Oregon audit reinforces BEAD direction to states on universal service

As states move to the forefront to provide affordable access to advanced telecommunications with the direction of the federal government’s Broadband Equity, Access and Deployment (BEAD) program to develop Five Year Action Plans for universal service, a recent State of Oregon audit report offers them some critical guidance.

It meshes well with the National Telecommunications and Information Administration’s use of the word “action” in the requirement states develop strategies to ensure universal service to all their residents in their Five-Year Action Plans. Those strategies must be actionable roadmaps and not serve as aspirational wish lists that gather dust after they’re issued. From the Oregon Audits Division report:

The (Oregon) Broadband Office published a strategic plan in January of 2020, prior to the COVID-19 pandemic. The plan is high-level and notes: “This plan is aspirational and designed to carry out the mission and directives charged to the Broadband Office. The scope of activities the Broadband Office will ultimately undertake will be enabled, or limited, by the resources available.”

The plan does not contain specific and realistic approaches, strategies, or appropriate KPMs for how these aspirations will be measured, reported, and achieved; nor does it identify what resources would be needed to undertake the scope of activities.

The biggest reason “broadband plans” over the past 15 to 20 years have been aspirational is they were conditioned on funding. That’s to be expected for a bet on the come financing strategy that relies on one off government grants. An action plan by contrast has a clearly identified funding source to ensure universal service and not one based on the hope that financing will someday become available.

The resulting lack of progress naturally angers people who’ve had their hopes for modern fiber connections to replace legacy metallic ones dashed for years amid piecemeal, incremental progress that never quite seems to reach them where they live and work despite promises from their elected representatives at all levels of government. A solid plan can help restore their trust in public officials to get the job done where the private market cannot.

The Oregon audit notes “Oregon’s broadband public policy needs to be focused on the future, be more aggressive, be more financially supportive, be more specific, and have a renewed sense of urgency.” (Emphasis added)

Being more financially supportive means Oregon (as well as other states) cannot continue to rely on one off, highly restrictive government grants to attain universal service. They need to develop ongoing organic funding for the both the construction and reliable operation of fiber to the premise (FTTP) advanced telecommunications infrastructure to every doorstep. Grants such as those available through BEAD can only do part of the job – implicit in BEAD’s Five-Year Action Plan requirement.

Amid fading federalism in U.S. telecommunications policy, states on deck to regulate

For Plain Old Telephone Service (POTS), federalism underpins a scheme of shared regulatory oversight between the federal government (the Federal Communications Commission specifically) and state public utility commissions. It operates under the framework of Title II of the Communications Act of 1934 that regards telecommunications networks as a natural monopoly. Accordingly, voice telephone service is regulated as a common carrier utility to ensure it is accessible (universal service) and affordable (rate regulation by state PUCs) given the absence of market forces and buy side market power to assure that it is.

This federalist regulatory scheme does not exist for advanced, internet protocol (IP) telecommunications. Since 2018, federal policy promulgated by FCC administrative law regards it as a lightly regulated information service under Title I of the Communications Act similar to dialup services like CompuServe and America Online that were widely used in the early 1990s. Congress has not weighed in on the matter of how IP telecom is to be regulated since the 1996 Telecommunications Act, which similarly adopted a light touch, wait and see stance. Recent court rulings have cleared the path for states to move forward.

In the absence of regulatory federalism for IP-based telecommunications, one leader state is considering legislation that would regard IP telecommunications as a common carrier utility. AB 1714 would amend California’s Public Utility Act to include “broadband service” offered by a corporation (defined in the statute as including a corporation, company, an association, and a joint stock association) within the definition of a public utility. “Broadband Internet access service is defined at California Civil Code Section 3100(b) as “a mass-market retail service by wire or radio provided to customers in California that provides the capability to transmit data to, and receive data from, all or substantially all Internet endpoints, including, but not limited to, any capabilities that are incidental to and enable the operation of the communications service, but excluding dial-up Internet access service.”

“Just as the infrastructure of water and electricity grew at the end of the 19th century and led to the creation of regulation to make sure that these technologies were available to everyone, the internet has grown to a point that demands it be regulated as a public utility subject to the same regulatory process to make sure that everyone has access to this technology, moving us closer to digital equity,” said the bill’s author, Assemblymember Jim Wood in a news release. 

The proposed legislation comes as AT&T California petitioned the California Public Utilities Commission to relieve it of its POTS universal service obligations as carrier of last resort in parts of the state where there are alternatives such as VOIP (Voice Over Internet Protocol) or mobile wireless.

Private activity bonds could fund regional open access fiber networks

Nearly all U.S. airports are owned by state or local governments, mandated by the federal government to be as self-sustaining as possible, and thus receive little or no direct taxpayer support, according to the Airports Council International-North America (ACI-NA), an industry association representing local, regional and state governing bodies that own and operate commercial airports in the United States and Canada.

Over the past decade, according to the ACA-NA website, about 60 percent of bonds issued to finance airport capital projects were issued as private activity bonds, a type of municipal bond that is issued to finance a facility that serves a public purpose for the benefit of a private user – in this case airline companies. “Private activity bonds used for airport construction and renovation—are the most cost-efficient form of infrastructure financing available today,” the ACA-NA states.

Section 80401 of the Infrastructure Investment and Jobs Act (IIJA) amended Section 142(a) of the Internal Revenue Code of 1986 to specifically include advanced telecommunications infrastructure as an eligible use of private activity bond proceeds. Specifically, for “qualified broadband projects.”

On its face, the eligibility definition is more generous than the IIJA’s Broadband Equity, Access and Deployment (BEAD) program providing grant funding of up to 75 percent of infrastructure deployment costs. Basic BEAD eligibility is limited to builds where at least 80 percent of serviceable addresses lack access to infrastructure providing throughput of at least 20Mbps for downloads and 3Mbps for uploads with latency below 100ms. There is no definition of the minimum number of addresses that must be included. Projects could be as small as a handful of addresses or even a single address.

Eligibility for private activity bond funding is available for projects in one or more census block groups in which more than 50 percent of residential households do not have access to fixed, terrestrial broadband service which delivers at least 25Mbps downstream and at least 3Mbps upstream. Funded projects must provide access with at least 100Mbps for downloads and 20Mbps megabits for second for uploads.

That appears looser than the basic BEAD “unserved” eligibility standard of at least 80 percent of serviceable addresses unserved. But then it gets tighter with an additional qualification, unfortunately creating ambiguity. Private activity bond funding is available “only if at least 90 percent of the locations provided such access under the project are locations where, before the project, a broadband service provider— (i) did not provide service, or (ii) did not provide service meeting the minimum speed requirements.”

In another unfavorable provision, the IIJA amendment to the Internal Revenue Code opens this financing mechanism to potential incumbent gaming and stalling, further requiring existing providers be notified of a planned project and its intended scope and given at least 90 days to provide information on their ability to deploy, manage, and maintain a network capable of providing access at gigabit speeds – essentially fiber to the premises (FTTP).

The aeronautical analogy easily translates to publicly owned regional open access fiber network such as the Utah Telecommunication Open Infrastructure Agency (UTOPIA). Kimberly McKinley, UTOPIA’s chief marketing officer, described its partnership with an open access FTTP network rolling out in Bozeman, Montana as similar to city or state construction financing for airports, according to a recent article in the Bozeman Daily Chronicle.

UTOPIA is also partnering with the Golden State Connect Authority, a joint powers authority of 40 less densely developed California counties to build publicly owned open access FTTP. Its chair, Calaveras County Supervisor Jack Garamendi, compared it to a regional airport authority in a 2022 interview with the Electronic Frontier Foundation.

States will likely need additional federal funding to attain universal service under BEAD Five-Year Action Plans

The National Telecommunications and Information Administration’s (NTIA) Broadband Equity, Access and Deployment (BEAD) program – part of the Infrastructure Investment and Jobs Act (IIJA) – requires states that received planning grants in 2022 to develop “Five-Year Action Plans” in 2023 that will inform their requests for $42.5 billion in grants to subsidize advanced telecommunications infrastructure.

The plans must include “a comprehensive, high-level plan for providing reliable, affordable, high-speed internet service throughout the (state) including the estimated timeline and cost for universal service.” Additionally, the plans must include planned utilization of federal, state, and local funding sources to pay for it.

As with any infrastructure, it won’t come cheap. Hence the $42.5 billion BEAD allocates to states to subsidize construction costs. But BEAD also requires states to "rigorously explore ways to cover a project’s cost with contributions outside of the BEAD program funding." In developing their Five-Year Action Plans, states will have to determine to what extent they will have to cover shortfalls by, for example, issuing long term bonds to finance construction. 

And whether they will legislatively mandate universal service, requiring existing investor owned providers honor connectivity requests at serviceable addresses as proposed California legislation would do by deeming Internet service a public utility and establishing state policy of digital equity as a right of access. Or to fund public or consumer utility cooperative owned fiber to the premise (FTTP) infrastructure as a means of ensuring digital inclusion and equity as required by BEAD given challenges faced by investor owned providers that frequently scale back deployment plans to accommodate their business model constraints.

It's likely states could conclude that in order to attain universal service, they will need additional federal funding. That is evidently contemplated in BEAD. As part of their Five-Year Action Plans, states must detail technical assistance and “additional capacity needed for successful implementation of the BEAD Program.”

1996 Telecom Act, IIJA reflect America’s slow transformation and progress toward digital socio-economy

The United States innovated most of the information and communication technologies (ICT) that over the past 40 years that are transforming an analog socio-economy into a digital one. But the nation has lagged in the transition. Much of its existing telecommunications infrastructure is designed for an analog 20th century world of voice telephone service over twisted pair copper and premium television channels over coaxial cable.

America’s slow modernization of its legacy copper telephone system to fiber reflects the prolonged transition from an analog-based socio economy to a digital one in the 21st century. Related to this is that many Americans do not utilize ICT to allow their “full participation in the society and economy of the United States” according the Infrastructure Investment and Jobs Act (IIJA) of 2021.

At the close of the 20th century, the Telecommunications Act of 1996 foresaw the digitization of the telecommunications as the mass market Internet was taking off and some regional telephone companies filed plans with state regulators to offer two way video over fiber. But because the Internet as a means of communication was new, its drafters believed market competition would bring about reliable and affordable Internet connectivity as well as Internet-enabled devices and applications and online content.

The market competition will float all boats theory failed to reflect reality relative to Internet connectivity. A quarter century after the law was enacted, millions of Americans lack reliable and affordable connectivity, creating a “digital inclusion” challenge as it is described in the IIJA. Instead, market forces led to market segmentation, leaving lots of locations unconnected. The reason is making those connections isn’t that different from other utilities. Like voice telephone service, those copper cables that delivered it every home and business voice telephone service function as a natural terminating monopoly that doesn’t operate as a competitive market due to high cost barriers to competitor entry and first mover advantage.

That fundamental flaw in the 1996 Telecom Act left the nation further behind than where it should be for deployment of robust digital infrastructure with the old analog copper twisted pair telephone connections replaced with fiber reaching most every doorstep by 2010 at the latest. Over the interim, substandard and less reliable substitutes were employed such as Digital Subscriber Line (DSL) over copper and fixed and mobile wireless and satellite technology.

The IIJA while nominally an infrastructure measure that allocates federal dollars to states to build out advanced telecommunications infrastructure, like the 1996 Telecom Act, it doesn’t affirmatively  specify fiber to the premises (FTTP) infrastructure. However, the National Telecommunications and Information Administration (NTIA), charged with administrating the federal funds to the states, states a clear preference for FTTP. In that regard, public policy is slowly advancing into the digital age.

ICT access as industrial policy

The United States currently lacks public policy assuring every American home is able to connect to landline Internet service as it did for voice telephone service in the 20th century under Title II of the Communications Act of 1934. It is instead an aspirational goal rather than affirmative public policy.

According to the U.S. Federal Communications Commission, the Telecommunications Act of 1996 “expanded the traditional goal of universal service to include increased access to both telecommunications and advanced services …for all consumers at just, reasonable and affordable rates.” In the nearly three decades since the law was enacted, the nation continues to struggle to meet that goal with numerous proscribed subsidy programs despite many billions of dollars spent.

In 2021, the Infrastructure Investment and Jobs Act (IIJA) adopted an expanded view of access to advanced telecommunications service, including it in a broader context as access to “affordable information and communication technologies (ICT) such as reliable fixed and wireless broadband internet service.” That definition – titled “digital inclusion” -- acknowledges a long term shift from an analog, industrial age 20th century economy to a 21st century digital economy. It encompasses internet-enabled devices, applications and online content designed to enable and encourage self-sufficiency, participation, and collaboration” as well as access to digital literacy training, quality technical support, awareness of measures to ensure online privacy and cybersecurity.

Digital inclusion in turn supports “digital equity,” defined in the IIJA as “the condition in which individuals and communities have the information technology capacity that is needed for full participation in the society and economy of the United States.” Accordingly, universal access to advanced telecommunications service is now framed in the larger context of access to ICT and the broad social and economic benefit of all Americans having access to and being able to use it.

In that regard, the IIJA states access to advanced telecommunications infrastructure as industrial policy – subsidizing and expanding access in order to promote social and economic benefit. This is an important development because it reframes public policy on advanced telecommunications infrastructure and access beyond the traditional market commodity based “broadband” offering.

However, the IIJA retains broadband service as a metric to determine eligibility for allocating $42.5 billion in grants to the states to subsidize advanced telecommunications infrastructure, with priority afforded to fiber to the premises (FTTP). Subsidies are largely targeted to areas where “broadband” – defined as 25Mbps down and 3Mbps – is not marketed to most serviceable addresses.

Industrial policy by definition calls for a broad and sustained effort. The National Telecommunications and Information Administration (NTIA) is charged with administrating the IIJA advanced telecommunications infrastructure subsidy dollars. It describes that appropriation as representing only the beginning. According to a fact sheet, the NTIA’s subsidy program represents an “historic investment will lay critical groundwork for the infrastructure needed to connect everyone, from big cities to small towns and everything in between.” 

Another provision of the IIJA at Title VI that expresses industrial policy calls for the creation of an interagency federal working group to develop recommendations to address the workforce needs of the telecommunications industry and provide guidance to the states. In a report to Congress in January, the working group recommended measures to support the recruitment and retention of telecommunications workers.

States face major challenge to develop plans for universal FTTP access

Given America’s highly fragmented, piecemeal deployment of fiber to the premises (FTTP) over the past few decades that continues in the current one, states are confronting a significant challenge to develop plans to ensure it reaches most every doorstep.

Last year, all states and territories received planning grants under the National Telecommunications and Information Administration’s (NTIA) Broadband Equity, Access and Deployment (BEAD) program – part of the Infrastructure Investment and Jobs Act (IIJA).

That funding requires states to develop Five-Year Action Plans in 2023 that will inform their requests for $42.5 billion in grants to subsidize advanced telecommunications infrastructure, with priority afforded to FTTP. The plans must include “a comprehensive, high-level plan for providing reliable, affordable, high-speed internet service throughout the (state) including the estimated timeline and cost for universal service.” 

This comes amid a rapid increase in FTTP deployment that some have likened to a land grab in order to obtain first mover market advantage. Conditions are ripe. FTTP is a virtually unregulated natural monopoly with strong demand, present and future. That makes it attractive to investor-owned companies where those factors combined with sufficiently high development density and household incomes support the business case. Private equity has even gotten in on gold rush, hoping to flip fiber assets in the future to large providers looking to expand their footprints without investing their own capital by rolling up smaller players.

Local governments that have for years heard complaints from residents and businesses about poor Internet access that grew louder during the public health restrictions of the pandemic that turned homes into places to work and study are handing over their federal pandemic relief dollars to incumbent providers to build FTTP.

Some local governments are building their own. Others have banded together to form regional telecommunications authorities to deploy FTTP where the business case is weak for investor owned providers. In rural areas, electric utility cooperatives are getting into the telecommunications business with FTTP.

Since the U.S. regards Internet protocol (IP) telecommunications as an information service and not a utility (that could change in California under proposed legislation), none of these providers are required to extend FTTP to any home or business that requests service. The result is disparate deployment in discrete areas, leaving a lot of holes in the FTTP Swiss cheese.

Consequently, states face significant challenges to attain a goal of universal FTTP access and developing a meaningful plan that closes the gaps with insufficient market or regulatory incentive for the various aforementioned providers to fill them amid a tight labor market for FTTP technicians and installers.

The $42.5 billion in grants to subsidize advanced telecommunications infrastructure appropriated in the IIJA is intended to help achieve that under the NTIA’s Internet for All initiative, allowing states to contract with providers to build infrastructure and cover up to 75 percent of the capital cost of deployment.

However, as currently structured under the IIJA, those subsidies aren’t targeted to underwriting FTTP. Much of it could end up being requested by cable companies to incrementally edge out their existing coax footprints since the NTIA rules on BEAD funding allow awards for projects of a small number of serviceable addresses and even a single address. Moreover, the NTIA’s BEAD eligibility requirements bar subsidization where a mobile wireless provider using licensed spectrum also advertises fixed premise service meeting minimum throughput standards.

The luxury connotation of advanced telecom -- why it’s still called “broadband.”

Three decades ago, the United States failed to put in place a transitional process to modernize twisted pair copper telephone infrastructure designed in the 20th century for analog voice telephone service to fiber for digital Internet protocol (IP) services that emerged in the late 1980s and early 1990s. It should have been seen as a natural evolution of telecommunications technology.

Instead, the legacy copper infrastructure was kept in place and advanced telecommunications was framed as an enhanced service under the name “broadband.” Basic service was dialup -- relatively inexpensive and affordable to most households and small businesses. By contrast, broadband was always on and allowed end users to access digital voice, web pages, images and video that dialup could not. That distinguished it a premium luxury service providing a far richer amount of information and content.

Broadband was a natural for Cable TV – an enhanced, premium service over television signals broadcast on the public airwaves. Cable companies got into the broadband business in a big way and are now the dominant providers of advanced telecommunications connectivity.

Hence, “broadband” connoted a luxury upgrade over narrowband dialup. As with any luxury, it comes at a price premium and is marketed to select households likely to upgrade. The more broadband, the higher the price.

The term “broadband” is so widely used today it’s become shorthand for advanced telecommunications capability. The luxury connotation has stuck. It’s fundamental to the challenges the nation faces with access and affordability now that advanced telecommunications like the voice telephone service before it has become a basic utility and not a luxury.

Francella Ochillo, Executive Director, Next Century Cities, reinforced the point at the annual Silicon Flatirons conference earlier this month:

“We could hide behind the internet's new and it's really a luxury. And it was really very strategic to even use that language to call it a luxury, because then it made it OK if everybody didn't have it. And I'm not saying that that's intentional. I'm saying that that's just real. And whether or not it's intentional, that was the impact. And so when we're in a moment where we have to start questioning structures, and thinking about why have we been doing it that way for that long.”

It was intentional however to the extent the framers of the 1996 Telecom Act also saw IP powered advanced telecommunications as new. Because it was novel, the thinking went, let’s keep policy technology neutral and see how market competition will evolve to deliver it to homes, schools and businesses. And not establish fiber to as the advanced telecommunications delivery infrastructure standard even though it predates the emergence of IP telecommunications by two decades.

Then as now, fiber was a proven technology for delivering advanced telecommunications services that wasn’t going to be obsoleted by another technology anytime soon. That’s seen in 2023 as public policymakers at all levels of government look to speed fiber connections to nearly every American doorstep, making them as ubiquitous as copper telephone line connections.

States could designate ISPs as public utilities as strategy to attain universal service

The National Telecommunications and Information Administration’s (NTIA) Broadband Equity, Access and Deployment (BEAD) program guidance spelled out in its Notice of Funding Opportunity (NOFO) requires states as part of their Five Year Action Plans to develop “a comprehensive, high-level plan for providing reliable, affordable, high-speed internet service throughout the (state) including the estimated timeline and cost for universal service.”

A potential component of these plans could be legislation deeming companies providing advanced telecommunications as common carrier public utilities and thus mandated to offer universal service to all of a state’s serviceable addresses. These are defined in the BEAD NOFO as “a business or residential location in the United States at which fixed broadband Internet access service is, or can be, installed.”

California legislation introduced this month (AB 1714) would designate these providers as common carrier public utilities. Other states could take a similar route in developing the universal service component of their Five Year Plans due to the NTIA this year.

Voice telephone service is regulated as a common carrier public utility under Title II of the Communications Act of 1934. Per the law, "It shall be the duty of every common carrier engaged in interstate or foreign communication by wire or radio to furnish such communication service upon reasonable request therefor..." It also bars them from “unjust or unreasonable discrimination” in “charges, practices, classifications, regulations, facilities, or services.”

The federal government has declined to regulate providers of advanced telecommunications as such, instead opting to regulate them as “information services” under Title I of the statute. Since information services are not classified as common carrier utilities, they are not subject to the universal service and non-discrimination mandates. That has led to substantial problems with access and affordability with advanced telecommunications that BEAD aims to remedy.

Feds punt universal advanced telecommunications service to the states

The U.S. federal government has whiffed multiple times over the past three decades when it comes to mandating universal service for advanced telecommunications as it did for analog voice telephone service before it. A universal service mandate recognizes that telecommunications infrastructure like other utility infrastructure functions as a natural monopoly because of high cost barriers to competitor entry and first mover advantage accorded incumbents limit choice among multiple sellers.

It first did so in the Telecommunications Act of 1996. The statute includes language stating legislative intent that access to advanced telecommunications and information services should be provided in all regions of the Nation including rural and high cost areas -- but no means to ensure that it would.

The closest federal policy came to mandating universal access to advanced telecommunications was in 2015 when the Federal Communications Commission (FCC) placed Internet protocol telecommunications under Title II of the Communications Act of 1934, classifying it as a common carrier utility requiring reasonable requests for service be honored and barring neighborhood redlining. The FCC declined to enforce a regulation adopting the reclassification and reversed course in 2018, repealing it.

Instead, the FCC and state public utility commissions must merely “encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans … in a manner consistent with the public interest, convenience, and necessity” per 47 U.S. Code § 1302(a). The statute also turns economic logic on its head by mandating these regulatory bodies promulgate “measures that promote competition in the (aforementioned natural monopoly) local telecommunications market.”

In 2021, the feds punted the universal service issue to the states with the Infrastructure Investment and Jobs Act that appropriates $42.5 billion in grants to the states to subsidize advanced telecommunications infrastructure and prioritizing funding of fiber to the premise (FTTP) delivery infrastructure. The funding is administered under the National Telecommunications and Information Administration’s (NTIA) Broadband Equity, Access and Deployment (BEAD) program.

The BEAD program requires states to develop “Five-Year Action Plans” including “a comprehensive, high-level plan for providing reliable, affordable, high-speed internet service throughout the (state) including the estimated timeline and cost for universal service.” It also frames universal access as a matter of digital inclusion and equity, noting that it's necessary for civic and cultural participation, employment, lifelong learning, and access to essential services. 

For the states, that will mean developing their own concrete universal service policies and funding strategies given that federal policy remains aspirational. A U.S. General Accountability Office report issued in May 2022 concluded there is no national strategy to guide the deployment of advanced telecommunications infrastructure. Instead, the report found, there are numerous, uncoordinated subsidy programs administered by multiple federal agencies.

How BEAD could fund incremental "edge outs"

Funding allocated in the National Telecommunications and Information Administration’s (NTIA) Broadband Equity, Access and Deployment (BEAD) program could support incremental "edge outs" of  delivery infrastructure to relatively small numbers of homes and small businesses at the edges of incumbent providers' service footprints.

Incumbents know exactly where these addresses are located – no “broadband map” needed. They are bereft of landline connections because while they in most cases are serviceable addresses – i.e., able to be connected -- they’re spaced too far apart to meet providers’ internal return on investment (ROI) standards to build out delivery infrastructure to connect them. Infrastructure thus extends part of the way down a road, street or cul de sac where the ROI standard can be met and ends where it cannot.

Clusters of serviceable addresses may meet the density cutoff when viewed in isolation. But they are cut off from the network because lines to service them would have to be extended along roads and streets where there too few homes, businesses or institutions to meet the density standard.

Consequently, residents and small business operators have felt dissed and bitterly complained for many years they unable to order service while addresses a mile or two – or even hundreds of feet away -- can. And because these are a relatively small number of addresses among a much larger number of those served by an incumbent provider, there aren’t enough of them to justify a contiguous project for an alternative provider. This circumstance is typically found in small towns and exurban locations where dwelling density is below that of suburbs but well above that of rural areas – but not at a level sufficient to attract investor-owned incumbents.

According to BEAD program guidance spelled out in the NTIA's Notice of Funding Opportunity (NOFO), incumbent providers selected by states as subawardees could fund line extension projects to these premises. Under the NOFO, a project eligible for up to a 75 percent capital subsidy can be a small number of serviceable addresses and even a single address. It's possible incumbent providers could propose these line extensions to state offices charged with subawarding BEAD funding as a single project or grouped in large geographical regions, arguing batch processing their funding requests this way would expedite the BEAD goal of ensuring all state residents have access to service. 

For incumbent providers, incremental edging out minimizes the challenge of having to bear the operating expense of maintaining entirely new networks serving many addresses that in order to qualify for BEAD subsidies would have to be built in isolated, insular areas lacking reliable service. Adding a few addresses at the periphery of existing infrastructure allows the associated opex to be more easily absorbed without the need for ongoing subsidization.

Cable companies are most likely to do BEAD backed edge outs, extend their existing coax plant to reach addresses on the edges of their current footprints that fall below their current density standards. Incumbent telephone companies aren’t likely to have existing fiber plant to support edge outs to BEAD eligible unserved addresses (those where at least 80 percent are unable to order service with throughput of 25/3 Mbps or higher and latency not exceeding 100ms) since they tend to concentrate fiber builds in densely settled areas far from unserved areas. Copper cable plant in these areas is also less likely to be able to reliably support VDSL.

Cable companies can also meet the BEAD throughput requirement: at least 100/20 Mbps with less than 100ms of latency 95 percent of the time. Although BEAD funding is prioritized for fiber to the premise delivery infrastructure, states are likely to sign off on incremental cable build outs to increase access.

A possible obstacle for this potential strategy is challenges from fixed and mobile wireless providers claiming these addresses are served by them and are thus ineligible for BEAD funding. States could then be in the position of having to sort through these addresses to determine whether they are eligible as unserved or “underserved” – without service of at least 100/20 Mbps. Due to various factors affecting radio frequency propagation, that could vary considerably among these locations, making sorting out the challenges a tedious task.

First 20% of BEAD infrastructure funds come with restrictions

As the new year gets fully underway, states are developing their required Five Year Action Plans laying out how they plan to address advanced telecommunications access and affordability using funds from the National Telecommunications and Information Administration’s (NTIA) Broadband Equity, Access and Deployment (BEAD) program and other sources.

As these plans are being drafted, questions are likely to naturally arise over exactly where states can use these funds that can cover up to 75 percent of capital construction costs. According NTIA guidance spelled out in a Notice of Funding Opportunity (NOFO), the initial 20 percent of infrastructure funding is limited to projects that meet both of these criteria:

1. Service (with a strong preference for fiber to the premise) to addresses that cannot order service that provides throughput of at least 25/3 Mbps with latency low enough to support real-time, interactive application.
2. Locations where the number of households with incomes below 150 percent of the federal poverty level exceed the national average.

Some states may find it difficult to identify qualifying projects with a significant number of dwellings while adhering to these eligibility restrictions.

Low income households may have access to legacy DSL and wireless service from mobile wireless providers using licensed spectrum meeting the first condition that would disqualify a proposed project that would bring them fiber connections. That won’t further the digital equity goal of BEAD since many if not most of these are smartphone dependent households that could benefit from fiber connections that would promote broader access to digital services.

Homes at the exurban edges of metro areas and in small towns that have seen substantial in migration from knowledge workers in recent years but which have historically suffered weak advanced telecommunications infrastructure also aren’t likely to qualify for BEAD subsidies due to household incomes exceeding the NOFA guideline.

So where will the money end up going?

Given the eligibility guidelines, incumbent providers selected by states as subcontractors could use it to fund line extensions to a small number or even individual homes in low income areas since the NOFO states an eligible project could be a single home or group of homes provided at least 80 percent meet condition #1 above (“unserved) or are considered “underserved” and unable to order service offering throughput of 100/20 Mbps if a state has sufficient funding to subsidize fiber projects connecting them.

The incumbent providers have a good idea where these addresses are located having since they are unlikely to meet their internal return on investment (ROI) standards or offer sufficient average revenues per unit (ARPU) and have thus not been prioritized for fiber delivery infrastructure.

Some possible areas could be small groups of homes in low income areas of the rural south, Appalachia and isolated tribal lands. But even with construction costs largely subsidized by BEAD, households not in tribal areas wouldn’t likely to be seen as providing sufficient ARPU revenues to cover operational costs over the longer term given the requirement on providers to offer low cost service of $30 per month or less. The limit is higher in tribal areas: $75 per month or less. That could favor projects in these areas.

Projects in remote areas could also see BEAD funding under a provision of the NOFO that funds projects in high cost and extremely high cost areas. Projects in the latter could substitute delivery infrastructure technologies other than fiber prioritized for BEAD funded projects.