United States: Funding For Broadband Infrastructure Projects: What's Next (Part III)

In our last post, we previewed that states would be spending the months leading to December 2023 preparing "Initial Proposals" to award the funds that the National Telecommunications and Information Administration (NTIA) allocated to them under the Broadband Equity, Access, and Deployment program (the "BEAD program"). The Initial Proposals are the documents that must (1) identify the specific locations in the state that qualify for funding as unserved, underserved, or community anchor institutions and (2) outline the competitive bidding process each state proposes to employ to select projects and award funds. Much has happened since.

Submission of BEAD Initial Plans

Most states have chosen to split their Initial Plans (as allowed by NTIA rules) into a first part identifying qualifying locations proposing a process to challenge whether specific locations qualify for funding (Volume I) and a second part addressing the state's proposed procurement process, including participation requirements and evaluation criteria (Volume II). NTIA must approve a state's Initial Plan before the state can move forward with implementation. That means no state can initiate its challenge process until NTIA has approved its Volume I Initial Proposal, and no state can initiate its BEAD procurement process until NTIA has approved the Volume II Initial Proposal and the challenge process has concluded.

Although most states have released their Volume I Initial Proposals, so far, only 12 states have submitted their Volume I Initial Proposals to NTIA for approval. NTIA has only approved those of Virginia and Louisiana. Virginia, Louisiana, and Nevada are the only states that have submitted their Volume II Initial Proposals to NTIA for approval. NTIA has created a dashboard tracking each state's process with the submission and approval of Initial Proposals.

NTIA has set a deadline of December 27, 2023, for the submission of Initial Proposals (whether in whole or in volumes), and it will be evaluating proposals on a rolling basis. Once the Initial Proposals are approved, states will need to move quickly: NTIA's Notice of Funding Opportunities (NOFO) requires each state to submit its "Final Proposal" (i.e., its description of how it complied with its Initial Proposal and the results of its procurement processes) within one year of NTIA's approval of its Initial Proposal.

Waiver of Letter of Credit Requirement

Provisions in the NOFO requiring participants in the BEAD program (or "subgrantees") to submit an irrevocable standby letter of credit to the state where it is bidding for funds quickly became a point of contention. The NOFO required the letter of credit amount to be no less than the subaward amount, i.e., the amount awarded by the state to the subgrantee. It also required that a US bank with a safety rating issued by Weiss of B− or better issue the letter of credit. These requirements echoed those that the Federal Communications Commission imposed on Rural Opportunity Development Fund participants to ensure performance by subgrantees receiving BEAD funding.

After receiving pressure from a diverse group of stakeholders, who argued that these requirements could hamper participation by smaller internet service providers, NTIA relented somewhat. Specifically, on November 1, 2023, NTIA issued a "programmatic waiver" that modifies the letter of credit requirements in the NOFO as follows:

• Allows subgrantees to comply with the letter of credit requirement by using a credit union, instead of a bank, that is insured by the National Credit Union Administration and has a credit union safety rating issued by Weiss of B− or better.
• Allows subgrantees to use performance bonds instead of letters of credit, but only if the bond equals 100% of the BEAD subaward amount and a company holding a certificate of authority as an acceptable surety on federal bonds (as identified in the Department of Treasury Circular 570) issued the bond.
• Allows states to reduce the letter of credit obligation below 25% over time or reduce the performance bond amount below 100% over time, contingent on the subgrantee meeting deployment milestones to be established by the state.
• Allows states to accept letters of credit or performance bonds of 10% of the subaward amount during the entire performance period if the states issue BEAD funding on a reimbursable basis for periods of no more than six months each.

In a blog post announcing the release of the programmatic waiver, NTIA further explained that states and territories were "also free to request waivers for additional circumstances not covered by this programmatic waiver where prospective subgrantees can meet the requirements under the NOFO by other means."

Looking Ahead

As states race to the finish deadline and stakeholders evaluate the implications of the modifications to the letter of credit requirements, below are some questions stakeholders are asking following the BEAD program.

• Are the current deadlines going to hold?

NTIA has set a deadline of December 27, 2023, for states to submit their Initial Plans (in whole or in individual volumes). NTIA is expected to hold the line on this deadline. What remains to be seen is when NTIA will conclude approval of all the Initial Proposals, especially when it has indicated it will be evaluating and approving Initial Proposals on a rolling basis. At a minimum, we are likely to face staggered BEAD procurement processes across the nation, with some potentially starting as early as first quarter 2024. Given the scope of the Initial Proposals (and especially the portions covered in Volume II), the likelihood of NTIA being flooded with plans by or near the deadline, and the complexity of the issues that must be covered in the procurement process provisions, it is reasonable to expect a protracted process of approval and back-and-forth between NTIA and states to adjust Initial Proposals before getting the green light to initiate procurement processes.

Even less clear is whether the one-year deadline will hold. Parties experienced in infrastructure procurement processes have questioned whether states can conduct challenge processes and potentially complex procurement processes covering large swaths of their territory within a one-year window. That remains to be seen.

• What will be the practical impact of the Letter of Credit waiver?

Internet Service Providers ("ISPs") of all sizes (but particularly small and medium-sized ISPs) are expected to be the clear beneficiaries of the modifications to the letter of credit requirements. They will have more options if they choose to get a letter of credit. They can structure their project agreements to take advantage of the much lower letter of credit value requirements. And they will have the option of securing a performance bond that could be as low as 10% of the subaward amount if they agree to reimbursable costs as a mechanism for BEAD funding disbursement, which could be attractive for ISPs entering into construction agreements.

It remains to be seen how much these changes will benefit entities looking to participate under public-private partnership ("P3") frameworks, particularly those involving municipal broadband projects with development and planning agreements. The silver lining for them and all non-ISP interested parties is NTIA's announcement that it will consider waivers for additional circumstances not covered by the programmatic waiver.

• Do municipal broadband and P3 projects in the broadband infrastructure space depend on BEAD funding?

No. We continue to see states, counties and cities moving forward with P3 broadband projects independent of the BEAD program. We are also seeing middle-mile-focused P3 projects that may not be a good fit for the BEAD program. However, it is also true that BEAD provides a unique window to specific municipal broadband P3 projects that have previously struggled with the financial structure. BEAD is also flexible enough to allow a municipal broadband P3 project that is structured correctly not only to build a network that provides broadband service to end-users but also to build related middle-mile and conduit components that can generate additional sources of revenue.

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