Tag Archives: RDOF

Broadband Grant Deadlines

The industry and the press have been laser-focused on BEAD grants for the last few years. It’s easy to forget that there are a lot of federal broadband grants that have been issued under other grant programs, many of which are facing completion deadlines. This includes grants from programs like CAF II, RDOF, ReConnect, the Capital Projects Fund, ARPA grants funded through SLFRF, NTIA middle-mile grants, and the NTIA Tribal Grants.

A lot of projects under these grants have a deadline to be completed this year or in 2027. Today’s blog looks at the consequences of not finishing a grant project by the legislative deadline.

The grants that face the most immediate deadlines at the end of 2026 include State grants that were funded by the Capital Projects Fund or through SLFRF. These grants would have been awarded through individual State broadband grant programs, but the underlying money came from federal legislation. ARPA grants might have also come from counties or cities. These grants have a hard completion deadline of December 31 of this year.

I’ve been hearing from State Broadband managers that the Federal government has no appetite for any extensions of this funding. This is not news, and they’ve been saying the same thing for the last year, but lately, they have been reminding states of this.

It’s been routine in the past for ISPs to get extensions for grant construction as long as they had a good story of why they needed the extra time. In today’s environment, there are a lot of reasons why construction might be delayed. It could be due to challenges in getting permits, rights-of-way, or easements. It might mean having problems getting onto poles because of recalcitrant pole owners. It might be due to supply chain problems in receiving needed materials. It might come from labor shortages that slow construction vendors. If the federal agencies behind the grants enforce the legislative deadlines, none of these excuses will matter.

Grant recipients need to do everything in their power to finish construction this year. With no extensions, any work done after the deadline will not be reimbursed. I’ve been hearing rumors that failure to complete a federal grant program on time might also make an ISP ineligible for any future federal broadband funding.

If hard deadlines are enforced, this could also be coupled with a hard deadline for submitting grant paperwork quickly. Most grant programs in the past have allowed grantees some leniency after construction is completed to submit invoices. Hard deadlines might result in rejection of invoices sent after the deadline. Most grants also require some kind of close-out reporting to document that the project construction is completed, and ISPs need to get any such report completed quickly.

Anybody working with a State Broadband Office needs to understand their specific requirements. For example, there might be states that want paperwork submitted and completed by the legislative deadline, meaning construction has to be completed even earlier than the end of the year. ISPs also need to push vendors to invoice for the grant-funded projects quickly to provide proof of the spending.

I am positive that some ISPs will be surprised if they don’t get reimbursed for work they have completed. Grant offices have sent out deadline warnings for years, but have often given routine exceptions for lateness. It sounds like, starting this year, that deadlines are firm with little or no room for exceptions.

Missed by BEAD

An article from the Advanced Communications Law and Policy Institute at the New York Law School claims that over 1 million locations were missed by the BEAD grants. They identified these as locations that are still shown as unserved and underserved on the FCC broadband maps, but which did not make it into the BEAD program.

ACLP also identified two other sources of locations that will likely not get broadband. They predict some BEAD defaults since a number of small and untested ISPs won sizable BEAD grants. They also believe there will continue to be defaults in other grant programs.

ACLP recommends that up to half of the $20 billion+ that will not be spent on BEAD grant be deposited into a BEAD Reserve Fund to be used to cover the shortfalls.

It’s a sensible idea, but unlikely to gain any momentum. It seems clear that NTIA wants to take credit for solving the rural broadband gap while also returning $20 billion to the U.S. Treasury. I can’t think of any mechanism that would allow NTIA to keep unspent monies alive once BEAD grants are awarded and NTIA makes a final announcement on non-deployment funds. The general consensus I’m hearing is that NTIA will award little or nothing to non-deployment funds.

I think ACLP is missing the bigger picture, and I think there are many millions more locations that should have rightfully been included in BEAD.

ACLP’s math starts with the assumption that the speeds reported to the FCC in the broadband maps are right. Anybody who has worked at a local level knows this is often not the case. There are a lot of ISPs that claim a speed of exactly 100/20 Mbps in the FCC maps, and I believe that millions of these locations have been falsely excluded from BEAD.

Each State had a BEAD map challenge that was supposed to result in an accurate map, but that process was largely a total bust. The map challenge rules made it much easier to exclude locations from the preliminary BEAD maps than add locations. The process of proving an ISP was overstating speed capabilities in the FCC maps was nearly impossible to comply with.

Additionally, NTIA declared that licensed fixed wireless was to be treated as served as long as speeds were reported at 100/20 Mbps. In many counties I worked with for the map challenges, it became obvious that reporting by some WISPs was a joke. I remember one WISP that drew an eleven-mile radius circle around every tower and claimed the ability to serve every place in that circle. Numerous WISPs used seven- and nine-mile circles and also claimed full coverage. The irony of the NTIA ruling was that the only requirement to block off big areas from BEAD was adding CBRS spectrum to the spectrum mix. Many WISPs tell me that CBRS is an unremarkable spectrum due to the small channel sizes.

The other big category of locations that could have been covered by BEAD was low-income MDUs. The BEAD legislation suggested that States attack this issue using non-deployment funds. The number of such locations is hard to identify because many MDUs show as served in the FCC map since there is fiber nearby. But an MDU is not served until somebody is willing to invest in the inside wiring needed to bring better broadband to residents.

My guess is that the number of locations missed by BEAD is likely 6 to 7 million, much higher than the number suggested by ACLP. I have no analytical basis for that guess other than I seem to find examples of places missed by BEAD in every community I dig deeply into.

At some point, this will all come clear as folks without good broadband continue to complain to their elected officials. RDOF was supposed to fix the digital divide. BEAD was supposed to solve it. Maybe the next time will be the charm, although I’m not taking any bets on it.

NTIA’s BEAD Role

At the SCTE Tech Expo in Washington, DC, Arielle Roth, the newly seated head of NTIA, was quoted by several sources as saying, “Our role is to be good stewards of the money . . . We wouldn’t be doing our due diligence if we didn’t look under the hood and make sure that Americans aren’t on the hook for costs that would be unreasonable.”

By the looks of what NTIA has been doing, they seem to have taken cost-cutting as the primary goal of the BEAD program. First, they forced States to shave millions of locations from the BEAD-eligible list, and I believe we’re going to find out later that many millions of those locations should have gotten grants for better broadband. NTIA is now in the process of setting a cost cap for each state based on the CostQuest cost models and forcing ISPs to accept 65% or less of the state-specific cost cap.

I would agree that NTIA has a responsibility to make sure that money isn’t wasted, but that is not supposed to be its primary concern. Let me take you back to the beginning of BEAD to talk about how this was supposed to work.

Congress clearly intended for the full $45.5 billion allocated to BEAD to be spent. States were instructed to bring good broadband to every BEAD-eligible location, and the legislation included an emphasis on building fiber. Whatever wasn’t spent on infrastructure was to be used for non-deployment projects that were broadband-related. This could have encompassed a wide variety of different uses to be determined by each state. The legislation suggested uses for non-deployment funds for things like wiring urban MDUs for broadband and getting computers and other devices into the hands of those who need them. States have suggested a wide range of uses for non-deployment funds. For example, West Virginia wanted to use the funds to do a statewide pole inventory to make it easier to build fiber. South Carolina envisioned creating a statewide middle-mile network that made sure that ISPs in every rural county could buy backbone Internet for the same price as in the populous counties.

Unfortunately, NTIA got off to a bad start early when it realized how bad the FCC maps were. The whole BEAD process was delayed waiting for better maps. When they got slightly better maps, NTIA pulled the trigger and used those maps to allocate BEAD funds to states. Almost immediately, some states yelled that they didn’t get enough money, while other states realized they got more than they needed. There were policy discussions about shifting money between states after awards were made, but that never happened.

The States then went through a map challenge process. Unfortunately, the rules required by NTIA made it far easier to remove BEAD-eligible locations from the map than to add locations that should have been eligible. I know multiple counties that worked hard to show that some of the ISPs in their County were not delivering 100/20 Mbps. However, the process for proving that was nearly impossible to follow – it required convincing multiple customers of a given ISP to take speed tests multiple times per day over multiple days, and in a specific manner. The end result of the disastrous map challenge process was that millions of locations were removed from BEAD, with relatively few added.

More recently, NTIA acted to remove even more locations from BEAD. They correctly removed locations where some other grant was supposed to build better broadband. But they also made it easier for WISPs, using both licensed and unlicensed spectrum, to ask to remove locations from the BEAD map.

States were originally given a lot of latitude in how to use the funding allocated to them. But States were to act under the overarching intentions of the legislation that said they should consider fiber first. States understood that by funding relatively expensive fiber builds, they were reducing the funds that would be left for non-deployment. States had serious policy discussions of how to balance between building fiber and other needs.

But this latitude is exactly what Congress intended. They wanted BEAD to avoid the problems of RDOF, where the FCC called the shots and ended up awarding money to ISPs that should not have been funded. That draws attention to a second quote from Roth. She said that BEAD funding should go to “serious providers who are going to deliver on their promises and that we’re not going to see defaults.” I hate to be the bearer of bad news to NTIA, but by pressuring ISPs to take less grant funding to stay in BEAD, NTIA is greatly increasing the chance of future defaults. This is going to be a repeat of RDOF. ISPs will start building networks and will suffer inflation and supply chain issues, and some of them will decide that it’s better to pull the plug than to finish building a project they can’t afford, and that can’t make money. That’s the reason for the RDOF defaults in recent years – RDOF winners looked at the low amounts of award they accepted in the reverse auction and threw in the towel.

One thing is now clear with BEAD – NTIA now fully owns the program. States lost all of their latitude with BEAD, and the NTIA changed the rules after the BEAD process made it to the five-yard line. Whatever happens from here will be laid 100% at the doorstep of NTIA, and my prediction is that BEAD is not going to be talked about fondly in many parts of the country.

My USF Comments to Congress

A bipartisan group in Congress is tackling the topic of USF reform. They created a portal to solicit comments, which are not being made available to the public. I provided comments to the group on two topics.

The first is Lifeline support, specifically for low-income MDUs. There are two issues faced by those trying to bring broadband to MDUs that have tenants who can’t afford a broadband subscription. The first issue is bringing the needed infrastructure for better broadband. There was hope that BEAD might provide some of the needed solution since non-deployment funds could be used to upgrade low-income MDUs. However, it looks like NTIA might not give the non-deployment funds to states, even though that was mandated by Congress. I’m working with some non-profits that are looking for other ways to fund infrastructure upgrades.

The bigger issue is that the landlords or ISPs that serve low-income MDUs need some ongoing subsidy since tenants can’t afford to cover the cost of broadband. Lifeline can be used for that purpose today in a limited way. However, most Lifeline recipients direct the savings to their cellphone rather than to home broadband.

I’ve suggested some changes to Lifeline that could make it a powerful tool for improving broadband in low-income MDUs.

  • At least for these MDUs, the FCC should double the current $9.25 Lifeline subsidy. That would be enough to make a meaningful subsidy for monthly broadband for a building. It would be great if the Lifeline subsidy were increased in the future for inflation. The $9.25 subsidy meant a lot more when it was created in 1997 than it does today.
  • Landlords should be able to become Lifeline recipients on behalf of their tenants. It would be particularly beneficial if landlords could require tenants to assign them the Lifeline as a component of a rental agreement. For the assignment of Lifeline, a landlord would provide free broadband.

My other comments to the Working Committee were related to the giant subsidy programs in the High-Cost Program. Anybody who has been reading my blog knows that I think the FCC has done a poor job with some of these large subsidy programs.

The CAF II program that gave over $10 billion to the largest telcos was nearly a total failure. Telcos were supposed to use the money to upgrade rural DSL to 10/1 Mbps – but the program started making subsidy payments in the same year that the FCC increased the definition of broadband to 25/3 Mbps. There have been wide criticisms that the telcos never made many of the upgrades and just pocketed the summaries, such as this complaint filed by the Public Service Commission of Mississippi.

RDOF was not a massive failure and, in many cases, was successful, like with the many cooperatives that used the funding to build fiber to their members. But like CAF II, RDOF also failed in many ways. The program started by using terrible FCC broadband maps to define the RDOF areas, and this effort missed many millions of locations that should have been eligible, as witnessed by the many locations not eligible for BEAD. The program ended up with massive defaults on 1.9 million of the 5.2 million locations in the reverse auction. Probably the biggest problem was the mess the RDOF awards made of the broadband landscape by awarding a subsidy to a hodge-podge group of Census blocks that were interspersed with Census blocks that should have been included. This has made it highly challenging to find a broadband solution for the remaining areas and is a big reason that BEAD grant costs are higher than what people think they should be.

My recommendation to the Working Committee is that Congress should not allow the FCC to unilaterally create new giant subsidy programs on its own. It’s poised to launch the 5G for Rural America Fund that looks to have as many problems as the other past programs. Congress should find some way to get buy-in for new programs from outside the FCC. This sounds like a major criticism of the FCC, but this is a regulatory agency that is not staffed by folks who are attuned to what it takes to lure ISPs and carriers to solve the broadband and cellular gaps in rural America.

The Future of ReConnect

I have to wonder if there is any practical future for USDA’s ReConnect grants. I raise this question after noting that the Senate Appropriations Committee recently approved the fiscal year 2026 budget for the Department of Agriculture. Buried within that budget is $100 million dollars for new ReConnect loans or grants. It’s still early in the federal budget process, and the $100 million slated for next year is a preliminary number, but it’s already lower than previous annual allocations to the program.

ReConnect has been a popular program, particularly with cooperatives and small telcos. ReConnect was launched in December 2018 by Congress with an initial budget of $600 million. Additional funds continue to be allocated, including $550 million in 2020 and $1.15 billion in 2021. USDA is still sitting on $980 million of remaining appropriated funds, but is also sitting on $3 billion in funding requests.

ReConnect has always been an interesting program. USDA can use the funding for grants, loans, or a combination of the two. The program is intended to bring broadband to unserved rural locations, and the ReConnect process gives extra consideration to locations that are not close to any towns or cities.

I ask if ReConnect will still be relevant in upcoming years for several reasons. First, if you believe the hype about BEAD grants, every location in the country will soon be slated to get broadband of at least 100/20 Mbps. According to the NTIA, every location that has been excluded from BEAD is already served by at least one ISP claiming 100/20 Mbps. That can be for any technology, including fiber, cable, DSL, fixed wireless, FWA cellular wireless, or satellite.

But ignoring that promise from BEAD, there will still be remaining unserved locations around the country. For example, there have been some recent defaults of RDOF subsidies that were defaulted too late to be included in BEAD, and there will be more. There will likely be defaults on funding commitments from other state and federal grant programs, including some from the BEAD program. It’s also possible ISPs could go out of business and leave rural customers with no option at 100/20 Mbps. This is certainly possible for WISPs if the FCC meddles with the CBRS and 6 GHz spectrum.

I’m also positive that there are a lot of locations where ISPs claim 100/20 Mbps or faster in the FCC maps but are delivering something slower. Perhaps future ReConnect grants will allow ISPs to ask for funding in areas where they can prove the FCC map is wrong.

Another issue with ReConnect is that the grant rules in the past have insisted on contiguous grant areas of unserved locations. Because of the odd rules of many of the existing grant and subsidy programs, particularly RDOF, there will probably be no big contiguous unserved areas after BEAD grants have been awarded. Any future ReConnect grant is going to require cobbling together scattered locations into a single grant request, and that will require changes in the ReConnect rules.

But I think the fundamental challenge for BEAD is that the FCC is likely to declare soon that the rural broadband gap has been solved and every rural home in the country is able to buy adequate broadband. I’m not sure the USDA will be able to overcome that presumption.

Continuing RDOF Defaults

CenturyLink told the FCC recently that it is defaulting on 41,000 RDOF locations spread across eight states and 153 Census block groups. That’s a big portion of the 77,000 locations that the company won in the RDOF reverse auction. CenturyLink originally was awarded $262.3 million in subsidies, spread over ten years.

There are a number of consequences of this default. First, this has now happened after states made BEAD maps and allocation. That makes it likely that nobody will be bringing improved broadband to the default areas. If the defaults had happened earlier, these areas could have been rolled into the BEAD process.

CenturyLink should expect a significant fine. In 2024, the FCC fined two companies that defaulted on RDOF. Etheric Communications was fined $732,000 for defaulting on 244 locations. GigFire (LTD Broadband) was fined $21.7 million for defaulting on 7,238 locations. Mercury Broadband was fined $14.2 million in a separate FCC decision and is also expected to return all RDOF funding for the defaulted areas.

If CenturyLink is fined at the same level or around $3,000 per location as the recent defaults, the fine will be $123 million. Additionally, roughly half of the RDOF funding has flowed to auction winners, meaning CenturyLink would have to return approximately $65 million of RDOF subsidy to the FCC.

The CenturyLink default defies the usual explanation of RDOF defaults. Many other defaults have been blamed on the FCC’s auction rules that didn’t pre-qualify companies before entering the auction. That resulted in companies winning RDOF that had weak balance sheets or insufficient financial backing.

But any pre-qualifying process would have easily allowed CenturyLink to enter the RDOF auction. CenturyLink is now obviously in financial distress and has decided that fines are less expensive than completing the required construction. The company has also already sold off much of it’s copper networks in twenty states and has been looking for a buyer for the remaining states. The company recently announced the sale of most of its fiber last-mile customers to AT&T, so it’s clear that CenturyLink is exiting the residential ISP business.

This is not likely the end of RDOF defaults. According to a telecompetitor article earlier this year, eight companies reported to the FCC at the end of 2024 that they were behind schedule in meeting their RDOF construction commitments. RDOF winners were required to have covered 40% of their locations in each State where they won an award by the end of 2024.

I said at the time it was first announced that RDOF is a badly flawed program. The reality has turned out to be far worse than any predictions. While RDOF was used successfully by a number of electric cooperatives and a few others to build future-looking networks, a huge amount of original awards fell on the floor through defaults or the FCC tossing out winners it didn’t like. Possibly the worst thing about RDOF was how the RDOF awards resulted in helter-skelter coverage areas that covered rural areas like Swiss cheese, making it hard today to do anything with the mess that RDOF left behind. I keep thinking we’ve heard the last bad news from RDOF, but the announcements keep coming.

Implications of Satellite Being Broadband

We’ve had a quiet policy change in the country over the last year where satellite broadband is starting to be considered to be broadband by the federal government. Any rural household that subscribes to and loves Starlink would wonder why this is news, but from a policy perspective, it is a big deal. I’ve been considering what this shift might mean in the future.

The FCC decided that Starlink wasn’t broadband when it rejected Starlink’s long-form filing in August 2022 where Starlink wanted to claim the funding it had won in the RDOF reverse auction. The FCC ruled in that process that it couldn’t “subsidize ventures that are not delivering the promised speeds or are not likely to meet program requirements”. NTIA recognized low-orbit satellite as an acceptable alternative for BEAD funding for high-cost locations in a ruling in 2024 that made it acceptable for States to make RDOF awards to satellite companies. The real change in policy came with the recent Notice from NTIA that reshuffled BEAD grant rules and put satellite on an equal footing with fiber, fixed wireless, and other broadband technologies. The NTIA Notice said that satellite is eligible to win any amount of BEAD funding if it asks for the lowest amount of BEAD funding at a location.

But as is typical with regulatory policy, the NTIA didn’t make a full pivot to satellite. The same Notice that allows satellite to win BEAD anywhere did not change the BEAD map to recognize existing satellite customers as served. The Notice allows WISPs that use unlicensed spectrum to ask to remove locations from the BEAD map if they are already providing speeds of at least 100/20 Mbps. The NTIA did not give this same option to satellite – which could have theoretically allowed Starlink to ask to take all BEAD locations off the map and kill the grant program. I’m having trouble grasping why a home in a BEAD area that is using Starlink is not considered to be served with broadband while Starlink can ask for funding to serve the neighbor, who will then be considered as served. That dichotomy highlights the satellite regulatory issue in a nutshell – is satellite service broadband or not? Apparently, it’s not broadband for mapping purposes, but it is broadband for awarding federal grants and subsidies.

There are definite implications for satellite service being considered as broadband. First, doing so might eliminate any perceived federal need for future broadband grants. There will likely be millions of rural homes incorrectly left out of BEAD due to the faulty FCC maps. We’re still seeing additional RDOF defaults, like the 41,000 locations that CenturyLink just turned back to the FCC. But the FCC and the rest of the federal government can be totally off the hook for future grants with a simple finding by the FCC that satellite service is fully considered to be broadband. The FCC will be able to take a bow and declare rural universal service has been accomplished – regardless of the rural folks who still don’t think they have a broadband option.

If satellite service is broadband, there probably is no need for future federal subsidies that support high-cost areas. Rural subsidies are the biggest part of the Universal Service Fund at $4.5 billion in 2024. That includes subsidies for RDOF, EA-CAM, and other high-cost support mechanisms for rural telcos.

The only part of this fund that might not be a target to end is the $500 million spent each year to support rural cellular carriers. As satellite companies continue to get into the business of connecting directly to cell phones, this subsidy might also eventually be questioned.

If satellite is broadband, then the big telcos are completely free to finally dismantle rural copper. The California Public Utility Commission has been making that hard for AT&T and other telcos.

We have reached the place where satellite broadband is considered to be broadband for some purposes but not others. It will be interesting to see how long we maintain this dichotomy. I’m guessing for now that we’ll live with treating satellite differently depending on the context – but that can’t last for long.

Updating My BEAD Bingo Card

When the NTIA made it clear that it was going to change the BEAD rules, I wrote a blog that I called, somewhat tongue-in-cheek, the BEAD Bingo Card. That blog listed a range of options for how NTIA might modify BEAD – from canceling the program to leaving it largely intact.

On June 6, NTIA issued a BEAD Restructuring Policy Notice that defines how BEAD is going to work, and wouldn’t you know it – NTIA went with an option I had not considered. I would classify the NTIA’s solution as “RDOFing the BEAD process.” By that, I think NTIA adopted the worst features of RDOF. The Notice makes the following major changes to the process of choosing BEAD grant winners:

  • Any technology that can deliver 100/20 Mbps broadband today is now eligible to win a BEAD grant. While there is a caveat that a winning technology must have the capability over time to scale to support rural 5G and other wireless needs, there is no specific commitment required by a grant winner to make future upgrades.
  • The new process requires State Broadband Offices to consider eliminating any BEAD locations that are already served by unlicensed fixed wireless. If a WISP already claims a speed of at least 100/20 Mbps in the FCC maps for a BEAD location, the WISP can certify that it is providing served speeds and these locations are removed from BEAD. This could conceivably eliminate millions of BEAD locations from BEAD grants.
  • The primary criteria for picking a winner is the requested BEAD funds per eligible location. Whoever asks for the least amount of money wins. Broadband Grant Offices can consider speed to deployment and broadband speeds, but only if a grant application is within 15% of the lowest bid. This feels like a one-round reverse auction.

Recall that RDOF included a fiber preference, and that preference resulted in a lot of electric cooperatives and others winning RDOF funding to build fiber. Since BEAD will now allow fixed wireless, LEO satellite, and FWA cellular wireless to compete head-to-head with fiber, it seems likely that fiber only wins in places where no other technology is seeking funding. We can only guess how many fiber grant requests that will kill – but it’s not hard to imagine these rules killing 80%  or 90% of fiber awards. It’s going to boil down to how much BEAD funding the wireless ISPs and satellite companies will pursue. The more interesting dynamic will be the bidding battle between fixed wireless and satellite – because both can easily underbid fiber projects.

State Broadband Offices can require wireless and satellite providers to swear they will have the capacity to serve everybody, but every ISP that decides to pursue BEAD will make this promise. They know there will be no realistic consequences of not meeting the commitment five years down the road – there has never been any serious enforcement of federal grant performance in the past, and there is no reason to believe that will change. The BEAD grant will be awarded and built, and everybody will forget about the original intent – except the households who still don’t have good broadband.

This completely tosses away the idea that BEAD would be used to build networks that will last for the rest of the century – some of the winning BEAD projects will be behind the rest of the country the second they are built.

This Notice also ignores the second big purpose of the BEAD grant program – it was a jobs program which was to provide a lot of good jobs to build and operate networks. It’s clear to me that the NTIA wants to spend as little as possible of the $42.5 billion money. The U.S. Department of Commerce wants to take credit for saving money and doesn’t care about getting good broadband to rural areas. This Notice has a clear message: Congress said we have to build broadband everywhere, so we’ll build what is barely adequate for today and ignore what’s needed for the future. This Notice punts the rural broadband gap down the road for the next generation to solve.

There will be lots of articles published today talking about the mechanics and timing of the revised BEAD, and I might write about that in a future blog. The bottom line is that every State that already started the BEAD grant selection process has to start over with a grant round that allows every technology to compete head-to-head.

There are a lot of different issues to unwrap inside this Notice, and I plan to to write a series of blogs looking at the ramifications of this Notice for different national stakeholders. So stay tuned.

Related Blogs:

County Governments and BEAD

BEAD and State Broadband Offices

Tariff Uncertainty

This is a blog about uncertainty because it’s hard to know what else to say about the impact of tariffs on the broadband industry – other than we know there will be an impact. Right now, the tariff situation is in utter turmoil. Every ISP I talked to about the issue had the same concerns. They are all hoping for certainty. They can deal with price increases, but they can’t deal with not knowing the situation for building a year from now.

ISPs generally plan a year ahead. The networks they are building now were planned in 2024, and many ISPs are paralyzed about what to plan for 2025. I’ve been through other periods of economic uncertainty during my career, and every time, the most common reaction to uncertainty from ISPs has been to take a pause until the uncertainty ended. If the tariff situation doesn’t soon become predictable, I would expect 2025 construction to slow significantly, particularly for smaller ISPs.

The first place I would normally go to get a feel about the impact of any big changes for the whole industry is to see what big ISPs have to say about it. The big ISPs have quarterly earnings calls, and Wall Street expects them to talk about expected changes in their company in the next quarter and next year. I listened to the recent earnings calls for Comcast, Charter, and T-Mobile, and the companies were all coy and noncommittal on the tariff topic.

Perhaps the easiest way to think about tariffs is by industry segment. I’ve been thinking about what will happen if tariffs settle in at something like the original announcement of 10% tariffs across the board.

Fiber ISPs would probably have the smallest impact of tariffs – but it’s not zero. Fiber is made domestically. Fiber electronics will be shielded from tariffs to some extent since the major electronics vendors established US manufacturing to prepare for BEAD grants. But those factories still rely on some imported components. Perhaps the biggest impact will come for non-grant construction since those ISPs have continued to buy cheaper imported electronics. It will be interesting to see if the new U.S. factories can supply everybody. I suspect they can’t. But even if they can, U.S. electronics are more expensive than the imported electronics before tariffs.

Cable companies are not going to be so lucky. Companies like CommScope and Vecima Networks that make cable electronics have already said they will have big hits from tariffs. We’ll have to see if this results in a slowdown of upgrades of cable networks to DOCSIS 4.0 or mid-splits. Day-to-day components like settop boxes are mostly manufactured overseas.

WISPs and cellular carriers are likely to see a hit from tariffs since most of their electronics are imported. There are American makers of towers and related equipment. Cellphone prices would increase from tariffs, but for now those tariffs have been reversed.

All ISPs are going to see a hit on WiFi gear, which is almost all imported.

ISPs and carriers buy a lot of vehicles, and it looks like the cost of new vehicles will be climbing.

The surprising increases are going to come on the little stuff like the small hardware needed for all kinds of network construction. The worry is not just that those prices might climb, but that there will be supply chain interruptions.

Any ISP that is building a network funded by grant dollars has to be worried since grants awarded in past years will not be increased, and the ISP will have to absorb the full impact of tariff increases. I have to wonder if this will put more pressure on defaults for RDOF and other previous grants if ISPs see grant projects becoming unviable. I won’t be shocked if some of the companies winning BEAD grants change their mind by the time they are asked to sign a grant contract later this year.

The bottom line is that uncertainty is not good for the industry, and I think the reactions we’ll be seeing from ISPs will be more a reaction to uncertainty than to cost increases.

RDOF Defaults

The Benton Institute for Broadband & Society pieced together the statistics for defaults to date on the FCC’s RDOF and CAF II reverse auctions.

The RDOF (Rural Digital Opportunity Fund) was the biggest attempt at the time to solve the rural broadband gap. The FCC had originally slated $20.4 billion to award to ISPs in a reverse auction, meaning the ISP willing to take the smallest subsidy for a given area won the funding. Winners were to collect the funding over 10 years and had up to seven years to build the promised networks.

The program ran into problems in several dramatic ways. First, the FCC chose the areas eligible for RDOF using its badly flawed broadband maps. RDOF was supposed to be awarded to Census blocks where nobody could buy broadband of 25/3 Mbps or faster. Unfortunately, the FCC maps had huge numbers of blocks where ISPs claimed exactly 25/3 Mbps ability, and those areas were not eligible. The non-eligible eventually became most of what is being addressed now with BEAD, which indicates how poor the maps were at the time. In a problem that is still plaguing the BEAD process, the FCC made the funding available in what is best described as a checkerboard of eligible and non-eligible areas.

At the close of the BEAD auction, ISPs had claimed over $9.2 million in RDOF subsidies to serve over 5.2 million locations. Benton has assembled a spreadsheet that shows that 1.9 million of those locations and $3.3 billion were defaulted. The two biggest defaults came from FCC action. The FCC decided that Starlink broadband did not meet the speed goal of the plan, and the FCC canceled $852 million that was to cover 630,000 locations. The FCC canceled awards of $1.3 billion to cover 528,000 locations for LTD Broadband after the FCC decided the company didn’t have the financial and technical ability to fulfill its commitments.

The Benton spreadsheet shows 135 entities that defaulted on BEAD or the CAF II reverse auction. The reason for some of the defaults is obvious. Thirty ISPs won subsidies to build to less than 50 locations. It’s likely that most of them were trying to win larger areas and defaulted because the paperwork burden of complying with RDOF wasn’t worth the tiny amount of subsidy.

The other major reason for defaults is the amount of subsidy. The average award for the defaulted areas is $1,732 in RDOF subsidy per location, paid out over ten years. Starlink had asked for $1,353 per location. LTD Broadband won awards of $2,501 per location. The other awards average out to $1,503 per RDOF location. It’s not hard to imagine ISPS looking at the size of these awards and deciding they couldn’t make the math work – particularly after inflation ballooned due to the pandemic.

As Benton warns, the defaults may not be over. Most of the RDOF winners should have built 40% of their locations by the end of 2024. I’ve been working with a lot of Counties that haven’t seen any progress on RDOF and are wondering if the networks will ever be built. I hope Benton follows up by getting a tally, by State, of where RDOF has already been built. I would assume any ISP that isn’t meeting the 40% obligation is probably a good candidate for additional default.

This all sounds negative, but there have been networks built all over the country from the RDOF funding. Numerous electric cooperatives built networks more quickly than the FCC’s required timeline. Charter was a huge winner and says it is far ahead of schedule on RDOF. Yet risk of further defaults is alarming. I know there are a lot of rural folks who are counting on the remaining RDOF networks being built, because further defaults mean areas with no broadband solution.