Letter of Credit

The FCC has released a Notice of Proposed Rulemaking (NPRM) that addresses issues related to the letters of credit that providers must carry in order to gain Universal Service Fund (USF) support in deployment of broadband services to high-cost rural areas.

Currently, the letters of credit, which are required of “certain broadband providers,” come from a qualifying bank and carry a certain value, the FCC said.

At issue is that during the past two years, a “significant number” of banks have fallen below the FCC’s standards. This creates the possibility that providers whose letters of credit no longer pass muster would be required to obtain new letters from banks that do qualify. This could impact deployment.

The NPRM seeks comment on changing bank rating standards and allowing the providers covered to reduce the value of their letters of credit sooner. Doing so potentially would free more capital for deployment.

The FCC NPRM looks at the burdens of such scenarios and seeks input on how to define the new standards for the banks that issue the letters. It also seeks comment on reducing the letter of credit value for RDOF support for recipients that have demonstrated sufficient broadband deployment using program funds.

The second issue the FCC wants feedback on is allowing Connect America Fund Phase II providers that have met deployment and reporting obligations to reduce their letter of credit burden by following the RDOF letter of credit rules.

Letter of credit requirements have been an ongoing challenge for providers for several years.

Last October six of the largest regional providers sent a letter seeking alternatives to current letter of credit requirements for the BEAD program. The letter was sent by Brightspeed, Altafiber, Altice, Consolidated Communications, Windstream, and Ziply Fiber. Collectively, the companies cover 44% of the country. The recipients were Secretary of Commerce Gina Raimondo and Assistant Secretary of Commerce for Communications Alan Davidson.

The letter said that the current letter of credit requirements are overly burdensome and will reduce private investments that would expand broadband and hold them back from BEAD deployment goals.

The National Telecommunications and Information Administration (NTIA) took steps in the form of a “programmatic wavier” a few weeks later.

Previously, some providers who won funding in the Rural Broadband Experiments auction were unable to do so because they couldn’t meet letter of credit requirements.

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