Rural Texas may lose out on billions in broadband infrastructure funding due to federal regulations

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LUBBOCK — When Texas was awarded $3.3 billion in federal money last month toward expanding broadband infrastructure across the state, government leaders and telecommunication companies celebrated the news.

With more than 7 million residents disconnected from the rest of the World Wide Web, Texas’ broadband needs were no secret. With the federal funds, coupled with $1.5 billion from the state’s wallet, rural and underserved Texas communities finally saw a chance to catch up with technology in the rest of the country.

One month later, as the state prepares to submit a five-year plan to federal agencies on broadband deployment, the finer details of who may qualify for federal money in the Broadband Equity, Access and Deployment Program has come into sharper focus.

And rural Texas advocates and owners of smaller telecommunication companies worry the communities they serve will be shut out of the historic investment.

The regulations require each telecommunication company applying for a grant to provide a letter of credit from a major bank that covers at least 25% of the proposed project — essentially putting millions of dollars on the table to apply for a grant it isn’t guaranteed to receive.

This is a feasible task for big service providers with access to a qualified bank, but for rural companies, it’s a different story. For many of them, the requirement that they work with a major bank to secure funding is another hurdle in their efforts to bring broadband access to their own backyard.

These requirements were set by the National Telecommunications and Information Administration, which advises the president on telecommunications policy issues and will distribute the funds.

The requirements are meant to protect the federal investment. Federal efforts to expand internet access with fewer safeguards have flopped. The Rural Digital Opportunity Fund, a previous attempt by the Federal Communications Commission to expand broadband, is estimated to have $2.8 billion in defaults.

Kelty Garbee, executive director of Texas Rural Funders, said she understands the requirement exists to prevent people from accepting money but not following through with projects.

However, she is concerned the rule disenfranchises rural providers.

“This is going to prevent the communities it’s intended to serve from being able to access the money,” Garbee said.

The federal telecommunications administration declined to comment for this article. The administration did accept public comments regarding the rules after a notice was released last year.

Karen Lightman with Carnegie Mellon University’s Heinz College said that in order to avoid a repeat of funding problems, rural communities will need guidance.

“This is going to take public-private partnership, and the reality is the state is going to have to help set that up and figure out the provisions,” Lightman said.

The Texas Broadband Development Office has until Aug. 28 to submit its five-year plan to the National Telecommunications and Information Administration for funding. Comptroller Glenn Hegar’s office, which oversees the state’s broadband office, did not respond to a request for comment.

Totelcom, a rural internet service provider, started as a small cooperative in rural De Leon and now serves 10,000 businesses and households in Central Texas.

Jennifer Prather, Totelcom’s CEO, said she hasn’t decided yet if her company will apply for the federal grants.

“This is harder for us to overcome than those large providers who have already chosen not to serve those areas,” Prather said. “This is something a large national provider doesn’t have a problem with. But they’re not the ones out here doing this already.”

Like other rural service providers, Prather was hopeful about what the money could mean for connecting rural Texas, which has historically had little access to broadband. Now, she is waiting to see how the state might help before applying.

Prather’s business banks locally. And that bank isn’t one of the federal government’s pre-approved list. If she chooses to apply for federal funding, Prather will have to find the closest qualified bank, become a customer, and put in enough money or assets to match 25% of the grant. If her funding application is denied, all the extra steps were essentially for nothing.

To Prather, there has to be a better way for the telecommunications administration to ensure a project gets completed.

“Just to get these letters of credit can be impossible without tying up a bunch of funds,” Prather said. “It’s one of many issues that, added together, make us want to put our hands up and say, ‘We’re just not going to do that.’”

There are additional concerns from larger internet providers in rural Texas.

Etex Telephone Cooperative serves a slightly larger customer base in Gilmer. The East Texas-based company serves 14,000 customers and could still run into problems obtaining federal grants even though it is a bigger service provider.

“We would probably be limited on how big of a project we would be able to take on because of the cap from our local bank, and that’s one we’re established with,” said Charlie Cano, CEO of Etex Telephone Cooperative. “If we go to a bigger bank, who knows what they would ask for us to bring to the table in order.”

Cano is also concerned about the long-term sustainability of what’s built, particularly with fiber, and how much it will cost to keep it updated without the limited funding from the BEAD program.

The Broadband Development Office is hosting public meetings through Aug. 16 throughout the state to get local input on the state’s broadband needs.

Disclosure: The Texas Comptroller of Public Accounts and Texas Rural Funders have been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune’s journalism. Find a complete list of them here.

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