Tag: NTIA

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Buy America and BEAD

In the State of the Union speech earlier this year, President Biden made it clear that he wants to see the monies spent on infrastructure projects follow the Buy America rules. The Buy America rules were enacted in 1933. The Act says that purchasing funded by the U.S. government should have a preference for using American-made products. The rules allow for waivers from this provision, but the presumption is that without a waiver that American goods must be used.

The NTIA reacted to the president’s speech by writing a blog talking about the use of the Buy America rules in the upcoming $42.5 billion BEAD grants. The blog states, “The president made clear that while Buy America has been the law of the land since 1933, too many administrations have found ways to skirt its requirements. We will not.”

The NTIA requested waivers from Buy America rules when administering past grant programs, including the recent $1 billion middle-mile grants. The USDA sought a 6-month waiver of these rules that applied to some earlier rounds of the ReConnect grants. But the NTIA has made it clear that it doesn’t see any need for a waiver to buy American fiber optic glass or cable. The NTIA says there should be sufficient time for manufacturers to re-shore or expand U.S. manufacturing to meet the demands from the BEAD grants.

In the requested waiver for the Middle Mile Grant Program, the NTIA identified components of a fiber network that are sourced almost exclusively in Asia. This includes electronics like broadband switching equipment, broadband routing equipment, dense wave division multiplexing transport equipment, and broadband access equipment. It doesn’t seem likely that U.S. vendors are going to step up to create an American source for these components in time to meet the needs of the BEAD grants. And while the BEAD grants are substantial, they are not alone enough inducement to manufacture these goods in this country.

The market reality is that most of the costs of any broadband grant project will be spent on American inputs. The cost of labor is usually the largest component of network costs, and the grants require this work be done by American firms. As the NTIA points out, there are plenty of sources for American fiber and conduit. There are American sources of cabinets, huts, and enclosures. There are American vendors making handholes and pedestals.

But the sticky item is going to be electronics. If the NTIA plays hardball on fiber electronics, it will be nearly impossible that any ISP can fulfill the Buy American provision. I’m not as familiar with where wireless electronics are manufactured, but I assume that WISPs have a lot of the same concerns. Electronics are a relatively tiny slice of the total cost of a fiber network but a larger percentage for a new wireless network. .

The arbiter of the Buy American rules is the U.S. Office of Management and Budget (OMB), which recently solicited nationwide comments about how firmly the Buy American rules should be enforced for projects that will be funded by the Infrastructure Investment and Jobs Act. There is a possibility that the OMB will be stingy with waivers even if the NTIA asks for them, but that’s a bridge that can’t be crossed until it happens.

What’s most disturbing is that this joins a list of other issues that create a lot of uncertainty for ISPs considering the BEAD grants. If we don’t start clearing up the uncertainties, states might find that the ISPs they are hoping will request grants will sit out the BEAD grants. ISPs are naturally attracted to grants, but not if the hurdles are too hard to overcome.

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Regulation - What is it Good For?

More Mapping Drama

As if the federal mapping process needed more drama, Senator Jacky Rosen (Dem-Nevada) and John Thune (Rep-South Dakota) have introduced bill S.1162 that would “ensure that broadband maps are accurate before funds are allocated under the Broadband Equity, Access, and Deployment Program based on those maps”.

If this law is enacted, the distribution of most of the BEAD grant funds to States would be delayed by at least six months, probably longer. The NTIA has already said that it intends to announce the allocation of the $42.5 billion in grants to the states on June 30. The funds are supposed to be allocated using the best count of unserved and underserved locations in each state on that date. Unserved locations are those that can’t buy broadband of at least 25/3 Mbps. Underserved locations are those unable to buy broadband with speeds of at least 100/20 Mbps.

To add to the story, FCC Commissioner Jessica Rosenworcel recently announced that the FCC has largely completed the broadband map updates. That announcement surprised the folks in the industry who have been working with the map data, since everybody I talk to is still seeing a lot of inaccuracies in the maps.

To the FCC’s credit, its vendor CostQuest has been processing thousands of individual challenges to the maps daily and has addressed 600 bulk challenges that have been filed by States, counties, and other local government entities. In making the announcement, Rosenworcel said that the new map has added over one million new locations to the broadband map – homes and businesses that were missed in the creation of the first version of the map last fall.

But the FCC map has two important components that must be correct for the overall maps to be correct. The first is the mapping fabric that is supposed to identify every location in the country that is a potential broadband customer. I view this as a nearly impossible task. The US Census spends many billions every ten years to identify the addresses of residents and businesses in the country. CostQuest tried to duplicate the same thing on a much smaller budget and with the time pressure of the maps being used to allocate these grants. It’s challenging to count potential broadband customers. I wrote a blog last year that outlined a few of the dozens of issues that must be addressed to get an accurate map. It’s hard to think that CostQuest somehow figured out all of these complicated questions in the last six months.

Even if the fabric is much improved, the more important issue is that the accuracy of the broadband map is reliant on two issues that are reported by ISPs – the coverage area where an ISP should be able to connect a new customer within ten days of a request, and the broadband speeds that are available to a home or business at each location.

ISPs are pretty much free to claim whatever they want. While there has been a lot of work done to challenge the fabric and the location of possible customers – it’s a lot harder to challenge the coverage claims of specific ISPs. A true challenge would require many millions of individual challenges about the broadband that is available at each home.

Just consider my own home. The national broadband map says there are ten ISPs available at my address. Several I’ve never heard of, and I’m willing to bet that at least a few of them can’t serve me – but since I’m already buying broadband from an ISP, I can’t think of any reason that would lead me to challenge the claims of the ISPs I’m not using. The FCC thinks that the challenge process will somehow fix the coverage issue – I can’t imagine that more than a tiny fraction of folks are ever going to care enough to go through the FCC map challenge process – or even know that the broadband map exists.

The FCC mapping has also not yet figured out how to come to grips with broadband coverage claimed by wireless ISPs. It’s not hard looking through the FCC data to find numerous WISPs that claim large coverage areas. In real life, the availability of a wireless connection is complicated. The FCC reporting is in the process of requiring wireless carriers to report using a ‘heat map’ that shows the strength of the wireless signal at various distances from each individual radio. But even these heat maps won’t tell the full story. WISPs are sometimes able to find ways to serve customers that are not within easy reach of a tower. But just like with cellphone coverage, there are usually plenty of dead zones around a radio that can’t be reached but that will still be claimed on a heat map – heat maps are nothing more than a rough approximation of actual coverage. It’s hard to imagine that wireless coverage areas will ever be fully accurate.

DSL coverage over telephone copper is equally impossible to map correctly, and there are still places where DSL is claimed but which can’t be served.

Broadband speeds are even harder to challenge. Under the FCC mapping rules, ISPs are allowed to claim marketing speeds. If an ISP markets broadband as capable of 100/20 Mbps, they can claim that speed on the broadband map. It doesn’t matter if the actual broadband delivered is only a fraction of that speed. There are so many factors that affect broadband speeds that the maps will never accurately depict the speeds folks can really buy. It’s amazingly disingenuous for the FCC to say the maps are accurate. The best we could ever hope for is that the maps will be better if, and only if ISPs scrupulously follow the reporting rules – but nobody thinks that is going to happen.

I understand the frustration of the Senators who are suggesting this legislation. But I also think that we’ll never get an accurate set of maps. Don’t forget that Congress created the requirement to use the maps to allocate the BEAD grant dollars. Grant funding could have been done in other ways that didn’t relay on the maps. I don’t think it’s going to make much difference if we delay six months, a year, or four years – the maps are going to remain consistently inconsistent.

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The Industry

BEAD Grants – File Early or Wait?

Several states have already announced that there will be multiple rounds of BEAD grant applications. This makes a lot of sense for states that will be receiving a significant amount of BEAD funding. It’s a daunting prospect to try to meet all of the goals established by the NTIA in a single round of grants. Perhaps the biggest challenge will be making sure that as many unserved and underserved homes find a broadband solution.

One issue of concern for State Broadband Offices has to be what they should do if nobody asks for grant funding from some parts of a state. This is not hard for me to envision. I’ve been working with a lot of parts of the country where a 75% grant might not be sufficient – particularly when considering the extra costs that BEAD adds to building a broadband solution. For example, I’ve looked at a few mountainous and remote communities where the grants will need to be nearly 100% to get an ISP to want to bring a fiber network – and these are communities that don’t look to be reasonably served by a wireless solution. I think ISPs and State Broadband Offices will eventually need to negotiate to bring broadband to the highest cost places.

There are also a lot of small pockets of homes everywhere that do not neatly fit into any grant application. One of the reasons for many of these pockets was the FCC’s RDOF subsidies that created service areas often described as swiss cheese. But there are also small pockets of customers everywhere for more natural reasons, such as being located in an isolated place not close to other customers. I believe States are going to have to get very creative if they really want to get all of these tiny pockets served because ISPs are not likely to go through the complicated BEAD grant process to serve tiny, isolated areas.

This is further complicated by the legislative and NTIA rules that say that States must bring broadband to unserved locations before funding other places. Nobody yet understands what that will look like in practice, but States seem to have a mandate to make sure they find a solution for the most challenging locations before spending all of the BEAD grant funding elsewhere. That alone sounds like a good reason to expect multiple rounds of grants.

Communities have a different issue to consider. Many communities have a strong preference for the ISP(s) they want to serve them. Some favor local ISPs they’ve known and trusted for many years. Others are excited to see electric coops considering becoming the broadband provider. Some communities have a strong preference for fiber. Some local governments communities have already heard from residents that they do not want the incumbent telco that neglected them for decades to get more funding – they want somebody different.

It’s my opinion that communities with a strong preference for specific ISPs need to work with their chosen ISPs to be part of the first round of BEAD grant filings. Otherwise, they take a big chance that somebody they don’t want will file early and win the first round of BEAD grant filings. I’ve always thought it is likely that State Grant Offices will give extra consideration to ISPs that have the strong support of local officials. Many jurisdictions are making small local grants to demonstrate their support for a specific set of ISPs. But having a strong preference for an ISP partner won’t mean much if some other ISP beats files grants first.

There is a lot of speculation about the degree to which the big telcos and firms that are backed by venture capital money will be chasing the $42.5 billion in grants. It’s probably fair to assume these big companies will file every grant they are interested in during the first grant window of opportunity.

This means that it’s already time to talk to ISPs. I’m working with a number of counties that are already reaching out to local ISPs to understand their intentions. County governments have a strong desire to know that somebody plans to serve every unserved and underserved location in the county. Their biggest fear is that the big grants will come and go, and some of their folks still get no broadband solution.

ISPs that really want to serve specific areas need to be ready by the first round of grant filings – and communities should be pushing them to do so. It’s likely that the earliest rounds of state grants will be oversubscribed and many grants will not be made until later rounds – but if somebody beats an ISP to an area you want to serve, the opportunity might be gone.

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My Fiber Bias

I will readily admit that I have a fiber bias when it comes using infrastructure grant funding. This is a policy issue for me and is not limited only to broadband. The federal government is handing out huge once-in-a-lifetime infrastructure grants. I think federal infrastructure grants should be used to build infrastructure that will last as long as possible to create the longest-term public good. I am perplexed when I see cities using ARPA funding to buy firetrucks and computers if that city has big infrastructure deficits for things like water systems or public housing. I obviously have no bias against firetrucks or computers – but they aren’t infrastructure.

My position raises the obvious question of what qualifies as infrastructure. In my mind, infrastructure is an asset with a long useful life. I think everybody would agree that roads, bridges, and water pipes are infrastructure. These are assets that will be useful to the public for a long time.

It’s a little less clear with broadband infrastructure. Conduit is clearly infrastructure, and there is no reason to think that conduit won’t still be functional in a century.

Fiber is a little less clear-cut. I remember when fiber was being constructed in the 1980s, we thought of it as a 40-year asset. There are some fiber routes built in the 80s that are showing wear, but a lot of fiber built in the 1980s is still going strong.

But fiber manufacturing technology has improved significantly since the 80s. Fiber is now much clearer and less likely to grow opaque with age. Fiber today has much tougher outer sheathing. We’ve also learned a lot about fiber installation techniques, and many of the problems that have arisen from older fiber are due to stress placed on the fiber during construction. While the manufacturers won’t go on the record on the useful life of fiber, I’ve been told privately by fiber manufacturing engineers that fiber ought to last 70 or 80 years if installed properly. That sounds like infrastructure.

The biggest weakness of all broadband technologies in terms of longevity is the electronics. This applies equally to fiber and wireless technologies. The conventional wisdom is that most broadband electronics are good for about 10 or 12 years. Part of this is due to true obsolescence, where circuit cards wear out after being used non-stop for a decade. But part of the obsolescence is due to vendors that stop supporting older technology. It becomes harder each year to support a network if vendors aren’t making replacement cards. Everybody that’s owned a broadband network for twenty years can still point to a few pieces of gear that are still chugging along – but for the most part, electronics have to be replaced over time.

If my philosophy is that infrastructure is an asset that lasts for a long time, how do I reconcile any broadband grant with relatively short-lived electronics (at least short-lived on an infrastructure time scale)? I define infrastructure in the same way as lenders. Federal bond rules say that a borrower can’t have a bond term (the years to pay back the loan) that is longer than the average economic life of the assets being funded. A lot of commercial banks have a similar test as part of evaluating infrastructure loans.

What’s the average useful life of a fiber network? Consider the following real-life example of a recent rural fiber project I worked on.

Average Life % of Project
Conduit 100 25%
Fiber 40 – 60 60%
Drops 30 8%
Buildings/Huts 40 3%
Electronics 12 4%

Folks can disagree about the average life of fiber. I’ve been conservative since I think fiber will last longer than shown in the table. If you assume that fiber is good for 40 years, the weighted average useful life of the above network is 53 years. If you assume the average life of fiber is 60 years, the useful life climbs to 65 years. Aerial fiber networks have a lower economic life without conduit, but the range of expected life is still between 37 years and 53 years.

Other broadband technologies have a much shorter economic life. My guess is that the economic life for Starlink is under ten years since the satellites are designed to fall out of orbit by then. There are probably components in satellite base stations that will last longer – but most of the investment is in the satellites.

It’s hard to do the same math and get a useful economic life for the typical fixed wireless network that is higher than 15 years. It is possible to construct a fixed wireless network with a higher average useful life. Well-built towers can easily last 75 years. Fiber backhaul to towers has the same useful life as last-mile fiber. However, my reading of the BEAD grant rules is that it will be difficult to win funding to build towers or middle-mile fiber. A fixed wireless grant that funded towers and fiber would probably pass my infrastructure sniff test.

I can’t begin to estimate the average useful life of an FWA cellular network, but it’s not very long. These are networks that are built to use the excess capacity of cell phone networks and are not constructed just for broadband. When I consider the rapid evolution of cellular technologies, it seems likely that any system built today will be technically obsolete when real 5G standards are finally implemented.

Hybrid-fiber coaxial systems have an average economic life that is about the same as the lower range of fiber network lives. The coaxial wire won’t last as long as fiber, but forty years is a reasonably assumed life for the coax.

The NTIA tried to express the same sentiment as me without defining why. The NTIA said early on, after it was given responsibility for the BEAD grants, that the agency favors fiber. It would have been a lot clearer if the NTIA said instead that it doesn’t support infrastructure grants for projects that don’t have infrastructure useful lives – I think that is what they meant. If the agency had set a definition of infrastructure as projects with a useful life of at least thirty or forty years, we wouldn’t be having the discussion of funding networks with short useful lives.

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The Industry

Influencing the BEAD Rules

One of the most interesting aspects of the upcoming BEAD grants is that the federal legislation that created the grants require states to solicit feedback from the public. I can’t recall that ever happening with any grants in the past – normally the rules are handed down from on-high, and that’s that.

States have to solicit feedback on two grant programs. First will be each state’s share of the $42.5 billion of BEAD broadband infrastructure grants. Second is the state’s portion of $1.44 billion in digital equity grants. Most states are soliciting feedback on the two grant programs at the same time, although this can be done separately. The listening sessions can be virtual, or the state can send folks out to talk to you live.

The federal rules that created the grants say that the states have to reach out to ‘all corners’ of the state to solicit feedback. I interpret that to mean the state must reach out to local government, non-profits, local broadband committees, and any other stakeholder groups that wants to talk to them. Most states are either in the process of these listening sessions or will be soon.

There will also be some additional chances to provide feedback on the grants and the grant process. The states will be submitting a proposal to the NTIA describing the process of awarding the grants, and there will be a comment period on these rules. The states will weigh in on the broadband mapping issue, and folks can also chime in on that topic.

If your community has something to say about broadband, this is the chance to be heard. A lot of communities are worried that the FCC maps don’t show them as needing broadband, and this is a chance to let the state know the state of broadband needs in your town or county. If you’ve been following my blog, you know there are a lot of policy issues surrounding the BEAD grants. The infrastructure grants seem to be heavily weighted toward large ISPs with deep pockets and not necessarily toward local ISPs that folks hope will serve them. This is a chance to ask state broadband offices to be flexible and consider small local ISPs in making awards. A lot of communities are creating public-private partnerships with ISPs, and these communities want the state to recognize these partnerships. A lot of cities and towns worry that they won’t see any of this grant funding.

Most states have at least some grasp of the broadband infrastructure issues, but I don’t think any of them understand the local issues in each community concerning digital equity issues. Communities differ widely in the degree to which digital equity issues come into play locally. Communities differ in the percentage of folks who can’t afford a broadband solution and want ISPs to offer an affordable option. Communities have differing ideas on how to provide digital literacy training and get computers into the homes that need them. These listening sessions are a chance to tell the story of your community and the solutions that you have in mind.

I strongly recommend that anybody that sponsors a listening session take the time first to organize the issues to be sure to make all of the needed points. It would be too easy to turn one of these sessions into a list of complaints about current broadband instead of a structured plea for broadband solutions. States are required to respond to questions asked in these listening sessions and to forward the questions and responses to the NTIA. But that means that a community or organization needs to ask specific questions if you want a response.

The time to provide feedback will not be open for long, so if your community or group wants to be heard, you should contact your state broadband office soon.

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Regulation - What is it Good For? The Industry

Mass Confusion over FCC Mapping

You might not be surprised to hear that I am tired of talking about the FCC map. I spend way too much time these days answering questions about the maps. I understand why folks are confused because there are several major mapping timelines and issues progressing at the same time. It’s nearly impossible to understand the significance of the many dates that are being bandied around the industry.

The first issue is the FCC mapping fabric. The FCC recently encouraged state and local governments and ISPs to file bulk challenges to the fabric by June 30. This is the database that attempts to locate every location in the country that can get broadband. The first mapping fabric issued in June 2022 was largely a disaster. Large numbers of locations were missing from the first fabric, while the fabric also contains locations that don’t exist.

Most experienced folks that I know in the industry are unhappy with the fabric because its definition of locations that can get broadband is drastically different than the traditional way that the industry counts possible customers, which is commonly called passings. For example, the FCC mapping fabric might identify an apartment building or trailer park as one location, while the industry would count individual living units as potential customers. This disconnect means that the fabric will never be useful for counting the number of folks who have (or don’t have) broadband, which I thought was the primary reason for the new maps. Some folks have estimated that even a corrected fabric might be shy 30 or 40 million possible broadband customers.

Meanwhile, ISPs were instructed to use the original mapping fabric to report broadband coverage and speeds – the FCC 477 reporting process. The first set of the new 477 reporting was submitted on September 1, 2022. Many folks that have dug into the detail believe that some ISPs used the new reporting structure to overstate broadband coverage and speeds even more than was done in the older maps. The new maps globally show a lot fewer folks who can’t buy good broadband.

There is a second round of 477 reporting due on March 1. That second 477 reporting is obviously not going to use the revised mapping fabric, which will still be accepting bulk challenges until June 30. It could take much longer for those challenges to be processed. There have been some revisions to the fabric due to challenges that were made early, but some of the folks who made early map challenges are reporting that a large majority of the challenges they made were not accepted. This means that ISPs will be reporting broadband on top of a map that still includes the mistakes in the original fabric.

The FCC’s speed reporting rules still include a fatal flaw in that ISPs are allowed to report marketing broadband speeds rather than actual speeds. This has always been the biggest problem with FCC 477 reporting, and it’s the one bad aspect of the old reporting that is still in place. As long as an ISP that delivers 10 Mbps download still markets and reports its speeds as ‘up to 100 Mbps’, the maps are never going to be useful for any of the stated goals of counting customers without broadband.

Finally, the NTIA is required to use the FCC maps to determine how much BEAD grant funding goes to each state. NTIA announced that it will report the funding allocation on June 30. That date means that none of the mapping challenges that states and counties have been working on will be reflected in the maps used to allocate the grant funding. The NTIA announcement implies that only the earliest challenges to the maps might be included in the database used to determine the number of unserved and underserved locations in each state. States that have already made challenges know that those numbers include a lot of mistakes and missed a lot of locations.

Not only will the NTIA decision on funding allocation not include the large bulk challenges filed or underway by many state and local governments, but it won’t reflect the latest 477 reporting being submitted on March 1. There are several states that have made rumblings about suing the NTIA if they don’t get what they consider to be a fair allocation of the BEAD funding. If that happens, all bets are off if a court issues an injunction of the grant allocation process until the maps get better. I can’t help but be cynical about this since I can’t see these maps ever being good enough to count the number of homes that can’t buy broadband. This whole mapping process is the very definition of a slow-motion train wreck, and that means I’ll likely be answering questions about the maps for the indeterminate future.

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Regulation - What is it Good For?

Why the Complexity?

It’s been over a year since the BEAD grant program was announced. While there has been a lot of activity on BEAD, there is still a long way to go before this grant money is used to build new broadband infrastructure. Most of the delay is due to the incredible complexity of the BEAD grant rules.

I work with a lot of different state broadband grant programs, and I can’t help but notice the tremendous difference in the complexity of the process between state and BEAD grants. The priority for state grant programs is usually to quickly get the money out the door and spent on infrastructure. State legislators that approve grant funding want to see construction started no later than the year after the grant award, and hopefully sooner. State grant offices are generally given instructions to identify worthwhile projects and get the money approved and quickly into the hands of the ISPs to build networks.

The differences between state grants and BEAD are stunning. I have one client that won a $10 million state grant based on a simple grant application of less than 20 pages. The grant reviewers asked a few follow-up questions, but the whole process was relatively easy. The grant office was relying on the challenge process by ISPs to identify grants that were asking to overbuild areas that already have broadband. The challenge process seemed to work – a number of the grants filed in this particular program were successfully challenged. But the bottom line is that the funding was made available to start construction in less than a year from the date when the grant office originally solicited grant applications.

Why are the BEAD grants so complicated? It starts with Congress, and a lot of the complexity is directly specified in the IIJA legislation that created the grants. My pet theory is that the complexity was introduced by lobbyists of the large ISPs that wanted to make the grants unfriendly to everybody other than big ISPs with the resources to tackle the complex rules. It’s unfathomable to me that congressional staffers would have invented these complex rules on their own. I knew on my first reading of the IIJA legislation that the grants favor big companies over small ones.

In the legislation, Congress decided to give the administration of the grants to the NTIA. The NTIA had a major decision to make on day one. The agency could have taken the approach of smoothing out the congressional language to make it as easy as possible for ISPs seeking the funding. The NTIA had political cover to take a light-touch approach since the legislation stressed the importance of quick action to solve the rural broadband crisis. The White House has also been urging federal agencies to speed up the process of turning IIJA funding into infrastructure projects.

Unfortunately, the NTIA didn’t take this approach. It looks like the agency did just the opposite – the agency embellished and strengthened the congressional language and made it even more complex to file for the grants.

I don’t think the NTIA had any agenda to make the grant more complicated. It’s impossible to think the agency had early discussions about how to make it harder to use the grant funding. But the agency did have an overriding desire to do these grants the right way. The general industry consensus is that the grants were given to the NTIA instead of the FCC because of the terribly botched RDOF subsidy program. It would be hard to design a federal broadband program that would have been more poorly handled than RDOF (except perhaps for CAF II, which also was done by the FCC).

I think BEAD became more complex, one topic at a time. I think folks at NTIA looked at each congressionally mandated rule and asked how they could make sure that no money went to an unqualified ISP. Instead of softening grant requirements, I think the NTIA staff instead asked how they could be positive that no unworthy ISPs sneak through BEAD process – something that clearly happened in the FCC’s RDOF process. The final NTIA BEAD rules are not a manual on how to get grant money spent efficiently – but a manual on how to make sure that only qualified ISPs win the funding.

That doesn’t sound like a bad goal. Some of the ISPs that won the RDOF funding were spectacularly unqualified – either financially, managerially, or technically. But as each of the many BEAD rules was made as safe as possible, the collective combination of all of the BEAD rules being made super-safe creates major hurdles for ISPs. Almost every ISP I know is going to have a problem with at least a few of the rules – and I think many qualified ISPs are going pass on the BEAD grants. There is something wrong with a grant program that has hundred-year-old telephone companies wondering if they can qualify for the grants.

There is still a chance for State broadband offices to smooth out the worst of the BEAD rules. A State broadband office can push back against the NTIA BEAD rules that make it too hard for ISPs to get funded. The NTIA can’t excuse any specific mandate that was created by Congress – but the NTIA can relax and compromise on its interpretation of these rules.

The big challenge facing State grant offices is how hard they are willing to push back against the NTIA. Every State is under pressure to finally get the grant process underway, and any challenge will likely add time before funding is available. Every State broadband office already knows the ISPs it would like to see win the funding – those ISPs that will be conscientious in operating the network after its built. State broadband offices need to listen and react to the concerns that these ISPs have about the grant process – because if they don’t, many of the best ISPs are going to take a pass on the grants.

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Regulation - What is it Good For?

Please Don’t Force Low Rates

The NTIA conducts an annual broadband survey, and the 2021 survey asked a question about affordability. The survey asked folks who didn’t have home broadband what they would be willing to pay, with the question, “At what monthly price, if any, would your household buy home Internet service?”

The NTIA estimates that there are over four million households that say they can’t afford broadband. The purpose of the survey was to understand the kind of price points that might be needed to get broadband to more of these households. I think the NTIA was surprised by the results – three-quarters of respondents said they would only get broadband if it was free.

I find this result to be troubling for several reasons. First, many of the homes in this category are the poorest homes that truly can’t afford broadband. I’m sure many of the folks who say they can’t afford broadband would love to have it like most of the rest of us. But as important as broadband is, it’s not more important than rent and food.

My second problem is that not everybody who says they can’t afford is telling the truth. How do I know this? My firm has been doing surveys in the industry for over twenty years, and we’ve asked some version of the same question in hundreds of surveys. What I have discovered is doing surveys is that the responses to any survey questions involving money are not fully reliable.

This is well-known by folks who give surveys for a living. As an example, as many as half of survey respondents give a false answer when asked the level of family income. There are a lot of conjectures about why this is so, but surveyors know you can’t fully trust the responses to most questions involving money.

A question I’ve often asked is what people would like to pay for broadband. That’s a little different than the question being asked by the NTIA, but not much different. The big difference is that we ask this question to everybody, not just those who say they can’t afford broadband. It’s not usual to see 20% or 30% of respondents saying they don’t want to pay more than $10 or $15 per month. Most of the people giving that response are already paying $60 or $70 per month for broadband. I have no doubt that the responses about wanting low rates are serious – folks really would love to save money. But the responses I see are clearly reflecting what folks wish that broadband cost, which is different than what they are willing to spend – we already know they are spending a lot more. ISPs that get this survey response never know what to do with the answer – they know they can’t afford to sell broadband at super-low rates if they want to stay in business.

My biggest concern is what the NTIA or State Broadband Offices will do with the results of this survey. I’m afraid they are going to come out with a policy that ISPs must offer a $30 broadband rate coupled with the $30 ACP plan reimbursement for qualifying homes. This would provide broadband to the homes that really can’t afford broadband – but it would also give low-price broadband to a lot of homes that are willing to pay more, but who will gladly take the discount.

I’ve looked at dozens of rural broadband feasibility studies this year, and most rural ISPs absolutely cannot make the business work if some portion of customers is only paying $30 (through the ACP). I’ve looked at a lot of plans where the rates have to be $60, $70, or even $80 for the ISP to cover all costs – particularly the debt used to provide grant matching funds.

The NTIA isn’t supposed to be able to direct rates in the BEAD grants. The IIJA legislation clearly says that the NTIA cannot force any kind of price control on grant applicants. But that doesn’t mean they can’t try this in a backdoor way, such as giving more grant points to ISPs willing to offer super-low rates. That probably doesn’t qualify as forcing low rates, but it sure feels the same.

My last trouble is that I sympathize with the NTIA if they try this. The agency wants to get broadband into every home, and the only way to do this for the poorest homes is to make broadband somehow free. I know that rural cooperatives and telephone companies might try to make this work. But as I tell all of my clients – you have to let the numbers speak. If an ISP needs $70 rates to break even and then offers a $30 broadband product as a way to get grants, they are going to put the entire business at risk if too many people take that product.

I know forcing low rates is tempting, and it would feel like a good policy. But you can’t put rate pressure on ISPs willing to work in rural areas where costs are already sky-high. If the government wants the poorest homes to get broadband, the right solution is to something like putting more money into the ACP. The right solution is not to ask ISPs to shoulder the economic burden of too-low rates.

Categories
The Industry

The Demand for Middle-Mile Fiber

The deadline for the NTIA’s middle-mile grant program just closed, and the NTIA said that it received 235 applications totaling $5.5 billion in grant requests for a $1 billion grant program. Applicants in parts of Florida, South Carolina, Puerto Rico, and Alaska were given more time to apply due to recent natural disasters, so there may still be a few more requests. I think the program would have received many more requests, but folks already assumed it would be massively oversubscribed.

I was surprised when the IIJA legislation allocated only $1 billion to middle-mile fiber. That works out to only $20 million per state. That may sound like a lot, but to put it into perspective, California set aside $3.25 billion of its ARPA funding just for middle-mile. The one billion is nice, but it is not nearly enough to satisfy the nationwide need for more fiber backbones reaching into rural areas and connecting cities.

What exactly is middle-mile fiber? It’s the fiber used to connect communities to the Internet. Middle-mile fiber brings the transport that is needed to serve last-mile ISPs, cell towers, and any large broadband users like hospitals, factories, or other key anchor institutions.

It’s easy to understand why middle-mile fiber is needed. Much of rural America is connected to the Internet by a single fiber route provided by one of the big rural telephone companies. If there are fiber cuts or problems with the electronics on the only existing fiber route, an entire region will lose broadband. Just over the last month, I’ve talked with three counties that have experienced broadband outages this year that lasted from half a day to several days. It’s easy to imagine in today’s world how these outages can decimate a local economy.

Middle-mile is needed for several reasons. First, some of the fiber routes reaching remote areas were built in the 1980s and 1990s and are aging. There have been big improvements in the manufacturing of fiber since then, and new fiber is expected to have a much longer expected life, but some of the fiber built in those years is wearing out. Part of the problem with older fiber is that we used poor construction techniques decades ago, where we tugged fiber through conduits and created small stress points that went bad prematurely – we are much gentler with fiber installation today. Aerial fiber reaching into rural areas tends to follow the main roads, and aerial fibers have likely been cut over time from accidents that broke poles or storm damage.

The other reason we need more fiber is resiliency. Until recently we used the word redundancy to describe this need. Redundancy meant building fiber into rings so that a single fiber cut wouldn’t knock out a town or region from broadband. Resiliency stretches that definition further to talk about building fiber in such a way that it is better protected from fiber cuts and can be repaired more quickly.

The final reason we need more middle-mile fiber is cost – monopoly providers tend to charge a lot for transport on monopoly routes. Prices tumble when there is middle-mile competition.

Grants are needed to build rural middle-mile fiber because there is likely not going to be enough revenue on most rural fiber routes to justify funding a middle-mile route with normal financing. Grant funding for middle-mile makes the statement that rural communities are important. It doesn’t do much good to build rural last-mile networks if there is no affordable and reliable way to bring bandwidth to the new networks.

It will be interesting to see how the NTIA spreads the funding. I have to imagine that some of the grant requests are from states or groups of counties asking to build large statewide or regional networks. It’s likely that most of the grant requests hope to build fiber routes that immediately solve existing problems. But unfortunately, more than 80% of the requests are not going to get funded. Maybe the great demand for this grant program will prompt Congress to find more funding for middle-mile. It’s one of the best investments they can make.

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.

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