Coalition forms against BEAD letter of credit requirement

A small coalition of ISPs, broadband associations and digital equity advocates is emerging to warn that a requirement for service providers to provide a letter of credit in order to participate in the federal government's Broadband Equity Access and Deployment (BEAD) program will "shut out a huge number of ISPs."

The $42 billion BEAD program requires grant recipients to provide a letter of credit for 25% of the award, in addition to a 25% match requirement. In a blog this week, one member of the coalition, Connect Humanity – a nonprofit working with communities to advance digital equity – argued that this requirement creates "enormous barriers to all but the best funded providers" and will shut out the types of ISPs that the Biden administration has prioritized as participants in the program.

"Many of the small ISPs, minority and women-owned businesses, nonprofits, and municipalities that the program claims to be targeting have little hope of meeting these requirements," said Connect Humanity. "The result is a herculean thumb on the scales for the large, well-funded incumbent providers that have historically failed to serve all Americans, even when subsidized to do so. It locks out smaller, efficient, local ISPs that are typically faster, more affordable, and more willing to connect America's least served communities — the kind of providers President Biden talked about."

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The issue, according to Connect Humanity, is the collateral required to receive a letter of credit. Providing an example, the group said that an ISP aiming to build a $10 million broadband network would need to raise over $2 million in collateral (with interest and fees), in addition to supplying matching funds, to be eligible for a $7.5 million BEAD grant. "Many simply won't apply," wrote Connect Humanity.

(Source: Connect Humanity)

Other members of the coalition pushing back against the letter of credit mandate include small ISPs like Arkansas-based Aristotle Unified Communications; organizations like Broadband.Money; the Schools, Health, and Libraries Broadband Coalition (SHLB); and the American Association for Public Broadband, led by Gigi Sohn, said Connect Humanity.

Steve Schwerbel, state advocacy manager at the Wireless Internet Service Providers Association (WISPA), told Light Reading that the organization, which represents fixed wireless providers, is also concerned about the letter of credit and expects several state broadband offices to request a waiver of the rule from the NTIA.

"Instead of being used to deploy infrastructure to communities that need it the most, that money is going to go and sit on a bank shelf to make sure that the bank is able to pass a stress test if they get called on to do so. So it's an incredibly wasteful and very unhelpful model to use," said Schwerbel.

The requirement has also gained the attention of Maryland Congressman Andy Harris, who wrote to Commerce Secretary Gina Raimondo last year calling on NTIA to reconsider the letter of credit requirement. His letter argues that the requirement "does not demonstrate a broadband provider's financial capability to provide the high-quality broadband services or the financial viability associated with its proposed projects," and further that "NTIA never imposed this L/C requirement under its prior grant programs and it is not clear what prompted NTIA to adopt this requirement in the NOFOs."

Possible alternatives?

In its blog, Connect Humanity is soliciting feedback from stakeholders on how the letter of credit may impact their participation in BEAD. The group also suggests there are "alternatives" to explore outside the current letter of credit requirements: "From tools such as performance bonds to having less onerous requirements for smaller ISPs, non-profits, and municipalities, to expanding the types of entities that can issue letters of credit, there are ways to protect taxpayer dollars while ensuring that BEAD can live up to its promise."

WISPA's Schwerbel also recommended performance bonds, as well as a reimbursement model that funds grant recipients once the project is completed to the state's satisfaction.

The NTIA declined to comment on this story. But speaking on a recent webinar, NTIA's deputy associate administrator for BEAD, Evan Feinman, indicated the agency is firm on the letter of credit requirement: "There will be opportunities for folks to seek waivers to that requirement, but those waivers are going to be pretty tightly controlled," he said.

The NTIA announced BEAD allocations per state and territory last month. Initial funding is expected to be distributed on a rolling basis after the agency approves each state's broadband plan starting next year.