Commerce BEAD Decision Delayed

What’s New: It appears that the Commerce Department decision on how to move forward on the BEAD program has been delayed from mid-May to June or even July. In this note, we update our view of the state of play on BEAD and the impact of delay on the major ISPs.

Background

As discussed before, the states, the companies, and the investors are all awaiting the results of Secretary Lutnick’s “rigorous review” of the current BEAD framework.

We are certain that specific Biden rules will be eliminated.
The key questions are whether the 42+ states that have either completed or are close to completing their bidding will have to rebid under new guidelines and whether Commerce will impose a new high-cost threshold that will shift funds from fiber to satellite broadband offerings. (LINK)

Earlier this year, Department Officials had been indicating to states that the results of that review would be made public in mid-May.

It now appears, however, that the results will not become public until June or even July.

Analysis

The delay was signaled in the Senate questions to NTIA nominee Arielle Roth.

As we discussed in an earlier note (LINK), the Senate Questions to Roth show Republican[1] Senators Fisher, Sullivan and Capito, suggested to us that they do not want Commerce to require the states to rebid and that they want the states to control the final decisions.
Further, in one of her questions, Capito asked whether July would be a reasonable deadline for the review to be completed. Roth declined to answer but Capito, who has had private conversations with Lutnick, is trying to both accelerate the decision while being friendly to a fellow Republican. Her citing a July deadline suggested to us that the decision could be delayed from May.

States continue to move forward but the review has forced some states to stall their efforts.

Some states continue to move forward, with at least 42 states completed or amid the bidding process.
Hawaii also closed its first round of bidding and is also on track finish by July.
Texas begins its formal process for bidding on BEAD projects on May 15.[2]
But other states are essentially opting, shall we say, to circle the airport before asking for clearance to land,[3] as they don’t know how to finish the job with the Commerce review still pending.
Missouri, for example, issued an update in which it announced that while it had determined awards for 70.62% of locations that will receive funding but is not notifying any of the selectees so they have flexibility, if needed, under eventual new Commerce guidance.[4]
Maine made a similar announcement.[5]
So far, the bidding shows that states have been able to meet their objectives within the Congressional budget, including via competitive bidding that has resulted in many proposed fiber awards that are at or below the funding per location for satellite service.[6]

There continues to be political pressure on Commerce to let the states proceed with their existing plans, minus certain Biden era requirements.

For example, Republican Senator Capito just released a letter she sent Secretary Lutnick saying “I am concerned that West Virginia may be told to move back from the 1-yard line to the 40-yard line after the (Commerce Department) review concludes. Many of the changes that should be made to the program can be made quickly, but as an example, reopening the subgrantee application process for ISPs could delay connecting rural Americans for another year. I also am concerned that an arbitrary one-size-fits-all cost cap could be imposed for each connection. West Virginia is the Mountain State, so connecting us may be inherently more expensive than most every other state. In addition, certain technologies are not feasible in many areas not only due to our challenging topography but also because 78 percent of the state is forested.
There have also been letters from ISPs in red states like Missouri and Louisiana pleading with the Secretary of Commerce to let the funding move forward.

The four options we have heard about continue to be the options most likely to result from the review. As we have written before, we have heard that Commerce is looking at four options. (LINK)

One option is to force states to rebid and impose a federal high-cost threshold that would shift funds from fiber to satellite.
A second option is to force states to eliminate certain requirements but otherwise allow the results of the bidding process to stand with only marginal adjustments, and to proceed to transfer funds to the states.
A third option is to set some general rules but have the Commerce Department do a “rigorous review” of each state’s bidding results prior to the approval of funding release.
A fourth option is to rewrite the rules in a way that awards all the money to satellite providers, rerun all the bidding, and return money to the Treasury.
We think the first two are the most likely.
The third would cause significant delays and would involve federal staff (which is likely to be significantly cut) substituting their judgments for the judgements of the governors and state broadband offices, something Republicans have criticized the Biden Administration for doing. A version of the third, that we have heard a bit about, is that Commerce would tell the states to keep the initial bids but to rescore the bids in such a way that satellite gets more funding and fiber gets less. This has the same problem of having the federal government micromanage the states while also causing bidders to object that changing the scoring after the bidding is unfair, as the bidders formulated their proposal to address the scoring system adopted by the individual state.
The fourth would be opposed by Republican (and Democratic) Governors, as well as many Senators on a bi-partisan basis. (LINK) Not only would the funds returned to the Treasury be non-material in the context of the current budget fights, and would raise significant legal challenges,[7] it would also raise questions of whether the motivation was simply to assist Musk, the President’s largest campaign contributor.[8]
As to the first two, Commerce clearly wants to do the first. If it wanted to do the second, it could do so immediately and stop the more than 100-day delay caused by the Trump Administration.
But we think Commerce is developing an increased appreciation of the political, administrative and political risks of doing the first, which experts predict would add at least 12-18 months of further delay to getting shovels in the ground.

Whatever the ultimate outcome, the delay is not good for the large ISPs bidding on the program.

As we noted several weeks ago, the data shows that in the states that have started the bidding process, there are high levels of participation by CMSCA and CHTR, with significant levels of participation by T and FBYR (to be acquired by VZ.) (LINK)
The delay by itself is a negative for those companies.
We don’t know whether the ultimate resolution will make things worse for those companies, but we see no scenario in which the changes make the situation materially better for those companies.

Bottom Line: The Commerce Department wants to do more than simply remove the requirements that they don’t like. After all, if that were all it wanted to do it could have done so quickly and avoided the potential political pain. In that sense, signs continue to point to Commerce forcing states to rebid with a high-cost threshold that shifts funds from satellite to fiber. That outcome, as well as the current delay, is negative for all the companies that have been involved in bidding to date, including CMSCA, CHTR, T, and VZ/FBYR. Nonetheless, we think the cost to the Commerce Department of doing more, by forcing a rebid process and having a federal high-cost threshold, is rising and by June or July, the politics may have shifted for the Trump Administration[9] such that further delays in broadband funding may carry an unacceptable political risk.

[1] We don’t include questions from the Democrats as, for purposes of assisting investors, we don’t think the questions from Democrats will have a material impact on the likely outcome.

[2] Texas is proceeding with a long-planned for process that begins with formal release of a “Notice of Funding Availability” on May 15, then a mandatory two-week question and consideration period, followed by the ability to submit actual applications on June 12.

[3] We admit to struggling with the right metaphor but think circling the airport waiting for permission to land most accurately describes what the states are doing (but we are not implying that we think the Commerce Department is like flight control at Newark. Though many people are saying that...)

[4] The update said ““Future guidance from NTIA may require amendments to Missouri’s BEAD program…Therefore, OBD (Office of Broadband Development) will not release details of preliminary awards, including the identity of preliminary awardees, or conduct the offer/acceptance process until the status of preliminary awards made under OBD’s approved program plan is confirmed…Applicants will not be notified of the areas where they will be offered an award until the offer/acceptance process begins. OBD will continue to update stakeholders as NTIA provides additional guidance.”

[5] The Maine Connectivity Authority (MCA) wrote “Late last week, NTIA confirmed that anticipated updates to the BEAD program will make it infeasible for MCA to complete the program requirements in the previously defined timeframe. An updated policy notice is currently expected from NTIA in mid-May, although the final timing and the scope of the program changes under that notice are still to be determined. Ahead of the release of this updated program guidance, NTIA has stopped holding several procedural meetings necessary for states to continue progressing through the program’s execution. NTIA’s changes to program guidelines could have a significant downstream impact on our ISP partners and the communities they’re planning to serve. While we wait to inform applicants of the specifics of those changes, we cannot simultaneously proceed with detailed good-faith negotiations at this time. As a result, we are matching the pace being set. MCA has a longstanding commitment to working closely with all of our partners, from NTIA to ISPs to communities, and we will continue to prioritize those relationships as we work through the evolution of BEAD.”

[6] As we have discussed in prior notes, the results of states like Louisiana demonstrate that connecting most unserved and underserved locations to fiber appears to be feasible for many states. Further, it is not clear what Starlink would bid to win a subsidy, but we have heard reports that it would seek $5,000 a location.

[7] The current BEAD statute does not provide for “leftover” funds to be returned to the Treasury, but instead there are specific provisions for funds to be reallocated either to municipalities within a state or reallocated to other states. We think the consensus legal view is that a statutory change would be required to accomplish the “return to the treasury” outcome. That which is one of the provisions of the Republican sponsored Speed Up BEAD House draft from February. While we think it could pass the House, we think it would be uphill and further, would not pass the Senate. Part of the reason we think that is that for a while, there was speculation that the tax bill might include language along those lines, but it appears that the opposition of a few of the Senate Commerce Republicans seems to have taken that idea off the table, though, of course, it could return.

[8] In a previous world, one might think doing so would be seen as a negative. Given, however, how the current administration sees no downside to using government property to stage advertising, government officials to taut the stock, and government officials to offer a sales pitch to other countries, we don’t think the current administration would care about the political consequences of being seen to help Musk. Rather, we think doing so while raising objections from Republican Governors may cause the Commerce Department to avoid this option.

[9] If economic projections of tariff caused shortages, price increases, and negative growth prove correct, Trump’s already problematic polling will get worse and that might cause the White House to consider the political downside of delaying building broadband in rural areas.