BEAD Broadband Money is Coming. Now What?
Episode ID S1E11
September 15, 2022
Now that much of the $65 billion in rural broadband federal funds is heading to states, local level implementation is about to get real. In this episode, CoBank’s Jeff Johnston is joined by Mike Romano, executive vice president of NTCA-The Rural Broadband Association. He outlines what rural stakeholders need to be aware of before they navigate the new Broadband Equity, Access, and Deployment (BEAD) program.
Jeff Johnston: Hello there and welcome to the All Day Digital podcast where we talk to industry executives and thought leaders to get their perspective on a wide range of factors shaping the communications industry. This podcast is brought to you by CoBank’s Knowledge Exchange group and I am your host Jeff Johnston.
On today’s episode we get to hear from Mike Romano, executive vice president of NTCA, to get his perspective on the $65 billion allocated for broadband from the Infrastructure Investments and Jobs Act. This is an unprecedented amount of federal support to help bridge the digital divide in rural America, and the program has been designed to address some of the shortcomings found in previous government efforts. And while there is lots to like here, there are some red flags that people should be aware of.
Mike’s deep understanding of rural broadband and the overall structure of the program makes him the ideal person to talk about this enormous opportunity for rural America.
So, without any further ado, pitter patter, let’s hear what Mike has to say…
Jeff: Mike Romano, welcome to the podcast. It's great to have you here today.
Mike Romano: Thank you, Jeff. It's great to be here. I'm glad to be able to join you and talk about all things rural broadband.
Jeff: Wonderful, wonderful, excellent. Hey, let's talk about the Infrastructure Investment and Jobs Act and specifically for this conversation the $65 billion that was allocated to rural broadband as a part of that act. Maybe you can just give us a high-level background on what that is and where is that money intended to go.
Mike: Sure. Yes. It's certainly a very exciting once-in-a-generation, certainly an unprecedented level of investment in broadband issues, writ large. It's actually broken down into several buckets within that $65 billion. I think the biggest one that most people have focused on certainly is the BEAD Program, the Broadband Equity, Access, and Deployment program, which is roughly $42.5 billion which goes to NTIA, which is an agency within the U.S. Department of Commerce.
Although ultimately all those funds will flow then to states and territories to then give out for broadband deployment, and those will go to certain areas that are unserved or underserved which I'm sure we can talk about a little bit. There's also within that other pools of money and I'm not going to get the exact numbers out here but essentially, there's a significant amount of money for what's called the Affordable Connectivity Program or ACP, which is a program that is essentially almost a success for many ways to the traditional FCC Lifeline Program focused on making sure that broadband is more affordable, particularly for an expanded base of low-income consumers who may have had adoption challenges with respect to broadband in the past.
Then there are pockets of money in there for USDA to do its own deployment program through ReConnect. There is funding for tribal broadband through NTIA again, there is funding for digital equity plans. So, there are different pockets of money aimed at solving different pieces of the broadband puzzle but of course the BEAD program, I think the one that's grabbed most attention because it's two-thirds of the money in the bill.
Jeff: Great, great. As I understand it, the way the Federal government's going about distributing money in the BEAD program is different than what the FCC has done before in say the Rural Digital Opportunity Fund program, maybe you can just help me understand a little bit about the differences between what we're doing with BEAD versus what we've done with RDOF in the past.
Mike: Yes, it's a great question. I think in some ways if you look at it is, BEAD is intended to be a correction for some of, if you will, sins of RDOF, in some ways it may be an overcorrection as well. You can unpack that a little bit but I think what you're seeing with BEAD is-- Let me step back. RDOF was an auction program, a pure competitive bidding program, lowest priced won, essentially whoever is willing to deliver the best broadband for the lowest possible price won. Now there was waiting in that based upon what speeds you were promising to deliver and the like but it was essentially an auction where the lowest bid won.
BEAD is different. We don't know yet the exact scoring criteria that will come, but BEAD is not being administered through the federal agency in the end. As I mentioned earlier, it's actually going from the Department of Commerce to the states. The states will put forward applications based upon plans they have previously submitted to the Department of Commerce that basically describe how they will use the funds and what kinds of projects they'll put the funds toward.
The states will in turn then essentially award those funds to sub-grantees, they're being called, essentially providers or municipalities who want to get into the business or counties who want to get into the business, but in the end providers of broadband who will use these state funds as an ability to cover their CapEx or at least a portion of it in deploying networks that will then deliver the services that meet the NTIA criteria. But again, it's a grant program going through the states, probably a different scoring rubric than just pure lowest bid.
I think they'll give weight for things like, what kinds of services you're offering, what level of affordability you're making available, different factors will go into this. Again, a lot of them is still to be determined but it won't be purely a lowest bidder wins program. In that regard, plus the fact it goes through the states, those are two of the biggest differences. The one other difference I'll just note quickly in the form of potential overcorrection is a lot of folks complained, NTCA included, that the Rural Digital Opportunity Fund, the FCC did not do a sufficient amount of vetting of bidders prior to allowing them into the auction. It only vetted them after they had already won which presented problems when they found out that some of them couldn't perform.
There is a lot of upfront accountability in the BEAD Program, which I think is a good thing in many ways, but also it remains to be seen if some of that will be a deterrent or maybe an overcorrection in the form of some of the things they ask for that that may be more difficult for providers to deliver upon.
Jeff: That's a really interesting point. I guess the FCC faced some criticism with RDOF, A) with who they awarded money to or attempted to I guess award money to. Then B) if I have it right, they allocated money to areas that maybe didn't necessarily need it, there was connectivity there already. I'm curious if you think maybe on the second point, do you think with the states playing a more active role and presumably they would have more local knowledge of where there is and isn't sufficient broadband versus at a federal level?
Do you think that we could see some improvements in terms of the markets where the money's allocated, so it's actually going to where it really needs to go as opposed to where maybe there already is broadband?
Mike: Yes. That's a great question and that's another form of accountability you bring up that is important to note. The phrase that was used was dollars before deployment, maps before money, or money before maps. In RDOF essentially the FCC had some idea of where broadband was and was not but it was based upon a set of maps that everybody knew to be flawed in some respects as well. Again, as I think a correction in this process, what Congress actually required NTIA and the states to do is to use updated maps, that the FCC pursuant to a whole separate law, had to create.
Those maps are the process of being created. In fact as we're recording this today, we're a couple of days away from the deadline for providers to submit their information for those new maps. Then there are a series of challenge processes that go in behind that, that ultimately should lead to better maps still. I'll come back to that in a second because I think it's an important piece, but the two challenge processes are one, the very fabric, the very set of locations that providers are identifying as being able to serve. That in itself, which the FCC created or its contractor created will be challenged. Ultimately you should have a much better identification of literally parcel by parcel, which locations can and can't be served.
Then there will be a separate challenge process for the providers to submit data, others can come in and say, "No, no, I don't believe that provider can serve this area at that speed." This is what I'm going to go back to, presuming that the Department of Commerce, NTIA, and the states wait for that process to play itself out, including those challenge processes, we should have much better maps.
Jeff: That's helpful. It sounds like if I think about some of the positives of this program, this BEAD program, the upfront vetting as you've articulated certainly seems to be a good thing relative to what we've done in the past. That's great and hopefully, through the processes that we're going through now, we'll have better maps. Is there anything else as you look at this program, Mike, that you'd say, "Wow, that's really good. I'm glad that they've structured it that way, that we're focusing on these issues, or these opportunities up front?"
Mike: Sure. I think the one other thing I would highlight as a positive in this is leveraging states. States, as you mentioned earlier, they're closer to the consumer. Now, again, they're going to be using the FCC maps in the first instance but then they actually have even down the line a further opportunity to use their own mapping data too to further refine things. I think in that regard, they're going to be I think well-positioned to identify areas in need.
I think even more importantly it's just the incentives. I think federal agencies, they want to do their jobs well, but when you're in a state or a locality you sleep in the bed you make. To the extent that you make bad decisions about broadband, you live with the consequences of it, your constituencies directly live with the consequences of it. There's a different level of accountability or a different kind of incentive there than if you're legislating from on-high in Washington.
I do think that that focus more, pushing it out more toward the states will allow them to make better decisions about what kinds of companies they partner with and what kinds of networks they choose to fund because as we've seen again, and especially with some of the federal programs in the past, you've had poor decisions made about which providers to fund and what kinds of networks to fund both of which ultimately have turned out to be bad bets and have led to us needing to have this conversation every few years about how to get better broadband to these places.
Jeff: Yes. That fragmented approach at the state level, so what you're saying makes total sense to me. I guess different states have different capabilities and so forth. Just any thoughts on where we are, do most of the states have a broadband office or processes in place to be able to support this program? I'm sure some do and some don't, but any thoughts around where we are at the state level?
Mike: Yes. It's a bad joke, but the states are all over the map on this. Some states have done multiple rounds of grant programs in the past and so have a good amount of expertise in this area. Other states are in a very different stage of evolution where they're just hiring up or maybe they hired people, lost them, and now they have to hire up again so they are in very different places.
I know that NTIA has devoted a lot of attention and resources to try and to make sure states have guidance and expertise. NTIA has tried to set up a very structured process. I was fortunate enough to join about seven or eight other leading the national trade associations at a meeting of the state broadband leadership network, which NTIA convened in Denver a few weeks ago. I know they're doing these kinds of meetings to basically help the states ramp up and be ready and know what they're going to run into, but yes some states are going to run into problems with this, for sure.
There are still some very important unanswered questions in terms of implementation of these new programs that still have to be answered, some of which are going to need to be answered by NTIA and some of which are actually going to need to be answered by the states themselves. We're in a very exciting and uncertain time right now. I really think there's still work to be done and some time to be spent before we will know how well this program delivers in each state. Of course, I say that, that's even just to get the program set up.
We won't really know and this is often a problem in broadband funding program generally. We won't really know how well they do until you actually see the broadband turned up. People have a propensity to basically declare victory the moment they issue the dollars out the door. We've got a lot to do to get there. We've got a lot to do after that.
Jeff: Yes, no, for sure. This might be a difficult question to answer given all the uncertainty that you've talked about and we are still trying to pull this program together at a more of a tactical level, but as we sit here today is there anything, Mike, that you look at and you say, ah I might have some concerns here or maybe some concerns there with the way the rules have been written or the way you see things maybe going in a certain direction that could be cause for concern?
Mike: Yes, it's a good question, Jeff. There are a series of questions that are still open. They're open by design. NTIA published a 98-page or so notice of funding opportunity to the states telling them this is how it worked in the industry as a whole, but for 98 pages of text, it left a whole bunch of things still to be decided. Some of the most critical ones I think and again, looking at it through a prism of rural communities and providers in particular, one of the biggest question marks out there is how the agency, NTIA, will define what is a high-cost area. This is an important factor for two reasons.
One is it's a factor in determining how much money each state gets. There's a set aside of money. Each state gets a full allocation, but then there's a set aside of money for high-cost areas and that's going to determine how many high-cost locations you have as compared to the nationwide total. That's going to be the separate allocation for the high-cost money which is about 10% to that $42.5 billion. How that gets defined is really important because that could mean a big difference for states in Montana and Texas and others vis-à-vis more urban states. That's, one, I think very important question or use of the high-cost term.
The other place to high-cost term factors in is in determining how much matching needs to be provided. There's a matching requirement that says you have to provide a certain percentage to match 25%, at least 25%, if you're participating in the BEAD program and you can get a grant for the remainder but that is relieved in high-cost areas. How you define high-cost areas becomes very important to the economics of a project and the financing of a project because you may or may not need additional loans or capital depending on whether you're serving a high-cost area as it's defined. That's one example of an important issue.
The other issue I'll throw, and there are several, but the other one throughout is what's an extremely high-cost location? This is really important because what NTIA did was they basically said they believed that the statute that created this program prioritized certain kinds of scalable networks. They basically have interpreted that as fiber. They said there may be locations that are extremely high cost such that at that point it's not cost-effective to deliver fiber to those locations so we'll basically wipe out the fiber preference at that point.
Each state gets to choose its own extremely high-cost location threshold, and that could go a long way towards determining how far you get fiber out there. The reason I think this is important is just going back into prior federal programs, you see prior federal programs have basically said, "Well since we can't get the best kinds of networks to everybody, we're going to try to just do the bare minimum to everyone." As a result, every time we come back in two or three years and say, "Well, shoot, what we built doesn't serve well enough for 75%, 80% of the people we need to do this again."
There are crosswinds blowing about how you want to set that extremely high-cost threshold that really could have long-term implications for what kinds of networks get built.
Jeff: Just to drill down a little bit, Mike, on the high-cost area so I want to make sure at least I understand it. Would it be a kind of a cost per passing, for example, that would be set at the federal level and then each state would then get allocated money based on that federal number? Am I getting that correctly or?
Mike: I think that's right. It'd probably be like an average cost per location or something like that. They'll say basically that one way of doing it, and again they haven't described the methodology by which they'll do it but one probably easy way of doing it would be to say that it's essentially everywhere where the FCC has deemed something eligible for high-cost universal service funding since they already used this as a term high cost, so that way you've got some inter-agency coordination.
That's one way of potentially doing it. Is to say basically, what are the areas that are unserved or underserved that would be qualifying for FCC high-cost funding if funding were made available there? You're right. Even that ultimately turns on a look at a census block basis, for example, what's the average cost per location of that census block. I could see something like that.
Jeff: Okay. That's helpful. Then just to follow up on the extremely high-cost areas. I guess, and correct me if I'm wrong or if I'm not thinking about this the right way, but I guess the risk would be if a state were to set that number may be too low then we wouldn't be necessarily in line with the spirit of what the federal government's trying to do which is push fiber as deep as you possibly can into these markets so that you're future-proofing these networks as opposed to doing something with fixed wireless which presumably that would be a technology that would be used in an extremely high-cost scenario. Am I thinking about that right or?
Mike: Yes, you are. I think that's exactly the crux of this, is this becomes that tipping point where you basically, if you will, fly the white flag and say I don't think I can deliver fiber here and I'm going to have to use an alternative technology. Again and I know it's a hard question to judge. Where do you block the line between wanting to get the best possible networks to as many people as possible, but potentially not having enough money to reach everyone? You've got certainly a lot of industry players pushing this idea around in different directions.
I do think the key point you make is that the statute itself in the first instance really called for priority broadband projects. We're never going to see this kind of investment in broadband, certainly in a long time to come. I think it's fair to characterize it a once-in-a-generation investment. Do you want to not use this opportunity capitalize upon this opportunity the fullest to get the best possible networks out as far as you can?
Again, I look back to the prior programs. Every time we've seen a federal program adopt an incrementalist approach to this, the FCC over the last 12 years had a 4-1 standard, then a 10-1 standard, then a 25-3 standard. Each time it's helped to get some better broadband out there, but it's also cost people to look back and say what a waste of money and we just don't want to go there again. There is concern, some states will look at it and say, "Well, I don't think I've got enough so I'm going to do basically something less than the best to everybody and we'll figure out how to solve for mediocrity again in five years."
Jeff: Great. Okay. You are obviously in regular discussion with operators. I'm just curious what advice are you, or what advice would you give operators who presumably many of them want to take advantage of this program? Clearly, there's a lot of outstanding issues and uncertainty at this point. Maybe there's only so much you can do at this point, but what kind of advice would you give those folks who are trying to figure out how to position their business to best take advantage of these federal dollars?
Mike: The first thing I would say is, I know they're imperfect, but look at the current maps that are out there and one way or another, figure out where those indicate there are unserved or underserved areas and unserved would be those lacking even just 25-3. Underserved would be those lacking 100 over 20 broadband. Take a look, start to game plan, think about maybe those areas won't be on the map in the end, maybe they will be, but what kind of a business plan-- well, what kind of interest rate, but then what kind of a business plan could I make to invest in a network in those areas?
What would it take as far as CapEx? What would it take to sustain it over 20-year plus useful life? Am I interested in doing that? Now, again, those maps will be refined, you may find some of those areas come off, you may find some other areas come on. Look at those areas, especially I think for those areas that are neighboring or naturally areas where one can extend an existing network. Really, I think it's worthwhile taking a look at both, frankly, candidly, as an offensive and a defensive measure, right?
It's an opportunity for expansion into new markets that I may not serve today. It may also be a way of helping to make sure that I've got an even larger footprint that is harder for somebody else to come in and potentially challenge in a way, too. I think there are multiple reasons for providers to be taking a look at this now, at least starting to sketch this out, talking with their management team, talking with their boards, talking with their lenders, and folks like you all, of course, and basically saying, "What can I do to potentially enter this space, and what would I need to do to be able to do it or start looking at it probably in the spring of 2023?"
Jeff: Yes, because I've always believed that first mover advantage with a fiber network is pretty sticky, right? If you go into a new market where it's underserved or unserved, and you go in and deploy a fiber network and have good customer service, I think you could be in pretty good shape for quite a while, I would think. It would be tough for someone to overbuild you with another fiber network, I would think anyway.
Mike: Right. There's a reason these places have sat unserved or underserved. If somebody now coming in and looks at you as somebody who got part of their funding and seeking part of their funding covered by a program intended to serve those areas, I would love to see that kind of a business case they can make to be the second network in that area that could not even sustain one previously without government intervention.
I think it does position people well, and it should factor into their analysis, again, both I think, as an expansion opportunity, and as what it means for even their existing footprint, where perhaps it helps them essentially build an even bigger and more impressive coverage area.
Jeff: Yes. Great. What about on the state side, on the state broadband office side, what could or what should operators be doing with their state officials to be able to execute on this whole plan?
Mike: That's a great question. I'm glad you asked that actually because I meant to mention, we've worked with the Fiber Broadband Association on something called the broadband infrastructure playbook. We actually have now done two iterations of it. One was prior to NTIA announcing their rules, just trying to interpret the law and get state broadband offices up and running. Second was post-NTIA notice.
We've delivered that to the governors’ offices, we've delivered that to state broadband offices, we've delivered that to providers, delivered it to the states' telecom associations with whom we work. It's a great soup to nuts, flippable walkthrough manual of everything, from how do you start to stand up a broadband office to how do you apply for and then implement the BEAD program? I think that that's a great resource, and I would encourage providers to think about that, look at that, start talking to state broadband offices about what do you need to do for BEAD? What information do they need from you to help them prepare for BEAD?
I think, honestly, too, the BEAD program, really, it is going to be this collaborative process because the states are the applicants, but the sub-grantees are folks they work with.
Jeff: Well, Mike, look, we've covered a lot of material here. You're clearly the right guy to have on the podcast to talk about this stuff. Thanks for your willingness to participate today, but is there anything else that I didn't ask or we didn't talk about that you would think we should touch on before we wrap it up?
Mike: The only other thing I guess I would say is, and this goes again to figuring out the finance or economics of all this. There's a lot of excitement right now about the CapEx components of these programs. The ability to cover some of the upfront costs of investing in these areas. That's always been a real gating item to getting broadband out into some of these rural areas, but we do know from decades of experience in delivering rural telecommunications, dating back to rural telephony, and through rural broadband, that sustainability is an important piece, too.
I would just encourage folks, and I know that folks do this as part of their prudent business planning anyway, and certainly, as you all working with the CoBank look to see how do we make sure that these things continue to stay in place and from a rural community development perspective, but it's something I just would let folks know that we continue to impress upon policymakers is the importance not only of getting it out there, but keeping it out there and keeping it affordable, and allowing these communities do the best possible things with it.
The more that I think folks can think about not only selling the deployment aspects of what they're doing, but then getting the community excited about the use cases for it. That in turn, I think, will have a good effect with these state offices as well with states to get them excited about what you're going to do. I think there's a holistic surround sound element to this, getting local and state buy-in on this in a way that goes just beyond the application page or figuring out the financing of it.
Jeff: Great. Well, look, I think we'll leave it there, Mike. It was a pleasure to have you here today. Thank you so much for being on the podcast.
Mike: Well, great. Well, thank you for having me, Jeff. Appreciate all CoBank does with us and I look forward to continuing the conversation at some point in the future.
Jeff: I think the fact that NTIA is trying to ensure that networks built with BEAD money are future proof to the extent its feasible is a very good thing, especially when you think about the rapid digital transformation our society is going through. However the uncertainty around what constitutes high cost and extremely high cost areas could run counter to the spirit of the Act. I also think that with getting the states involved in allocating funds will result in a more effective use of these funds given their local knowledge and the level of accountability the states have towards their constituents.
Hey, thanks for joining us today and watch out for the next episode of the All Day Digital podcast.