Tag Archives: NTIA

A New Spectrum Strategy

The Department of Commerce recently announced a strategy to increase the amount of spectrum available for commercial use. The announcement said that NTIA and the FCC would work together to develop a “trustworthy, predictable, evidence-based process for ensuring spectrum serves its highest and best use”.

The announcement said that the agencies would begin examining the use of five bands of spectrum that altogether include 2,786 MHz of frequency. The examination will consider various spectrum management techniques and strategies for reducing interference. This includes spectrum in the lower 3 GHz band, the 7 GHz band, the 18 GHz band, and the 37 GHz band.

This was welcome news to the wireless industry that has yelled for years that it does not have enough spectrum to keep up with future demands. CTIA and WISPA, the lobbying arm for large and small wireless carriers, both praised the announcement.

While there is always a lot of hyperbole and exaggeration in the industry that told us five years ago that 5G was going to change our lives, the wireless industry is not wrong about this. It seems that when we release new spectrum to the world, it quickly gets gobbled up – at least in urban areas. The growth of cellular data usage has been clipping along at over 20% per year, and it doesn’t take too many years for the demand to catch up with and exceed capacity. The need for spectrum is expanding even faster due to the sudden proliferation of FWA cellular broadband.

However, the wireless industry could do a lot more with existing spectrum. One of the easiest ways to make current spectrum stretch further is to put small cell sites in neighborhoods to handle local demands. Five years ago, we were told that the big wireless carriers were going to be putting small cell sites on every block – but those investments never got made. Cities fretted loudly over the pending proliferation of small cell sites clogging urban vistas, but the flood of new cell sites never came.

There are critics of the new strategy because it relies on cooperation and coordination from the industry to find the best use of spectrum. That has grown more difficult over the last decade as the lobbyists for various wireless groups snipe and battle with each other over any plan to consider new spectrum. I’ve found that the most entertaining reading in the telecom industry is the pleadings at the FCC where various wireless groups call their opponents dirty, rotten scoundrels.

Some of that animosity followed this announcement. An AT&T executive was quoted as lauding the new spectrum policy but hoping that this would bring a new balance by giving more spectrum for mobile uses instead of unlicensed uses.

That raises a serious question. Is there a path that the NTIA and the FCC can take to somehow examine new uses of spectrum in an evidence-based process rather than an all-out lobbying battle? It’s hard to be hopeful about that in a world where industry lobbying groups exist for the sole purpose of pushing for their constituency over everybody else.

Spectrum policy is not easy. All of the spectrum bands being discussed by this announcement are already being used today, and opening spectrum to new uses means somehow finding a new spectrum home for existing users. There is no better example of this than the lower 3 GHz spectrum. This spectrum is ideal for cell phones and for the newly popular FWA fixed wireless. One of the biggest uses of this spectrum today is for military radar, and there are estimates that it could cost well in excess of $100 million dollars to migrate the military to other frequencies. Keeping the military and the carriers both happy while developing a commercial use for this spectrum is a huge and costly challenge.

You have to appreciate an attempt to look at spectrum issues in a way that will tamp down on the vehemence and animosity between various spectrum constituencies. And there is a good chance that nothing will come of the attempt – but we have to try. If the goal is to really find the best use of each spectrum band, then I don’t know if there is an alternative. In a perfect world, the NTIA and FCC will find a way to look at this rationally. If they do, I will miss reading the epic name-calling in FCC dockets, and I can live with that.

BEAD’s Middle Class Affordability Requirement

One of the most perplexing requirements for the BEAD grant program is that State broadband plans must include a middle-class affordability plan to make sure that all consumers have access to affordable broadband. I don’t know anybody who fully understands what this means.

A good place to start is with suggestions made by the NTIA in the Notice of Funding Opportunity (NOFO) for the BEAD grant program. The following has been edited to replace the term Eligible Entity with State Broadband Office (SBO). The NTIA suggests that

Some SBOs might require providers receiving BEAD funds to offer low-cost, high-speed plans to all middle-class households using the BEAD-funded network. Others might provide consumer subsidies to defray subscription costs for households not eligible for the ACP or other federal subsidies. Others may use their regulatory authority to promote structural competition. Some might assign especially high weights to selection criteria relating to affordability and/or open access in selecting BEAD subgrantees. Ultimately, each SBO must submit a plan to ensure that high-quality broadband services are available to all middle-class families in the BEAD-funded network’s service area at reasonable prices.

It’s a challenge for any State to set BEAD rules related to prices. The original legislation that created BEAD grants prohibited States from requiring specific broadband prices.

BEAD grants have another requirement that States must have a plan to provide affordable rates for low-income homes. Most ISPs plan to meet this requirement by relying on the continuation of the Affordable Connectivity Program (ACP). These ISPs will have to cut rates somehow if the ACP program is not funded by Congress.

In 2016, the FCC suggested that the benchmark for a reasonable middle-class rate should be set at 2% of monthly household income. Pew Charitable Trust did some analysis that showed that the 2% benchmark would equal between $82.79 in the South and $107.64 in the Northeast. Pew estimated that as many as 30% of middle-class households would not be able to afford broadband set at those prices.

The idea of having to push down the rates to win the grants is scary for most ISPs – because most of the customers who aren’t low-income are probably considered to be middle-class. That is the category of broadband that drives the majority of the revenue in a broadband business plan. If ISPs are pressured to have low rates for everybody, it’s that much harder to build a business plan that doesn’t lose money.

The folks who write some of these grant rules don’t seem to appreciate how hard it is to succeed as an ISP in a rural area. For example, it can be a several-hour round trip to just visit some customers  – costs are a lot higher per customer than in more densely populated areas.

ISPs also have very limited ways to control profitability in rural markets. It’s difficult to cut enough expenses to make a difference to the bottom line, so raising basic broadband rates is about the only tool that can be used to keep a rural market in the black.

Luckily, many State Broadband Offices are making the middle-class rate issue into a check box – can a grant applicant demonstrate that rates are affordable? But other SBOS are clearly taking the low middle-class objective to heart by mandating specific rates to win grant points – all prompted by the language in the NOFO.

I’m sure it’s really tempting for a State Broadband Office to mandate affordable rates – it’s a chance through the grant process to try to establish public policy. But I find it really troubling that policy-driven folks who have never operated an ISP try to micromanage how an ISP should operate. The BEAD rules already layer on all sorts of extra costs that are not part of a regular business plan. Additionally requiring specific low rates can be a disaster for ISPs who will, by definition, not have many paths to financial success in rural markets. I can’t think of anybody who benefits if the ISPs that take BEAD money find themselves losing money a few years after the grant networks are built.

Fifty States – Fifty Different BEAD Grants

When the NTIA suggested BEAD grant rules, a lot of industry folks assumed that states would largely follow the NTIA suggestions and that there would be a lot of similarity in the BEAD grant rules between states. It turns out that the opposite is happening, and many State Broadband Offices are taking unique approaches. In this blog, I compare the BEAD grant rules for Georgia and Illinois. I picked these states only because these are the two most recent rules I’ve read – but every other state plan I’ve read is also different than these two. It looks like fifty states means fifty different BEAD grant programs. Following is a high-level comparison of the two states:

Overall Approach. Georgia will only accept grants in the first round that offer to build fiber – other technologies will only be considered in a subsequent grant round if there isn’t enough money or grant requests for bringing fiber. The Georgia rules also strongly reward ISPs who propose to build an entire county.

Illinois has at least a two-step grant program. The first grant round will only accept proposals to build high-cost areas (that are designated as such by the state). The second round is for everything else. This is an odd approach since ISPs will fear winning high-cost areas but then not winning the nearby areas that together would constitute a coherent study area.

Most Important Scoring Metrics. Georgia gives 50 out of 100 points based on the amount of grant requested per location. Since everybody will be proposing fiber, the costs should be similar, so an applicant can grab the most grant points by offering the greatest percentage of matching funds. An ISP willing to contribute 40% of the cost of building will likely beat somebody who wants to contribute the minimum 25% matching. But this like RDOF, and an ISP is only competing against those that bid for the same County.

Illinois will award 25 of 100 points based strictly on the amount of matching offered. An ISP offering less than a 30% match will win 0 points. An ISP must cover 60% of the cost of the project to get the full 25 points. Illinois awards another 25 points for the cost of the grant award per passing compared to a not-yet-published suggested reference cost per location calculated by the state. By definition, this approach strongly favors lower-cost technologies like wireless.

Broadband Rates. Georgia will award 15 points to an ISP that promises that symmetrical gigabit prices will always be lower than the rates for the service in Metropolitan areas of Georgia.

Illinois will award 20 points for ISPs to meet specific price targets (5 points for each): $30 for 100/20 Mbps. $50 for 100/100 Mbps. $80 for 500/1000 Mbps. $100 for symmetrical gigabit.

Local Support. Georgia will award up to 9 points based on the volume and strength of the support from local communities.

Illinois will award 4 points for breadth and depth of local support and another 4 points if local community members or organizations make a verified financial commitment to the grant.

Other Grant Points

 Georgia:

  • 10 points for compliance with fair labor laws
  • 8 points for broadband speeds
  • 5 points for speed of network construction and deployment
  • 2 points for having been an ISP in Georgia for at least three years
  • 1 point for having a headquarters in Georgia

Illinois

  • 5 points for compliance with fair labor laws
  • 6 points for broadband speeds
  • 6 points for offering open-access
  • 3 points for speed of network construction and deployment
  • 2 points for working in a community that has participated in the Accelerate Illinois program.

My Summary. If I didn’t know these are both BEAD grants, I would never guess these are from the same funding source. The scoring emphasizes drastically different priorities.

Georgia. It will be interesting to see if the NTIA will allow the state to shut out other technologies. The scoring benefit from bidding for entire counties might violate the Congressional edict that grants can be as small as a single location. The emphasis on whole-county bids will make it hard for ISPs that want to edge out from existing networks or electric coops that only want to build in their own territory.

Illinois. The scoring benefit for meeting specific prices for specific products seems to violate Congressional intent that specified that BEAD should not set or influence rates. The huge amount of matching required to get grant points seems to not recognize that BEAD areas are extremely rural, by definition. I’ve never seen a rural fiber business plan that can tolerate 40% to 60% equity contributions – that’s why nobody has built these areas. The grant points from comparing actual costs to some target cost set by the state means these grants are going to heavily favor lower-cost wireless technology. The points for open-access are a head-scratcher since it’s almost impossible to successfully operate a rural open-access network unless it can serve 20,000 or more customers.

Bottom line: Georgia obviously favors fiber to the exclusion of other technologies. My best guess is that the big scoring related grant dollars per passing will favor big ISPs over small ones. For Illinois, I’m not sure if it’s intentional, but WISPs are going to score far better than anybody proposing to build fiber. Georgia could get border-to-border fiber while Illinois could get border-to-border wireless.

Again, these two plans were not chosen because they are extreme examples. These two plan just demonstrate the wide variance of state philosophies behind BEAD. I must note that these are proposed plans that might get changed before being sent to the NTIA. It will be interesting to see how pressure from ISPs and the public influence the final rules. The NTIA also will have to approve these plans.

I also have to wonder if State political leaders understand the direction that their State Broadband Offices are taking – because the grant scoring rules are going to largely define who has a chance of winning in each state – both the technology that is favored and the size of ISPs that are likely to win.

Keeping Track of BEAD

The NTIA has a great dashboard for tracking the status of the last several steps needed before States can receive BEAD grant funds. The dashboard seems to be regularly updated to allow you to track the state or states you are interested in.

This dashboard tracks the progress of each state’s specific BEAD grant plans. The NTIA has split the BEAD action plan from states into two volumes that address specific issues.

BEAD Volume I covers the following issues:

  • Status of current grant funding that has already been used in a state to bring broadband to unserved and underserved locations.
  • A list identifying the remaining unserved and underserved locations.
  • A list of the community anchor institutions that don’t yet have good broadband
  • A description of the state’s final upcoming challenge process where local governments and ISPs will be able to challenge the accuracy of the broadband maps to define areas eligible for BEAD grants.

BEAD Volume II is the core of how the BEAD grants will work and covers the following topics:

  • The specific objectives of a state’s BEAD grant plan.
  • A description of how a state assisted local, tribal, and regional broadband planning efforts
  • A description of the local coordination process where a state was supposed to reach out to all corners of the state to get feedback on the BEAD grants.
  • The specific plan of how the BEAD grant process will be structured. This includes defining the grading scale that will be used to choose grant winners.
  • A description of how some BEAD funds will be used for non-deployment purposes, and how grant winners will be selected. Non-deployment uses of BEAD includes grants for activities like cybersecurity training, promoting telehealth, improving digital literacy skills, etc.
  • Description of how a state will monitor the implementation of grants.
  • Description of how a state will track the jobs created by the grants
  • Description of how the BEAD grants will be use a diverse and highly skilled workforce
  • Description of how the funding process will give priority to minority and women-owned businesses.
  • Description of the steps a state has taken to reduce the cost and the barriers to infrastructure construction and deployment.
  • Description of how a state will assess the impact on climate by the projects
  • Description of the requirements for ISPs to offer low-income rate plans
  • Description of how a state will make sure that ISP rates are affordable for the middle class.
  • Descriptions of how a state will use the first 20% of BEAD funding
  • Description of any waivers that a state plans to use for situations where state laws conflict with BEAD requirements, such as not allowing grants to be awarded to local governments.

If anything, this list of requirements shows that states have more to do than just award grants. States must track a wide range of related issues and must satisfy the NTIA that the state will meet all of the obligations required in the NTIA BEAD rules.

There is a link at the end of the first paragraph of the dashboard that takes you to the Public Notice Posting of State and Territory BEAD and Digital Equity Plans/Proposals. This page includes the key documents that have been created by each State. This includes links to:

  • 5-Year Action Plans. Each state must file a plan to describe the goals and priorities for making sure that everybody gets access to broadband. It appears to me that in the haste to get BEAD grants awarded that the 5-year plans are not being given a lot of attention. It’s something that states need to complete, but the plans I’ve read so far are pretty generic.
  • Digital Equity Plans. These are plans to provide digital equity grants that are separate from the $42.5 billion allocated to last-mile broadband.
  • Volumes I and II of each state’s BEAD proposals.
  • The two NTIA NOFOs that describe the specific requirements for the digital equity and BEAD grants.

One More BEAD Map Challenge

There is still one more chance for local communities or ISPs to fix the maps that will be used to allocate BEAD grant funding. Under the NTIA rules for the BEAD grant process, every State Broadband Office (SBO) must conduct one more challenge process to the maps. This must be done sometime after an SBO has submitted its planned grant rules to the NTIA and before any BEAD grant can be awarded.

The Notice of Funding Opportunity (NOFO) for the BEAD grant says that a unit of local government, nonprofit organization, or broadband service provider can challenge the maps used by each state that define locations that are eligible for BEAD – meaning that the fastest broadband speed offered currently would be slower than 100/20 Mbps.

Every state will have its own timeline, but it’s likely that mapping challenges will done in the first quarter of next year. SBOs are supposed to file their BEAD plans with the NTIA by the end of this year, and so far, only two states have made that filing.

It’s expected that most states will use the FCC maps to define the grant-eligible areas, although states are free to ask the NTIA to use their own version of the maps. The FCC maps were used to allocate the BEAD dollars to states, but states are free to define grant-eligible areas for purposes of awarding grants.

I know from working around the country that there are still plenty of places that should be grant-eligible, but that are still misclassified on the FCC maps. Most States challenged the FCC maps earlier this year, but many states did not have the staff or the facts needed to challenge the maps at the detailed level needed to correct the maps. The FCC map challenge process is complicated, and a lot of valid map challenges were not accepted due to not meeting the FCC’s challenge format.

Any map challenge is going to be most effective if a challenger has some sort of data to support the challenge. Many ISPs are leery of using speed tests as a basis for a map challenge. There is some basis for this since many speed tests are slow due to reasons outside of the control of the ISP, such as a poor WiFi router inside a home.

But I believe that speed tests are a great tool in some circumstances. To be effective, there needs to be a large enough sample of speed tests taken in any geographic area. With enough speed tests, false claims on the FCC map become fairly obvious. For example, if an ISP is claiming in the FCC maps that its technology is delivering speeds greater than 100/20 Mbps, but there are no speed tests even close to that speed, it’s almost certain that the ISP is exaggerating its speed in the FCC reporting.

Challenging a map can get tricky. There are technologies like DSL or FWA wireless where speeds are slower as the distance between a customer and a hub increases. A telco that claims 100 Mbps DSL might be telling the truth for customers close to the DSLAM core – but customers even a relatively short distance further away won’t be able to achieve that speed. I often see telcos and cellular ISPs claiming a uniform speed across a large footprint when that is not possible with the technologies.

As anybody who digs deeply into the FCC maps knows, there are ISPs that just overstate the speed capabilities. They may not be breaking any FCC rules by doing so since ISPs are free to report marketing speeds to the FCC instead of actual speeds. But market speed overstatements can make a neighborhood ineligible for BEAD funding – which would be a shame since there might not be another chance for such places to get broadband funding in the foreseeable future.

It’s likely that there will be a short time window for filing challenges, so anybody interested in doing so should be prepared early and should keep a close eye on the State Broadband Office website to note important events.

Criticizing BEAD

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

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

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

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

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

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

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

Broadband for Low-Income Housing

In April of this year, Kathryn de Wit of the Pew Charitable Trusts released what I consider to be the definitive article defining the broadband gap in low-income housing. I’ve discussed her paper before, but as we finally approach the start of the BEAD grant process, I wanted to highlight the findings from her report. While BEAD grant funding is supposed to be available to bring broadband to unserved and underserved homes everywhere, I have to wonder how much funding will be provided in most states to tackle this issue – which is mostly found in cities.

I think its universally understood that homes need broadband to take part in modern life. Just in my own life, it seems that month after month and year after year, that more of the functions I do now involve broadband. Just one example, I recently had some doctor visits, and a lot of the process is now online to register prior to the visit and to get my results from lab tests. This was not part of the process for my doctor just a year ago – but seemingly everything we do is migrating online.

Pew interviews with low-income households showed that some of the most important benefits of broadband for low-income homes include reduced isolation and increased social connection, support for aging in place, access to education, health care and wellness, job training, financial services, and the opportunity to apply for and find jobs. Several major studies have documented the positive impact for students who have broadband and computers in the home.

The Pew paper describes the lack of broadband for low-income housing as being the result of several issues. First is that ISPs, in many cases, are not building fiber or other modern infrastructure to subsidized housing. When an ISP builds fiber near a low-income apartment building, it often bypass the building and don’t offer fiber. While ISPs won’t publicly say it, this is due to an expectation of low returns on the investment of building a fiber drop, wiring the units, and providing the electronics.

Another issue is a shift away from community technology centers – places where WiFi broadband and computers are made available to the public. This is a movement that was already underway before the pandemic and which became the norm during COVID shutdowns. This means there must be a bigger emphasis on getting broadband and computers into living units.

But the biggest issue continues to be affordability. Pew research from 2021 showed that 43% of households with incomes under $30,000 did not have a broadband connection – which compares to 8% for homes with incomes over $75,000 per year. 45% of people without home broadband said they can’t afford a monthly broadband subscription, and 37% said they can’t afford a computer. The household income issue is even more acute in public housing, where the average household income in a 2016 study was just over $14,000 per household.

A large survey conducted by the NTIA of homes without broadband showed that the average amount that those living in subsidized households said they could afford was just $10 per month, although over half of homes said they couldn’t afford any amount. A 2021 survey by Everyone On shows that 40% of households with incomes of $50,000 said they can’t afford broadband, while 22% said they could afford to pay as much as $25 per month.

As you might imagine, there are a lot of challenges in getting better broadband to public housing:

  • Broadband subscriptions are not included in the HUD utility allowance. This is a funding mechanism that covers electricity, gas, and water fees in public housing. It’s time to recognize that a broadband subscription is a household need and not a luxury.
  • While BEAD grants theoretically cover bringing broadband to apartment buildings that need it, it’s a challenge to prove the areas are underserved since urban maps often claim ubiquitous broadband coverage from cable companies. The BEAD process is also incredibly unfriendly for filing grants for small areas like a single building due to the complexity of the requirements.
  • ACP funding has allowed many low-income households to get broadband. But unless Congress acts soon, that fund will run dry by next spring. The ACP rules also require individuals to apply for the subsidy. In a low-income housing building, everybody qualifies for ACP by definition, yet there is no mechanism for enrolling a building in ACP. Most other benefits for low-income housing are funded by the building instead of by individual tenants.

I’ve predicted for the last several years that the next big push for broadband connectivity will be in cities. As states start allocating rural grants for BEAD, it will likely become obvious that little has been done to help most cities. I think this is going to be a harder issue to solve than the rural broadband gaps because the big cable companies are going to fight anybody that tries to bring broadband into what they consider as their turf – even where they aren’t serving. But if the goal is to get everybody onto broadband, this is an issue we need to tackle and solve.

Revisiting the BEAD Letter of Credit

I recently agreed to sign a letter to the NTIA that asks the agency to eliminate the BEAD requirement that grant recipients must have an irrevocable standby letter of credit (LOC) to apply for a BEAD grant. This letter was signed by over 300 folks in the industry including ISPs, local government, policy experts, and industry associations. I sign very few documents like this, but the letter of credit requirement is a terrible policy – and is a big concern to many of my clients.

To explain an irrevocable letter of credit in plain English, anybody winning a BEAD grant must set aside almost the same amount of cash as the amount of grant matching from the day that the grant is awarded through the completion of the grant construction process.

A letter of credit to satisfy the NTIA must come from an FDIC bank with Weiss rating of B- or better for 25% of the award amount. A letter of credit is a specific kind of negotiable instrument where a bank guarantees that the bank will fund any shortfalls if a grant fails in its financial obligation. If a grant applicant fails to complete the construction of the grant, the money in the LOC would likely be claimed by NTIA or the state grant office (still unclear on the details).

Banks will not issue a letter of credit without having liquid assets or collateral equal to the amount of the LOC. That means a grant applicant must not only have enough cash or borrowing for its grant matching fund commitment, but the applicant must also set aside a large amount of hard cash as a guarantee for the LOC. The letter to the NTIA uses an example of an ISP that want to fund a $10 million project using a 75% BEAD grant. In this example, the ISP would get $7.5 million from the grant. It would need to have $2.5 million available for the matching fund. It would need to set lock up another $2.1 million for the letter of credit. That makes it incredibly expensive for an ISP to seek a BEAD grant. And FYI, this example is too conservative – grant recipients also must finance the operating costs of launching a grant project since those expenses are not covered by grants.

To make matters even worse, banks charge interest on a letter of credit because the bank must set aside a corresponding portion of its own equity to support the letter of credit. The cashed tied up by a bank for an LOC can’t be used to make other loans – so the bank must charge interest.

This is a huge problem for many reasons. Anybody but the largest ISPs will have a hard or impossible time getting a letter of credit. Most ISPs don’t accumulate cash because the best use of cash for most ISPs is to continue to build more infrastructure. A large percentage of ISPs will not have the cash available up front to support the letter of credit. Many cities and municipalities are legally barred from buying a letter of credit.

There is some question if the banking industry as a whole is willing to float over $10 billion in letters of credit for BEAD grants. The banking industry is under a huge amount of stress due to high interest rates. Banks are far less interested in making any kind of infrastructure loans today when interest rates are high – because the bank’s risk is much higher than normal. I know ISPs that have been told by their current bank that they are not interested in issuing a letter of credit – and the chance of getting a LOC from a bank that doesn’t know an ISP is slim.

There is no reason for this requirement – or at least no reason for it to be so draconian. The NTIA is insisting on a letter of credit because it doesn’t want to be embarrassed by projects that don’t get completed. This requirement is a massive advantage for large ISPs over smaller ones, but even large ISPs hate this requirement. There are many successful broadband grant programs that don’t require a draconian letter of credit. There are other ways to provide assurance to a state grant office, like performance bonds or issuing grant funds in tranches as milestones are met.

Hopefully, the press from this letter will get the NTIA to reconsider its position. The requirement for the extreme version of a letter of credit is overkill. The letter of credit is going to stop a lot of ISPs from being able to ask for BEAD funds – the local ISPs that customers prefer. Maybe most germane is that requiring a letter of credit might actually drive more projects to fail as ISPs struggle to support the interest payments on an LOC.

One More Mapping Challenge

There is still one more upcoming map challenge to try to fix errors in broadband maps for purposes of the upcoming BEAD grants.

The NTIA is requiring state broadband offices to have one more mapping challenge at the state level before the state can issue broadband grants. The NTIA issued a sample template for a state challenge process, but each state is allowed to develop its own challenge process. States are not required to wait for an update in the FCC mapping system before using any updated information when awarding grants.

The NTIA suggests that challenges can be made by ISPs who are considering asking for a BEAD grant. NTIA also suggests that states accept challenges from the public, and I assume that includes challenges from cities and counties as well.

This is the challenge that a lot of folks have been waiting for because there are still a lot of inaccuracies in the FCC maps. While some states did a vigorous review of the FCC maps and asked for map updates – many states did not. Some counties also put an effort into correcting the FCC maps – but many did not. This is the final chance to get locations declared as eligible for BEAD grants. I assume that States will not accept locations for BEAD grants that are not in the corrected maps.

This challenge is also the one that folks have been waiting for since the NTIA suggests that there can be a challenge against the claimed broadband speeds. A lot of the early map challenges had to do with getting the mapping fabric right – which is the database that is used to define the location of the homes and businesses in the country.

My consulting firm has been working with communities, and we are still seeing a lot of inaccurate information. In every county we have examined, we find ISPs claiming speeds of 100/20 Mbps or faster that are not supported by Ookla speed tests. We’re also finding coverage errors in the maps where ISPs are reporting homes as covered that are not. A lot of the earlier challenges fixed coverage problems that were grossly incorrect, but it takes a lot more effort to find smaller pockets of ten or twenty homes that can’t buy good broadband but for which some ISP claims coverage.

Many of the problems in the FCC maps are directly due to the FCC rules for ISPs to report broadband for the maps. ISPs are allowed to claim marketing speeds for broadband instead of the actual speed delivered. There are far too many cases where the advertised marketing speed is much faster than what is being delivered. ISPs can also claim areas as covered by broadband where the ISP can supposedly provide broadband in ten working days. Finally, we often find ISPs claiming broadband coverage where an engineering field review doesn’t find any of the claimed technology.

The mapping is only an issue for BEAD because the IIJA legislation that created the BEAD grants insisted that FCC mapping must be used to allocate grants. I’m sure that language was inserted into the legislation at the insistence of the big ISP lobbyists to make sure that grant funds were not used to ‘overbuild’ existing broadband. At the time the IIJA legislation was passed, the FCC maps were atrocious. They have now been improved to the point where I would say they are now merely dreadful – but nobody believes the FCC maps are accurate. Most people only have to look around their immediate neighborhood on the FCC maps to find a few overstatements of coverage. My team has looked in great detail at perhaps a dozen counties and found a lot of mapping errors. I can’t even begin to think what that means on a national scale.

Unfortunately, most people in the country have no idea how this complicated BEAD process works. After the grants have been awarded, I expect we’ll start to hear from unserved homes that are not going to be covered by a BEAD grant. I believe this is going to be a lot more homes than anybody at the NTIA, the FCC, or state broadband offices wants to acknowledge.

Hopefully, the ISPs who want to file BEAD grants will take a shot at cleaning up the map errors now. That’s the only way to get grant funding for locations that are underserved but which don’t show that on the FCC maps. Everybody interested in doing this needs to pay attention to the state broadband office. States will first issue a plan to the FCC describing the way it will conduct the mapping challenge. These plans will likely have a 30-day opportunity for public comments. If you don’t like the map challenge rules, holler! Sometime later, states will hold the mapping challenge, and most will likely have a narrow time window to file challenges.

If BEAD Isn’t Enough

There are several States already estimating that the BEAD grant funding is not going to be enough money to reach all of the unserved and underserved areas. California, New Mexico, and Minnesota have estimated that BEAD will fall short. By the time the dust settles there will likely be more states.

I’m not surprised by this. Just since the BEAD grant program was enacted by the Infrastructure Investment and Job Act in November 2021, there have been some significant cost increases for building broadband networks. Network design engineers are telling me that costs have gone up in most places by 20% to 25% over the last two years. Part of this comes from inflation, which has driven up the cost of materials and labor. But a lot of the increase comes from perceived labor shortages in the industry, which has prompted construction contractors to raise prices faster than inflation.

The BEAD grant process also adds significant costs in some markets. I’ve done the analysis in some states where having to pay prevailing wages will increase the cost of a network by 10% to 15%. BEAD has other requirements that add significant cost. For many smaller ISPs the cost of obtaining a letter of credit is going to be expensive. There are environmental studies required for grant projects that add costs.

The various cost increases mean that BEAD funding won’t cover nearly as many locations as might have been supposed by whoever determined that $42.5 billion was enough money. As unbelievable as it sounds, we might have needed a BEAD pool of $60 billion or more to provide the same coverage as $42.5 billion in 2021 construction costs.

I think the problem is a lot larger than folks suppose because all of these estimates begin with the assumption that the FCC broadband maps are accurate. I think grant offices are going to be jammed with grant applications where ISPs and communities demonstrate the maps are wrong and the supposed FCC coverage doesn’t exist. I’m also coming to realize that there are a lot more underserved places in urban areas than are shown on the FCC maps.

There are also going to be grant projects that fail. The NTIA rules have gone far overboard to try to prevent failure, but we only have to look at the two-year-old RDOF program to see ISPs saying they can’t afford to build the projects with the funding they received. Some BEAD projects are going to take four years to build, and that’s four years of inflation eating away at the value of the grant.

Where might the money come from to cover these shortages? There are several possibilities:

  • There might be other grant programs that can plug some of the holes. For example, the Agriculture bill pending in the House and Senate has more funding for the USDA ReConnect grants. Hopefully, the USDA will change the rules a bit because ReConnect grants are not currently friendly to grant areas consisting of disjointed pockets of serving areas. Unfortunately, in much of the country, that’s what the remaining unserved areas look like on a map – scattered unserved pockets between areas built with other grants.
  • It’s always possible for the FCC to have another round of RDOF. I have to wonder if it learned any lessons from the first round of RDOF? Is there any hope that the FCC would give money to states rather than hold another reverse auction? Also, RDOF and other federal programs are also going to struggle if they insist on only funding areas identified on the FCC maps rather than areas that really need broadband.
  • Congress could always step up – but that seems like a remote possibility in the current dysfunctional Congress. Hopefully, if Congress provides the funding, it will give the money to the States again.
  • State legislators could come up with the funding. However, the vast majority of State funding in the last few years came from CARES and ARPA funding. The level of state broadband funding before those programs was relatively small. I remember joking with folks in Minnesota that the State’s broadband grant program at $20 million per year was a hundred-year plan to bring broadband everywhere.