Sixteen months after initial funding recipients were announced in the FCC Rural Broadband Experiments program, some awardees have been unable to proceed with their projects because funds have not yet been released to them. At issue is a requirement that awardees obtain a letter of credit from one of the nation’s Top 100 banks: Small rural telcos and utility companies that represent a substantial percentage of awardees typically do not borrow from those banks.
The issue is also of concern because the same requirement is included in the rules for the upcoming Connect America Fund reverse auction that will award funding to build broadband to areas of price cap carrier territories where the incumbent carrier rejected funding, noted Doug Jarrett in a recent interview with Telecompetitor. Jarrett is a partner with Keller & Heckman LLP who specializes in telecom law.
FCC Rural Broadband Experiments
The FCC Rural Broadband Experiments program awarded funding to companies to cover some of the costs of building broadband to rural areas where broadband is not available today or is available only at low speeds. Funding was awarded through a competitive bidding process.
Requiring Rural Broadband Experiment awardees to obtain letters of credit may have been a good idea as a means of helping to ensure that funds would be used properly and that projects would be completed on schedule. But requiring the LOC to be from one of the Top 100 banks may have been overkill.
Obtaining letters of credit from one of the Top 100 banks “can be expensive” and is “not something the banks want to get into,” commented Jarrett. At least one small telco that was awarded RBE funding – Southwest Arkansas Telephone Cooperative — withdrew from the program because it was unable to obtain an appropriate LOC. Others are still hoping the FCC will modify the LOC requirements.
Jarrett believes the FCC eventually may do that. He believes officials were getting set to take action several months ago but other issues took priority. Last month the Commission did issue an order modifying a different aspect of LOC requirements that had drawn criticism: Because of the way requirements were structured, the size of the LOC that awardees had to maintain would have grown substantially over the life of a construction project. The modifications last month should have the net impact of reducing the size of the LOC that funding recipients will have to maintain in comparison with the original plan. But last month’s order did not address the Top 100 bank requirement.
“Unfortunately it’s dragged on,” Jarrett said.
Jarrett also noted that last month’s order did not extend the modifications about the size of the LOC that awardees must maintain to include winners in the Connect America Fund reverse auction. That’s another move he hopes the FCC eventually will make.
3 thoughts on “Letter of Credit Concerns Delay FCC Rural Broadband Experiments”
Count me as one of the hopeful that the FCC can and will protect risk and open the list of eligible banks. The top 100 banks rule was similar to saying that only the largest broadband providers are capable of serving rural America. The truth is incumbents did not allocate USF resources to innovate for the 30 million people, now left behind. Given recent committee hearings, I have reason to believe that Congress and the FCC now recognize that broadband is a local business, served by UN-subsidized local providers. Give the rural provider the subsidies needed to meet and exceed the current and future FCC definition of broadband. Open the portfolio of credit-worthy banks as they are eager to serve small operators. Let the market be the market and let the auction be a true auction.
We were working with Independent telephone Company clients that had some excellent projects to submit for the Experiments; however, they knew they could not get the required LOC from a Top 100 bank where they did not do have a business relationship established. Also, the increase in the amount of the LOC created concerns. They chose to not participate. To redo the rules for those that did submit would mean that those projects received an unfair advantage because they chose to take a chance that they would not have to meet the requirements when they were selected. At least it might help others compete in the auctions.
If you are working with the telco or other clients re the auction, I can help you solve the LOC issue.