CommLawBlog : Broadcast & Communications Lawyers & Attorneys : Fletcher Heald & Hildreth Law Firm : Telecommunications, FCC Regulation, Communications Act

Jaded veterans of the 2009-2010 stimulus program application process will find RUS’s latest program somewhat simplified. As before, the funds may be used for the construction, but not the operation, of broadband facilities. Acquisition of such facilities (apparently including spectrum for wireless broadband) is now a permitted use, whereas the stimulus program declared that taboo. 

Loans may be requested in amounts of between $100 thousand and $100 million, with interest rates set at either 4% or the government’s cost of borrowing.   Loan guarantees are also available.

Underserved areas are now defined as areas with fewer than two carriers providing broadband at a total speed of 3 Mbps (upload and download combined).   Unfortunately, prospective applicants are once again left to their own devices in trying to figure out whether any particular area has service providers that meet that definition.  

New loans are also forbidden in areas where RUS loans or grants for broadband have already been made or where an application is currently pending. Thus, if two applications come in for the same area, the second one in the door will remain in bureaucratic limbo until a decision is made on the first one. This provides incentive to act quickly. Thankfully, RUS is planning to make an online map available to prospective applicants so that this latter bit of information can be readily ascertained.

Other highlights of the program:

• Applicants must show availability of equity totaling at least 10% of the capital necessary to fund the project from sources other than the RUS loan.
• Detailed financial information for the applicant’s past three years must be provided, as well as projections of revenue over the next five years showing that the project is sustainable without further capital input.
• A detailed network design must be supplied demonstrating proposed construction adequate to provide the projected broadband service threshold, the applicant’s ability to provide these services, the costs of construction and operation, and a timetable.
• Broadband must be provided at speeds of at least 5 Mbps (total of upload and download speeds) subject to later adjustment if broadband speeds increase.
• Areas eligible for funding must:

be rural (not in either: (a) a city, town or incorporated area with population of more than 20K or more; or (b) an urbanized area contiguous and adjacent to a city or town with population of more than 50K);

be underserved (at least 25% of the service area is served by one or fewer broadband providers and no part of the service area is served by three or more broadband providers);  and

have no overlap with previous RUS beneficiaries or with a currently pending RUS loan application.

• Special consideration will be given to applications to serve Indian communities. Communities declared to be “substantially underserved trust areas” (i.e., lands held for Native Americans) qualify for waiver of many of the rules, such as reduced equity requirements and longer term loan repayment (up to 35 years).

There is no specific filing deadline for these applications, but since applications are generally processed first come, there is an advantage to filing early. Once the money is gone, it’s gone. And if someone else files for your area first, that application will be processed before yours.

A summary of the terms of the RUS program, together with links to (among other things) the application guide and related attachments, may be found here. If you would like more information about this opportunity, feel free to contact us.

The original approach (for the first tranche) allowed applicants to file a single application for funding from both BTOP (i.e., NTIA ) and BIP (i.e., RUS), effectively allowing applicants to play the field with one application. No longer. Under the second tranche NOFA, applicants must choose which program they want to file under. This is not a small matter, since the programs focus on very different broadband approaches:

NTIA: As before, NTIA administers a straight grant program (i.e., no loan component). It will award up to 80% of the qualified infrastructure construction costs, but requires applicants to come up with the remaining 20% from other sources. Once again, no operating costs will be funded with these funds. In this tranche, a total of $2.6 billion will be available, with the lion's share, $2.35 billion, allocated to “Comprehensive Community Infrastructure” (CCI) projects. These are primarily “Middle Mile” broadband projects. The remainder of the money will be split between “Public Computer Center” (PCC) projects (at least $150 million) and “Sustainable Broadband Adoption” (SBA) projects (at least $100 million).   Almost any domestic entity is eligible to receive a BTOP grant, although local governments and state agencies are cautioned to determine their qualifications under state law to build and operate the facilities proposed in a BTOP application. Prior blog articles have addressed this eligibility issue. 

1.     “Last Mile” and “Middle Mile” Projects. In the first tranche, BTOP funds were available for both “Last Mile” projects and “Middle Mile” projects, with no particular emphasis of one over the other. This time, the focus will definitely be on “Middle Mile” projects (i.e., those systems that connect "Last Mile" distribution systems to an Internet point-of-presence or provide interoffice transport, backhaul or special access which furthers economic development). You can ask NTIA for money for a “Last Mile” project, but don’t expect to get the money unless (a) it is ancillary to a “Middle Mile” project and (b) the “Last Mile” component costs 20% or less than the total capital cost of the project. Instead, NTIA and RUS urge that you seek funding for Last Mile projects through the RUS’s BIP program (described below). Note well: NTIA will not fund a Middle Mile project in any area where RUS has already made a Middle Mile award with Stimulus Act funds.

In this funding round, NTIA wants to direct the grants to projects that serve community institutions. So the perfect application would involve a public-private partnership proposing a Middle Mile solution to “community anchor institutions” (e.g., public safety service, community colleges and the like) in economically distressed areas which are presently unserved or underserved, and relying on federal funds for 70% or less of the capital cost. The greater the deviation from that ideal, the less likely is the funding.

Many actual and potential applicants in the first tranche complained about the complexity of the application, and NTIA felt their pain. Several of the requirements of the last application round, such as engineering certifications, technical feasibility showings and budget reasonableness showings, have been eliminated or will be requested only if an application is down-selected for final review. Moreover, applicants are no longer confined to “unserved” or “underserved” areas.  Individual awards are expected to be in the $5 million to $150 million range.     NTIA and RUS have pledged to make all award decisions for the first round by the end of February, but prospective Round 2 applicants may not know until then whether there is a conflicting prior award in their target area.  

2.     “Public Computer Center” Projects. “Public Computer Centers” are places that provide broadband access to the general public or a specific vulnerable population, such as low-income, unemployed, aged, children, minorities, and people with disabilities. Think places like community colleges, libraries, schools, youth centers, employment service centers, Native American chapter houses, community centers, senior centers, assistive technology centers for people with disabilities, community health centers, and Neighborhood Network Centers in public housing developments. NTIA expects to make PCC awards to enhance the availablility of broadband in these facilities in the $500 thousand to $15 million range. 

3.    “Sustainable Broadband Adoption” Projects. This is the catch-all category for creative means of promoting broadband adoption. NTIA expects to fund innovative projects that promote broadband demand, including projects focused on providing broadband education, awareness, training, access, equipment, or support, particularly among vulnerable population groups that traditionally have underutilized broadband technology.   SBA awards will be in the $500,000 to $15 million range. 

RUS: The BIP program provides grants, loans, or grant/loan combinations. As before, RUS will award up to 100% of a project’s qualified infrastructure construction costs. Once again, no operating costs will be funded with BIP funds. Typical awards will be 75/25% grant/loan combinations, although projects that request a higher percentage of loan funds will receive a preference. This ratio differs from the available mix of grants and loans for the last tranche, in which 100% grants were available for areas that were entirely “remote” from urbanized areas and entirely unserved, and in which the grant portion of a grant/loan combination for non-remote areas could not exceed the size of the loan portion.   The much-criticized "remote" designation has been abandoned. 

While BIP loans must be secured with first priority liens on the assets purchased with the BIP money, RUS has dropped the controversial requirement that all of an applicant's assets (regardless of whether they were acquired with BIP money) must be subject to first lien in favor of RUS.   RUS will now agree to share its first lien position with other senior lenders on terms acceptable to RUS.  

In this tranche, approximately $2.2 billion will be made available. Reflecting the different focus of the BIP program, $1.7 billion is devoted to Last Mile projects with only $300 million available for Middle Mile projects. Of the remaining $200 million, up to $100 million will be made available for a new category called “Satellite” projects and up to $5 million will be available for two new categories called “Rural Library Broadband” and “Technical Assistance” projects. This leaves a balance of $95 million that will be held in reserve. 

Almost any domestic entity is eligible to receive a BIP grant, although local governments and state agencies are again cautioned to determine their qualifications under state law to build and operate the facilities proposed in a BIP application.

1.     “Last Mile” and “Middle Mile” Projects.  In this funding tranche, the emphasis will be on “Last Mile” projects (i.e., projects predominantly intended to provide broadband service to end users).  Although money is still available for Middle Mile projects, RUS has stressed that basically only existing RUS borrowers should apply for such projects.    RUS will prefer those Last Mile applications that propose to serve unserved households in remote rural areas, with high broadband speeds, discounted rates to community facilities and low cost per passed premises, where the applicant has a strong management team, has borrowed from RUS in the past and is a socially and economically disadvantaged small business concern. Further preference will be given to those proposals in which the ratio of BIP funding to new equity is lower, and to those proposals where the ratio of BIP loan money to BIP grant money is higher. Middle Mile projects will be evaluated with the same criteria, except that the RUS will look at the throughput to interconnection points and will not consider the cost per passed premises.

Unlike the NTIA, which has made the initial application process less burdensome, the RUS has compressed its two-part application process into a single application. That means that there is a lot more involved in preparing the BIP application. RUS will still require applicants to provide technical diagrams, a project timeline, and the certification of a professional engineer. 

RUS did loosen some filing restrictions. As before, a Last Mile service area must be at least 75% rural, but now it qualifies as underserved if less than 50% of the service area premises currently have access to broadband at speeds faster than 5 Mbps (combined up and downstream). This is a significant change from the gating criteria applied to the first tranche of BIP funds, where the proposed funded service area had to be an at least 75% “unserved” or “underserved” rural area and the broadband service metrics for incumbents were more easily met. RUS has also added an efficiency standard: federal assistance for Last Mile projects may not exceed $10,000 per passed premises (subject to waiver).

2.    “Satellite” Projects. “Satellite” projects are those that use satellites to provide broadband service to unserved, rural premises, either by: funding customer premises equipment (at no cost to the user); funding terrestrial equipment (at no cost to the user); and/or providing discounted broadband service (with at least a 25% discount for at least one year). The country will be divided into eight regions, and applicants will be eligible to serve any one or more of them. The details of this funding program will be revealed in the near future through the release of an RFP. In effect, there will be a Round 2-and-a-Half to receive applications for this money and the two following programs, all of which are ancillary or supplementary to the main projects funded in Rounds 1 and 2.

3.     “Technical Assistance” Projects. Under this category, RUS will make grants to fund the development of regional broadband development strategies in rural areas. The concept is that the awardee will work in public/private partnership to develop a USDA-approved regional plan to provide broadband service in rural areas that remain “critically unserved”.  In addition, technical assistance plans may be submitted to other federal agencies. Technical assistance grants are limited to $200,000 per grant and are available to those who receive an award for a Last Mile, a Middle Mile or a Satellite project through applications submitted in the first or second rounds.

4.     “Rural Library Broadband” Projects. This is another grant program used to reimburse the awardee for the costs of connecting one or more rural libraries to the broadband system. This grant program is available to those awarded BIP funds for a Last Mile, Middle Mile or Satellite project through application submitted for the first or second round, and need not be requested until after the RUS issues an RFP. 

There are, of course, many other details and nuances involved in planning a project for the funding of NTIA or RUS that simply cannot be covered in this overview. If you desire further information on this upcoming funding application process, please contact one of the attorneys in the Fletcher, Heald & Hildreth Stimulus Group.