However, I was prompted to write about mapping again when I saw a headline in FierceTelecom that quoted Jonathan Chambers of Conexon saying that the new maps will be a train wreck. Conexon is working with electric cooperatives all across the country to build broadband networks, which gives the company an interesting perspective on rural issues.

Jonathan Chambers cites two reasons for pessimism. One is the reason I already mentioned, which is that it’s irrational to use the outputs of a new federal mapping system to allocate billions of dollars between states. He says that there are simpler alternatives that would take all of the pressure off the new mapping system. He’s right, but unfortunately, Congress specifically required In the IIJA legislation that the FCC maps be used. It would take an act of Congress to change that ruling.

Chambers is also pessimistic about the challenge process that is being allowed for the new maps. He expects the challenges to be major and ongoing. It seems unlikely that the FCC is prepared to investigate the huge number of protests that could come from every corner of the country claiming that the new maps got the facts wrong.

My discussions with engineers raised other questions not mentioned by Chambers. Some engineers told me that the underlying mapping fabric has a lot of mistakes. This is where CostQuest, the firm that created the new mapping system, laid out the location nationwide of every possible broadband customer. This was a nearly impossible task in the short time the company had to create the maps. I’ve been working for years with local governments that use GIS data to define potential broadband locations, and it’s always a challenge to identify only those buildings where somebody might buy broadband and exclude buildings used for some other purpose.

My biggest concern is that ISPs are still allowed to report marketing speeds instead of actual speeds, and I fear that ISPs will be motivated to overstate broadband speeds in the new maps (like many have done in the old ones). Any areas designated by the maps to already have broadband available at 100/20 Mbps will be declared ineligible for the BEAD grants, and any ISP that wants to protect against being overbuilt has a high motivation to claim that speed – and it seems likely that many of them will do so. I don’t know if this is true, but my interpretation of the FCC map challenge is that the FCC won’t entertain challenges based on speed, but only on the coverage area. If that is true there will be a huge uproar from states and communities that get disadvantaged from deceptive reporting by ISPs.

I’ve also heard from ISPs in the last week that were unable to navigate the new mapping system by the deadline. These are relatively small ISPs, but many of them have built fiber and it’s not good to have them excluded from the maps. I’ve heard from multiple sources that the new mapping system is not easy to use. I’ve heard from ISPs who didn’t have an engineer who was able to certify the maps and just gave up.

I guess we’ll find out in a few months how the first draft of the maps turns out. The FCC says it will release the results by early November. I expect there are a whole lot of folks who are poised to compare the new maps to their local knowledge of actual broadband usage – and then the challenges will begin.

Categories
Regulation - What is it Good For?

Is 75% Grant Funding Enough?

It seemed like a really big deal when the ReConnect program and the new BEAD grants upped the amount of federal grants to 75%. Before this, it was hard to find a grant program that offered more than 50% of the funding.

I’ve created hundreds of rural business plans, and I’m still seeing a lot of situations where a 75% grant is not enough assistance to create a viable ongoing business plan. I’ve recently worked on several business plans that gave me the opportunity to explore this issue in more detail.

People always want me to provide metrics. They want to know generically if a market can work with the available grants. But it’s not that easy. There are multiple variables that impact the amount of grant that is needed. One is the cost per passing – what’s the capital cost to bring fiber past every customer in a given footprint? Equally as important is the expected customer penetration rate. There has to be enough customers and revenues to pay to support any matching funds. Another key variable is broadband prices – you need less grant funding if customers will be paying $70 instead $50 per month. Finally, the newest variable that has entered the picture is the interest rate, assuming that an ISP is borrowing the matching funds. There are other variables that matter to a lesser extent, such as the relative cost of the salaries and benefits for new employees, something that varies significantly from region to region and ISP to ISP.

It is the interplay of these many variables that determine the percentage of grant funding that is needed for any particular ISP in a given market. For example, if two ISPs have the same cost per passing, interest rate, and expected customer penetration, the ISP with the lowest broadband rates will need more grant funding. It’s a fairly intricate algebra problem that every ISP needs to solve.

I’ve created enough business plans that I know there are a whole lot of business plans that are going to require more than a 75% grant to be viable for an ISP. If an ISP doesn’t get enough grant funding, then taking on a new market will drag down the core existing ISP business for decades to come until after the matching funds have been paid for.

The NTIA is going to allow for some grants greater than 75% based upon categorizing areas as high cost. This is a mixed benefit because being classified as high-cost can also mean that the BEAD grants can fund a technology other than fiber. The NTIA hasn’t announced its high-cost parameters yet, but it seems likely that this will be some variation of cost per passing. The agency still hasn’t released that number, and I’m hoping that’s because they are finding out that concentrating on just one of the key variables cannot suffice to define a high-cost area.

Cost per passing is obviously an important variable. It’s going to generally be easier to find a funding solution for a market with an average cost per passing of $10,000 compared to another market with a cost of $15,000. But if the NTIA looks deeper, it might find that the ISP seeing the higher cost per passing might have a viable business plan while the other does not. For example, if the ISP with the highest network costs has higher broadband rates and knows it will achieve a higher customer penetration rate, that ISP might be comfortable accepting a 75% grant, while that may not be nearly enough grant for the second ISP.

When ISPs seek grant funds, they often have to make uncomfortable decisions. I’ve worked with several ISPs recently that finally came to realize that their proposed broadband rates are too low for grant areas. Cooperatives and municipal ISPs want to bring low rates to customers. But the algebra doesn’t lie, and there has to be enough future revenue to satisfy the debt used to finance the matching funds. If that means starting with higher rates, then that’s what is needed to accept grant funding.

I fear that there are a whole lot of ISPs not doing the math that will wonder five years from now why they took the grant funding to expand. The good news is there is usually a way out of a struggling business plan, but it might not be comfortable. It might mean raising rates or going door-to-door to get every possible customer in a market to make it work.

I know that some folks were hoping after reading the first few paragraphs of this blog that I was going to give them the magic metric – a 75% grant will be sufficient in an area that has a cost per passing under $X. I wish it was that simple, but it’s not.

Categories
Regulation - What is it Good For?

Should Grant Networks Allow High Prices?

I wrote a blog yesterday about a grant application filed in Nebraska by AMG Technology Investment Group (Nextlink Internet). This is one of the companies that won the RDOF reverse auction at the FCC but is still waiting to hear if it will be awarded the FCC subsidy funding.

One of the things that caught my eye on the grant request was the proposed broadband rate. Nextlink is proposing a rate of $109.95 for a 2-year contract for 100/100 Mbps. I have to assume that the rate without a 2-year contract is even higher – or maybe a customer can’t buy broadband for less than a 2-year commitment.

Today’s blog asks the question – should higher-than-market rates be allowed on a network that is being subsidized with public funding? This is not the first time I’ve seen a rate that high, and I can recall at least two other RDOF winners planning on basic rates of at least $100. One example is Starlink, which also has not yet been approved by the FCC for RDOF and which has a $110 rate.

I don’t think there is any question that a $110 rate is higher than the market. Should an agency that awards grants or other broadband subsidies somehow insist that broadband rates are somehow tied to market rates? That’s a lot harder question to answer than you might think because the question implies that these agencies have the power to regulate or cap broadband prices in grant areas.

The Ajit Pai FCC voluntarily gave away the right for the FCC to regulate broadband rates when it gave up Title II authority. It’s not clear if that decision has any bearing on other federal agencies that award grants like NTIA, EDA, and USDA. Can these federal agencies insist on affordable rates for ISPs that take federal funding? If not, can the agencies at least consider rates when deciding who gets grant funding – can these agencies assign fewer qualifying grant points to somebody with a $100 basic rate compared to somebody with a $50 rate?

I think we got a hint that considering rates is probably allowed since Congress made it clear with the BEAD legislation that the NTIA has no authority to regulate rates – this implies that without that specific Congressional mandate that the NTIA might have had that authority. But even the specific BEAD edict might not mean that rates can’t be considered in BEAD grants.

It’s an even fuzzier question if a State has the right to set rates. There have always been two schools of thought about the scope of State versus Federal authority in terms of regulating broadband. I’ve heard it argued that a State’s right to regulate broadband rolls downhill from the federal ability to regulate. If you believe in this philosophy, then a State’s right to regulate broadband rates was severely weakened when the FCC gave up its rights. But I’ve also heard just the opposite argued – that a State has the right to step into any regulatory void left by federal regulators. We recently saw this concept in action when courts recently upheld California’s right to implement net neutrality rules after the FCC washed its hands of such authority. If you accept this view of regulation, a State can tackle rate regulation if the FCC refuses to do so.

To be fair to Nextlink, the company also offers less expensive broadband rates. Its fixed wireless products, rates start at $69.95 for a 15 Mbps download connection. Fiber prices start at $49.99 for a 25 Mbps download speed. But these lower rates for slower speeds raise more questions for me. Many of the current broadband grants require building networks that can deliver at least 100/100 Mbps broadband. Should an ISP be able to use a grant-funded network to offer anything slower? The whole point of these grant programs is to bring faster broadband across America. Should a network that is funded with public money be allowed to set slower speeds for the most affordable options? If so, it’s hard to argue that the ISP is delivering 100/100 Mbps broadband everywhere. If the agencies awarding grants can’t demand affordable rates, perhaps they can demand that 100/100 Mbps is the slowest product that can be offered on a grant-subsidized network. Nobody is forcing ISPs to accept grant funding and other subsidies, but when they elect to take public money, it seems like there can be strings attached.

I also wonder if ISPs benefitting from a grant-subsidized network ought to have the ability to force customers into long-term contracts? It’s not hard to make the case that the public money paying for the network should justify public-friendly products and practices.

As a final note, this topic highlights another glaring shortfall of awarding subsidies through a reverse auction rather than through grants. With RDOF, the reverse auction determined the winner of the subsidy first, and then the FCC proceeded to find out the plans of the subsidy winners. There were no pre-determined rules for issues like rates that an RDOF winner was forced to accept as part of accepting the public money. Let’s not do that again.

Categories
Regulation - What is it Good For? The Industry

Grants and Upload Speeds

The NTIA set a new definition of broadband at 100/20 Mbps for purposes of the BEAD grants – if a customer fails that test they are considered either unserved or underserved. Everybody nationwide has been so focused on download speeds that we are largely ignoring the fact that a huge number of nationwide broadband customers are not getting upload speeds of 20 Mbps. All of the speed test efforts I’ve seen have focused on whether homes and businesses are receiving 100 Mbps download and have largely ignored any implications of customers not achieving the NTIA’s 20 Mbps upload stream to qualify for a broadband grant.

My consulting firm helps clients conduct a lot of speed tests, and I also have been poring through the large number of speed tests gathered by Ookla and MLabs. I mostly work in rural counties, county seats, and suburban cities. I would venture to say that the vast majority of speed tests we see from cable customers do not meet the upload speed. The same is true for a large percentage of WISPs.

Sometimes the evidence is overwhelming. I recently worked with a county seat of about 20,000 people and the only customer in the community seeing upload speeds of 20 Mbps or faster were those who subscribed to the cable company’s gigabit product. Not one other cable customer had a 20 Mbps, and most weren’t even close, with an average of 11 Mbps. This was true for customers buying both a 100 Mbps, 200 Mbps, and 400 Mbps download product.

This raises an interesting question, which I’m sure is going to be the core of the cable company’s response to this question. In that particular city, the gigabit customers were getting upload speeds between 30 Mbps and 40 Mbps. I’m sure the cable company will argue that since a few customers are getting speeds over 20 Mbps that the network is capable of faster speeds.

I’ve talked to several knowledgeable engineers on the topic, and they tell me that the cable company in this case could not give faster speeds to everybody – or they would. The cable company is somehow giving a preference for gigabit customers at the expense of everybody else. If the cable operator opened the gates for everybody to get the fastest upload speed possible, the likely outcome would be that the gigabit customer speeds would drop to match everybody else’s speeds – the other customers would not get any faster.

This is an interesting question for state broadband grant offices to consider because it’s inevitable that people are going to seek grants where there is a cable company operating, using the argument that the cable company doesn’t meet the NTIA’s definition of broadband.

It makes sense to me that an ISP must meet both components of the speed definition to be considered as served. It shouldn’t matter if an ISP misses on the download or upload speed – if it fails one of the two benchmarks, it is not meeting the NTIA’s definition of served. If you don’t believe that logic, consider an ISP that is delivering 50/20 Mbps on licensed fixed wireless. I think there would be a consensus that this customer is not served since it is achieving only half of the definition of download speeds. But isn’t the same true for an ISP that is delivering 120/10 Mbps broadband?

To be fair to cable companies, they deliver speeds greater than 20 Mbps in many markets. I buy 400 Mbps download from Charter and routinely see upload speeds of 30 Mbps. But we all know that the performance of cable companies varies widely from town to town, and often inside of a town.

I had to laugh last year when the big cable companies fought so hard to reduce the definition of served from 100/100 Mbps to 100/20 Mbps. I knew then that this battle would be coming since the majority of cable customers, at least in the markets I have studied, are not seeing upload speeds of 20 Mbps.

One thing I think we can all count on is that if any grant office awards funding to overbuild a cable company because of this issue, we’re going to see the cable industry go ape. They’ve been quiet about the poor upload speeds, but they won’t stay that way if they see grant money coming to overbuild them.

Categories
Regulation - What is it Good For?

BEAD Funding for Anchor Institutions

One of the aspects of the $42.5 billion BEAD program that many communities might have overlooked is that communities can request grants to bring fast broadband or improve existing broadband to anchor institutions.

Section I.C.f. of the BEAD Notice of Funding Opportunity (NOFO) defines a community anchor institution as an entity such as a school, library, health clinic, health center, hospital or other medical provider, public safety entity, institution of higher education, public housing organization, or community support organization that facilitates greater use of broadband service by vulnerable populations, including, but not limited to, low-income individuals, unemployed individuals, children, the incarcerated, and aged individuals. An Eligible Entity (the State Broadband Office) may propose to NTIA that additional types of institutions should qualify as CAIs within the entity’s territory.

The first thing to note is that this expands the definition of anchor institution beyond the traditional list by adding organizations that facilitate the use of broadband by vulnerable populations. This means that the grants can be used to bring better broadband to organizations that want to help low-income individuals or others who need better broadband. This is an interesting concept that makes it possible to build broadband facilities to the offices of non-profits or perhaps a computer training center. My interpretation of the BEAD rules is that the grant funding could also be used to construct a training center and buy the needed computers.

This is one of the more interesting sections of the BEAD program because it doesn’t seem to be restricted to only anchor institutions that can’t already buy broadband with 100/20 Mbps speeds. We’ll have to see how states interpret the rules, but it seems like funding could be used to upgrade speeds to anchor institutions. It might also be possible to use this funding to add anchor institutions to a fiber network that would eliminate the need for having to buy commercial broadband – much like school systems often build private networks.

I must be honest in that I historically disliked grant programs that were built only for anchor institutions. The 2009 BIP and BTOP grants were used to build many middle-mile fiber routes across the country. Those grants required grant winners to drop off of the middle-mile routes to serve any anchor institutions in rural areas. This meant that fiber was often built into small rural towns to serve only the city hall and the library and nothing else. Certainly, these anchor institutions needed broadband, but so did all of the residents and businesses in these towns. In actual practice, delivering broadband to only anchor institutions made it harder to justify a rural broadband build to reach everybody else since the anchor institutions were no longer potential customers.

I think the BEAD grants are different. The BEAD grants are aimed at building broadband across large rural areas and will be required to serve everybody in those areas, including anchor institutions. I interpret the anchor institution language to be aimed at towns and cities and not rural areas.

Larger towns and cities got broadband networks constructed to serve anchor institutions in the 1970s by cable companies that provided broadband as a condition for granting a cable franchise. However, these networks are either no longer free or have been discontinued as cable companies have lost nearly twenty million customers in just the last few years. The BEAD grants hold out the possibility for a community to construct a new government network to replace the old networks that were once provided by the cable companies – and to a large universe of eligible anchor institutions.

I would hope that cities will not repeat the sins of BTOP and build a broadband network in such a way as to ignore the rest of the community. For example, another provision of BEAD allows funding to be used to bring better broadband to low-income apartment buildings or complexes, and I hope any urban networks will address multiple needs.

This is one of the pieces of BEAD funding that I don’t think is automatic. It’s up to states to put some muscle behind this possibility if it wants to see these kinds of grant awards. I have no doubt that the large ISPs are going to hate this provision since it could fund fiber networks in urban areas. And I am certain that some states will follow the lead of the big ISPs and make it hard to qualify for this kind of grant.

However, the BEAD rules allow for these kinds of projects, and communities should assess their broadband needs for anchor institutions and begin the process of lobbying the State broadband offices to make such grants available. While the big ISPs might hate this idea, there is no reason that this kind of grant can be used to create a public-private partnership with a big ISP or somebody else. I think cities are going to have to be creative to win and implement these grants – but it is well worth the effort.

Categories
Regulation - What is it Good For?

BEAD Grants in High-cost Areas

There are two interesting aspects of the BEAD NOFO that discuss how States might deal with parts of the country that have higher than average costs. As a reminder, when reading the following, Eligible Entity means a State broadband office. The two provisions are as follows:

An Eligible Entity may decline to select a proposal that requires a BEAD subsidy that exceeds the Extremely High Cost Per Location Threshold for any location to be served in the proposal if use of an alternative Reliable Broadband Service technology meeting the BEAD Program’s technical requirements would be less expensive.

 If no Reliable Broadband Service technology meeting the BEAD Program’s technical requirements would be deployable for a subsidy of less than the Extremely High Cost Per Location Threshold at a given location, an Eligible Entity is authorized to select a proposal involving a less costly technology for that location, even if that technology does not meet the definition of Reliable Broadband Service but otherwise satisfies the Program’s technical requirements.

Let’s unpack these two sections of the NOFO. The first citation says that in areas with high costs, a State should strongly consider using the lowest-cost technology that the NTIA has defined as capable of providing broadband speeds of at least 100/20 Mbps. To give an example, a State should give a preference in high-cost places to use fixed wireless using licensed spectrum instead of fiber.

The second quote goes further and says that a State can go even further and consider using a technology that is not considered capable of providing reliable broadband service. That might mean rejecting a proposal to build fiber and awarding funding to a satellite provider that promises to deliver 100/20 Mbps.

I can foresee both positive and negative aspects of this approach. Unfortunately, at this point, the NTIA hasn’t defined what extremely high-cost means and the NTIA plans to issue more guidance. I read the NOFO to require each state to define high-cost based on the local situation.

On the positive side, there are many remote locations that are extremely costly to reach with wired technology. Homes on mountaintops or deep in canyons might be unreachable with the technologies listed by the NTIA as capable of providing reliable broadband (fiber, coaxial cable, DSL, and fixed wireless using licensed spectrum). It seems practical not to waste grant money to build technology to reach really remote homes.

But then I start looking at a lot of real-life situations, and I get worried about this provision. By definition, practically any homes in the woods in Appalachia, the Ozarks, or the Sierra Nevadas will cost a lot more to reach than homes in the plains of Iowa or Minnesota. It costs a lot more to get broadband to the many folks who live on islands because of the backhaul. Homes that happen to be near federal parks or other federal lands are often going to cost a lot more to reach because of the added paperwork. Does the NOFO give a State the cover to write such places off or fund to technologies that are not considered to provide reliable service?

I find that a bit ironic since there is a statement in the NOFO goals about wanting to reach everybody with good broadband – the NTIA said states should consider a grant request to serve even a single remote home. Part of me says that the whole intent of Congress is to reach exactly these high-cost places – they are the ones that really need the federal subsidy.

I worry about the ability to substitute technologies in places like heavy mountains and woods. The only reliable broadband in such places is a wired network. I know wireless vendors claim the ability of wireless technology to penetrate trees and woods, but it doesn’t work well where there is nothing but woods along with rough terrain where lines of sight are impossible.

Each state is going to have a public comment period, and counties and communities that have the more challenging costs and terrains need to pay close attention to your state’s proposed plan to make sure the state isn’t going to write you off before the grant process even begins. That challenge process might be the only chance you’ll have to get good broadband.

Categories
Regulation - What is it Good For? Technology

The NTIA Preference for Fiber

As might be expected when there is $42.5 billion in grant funds available, we are probably not done with the rules for the BEAD grants. There are several areas where heavy lobbying is occurring to change some of the rules established by the NTIA in the NOFO for the grants.

One of the areas with the most lobbying is coming from WISPs that are complaining that the NTIA has exceeded its statutory authority by declaring a strong preference for fiber. The NTIA went so far as to declare that fixed wireless technology that doesn’t use licensed spectrum is not a reliable source of broadband and isn’t eligible for BEAD grants. The wireless industry says that the NTIA is out of bounds and not sticking to a mandate to be technology neutral.

I decided to go back to the Infrastructure Investment and Jobs legislation and compare it with the NOFO to see if that is true. Let’s start with the enabling language in the legislation. The IIJA legislation makes it clear that the NTIA must determine the technologies that are eligible for the BEAD grants. One of the criteria the NTIA is instructed to use is that grant-funded technologies must be deemed to be reliable. Reliable is defined in the Act using factors other than speed and specifically says that the term “reliable broadband service’ means broadband service that meets performance criteria for service availability, adaptability to changing end-user requirements, length of serviceable life, or other criteria, other than upload and download speeds.

I interpret ‘adaptability to end-user requirements’ to mean that a grant-eligible technology must have some degree of what the industry has been calling being future-proofed. A grant-funded technology must be able to meet future broadband needs and not just the needs of today.

‘Length of serviceable life’ refers to how long a grant investment might be expected to last. Historically, broadband electronics of all types typically don’t have a useful life of much more than a decade. Electronics that sit outside in the elements have an even shorter expected life, with components like outdoor receivers for wireless not usually lasting more than seven years. The broadband assets with the longest useful lives are fiber, huts, and new wireless towers. If you weigh together the average life of all of the components in a broadband network, the average useful life of a fiber network will be several times higher than the useful life of a wireless network.

NTIA then used the reliable service criteria to classify only four technologies as delivering a reliable signal – fiber, cable modem hybrid fiber-coaxial technology, DSL over copper, and terrestrial fixed wireless using licensed spectrum. Since DSL cannot deliver the speeds required by the grants, that leaves only three technologies eligible for BEAD grants.

The legislation allows the NTIA to consider other factors. It appears that one of the other factors the NTIA chose is the likelihood that a strong broadband signal will reach a customer. I speculate that fixed wireless using only unlicensed spectrum was eliminated because interference of unlicensed spectrum can degrade the signal to customers. It’s a little harder to understand which factors were used to eliminate satellite broadband. The high-orbit satellites are eliminated by not being able to meet the 100-millisecond requirement for latency established by the legislation. I would speculate that low-orbit satellites are not eligible for grants because the average life of a given satellite is being touted as being about seven years – but I’m sure there are other reasons, such as not yet having any proof of the speeds that can be delivered when a satellite network fills with customers.

From the short list of technologies deemed to be reliable, the NTIA has gone on to say several times in the NOFO that there is a preference for fiber. When looking at the factors defined by the legislation, fiber is the most future-proofed because speeds can be increased drastically by upgrading electronics. Fiber also has a much longer expected useful life than wireless technology.

The accusations against the NTIA seem to be implying that the NTIA had a preference for fiber even before being handed the BEAD grants. But in the end, the NTIA’s preference for fiber comes from ranking the eligible technologies in terms of how the technologies meet the criteria of the legislation. It’s worth noting that there are other parts of the NOFO that do not promote fiber. For example, state broadband offices are encouraged to consider other alternatives when the cost of construction is too high. I think it’s important to note that any NTIA preference for fiber does not restrict a state from awarding substantial awards to fixed wireless technology using licensed spectrum – that’s going to be a call to make by each state.

There is a lot of lobbying going on the expand the NTIA’s list to include fixed wireless using unlicensed spectrum and satellite broadband. I’ve even heard of rumors of lawsuits to force the expansion of the available technologies. That’s the primary reason I wrote this blog – as a warning that lobbying and/or lawsuits might delay the BEAD grants. I think the NTIA has done what the legislation required, but obviously, anybody who is being excluded from the grants has nothing to lose by trying to get reinstated in the grants. When there is this much money at stake, I don’t expect those who don’t like the NTIA rules to go away quietly.

Categories
Regulation - What is it Good For?

The Extra Costs of BEAD Funding

A few weeks ago, when I did my first summary of the $42.5 billion BEAD grant program, one of my observations was that there are a lot of extra costs for an ISP to accept BEAD funding. This is something that anybody taking the funding must understand. Some of those extra costs include:

Environmental and Historic Preservation Reviews. I’ve occasionally worked on a non-grant network project that required these reviews. For example, these are normal requirements for building networks through state and federal parks. Indian tribes require these if there is any chance of construction through historically sensitive areas. I would expect to take extra precautions if I was building fiber close to the Liberty Bell or some other historical place. But other than those examples, no commercial project I’ve ever worked with has voluntarily done these reviews. Most networks are built using existing rights-of-way along roads where the soil was excavated in the past. I can’t imagine the slightest reason why these reviews would be required for placing fiber on existing utility poles.

Letters of Credit. I’ve written a separate blog on this issue. The grants require an irrevocable letter of credit just to apply, and a second letter of credit from grant winners. I think the NTIA saw the criticism leveled at the FCC in the RDOF process and wants to exclude bad actors, but this jacks up the cost of applying for a grant and could add a few percent to the overall cost of a grant project. This will also likely deter small ISPs who want to fill in some of the neediest pockets but can’t get a bank to provide the line of credit.

Prevailing Wages. Projects over $5 million must use prevailing wages. The majority of the projects will be rural, and the folks who made this requirement don’t understand the rural contractor environment. Rural contractors already pay wages that are some of the best paying jobs in a rural economy. They must do so, or in this time of technician shortage, they wouldn’t have any workforce. But they don‘t pay the extra-high prevailing wage rates that are charged in urban areas. Those rates are higher because of the higher cost of living in urban areas. If prevailing wage studies were done correctly, they’d find a separate prevailing wage for urban and rural communities. To make things worse, rural contractors don’t want to be required to pay prevailing wages if they also have non-prevailing wage workers because it causes dissension between crews who want to all work on the higher-paying project. This is a case of a solution seeking a problem because the existing wages in rural areas are balanced by the lower cost of workers not having to live in cities.

Requirements on Contractors. The BEAD NOFO layers a few new requirements on contractors. As an example, a construction contractor working on a BEAD project must certify that it has a workforce development program that includes participation in an apprenticeship program. This requirement ignores an important characteristic of most fiber and tower contractors – many of these contractors have few direct employees. They instead hire small crews of specialty subcontractors – and these small subcontractors will walk away if asked to meet this requirement or do extra paperwork. My fear is the contractors who have historically worked in rural markets won’t take BEAD work if it puts extra burdens on them – there is plenty of non-BEAD work.

Heavy Reporting Requirements. I don’t have a problem with requiring follow-up reporting on the effectiveness of grants, and in the past, some programs like CAF II had almost no follow-up. But the reporting requirements for BEAD are more detailed than anything I’ve seen, so it’s going to cost more to comply.

Grants are Taxable. We can’t forget that grants are taxable income to any taxable entity that accepts the funding. I’m hearing rumors of a D.C. workaround on this issue, but without a solution, it’s going to be hard for a small commercial ISP to justify taking millions in grant money if that means having to somehow fund paying 21% of that back to the federal government plus whatever will be due to the state. It’s not comforting to know that the tax savings will roll back over the next twenty or thirty years as grant-funded assets are depreciated. This is not specifically a BEAD issue and applies to all grants from local, state, or federal sources.

Summary. One of the sentiments I loved in the grant NOFO is that the NTIA wants to get broadband to even the most remote places, and they used the example that funding should be available to reach even a single location. But I have to laugh when I look at these requirements and see that reaching that single remote location might get layered with hundreds of thousands of dollars of extra costs.

The biggest drawback of expensive grant compliance is that it drives up the cost of every grant project. And that means that the BEAD money won’t stretch as far to bring broadband to as many homes. For an individual grant applicant, the extra cost translates into the need for more out-of-pocket matching funds – which in some cases will be enough to make a project infeasible.

I fully understand the desire at the NTIA to not fund bad projects. I imagine there are folks there that still remember the agency being accused in 2009 of funding projects that were “fiber to nowhere”. But the many extra grant requirements feel like we’re applying a pound of prevention to solve an ounce of risk. Any one of the various grant requirements can probably be justified, but when taken as a whole, the grant requirements are adding extra cost and hassle that will make many ISPs pass on the opportunity.

Categories
Regulation - What is it Good For?

Get Ready for the Challenge Process

There is one interesting aspect of the BEAD grants that could impact any rural community that is hoping to find a broadband solution from the $42.5 billion BEAD grant process. The NTIA is allowing local governments to challenge the broadband maps that will be used to determine the areas that are eligible for the grants. This is something that communities should be getting ready for today.

Let me first explain the background to this challenge process. It’s a confusing and messy story. When Congress funded the new BEAD grants, one of the provisions was that States have to use the FCC maps as the basis for the broadband grants. This is a dreadful provision since the FCC maps have been so inaccurate in the past. Several states have done enough analysis to show that the current FCC maps mischaracterize millions of homes as having adequate broadband that doesn’t exist. This is almost entirely due to the fact that ISPs feed the data into the FCC maps with no review or challenge by the FCC. The FCC mapping rules say that an ISP can report ‘marketing speeds’, and many ISPs have used that ability to overstate the speeds of broadband. For example, there are millions of homes in the current FCC maps using DSL where the telcos claim speeds of 25 Mbps, but where actual speeds are almost always far slower than this. This overstatement of the existing capability means that customers would be categorized as underserved in the BEAD grants instead of unserved.

The FCC is scrambling to create a new set of broadband maps to be used for the BEAD grants. The latest I’ve heard is that the new maps might be ready by November. The new maps completely change the way that ISPs report the data – they now must draw polygons around customers rather than using Census blocks. But the new mapping rules didn’t make the change that matters the most – ISPs are still allowed to list marketing speeds instead of actual speeds.

I’m certain that the new maps are going to be a disaster, at least this first version that comes out this fall. First, many ISPs are going to stumble making the conversion to the new mapping system – it’s complicated and is not going to be easy to get right. But my real concern is that ISPs that want to gum up the grants can do so by overstating broadband speed capabilities, as they have done in the past.

We don’t have to look back very far into the past to see the big telcos try this. On the eve of the RDOF auction, CenturyLink and Frontier tried to increase the reported speeds for tens of thousands of Census blocks to above 25/3 Mbps – a change that would have kept those locations out of the RDOF auction. The FCC blocked these mass changes before the auction, but there is nothing to stop the ISPs from doing this again.

And now, there is a new group of ISPs with this same motivation. In the recent NOFO for the BEAD rants, the NTIA says that grants can’t be used to overbuild a fixed wireless ISP that uses licensed spectrum and provides broadband speeds of at least 100/20 Mbps. That ruling means that these ISPs are going to be highly motivated to declare that they are delivering 100/20 Mbps speeds even if they don’t in order to protect their service areas from BEAD grant eligibility. Many wireless ISPs have overstated broadband speeds in the past even more than big telcos, so it’s not hard to imagine some of them doing this.

The challenge process gives a community the chance to fight back if the new FCC maps show that their community is not eligible for the BEAD grants. Each state must allow for a challenge process where a unit of local government, a nonprofit organization, or an ISP can challenge the broadband maps. These challenges are made to the State, and not to the FCC. I’m hopeful that most states will be sympathetic to challenges that will bring faster broadband to places that need it. A State much submit every successful challenge to the NTIA for review – but I believe that the NTIA will want to get these grants done right.

How could a community mount a challenge? The best way to do this is with a mountain of speed test data that has been collected by address. We know that any individual speed test reading is not reliable proof of broadband speeds – there can be factors at a home, such as a poor WiFi router than can lower the measured speed. But speed tests taken in bulk are good proof. For example, if no speed test in a rural area hits the speeds claimed on the FCC maps, it’s fairly certain that the claimed speed is not being delivered.

I also think that gathering anecdotes and stories of the results of the poor broadband in the affected areas can be effective. If an ISP overstates broadband speeds in an area, stories from folks who tell how they can’t work from home or how their kids can’t do homework over the broadband connections can help to bolster the fact that the broadband speeds are being exaggerated.

States will not be asking for these challenges until sometime after the new year, so there is plenty of time this year to start gathering the evidence. It may turn out you won’t need a challenge if the ISPs in your area report existing speeds honestly. But you need to be prepared for the situation where the FCC maps will deny broadband funding for your area. It will be a disaster for a community if they are unfairly denied grant funding because of a dispute about the FCC maps. It’s happened many times before – but communities need to make sure they don’t miss out on this giant round of funding.

Exit mobile version