Time to Dig into the Nuances of Network Fed Funding

Episode ID S2E06
April 12, 2023

An alphabet soup of federal funding programs is determining the future of rural telecom, and now’s the time to master the details. This episode of All Day Digital features telecom attorneys Clare Liedquist and Dee Herman, principals at Herman & Whiteaker. They outline what operators needs to know — from what to look for in broadband coverage maps to navigating BEAD, ACAM and RDOF.


Clare Liedquist: I think the first thing I'd say is to take a look at the broadband maps. And if there are any inaccuracies, challenge them. Because if your area, if there's a carrier that is overstating what they provide in terms of service, in terms of speeds in your area, go ahead. You need to challenge that because your area will not be funded. It won't be eligible for funding

Jeff Johnston: That was Clare Liedquist, principal at law firm Herman & Whiteaker, with a piece of advice for rural operators as they navigate the current regulatory and funding landscape.  

Hi, I’m Jeff Johnston, and welcome to the All Day Digital podcast where we talk to industry executives and thought leaders to get their perspective on a wide range of factors shaping the communications industry. This podcast is brought to you by CoBank’s Knowledge Exchange group.

There is a lot going on in Washington regarding broadband funding programs for new network builds and ongoing support of current networks. It’s important that rural operators understand the nuances of these programs, and how best to position themselves to take advantage of the opportunities that are out there.

I invited Clare and her colleague Dee Herman to the podcast so we could get a better understanding of what’s going on. Clare and Dee are Washington telecom attorneys and as such, they are ideal guests to help us wade through the ins and outs of key issues and opportunities facing rural operators.

So, without any further ado, pitter patter, let’s see what Clare and Dee have to say.

Dee and Clare, welcome to the podcast. It's great to have you guys with us here today.

Clare Liedquist: Thank you, Jeff.

Dee Herman: Thanks, Jeff. Great to be here.

Jeff: Excellent. Well, I'm really excited to talk about some of the regulatory and I guess, maybe even some of the legal issues that have recently surfaced that I believe impact rural communication companies. What's going on with USF and what's also going on with the BEAD program?

Dee, I guess I'll point this question to you and obviously Clare, jump in anytime. Maybe you can give us a high level overview of the USF program and the role that it plays in supporting rural broadband operators.

Dee: Yes, thanks, Jeff. Thanks for having us. It's a pleasure to be here. For our clients and most of our clients that we deal with are you'll get some form of Universal Service Fund support. USF is really the backbone of bringing broadband originally, obviously voice to rural America in places where there were no other providers. A lot of our clients are broadband companies now but they started out as really rural telephone companies in places where an incumbent local exchange carrier wouldn't provide service. The question became, well, these are very, very high cost areas, they require lots of money to provide what the federal government, I think we all believe, is critical services.

That's where obviously the Universal Service Fund came out of originally, supporting voice really more now into supporting broadband, and other initiatives as well. Obviously, E-Rate, rural healthcare. As we enter this age to-- I know we're going to talk about BEAD money and we're going to talk about just support for how do we get broadband coverage, brought reliable broadband services to every person in the United States at once.

That's when you have to go back obviously to the Universal Service Fund. The intent of Congress -- to make sure that affordable voice originally and now affordable broadband is available to everybody in the United States who wants it.

Jeff: Yes, great. Okay, that's an excellent overview. Clare referenced it, but I'd love to get your overview on this BEAD program.

Clare: Sure. Thank you for having me as well. The BEAD program is about a $42.45 billion fund to expand high speed internet access. It's primarily used for funding infrastructure deployment, as well as some adoption programs. It will be funding unserved and underserved locations. Unserved is defined as locations that do not have access to 25/3 services, and underserved is defined as locations that do not have access to 100/20 megabits per second.

NTIA is running the program, they are going to fund at least 100 million to each state, then additional funding to each state will be based on the FCC maps. So, basically, how many locations are unserved within a state. If a state has more unserved locations, they will have more funding.

Dee: I was just going to add, so It's interesting now where you've got the Universal Service Fund and you've got folks as part of the Universal Service Fund who have taken this ACAM approach which is essentially an alternative model of high cost support without getting too much in the weeds on it. You've got all of the BEAD money that's out there. As Clare mentioned, $42 billion in BEAD money, and the question is going to become not only how do they play together, I think we should talk about that, but also, what happens once all the money is spent?

Where are we on USF not only in the Universal Service Fund and ACAM and rural healthcare? Where are we after all the BEAD money is spent and the $42 billion dollars goes out to build networks and how do we in the future support the networks.

Jeff: Yes, it certainly is unprecedented, but you raise a really interesting point. It does feel like there could be a certain amount of overlap, perhaps even so to the detriment of existing USF recipients if all of a sudden, their markets are overbuilt with BEAD money. What happens in that scenario to the incumbent provider?   

Dee: Well, I'll take the first crack at it and Clare, I'm curious your thoughts as well. One of the things that is going to be interesting in what we're hearing, so certainly the FCC as part of the Universal Service Fund is looking at another version of ACAM. This would be enhanced ACAM that would get 100 by 20 speeds and the general idea and the consensus as we're recording this today is that, if the FCC were to adopt enhanced ACAM, those areas would not be eligible for BEAD funding. Ideally, it would make BEAD funding go farther because you're really dealing with areas where there's already not someone there who is federally subsidized.

I think there's a lot of agreement that what we don't want is necessarily federally subsidized competition in lots of places. Now, Jeff, what makes it a little bit more complicated though is the fringes. There's fringes, there could be wireless competitors out there that may be eligible for BEAD, there could be wireless competitors out there that received RDOF.

If there were a bright line on this, I think it would make it a lot easier and unfortunately or fortunately, depending on where we get to with the maps, that's where [laughs] the broadband data maps become a lot more important because how the funding is going to be given out, is going to be based on the maps.

Clare: Yes, and just to back up on that point, ACAM carriers right now are required to build out to a level of 25/3. And then in some areas just 10/1 or even 4/1, so they've already spent federal subsidies to build out these areas. But all of those areas would be considered unserved or underserved under BEAD. When carriers go to apply for funding under BEAD, they could literally apply for funding in the ACAM study areas. And granted, the ACAM carriers could as well apply for BEAD, but they're not guaranteed to get it. You could have two federally subsidized competitors in an area that has already been deemed high cost.

Dee: Yes, it's a good point because really without a change in ACAM, you could make an argument and then people are, "Hey, BEAD money should just be everywhere," and of course it makes it go maybe not to the places that actually need broadband service, which you could argue is the point of BEAD in the first place.

Clare: Right, because I'm sure there are areas out there that aren't even covered by ACAM that don't even have 25/3. But these ACAM carriers already have infrastructure in place. If the FCC were to go ahead and pass E-ACAM, they could take advantage of that. They already have infrastructure, then they could build that out and then BEAD could be used for areas that really need it.

Jeff: Enhanced ACAM, I guess is what you're referring to, in theory that makes a lot of sense but let's talk about how this whole situation, I guess, potentially gets even further complicated as we start to introduce the states and the telecommunication offices at the states, because if I've got it correct, they're the ones that are going to be administering BEAD money. How does this all work if the federal government, the FCC’s ACAM program needs to somehow work alongside the states as they dole out BEAD money? Boy, it just seems like we're trying to herd cats here.

Clare: Yes, absolutely because I think what you've seen with the federal agencies is there is coordination between the federal agencies. With ReConnect and RDOF, certainly those USDA and the FCC have been coordinating. I think NTIA and FCC and USDA have also coordinated, but I would be a little bit unsure about each of the 50 states, especially since a lot of these offices are brand new.

Dee: To Clare's point, you've got this lots of state broadband offices that are now harnessing billions of dollars and how they're going to allocate it. Jeff, you didn't say this, but I will, it goes to who's got the better lobby, which special interest is the most special, which technologies are you going to support. BEAD there has a strong-- at least when it started out, a strong preference toward fiber. There's a lot of wireless folks out there. There's obviously SpaceX out there. There's people who are saying, wait, we can provide these same speeds, not necessarily just by fiber. You're right it becomes a street fight on a state level.

That is in addition to lots of states not having already allocated funds from the previous stimulus programs. You've got BEAD, that's on top of ARPA and some states have been very aggressive in those funding opportunities. Some are holding onto them and still coming up with a plan. Then add to that a lot of states are going to try to use their own maps, not the FCC’s broadband data collection map to either crosscheck or use that to allocate money. Not only do the states have the ability to enter into the funding, but they also have the ability to acquire their own maps.

The backdrop of all this is, I wouldn't call the FCC a bystander by any means. I think when it comes to universal service the FCC is still a critical player, but with all these other funding you've got lots of other federal agencies as Clare mentioned NTIA especially that are exerting a lot more power and control over the process. When you're talking about this amount of money, it's going to be fascinating to see how it all plays out.

Jeff: No doubt. I wasn't going to bring this up but since you guys are here, it just dawned on me, I'd love to get your thoughts on USF funding. Right now, I believe, USF is funded through charges that are applied to telecom bills, not broadband bills, but traditional wireless and voice landline bills. If you look at the trajectory of landline over the last several years, it's gone straight down in terms of penetration rate, and then when you look at wireless revenues, those too have been contracting, maybe not quite the same rate as landlines disconnects, but certainly those numbers are shrinking.

You see this feels like the source of revenue that's currently funding USF is shrinking, and as a result, the charge needs to go higher and higher. Feels like that's an unsustainable model in my mind.

Clare: I absolutely agree. The contribution base is shrinking because really, it's based on telephony, instead of broadband. Even though the fund funds broadband services and telephone services. There have been some initiatives or some proposals to include big tech or broadband services in that contribution base. I think, Commissioner Carr actually recently -- Not recently, in 2021, had an op-ed in Newsweek, which was titled “Ending Big Tech's Free Ride.” Where he proposes to basically assess big tech and have that go into USF as well.

Dee: I think the big tech point is a really good one that you make, Clare. The other part is, we mentioned this before, once all this money is out, once the 42 billion is out and you know that USF base is shrinking? Obviously, no decision has been made on big tech at this point, where we go depends with USF in general.

What I mean by that is, depending on which party is in charge, will we see massive, massive changes in the future of USF? I think the FCC certainly has a proceeding of valid, hey, there's sort of a lofty policy proceeding on the future of USF, but those decisions are going to come from Congress. They're just inevitably, it has the potential to have whiplash in terms of after all this money is spent and it's out there, where are we going? USF. Where are you If we say, "Hey, 99.9% of the population now has reliable broadband?"

Does that mean that there's no need for universal service? We would say, "Obviously not." Does it look completely different? Is it funded in a completely different way? I think that that may be where we're headed.

Jeff: I think what's lost on a lot of folks is the ongoing network costs and support. It's one thing to get support from the government to build the network, to trench the ground, to string fiber along, poles, et cetera. That's one thing but after that, once that's all done, it's not like these businesses necessarily all of a sudden magically profitable into eternity. There's additional considerations that need to be made, correct?

Clare: Absolutely, they still need maintenance. Look, their maintenance costs are a lot higher than in an urban area because their truck rolls are a lot longer. Homes are at least 20, sometimes 100 miles apart. Certainly, they'll have to upgrade their network as well.

Jeff: I'd love to get your thoughts on a recent case that was challenging the constitutionality of the USF program. There was some interesting or an interesting case that could have potentially been quite problematic.

Clare: I think you're talking about the Fifth Circuit case and that was where Consumers' Research challenged the constitutionality of the FCC and USAC's authority to fund USF. Luckily for the future of USF, the Fifth Circuit did deny that challenge, finding that it was constitutional. They said that Congress supplied the FCC with intelligible principles when it passed the agency with overseeing the fund, and that the FCC had not violated the private non-delegation doctrine because it wholly subordinates USAC. USAC does help it with a fund, but the FCC is in charge.

While this is a great victory for the survival of USF because had the Consumers' Research won, we would've seen universal service go to zero, we can expect Consumers' Research to continue their fight against the FCC. They've actually filed in the Sixth and Eleventh Circuits. I think they'll also try to appeal to the Supreme Court.

Dee: I'll say, the Fifth Circuit is traditionally more conservative. I think that that's a positive outcome. Certainly, you could argue more conservative than the Eleventh Circuit or the Sixth Circuit. I think a lot of people are looking at this makeup of the Supreme Court, what they did with the EPA in the last term, and questioning, in general, "Hey, what powers do these administrative agencies have if you're making an argument that they're going to enact a law or enact federal subsidies?" We don't know.

Jeff: What would drive an organization to want to bring this case? I'm trying to put myself in the shoes of the folks that are challenging the constitutionality of it. Is it just hardline constitutional folks that just don't believe fundamentally what's going on and they want to change it or?

Clare: Well, I think they consider the line item charge on your phone bill for USF, they consider that tax on an individual. I think that's really their motivation, is to get rid of that tax.

Jeff: Fascinating. You folks are the experts on everything that's going on from a regulatory and a legal perspective. What advice, broadly speaking, would you give rural operators as they navigate all this stuff from a funding and a regulatory perspective?

Clare: I think the first thing I'd say is to take a look at the broadband maps. And if there are any inaccuracies, challenge them. Because if your area, if there's a carrier that is overstating what they provide in terms of service, in terms of speeds in your area, go ahead. You need to challenge that because your area will not be funded. It won't be eligible for funding. Then my second piece of advice would be to get in front of the state and federal administrators as soon as possible and tell your story. Meet with FCC, with NTIA, with Congress. Tell them about the cost for building in rural areas. Meet with the state, the new state telecom office. Make sure they know who you are.

Dee: I would say that the folks at the FCC and certainly on the hill like to hear exactly what's happening in rural America, they need to hear what's happening.

They hear from a lot of Washington lawyers like us but when our clients come to Washington and they get to hear directly from them, it makes a very big difference. Then beyond that is engaging in what is the future of USF? I think there's not a lot of compromise that happens on the hill right now. The FCC lost its auction authority for the first time. That's a bipartisan issue. That's something that-- look, more money for the treasury, but everything is political now. As we move into BEAD, we're going to see a lot more oversight, but I think you're also going to see then the shift turning to, okay, what is the future of USF? We've speculated a lot about it and the time we've been talking, but I think hearing directly from the stakeholders is really important.

Jeff: The old analogy, the squeaky wheel gets the oil is certainly applicable here. I think they should pick up the phone and call you guys personally because you clearly know what's talking about.

We've clearly covered a lot. This has been great, guys, but before we wrap it up, I want to give you two an opportunity to address anything that I didn't ask. I'll just throw it out there, if you have any closing comments or additional thoughts, I would love to hear them.

Clare: One thing that we didn't really touch upon because really it's not part of Universal Service, is the new program the Affordable Connectivity Program, or ACP. That's a $14 billion fund to provide a subsidy to low-income individuals specifically for broadband service. If everybody who's eligible for that fund signs up, then that fund would probably be exhausted within two years.

At which point if Congress doesn't renew it, the FCC would have the option to put it under Universal Service, but that would literally double what would be needed for Universal Service because right now we're seeing Universal Services about a little bit over $8 billion a year, and I think the predicted amount for the Affordable Connectivity Program, assuming everyone signs up for it, is about $8 billion a year. It would double that and we would have an even worse problem with the contribution base.

Jeff: No, that's a good point. This whole USF reform and how we fund the program going forward is a pretty big issue because it feels like it'll come a day where we're going to be running into some serious funding issues

Clare: Absolutely, and compound that with this Consumers’ Research group.

Jeff: Clare and Dee, this was just fantastic. Sincerely, I appreciate you two taking time out of your very busy day to chat with me today. Thank you for being on the podcast today.

Clare: Thank you, Jeff.

Dee: Thanks for having us.

Jeff: A special thanks goes out to Clare and Dee for joining us on the podcast today. Despite the unprecedented amount of money that’s been allocated to the rural broadband industry, it’s clear we still need more. And to make matters worse, there is a good bit of uncertainty surrounding how future funding needs will be met. Despite all of this, it’s also clear that rural operators need to be proactive in reaching out to state and federal officials to ensure their needs are understood and met. 

Hey, thanks for joining me today and watch out for the next episode of the All Day Digital podcast.

Disclaimer: The information provided in this podcast is not intended to be investment, tax, or legal advice and should not be relied upon by listeners for such purposes. The information contained in this podcast has been compiled from what CoBank regards as reliable sources. However, CoBank does not make any representation or warranty regarding the content, and disclaims any responsibility for the information, materials, third-party opinions, and data included in this podcast. In no event will CoBank be liable for any decision made or actions taken by any person or persons relying on the information contained in this podcast.

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