BEAD Build Timelines in Jeopardy if ‘Buy America’ Waivers Not Granted, White House Budget Office Told

Broadband Breakfast evaluated 14 submissions to the White House’s proposal on Build America, Buy America rules.

BEAD Build Timelines in Jeopardy if ‘Buy America’ Waivers Not Granted, White House Budget Office Told
Photo from Thomas Industry Update

WASHINGTON, March 20, 2023 – Industry associations are pressing the White House’s budget office to clarify proposed language requiring a threshold for the domestic manufacturing of fiber cables and are warning that requirements that are too strict for federal funds will hinder the timeline to deploy money from the federal government’s largest broadband infrastructure fund.

The White House Office of Management and Budget published a proposal in February to provide consistency across the government with Build America, Buy America requirements, which mandate a minimum threshold of components for infrastructure builds be made in the United States. The Made in America Office under the OMB was created in January 2021 to create uniform rules and enforce compliance.

The relevant proposals, which came on the heels of President Joe Biden’s pitch for American-made components, relate to categorizing fiber optic and optical cables as “construction materials,” as opposed to a manufactured product consisting of many components; factoring into the American-made threshold the purchase costs – such as transportation and duties – of components toward the making of the final product; avoiding disqualifying materials that have no significant impact on projects; and waiving from obligations certain projects under $250,000. Under the Infrastructure, Investment and Jobs Act, infrastructure projects must comply with a rule that at least 55 percent of the cost of components in builds be made domestically.

Broadband Breakfast analyzed 14 submissions to the OMB proposals, dated last week, the majority of which are from broadband and wireless industry associations. The consensus is that change is needed, but not necessarily how the budget office lays it out. The problems with the proposals include a problematic categorization of the fiber optics cables as construction materials and a lack of a carve out for information and communications technology products that consist of many different components tied up in a global supply chain.

While all submitters recognize and commend the budget office for its goal of bringing more “American” infrastructure builds, they are also concerned the current proposal will jeopardize the timeline to complete broadband builds using the $42.5 billion from the Broadband Equity, Access and Deployment program within the four-year requirement of the National Telecommunications and Information Administration.

NTIA head Alan Davidson said last week that the bar to get BABA waivers for BEAD is “set high: Not impossibly high, but it is high.” The NTIA is expecting to allocate the money to the states by June 30.

Read the Broadband Breakfast special report: What to Know About Build America, Buy America Provisions in the Bipartisan Infrastructure Law. The report is available for Breakfast Club members.

Fiber optics, optical cables and construction materials

The Fiber Broadband Association has already expressed concern about the NTIA’s proposed BABA waiver for the $1 billion Enabling Middle Mile Broadband Infrastructure Program in that it categorizes certain assembled fiber components as “construction materials” as opposed to manufacturing products.

“If OMB designates fiber optic cable as a construction material and requires that all the inputs at the more granular levels be manufactured domestically as well, no domestic manufacturer will be able to provide cable for recipients of federal funding for broadband deployment,” the FBA said in a submission to the budget office.

The association is suggesting clarified language that would strip from the requirement the production of certain polymers or yarns that make up certain parts of the fiber cabling – or else “experienced broadband providers would less likely to participate in federal funding programs, which will lead to more expensive builds with infrastructure that may be less capable and reliable.”

It is requesting that if fiber cables are deemed construction materials, then the OMB should provide for a limited four-year waiver for plastics and polymer-based products.

Similarly, industry association USTelecom said in its submission that designating fiber cables and optical fibers as construction materials and not manufactured products is “inconsistent with the language” of BABA because those products are made of “many” components. “OMB’s proposed categorical change would make significantly less fiber available for BEAD deployments (absent a waiver), undermining the success of the program,” the association said.

USTelecom also agrees that the cost of acquiring components by the manufacturer be factored into the 55 percent threshold, which it said would aid in making more manufactured products BABA-compliant.

IT elements and products from allied countries as BABA-compliant

In a joint submission, the National Cable and Telecommunications Association and INCOMPAS said “there is currently no combination of network elements that could create a broadband network that meets the BABA requirements,” adding the problem is particularly problematic because of the short four-year timeframe to complete builds.

They added that providers may be discouraged from applying for BEAD funding, minding an increase in costs associated with getting American-made components in builds and supply chain issues that have disrupted builds since the pandemic began.

The IIJA provides for a waiver opportunity if it is in the public interest or if costs exceed 25 percent of the build cost. The NTCA Rural Broadband Association said “it is likely” that costs for supplies and deployment “will increase because of such transitions to onshore production even if waivers are allowed on a case-by-case basis.”

In 2009, the NTIA provided for a waiver to BABA requirements under its Broadband Technology Opportunities Program because it would require applicants to have knowledge of each component in information technology products that would make it too burdensome and deter participation in the program.

A number of submitters have relayed this information to the OMB, with the NTCA saying the 2009 guidance came during a period when U.S. production capabilities in IT products “were stronger than they are now,” alluding to the need to extend those waivers for the upcoming program.

“Many types of routers, switches, and other electronic components of broadband deployment are not available from U.S. manufacturers at all,” added the Information Technology and Innovation Foundation said in its submission. “It is no hyperbole to say that cutting off U.S. broadband providers from foreign manufacturers of these components will preclude the construction of broadband networks at all.”

ITIF said it constructed a model to estimate the additional annual costs of bringing IT manufacturing to American shores and found it would raise IT costs by between 23.7 and 29.9 percent over seven years, the latter exceeding the IIJA’s 25 percent cost threshold for a waiver opportunity. If the cost is raised, ITIF said states that will receive BEAD funding “will” have to cut back on funding for ‘digital navigators’ to help disadvantaged groups get access and learn to use the internet.

The research institute also recommended that the OMB encourage the NTIA to do an analysis to “rapidly identify components that are not available domestically and streamline the waiver process.”

The Telecommunications Industry Association said in its submission that the biggest challenge with BABA compliance will come from electronics that light up fiber service, not the fiber cable itself. “Without a waiver of or changes to BABA requirements for electronics – there will be no effective broadband deployment using federal funds, whether through Fiber to the Premise or any other technology,” it said, adding there isn’t a combination of products that meet the BABA requirements and connect Americans to the internet from end-to-end.”

The industry association added that it recommends maintaining fiber optic cable as a construction material but to treat specialty cable, such as submarine cable and some last mile cable to the home, as a manufactured product.

The TIA is also recommending the OMB include language that products procured from designated countries listed under the Federal Acquisition Regulation system, a portal from which government entities procure products, to ensure the U.S. meets its obligations under international agreements.

On the last point, the Cellular Telephone Industries Association said in its own submission that the OMB should consider a general public interest BABA waiver treating products and components from those friendly trade countries as being produced in the U.S.

The Korea Electrical Manufacturers Association also pleaded with the OMB to not apply BABA to imports of transformers and optical fiber cables from Korea – which is a designated country under FAR – because it has “little direct competition” with the American electrical industry.

The CTIA added that it is generally concerned about electronic equipment that lights up a broadband network becoming entangled in rigid made-in-America rules, it said in its submission.

“Broadband networks are reliant on complicated global supply chains where products and materials are sourced and assembled in a variety of countries,” the CTIA said. “Critical products and/or their components, for example antennas, routers, and hardware, are not manufactured domestically today.

“Because these products and components are not currently manufactured in the United States, companies cannot simply ramp up existing operations, particularly in time to meet the BEAD program’s timeline,” it added.

Ensuring products are compliant is time consuming and could delay builds

One problem some submitters identified is the additional responsibility of ensuring products from new BABA-compliant manufacturers are ready for the field.

“Each component of an ICT product must go through rigorous testing and field trials with service providers before they can be deployed,” said internet service provider Mediacom in its submission, which advocated for excluding information and communication technology products from BABA or providing “clear guidance” on BABA-compliant vendors while allowing for waivers.

“These processes can take several months to years, even when service providers are working with trusted vendors and have established relationships,” Mediacom added. “Requiring a service provider to use a new vendor to satisfy the Buy American Act requirements would result in even longer testing and deployment times.”

In citing the 2009 waivers and recommending the government grant waivers for network equipment, Nokia similarly noted that changing components for a product would require an ICT vendor to “re-assemble and re-test its final product to ensure that the new component and/or associated manufacturing process did not compromise quality or performance parameters,” which would “introduce significant delay in delivering equipment to customers” and delaying deployment.

The Finnish company, a sponsor of Broadband Breakfast, also noted its reliance on contract manufacturers overseas, with cards and chips that make up Nokia routers and modules passing through an assembly line of multiple manufacturing services.

Recommendation to provide flexibility with American threshold

The Wireless Internet Service Providers Association noted in its submission that there is too much rigidity related to product definitions surrounding fiber, glass and optical fiber and recommended that a gradual increase of the American-made threshold to allow for the flexibility needed for all manufacturing processes to occur in the country.

“It might, for example, establish as an interim requirement that 55% U.S. manufactured materials is sufficient to meet the requirement until December 31, 2025,” WISPA said. “OMB could then revisit this benchmark on an annual or biennial basis to adjust the ‘substantially all’ standard as appropriate based on the evolving state of the broadband equipment marketplace.” It added that if there isn’t such a compromise, there may be a “deluge of waiver requests” that could “easily overwhelm already over-burdened agency decisionmakers.”

The association added that it supports the OMB’s proposal to waive BABA requirements for BEAD projects of less than $250,000 to assist small broadband providers to “focus their limited resources on the primary goal of connecting more Americans to vital broadband service.”

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