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Precursors to BEAD Implementation: A Deep Dive Into Prior Broadband Programs

How will prior broadband programs impact BEAD Implementation?

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The process of rolling out broadband funds under the country’s bipartisan infrastructure law has begun in earnest, with the White House announcement in June of allocations for each state under the Broadband Equity, Access and Deployment program. States, meanwhile, are deeply in the midst of planning for BEAD implementation.

The Broadband Breakfast community will be exploring the details of this rollout at the BEAD Implementation Summit in Washington on Sept. 21, 2023. In preparation for the summit, Broadband Breakfast is producing three monthly reports.

In our July 2023 Exclusive Report, we reviewed the state allocations under BEAD, considering the approaches being taken by a multitude of state broadband offices.

In this August 2023 Exclusive Report, we’re considering some of the precursor programs to BEAD — and what those involved in the BEAD Implementation can learn from these prior programs.

In our September 2023 Exclusive Report, we’ll be considering the role of matching funds and public-private partnerships in the rollout of BEAD.

Is the past prologue for the historic BEAD?

The $42.5 billion dedicated to the BEAD program is commonly touted as a historically large investment as part of the once-in-a-generation Infrastructure Investment and Jobs Act, which allocated $1.2 trillion to American infrastructure across the country.

“I truly believe that 50 years from now, historians are going to look back at this moment and say, that’s the moment America began to win the competition of the 21st century,” said President Joe Biden at the signing of the bill.

Chair of the White House Council of Economic Advisors Cecilia Rouse said that the bill is “designed to be the most strategic, effective investments so that we can continue to compete against China and other countries that are making bigger investments in their infrastructure.”

Under the announcements, each state is set to receive a baseline of $107.7 million and allocations were based on the Federal Communications Commission’s second version of its national broadband map. Some states are receiving far more. For example, Texas will receive $3.3 billion, California will receive $1.8 billion, Missouri will receive $1.7 billion, Michigan will receive $1.56 billion and North Carolina will receive $1.53 billion.

States have 180 days from the receipt of the formal notice of allocation on June 30 — the end of December 2023 — to submit initial proposals for how they will run their subgrant programs. Once plans are approved by the NTIA, states will be able to access at least 20 percent of their allocated funds.

With these allocations, the White House anticipates that each state and territory will have the resources it needs to connect every resident and small business to reliable, affordable high-speed internet by 2030.

One key difference between BEAD and predecessor programs is that other broadband efforts funded infrastructure from the federal level. Now that the state-by-state allocation decisions have been made under BEAD, state broadband officers will be responsible for deciding where funds are allocated.

Although the BEAD program represents the largest to-date federal investment in broadband infrastructure, it is not the first of its kind. Congress has allocated billions of dollars through several grant and loan programs to invest in American broadband networks over the past decade.

This report will consider these other programs, including investments under the American Rescue Plan Act, the ReConnect Program, the Universal Service Fund and the Rural Digital Opportunity Fund.

American Rescue Plan Act

In 2021, stories of young students unable to log in to digital classrooms, workers without in-home connectivity being forced to work in unsafe work environments and sick people unable to get access to healthcare during the pandemic awoke lawmakers to the issues posed by digital inequity. These challenges disproportionately impacted low-income, minority and rural communities.

A year after the pandemic began, in March 2021, Biden signed into law the American Rescue Plan Act, a $1.9 trillion economic stimulus bill that provides additional relief to address the impact of the COVID-19 pandemic on the economy, public health, state and local governments, individuals and businesses.

“More than 9.5 million workers have lost their jobs in the wake of COVID-19, with 4 million out of work for half a year or longer. Without additional government assistance, the economic and public health crises could drag on and our national vaccination program will be hobbled at a critical moment,” read the White House’s announcement of the program.

The Act established the Emergency Connectivity Fund (now the Affordable Connectivity Program), which provides $7.2 billion to reimburse schools and libraries for providing free broadband services and devices to students and residents. Eligible equipment includes Wi-Fi hotspots, modems, routers and devices. Entities can also receive funding for broadband service that provides a fixed or mobile broadband connection for off-campus use by students, staff and patrons.

ARPA also authorized the State and Local Fiscal Recovery Fund program, which provides $350 billion to states, territories, local and tribal governments across the country. Of the money, $219.8 billion is dedicated to states, territories and tribes and $120 billion to local governments and counties for local economic recovery purposes. Although this money is not specified for broadband uses, many states have chosen to allocate these dollars to expand broadband access.

SLFRF provided over 30,000 recipient governments with the money to invest in the unique needs of their local communities and create a stronger national economy. Funds can be used to replace lost public sector revenue due to the pandemic, respond to the public health and negative economic impacts of the pandemic, provide premium pay for essential works, and invest in water, sewer and broadband infrastructure.

California was awarded $27 billion total funding through the SLFRF, seconded by Texas with $15 billion and New York with $12 billion.

ARPA also includes $10 billion that will go toward the Capital Projects Fund, which will help states, territories and tribes carry out critical capital projects. A key priority of this program is to make funding available for reliable, affordable broadband infrastructure.

The Treasury department announced the first CPF awards in June of 2022. Eligible uses of the grant funding include broadband infrastructure projects that reliably meet or exceed symmetrical speeds of 100 Megabits per second (Mbps), digital connectivity technology projects including the purchase or installation of devices and equipment, and multi-purpose community facility projects that improve buildings designed to enable work, education and health monitoring.

Grantees are required to produce a quarterly report to the Treasury that provides information on projects funded, obligations, expenditures, project status, outputs and performance indicators, among other information. An annual report that provides information on CPF-funded programs and describes the outputs and outcomes of the programs is also required.

California was once again the highest awarded state through the CPF with $540.2 million, with Texas and Florida at $500.4 million and $366 million respectively.

Recipients must obligate all funding through the SLFRF by Dec. 31, 2024 and spend it by the end of 2026. Money from ARPA will be deployed simultaneously with BEAD funding. The ARPA funds are less restrictive regarding technology than BEAD, which highly prioritizes fiber builds. Experts expect that the money will help fill in gaps that would otherwise be left by BEAD regulations and restrictions.

The USDA’s ReConnect program

A large portion of the United States is rural, and often in areas that are hard to reach and costly to deploy to. The Rural eConnectivity Program, or ReConnect, sought to remedy the issue. It began in 2018 to provide grants and loans to broadband providers serving rural communities in America. The U.S. Department of Agriculture’s Rural Development office runs programs intended to improve the economy and quality of life in rural parts of the country. Most are run by the Rural Utilities Service.

Congress provided $600 million for the Secretary of Agriculture to conduct a new broadband loan and grant pilot program through the Consolidated Appropriations Act in 2018, legislation that funds the federal government spending during a fiscal year. The program was given $550 million in 2019, and another $555 million in 2020. Another $100 million was provided through the Coronavirus Aid, Relief and Economic Securities Act of 2020, a pandemic relief package passed during the Trump administration. Congress has not authorized ReConnect in legislation outside of the annual agriculture appropriations act.

Corporations, cooperatives, states, tribes, territories and local governments are eligible to apply for assistance under the ReConnect Program. Funds may be used to fund the construction or improvement of facilities required to provide fixed terrestrial broadband service and the acquisition of an existing system that does not currently provide sufficient access to broadband.

Only projects that the USDA deems to be “financially feasible and sustainable” are under review for the ReConnect program. Any applicant must demonstrate a positive ending cash balance as reflected in the cash flow statement for each year of the forecast period.

In the first round of funding, RUS awarded approximately $744.3 million to 82 applicants in 34 states and territories at speeds of at least 25 Mbps down and 3 Mbps up. The second round awarded almost $512 million for buildouts. Round 3 and subsequent rounds, under the Biden Administration, adopted a new speed requirement of 100 Mbps symmetrical, only areas in which at least 50 percent of households lack access to 100/20 Mbps service. USDA invested $1.67 billion in the third round of funding.

To date, the administration has announced $777.1 million for projects in the fourth round of funding, for a total of $3.86 billion invested through the program. Cordova Telephone Cooperative was awarded $34.9 million through ReConnect to deploy a hybrid fiber-coax and fixed wireless to Alaska residents. Among the highest awards to projects serving areas where 90 percent of households lack sufficient access, Cal-Ore Telephone Company was given $24.9 million to deploy a fiber-to-the-premises network to California residents.

In addition to the ReConnect program, RUS administers three other rural broadband connectivity programs: the Telecommunications Infrastructure Loan program, the Community Connect Grant program, and the Rural Broadband Access Loan and Grant program.

The Telecommunications Infrastructure Loan program offers only loans and Community Connect offers only grants. The criteria for eligible service areas is narrower for the ReConnect program than for the Rural Broadband Access program. For ReConnect eligibility, at least 90 percent of households in an area must lack access to broadband service at speeds of 10 Mbps download and 1 Mbps upload. For Rural Broadband Access, 50 percent or 90 percent of households must lack access to 25/3 Mbps broadband speeds for loans and grants respectively.

The Farm Bill, a piece of legislation covering agricultural and food programs revisited every five years, is due for renewal on Sept. 30, 2023. The Farm Bill administers funds for rural broadband programs administered by the USDA, including ReConnect. The Congressional Research Service noted in 2022 that Congress could consider a longer-term funding mechanism for ReConnect in the 2023 Farm Bill.

Universal Service Fund

A large investment into American broadband comes from the Federal Communications Commission’s Universal Service Fund, established through the Telecommunications Act of 1996. The fund is contributed to by wireline, wireless and interconnected voice over internet protocol providers. These companies are required by law to contribute to the USF from a percentage of end-user interstate and international revenues, which percentage is called the contribution factor. The contribution factor shifts each quarter to represent the demand for universal service support.

The USF was established to provide all Americans with access to rapid, efficient, nationwide communications services at a reasonable price. Today, it provides support through four programs.

The Connect America Fund provides funding for telephone companies that provide services to high-cost areas, locations across the country that are hard to reach due to varying geographical factors. Commonly referred to as the high-cost program, CAF is a complex program split into two phases.

The first phase began in 2013 and authorized $255 million to five telecommunications providers — AT&T, Lumen, FairPoint Communications, Frontier Communications and Windstream Corp — in exchange for broadband build-out commitments to serve just under 400,000 unserved or underserved addresses in 41 states in six years.

The second phase offered funding in two separate stages. The first stage offered funding to large local telephone companies on a state-by-state basis in certain high-cost unserved and underserved areas in exchange for those companies offering voice and broadband services meeting certain requirements to a required number of locations in eligible areas. These carriers, called price cap carriers, were required to complete their program deployment by the end of 2020, a six-year timeline.

In areas where carriers did not accept the model-based support, funds were allocated through a reverse auction model in which service providers competed to receive funding in exchange for offering voice and broadband services meeting certain requirements to a number of locations in the eligible areas.

Over 100 bidders won $1.49 billion in 2018 to provide fixed broadband and voice services to over 700,000 locations in 45 states over the course of 10 years. This high cost support is ongoing and funds speeds of at least 10/1 Mbps.

Recipients were required to offer 40 percent of the required numbers of locations in a state by the end of the third year of support and an additional 20 percent in each subsequent year. Programs are expected to be completed by the end of the sixth year of support, with the exact deployment schedule determined by the carriers.

They are required to file annual reports and data on the locations where service is available with the Universal Service Administrative Company, which runs under the direction of the FCC. According to FCC guidelines, failure to do so could result in the withholding and/or recovery of support.

The second program as funded by the Universal Service Fund, the Lifeline program, helps low-income people pay for phone services. As of 2016, as ordered in the Lifeline Modernization Order, the fund also supports internet connectivity. It provides a subsidy of up to $10 per month for Americans below a certain poverty line threshold.

The third program, the Rural Health Care program, provides subsidies to health care providers for telehealth and telemedicine services. Typically, the money funds video conferencing infrastructure and high-speed internet access that enables doctors to work remotely with patients and targets rural areas where health care providers are often miles away from residents.

Three components of the Rural Health Care Program include the Telecommunications Program, which provides discounts for telecommunications services for eligible health care providers; the Healthcare Connect Fund Program, which establishes a 65 percent discount on eligible expenses related to broadband connectivity; and the Pilot Program, which funds up to 85 percent of eligible costs of construction or implementation of statewide or regional broadband networks.

The fourth Universal Service program is commonly called the E-Rate Program and provides subsidies for internet access for schools and libraries. Subsidies through this program typically pay between 20 and 90 percent of costs based on need. Rural and low-income schools receive the greatest subsidies.

These programs are administered through an independent American nonprofit corporation, the Universal Service Administrative Company. It manages the contribution of revenue and distribution of funds through the USF.

Rural Digital Opportunity Fund

In addition to the various USF programs, in August of 2019, the Republican-headed FCC proposed a program called the Rural Digital Opportunity Fund that directed $20.4 billion to expand broadband in rural areas. It was adopted in January of 2020 and built on the success of the CAF Phase II auctions. It is similarly funded by the Universal Service Fund.

The program was to be divided into two phases. The first was a reverse auction that awarded support to bring broadband to over 5 million homes and businesses in census blocks that were entirely unserved by voice and broadband with download speeds of at least 25 Mbps. The second phase covered census blocks that were partially serviced and locations not funded in phase one.

Prior to bidding, providers were required to determine whether they have a sustainable business case with and without RDOF funds. Once funds are accepted, the provider effectively promises to deliver broadband and voice services to all funded locations identified in the application.

The largest recipients of RDOF phase one funding were LTD Broadband with $1.2 billion to connect over 520,000 locations in 15 states, Charter with $1.2 billion to connect 1 million locations in 24 states and Rural Electric Cooperative Consortium with $1.1 billion to connect over 600,000 locations in 22 states. Other high awardees included SpaceX with $885.5 million and Windstream with $522.8 million.

However, according to an estimate from rural broadband consultancy Cooperative Network Services, of the $9.2 billion won in the phase 1 auction, more than $2.8 billion has defaulted.

Several awardees filed requests for relief from penalties of $3,000 per violation for bringing forth admission that certain areas for which they won money from RDOF to build in may already have adequate internet. Some attributed their enlightenment to updated FCC maps.

In May, the FCC proposed more than $8 million in fines against 22 RDOF applicants for defaulting on their obligations. “When the FCC set up this program, it set clear rules of the road to ensure that winning bidders would fulfill their promise to use this funding to build new broadband infrastructure,” said Chairwoman Jessica Rosenworcel.

This was not the first fine the FCC proposed for defaulting winners. The program has been widely criticized. A report from the Free Press organization, a media advocacy group, found the program was “riddled with errors, waste and insufficient oversight. The RDOF auction’s design flaws led to granting subsidies in areas that are already served or could be served without subsidies, but in rural and urban areas.”

Mike Romano, executive vice president at the NTCA, the Rural Broadband Association, praised the accountability measures of BEAD, and — in light of RDOF’s perceived failings — warned states against adopting the reverse auction process as adopted under prior programs. Reverse auctions, he said, were a “race to the bottom” harming providers and consumers. He suggested that states use a model more similar to ReConnect’s scoring mechanism, which considered measures such as experience of the provider, level of performance the provider promises and characteristics beyond price.

Other minor broadband programs before IIJA

There are also several programs that are smaller in scope and size than the larger ARPA, ReConnect, USF and RDOF programs. These programs are run by different federal agencies and can often be overlooked in the face of larger programs.

The U.S. Department of Agriculture runs the Distance Learning and Telemedicine Grant program, a competitive program that helps rural communities use advanced telecommunications technology to connect to the internet.

Funds are used for supporting health care needs stemming from the COVID-19 pandemic, ensure racial equity, rebuild rural economy, and address the climate crisis. It provides 100 percent grants, combination loan-grants and 100 percent loans. The program is authorized by the Food, Agriculture, Conservation, and Trade Act of 1990.

Administered by the NTIA, the Broadband Infrastructure Program under the appropriations law passed in December 2020 allocated $288 million for partnerships between state-owned and fixed broadband service providers. Applications closed in August of 2021. Over 230 applications requesting $2.5 billion were reviewed through an initial administrative and eligibility review, merit review and programmatic review.

The Department of Commerce’s NTIA awarded Broadband Infrastructure Program grants in 2022 to connect more than 133,000 unserved households. The program was established by the Consolidated Appropriations Act of 2021. Priority projects were those that provide broadband service to the greatest number of households in an eligible service area, provide broadband services to rural areas, and be most cost-effective in providing broadband service.

Other minor broadband programs within IIJA

Despite the myriad of federal broadband funding programs, in 2021, Biden signed the largest to date investment in American infrastructure, the $1.2 trillion Infrastructure Investment and Jobs Act. Of the $1.2 trillion in infrastructure spending under IIJA, $64 billion was dedicated for broadband investments.

Besides the $42.5 billion Broadband Equity Access and Deployment program, $2.4 billion was dedicated to the Digital Equity Program, which funds digital equity initiatives across the states and seeks to provide equitable options for all Americans. The Enabling Middle Mile Infrastructure program received $1 billion for building the middle mile infrastructure that connects the last mile to the internet.

Additionally, the IIJA appropriated $14.2 billion for the Affordable Connectivity Program, which provides a discount of up to $30 or $75 per month for low-income and tribal homes, $2 billion for Tribal Broadband Connectivity Program grants, $2 billion for the RUS’s grant and loans programs, and $600 million in private activity bonds for broadband projects.