Top 10 novel and thoughtful concepts in the newly-approved Louisiana BEAD plan

Last week, Louisiana became the first state to have their BEAD plan fully approved by the NTIA. NTIA Administrator Alan Davidson heaped praise on the ConnectLA team for “developing a sophisticated and high-quality plan focused on creating jobs and building resilient networks that will serve the state for years to come.” As other states work on finalizing their plans, here's my Top 10 list of elements that are novel or different compared to what has been proposed in other state draft plans that I've looked at so far.

The first three all relate to one of the biggest BEAD design questions: how should subgrant areas be defined to best balance the needs of different kinds of providers with the unique BEAD requirement to reach ALL eligible locations (as Carol Mattey posted about last week)? The three items below all seem to be intended to make it as easy as possible for providers to propose almost any application type desired, with an overall goal of maximizing participation with an underlying foundation of universal coverage requirements.

1. Use of  customized "sub-project area" units (SPAs) to define application areas

See section 2.4.1, 2.4.6

The core LA rule is that an application must be at least as big as one SPA, and that if awarded a SPA the provider must serve all eligible locations. The idea here seems to be to use the fairy standard approach from CAF II, RDOF, the NY CAF plan from 2018, and other programs that used standard units such as CBGs or CBs with the same coverage requirement, but to take advantage of the new per-BSL maps to craft SPAs that will avoid well-documented problems with census areas, such as the fact that roads often serve as boundaries so one side of a street is covered and the other is not. Quite a few other state BEAD plans have proposed to use standard units such as CBGs, Zip Code Tabulation Areas, or even more unique areas such as school district boundaries. But LA seems to be saying that they will do some advanced analysis of the final eligible BSL map in the state to come up with better unit definitions.

2. Highly flexible rules for how SPAs are combined into applications

See Section 2.4.1, 2.4.6

The LA plan allows applicants to combine any set of SPAs they want into a given application. It could be 1,000 SPAs statewide, or 1 SPA in a rural area. There is no contiguity requirement. A given applicant could, I believe, even apply for the same SPA twice in two applications that overlap with each other. The idea seems to be maximum flexibility for providers to craft whatever plan they think makes sense, which presumably will increase participation levels. The tradeoff must be how to deal with the complexity of all of those applications -- although LA's full implementation plan and budget isn't public, I would guess they have a plan.

3. "Separable" applications to support deconfliction in the most efficient manner

See section 2.4.1, 2.4.2

This seems to be a totally unique concept I haven't seen in any other state plan. Since the project area units ("SPAs") in LA will be quite small -- the state projects an average size of about 100 BSLs per unit -- almost all applications will comprise many SPAs. So what happens if two applications partially overlap in some SPAs? This "deconfliction" issue is a major point of emphasis in the NOFO, and most states seem to be taking a simplistic approach of proposing to "negotiate" with the overlapping applicant to accept a de-scoped application. But since that applicant knows that the state MUST cover all eligible BSLs, that sounds like a pretty one-way negotiation in most cases. The LA approach seems to be using a simplified form of the sophisticated "package bidding" rules used in FCC auctions that allow applicants to express preferences both for a large set of units (if they can get them all), and for conditional preferences for only some of their units (if another applicant wins some of them). In full-blown form this a devilishly complicated optimization problem, but here LA seems to be taking a more straightforward approach of simply allowing applicants to place two bids for each SPA: one that is applies if all the areas are awarded, and a second just for a given area if only it can be awarded.

4. Two-round bidding

See section 2.4.1

Louisiana's plan is simple but unless I've missed something it seems to be unique amongst all of the proposed draft state plans: it requires a second round of bidding before making awards. Unlike other states that simply take applications, score them, and select a winner, Louisiana has a second, "best and final" round that gives applicants the opportunity to improve their score by reducing their requested BEAD outlay.

This seems pretty obviously to be a good idea if the goal is to minimize the use of BEAD funds as the NOFO instructs. It's not a full-blown reverse auction, but in the second round the main thing an applicant can change is to reduce how much funding it is requesting, so there is at least an element of an auction at play. I know that many people found RDOF to be an unacceptable process, but I'm still surprised that Louisiana seems to be standing alone with having any kind of multi-round approach given how much focus there has been on making the BEAD funds go as far as possible.

Next the LA plan has two elements aimed at the "clean up" process to reach as many remaining locations as possible after the main process above. Given that Louisiana is a pretty big state with over 200,000 eligible locations, even if the main process goes very well it seems likely there will be adjustments required.

5. Removal of up to 20% of BSLs from a grant proposal if needed to achieve deconfliction

See section 2.4.6

This is actually not a new idea: the NY CAF reverse action in 2018 did something similar. The core idea is that as a condition of participating in BEAD, an applicant acknowledges that the state may simply "remove" -- with a corresponding funding adjustment -- up to 20% of the BSLs from a final award if that is the only way to ensure maximum coverage. For example, two attractive applications overlap in one set of BSLs that represent 15% of each application's total. If none of the items above -- such as a "separability" preference from one of the applicants -- is able to resolve the overlap, Louisiana may simply remove the conflicting BSLs from one of the two applications, and both applicants are still required to accept the award.

6. Ability to make BSL-level revisions to an FTTH proposal including substitutions of alternate technology types during the Extremely High Cost Location Threshold (EHCT) process

See section 2.4.10.A

In a quite detailed discussion of how it will apply the Extremely High Cost Location Threshold, Louisiana says that if a proposal is above the EHCT, one solution will be to allow the applicant to substitute an alternate technology for fiber for only certain BSLs within the area. In other words, a FTTH proposal may be allowed to substitute FW or even satellite for certain very high cost BSLs if that is necessary to stay within the BEAD budget.

While this seem rather obvious and intuitive, the fact that NTIA approved this actually addresses an important question: at what point in the process may a "Priority Broadband Project" go from being "100% end-to-end fiber" to including, if necessary for cost reasons, a hybrid technology strategy. LA's approval by NTIA seems to mean that the answer is that this is permissible during the EHCT process, which may be quite important for certain states whose allocations are unlikely to be enough for 100% fiber.

The rest of my list are a series of one-off issues, but each one seems quite important for other states as they are finalizing their own plans.

7. Low-cost service option: "Upward departure modification" mechanism to adjust the base target rate

See section 2.12

The LCSO has been the biggest point of contention in Volume 2 development as of late. A wide range of providers --- from large national carriers to small municipal providers -- seem to be in agreement a mandatory $30 rate such as the model example in the NOFO is bad for the economic viability of proposed projects in higher cost areas. NTIA, many states, and a number of local stakeholders are equally agreed that affordability is a critical goal of BEAD and the $30 rate is essential.

Louisiana seems to have negotiated a balanced compromise on this issue: the LA plan is to require a "target effective rate" of $30, but to allow a given provider to submit in effect a waiver request to adjust that rate upward in the direction of a NTE of $65, based on the FCC Urban Rate Survey that is similarly used for the requirement that FCC high-cost USF recipients must offer rates that are comparable to urban areas. The waiver request must be based on evidence that costs are too high or the revenue impacts would be too large for the financial viability of the project, which seems like a reasonable standard. NTIA's approval of this provision may offer an escape hatch for state proposal drafters who are currently stuck between the back-and-forth between industry and affordability advocates.

8. Use of fixed amount subawards and accelerated disbursement schedule for funding

See section 2.16.2

I have this as number 8, but it may be the most important item on my entire list. Unlike many state plans which are proposing a "reimbursement" model for the release of funds -- which means a sub grantee cannot receive funding until it has spent a given amount (from its own funds) to build out a part of the network, submitted those "receipts" to the state, and had them reviewed and verified -- LA will use the "fixed subaward" model, with funds flowing based on deployment milestones of 10%, 35%, 65%, and 85%. This is much closer to the FCC model for CAF II and RDOF, and much more predictable for providers.

Most importantly -- and most uniquely -- Louisiana proposed and NTIA approved an initial 10% of funding immediately upon grant approval. So a $10m BEAD sub grantee will receive $1m in seed funding on day one.

The impact on the financial profile of a BEAD grant is significant. Consider the example of a $10m BEAD grant for a $20m project. In the "reimbursement" model, assuming the build rate and costs are spread equally over 4 years, the sub grantee will have outlaid over $10m of its own funds before it will receive its first penny of BEAD funds. In Louisiana, the same provider would have to commit significantly less on a net basis, because it receives BEAD money more quickly. Played out over the life of the project, the time value of money difference is striking: about a 30% improvement in the value of the provider's matching contribution assuming a 15% cost of capital. This also could make Louisiana a more attractive destination for BEAD applicants.

9. Penalty condition for subgrantees who subsequently default on a pre-existing federal obligation that resulted in de-duplication removal of eligible locations (eg, RDOF)

See section 2.4.14.A

This is also a unique provision: Louisiana will attach a condition to all BEAD grants saying that if the subgrantee later defaults on an RDOF award in the state it must pay a penalty equal to the cost to build fiber to those locations. This strikes me as quite clever: it prohibits an RDOF winner from playing games to exploit BEAD challenge process requirements that any BSL with a "preexisting federal obligation" (such as RDOF) must be ineligible for BEAD, but FCC RDOF default rules that may not act as a sufficient deterrent. In other words, once a provider re-asserts that it plans to complete an RDOF build by saying its RDOF locations have a pre-existing federal obligation, Louisiana will hold that provider to the commitment even if the FCC default penalties may be acceptable to the provider.

10. Support for mobile broadband infrastructure as a deployment use of funds

See sections 2.4.2.1 (sub section 4.c.iii) and 2.11.1.D

I found this last one truly surprising. If you had asked me a year ago if BEAD deployment funds could be used to deploy 5G mobile infrastructure I would have said no, the BEAD statute is about fixed not mobile. But Louisiana has another clever provision that defines new mobile infrastructure as a resiliency solution and gives significant scoring benefits to projects that agree to add new mobile broadband service to areas designated as "Critical Resiliency Need Areas." The model seems to depend on getting the right ratio between the cost of fiber and the cost of mobile in the designated areas, so the state's SPA development efforts will presumably in part consider mobile coverage as well.

Congratulations are in order for the ConnectLA. This is a thoughtful plan that is trying to anticipate issues and solve in advance. There’s a lot of inspiration to be found for states that are still working on revisions and final touches.