Federal Stimulus Act Grant Regulation ("NOFA") Released

Yesterday, July 1, the U.S. Departments of Commerce and Agriculture jointly released their long-awaited Notice of Funds Availability (NOFA), which establishes the requirements for applicants of broadband infrastructure grants and loans under the American Recovery and Reinvestment Act (the “Stimulus Act”).

This alert provides a broad overview of some of the NOFA’s more important aspects. For a more detailed discussion join Davis Wright Tremaine on Tuesday, July 7, at 2 - 2:45 p.m. EDT, for a concise update webinar, "What You Must Know Now to Apply for Federal Broadband Grants, Now That the NOFA is Out."

As we have advised in previous alerts in February, March, April and June, the Stimulus Act directs the Commerce Department’s National Telecommunications and Information Administration (NTIA) and the Department of Agriculture’s Rural Utilities Service (RUS) to dispense a combined $7.4 billion in broadband infrastructure grants and loans to deploy broadband to unserved, underserved and other needy areas and populations. However, the statute directed these agencies to set forth the details, and even definitions, of each program in the NOFA.

As further delineated in the NOFA, key elements of the program are as follows:

$4 billion for first tranche of stimulus funding. $4 billion of the $7.4 billion total funds will be allocated to the first of three application “waves.” RUS is making $2.4 billion in grant and loan money available in this first wave (with approximately $7 billion in combined grant and loan money for later waves), while NTIA is making $1.6 billion in grants available now (and holding approximately $3 billion in grants for later waves).

Applications due in 45 days. Applications filed electronically (which is required for any applicant seeking more than $1 million), must be filed within 45 days, or no later than August 14. Specific application forms will be released on Monday, July 7, and the agencies will begin accepting final applications on July 14.

Two-step application review process. Each agency will employ a two-step process. In the first step, applicants will be awarded a point score based on their satisfaction of criteria in four categories: project purpose, project benefits, project viability and project sustainability. Those applicants that are deemed “most highly qualified” after an initial screening process will be informed on or about September 14, and will advance to a step-two “due diligence” phase, during which they will be required to submit additional information as early as October 15. The first grant awards will be made on or about November 7, and will be made on a “rolling” basis.

"Unserved" and "Underserved" are defined broadly, making many areas of the country potentially eligible. An area is "unserved" if at least 90 percent of households lack access to terrestrial broadband service at the minimum transmission speed of 768 kbps downstream and 200 kbps upstream. A household is deemed to have access to such broadband service if it can readily subscribe to that service upon request. For last-mile projects (i.e., predominant purpose to provide service to end users), an area will be considered “underserved” if it meets any one of these three criteria:

• Broadband subscribership is less than 40 percent of households;
• No more than 50 percent of households have access to terrestrial broadband service of at least 768/200 kbps; or
• No party advertises transmission speeds of at least 3 mbps downstream in the area.

We expect that many areas will qualify under at least the 40 percent adoption threshold, although obtaining accurate data may be difficult. An area will also be considered underserved for middle-mile projects if an interconnection point terminates in an area meeting the last-mile criteria.

Rural broadband infrastructure projects must go to RUS. Any application for projects in an area that is at least 75 percent “rural” must be submitted to the RUS program. Such applications may also be submitted to the NTIA program (requiring additional application elements), but NTIA will consider such applications for funding under its Broadband Technology Opportunities Program (BTOP) only if RUS rejects the application. Notably, RUS will make grant-only awards for only “remote” unserved areas that are at least 50 miles from the limits of a non-rural area. For other “non-remote and underserved rural areas,” RUS will award loans and loan/grant combinations. Loan/grant combination awards will have no more than a 50 percent grant component.

Network nondiscrimination and interconnection obligations are significant. Applicants for broadband infrastructure projects under both the RUS and NTIA programs must describe their interconnection, nondiscrimination and network management policies in their application, and accept the following conditions on an award for the “life” of the facilities. The conditions do not apply to any existing network arrangements.

• FCC Internet principles. Applicants must adhere to the Federal Communications Commission’s Internet Policy Statement, which states that consumers are entitled to access lawful Internet content, run applications of their choice, connect devices of their choice, and expect “competition” among network providers and services.
• Nondiscrimination. NTIA and RUS adopted a 5 principle of non-discrimination for the subsidized networks. Applicants may “not favor” any lawful “Internet applications and content” over others. But the NOFA makes an important exception from this nondiscrimination obligation for “managed networks” that can ride on the same platform, outside of the public Internet.
• Notice of network management policies. Applicants must display network management policies prominently on their Web site, and notify customers of changes.
• Connections to the Internet. Applicants must “connect to the public Internet directly or indirectly, such that the project is not an entirely private closed network.”
• Physical interconnection for exchange of traffic. Applicants must offer interconnection “where technically feasible” and “without exceeding current or reasonably anticipated capacity limitations” on “reasonable” rates and terms to be negotiated with requesting parties. This obligation includes both the ability to connect to the public Internet and physical interconnection for the exchange of traffic.
• Applicants may still engage in “reasonable” network management practices, accommodate law enforcement agencies, employ caching and “application-neutral bandwidth allocation,” and take measures to address spam, denial of service attacks, illegal content, and other “harmful” activities. They may also provide certain managed services, including telemedicine, public safety and distance learning.

Definitions of other key terms:

• Broadband is defined as a minimum speed of 768 kilobits per second (kbps) downstream and 200 kbps upstream to end users. The agencies declined to impose a latency requirement or a technology-specific definition. Under this definition, an area that has access to service at 768 kbps may still qualify as “underserved” and an area that has only high-latency satellite service will still qualify as “unserved.”
• Unserved means at least 90 percent of households lack access to terrestrial broadband service at the minimum transmission speed of 768 kbps downstream and 200 kbps upstream. A household is deemed to have access to such broadband service if it can readily subscribe to that service upon request.
• Rural area means any area as confirmed by the latest decennial census of the Bureau of the Census, which is not located within: 1) a city, town or incorporated area that has a population of greater than 20,000 inhabitants; or 2) an urbanized area contiguous and adjacent to a city or town that has a population of greater than 50,000 inhabitants.

In-kind contributions permitted under 20 percent match requirement. Applicants may satisfy the 20 percent contribution matching requirement of the BTOP program either through direct matching funds or through in-kind contributions (including third-party in-kind contributions). Although undefined, permissible in-kind contributions may include the provision of network facilities or services necessary to deploy the broadband infrastructure. The NOFA provides that additional consideration will be given to proposals that exceed the minimum matching requirement, provide cash matches or receive matching funds from acceptable federal sources.

States have limited, but focused, role. The NOFA establishes a specific process for the states to provide recommendations concerning the allocation of funds for qualifying projects in or affecting the individual states during the two-step application process. During step two of the application process the governor of each state will receive a list of applications under consideration. States will then have 20 calendar days to provide the NTIA and RUS a prioritized list of recommended projects, along with an explanation of why the selected proposals meet the greatest needs of the state.

Adoption and computer center programs. Although focused heavily on broadband infrastructure projects, the BTOP does allocate $200 million for competitive grants for expanding public computer center capacity (up to $50 million for the first tranche). In addition, at least $250 million will be available for competitive grants for innovative programs to encourage sustainable adoption of broadband services (up to $150 million for the first tranche). Such adoption programs were broadly construed in the NOFA to include a range of different activities, including acquiring broadband-related equipment, hardware and software, and digital network technology for broadband services; developing and providing training, education, support and awareness programs or Web-based content; conducting broadband-related public education, outreach, support and awareness campaigns; and implementing innovative programs to facilitate greater access to broadband service, devices and equipment.

Additional materials (such as the application form and grant award documents) will be made available on the broadbandusa.gov Web site early next week. Pertinent details about these documents as well as the NOFA will be discussed at the firm’s free webinar next Tuesday, which we encourage you to attend.