PA officials react to feds easing capital requirement for broadband funding

The rule, which required internet companies to put down millions of dollars upfront, would have excluded all but the biggest providers


By Kery Murakami of Route Fifty, with additional reporting by Harrison Cann

States can breathe a little easier after the federal government announced Wednesday that they are easing a capital requirement that led to concerns that smaller providers would be excluded from the nation’s $42 billion program to expand broadband to more parts of the country.

In September, a coalition of state and local broadband leaders, lawmakers and associations sent a letter to the Department of Commerce and the National Telecommunications and Information Administration saying that the Broadband Equity Access and Deployment program “will not achieve its objective of delivering internet for all” as long as the capital requirement remains in place.

As a form of insurance for taxpayers, NTIA required that internet service providers, or ISPs, obtain a letter of credit from a bank for 25% of the amount they are awarded under BEAD to build out broadband infrastructure. The idea was to make sure states did not send the money to providers that didn’t have the financial “capacity to deliver reliable, affordable, high-speed Internet access,” an NTIA official said during a press call on Tuesday. ”It’s critical for us running a federal program that we're taking steps to ensure that we're preventing waste, fraud and abuse."

But banks that provide letters of credit typically require that they be collateralized by cash or cash equivalents. Connect Humanity, a company that provides funding for community-led broadband solutions, estimated earlier this year that a provider seeking a $7.5 million grant for a $10 million project, for example, would need to put down at least $4.6 million in capital upfront to get the letter of credit.

The coalition argued that as a result only the biggest ISPs would be able to participate, excluding smaller providers owned by minorities and women, nonprofits and municipalities.

In order to address those concerns, NTIA announced that it is giving ISPs other ways to “demonstrate that they have the financial capacity to deploy and maintain high-speed internet.”

Among the ways providers can show this, according to the agency, is getting a letter of credit from a credit union instead of a bank, as long as the credit union is insured by the National Credit Union Administration and has a solid credit rating.

The NTIA official noted that many of the credit unions that will be allowed to give letters of credit are community development financial institutions, “which are focused on providing financing and investing in underserved communities.” 

ISPs will also have the option to get performance bonds.

“One significant benefit of performance bonds is that they usually cost substantially less to acquire, often only a few percent cost of the bond value itself,” the official said.

In their September letter, the coalition had suggested that NTIA allow the use of performance bonds, arguing the bonds would provide financial guarantees for the project without requiring as much upfront capital. The group also said the bonds would ensure the issuer performs due diligence on the applicant, which provides additional security for the investment.

The Pennsylvania Broadband Development Authority and Department of Community and Economic Development, although not a signee of the letter sent to NTIA, applauded the efforts to ensure broader participation in the BEAD program. 

“By allowing subgrantees to satisfy their obligations with either a letter of credit from a credit union or a performance bond and reducing the subgrantee’s obligations upon the completion of milestones and initial Letter of Credit or performance bond percentages, it will encourage participation from a broad range of service providers,” Penny Ickes, spokesperson for DCED, said in a statement. “It’s going to take everyone working together to meet the goal of ‘Internet for All’ and this is another step in the right direction.”

The NTIA also approved other ideas suggested by the coalition.

States, under the revised rules, will be able to allow providers to get letters of credit or performance bonds that decrease in value as the projects near completion. For example, states could allow an ISP to get a letter of credit that would go down to cover 10% of their BEAD funding after they’ve built 80% of the project.

The new rules would also allow states to require cheaper letters of credit or performance bonds if they do not give the ISPs all of the money at once. That would reduce the risk to states and the federal government of spending money for a project that does not get completed.

Among those who signed the letter in September were the National Association of Counties and the state broadband offices for Kansas, Vermont and Washington.