Middle Mile Funding Frustrations

For rural communities, middle mile networks are enabling infrastructure necessary to build high-speed broadband access for homes, schools, health care, libraries, and businesses. Over the summer, the NTIA Enabling Middle Mile Broadband Infrastructure Program awarded $1 billion in funding to expand middle-mile infrastructure across 40 states and territories, but many applications were left disappointed. 

“The Middle Mile program is a force multiplier in our efforts to connect everyone in America,” said Assistant Secretary of Commerce for Communication and Information Alan Davidson in a press release announcing the awards. “Middle mile infrastructure brings capacity to our local networks and lowers the cost for deploying future local networks. These grants will help build the foundation of networks that will, in turn, connect every home in the country to affordable, reliable high-speed internet service.”

NTIA’s new middle mile grants will deploy 12,000 miles of new fiber that will pass within 1,000 feet of 6,961 community anchor institutions, with awards investing an additional $848 million of outside matching into the projects, according to the agency’s press release announcing the awards. The 36 awards range from $2.7 million to $88.8 million with an average award amount of $26.6 million. 

It’s a lot of money to be sure, but with over 260 applications submitted last year and totaling $7.47 billion in funding requests, there is still significant need and demand for additional resources to build out middle mile projects. At Fiber Connect 2023, several organizations involved with applying for NTIA middle mile grants discussed their experiences on the “Middle Mile Grants – How to Take Middle Mile Further” panel held on Sunday, August 20, 2023. Participants included Josh Leonard, Broadband Business Lead, Burns & McDonnell; Dennis Pappas, Director – Fiber Network, NextLight of Colorado; and Travis Ralls, Principal Account Manager, Lower Colorado River Authority (LCRA) in Texas. 

“We did not get cash,” said Pappas. “We asked for $4.7 million. We were going to edge out our network into Hygiene, Colorado, which is an agricultural area west of Longmont. There’s also some land that was recently annexed by the city of Longmont that has existing homes that don’t meet the FCC minimum requirements for broadband. We planned to add two huts off our existing network and place the splitter cabinets there.”

NextLight’s grant application offered to provide 30% of the project in cash and in-kind services and do the build within 48 months. During the debrief, Pappas was told by NTIA that they would have received extra scoring points if NextLight had offered to put in up to 50% and do the build in two years. “I don’t know if that was the tipping point,” Pappas stated. “They wouldn’t give you any sense of how you scored against the other applicants. It was those different nuances in there that were considered, but not stated, that we missed out on. That was probably the biggest ‘Ah ha’ for me.”

Leonard, who assisted Lower Colorado River Authority and several other organizations in applying for NTIA grant monies, sat in on several post-application reviews and agreed with Pappas. “I was taken by surprise a little bit by the comments about the match as well, because there wasn’t specific guidance about that,” said Leonard. “They didn’t say they would give preference to a 50% or more match. If you’re a commercial entity that’s been doing this a long time and you know how to get the lion’s share of the money, you just come in with that.”

Ralls felt the NTIA evaluation of matching funds was less about specific percentages and more about moving goalposts. “What we saw through the NTIA debrief is that there’s a look of a moving target,” said Ralls. “We thought the target was X. We debrief and we find out we should have matched more. In our case, we’re matching about 36% to 37% of a $42 million total. The next thing we heard is ‘Why don’t you tell us about your latency?’ I think if you were to bring down your latency, then you had a better chance of getting this grant. Where did that come from? We know how to build networks, we understand latency, but we didn’t know that there was a requirement to put in latency in our application.”

Leonard believed NTIA had done well in rewarding partnerships with utilities and ISPs, due to the synergistic benefits of working with utilities. “If you follow the power, the money will go a lot further,” said Leonard. “An average state has at least 10 or more co-ops that cover that state and that rural territory. Why wouldn’t it make sense if we invested all this money for us to do [broadband networks] like we did the electrical grid 80 years ago? I would encourage statewide cooperation, as much as possible, find your like interests. In the long term, I would argue, we’re very much the same in terms of what we need to develop our communities.”

Leonard said utilities should be more forward thinking in terms of their make-ready access and future building, especially since the distribution grid and supporting infrastructure poles has anywhere from 60% to 80% of its expected lifespan gone and utility poles that are 60 years or older. Utilities may have more qualified money to put into projects than they initially realize if they apply modernization funds. 

“What does that mean?” said Leonard. “Think about your own long range infrastructure plan. We have a grid replacement coming. We also have smart grid, two-way energy distributed energy from a power plant to individuals, energy battery storage is coming in electrical vehicles. Fiber just happens to be the first thing that money is available for and everybody’s talking about. What we learned is NTIA’s grant requirements didn’t say 50% [match]. But 50% clearly made a difference.”

Ralls cited the need to bring in more third-party support from the community as another point LCRA would work on. “We didn’t look at getting all the stakeholders involved,” he said. “We had 20 plus support letters, but that wasn’t good enough. We needed to show how we were going to use these partners, how we were going to have a community that was involved. If we had all together wrote one joint letter that we were going to work together, I think that would have helped and we didn’t know we needed to do that.”

Leonard felt, if anything, NTIA didn’t take as much consideration into multiple stakeholders working together while Lower Colorado River did an excellent job of reaching out to and gathering support from local communities and organizations. “If they’re doing that, why was that not getting a preference?” he wondered. “On the debrief, it was literally verbatim said it was not given preference. And that blew me away.”

Another area where NTIA seemed to have less interest was in the previous operational successes of grant applications. Both Pappas and Ralls felt there should have been preference given to organizations which had solid and documented business track records over those who had, “floundered for years and years and haven’t returned money on that investment yet,” Pappas said. “You know, we’ve built the electrical network and connected almost 27,000 customers. From the revenues we generate, we reinvest into the network.” 

“We’ve been in operation for 80 plus years,” said Ralls. “We provide and generate electricity in the state of Texas. We don’t get any funding from the state but as a subdivision we abide by the rules of the state government. A company that’s been in business for 80 years should probably get some bonus points.”

NTIA Middle Mile Grant Process – An End or a Beginning?

All the panelists saw the end of the NTIA grant process as an experience, providing an opportunity for their respective organizations to refine and apply their work towards other funding programs and mechanisms to secure middle mile funding. “Our plan is to try to go for some dollars through the BEAD process,” said Pappas. “We’ll take what we put together on the middle mile application, because that includes both middle mile and last mile and we’ll just build off that. We took pretty good notes from the [grant application] debrief and there’s a recording as well. We’ll listen to the recording when we get back [from Fiber Connect] and figure out what we can do better the next time around.” He said they would also have money to expand their middle-mile infrastructure through revenues from their current broadband customers, albeit at a slower, more measured pace of expansion. 

Ralls said LCRA, as a sole middle mile provider without any last mile mission, as dictated by the Texas legislature, would team with rural communities in its region on BEAD projects. “We’re planning to work with partners that want to go into certain areas,” Ralls stated. “We think we can help out as a transport or middle-mile provider. We’re still trying to figure out if we become a sub-applicant or however that’s going to work.” 

In addition, Ralls said the citizens of Texas this fall will vote on a constitutional amendment to create a $1.5 billion Broadband Infrastructure Fund that would be funded by part of the state’s current budget surplus, creating more state funding that LCRA could access. “It will have different rules than the NTIA programs,” he said. “It will shore up some funding and enable us to grow our network. We believe we’ll have a great opportunity.”

While LCRA and NextLight didn’t see their organizations tapping into private capital, Leonard said there would be some opportunities for service providers and utilities to do so. “There are infrastructure investors, large investors that are coming up with business models where they say we want to help you modernize your community, but they’re looking at the total perspective of the modern infrastructure, not just your broadband project,” he stated. “They’ll do it on 30-year terms and better than bank [interest] rates. It’s a lease on one side for the infrastructure owner. It usually doesn’t require a bond or a tax.”

Enabling such an arrangement wouldn’t be likely for a single rural public utility, but a group of them would be attractive to some types of private equity arrangements. “If you’ve partnered with your neighbors who have some population density, they’ll treat you as a pool of assets rather than an individual asset, just like owning a diversified EFT in the stock market vs just owning Apple. If you can get a partnership together of multiple communities, it becomes very attractive as a solution,” Leonard stated.