NTIA Should Remove Letter of Credit Requirement in BEAD Program, Event Hears

WASHINGTON, May 17, 2023 – The National Telecommunications and Information Administration should not require a letter of credit for its grant programs because it squeezes out small and minority-owned service providers, agreed industry leaders in a Broadband.Money event Wednesday.

Under current regulations for the $42.5-billion Broadband Equity, Access and Deployment program, grant applicants must provide a letter of credit to demonstrate their financial capacity to meet the program’s obligations throughout the construction process. A letter of credit is a document a bank provides on behalf of a network operator to guarantee that in the event of default of the build, the bank will reimburse the agreed upon funds to the NTIA.

Grant awardees are required to submit a letter of credit of 25 percent of the project costs on top of the 25 percent match requirement. With limited exceptions, the NTIA will enforce this regulation rigorously, the Commerce agency has said.

While the government aims to protect taxpayer dollars by securing a financial guarantee, industry experts questioned the effectiveness of a letter of credit in this context. “A letter of credit is a singularly bad way to go about this,” said Elizabeth Bowles, president of Aristotle ISP.

Due to the large investment, banks insist on cash collateral, which significantly increases the cost of receiving grant funds, said Bowles. Furthermore, the cash held by banks as collateral is essentially untouchable during the project, which limits the capital available to invest in the projects, she added.

The requirement disproportionately affects minority-owned and small businesses that often do not have the necessary capital to get a letter of credit and rely on non-cash assets, said Bowles.

Several BEAD provisions require the inclusion of small and minority-owned ISPs, but the NTIA has made it nearly impossible for these businesses to succeed with its letter of credit requirements, said Philip Macres, principle of Klein Law Group.

Industry leaders and trade associations need to “get loud” on this subject and pressure the NTIA to change its rules, urged Bowles.

Beside removing the letter of credit requirement entirely, Bowles also said other solutions to protect the taxpayer may include insurance, performance bonds that require repayment if the project is not completed, and expanding who can issue a letter of credit to include other wealthy entities and venture capitalist funds.