Remember the FCC RDOF Auction? When is a “Funded Area” Actually “Funded”?

By Marc McCarty

Today I re-read my Blog from December 2020 about the winners of the FCC Rural Digital Opportunity Fund (RDOF) auction awards. It was an exciting time! Over $9.2 billion awarded — $346 million to Missouri providers that promised to connect nearly 200,000 Missouri locations to high-speed internet!

Twenty months later, while some Missourians now have the service available, many do not, and for some the connection promised by the funding will never come at all.

Why?

Part of the answer was described in the December 2020 Blog:

“Companies receiving awards are required to submit much more detailed information to the FCC throughout next year before their award is final.  That information includes engineering data, deployment plans and financial data, and failure to submit it by the deadlines can result in forfeiture of the award.” 

As this map shows, as we approach the second anniversary of the initial FCC award announcement, companies who won awards in the areas of the state shaded in yellow still have not been able to satisfy the FCC’s criteria to begin receiving funding. Those areas shaded in red represent locations where companies have “defaulted” and lost their chance for federal funding.  This map does not include the latest disqualifications of “winning companies” — $885 million to Star Link (disqualified because it could not show it could deliver service to all locations at the promised speeds) and $1.3 billion to LTD Broadband (disqualified because it failed to obtain necessary state issued licenses to offer internet service). LTD Broadband’s disqualification is particularly relevant for Missouri because it represents the majority of Missouri locations that had not been funded.

Of course, even in areas where the final applications for funding have been approved by the FCC, another reason many folks are waiting for broadband service is that the funding is spread over 10 years and the providers have 6 years to meet their obligation. 

On August 15, the Department of Economic Development began taking applications for up to $265 million of state grant funding for broadband infrastructure, and Missouri likely will receive hundreds of millions of dollars more funding over the next few years through the Infrastructure Investment and Jobs Act programs.

Government officials are very concerned that this new funding does not go to areas already covered by another federal grant funding award. For example, under the DED program:

“project areas where high-cost support from the federal Universal Service Fund has been received by rate of return carriers, funding from the National Telecommunications and Information Administration Broadband Infrastructure Program, or where any other federal funding has been awarded to provide broadband service at speeds of 100/20Mbps will not receive Program funding.”

This of course, seems very logical. Why should the federal or state government pay twice for the same promised broadband access?

However, this logic breaks down when the promised federal funding is delayed for months or even years and then ultimately denied, or where the funded project cannot deliver the promised levels of broadband access.

This is a problem that is unlikely to go away. The FCC, NTIA and USDA (Reconnect) all have had funding programs in place over the past several years, with slightly different criteria for eligibility, requirements for connectivity levels, and build-out timelines. In some cases, the funding program did not require, and the provider did not commit to build out the locations to the current 100/100 Mbps or 100/20 Mbps standard.

Some of these issues can be addressed through a focused grant application and challenge process of the type DED has implemented. After all, providers that do expect to move forward with federal funding should be able to make that intent known. Further, in situations where “preliminary” awards were granted only to ultimately be rejected during an extended evaluation process – such as Star Link and LTD Broadband — the DED Broadband office has already taken steps to encourage applicants to make the case for funding through a new addition to its broadband program grant FAQ:

Questions added August 22, 2022:

Q31:The Federal Communications Commission today announced that it is rejecting the long-form applications of LTD Broadband and Starlink to receive support through the Rural Digital Opportunity Fund program, what does that mean for my broadband application?  

A31:Due to the FCC rejecting the long-form applications of LTD Broadband and Starlink, areas within Missouri that may have been considered federally funded/awarded may no longer be considered federally funded. In the application, for Section IV Questions 13 & 13a, if your proposed service area was a previously funded area, but it is no longer, provide an explanation of how the area was previously awarded,  and why that proposed service area is eligible for this Program’s funding.

Certainly, it also would be helpful if all federal agencies had more consistency in their requirements and process for funding programs and more transparency to identify when an “awarded” area:  (1) actually is reasonably likely to qualify for funding and (2) is building infrastructure capable of meeting modern standards for broadband service (100/100 Mbps or 100/20 Mbps).

Finally, it might be appropriate to consider more objective criteria for determining if an area that is unserved or underserved actually should be excluded because of a competitor’s challenge.  For example, Ohio’s state grant program definitions exclude unserved and underserved communities from participation in its grant program only when a competitor’s network is actually under construction and expected to be deployed within 24 months. Likely there are other ways of addressing this issue, but for the sake of residents and businesses currently on the other side of the digital divide, solutions need to be found. For Missourians without access, it is little comfort to learn that they live in an area that cannot participate in new rounds of federal and state funding for broadband, because funding was promised but never provided in a prior award or was used to construct infrastructure that doesn’t meet current standards. In either case, these folks are unconnected, with no realistic prospect of becoming connected, unless their homes and businesses are eligible to participate in future federal and state grant programs.

Seven “Characteristics” of Successful Broadband Public-Private Partnerships

posted in: Funding, Planning | 0

We are at the beginning of  the Great Broadband Infrastructure Funding Boom. New federal funding for broadband started with the CARES Act and picked up steam with the American Rescue Plan Act (ARPA) but the amounts involved are dwarfed by over $65 billion that will be distributed by the federal government over the next few years as part of the bipartisan Infrastructure Investment and Jobs Act (IIJA).  Meanwhile, in the near term we expect over $400 million of the state’s ARPA funding to be appropriated by the General Assembly this spring, with actual awards and funding to begin by late this calendar year.

While this funding potentially could be distributed directly to local government, in many cases the federal and state enabling legislation contemplates that private for-profit internet service providers, nonprofits and government entities will work together to implement broadband access and internet adoption projects. These public-private arrangements are called public-private partnerships or – P3s.

P3s seldom are actually documented as partnerships and the arrangement  may not even be referred to as a “P3.” However, they all do involve an ongoing legal agreement among one or more federal, state or local governments (public partners) and at least one for-profit or nonprofit entity (private partners), with the goal of constructing and operating a new development or enterprise.  P3s have been used for many decades to construct and operate all sorts of public improvements, everything from arenas and stadiums to water systems and power plants, to toll roads and bridges – even a few high-speed internet networks. They also have been instrumental in bringing major retail or business expansion projects to depressed or underdeveloped communities.      

I believe P3s likely will be used extensively for new broadband projects in underserved communities because much of the funding from the federal government comes with conditions that focus on outcomes over the long-term.  For example, any broadband infrastructure project funded with an IIJA grant will have to achieve minimum levels of performance (download, upload and latency), offer service to all or nearly all of the locations in the project area, meet certain service affordability standards, and once operating, satisfy specified “quality of service” parameters.  The exact requirements remain to be seen, but it seems likely that if federal funding is used, recipients will be required to show not only that project was built as designed, but also that when completed it operates at the performance levels promised, and that the service offered is reliable and affordable. This focus both on construction and the ongoing operation of the project will be difficult for a single entity (government or business) to meet on their own and many will move to seek to share both the risks and rewards of project construction and operation using a public-private partnership. In fact, Missouri’s most recent award of federal funding required that the new projects be completed using a public-private partnership.

Using a P3 won’t necessarily eliminate risk or ensure the project will be a success. My work with communities, negotiating and documenting P3s over several decades, has yielded decidedly mixed outcomes. Many P3s have been unqualified successes, delivering state-of-the-art infrastructure improvements on time, at or under budget. However, others have been financial and operational disasters. There have even been a few situations where initially the P3 failed, but later it was resurrected, modified, and ultimately succeeded. As communities and businesses across Missouri and the United States consider using P3s for broadband, it seemed a good time to share a list of characteristics that I’ve found most successful P3s have in common.

My list is anecdotal; it’s based entirely on my own observations. I compiled it after reflecting on my experience working on many projects over the years. Admittedly my list wasn’t derived primarily from experience working on P3s that were formed to construct and operate broadband networks, but I think the fact that the projects I worked on were so varied (everything from ethanol and bio-gas plants to football stadiums) shows that what is being built or operated is not all that relevant, and at least a couple of the characteristics described actually were illustrated by broadband P3s.

With that as an introduction, my list follows —         

Characteristic 1 — The Partners Think Long-Term

Partners in successful P3s typically organize their arrangement to achieve long-term objectives over many years or even decades. All critical partners share an understanding of the ultimate objective, and each tends to see their individual responsibility to the enterprise through that perspective. For example, if a P3 is used to build and operate a toll road, the construction contractor understands that delivering the road on time and under budget in accordance with the design specifications, means very little if she knows the road hasn’t been properly designed to handle projected traffic volume, or that the material specified in that contract will not stand up to weather conditions and last for the project’s intended useful life. Neither of these concerns are the contractor’s primary responsibility, and if the arrangement was viewed only as a construction contract, the contractor would measure success only by looking at whether the road was completed, on time, within budget, in accordance with design specifications.

However, the true objective for the P3 is to provide a toll road that will improve travel for many years. Certainly, a critical step in reaching that goal is to get the road built and open for operation, but that short-term objective is only part of a much larger long-range goal. If the contractor partner takes this long-view into account, she will raise her concerns, and all parties will consider and address them before proceeding. It may take a bit longer to get the road built, and it might cost more, but it will be much more likely that the project will satisfy the P3’s long-term objective.

This mindset may not come naturally, but it does seem to lead to a better overall outcome – over the long term.  It doesn’t take much imagination to see how thinking long-term thinking could benefit communities building a new broadband network. If the long-term objective is to provide the community access to high-speed internet that is affordable and capable of handling the community’s needs over the next 10 to 20 years, the partners in the P3 wouldn’t automatically choose the broadband infrastructure option that could be constructed for the lowest cost.

Instead, before selecting that option, the partners also would consider how much it will cost to operate and maintain the network, and whether the network can be easily upgraded so that it can efficiently operate new internet applications that become available, compared to other infrastructure technologies that are more expensive to install. Looking “long-term” the savings associated with lower operating expenses and avoiding the cost of installing a replacement network in just a few years, may far outweigh the limited benefit of a lower initial installation expense today.   

Characteristic 2 — The P3 Has “Good Partners”

Successful P3s have “good partners” – partners that have three characteristics:  a proven track record, financial wherewithal to weather economic problems, and finally, a “cooperative spirit.” The first two of these seem obvious. Of course, a local government (public partner) would want to find a private internet service provider, contractor, or network operator with a great track record, that was highly capitalized and able to cover unexpected cost overruns and delays. Likewise, a private company (the private partner) would search out a city or county with a team of elected officials and staff that had successfully worked with private businesses on significant P3 projects in the past and that have a reputation for following through on financial and other commitments.

However, identifying and recruiting good partners is not easy. After all, if government or business, acting alone were able to provide affordable access to high-speed internet in the community, that already would have happened. There likely are engineering problems, lack of access to easements and right of way, insufficient access to capital, low population density and demand for service, and many other issues to overcome to successfully construct and operate an economically viable network. The best “partner” candidates often have many options in communities that present fewer challenges and that are less risky. This does not mean recruiting good, –qualified partners — is impossible, but it does underscore the need to carefully evaluate and select the best candidates, and to pay particular attention to each candidate’s experience and financial condition.

Communities need to be especially cautious of firms that offer untested technologies to achieve the P3’s goals. Although it’s possible an entrepreneur may have discovered a great solution, often unexpected problems arise when a new technology is deployed in a real-world setting, and invariably firms promoting these technologies are undercapitalized and find it difficult to weather these setbacks. Certainly, a carefully crafted request for qualifications or request for proposals solicitation process should be followed to identify all available candidates and options. For public partners, this usually will require the help of a financial advisor and perhaps an engineering consultant to assist in evaluating prospective partner candidates and P3 proposals.

A third, less obvious, characteristic of a “good partner” is a cooperative spirit. For the reasons already discussed, a P3 that seeks to provide internet access to underserved communities and improve adoption of internet applications, likely will encounter difficulties and setbacks along the way. In successful P3s, each partner, public and private, understands this, is willing to stay the course and, if necessary, alter their approach to the extent necessary to achieve the P3’s long-term objectives.      

Characteristic 3 — Each Partner Has the Support of its Constituency

Public and private partners have constituencies. Public partners (elected and appointed government officials) must answer to voters, public utility customers, parents of school age children, local business and civic community leaders, and many other groups. Private partners typically answer to their board of directors, investors and, in the case of nonprofits, donors. To achieve success, partners in successful P3s will have taken steps to obtain and maintain the support of their constituencies.

This characteristic is particularly important for public partners. It can be easy for a well-meaning government official or governing body to get ahead of the voters. Even if the P3 contracts are eventually approved over public objections, a future city council or county commission may work to undue the efforts of its predecessor and terminate the arrangement. In successful P3s, written agreements among the partners reflect and evidence the commitment of the community, not just the current government leadership. Of course, no P3 has unanimous public support. There always will be dissenters, but when reflecting on unsuccessful P3s, one often finds it had a critical public partner that entered into the agreement even when faced with widespread sustained opposition from a substantial portion of the community.

In successful P3s, prior to entering into the arrangement, public partners spend time and effort engaged in learning sessions where they carefully explain both the benefits and the risks associated with the P3, and work to address concerns voiced by constituencies. This effort continues throughout project construction and commencement of operations. The public is kept informed of the project milestones as well as challenges encountered along the way that require modifications to the initial plan.   

Characteristic 4  — Expectations Are Kept in Check

Successful P3s have partners with realistic expectations of what can be achieved. Public partner leaders and decision makers understand that calling the arrangement a  “P3” does not somehow guarantee the successful completion and operation of the enterprise, nor eliminate financial risk. Private partners understand that public institutions operate by consensus rather that edict, and they accept and adapt to a decision-making process that takes more time.

Characteristic 5 — The Objectives of All Partners are Well Defined and Understood

Partners in successful P3s take the time to fully understand their shared objectives, and to compromise individual objectives that could otherwise lead to future conflict. In contrast, partners that assume their objectives are fully understood and shared – or worse – conceal their true motivations to achieve a strategic advantage in negotiations, eventually face difficulties. Some underlying problem eventually will expose the problem under circumstances when it will be much harder to achieve an acceptable resolution.

Defining and understanding objectives often does not receive enough attention because it is inconsistent with traditional contract negotiation strategy. For example, if I want to buy a house, my goal – my objective – is to get one that best suits my needs at the lowest possible price. In contrast, your goal, as seller, is transfer the house for cash, free of any future responsibility at the highest possible price. Most would agree that in a traditional negotiation, the seller should emphasize the positive aspects of the house, while avoiding (to the extent the law allows) pointing out any defects that might depress its price. On the other hand, as the buyer, I would do everything possible to emphasize the structure’s defects and shortcomings and initially would offer less than the  amount was willing to pay in the hope of getting the best bargain. Eventually, through a series of offers and counteroffers we would either arrive at the selling price or abandon the effort.

Partnership arrangements involve a much different set of expectations and dynamics. Most are designed to remain in effect for an extended period, and in successful P3s, the parties recognize this, and tend to spend a substantial amount of time at the outset working to understand and clearly define each other’s objectives. It is true that, just as in the buyer-seller example, the parties likely will have some objectives that are incompatible, but if the P3 structure is a viable option, they will also identify some important common or shared objectives.

For instance, a for-profit ISP may be looking to maximize profits by expanding its internet network to homes in an underserved community. At the same time, the public partner may be looking to provide online learning opportunities for residents, or it may want to add residence-based internet sensors and controls for public water, sewer or electric utilities. The common, or shared objective in this case is to expand internet service to every home in the community. While the motivation behind the objective may be much different (profit for the private partner ISP and better delivery of community services for the public partner) the potential exists to create a successful P3 that will enable them to reach this shared objective. For example, the public partner might agree to purchase permanent capacity on the new network capacity to meet its goals, in exchange for the ISP’s agreement to build out service to each home in the community, including those that it otherwise would have by-passed because the lack of customer density created profitability concerns.

Of course, there also likely are some inconsistent objectives as well. The ISP might want to exclude some homes in the community because they could not be served profitably, or the public partner might want the ISP to offer service to low-income households at a reduced rate to encourage adoption of its new public internet-based government services. But even here, if these objectives are identified and understood, a solution probably can be found. For example, perhaps the parties would agree that the ISP could install infrastructure that is slightly less capable, but much less costly to install and operate in marginal areas of the community. To meet its goal of reaching all of the households in the community, the public partner might agree to offer subsidies to low-income subscribers, so that they could afford to pay a market rate for internet service.    

However, before any of these ideas can be explored and developed, the partners must be willing to reveal their underlying motivations and objectives. Stated another way, it’s impossible to find common ground unless you know where you and your potential partners “stand” right now. This can be a difficult shift, particularly for legal advisors and business advisors more familiar with traditional negotiation strategies. It requires a significant investment of time and the development of a negotiating environment designed to encourage free exchange of information and ideas.

Characteristic 6 – The Partners and the P3 Speak with One Voice

This characteristic applies primarily to public partners, and it applies both during the course of negotiations leading to the formation of the P3, as well as after the project commences. Nothing tends to undermine trust and sidetrack negotiations quite like a public partner with multiple spokespersons. Public entities, by their nature, tend to be somewhat decentralized and populated with folks who are eager to take the limelight. Private partners cannot effectively react to multiple inconsistent positions voiced on behalf of a single government, and if the situation is not properly managed, the private partner may eventually decide to abandon negotiations. Successful P3s tend to have public partners that understand this risk. They establish clear lines of negotiation and communication through a single individual, and demand that all parties respect this process.  

What is true for individual partners, is also true for the P3. Most P3s need to contract with others for financial and other resources. When approaching third parties such as a bank or underwriter, or a federal regulator, successful P3s designate a single individual to conduct negotiations.    

Characteristic 7 — The Parties Think “Win-Win”

This final characteristic I borrowed from Stephen Covey’s  “The Seven Habits of Highly Effective People.” It may seem altruistic and somewhat naïve, but it reflects a practical difference that underlies all of the six characteristics previously described. Effective partnerships of any kind exist because they can achieve an objective that the individual partners, working alone, could never reach.  From this perspective, if the partnership succeeds, everyone should feel like a winner – because all fared better than they would have had they undertaken the project on their own.

Identifying a path that achieves the community’s core objectives, that provides private partners a fair economic return, and that fairly allocates risks and offers rewards commensurate with each partner’s investment of time and resources is seldom easy. In many cases attempts to establish a P3 fail because there are too few shared objectives or because one or more of the partners was unwilling or unable to engage and negotiate an arrangement that required a long-term investment of time and capital.  In some instances, the P3’s objectives, were only partially achieved, and of course there are some where the P3 failed completely. However, there are many others where the effort proved successful.

That’s the reason public-partnerships continue to be popular and used in a wide variety of situations. It’s not because they ensure success or eliminate risk, but instead it’s because parties know that without them there would be no possibility of successfully completing the project and achieving their shared goals.   

Broadband and the 2022 Missouri Legislative Session

By Marc McCarty

The regular session of the 2022 Missouri General Assembly is getting underway, and in terms of broadband legislation, it promises to be historic both in scope and in the amount of the public investment.

Governor Parson’s Proposal

A major part of the work this Session will be addressing Governor Parson’s spending priorities, and among those will be the $400 million proposed appropriation for broadband from the State’s share of American Rescue Plan Act (ARPA) funds.

I’ve written here and here about how ARPA funds provided directly to counties and municipalities can be used for broadband planning and infrastructure projects. Last Friday, the United States Treasury confirmed its earlier guidance on the use of these funds for broadband in a set of final regulations. The state received a separate distribution of money from the Federal government under ARPA as well.  The state’s share is $2.6 billion. The first $1.3 billion was distributed last fall, the balance will be available to the state later this calendar year.

How the $400 million is to be allocated will be outlined in greater detail in the Governor’s State of the State address on January 19th, but it is expected to be heavily weighted to broadband infrastructure grants (both last mile and middle mile broadband infrastructure) with lesser amounts provided for adoption and technical assistance. Officials with the Missouri Department of Economic Development have stated that they hope to have grant program documents in draft form by late spring, so that applications can be submitted around the beginning of the new fiscal year (July 1), assuming funding has been approved by the General Assembly.

There also are several bills related to broadband pre-filed last December, that will be considered during this Session.

Senate Bill 981

While it’s relatively short and simple, SB 981 might be the most consequential broadband bill this session, not so much because it creates a new program for funding broadband, but simply because it makes existing legislation potentially far more useful. The bill changes the definition of what it means to be without adequate fixed wired or wireless internet service by changing the definition of an “unserved” or  “underserved” location. This is important because state funding for broadband and several special financing tools for broadband infrastructure investment are available only for unserved or underserved locations.   

Currently, areas lacking service at data transfer rates (speeds) of at least 10 megabits per second (Mbps) download, and 1 Mbps upload are (10/1 Mbps) are considered to be “unserved.” Locations with fixed wired and wireless service of at least 25 Mbps download and 3 Mbps upload (25/3 Mbps) are considered “underserved.”

SB 981 increases the “unserved” definition to 25/3 Mbps (25 Mbps download and 3 Mbps upload) and the underserved  definition to 100/20 Mbps (100 Mbps download and 3 Mbps upload).   These new standards are the same as those incorporated in the Infrastructure Investment and Jobs Act (the IIJA). SB 981 also ties the unserved/underserved definition to future increases in the definition of broadband used by the Federal Communications Commission – the  FCC.

Why does this matter?  Many folks discovered during the pandemic that internet service which technically qualified as “broadband” (currently 25/3 Mbps) was not sufficient to perform critical tasks like telecommuting, online learning, and high-definition video, particularly if two or more folks were attempting to access the internet from the location at the same time. So, raising the standard to a level more able to serve household needs today, and making further increases dependent on FCC guidance as internet-based technologies require even higher service levels in the future, should dramatically increase the number of locations in the state that are eligible for financial assistance or special funding options today, and make the statutory definition capable of adapting existing programs to meet future needs.

The definition of unserved and underserved applied originally only to the Department of Economic Development’s broadband grant program. However, those same definitions now are cross-referenced in legislation that specifically permits certain broadband infrastructure projects to be financed by Community Improvement District, Neighborhood Improvement Districts (2020) and Broadband Infrastructure Improvement Districts (2021). Hopefully, if this legislation passes, the Department of Economic Development will quickly move to adopt procedures specifying how projects authorized under these laws can obtain confirmation that they are in an “unserved” or “underserved” area, so this legislation can be used effectively.

House Bill 2016     

Speaking of Broadband Infrastructure Improvement Districts, there’s legislation to make some changes here as well. The changes would allow any political subdivision of the state (not just municipalities) to form a Broadband Infrastructure Improvement District and allow for admission of rural cooperatives and investor-owned utilities as “partners” in the District.

Senate Bill 990

This Bill seeks to address the issue of charges for attaching fiber or other types of internet cable to existing utility poles that are owned by municipal utilities and rural electric cooperatives. Internet service providers (ISPs) often wish to attach their wires or cable to these poles in order to connect to homes and businesses. The problem is that the added weight or the need to separate data and power lines on the pole, often means the poles need to be replaced or “made ready” before the attachment can be made. Some internet service providers have complained that they are being charged too much for this and, of course, municipal utilities and rural cooperatives have a different perspective.

SB 990 seeks to address this by barring municipalities and rural electric cooperatives from charging an ISP for pole replacements in situations where the pole needed to be replaced for safety or other reasons (unrelated to the ISP’s need to connect) or where the pole was scheduled for replacement within two years of the proposed attachment. To address the concerns of municipal utilities and rural electric cooperatives, the bill would create a new fund to be administered by the Missouri Department of Economic Development that could cover up to 50% of the cost of pole replacements. Money for the new fund would need to be separately appropriated by the General Assembly or funded through federal grants or other contributions.

House Bill 2052

House Bill 2052 would establish a new “21st-Century Missouri Broadband Deployment Task Force” composed of representatives from government, trade associations telecoms, MU Extension and other ISPs. This task force would evaluate the status of broadband deployment, the process used to finance deployment, and make recommendations for improvement to the General Assembly annually over the next several years.

There also are several bills making “return appearances” this session – having failed to gain passage in prior sessions.

House Bill 1518

Not every broadband bill relates to investing public money to fund and expand broadband infrastructure. House Bill 1518 addresses the politically-charged issue of “net neutrality.” Similar legislation has been proposed  for the past several sessions and the issue has been debated at the FCC for the past ten years or more. The issue is whether and when, ISPs should be permitted to prioritize the transmission of certain types of data through the internet over that of others. Prioritization can become an issue when a large number of users are attempting to access the ISP’s network at the same time, and in some cases, prioritization could degrade the quality of service enjoyed by customers whose data was not given transmission priority.     

Democrats and a number of public advocacy groups generally favor laws and/or regulations mandating “net neutrality” (no prioritization of data), and most Republicans, along with the ISP industry, believe ISPs should be permitted to offer certain users or data priority over that of others. Laws similar to House Bill 1518 have been passed in a number of states but the ultimate resolution may lie with the federal government, because arguably Congress – and not the individual state legislatures — should decide the issue for the nation as a whole.

House Bill 2015 & Senate Bill 848

These identical Bills seek to authorize investor-owned regulated public electric utilities to offer broadband internet service.  If enacted, the “Electrical Corporation Broadband Authorization Act” would permit investor-owned electric utilities to use their existing internet assets (primarily fiber optic cable currently used to manage the power grid) to provide broadband internet service to others in certain situations. Passage of the legislation has been hampered in the past by the complexity of determining what role the Public Service Commission should play in contracting, customer rate setting, and accounting for shared expenses.

Background – Implementation of Federal Legislation — IIJA

The work of the General Assembly takes place in the background of work by federal government agencies – primarily the National Telecommunications and Information Agency (NTIA) and the FCC to implement distribution of the $65 billion appropriated for broadband under the Infrastructure Investment and Jobs Act. As discussed previously, the IIJA will rely in large part on individual states to develop plans to distribute funds for broadband access and to encourage broadband adoption.  For this reason, efforts to develop the infrastructure within state government and their partners to efficiently work to expand broadband access and adoption this legislative session, likely will be a critical first step, and a model for applying much larger distributions of funds from the federal government in the future.     

The Broadband DATA Act, RDOF, BEAD, The Long Slog Toward Broadband Access

posted in: Funding, Planning | 0

By Marc McCarty

Happy New Year!

As 2022 begins, it seemed an appropriate time to take stock of progress we’ve made in funding broadband access. This blog checks in on some federal government programs that have gotten quite a few headlines over the past year or two, to see how implementation is going.

The Broadband DATA Act

The Broadband Deployment Accuracy and Technological Availability Act (thankfully shortened to the “Broadband DATA Act”), doesn’t directly provide any money to build broadband infrastructure, but implementing it may be the key to actually spending the billions of dollars already appropriated by Congress for broadband buildout, and that’s part of the reason why the results to date have been a little disheartening.

The Broadband DATA Act became law March 23, 2020. One of its primary objectives is to once and for all identify – with a high degree of confidence – all areas in the United States where a broadband connection can be installed (a “Serviceable Location”).  Serviceable locations include those in urban as well as rural areas, and arguably should include businesses and institutions, as well as residences. A key provision of the Broadband DATA Act requires the FCC to define what a “Serviceable Location” is and to produce a “data set” that would enable folks to accurately locate all of them on a map. This is called the “FABRIC.” Internet providers and the public would then report whether fixed wired or wireless broadband service is (or could be) offered to each of these Serviceable Locations with existing infrastructure.  

Knowing all this is critical of course, because federal funding to assist in building internet infrastructure needs to be targeted to locations that currently do not have service available. Folks just “tuning into” this issue usually are shocked to learn that many billions of federal government dollars have already been directed to build out broadband infrastructure based on maps that everyone acknowledges are not very good. In fact, Missouri was one of two states where this was illustrated in a pilot project commissioned in 2019 by the broadband industry. This project was undertaken to determine the feasibility of creating the FABRIC, and to see how much it differed from the broadband access data that the FCC and others were using to award federal grants and loans.  The results were sobering: In Missouri, 36% of the rural Serviceable Locations identified using the FABRIC were not being reported at all (either as served or unserved) in the existing FCC data.

However, even though the need is obvious, progress in creating the FABRIC has been slow, even as the need for it has become even more critical. After the Act became law, the FCC reported that it could not begin work because it did not have the funds necessary to achieve the objectives of  the Broadband DATA Act. This was finally rectified in December 2020, when an additional $65 million was appropriated to the FCC by Congress.

So, where is the FABRIC? Well, that’s what Indiana Congresswoman Victoria Spartz wondered. So, in late September she sent a letter to FCC Chair Jessica Rosenworcel, asking for a target date for completion of the FABRIC and related objectives of the Broadband DATA Act. It seemed a logical question, as the Commissioner was reported to have testified before Congress in March 2020 that the improved map could be produced in 3-6 months.

Commissioner Rosenworcel responded in early December. She did not provide a date for delivery of the FABRIC but did provide some reasons for delays in 2021. The FCC elected to contract out work to produce the FABRIC to a private company. After a series of false starts, the bid request was finalized in mid-August and the contract to build the FABRIC was awarded in early November. However, before work could start an unsuccessful bidder filed a protest with the General Accounting Office (GAO) and this has delayed any further work until February 2022 while the bidder’s protest is evaluated. Assuming the GAO does confirm the original award, once work commences it will be another four months before a preliminary version of the FABRIC is delivered.

Of course, that’s just the preliminary version of the FABRIC. There are also important policy questions that remain unresolved. For example, should Serviceable Locations identified as part of the FABRIC be limited to residences only, or should some or all all businesses and institutions be included as well. And of course, the preliminary version of the FABRIC will need to be vetted and updated, internet providers will need to report whether they can (or do) offer service at those locations, and this information will need to be verified by the FCC and the public, as required by the Act.

The Rural Digital Opportunity Fund (RDOF) Auction

There are “real world” consequences to delays in implementing the Broadband DATA Act. On December 7, 2020, the FCC announced that $9.2 billion had been awarded on a “preliminary” basis to hundreds of private and public internet service providers to help fund the build out high-speed internet in unserved areas (census blocks) throughout the United States. While the announcement of this award was welcome, in an earlier blog I cautioned not to expect too much too soon because the awards were preliminary, recipients would have to go through a vetting process, and when the grant was finalized they would have six years to satisfy their commitment to build out service in the unserved areas.

However, these observations proved to be far too optimistic. Earlier this month, in response to a written inquiry signed by 19 members of Congress, Commissioner Rosenworcel detailed the challenges that have delayed the FCC in finalizing the awards. At that time, more than a year after the initial announcement, less than 20% of the preliminary award had been finalized and committed.

Because eligibility for grants was based on the FCC’s maps, the Commission determined that over 5000 census blocks that were announced as receiving awards last December needed to be removed because they clearly either had broadband service – or they never should have been included in the first place. Parking lots and international airports were among those receiving preliminary awards of funds in 2020.

While 5,000 census blocks is a big number, there were well over 60,000 census blocks that received an initial award, so there were still plenty of locations remaining. According to the Commissioner, the FCC continues to press on, reviewing details provided by winning bidders, and it will periodically continue to announce more locations and winning bidders that have successfully navigated the review process. Most recently, on December 16th, the FCC announced it would begin to fund an additional $1 billion (over 10 years) of the original $9.2 billion announced last December. That said, it is sobering that distribution of approximately 2/3 of the promised money has yet to begin, particularly in light of the 6-year period the awardees have to complete the required internet service connections.

The IIJA

Of course, by far the most newsworthy new federal funding program this year was the mammoth Infrastructure, Investment and Jobs Act (the IIJA). This law appropriates $42.4 billion to the new Broadband Equity, Access, and Deployment (or “BEAD”) Program. As noted in an earlier Blog, rather than the FCC, the agency primarily responsible for administering the BEAD Program is the National Telecommunication and Information Agency (NTIA). In addition, instead of direct federal grants to internet service providers, the BEAD Program contemplates that each state will establish its own program for broadband deployment, (subject to NTIA’s approval) and that NTIA will allocate each state a share of BEAD Program funds based primarily on how many underserved locations are present within the state as compared to the rest of the country. All this is supposed to commence with the publication of a “Notice of Funding Opportunity (or “NOFO”) to all states by May 14, 2022.

“How will NTIA figure what locations are served and unserved” you ask? Well, that will be based on the FABRIC and full implementation of the Broadband DATA Act. And of course, as noted earlier, delivery of the FABRIC and full implementation of the Broadband DATA Act is in the hands of the FCC.

What Comes Next?

A “slog” is a particularly tiring task that requires a lot of effort. A “long slog” describes situations where that effort is required for an extended time. The events of the last year certainly make it clear that this description is going to be appropriate for the process of getting the promised federal dollars necessary to build and deploy broadband into the hands of states, and ultimately to public and private internet service providers.

To some extent, local government, business, and institutions are at the mercy of the federal agencies charged with implementing the RDOF, the BEAD Program, and many other similar grant and loan fund programs; and those agencies must follow procedures mandated by law to account for the proper expenditure of those funds. However, that doesn’t mean it is appropriate to ignore situations where the bureaucracy appears to have run amok. If nothing else, keeping the lack of progress or inordinately slow progress front and center in the public’s mind may ultimately lead to procedural reforms within these agencies and perhaps within Congress as well.

It also seems apparent that it would be a mistake for state and local governments to wait for the FCC to compete the FABRIC. For one thing, it seems apparent that delivery of the final product will extend well into 2022 (and perhaps beyond). But at a more fundamental level, each state needs independent engineering and technical evidence to verify that the data the FCC and NTIA propose to use to distribute federal grants is accurate and complete. Thankfully, Missouri is moving in that direction, and in November awarded a contract for a detailed assessment of fixed and wireless broadband deployment needs, and estimates of the cost to make fixed wired and wireless broadband service available throughout each county in the state. That work should be completed this spring, well in advance of the completion of even the preliminary FABRIC.

Likewise, state and local governments already have funds available through the American Rescue Plan Act to assess community needs and resources available to improve broadband service, with a view and to beginning the process of deploying broadband in their communities. While there are many priorities that arguably need to be addressed with this money, broadband certainly is one of them, and the Governor’s proposal to commit $400 million of the state’s share of those funds to broadband deployment, should serve as an example for counties and cities as they decide how to spend their American Rescue Plan Act funds.

Broadband and the Infrastructure Investment and Jobs Act

The Infrastructure and Investment and Jobs Act (the Act) has finally become law! Signed by the President on Monday, November 15, it is widely touted as the most consequential piece of infrastructure legislation in a generation. Now comes the complicated part: implementing the provisions of this 1039-page Act.

For months, folks have heard the “$65 billion for broadband” sound bite, listed along with billions more for roads, bridges, rail, mass transit, electric, water, sewer, and other infrastructure needs. Since it’s now law, it’s time to “unpack” the various components of the broadband-related provisions of the Act and to begin thinking about what all of this will mean for state and local government and private internet service providers over the next decade.

Here is the breakdown for the various components of the $65 billion dedicated to high-speed internet access, affordability and adoption:

ItemPrimary FocusAmount (billions $)Act Sections
New Infrastructure (BEAD)Access42.45§§60101-60105
Broadband Affordable Connectivity FundAffordability14.20§§60501-60506
Digital Equity Act of 2021Adoption2.75§§60301-60307
Rural Broadband — USDA RUSAccess2.0Division J, Title I
Tribal LandsAccess & Adoption2.0§60201
Middle-Mile InfrastructureAccess1.0§60401
Private Activity Bonds for Broadband InfrastructureAccess0.6§80401
Total 65.00 

Each broad category listed above will have different procedural requirements and timelines for implementation.

New Infrastructure “DATA” leads to “BEAD” (§§60101-60105)

It wouldn’t be a new federal law without a bunch of new acronyms, and this Act certainly has more than its fair share! Most of the broadband funding will be distributed to states and territories as part of a new “Broadband Equity, Access, and Deployment” (BEAD) Program. BEAD and many of the other new provisions of the Act are expected to be administered by the Department of Commerce’s National Telecommunications and Information Agency (the NTIA). NTIA hosts the BroadbandUSA website and is currently administering a number of broadband infrastructure grant programs funded under the Consolidated Appropriations Act of 2021.

The BEAD Program appropriates up to $42.45 billion to plan and build high speed fixed internet service in “unserved and underserved locations.” The Act defines an unserved location as one that lacks reliable internet service at speeds of at least 25 megabits per second (Mbps) download and 3 Mbps upload (25/3 Service) and underserved locations as those that lack reliable internet service of at least 100 Mbps download and 20 Mbps (100/20 Service). For a project area to qualify and be eligible for funding, at least 80% of the locations must be unserved or underserved.

Both definitions also require that the new services are sufficient to support real-time interactive activities by reducing the “latency” of the connection. Latency is the delay in transmitting data to and from the user over the internet, and activities such as telecommuting, running cloud-based applications and streaming video games require low latency times as well as relatively high data transfer rates. As a practical matter, this requirement likely eliminates funding for high-earth orbit satellite service as a technology that can be funded, but not new low earth-orbit satellite technologies such as “Starlink.”

A significant condition for distributing this money will be the publication of new DATA maps by the Federal Communication Commission (FCC). These maps will identify unserved and underserved locations throughout the United States that will be eligible for funding under the BEAD Program. The Act seems to assume that these maps, that Congress required the FCC to create in the Broadband DATA Act last year, will be available within the next year or so, but no deadlines are established for their release.

The BEAD Program contemplates that money will be distributed to each state, and that the states in turn will apply those funds in accordance with an approved comprehensive plan. The process should begin within 180 days when NTIA’s publishes a notice of funding opportunity (a “NOFO”). The NOFO will formally request state participation in the BEAD Program, outline the process, and detail requirements that states will need to follow to obtain funds. This procedure will be complex; it involves submission by each state of a letter of intent to participate in the Program, a Preliminary Plan, and a Final Plan. The Act provides funding to NTIA to administer the Program and to provide states technical assistance.

A minimum of $5.1 billion ($100 million to each state and, collectively, all U.S. territories and possessions) is set aside to ensure that every state gets something, but the balance of the funds will be distributed based on a formula that takes into account each state’s percentage of unserved, underserved, and high-cost locations located within their borders. States will learn how much money will be available to them (based on the state’s relative percentage of unserved and underserved locations) once the DATA maps are complete. The process provides for periodic installment payments to states during each stage of the approval process to help states finance the cost of developing their comprehensive plan.

The Act lays out in some detail the procedure for obtaining funds, and to cover them all in detail is far beyond the scope of this blog. However, here are some highlights.

  • Hopefully sometime next year — NTIA will tell each state how much money they should expect based on the number of unserved, underserved, and high-cost locations within the state based on the completed DATA maps. The expectation is that the state’s plan will provide a minimum of 100/20 Service for all unserved locations in the state. Thereafter the state can prioritize access to underserved and certain community anchor locations.
  • To receive funds, each state must prepare and submit a plan for spending the funds provided. Following submission of the state’s letter of intent, the Act contemplates a two-stage process – a preliminary and a final plan. The plan must include provisions for local government input, and significant input by NTIA seems to be contemplated as well. The plan needs to cover at least a 5 -year period.
  • Each state must contribute 25% toward the cost of their plan (in other words no more than 75% of the costs funded can come from the BEAD Program). However, ARPA funds and CARES Act money that has been distributed to states and local government can be used to fund this “match” requirement.
  • The Act contemplates the BEAD Program funds will be distributed to “subgrantees” to implement the plan. Subgrantees can include local government, nonprofit or for-profit entities. Any subgrantee will be subject to the same spending requirements and BEAD Program rules as those applicable to the state.
  • The Act permits entities that have previously received grants or other amounts from a federal, state, or local program to pay for broadband service expansion, can also receive funds under the BEAD Program, so long as the amounts received pays for costs not covered by the other funding award.
  • Subgrantees (ISPs) that receive funds under the BEAD Program must provide a minimum of 100/20 Service and must meet certain performance requirements and standards; including offering service to any customer in the area that desires service and offering at least one low-cost service plan.
  • The state’s plan cannot exclude cooperatives, nonprofit organizations, public-private partnerships, private companies, public or private utilities, public utility districts, or local governments as “subgrantees.”

If any State decides not to participate in the BEAD Program, or fails to satisfy the requirements for participation in the BEAD Program, a local government or region within the state can apply for and receive funding.

If all of this strikes you as a time-consuming and complex process, you are reading things correctly, and it’s important to keep in mind that while the Act represents a “once in a generation” commitment to infrastructure investment, it’s likely to take the better part of a “generation” to plan, construct and deploy over 40 billion dollars’ worth of broadband infrastructure.

Broadband Affordability – The Affordable Connectivity Fund Replaces the EBB Program §§60501-60506

Broadband “access” is of little use if the service provided isn’t affordable. The Act appropriates $14.2 billion to fund a revised version of the Emergency Broadband Benefit (EBB) program. The EBB was originally funded at $3.2 billion as part of the Consolidated Appropriations Act of 2021, and it provided a $50 per month benefit for high-speed internet service to qualifying households, along with a one-time payment toward equipment to access the internet (capped at $100). The new Affordable Connectivity Fund caps the qualifying individual household benefit at $30 a month. This $30 per month benefit can be used to pay for whatever level of internet service the household desires. The idea is to give qualifying households the option of selecting a faster internet service (and paying more) if that is needed to meet their needs. The Act also contains directives and rules designed to enhance consumer awareness and curb perceived abuses that limit eligibility to the new Affordable Connectivity Fund.

Broadband Adoption – The State Digital Equity Capacity Grant Program §§60301-60307

The Act creates a new grant program within the Commerce Department called the State Digital Equity Capacity Grant Program. This program is funded with $2.75 billion and is expected to be administered by NTIA. The funds will be distributed to an entity appointed by the governor of each participating state pursuant to that state’s “Digital Equity Plan.” To receive a grant under this program, the state’s Digital Equity Plan must satisfy criteria designed to increase the availability and use of broadband applications and internet-based technology. The state’s plan can address issues of digital literacy, cybersecurity and privacy, access to affordability programs, workforce development, education and health outcomes, and civic and social engagement. In developing and administering the state’s Digital Equity Plan, the state is expected to work in partnership with state agencies, local government, and nonprofit entities.

Rural Utilities Service—Distance Learning, Telemedicine, and Broadband Programs Division J, Title I

The Act provides an additional $2 billion of funding for the Distance Learning, Telemedicine, and Broadband Program administered by the USDA. This appropriation is for the current fiscal year ending September 30, 2022, and funds will be available until spent. The new appropriation is for unserved areas (50% or more of locations having service at speeds less than 25/3 Mbps). To the extent possible the Act requires that projects receiving funds under this program be capable of providing at least 100/20 Service. The Act permits funds granted or loaned under the program to be used to pay for attachment fees and pole replacement costs incurred by electric cooperatives, so that fiberoptic cable or other wireline infrastructure can be co-located on the utility poles. Other provisions waive the requirement for local matching funds to qualify under the USDA program for areas with persistent high levels of poverty.   

Tribal Lands §60201

The Act provides an additional $2 billion of funding broadband on Tribal Lands under the existing Tribal Broadband Connectivity Program established by Consolidated Appropriations Act of 2021 and administered by NTIA. In addition, the Act makes some technical amendments to the program to provide more realistic deadlines for expenditure of funds and completion of projects. Funds provided under the Tribal Broadband Connectivity Program can be used for planning, infrastructure, and adoption on Tribal lands.

Middle Mile Funding §60401

The expansion of internet service in unserved and underserved areas has been impeded in part by the lack of affordable and reliable connection points to carriers that transport data from a local internet service provider’s endpoint to the internet “backbone” – a location that transports data across the nation and around the world. This portion of the internet is generally referred to as “middle mile” infrastructure.

The Act attempts to address this issue by establishing a new program, also expected to be administered by NTIA, that will make up to $1 billion of grants to fund middle mile infrastructure. Grants will be awarded under the program based on a competitive process that prioritizes areas in greatest need of middle mile connection and will include areas in need of connection options and alternative data routes in the case of failure of an existing primary middle mile connection. Telecommunications companies, technology companies, electric utilities, and utility cooperatives are all eligible to participate in the program. Grant recipients will be required to offer service on a nondiscriminatory basis to all ISPs in the area covered by the award.

Private Activity Bonds for Broadband Infrastructure §80401

The interest on tax-exempt bonds (bonds and other forms of state and local government debt) is generally exempt from income tax, and these bonds have been used to finance public, and some privately-owned projects. Because investors do not pay income tax on interest received on the bonds, they are willing to accept a lower interest rate, and this reduces the overall cost of financing a capital project. One category of tax-exempt bonds is a “private activity bond” and they have been used to provide tax-exempt financing for certain capital costs for specific types of projects that will be owned and operated by private companies.

The Act adds a new category of tax-exempt private activity bonds for broadband infrastructure projects.

Generally, these bonds must finance capital investment for projects in unserved areas and there are numerous technical restrictions applicable to the use of the borrowed funds.  Private activity bonds must be issued by a state or local government and the overall amount of private activity bonds issued by a state is limited. This means that private activity bonds must receive an allocation of a state’s overall limit (its annual private activity “bond volume cap”). In Missouri the Department of Economic Development is responsible for allocating the state’s bond volume cap to particular projects.

Digital Connectivity:  Are We There Yet?  

At least some of the accolades that have accompanied final passage of the Act are warranted. Even in the “post-COVID” era, spending a trillion dollars (a thousand, thousand, million dollars) still should get our attention. It is a lot of money, but most would agree, much of our nation’s infrastructure is badly in need of expansion and upgrade. Of course, the fact that Congress was able to “do something” – particularly something of this size — with help from both political parties is a unique achievement these days.

However, it’s important to keep things in perspective. If your family or business does not have access to adequate high-speed internet service now, passage of the Act won’t mean you’ll have it next week, next month, or even quite likely next year. The BEAD Program will take many months to initiate, and many years (think five to ten years) to fully implement. Other programs, such as the Affordable Connectivity Fund, additional funding for the Rural Utility Service, and some of the other adoption grant programs, may be funded more quickly, particularly if the responsible federal agencies quickly publish a Notice of Funding Opportunity, and act promptly to approve and distribute the funds.

So, while we certainly do seem to be on the road to “digital connectivity,” there likely are many more miles to travel before we arrive at that destination.

Helpful Guidance on the Use of ARPA Funds by Local Governments

We’ve written earlier about the use of American Rescue Plan Act (ARPA) Funds to pay for broadband infrastructure projects. Besides the cryptic language in the statute (necessary broadband infrastructure) we noted two helpful additional sources published by the U.S. Treasury Department —  the “Interim Final Rule” effective May  17, 2021, and a series of answers to Frequently Asked Questions about the statute and the Interim Final Rule (the FAQs).

But some pointed to the “Interim” label on these rule – cautioning that the guidance was not final and implying that local governments relying on them might find themselves in a box if the “final” guidance that eventually is issued by the Treasury (a new or updated rule) somehow turned out to be materially different from what is in Interim Final Rule. The concern was that the Federal government might attempt to recoup money from the local government based on the theory that it was improperly spent under new “final” rule, even though it appeared to be permitted under the Interim Final Rule.

Undoubtedly, this has led some local governments to reconsider spending ARPA funds it had on hand, because the Treasury Department recently addressed this very concern directly in an undated “explanation” posted on its website.

The Treasury explanation begins by referring to the guidance already given and noting that ARPA funds were provided to local governments with the expectation that they would be spent promptly to remedy issues caused or made evident by the COVID pandemic. The explanation then cautions everyone not to expect to see a new final rule anytime soon, because the Treasury is now considering almost 1000 separate public comments it received to the Interim Final Rule published this spring.

Given this situation, the explanation goes on to state the following:

“Until Treasury adopts a final rule, and the final rule becomes effective, the Interim Final Rule is, and will remain, binding and effective. This means that recipients can and should rely on the Interim Final Rule to determine whether uses of funds are eligible under this program. Treasury encourages recipients to use funds to meet needs in their communities.

Funds used in a manner consistent with the Interim Final Rule while the Interim Final Rule is effective will not be subject to recoupment.”

What about the FAQs? Again, the explanation is helpful:

“Finally, recipients may also consider FAQs issued by Treasury to help assess whether a project or service would be an eligible use of Coronavirus State and Local Fiscal Recovery Funds.”

So where does that leave local county commissions, city councils, and boards of aldermen? Well obviously, they can and should consult with their professional advisors for advice in special cases, but clearly the language used in the explanation leaves little doubt that Treasury wants to encourage state and local governments to use and rely on the guidance it has already provided, and not to delay spending ARPA funds for fear that “final” rules may provide something different.

Using American Recovery Plan Act Funds for Broadband Infrastructure — Guidance for Local Governments

By Marc McCarty

Memories are short. As I write this in mid-August, the focus is on the bipartisan Infrastructure Investment and Jobs Act (the IIJA) that passed the Senate on August 10th. That Bill has made headlines in part because it promises to make $65 billion available for broadband infrastructure and adoption. Even though it still faces additional hurdles and an uncertain future, the IIJA has captured the limelight, and many seem to have forgotten about another piece of funding legislation – the American Rescue Plan Act (“the ARPA”).

Signed into law on March 11, 2021, the ARPA also provided billions of dollars — both to states and local governments (counties, cities, and towns) throughout the United States — that can be used to pay for critical infrastructure needs, among them: broadband infrastructure. Unlike the IIJA, which in its current form will fund investment in broadband infrastructure over several years pursuant to a long-term strategic plan developed by each state, money appropriated under the ARPA is available to local government (and to the State) now, and could complement the longer-term strategy for investment in broadband infrastructure contemplated by the pending IIJA legislation.

The Missouri State Treasurer’s Website contains a comprehensive set of documents and general information related to ARPA funding. This Blog focuses on the use of money appropriated to “local government” — which includes Missouri counties, metropolitan cities (cities with populations greater than 50,000) and other cities, towns, and villages across the State for broadband infrastructure. While not specifically covered here, these same rules generally would apply to the more than $1.3 billion appropriated directly to the Missouri State government by ARPA as well.

ARPA & Broadband Infrastructure

The relevant language in ARPA permits counties, metropolitan cities and other cities, towns and villages to use the appropriated funds for several specific purposes including – “to make necessary investments in water, sewer or broadband infrastructure.” These funds must be encumbered by December 31, 2024 and spent no later than December 31, 2026.

Obviously, this is a “big deal” for cash-strapped local governments. It is almost as if the Federal government suddenly deposited money in their checking account, but of course, like anything that seems too good to be true, questions quickly arose about what conditions and limits were placed on the “withdrawal” of that money, particularly broadband — since broadband has only recently been recognized to beinfrastructure.” Certain uses, such as funding public pension shortfalls or using the funds appropriated to reduce or offset taxes are prohibited by the statute itself, but there were other uncertainties that needed further clarification.

For many local government-decision makers who want to use ARPA money to bring better internet service to their community, these questions could be summarized as follows:

  • What is “broadband”?
  • When is it “necessary”?
  • What types of costs can be included as “broadband infrastructure?

What is “Broadband”? and When is it “Necessary”?

Thankfully, many of those uncertainties have been resolved through publication of an Interim Final Rule by the United States Treasury Department on May 17, 2021 and the answers to Frequently Asked Questions (FAQs) published by the Treasury Department that were last updated in late July.

The Interim Final Rule defines broadband to include any internet service capable of downloading and uploading data at speeds of at least 100 megabits per second (100/100 Mbps). In areas where construction of internet infrastructure capable of delivering service at those speeds is not practical, the Interim Final Rule allows funding for networks capable of providing service at speeds of at least 100 Mbps download and 20 Mbps upload (100/20 Mbps), so long as the network can be scaled up to 100/100 Mbps service or higher at a later date.

To put this in perspective, internet service at this level is between 4 to over 30 times faster than the FCC’s current definition of “broadband“. The Interim Final Rule requires that broadband infrastructure projects be targeted to serve areas that are “unserved or underserved,” which is defined as an area lacking consistent wired internet service at speeds of at least 25 Mbps download and 3 Mbps upload (25/3 Mbps).

The Interim Final Rule generally defines a “necessary” investment for broadband to include those designed to provide adequate service to locations where it is unlikely that the investment could be made using only private sources of funds. By way of a practical example, the Interim Final Rule says that the service offered must be sufficient to allow multiple members of a household to work and attend school online at the same time. To avoid duplication of internet service, the preamble to the Interim Final Rule encourages local governments to avoid investing in locations that have existing agreements to build reliable wired internet service at 100/20 Mbps or higher — but only if that service will be in place by December 31, 2024.

What Qualifies as an Investment in Broadband Infrastructure?

The Treasury Department FAQs provide some answers to many other practical issues a local government may face as they determine whether a particular use of funds is an “investment” in broadband infrastructure. In general, the FAQs appear to give local government substantial latitude to structure practical uses of ARPA funds. For example, local government may elect to transfer funds to a special purpose unit or agency of government or to a nonprofit organization or for-profit business, so long as that entity uses the funds for necessary broadband infrastructure. (FAQ 1.3 and 1.8). In addition, ARPA money may be used to fund loans to individuals, NGOs, or business — if the loan proceeds are used for broadband infrastructure (FAQ 4.11).

Unlike some other federal grant programs, so long as the objective of the local government is to prioritize broadband infrastructure to reach unserved or underserved locations, ARPA funds can also be used to improve service in other locations in the project area that already are “adequately served” (that is — locations able to connect through a wired internet service consistently and reliably at speeds of 25/3 Mbps). (FAQ 6.8 and 6.9).

In addition, the FAQs give the local governments wide latitude to determine if a particular area is unserved or underserved, and they need not accept download/upload speeds advertised by ISPs operating in the area if other available data does not support those claims. Instead, local government decision-makers “…may choose to consider any available data, including but not limited to documentation of existing service performance, federal and/or state-collected broadband data, user speed test results, interviews with residents and business owners, and any other information they deem relevant.” (FAQ 6.11)

In evaluating this information, local government also can consider whether the service is available at all hours of the day, and other factors that can affect the performance of internet applications such as latency or jitter, or the fact that the service is being delivered by outdated technologies such as DSL over copper or earlier versions of cable internet. (FAQ 6.11). The FAQs also clarify that funded projects may include “mid-mile” infrastructure — connecting ISPs rather than individual and business end users. (FAQ 6.10).

Finally, the FAQs broadly define investments in broadband infrastructure to include “pre-project development” expenses — expenses that are tied to a broadband project or reasonable expected to lead to a broadband project. This would include among other things, costs such as community planning, engineering, mapping, evaluation of needs and technologies, etc., so long as those expenses were incurred as part of a process intended to result in a broadband infrastructure project. (FAQ 6.12).


Obviously, a blog of this length can’t cover all questions that have been addressed already related to the use of ARPA to fund broadband infrastructure, and additional guidance almost certainly will be needed for special situations. However, the guidance now available does provide an excellent start for local government leaders and their advisors, and hopefully we will soon see some of those appropriated funds being spent on broadband infrastructure planning and construction projects.

August 16, 2021


[1] The information provided is not intended as legal advice and is offered for general informational purposes only based on information believed current as of the date written. Local government decision-makers are encouraged to seek advice from their legal advisors for answers to any specific questions related to the use of ARPA funds.

Four Critical Questions Every Community Should Ask Before Providing Public Support for High-Speed Internet Infrastructure

Seemingly overnight communities around the country have realized that affordable, reliable, high-speed is more than a “nice thing to have” – it’s a necessity. The COVID pandemic exposed the risk of relying on stop-gap solutions such as smart phones, hot spots and obsolete DSL technologies. Public officials and local businesses are beginning to understand that hoping for a technological breakthrough to solve their digital connectivity problem is a poor plan for the future of their community. 

Just like the electric grid, every community, no matter how isolated needs to be connected to the “information grid.” 

This has given way to the sobering realization that, just like the electric grid, every residence and business in every community needs to be connected to the “information grid” — the network of fiber optic cable supplemented by various wired and wireless technologies that connects communities to outside world and to the 21st century technologies that rely on high-speed internet access to provide better health, education and economic outcomes for all. 

Some will continue to insist that this is a problem that only can be addressed through private, for-profit companies. Others will argue that an internet connection is so critical to everyday life that it is a “utility” and should be publicly owned and controlled, so that all individuals and business have a minimum level of internet service at a price they can afford. However, it’s likely neither of these extremes is the answer for most of neighborhoods and communities still waiting for adequate high-speed internet service. 

Instead, many local governments have instead turned to public-private partnerships to bridge the digital divide in their community. Public-Private Partnerships –- often referred to as “P3s” — are contractual agreements that allocate the “4Rs” – the roles, responsibilities, risks, and rewards — associated with the design, construction, maintenance, operation, and ownership of a modern high-speed internet network. 

P3s operate from the premise that local, State, and federal government can do some things well, while others are best handled by for-profit business and nonprofit organizations (NGOs). P3s dispense with political and ideological rhetoric, in favor of a finding a practical approach that recognizes that government, NGOs and business can create a better solution by working together for the common good. 

All P3 arrangements involve some degree of “risk sharing.” They operate from the premise that the best result is achieved when all stakeholders are motivated by the risk of failure – along with the anticipated rewards that accompany success.  For the most part businesses and most operating NGOs are familiar with these concepts and are comfortable balancing their appetite for success (profit) with their aversion for risk – the risk of failure. 

The same cannot be said for many local government “public partners.” Too often, public partners tend to assume that a public private partnership is a one-way street, where business and NGOs (the private partners) will assume all the risks, fulfill all the public partner’s objectives, and deliver and operate the project for the common good – just because someone calls the arrangement a “public private partnership.”  

This mindset can have disastrous consequences for the public partner (and the public at large). Just as there are many examples of successful P3s, there also are also many examples of P3’s that have failed, leaving the public partner (and its taxpayers) on the hook for the additional funds needed to provide the promised network.  

Does this mean that P3s are a bad choice for communities? Of course not, but it does mean that public entities contemplating a P3 arrangement to solve their digital connectivity problem need be aware that a P3 is simply a tool, and like all tools, it needs to be used properly. Of course, that means that no public partner should enter into a P3 without first obtaining legal and financial representation to represent the public’s interests.  But it also means that local government decision makers need to focus on 4 key questions that largely will determine how their P3 will be structured. 

Public entities contemplating a P3 arrangement to solve their digital connectivity problem need to focus on 4 key questions when structuring a P3.

Question 1 — Design and Construction:  

Which party – the public partner or a private partner is best able to design and construct an effective high-speed internet network for the community?  

Regardless of who will ultimately own, maintain, and operate the internet infrastructure once it is completed, a properly negotiated and documented P3 can assign responsibility for the design and construction of internet network to the private partner. Arrangements that do this are often called design-build contracts. A public partner using a design-build P3 would first go through a process to define its objectives for the network (for example, speed (throughput), reliability, expandability, etc.).  and leave to an expert private partner to determine how those objectives will be achieved.  

The process of decerning the core objectives for the network is critical. A properly negotiated design-build P3 can reduce and eliminate many of the risks associated with the design and construction, but in the end it only promises to achieve the results the public partner identified in the contract specifications. If those specifications are insufficient to meet the needs of the community, that is a risk assumed by the public partner.  

In addition, ideally, a design-build P3 should be set up as “fixed price contract” and payment should be required only when the network is completed, and all design specifications are satisfied. While this may seem somewhat obvious, there are several projects (both for internet infrastructure and other capital projects) where the public partner failed to follow this guidance, and instead agreed to make required to make “progress payments” – even if though the private partner’s work was incomplete. While such an arrangement may be appropriate in some special cases, it is critical that the public partner understand the risks associated with making payment for a network that has not been completed. 

Question 2 — Maintenance  

Which party – the public partner or the private partner should be responsible for maintaining the community’s internet network?  

Once a network is completed, a second question needs to be addressed: who will be responsible for maintaining it in working order. This really can be divided into two questions. First, which partner is responsible for replacing equipment that wears out, fails, or is that is damaged by weather or some other natural cause? Second, which partner is responsible for making certain the network does not become technologically obsolete: assuming responsibility for upgrading the equipment and associated software so that it continues to meet the evolving needs of individual and business users in the community?  

A high degree of technical knowledge about network design and industry trends are critical to meet these maintenance requirements. For that reason, it isn’t surprising that in many settings this responsibility will be assumed, at least in part, by a private partner, even if the public partner wants to own and operate the network. 

Maintenance for the network can be addressed in variety of ways. For example, a private partner might include a long-term warranty and extended service plan as part of a design-build P3, converting it P3 to a “design-build-maintain P3.  Concerns related to technological obsolescence might need to be combined with and made a part of a “maintenance and operation” P3.   

In either case, a threshold question for the public partner is whether it has the personnel and the expertise necessary to maintain the internet network. If not, then it must decide how to select a private partner to assume that responsibility. 

Question 3 — Operation 

Which party – the public partner or the private partner should be responsible for operating the internet network?  

Operating an internet network certainly requires a significant level of technical expertise to monitor network demand and data traffic (for example, how many folks are accessing the network and how much bandwidth are they using), but it also requires competency in handling more pedestrian issues, such as billing, customer relations, and marketing. This means that a partner handling network operation, needs to have resources available to address issues as complex as negotiating guaranteed access through a mid-mile or backbone provider, to helping a customer trouble-shoot a bad connection inside their home or business.  

For the public partner, the first question again is whether it has experience and personnel available that can address these issues. Logically, one might thing that a public partner that has extensive experience operating other utilities would be best equipped to assume responsibility for operating an internet network. But this may be an oversimplification. After all, the technologies involved in delivering water and sewer service to residents are quite different than those used to operate a high-speed internet network.  

 Question 4 — Ownership 

Which party – the public partner or the private partner should own the completed internet network?  

This might seem like the most important issue in any P3 arrangement, but usually it isn’t. Legal ownership often is not the critical factor in terms of achieving the practical objectives of the parties. For example, the right to use and control internet network assets or the responsibility for designing, constructing, maintaining, and operating the network can be assigned to a partner even though that partner doesn’t “own” the network.  

However, the “legal ownership” of portions of the network assets may have significant state law and tax implications, both for the public partner and the private partner. For example, there are a variety of public financial and tax incentives that can be provided to help make it possible for a private partner to go forward with the construction and operation of a high-speed network in the community, but the availability of these incentives may hinge on which partner has legal ownership of the assets. These issues are often best addressed by the public partner’s legal counsel and financial advisors.  

The Digitally Connected Community Guide 

Obviously, the issues associated with a P3 are complex.  No one approach will be right for every community, and clearly no community should commit public funds or enter into a P3 arrangement without expert legal and financial advice.  

Nevertheless, many communities need information and guidance as they work to understand and evaluate various potential P3 options. The Digitally Connected Community Guide is a facilitated program sponsored by MU Extension that can help communities and their stakeholders develop a workable proposal that uses a P3 to help their communities become “digitally connected.” To learn more about the program and how your community can participate — contact info@mobroadband.org.  

No, Missouri Law Does Not Prohibit Political Subdivisions From Offering Internet Service to Its Residents and Businesses

No, Missouri Law Does Not Prohibit Political Subdivisions From Offering Internet Service to Its Residents and Businesses

That statement might come as a surprise to some folks. 

Some articles have stated – without qualification — that Missouri law bars political subdivisions (such as cities, counties, municipal utilities, school districts and other local government entities from offering internet access service to their citizens, or even owning the equipment that others use to provide that service. 

The authority given for this conclusion is Section 392.410.7 of the Missouri Revised Statutes.  That statute does generally prohibit Missouri political subdivisions from owning telecommunication equipment or offering telecommunication services, and in Nixon v. Missouri Municipal League, the United States Supreme Court did decide that federal law does not prohibit the Missouri legislature from restricting or prohibiting political subdivisions from providing any type of telecommunication service.  Since one reason the Missouri Municipal League challenged Section 397.410.7 was to allow municipalities to offer internet access service as part of a municipal telecommunication utility, it is not all that surprising that commentators have raised concerns about the statute. 

However, the issue actually addressed by the United States Supreme Court in the lawsuit, was whether federal law (the Telecommunications Act) prevented the Missouri legislature from restricting political subdivisions that wished to offer telecommunication services.  The case did not decide whether the particular statute in question (Section 392.410.7) actually did restrict political subdivisions from offering the public access to the Internet (as opposed to other types of telecommunication services).  In the twenty-plus years since the statute was passed, technologies and business models related to Internet access have evolved.  Today a number of Missouri cities now offer public access to the Internet directly or through partnerships with private ISPs.  While the approaches adopted by these political subdivisions have varied, in each case a way has been found to navigate Section 392.410.7 to avoid violating the limits imposed by that statute.

Just what does Section 392.410.7 prohibit – and why is it no longer particularly relevant to the Internet access offered by political subdivisions today? 

The Missouri legislature passed Section 392.410.7 in 1997 in response to federal legislation that deregulated the telecommunications industry.  Faced with the prospect of increased competition from the private sector, legacy telecommunication companies, convinced legislators that it would be unfair to allow municipalities (political subdivisions of the State) to offer traditional telecommunication services.  The rationale was that, unlike private competitors, a political subdivision (or for-profit entities that partnered with them) would have an unfair competitive advantage over existing “legacy” telecommunication companies because political subdivisions do not pay income or property tax and they are able to raise capital to finance operations through taxation.

For that reason Section 392.410.7 generally prohibits a political subdivision from “providing or offering for sale, either to the public or to a telecommunications provider, a telecommunications service or telecommunications facility used to provide a telecommunications service for which a certificate of service authority is required pursuant to [Section 392.410].”  A “certificate of service authority” (issued by the Missouri Public Service Commission (PSC)) was, and continues to be required before some telecommunication services may be offered, but Section 392.611.2 specifically excludes “Broadband and other internet protocol-enabled services” from regulation by the PSC, except to the extent the provider offers voice over internet protocol service (“VoIP” or “internet telephone” service). 

Additionally, the general “prohibition” against offering telecommunication services contained in Section 392.410.7 contains additional exceptions.  First, and most importantly, the statute does not prohibit a political subdivision from providing “Internet-type services” (as opposed to telephony service).  Second, it does not prohibit political subdivisions from providing any type of telecommunications services for its general governmental purposes, to students at educational institutions or for any educational or medical purpose.  Third, political subdivisions may own and/or operate telecommunications equipment to provide E911 or other types of emergency telecommunications services.  Finally, a city’s municipal utility (water, gas, electric, etc.) is expressly authorized to provide other telecommunication companies access to the municipal utility’s telecommunication and other assets on a nondiscriminatory, competitively neutral basis, at a price equal to what the political subdivision would charge if it were a for-profit business.

Read together, these exceptions make the statute largely irrelevant for a political subdivision that today wishes to own and operate a system designed to deliver access to the Internet for its citizens.  Today internet access provides the public multiple opportunities to obtain online healthcare, buy goods and services, obtain an education, and launch a new business – as well as communicate with friends located anywhere in the world.  The services that use the Internet to make this possible are offered by government, business, and nonprofit organizations. Those services are subject to varying degrees of federal, state and local government regulation, but the transfer data over the Internet by a political subdivision is not prohibited by the express language of Section 392.410.7.  Additionally, as noted above, the statute provides wide latitude for political subdivisions to provide any other type of telecommunication service in addition to internet access) in order to deliver governmental services:  public administration, healthcare, education and public safety. 

If Not Specifically Prohibited — Should Political Subdivisions Undertake to Provide Internet Access to the Public?

This is a much harder question to answer.  It requires communities, in consultation with legal and financial advisors, to  carefully consider of a number of other legal questions, as well as economic and local public policy concerns.  For example, a school district considering participation in a public-private partnership with the goal of offering internet access to each student’s home for online learning, would need to be careful that the arrangement did not jeopardize the district’s existing E-rate funding that now provides internet service to school buildings and classrooms.  Many of these questions will be identified and examined in future articles, and developing strategies to address them will be part of a systematic online “Digital Community Guide” that will be made available to local government officials, community stakeholders and their advisors on the Missouri Broadband Resource Rail early next year. 

However, at least part of the answer can be found in the Report published earlier this summer following the University of Missouri System’s online Broadband Internet Workshop.  A core conclusion of the Workshop was that local government (political subdivisions) should actively consider arrangements involving public-private partnerships with internet service providers and other interested stakeholders to speed the deployment of affordable, reliable, high-speed internet service, and the adoption of new digital applications that use the Internet to deliver better health, education and financial opportunities for their citizens.  

The FCC’s RDOF Award Announcement – Good News, but Only One Step toward Closing the Digital Divide

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Some quick reaction to Monday’s FCC Rural Digital Opportunity Fund (RDOF) Auction Award Announcement:

It’s good news of course! – Over $346 million allocated to seventeen providers that proposed to bring gigabit level service to almost 200,000 (199,211) locations through-out Missouri.  On average – that means the Federal government is offering to contribute about $1,740 per location over the award period.  

Overall the auction award was not as large as what was authorized (around $20 billion) — $9.23 billion was awarded nationwide.  So more funds are expected be awarded in the future, hopefully using a revised system to identify unserved areas within census tracts that are now partially served.  Only census tracts that had no adequate broadband service were eligible to participate in this round of awards – a fact that all agree is a significant shortcoming of the award program that needs to be corrected. 

A bit of additional fine print: 

Companies receiving awards are required to submit much more detailed information to the FCC throughout next year before their award is final.  That information includes engineering data, deployment plans and a financial data, and failure to submit it by the deadlines can result in forfeiture of the award.  

Once the award is final, the winning bidders will receive their grant over a ten-year period in equal annual installments.  In other words the average award of $1,740 for each Missouri location, entitles the winning bidder to a $174 annual subsidy paid over ten years for each location.  This likely means that companies will need to find separate financing sources to fund costs of constructing the broadband infrastructure that ultimately will be repaid from annual award installments. 

Companies that received awards are provided a significant period of time to complete actually provide the promised service.  The first 40% of locations must be served after three years, and final build out need not be completed for six years (2027). 

Finally, while the awards were based on locations in census tracts, the winning bidders were not required, and did not agree to serve all residents in living in the census tract. 

Does this mean that the RDOF Award is not “good news” for residents in rural Missouri? 

Of course not! 

But it would be a mistake to think that the award is more than a single step in bridging the digital divide. To close the digital divide, government and community stakeholders will need to continue to work creatively with internet service providers. 

In that regard, it’s also important to keep in mind that bringing internet infrastructure to a location, is not the same thing as actually providing service to residents and businesses at that location.   As important as the RDOF program likely will be to closing the digital divide, it does not directly address the issues of affordability and digital literacy, and we know that both must be solved before underserved populations can actually reap the benefits of the new digital technologies that use broadband. 

View the RDOF map here