Preliminary Guidance for New USDA Rural Broadband Funding Opportunity

Joanne Hovis, President
Heather Mills, Funding Strategies Team Lead

Earlier this year, Congress made the first major appropriation for broadband infrastructure deployment in a decade. The following is our preliminary high-level analysis and strategic guidance for counties, towns, states, and public utilities regarding that funding—the e-Connectivity Pilot—a U.S Department of Agriculture program that will fund last-mile broadband infrastructure deployment in rural areas.[1]

In short, we anticipate that substantial funding for last-mile rural broadband will be made available early in 2019, and that experienced public ISPs, as well as collaborative public-private efforts, will be well positioned to compete for these funds.

USDA has not yet released the detailed rules for the program, so most of what we know about the e-Connectivity Pilot is very preliminary and based on RUS’s public statements and its track record with other broadband programs.

If you are considering applying for the new funding, the time to prepare is now, in anticipation of an application deadline in early 2019. We recommend you work now to build the necessary partnerships and develop the business and technical models you will need for an application. You should also develop key documents that are likely to serve as essential components of the grant application, including an assessment of existing service, an engineering plan, a cost estimate, and a long-term business plan that demonstrates financial viability.

Realistically, any application will face considerable competition and long odds, simply because of the large number of applications that will likely be submitted. At the same time, the new program represents a potential opportunity that could enable not just last-mile service, but also important economic and community development. An additional benefit is that the planning you do now will put you in position to apply for other programs as well. For example, the annual window is likely to open early next year for USDA’s excellent Community Connect program, a long-time and successful program that awards modest grants for deployment of rural last-mile broadband. Much of the work you do now to prepare for an e-Connectivity Pilot application will be useful for that program, both in 2019 and in subsequent years.

The following is our preliminary analysis of the e-Connectivity Pilot opportunity.

What Types of Funding Are Likely to Be Available?

The new program is in development at the USDA’s Rural Utilities Service (RUS) and will consist of broadband deployment grants and loans. The funds were appropriated by the Consolidated Appropriations Act of 2018 (known colloquially as “the Omnibus”) and include a total appropriation of $600 million for the program.[2] Some of the funding will likely be used by USDA to secure loan authority for a larger amount—meaning that the combined loan-grant awards could well exceed $600 million and may approach a total of $1 billion. That said, at a recent broadband conference, Acting RUS Administrator Christopher McLean suggested that many of the awards will be weighted toward grants, in recognition that the challenging economics of rural broadband can be shifted more effectively through capital grants than through loans.

What Are the Eligibility Requirements?

The e-Connectivity Pilot targets unserved or largely underserved rural areas. Congress directed in the legislation that, to be eligible, a service area must meet these criteria:

  • Broadband service eligibility: At least 90 percent of the households lack sufficient access to broadband service that delivers at least 10 Mbps (downstream)/1 Mbps (upstream) speeds.[3] Intriguingly, Acting RUS Administrator McLean recently suggested that RUS is considering whether affordability will be part of RUS’s definition of service eligibility; in other words, the agency is considering whether 10/1 service that is unaffordable should still qualify as “sufficient access.” Full details on how RUS defines this criterion will be available only once the rules are released.
  • Geographic eligibility: The service area must be rural, which would mean a community of 20,000 or fewer residents, per Acting RUS Administrator McLean.
  • RUS overbuilding eligibility: No other RUS loan recipient may be offering service in the area.[4]

We note that RUS has historically been extremely rigorous in verifying that the areas for which an applicant seeks funding actually meet the criteria for unserved and underserved residents. Beyond reviewing data provided with an application (e.g., FCC Form 477 data), RUS has been known to perform field testing in an applicant’s proposed service area to ensure that the available service levels do not exceed the program’s requirements. As a result, it will be very important to carefully and thoughtfully define the service area for which you seek funding.

What Is the Likely Timeline?

Minimal RUS guidance currently exists for the program. We understand that once the rules are released and an application window is posted (which we assume will happen relatively early in 2019 or, less likely, late in 2018) applicants likely will have 60 or 90 days to apply for the program.

What Kinds of Applicants Are Likely to Be Successful?

Generally, we anticipate that RUS will prioritize experienced applicants and public-private collaborations; in its public statements on the program, USDA has clearly stated that it hopes to “catalyze private investment” and “leverage federal funds to increase private investment in broadband.”[5] RUS will almost certainly consider public (or private) providers without extensive experience to be startups and will disfavor them.

Acting Administrator McLean has also stated publicly that RUS is likely to encourage “unique partnerships” and will look for applications that are clearly supported by the local community.

Given all these factors, we encourage localities and other public entities that are not themselves experienced ISPs to build relationships with experienced providers, either public or private, to work toward a competitive collaboration for funding. And we suggest that provider applicants work closely with their local communities to demonstrate considerable local support for their plans, as a means of demonstrating to RUS that the plan is viable and grounded in local needs.

What Size Awards Are Likely to Be Made?

Our educated guess is that USDA will make grant/loan combinations in the $3 million to $10 million range. This is quite a bit more than Community Connect grants, which are annual grants in the $1 to $3 million range awarded by RUS to unserved areas. The funding pool is also considerably larger in total dollars than Community Connect. In addition, the new program may not have the low-income scoring criteria of Community Connect, making it a more flexible program.

How Can Potential Applicants Prepare Now?

RUS has not yet released the detailed rules for the program, so most of what we know about the e-Connectivity Pilot is based on the statutory language, RUS’s track record with other broadband programs, and our sense of how things are done at RUS (particularly with the earlier Broadband Initiatives Program). Other than the framework provided by the statue, all of the program’s detailed requirements will be subject to RUS’s rules—including the specific technologies RUS prefers (if any); minimum service speeds; minimum number of premises served;[6] scoring prioritization for certain kinds of entities, service speeds, and network capacity; and requirements for applicants’ financial documentation.

That said, there is considerable preparatory work that you can start now if you are interested in pursuing this opportunity—because once the rules are released, likely in early 2019, you will have a relatively short time to prepare an extensive application. Among the tasks to begin undertaking now are the following:

  • Define the proposed service area. It will be critical to provide documentary evidence of the fact that the area is unserved under the statutory definition. The 90 percent unserved metric will be difficult to meet because many areas have uneven service; you must carefully draw a service area boundary that captures the most underserved residents. To that end, there exist analytical technical tools for identifying the reach of DSL and mobile broadband services, as well as for documenting actual pricing (in order to demonstrate that services may be “available” but are not actually accessible to many members of the community because of cost). Quantifying and qualifying the service level in your proposed service area will be essential; it will be a wasted effort for you to file an otherwise excellent application, only to be disqualified by RUS because there is a higher level of service available.
  • Develop a business plan. Applications to this program will require a detailed business plan and pro forma. We anticipate that business planning will require robust, reliable, and non-speculative revenue projections, and a show of expected profitability within a relatively modest period of time. RUS is famously (and appropriately) conservative about making loans and awarding grants; it seeks viable, sustainable business plans and is deeply skeptical about more speculative or incomplete business models.
  • Develop a technical plan. Applications to this program will require a network design with sufficient detail to ensure delivery of specified speeds to the target population. The network design will also enable cost estimation, which will be a critical element of the network financial analysis and application for funding.
  • Identify potential private partners. As mentioned above, we anticipate that applications from experienced private ISPs and public-private collaborations will be more competitive than those from public sector entities that are not already experienced ISPs. Given that, public applicants that do not already serve as broadband providers will be more likely to succeed if they collaborate with an experienced private (or public) partner. In this scenario, the public entity can either provide significant support for a collaborative application to RUS with its experienced partner—or can be a co-applicant with a focus on building out infrastructure while its ISP partner provides service. Now is the time to develop those partnerships, either through informal discussions or formal competitive processes.

Preliminary Checklist for Planning an e-Connectivity Application

We recommend considering the following issues now in preparation for filing a competitive application next year:

  1. Geographic eligibility: Are you rural under the statutory definition?
  2. Broadband eligibility: Are you eligible for funding based on the existing broadband service in your area?
  3. Organizational strength: Are you an existing, proven service provider (either public or private)—or are you partnered with one?
  4. Technical plan: Do you have a fleshed-out design and cost estimate for your network, with a demonstrated capability to provide robust broadband speeds?
  5. Business plan: Do you have a sustainable business model with strong evidence of the viability of your planned network? Does the business plan include a robust pro forma with reasonable and grounded revenue projections?
  6. Community support: Can you demonstrate, through letters and other forms of approval, widespread support from local interests, including public entities, businesses, and representatives of the business community (such as the local Chamber of Commerce), major employers, and residents?

[1] “Broadband e-Connectivity Pilot Program: A Notice by the Rural Utilities Service,” Federal Register, July 27, 2018, https://www.federalregister.gov/documents/2018/07/27/2018-16014/broadband-e-connectivity-pilot-program (accessed October 2018).

[2] “H.R. 1625 – 115th Congress (2017-2018): Consolidated Appropriations Act, 2018,” U.S. Congress, https://www.congress.gov/115/bills/hr1625/BILLS-115hr1625enr.pdf (accessed October 2018).

[3] “H.R. 1625 – 115th Congress (2017-2018): Consolidated Appropriations Act, 2018,” Title VII, Sec. 779.

[4] “H.R. 1625 – 115th Congress (2017-2018): Consolidated Appropriations Act, 2018,” Title VII, Sec. 779.

[5] “USDA Invites Comments on the Implementation of the e-Connectivity Pilot Program,” Press Release, USDA, July 27, 2018, https://www.usda.gov/media/press-releases/2018/07/27/usda-invites-comments-implementation-e-connectivity-pilot-program (accessed October 2018).

[6] USDA has noted its intent to use this funding to enable “broadband services for as many rural American homes, businesses, farms, schools and health care facilities as possible.” (“USDA Invites Comments on the Implementation of the e-Connectivity Pilot Program.”)

Published: Monday, October 29, 2018 by CTC Technology & Energy