House Commerce Hearing Critiques NTIA's Handling of BEAD Program

As I previewed in a Monday post to the Free State Foundation blog, the House Energy and Commerce Committee's Subcommittee on Communications and Technology the following day held a hearing on the status of the $42.45 billion Broadband Equity, Access, and Deployment (BEAD) Program. Participants had much to say about NTIA's management of the program, particularly with respect to timing, clarity, and the approval process.

Committee Chair Cathy McMorris Rodgers (R-WA) in her opening remarks focused on "NTIA's decision to pressure states to regulate the rates charged for broadband service," "unnecessary workforce and climate-related requirements," "an expensive fiber-first agenda," and "unnecessary delays in NTIA's approval process."

Subcommittee Chair Bob Latta (R-OH) touched on similar topics in his opening remarks – and expressed concern that "NTIA continues to add requirements that are contrary to Congressional intent and make this program less attractive and more expensive to the broadband providers needed to deploy to unserved and underserved communities."

In a Written Statement, Misty Ann Giles, Director of the Department of Administration and Chief Operating Officer for the State of Montana, characterized navigating the BEAD Program process as "akin to building a plane while flying it without having the necessary instructions to be successful" and complained that "Montana has often received conflicting or even new and changed guidance after submitting our plans or beginning a previously approved NTIA operational process."

One specific example provided relates to NTIA's recent guidance regarding "alternative technologies" such as satellites and unlicensed wireless. Many, including Committee Chair Rodgers and Subcommittee Chair Latta, support the use of these and other non-fiber distribution platforms in areas where the deployment of fiber would be prohibitively expensive. But Giles, echoing an argument I made a month ago in "BEAD Program Technological Neutrality 'Fix' Falls Short," a Perspectives from FSF Scholars, pointed out that "[w]hile much of the guidance is helpful and needed, it has come at the 11th hour for Montana."

Shirley Bloomfield, NTCA – The Rural Broadband Association CEO, testified that "several concerns, if not adequately addressed, could deter small, community-based providers from participating in BEAD." They include: the accuracy of the FCC's National Broadband Map, prohibitively large project areas, preferences based upon fund-matching ability, higher-than-expected costs and longer-than-expected permitting processes, and the uncertain fate of the Universal Service Fund.

Video of the hearing is available here.

House Commerce Subcommittee to Hold Hearing on BEAD Program

Tomorrow the House Energy and Commerce Committee's Subcommittee on Communications and Technology will hold a hearing titled "From Introduction to Implementation: A BEAD Program Progress Report."

In the hearing announcement, Committee Chair Cathy McMorris Rodgers (R-WA) and Subcommittee Chair Bob Latta (R-OH) state that the "hearing will serve as an opportunity to hear about how the implementation of the program is going, better understand the impact of NTIA's rules, and what to expect going forward as states begin to award funds."

Regarding rate regulation and the statutorily mandated "low-cost broadband service option," a concern Free State Foundation President Randolph May addressed in a Perspectives from FSF Scholars published earlier today, the accompanying Majority Staff Memo asserts that "NTIA is responsible for reviewing and approving these low-cost options and has used this requirement as a way to regulate rates. The Committee considers these rate regulated approvals to be a violation of the IIJA's rate regulation prohibition."

Other topics teed up by the Majority Staff Memo include the disconnect between the clear congressional goal of technology neutrality and NTIA's "fiber-first" bias; the need for permitting reform; and the implementation impact of labor, letter of credit, and Buy America requirements.

The following witnesses are scheduled to testify:

• Misty Ann Giles, Director and Chief Operating Officer, Montana Department of Administration
• Basil Alwan, Chief Executive Officer, Tarana Wireless
• Shirley Bloomfield, Chief Executive Office, NTCA – The Rural Broadband Association
• Blair Levin, Policy Analyst, New Street Research and Non-Resident Fellow, Metropolitan Policy Project, Brookings Institution

The hearing will begin at 10:30 am.

Draft Bill Would Treat Broadband Subsidies as Nontaxable

Yesterday Senator Angus King (I-ME) became the latest cosponsor of the Broadband Grant Tax Treatment Act (BGTTA), joining a bipartisan group that includes Tim Kaine (D-VA), Roger Wicker (R-MS), Rev. Raphael Warnock (D-GA), and Shelley Moore Capito (R-WV). Introduced by Senators Mark Warner (D-VA) and Jerry Moran (R-KS), the BGTTA would exempt certain federal broadband grants from taxation – and thereby maximize the utility of that funding.

Currently, the IRS can shield from taxation certain broadband subsidies, as it did in 2010. Beginning next year, however, the 2017 Tax Cuts and Jobs Act will require that the Internal Revenue Service (IRS) treat all federal grants as taxable income.

The BGTTA would exclude from the definition of "taxable income" broadband infrastructure funding derived from the Infrastructure Investment and Jobs Act (most notably, the $42.45 billion Broadband Equity, Access, and Deployment (BEAD) Program) and the American Rescue Plan Act (in particular, the $350 billion State and Local Fiscal Recovery Funds Program and the $10 billion Coronavirus Capital Projects Fund).

In a letter dated November 2, 2022, to leadership of the Senate Finance Committee and the House Committee on Ways and Means, a group of trade associations (the Competitive Carriers Association, CTIA – The Wireless Association, NTCA – the Rural Broadband Association, TIA – The Telecommunications Industry Association, USTelecom – The Broadband Association, and WIA – Wireless Infrastructure Association) urged passage of the BGTTA.

Specifically, they wrote that "if Congress fails to act, grant recipients will be required to return as much as 21 percent of the broadband grants to the federal government in the form of taxes" and "it is … incumbent upon Congress to act to free the ARPA and IIJA broadband grants from taxation and ensure all of the broadband grants awarded will be used to reach Americans with connectivity needs."

Also on Wednesday, Senator Warner stated at the 2022 USTelecom Broadband Investment Forum that he is "engaged [in] real-time conversations with the finance committee and others to see if we could get this included (in) the end-of-the-year package."

At that same event, his fellow sponsor of the BGTTA Senator Moran reportedly "advocated robust congressional oversight," argued that "Congress should use its power of the purse to promote executive agency accountability," and "called for close coordination between the FCC, the National Telecommunications and Information Administration, and the [Department of Agriculture's] Rural Utilities Service."

In "Absent Oversight, the Broadband Funding Faucet Likely Will Overflow," a Perspectives from FSF Scholars published last week, I warned that, without improved interagency coordination, more federal dollars than are required to connect locations as yet unserved could be disbursed.

Whether taxed or not, the need to ensure the efficient and responsible allocation of broadband subsidies remains paramount.

Stimulus Strings Tied to Uncertainties

Recent news and commentary have highlighted large incumbent broadband providers' apparent disinterest in federal stimulus dollars. But it's hardly surprising that large incumbents would forego federal broadband grants. Given current and projected private investment in broadband infrastructure, why would anyone expect large broadband providers to suddenly subject themselves to the administrative and legal uncertainties that come with federal stimulus dollars? And why would they want to invite media and public criticisms that would certainly follow from taking taxpayer dollars? One can't read the minds of broadband provider execs, and any number of factors could be playing into their decisionmaking. However, regulatory uncertainties surrounding the broadband grant program and public anti-stimulus sentiment are likely to be contributing factors to the major broadband providers' pass on federal dollars.

The incumbent providers are making broadband investments with their own money and based on their own best judgments about how to provide service in the marketplace. As many stories point out, these broadband providers are investing annually billions of their own dollars into broadband infrastructure. It's estimated that broadband providers have invested over $200 billion in broadband deployment in recent years. This means they’re investing billions and billions more than the entire $7.2 billion federal stimulus appropriation.

Attached to federal stimulus dollars for broadband are statutory conditions governing network management that include 'nondiscrimination obligations.' Those statutory conditions have been interpreted expansively by the National Telecommunications and Information Administration (NTIA) and the Rural Utility Service (RUS) so that 'nondiscrimination obligations' go beyond the Federal Communications Commission's (FCC) 2005 'Broadband Policy Statement' by mandating a so-called 'non-discrimination condition' that prohibits the favoring of any lawful Internet applications or content over others. The literal letter of these new rules might be interpreted to prohibit innovative attempts by broadband providers to more efficiently manage their networks through flexible billing options that tie consumer prices to amount of usage. But the new rules could reach even further into network management practices. Through administrative action, the FCC could conclude that a particular broadband provider’s network management techniques do NOT fit with 'reasonable network management practices.' (The FCC is the primary venue for hearing complaints alleging non-compliance with the broadband grant program’s requirements.) Uncertainties arise from the fact that the FCC has little or no precedent in interpreting and applying its 'Broadband Policy Statement.' And the 'non-discrimination condition' contained in the NTIA/RUS rules gives the FCC an added new hook to rely on.

Through administrative interpretation and enforcement actions, agencies can routinely impose expansive new obligations on private parties without clear pre-existing rules. Arguably, the FCC did precisely this in its recent attempt to impose network management requirements on Comcast concerning peer-to-peer traffic. Without any official rulemaking or any administrative adjudication of the facts, the FCC declared the 'voluntary principles' of its 'Broadband Policy Statement' to be enforceable regulations, and then immediately held Comcast to be in violation. The net result of all this is regulatory uncertainty piled upon regulatory uncertainty, compounded by more regulatory uncertainty. Such and atmosphere of uncertainty could hardly make participation in the broadband grants program more appealing to broadband providers.

Another contextual factor to keep in mind concerning the federal broadband stimulus is the media scrutiny and public outrage over the spending activities of major financial and auto execs whose companies were receiving federal bailouts. America is still in the grips of the Great Recession and a bailout backlash sentiment still exists. Surely, no company wants decidedly negative headlines each time its CEO takes a trip on a private jet that the press, public opinion, and political officials all view as being fueled by federal stimulus dollars. Banks and broadband are apples and oranges, but people recognize the distinction between government and private industry. When private competitors forego federal funds, any perks lavished on their execs are the shareholders' problem. But when private competitors do take federal funds, the shareholders' problem becomes reasonably viewed as the taxpayers' problem. I don't know for sure, of course, but it is certainly plausible that a broadband provider would take these kinds of concerns seriously when considering the broadband grants program. Accordingly, a large broadband provider could simply see its current and existing private investment in broadband deployment as the safer path.

NTIA and RUS acknowledge that the eligibility rules for the broadband grant program and its implementation are works in progress that will be adjusted as the process goes along. Both agencies have received some 2,200 broadband grant applications, with smaller private businesses or municipal broadband providers actively seeking federal dollars. But uncertainties surrounding the regulatory mandates accompanying implementation of the program and consideration of public opinion are two factors that hardly seem favorable to large, incumbent broadband provider buy-in.