'Buy America' rules have broadband industry on edge

News Analysis Nicole Ferraro, Editor, Light Reading 8/8/2022

The US federal government is on the cusp of investing tens of billions of dollars into broadband networks over the next several years. But a "Buy America" mandate on manufacturing in the infrastructure law has many in the industry concerned.

"That's given our members a lot of heartburn," said Gary Bolton, CEO of the Fiber Broadband Association, referring to "Buy America" requirements in a recent conversation with Light Reading.

As the National Telecommunications and Information Administration (NTIA) spells out in its notices of funding opportunity for the $42.45 billion Broadband, Equity, Access and Deployment program (BEAD) and other broadband grants subsidized through the Biden administration's $2 trillion infrastructure law, "The 'Build America, Buy America Act' requires that all of the iron, steel, manufactured products (including but not limited to fiber-optic communications facilities), and construction materials used in the project or other eligible activities are produced in the United States unless a waiver is granted."

The Biden administration has made boosting US manufacturing and labor a central tenet of its infrastructure law.
(Source: Geopix/Alamy Stock Photo)

Trade groups representing ISPs have been pushing back on the "Buy America" mandate for months, amid pandemic-era supply chain constraints.

Back in January, for example, a coalition including Competitive Carriers Association (CCA), Cellular Telecommunications Industry Association (CTIA), NCTA – The Internet & Television Association, NTCA – The Rural Broadband Association, TechNet Telecommunications Industry Association (TIA) and USTelecom – The Broadband Association, sent a letter to Commerce Secretary Gina Raimondo urging NTIA to issue a waiver on "Buy America" for information and communication technology (ICT).

"We appreciate the need for more production in the United States, and we are willing partners to work toward that goal. But in the time frame for deploying broadband under the IIJA, we are concerned about the negative impacts on companies already employing thousands of American workers if a waiver is not granted," said the groups.

Another letter was sent by the Schools, Health & Libraries Broadband (SHLB) Coalition, arguing that "the 'Build America' requirements would significantly delay the IIJA's broadband infrastructure projects." It further urged the Department of Commerce to "issue a targeted public interest waiver of general applicability for broadband network equipment and consumer devices until such time as companies can set up their manufacturing processes in the U.S."

Similar requests were sent to NTIA by networking equipment vendors like Nokia, which wrote in its comments earlier this year that "Buy American requirements that require sourcing network components in the U.S. would fail to recognize global supply chain realities, exacerbated by the current component shortages." The company therefore recommended that "NTIA and other federal agencies grant broad waivers of Buy American provisions of the BIL, at least in the near term, so as to not delay deployment of broadband to unserved and underserved communities."

Cisco, too, submitted comments to NTIA in February saying: "Expeditious deployment of broadband as envisioned in the IIJA could be severely and significantly impacted if the 'Build America, Buy America' requirements in the law are applied to the broadband deployment programs to be administered by NTIA."

But in mid-May, when NTIA issued its funding rules for BEAD and Middle Mile grants, it spelled out a more limited view of waivers, noting their permissibility only when: 1. Applying the rule would be "inconsistent with the public interest," 2. The necessary materials are "not produced in the United States in sufficient and reasonably available quantities or of a satisfactory quality," or 3. The inclusion of such products would increase project costs by over 25%.

NTIA added in its rules that "the Secretary will seek to minimize waivers, and any waivers will be limited in duration and scope."

Rural concerns

Some in the industry are especially concerned about what these stipulations will mean for smaller providers competing for grants in the rural areas that stand to gain the most from fiber infrastructure builds.

In a letter last week, Shirley Bloomfield, CEO of NTCA–The Rural Broadband Association, went back to the original source of the Buy America rules – Congress – appealing to senators on the Commerce Committee to encourage federal agencies to take a looser interpretation of the mandate, and to enact policies to strengthen the supply chain.

Pointing to a 2021 survey of NTCA's membership – which primarily comprises small, rural broadband providers – Bloomfield said that 80% of members "reported an inability or delay in procuring supplies needed for network deployment" and that those problems have "grown worse" since then.

"Importantly, these disruptions could have particularly significant and disproportionate adverse impacts on smaller providers, as NTCA members report of concerns that supplies are being diverted to larger projects and providers," said Bloomfield.

As a result, she said the rule could end up undermining competitiveness in rural markets "and could deny many community-based providers the chance to edge out from existing networks to serve nearby rural locations."

In turn, NTCA is asking Congress to encourage federal agencies "to provide greater flexibility and detailed guidance under Build America, Buy America Requirements within their funding programs."

Further, the organization called on senators to "encourage the Department of Commerce to do everything in its power, and for Congress to consider what additional policies it can enact or additional resources it can provide (such as tax incentives or dedicated funding), to promote investment in domestic production and manufacturing of critical communication supplies."

The Build America, Buy America rules will apply to rural providers receiving grants through several large broadband programs, including the $42.45 billion BEAD program, as well as $2 billion in funding provided to the USDA ReConnect program to build out rural broadband networks. ReConnect just announced its fourth funding round last week, for which applications will be open between September 6th and November 2nd. The fourth ReConnect round opens up to $150 million in loans, up to $300 million in loan/grant combinations, and up to $700 million in trade grants.

Speaking on a conference call with the media last week, the USDA noted some improvements made for submissions this round, including "allowing applicants to serve areas where at least 50% of the household lacks access to high-speed Internet," said USDA Rural Development Under Secretary Xochitl Torres Small.

Further, USDA said it would waive matching fund requirements for grant recipients in territories where 90% of households lack sufficient broadband access, as well as for the Alaska Native Corporation, tribal governments, and projects that propose to provide employment or deliver service to communities that are socially vulnerable or living in persistent poverty.

Opportunity for some

As broadband providers await further clarity from the federal government and state grant rules on the BEAD program, at least one US vendor is openly discussing the "Buy America" rules as an opportunity when it comes to middle-mile buildouts.

Speaking on a recent webinar, Geoff Burke, SVP of product marketing and government affairs at DZS, pitched the company's optical IP technology as well placed to help recipients of the Enabling Middle Mile Broadband Infrastructure grant program fulfill their domestic mandate.

While BEAD funding is likely to reach the states sometime next year, the $1 billion middle-mile program opened for applications on June 21 and will close on September 30th, with awards to be made on March 1, 2023. Grant recipients must complete their middle-mile builds within five years to the date of receiving their funding, according to NTIA.

"We believe we're the only manufacturer that really manufactures in the USA at scale," said Burke, pointing to the company's manufacturing facility in Seminole, Florida. "One of the things you can rest assured is that when you buy from DZS, you will be covered from that perspective."

DZS CEO Charlie Vogt also referenced middle-mile funding on the company's recent Q2 earnings call, according to an Atom Finance transcript, saying "with the middle mile optical transport funds that are now being deployed, we see that as something that could provide some upside with decent margins into '23."

Another group looking favorably upon the "Buy America" rules is the Communications Workers of America (CWA), which urged NTIA to disregard requests for waivers in its comments on broadband funding earlier this year.

"The policy intent is clear: developing a domestic supply chain is in the national interest. Broad waivers are 'get-out-of-reshoring-free cards' and CWA opposes their use in all cases, but especially in a critical sector like broadband," wrote the organization.

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— Nicole Ferraro, editor, Light Reading, and host of "The Divide" podcast.