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It’s a central concern looming over the broadband industry as it prepares for a massive infusion of federal funds for infrastructure deployment: Will the providers of fiber optic networks be required to use equipment that is not readily available within the United States?
In mid-January, the Fiber Broadband Association sent a letter to Sen. John Thune, R-S.D., ranking member of the Senate Commerce Committee’s Subcommittee on Communications, Media and Broadband, about an issue the group said was “harming project planning and investment.”
The letter was referring to the Build America, Buy America statute in the Infrastructure, Investment and Jobs Act, legislation signed in November 2021 that carved out $65 billion for broadband. The domestic preference provision requires that American-made materials make up the majority of the costs of projects using federal funds, which the FBA flagged as a possible problem that will require additional waivers to ensure the timely buildout of infrastructure.
“The goal of deploying communications broadband networks to unserved, underserved, and other locations for [Broadband Equity, Access and Deployment] program projects will not be achieved without these waivers since the products will not be available in a timely and sufficient manner,” the letter said.
The National Telecommunications and Information Administration in September released a proposal that would provide a limited exemption from made-in-America preferences on certain telecommunications equipment purchased using federal money, targeting the buildout of middle mile infrastructure.
The Commerce Department agency had, up to that point, been fielding concerns during its office hours and elsewhere from entities applying for money from the $1 billion Enabling Middle Mile Broadband Infrastructure Program, spawned by the IIJA, that the BABA requirements was not entirely feasible because the quantity and quality of equipment is not abundantly available domestically.
In fact, the NTIA had itself discovered that 67 percent of middle mile network devices are sourced from Asia and over 70 percent of global semiconductor production occurs on that continent — all products integral to broadband network builds.
The NTIA had been studying the domestic preference issue for months before it came up with the proposal, comments for which were due in October (those comments were not released in time for this report).
Preferential procurement laws have been a part of the U.S. for more than 75 years, touching many different industries and sectors of the economy. They apply to all federal government procurement policies and many federal infrastructure programs.
The goal of such laws is to ensure that federally subsidized projects conform to the labor and environmental standards of the U.S., as well as to create demand for domestically produced goods to grow local manufacturing and bolster national security.
Broadly, the law allows for federal financial assistance to be used only for infrastructure projects and activities when the iron, steel, manufactured products and construction materials of the build are produced in the U.S. There are three components to the definition of “produced in the U.S.,” according to the IIJA, with “project” meaning the construction, alteration, maintenance or repair of the country’s infrastructure.
First, in the case of iron and steel products — for the construction of cell towers, for example — the entire process, from melting to coating applications, must occur in the U.S.
Second, a manufactured product must have been manufactured domestically. Crucially, to meet the definition of made-in-America, the cost of the components that were mined, produced or manufactured in the U.S. must be greater than 55 percent of the total cost of all product components, “unless another standard for determining the minimum amount of domestic content of the manufactured product has been established under applicable law or regulation,” the law says.
Third, in the case of construction materials, all manufacturing processes for that material must be made in the U.S.
Taken together, these rules mean that each step of the process of creating a product — from its basic ingredients to its manufacturing — must occur in the U.S., with the sum total of all of those domestic products amounting to more than 55 percent of the cost of the project.
Built into the IIJA is a waiver option. A federal agency can propose a waiver publicly, with the requirement that it provide a public comment period of no less than 15 days. A waiver is reviewable every five years.
The law stipulates that the agency can waive the BABA requirements if it finds that they would be inconsistent with the public interest, that the types of materials for infrastructure builds are “not produced in the U.S. in sufficient and reasonably available quantities or of a satisfactory quality” or that the requirements would drive up the overall cost of the project by more than 25 percent.
Exemptions from domestic preference laws for telecommunications infrastructure have been granted before. Broadband equipment was shielded from BABA requirements under the 2009 American Recovery and Reinvestment Act, legislation intended to modernize communication infrastructure and to stimulate the economy. In that year, the NTIA and the Department of Agriculture’s Rural Utilities Service provided a limited waiver on the requirements for certain essential components.
The September 2022 proposal by the NTIA offered a limited 12-month exemption to the BABA provisions on equipment including broadband routing, switching and aggregation equipment, microwave backhaul equipment, fiber transport equipment, undersea cable equipment, fixed test equipment, telemetry router and switch equipment, and the construction of fiber optic cable if the optical fibers inside were exclusively manufactured in the U.S.
The FBA raised concerns about designating optical cable as “construction material” and not “manufacturing product,” saying the categorization “is inconsistent with how optical cable is produced (i.e. manufactured as it combines two or more construction materials) and appears inconsistent with the Office of Management and Budget’s definition of ‘Construction Material’ in its guidance.” It is requesting that optical cable be designated as a manufacturing product.
If the waiver is granted, it would apply to all Middle Mile Program money awarded between March 2, 2023 and March 1, 2024.
The complex supply chain process — especially with respect to technologies powering telecommunications infrastructure — makes the domestic preference difficult, industry associations have said. For example, the many components of a network, including its operations systems and switches, can be sourced from various parts of the world — even if the final product is being manufactured in the U.S.
Take Dell computers. The well-known American brand of high-end laptops include parts that are sourced from Asia. And Asia — specifically Taiwan — is a huge influence when it comes to key computing and networking technologies.
Back in January 2022, a coalition of industry groups ranging from USTelecom to the Telecommunications Industry Association wrote a letter to Commerce Secretary Gina Raimondo and the NTIA urging a “limited, programmatic waiver” as a “necessary precondition to effective and efficient investment in broadband” for the broadband programs under the IIJA, which include the Middle Mile, Digital Equity, and BEAD Programs. One group to request a waiver early was the Schools, Health and Libraries Broadband Coalition. “While we share the Biden Administration’s goal of increasing U.S. manufacturing, it will take time for companies to build up U.S. manufacturing capability,” wrote John Windhausen, executive director of SHLB. “In short, subjecting broadband programs to BABA could jeopardize our shared broadband deployment and adoption objectives.”
The NTIA has targeted June 30 to determine how much money all states will receive from the latter’s $42.5 billion, which is the bulk of the $65 billion made available to broadband from the IIJA. BEAD is the holy grail of broadband funding upon which the federal government is pinning its hopes to connect the entire nation to high-speed internet by no later than 2030.
However, when asked last month if the agency is a considering waiver possibility for BEAD, an NTIA spokesperson told Broadband Breakfast that there is currently only the waiver possibility for the Middle Mile Program.
The FBA’s letter to Thune included recommendations for waivers on a number of items that are “likely to be used for middle-mile projects,” many of which relate to the fiber optic materials that are currently exempt from waivers for those projects.
One recommendation was for a waiver on optical connectivity products. The FBA noted that most of the industry leaders in optical communications make optical connectivity products in Mexico, supporting American product needs and jobs as they come under pressure from Chinese competitors.
Mexico manufacturing “allows US companies to compete against China while establishing a North America supply chain that supports the US optical fiber and cable industry,” the FBA said.
Fiber optic adapters and fiber optic connectors would cost up to four times more if they had to be made in America as opposed to being sourced from Asian suppliers, the FBA said, adding that 80 percent of this equipment is manufactured outside of the U.S. Other equipment manufactured in the U.S., such as fiber optic cable assemblies and optical splitters that are normally produced in Asia, will “likely” increase costs by up to 15 percent, the organization said.
Other product waivers should be extended to fiber optic enclosures and molded parts, central office fiber optic hardware including frames and racks, field installation fiber optic connectors and attenuators, and fiber cabinets, the organization said.
The NTIA has already granted waivers for the domestic preference law for certain recipients of the Tribal Broadband Connectivity Program. The rationale for the waiver, however, was that those granted exemptions were those who applied for the program before the BABA law was enacted in November 2021, which raised an equity concern.
The Commerce Department agency also extended a waiver — for awards made from Nov. 3, 2022 to May 1, 2023 — for all iron, steel, manufactured products, and construction materials other than fiber optic glass and fiber cables used in infrastructure projects funded by the Connecting Minority Communities Pilot Program, applicants for which came before BABA requirements were enacted. The pilot program is intended to address broadband access, adoption and equity at historically Black colleges or universities, tribal colleges or universities, and minority-serving institutions.
Crucially, the NTIA said that it will be conducting market research during that six-month period to identify items that can be sourced domestically, such as the aforementioned fiber material. The NTIA requires that the awardees report foreign items to help with that research. After that period, the department said it will put an up-to-date list of items that meet the BABA requirements on its BABA website.
In addition, the Commerce Department’s Economic Development Administration bureau has implemented a waiver for money it grants under the Public Works and Economic Development Act of 1965. The waiver applies to iron and steel products, manufactured products and construction materials in areas that experience “chronic high unemployment, underemployment, outmigration, and low per capita incomes” — essentially, the “most distressed communities in America.”
There is an awareness in Washington and industry about the direction the country is taking toward the manufacturing of key infrastructure components, partly stemming from a heightened sense of the need to bolster national security.
Over the past few years, the U.S. has taken an increasingly hardened stance against what it perceives as communist China’s growing influence globally and domestically. The White House, the national security apparatus and the Federal Communications Commission appear in lockstep about this alleged threat: The Joe Biden administration has signed executive orders clamping down on American investments in Chinese firms, and the telecom regulator has recently halted the authorization of licenses to Chinese companies to operate in the U.S.
The CHIPS and Science Act, which was signed in August 2022, adds to the sense that the U.S. has become too reliant on the foreign supply chain. The legislation provides billions in incentives for companies to locally develop products integral to the country’s key infrastructure — including semiconductors, for which the U.S. once held a much larger portion of the global market share than it does now.
The precursor to the CHIPS and Science Act was a June 2021 report from the White House that found the U.S. is “dangerously dependent on specific countries for parts” of products, such as semiconductors.
And the industry appears to recognize that. The telecom associations have said that the waiver request from IIJA requirements is only for meeting the build timelines of the IIJA; otherwise, they told Raimondo, they are “willing partners to work toward that goal” of more production in the U.S.
Download the complete January 2023 exclusive report