Armand Musey: Telecoms Lack Needed Funds for 'Rip & Replace'

Reality is crashing into the stark truth of insufficient 'Rip & Replace' program funding, leaving participants grappling with the reality of their 39.5% initial allocations. The majority need help to single-handedly finance these critical projects and are now forced to devise contingency plans in anticipation of exhausting their limited allocations.

Failing to prepare for this scenario would be reckless and jeopardize the interests of their customers, employees, and investors.

Contrary to what public data or FCC reports may suggest, many participants in the Secure and Trusted Communications Networks Reimbursement Program (SCRP) are perilously close to depleting their initial allocations. These reports fail to capture the full extent of financial commitments already made, thus downplaying the urgent need for complete funding.

Procuring equipment and assembling teams requires commitments months in advance, especially in regions with brief construction seasons. Moreover, the intricate process of working on cell sites and obtaining final approvals spans weeks to months, significantly inflating costs beyond what FCC reports indicate.

In reality, the vast majority of SCRP participants lack the financial means to independently fund their Rip & Replace endeavors. While a handful, primarily those with smaller programs, may manage to self-finance partially, this remains an exception rather than the norm. Furthermore, participants serving rural areas, which are inherently costly to cover and yield lower subscriber revenues compared to urban counterparts, face disproportionate challenges. Compounded by historical regulatory factors, many networks are comprised of substantial amounts of Huawei/ZTE equipment, exacerbating financial strains.

Contingency planning in the face of potential shortfalls

Contingency planning in the face of potential funding shortfalls is imperative. Despite exhaustive efforts by industry stakeholders, including lobbying Congress for additional funding, success has remained elusive. As the clock ticks, SCRP participants face difficult decisions regarding the potential winding down of Rip & Replace efforts.

The consequences of failure to secure additional funding extend far beyond financial concerns. SCRP participants are often the sole providers of mobile broadband in remote regions, where abrupt network shutdowns could create difficulties among customers, employees, first responders, and investors. Such disruptions exacerbate the digital divide and pose significant public safety risks.

Moreover, the challenge is compounded by the evolving maintenance needs of existing networks. While participants have thus far largely avoided integrating new Huawei/ZTE equipment since 2018, network architecture constraints increasingly necessitate full equipment replacements. Without additional funding, many participants face the grim prospect of either trying to use spare Huawei/ZTE components already in their possession to keep their networks functioning or completely shuttering large portions of their networks.

In light of these pressing concerns, existing FCC guidance falls short of providing viable solutions. The expectation that providers remove and replace Huawei and/or ZTE equipment, even with only a fraction of the necessary funding, is a non-starter for many. FCC guidance is needed to chart a path forward, not just for participants but also for the stakeholders reliant on their services.

In essence, the collision between reality and funding inadequacy demands proactive measures for the stability of vital communication networks and the communities they serve.

Armand Musey is President and Founder of Summit Ridge Group. He has over 15 years of equity research, investment banking, and consulting experience. Armand has completed dozens of financial valuation, strategic analysis, business development, corporate governance, and business plan creation assignments in the communications industry and has experience working on numerous financing and M&A transactions. This Expert Opinion is exclusive to Broadband Breakfast.

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