Using USDA’s New $600 Million

Earlier this year Congress passed an Omnibus Budget bill that okayed the US budget until this September. Buried in that bill was $600 million for rural broadband expansion, to be administered by the USDA. The USDA has dressed this up as an ‘E-Connectivity pilot program’ and is asking current borrowers and others for feedback on how to use the money. Comments are due to them by September 10.

This new program will be allowed to supply grants for up to 85% of the cost of building in an area. That might create a viable business case in rural areas if the loan recipient only has to come up with 15% matching funds.

However, Congress made it challenging for the USDA to use the money. Normal USDA programs broadband loans can be used to cover areas where as few as 15% of the homes in the coverage area don’t have access today to 10/1 Mbps broadband. It looks like big ISP lobbyists got to the author of the bill and this new $600 million flips that around and can only be used in areas where 90% of homes don’t have access to 10/1 Mbps.

That’s a difficult hurdle to overcome for a number of reasons. First, the big cellular companies report widespread coverage of cellular broadband that meets that threshold. Many such areas don’t really have that speed, and in many cases can’t even get a cell signal, but the presumption will be that such areas can get broadband. Second, the big telcos are supposedly busy implementing the CAF II program which will bring 10/1 Mbps speeds to millions of rural homes. Those homes will be counted as having sufficient broadband.

The CAF II reverse auction is underway and it’s going to fund building in the most remote places that were not covered by the CAF II program. Most of the reverse auction census blocks will not pass the 90% no-broadband test.

In most places in the country it’s going to be challenging to draw a contiguous study area that meets the 90% test. It doesn’t take too many homes with good cellular broadband or with a CAF II upgrade to fail the eligibility test. I’m sure such areas exist, but almost by definition somebody is going to have to ask for funding for small pockets of homes, or else jerry-rig a service footprint to try to meet the 90% test.

I have a hard time even seeing the big incumbent telcos meeting the 90% test in many places. There might be small telcos that didn’t accept ACAM money that might still have such pockets – but most small telcos upgraded to speeds greater than 10.1 Mbps many years ago.

The USDA is asking for the following feedback:

  • How to evaluate if rural homes have sufficient access to 10/1 Mbps speeds today. I think this gets at the heart of the FCC databases where homes are incorrectly shown to have broadband availability.
  • How to consider affordability and pricing.
  • How to demonstrate the benefits of projects using publicly available data.

The USDA didn’t ask about the speeds that must be provided to customers and I’d be surprised if they exceed the 10/1 Mbps speeds required by CAF II.

It’s possible I’m being pessimistic. It’s possible that this funding will make sense for building to small pockets of rural homes that meet the 90% no-broadband test. Perhaps the right strategy for an applicant is to apply for the funds for small clusters of ten or twenty homes – although that makes it hard to justify the overwhelming paperwork that must accompany a federal funding request.

Anybody that knows of areas that will meet this test ought to consider asking for the funds. I imagine the USDA will issue the rules near the end of this year. Getting what is effectively an 85% grant sounds attractive – but anybody who has asked for federal funding knows there will be nothing easy about the application process.

$600M Grants Only for Telcos?

The Omnibus Budget bill that was passed by Congress last Thursday and signed by the President on Friday includes $600 million of grant funding for rural broadband. This is hopefully a small down payment towards the billions of funding needed to improve rural broadband everywhere. As you might imagine, as a consultant I got a lot of inquiries about this program right away on Friday.

The program will be administered by the Rural Utility Service (RUS). Awards can consist of grants and loans, although it’s not clear at this early point if loan funding would be included as part of the $600 million or made in addition to it.

The grants only require a 15% matching from applicants, although past federal grant programs would indicate that recipients willing to contribute more matching funds will get a higher consideration.

When I look at the first details of the new program I have a hard time seeing this money being used by anybody other than telcos. One of the provisions of the grant money is that it cannot be used to fund projects except in areas where at least 90% of households don’t already have access to 10/1 Mbps broadband. One could argue that there are no longer any such places in the US.

The FCC previously awarded billions to the large telcos to upgrade broadband throughout rural America to at least 10/1 Mbps. The FCC also has been providing money from the A-CAM program to fund broadband upgrades in areas served by the smaller independent telephone companies. Except for a few places where the incumbents elected to not take the previous money – such in some Verizon areas – these programs effectively cover any sizable pocket of households without access to 10/1 broadband.

Obviously, many of the areas that got the earlier federal funding have not yet been upgraded, and I had a recent blog that noted the progress of the CAF II program. But I have a hard time thinking that the RUS is going to provide grants to bring faster broadband to areas that are already slated to get CAF II upgrades within the next 2 ½ years. Once upgraded, all of these areas will theoretically have enough homes with broadband to fail the new 90% test.

If we look at past federal grant programs, the large incumbent telcos have been allowed a chance to intervene and block any grant requests for their service areas that don’t meet all of the grant rules. I can foresee AT&T, CenturyLink and Frontier intervening in any grant request that seeks to build in areas that are slated for near-term CAF II upgrades. I would envision the same if somebody tried to get grant money to build in an area served by smaller telcos who will be using A-CAM money to upgrade broadband.

To make matters even more complicated, the upcoming CAF II reverse auction will be providing funds to fill in the service gaps left from the CAF II program. But for the most part the homes covered by the reverse auctions are not in any coherent geographic pockets but are widely scattered within existing large telco service areas. In my investigation of the reverse auction maps I don’t see many pockets of homes that will not already have at least 10% of homes with access to 10/1 broadband.

Almost everybody I know in the industry doesn’t think the large telcos are actually going to give everybody in the CAF II areas 10/1 Mbps broadband. But it’s likely that they will tell the FCC that they’ve made the needed upgrades. Since these companies are also the ones that update the national broadband map, it’s likely that CAF II areas will all be shown as having 10/1 Mbps broadband, even if they don’t.

There may be some instances where some little pockets of homes might qualify for these grants, and where somebody other than telcos could ask for the funding. But if the RUS strictly follows the mandates of the funding and won’t provide fund for places where more than 10% of homes already have 10/1 Mbps, then this money almost has to go to telcos, by definition. Telcos will be able to ask for this money to help pay for the remaining CAF II and A-CAM upgrades. There is nothing wrong with that, and that’s obviously what the lobbyist who authored this grant language intended – but the public announcement of the grant program is not likely to make that clear to the many others entities who might want to seek this funding. It will be shameful if most of this money goes to AT&T, CenturyLink and Frontier who were already handed billions to make these same upgrades.

I also foresee one other effect of this program. Anybody who is in the process of seeking new RUS funding should expect their request to go on hold for a year since the RUS will now be swamped with administering this new crash grant program. It took years for the RUS to recover from the crush of the Stimulus broadband grants and they are about to get buried in grant requests again.