States' High-Cost BEAD Threshold Amounts Not Seen as Imminent

State thresholds will vary because the cost characteristics of deploying broadband vary dramatically from one state to the next depending on density and topology, such as whether the area is flat or mountainous, emailed consultant Carol Mattey, formerly FCC Wireline Bureau deputy chief. She said the funding formula set up by Congress largely allocates BEAD dollars based on the relative number of unserved locations, not on the cost to serve those locations. She said states that have plenty of money to get networks deployed to all unserved and underserved locations will be able to set their thresholds higher, while states that don't have enough money for fiber everywhere will need to set lower thresholds.

Threshold amounts "will be all over the map, literally and figuratively,” driven by issues like states' topography, NTCA Executive Vice President Mike Romano told us. He said there are too many variables and unknowns for states to put a stake in the ground yet in the form of a threshold dollar amount. One key will be the definition and scope and size of areas to be served, and bids that cover whole counties could result in that entire county being high cost, while smaller bid areas such as census blocks give more granularity, he said.

"Every state is different, even among western states, in their distribution of unserved locations and availability and proximity of existing infrastructure, so I can’t say with any certainty that Nevada’s [threshold] will be similar to or different from any other state," Nevada Office of Science, Innovation and Technology (OSIT) Director Brian Mitchell emailed.

States' formulas for calculating the threshold differ in notable ways. Virginia said it would use seven years of application data from its state Telecommunication Initiative -- its chief program for extending broadband access to unserved areas -- as well as its evaluation of BEAD proposals to determine the threshold. The state said it also would use programmatic data from its Line Extension Customer Assistance Program, which helps cover the costs of extending broadband infrastructure to homes beyond a service provider's standard connection drop length. To help determine its threshold dollar amount, Vermont's Community Broadband Board said it commissioned Vernonburg Group to estimate the cost of fiber connectivity to each unserved and underserved location in the state. It said that Vernonburg modeling, as well as modeling the state did itself in 2021, indicated that the cost to extend end-to-end fiber connectivity to each unserved and underserved location "varies significantly across the state." "While many unserved and underserved locations could cost less than $2,000 to upgrade to fiber, there also are a small percentage of unserved and underserved locations in the state that could cost over $20,000 per location," it said.

NTIA encouraged all states and territories to wait to set the threshold until after they receive applications, said Kansas Broadband Development Director Jade Piros de Carvalho in an interview. The thinking is that setting the threshold first could influence what applications come in, she said. “If you wait until after you get the applications, you can set that threshold to make sure you’re getting to everyone.”

Kansas expects to set its threshold in Q2 or Q3 2024, said Piros de Carvalho. Kansas draft volume two outlines some of the state’s thinking around the threshold. With only 12 months to do the entire subgrantee process, the state hopes to have time for two funding rounds so the agency can apply lessons learned from round one to round two, she said. Getting the threshold right is especially important in states facing a funding shortfall, said the state official. NTIA allocated Kansas $451.7 million, leaving the state about $240 million short, she said. “Not that we’re not going to get to universal connectivity,” but “BEAD alone isn’t going to get us there,” said the Kansas official. The state must be “creative” and use a combination of technologies, which is where the extremely high cost thresholds come into play, she said. “We have to set that threshold right or universal connectivity is at stake.”

Vermont is going to define the thresholds after its challenge process is complete, meaning likely in May, emailed Christine Halquist, Vermont Community Broadband Board (VCBB) executive director. "We are trying to put this definition off as far as possible so that we have good data to define the point," she said.

The threshold numbers are a question mark for now because it's "hard to set the threshold in a vacuum without facts, so I’m assuming they will want and see what is requested," emailed CCG Consulting President Doug Dawson. He said it could depend a lot on how ISPs ask for funding: a request for a whole county will probably have high-cost areas that get absorbed into the larger grant, hiding the high-cost nature, while a request to fund just those high-cost areas alone might look particularly expensive.

The Kansas broadband office did cost modeling to prepare its initial proposal draft and currently estimates a mix of 75% fiber and 25% fixed wireless, said Piros de Carvalho. That ratio, however, leads to a $240 million shortfall, "so we’re not sure if we’re going to be able to stick to that or if we’re going to have to use a higher percentage of fixed wireless," she said. Hybrid networks probably will “factor more heavily into the solution, said the state official. She said trade groups including the Wireless ISP Association and Fiber Broadband Association have lobbied the state about wanting the threshold lower or higher.

Idaho will review applications submitted for BEAD and in previous state broadband funding opportunities to set its threshold, the Idaho draft said. “This threshold will be set according to a way that ensures the maximum deployment of end-to-end fiber projects as feasible.” The state added that “capital and operating costs associated with the lifetime of the network to connect these extreme high-cost locations will also be considered the threshold amount.” The state will consider different technologies “agnostically,” it said.

Colorado also plans to analyze previous broadband funding programs. “The detailed analysis will be after receiving applications and the [broadband office] will compare the outcomes to the available budget,” said Colorado’s draft. Some fiber-to-the-home proposals “may still be selected even if their cost exceeds the final [threshold] value,” it said. “The decision to choose an alternative technology … will only be made if doing so would result in expanded coverage of at least reliable broadband service.”

Some states might not calculate a threshold at all. The $1.355 billion Louisiana is getting from BEAD should be enough to reach all eligible locations with fiber, ConnectLA said. But because some eligible locations may not get a fiber application, costs might be significant in some areas or some locations might get an application that can't be granted, Louisiana is not setting a threshold value up front, thus "communicating that the state seeks active participation from all types of broadband providers and that an 'all of the above' broadband technology strategy is in the best interests of the citizens of the state," it said. It said it also has the option of not selecting any threshold value if, for example, all or most eligible locations have received either fiber applications or a mix of fiber and reliable service locations. The threshold will be set “in a way which allows as many end-to-end fiber projects to be deployed as possible,” said Delaware’s draft. It’s possible Delaware won’t need the threshold and will be able to extend fiber to all unserved and underserved locations, it said. “Any decision on the threshold will be purely cost based, and a decision will be made after the first (and hopefully only) round of funding applications.”

Numerous states are relying heavily on consultant CostQuest Associates for help in determining their thresholds. To determine Montana's threshold, the state Broadband Office said it will use CostQuest data as a baseline for estimating the cost to serve all unserved and underserved broadband serviceable locations, with those estimates being adjusted based on the subgrantee bids. Nevada said it will determine its threshold using the NTIA planning tool, proprietary OSIT data based on costs of previous broadband projects, and a CostQuest modeling tool that looks at such inputs as build complexity data and greenfield and brownfield capital costs for fiber and fixed wireless investments. Wyoming said it would determine the threshold after the deployment subgrantee round has closed. It said it would conduct an "optimization exercise" using bids and CostQuest data to determine how setting the threshold at different levels might impact the state's ability to meet its and NTIA goals. It said it might use NTIA's Eligible Entity Planning Tool as part of its determination of the final threshold. CostQuest didn't comment.

Using CostQuest greenfield fiber estimates, the West Virginia Department of Economic Development will set a minimum, maximum and budget thresholds, and then use a set of provisionally awarded projects and an expected budget to complete the line extensions or other negotiated awards to reach all unserved and undeserved locations to determine if it will meet or exceed the budget amount, West Virginia said. If the budget isn't exceeded, the maximum threshold becomes the extremely high-cost threshold, but if the total cost does exceed budget, the state will cut the maximum threshold and recalculate results until the budget isn't exceeded, it said. If the expected costs still exceed the budget even when the minimum threshold is reached, the state will use funds that might have gone to nondeployment activities and underserved locations, it said.