ReConnect3 Final Results: The USDA Gets the Job Done

It was worth the wait. The third round of the USDA ReConnect Loan and Grant Program closed this past summer, after awarding $759 million in rural broadband grants and loans to 49 deployers, mostly small local exchange carriers (LECs). The average cost of passing each home, farm, other business or school was just over $4,500, compared to $4,100 in 2019 and almost $6,000 in 2020. All awardees in this round, and almost all in previous rounds, told USDA they were deploying fiber to the premises. USDA awards typically cover as much as 80 percent of the total deployment cost.

All relevant deployers (some tribal winners are not eligible) pledged to comply with FCC programs subsidizing low-income families, such as the old Lifeline program and the $30 per month subsidy authorized in the infrastructure bill. Doing so improved their USDA grant application scoring.

ReConnect3 loans and grants are expected to pass 156,601 dwelling units and 11,811 businesses, farms and schools with fiber – a total of about 168,000 premises. This is in line with earlier rounds, strongly suggesting that the need is vast and federal money – U.S. taxpayer money – is not being wasted by chasing ever more problematic projects. The winning awardees are detailed in the accompanying table.

The big difference was in the USDA’s enumerating a higher proportion of farms and businesses in this round than in earlier rounds. But I have access to some awardee data from earlier rounds (I provide a bit of free and confidential help with our business models), and it appears that some of the difference may be illusory. What was listed as a farmhouse residence in earlier rounds is now typically listed as what it is – a farm. The USDA likes farms even more than it likes farmers, and the farmers are using more broadband for, well, farming.

In 2020, USDA Rural Utilities Service awarded $675 million in grants and loans, up from the first round’s $663 million in 2019. In 2020, 113,000 premises were passed with that money, compared with 161,000 in 2019.

In this column, I explore the details. The first three rounds of ReConnect (short for Rural e-Connect) were funded in the multiyear USDA budget President Trump signed during Christmas Week 2018. The fourth round, already closed,  and several rounds to come will be funded through later USDA appropriations, and distributed under slightly different rules. They were discussed in a Bandwidth Hawk column last year, along with the much larger $42.5 billion Broadband Equity, Access, and Deployment (BEAD) Program established by the Infrastructure Investment and Jobs Act (IIJA). The IIJA will be administered by state agencies under National Telecommunications and Information Administration (NTIA) supervision. There are also funds targeted specifically for tribal areas. Links to previous relevant columns are in the box on the next page.

PROJECTS BIG AND SMALL

Thirty-nine of the 49 ReConnect3 award winners received grants, five received only loans, and five received awards that were half grants and half loans. Loans distributed totaled almost $91.5 million; grants totaled more than $677.6 million. In the first half of 2022, when the USDA was accepting applications for ReConnect3 awards, loans were still fairly easy to get, and interest rates were running around 5 percent for deployers. The noose was tightening, with lenders beginning to demand more deployer “ownership” of their networks and long-term peering-point agreements. But federal loans, at around 2 percent interest, were not always attractive enough to apply for. Indeed, many winners of ReConnect2 loans ended up refusing them while keeping grant awards.

That has now changed – interest rates and fees total more than 7 percent, effectively, once higher interest rates, fees and likely construction delays due to labor and parts shortages are taken into account.

As with previous funding rounds, most awardees are fairly small, competitive local exchange carriers. Thirty-one of them won in this round, and Southwestern Bell, an AT&T subsidiary, won $16 million to deploy fiber to 999 residences, 100 farms and 33 businesses in Jefferson and Lincoln counties in Arkansas.

This round also had 10 co-op winners, six tribal winners, and one “public corporation” serving Palau, which won the largest grant by a hair. Palau National Communications Corporation was awarded $34,991,340 to deploy fiber to 7,855 households and three educational facilities in Angaur, Babeldaob, Kayangel, Koro, Meyuns and Peleliu in Palau. The company is owned by the Palau government but is meant to be self-supporting from customer fees. The cost to the USDA works out to be $4,453 per premises passed.

Just pocket change separated Palau from a much smaller project in New Mexico: deploying fiber to 678 residences, 10 businesses and a farm in Catron, Grant and Hidalgo counties. The grant, to Western New Mexico Telephone Company for $34,897,442, works out to $50,649 per premises passed.

The largest loan-only award was also one of the largest projects: connecting 21,289 residences, 569 businesses, 323 farms and 29 educational facilities in Bibb, Crawford, Macon, Marion, Monroe, Talbot and Taylor counties in Georgia. The loan, for $36,492,568 to the Public Service Telephone Company, works out to a cost of only $1,643 per premises connected.

Another awardee in that group, Upper Peninsula Telephone Company, received $34,532,301 to deploy fiber to 1,625 residences, 69 farms, 40 businesses and two educational facilities in Dickinson, Luce, Mackinac, Marquette, Menominee and Ontonagon counties in Michigan. It works out to $19,892 per premises passed.

The smallest loan and smallest grant went to an Iowa co-op, Kalona Cooperative Telephone Company, serving 463 premises, 59 farms and 11 other businesses in Washington County in Iowa. The loan and matching grant were for $881,072 each, or $1,762,144. It works out to $3,306 per premises passed with fiber.

However, it was not the smallest award overall. That honor goes to a $1,680,750 grant for the Scott County Telephone Company to connect 89 residences, 17 farms and a business in Scott County, Arkansas. It works out to $15,708 per premises passed.

A number of awards totaled less than $4 million each, suggesting that the application process was not unduly burdensome.

The project with the smallest number of premises passed – seven public schools and a single residence – is in Puerto Rico, in Patillas and Arroyo municipios (municipalities). VPNet Inc. received a grant of $8,783,620 to get the job done. It works out to $1,097,953 per premises.

The project with the largest number of premises passed was also the cheapest per premises as far as USDA was concerned: 24,306 residences, 1,064 businesses, 73 educational facilities and 40 farms in Ellis County and Hill County, Texas. The $4,815,750 loan went to Legacy ISP LLC. It works out to $189 per premises passed and is mainly for upgrades to fiber for an existing network.

What next? Press releases announcing individual 2019 and 2020 awards all began by crediting them to President Trump. It is true that he signed the 2018 multiyear funding bill that made the awards possible. But the bill was an amalgam of things Republicans craved (agricultural subsidies, especially) and those of importance to Democrats, especially food subsidies for the poor. Trump had delayed signing the bill while promising more funding in a state block grant program. The federal government would supply the money, and the states would distribute it as they saw fit. The White House never produced such a program.

When Trump signed the huge agriculture bill, he appeared to express surprise that more than $2 billion was allocated for broadband.

For this round, USDA press releases announcing awards noted senators and representatives of all parties from affected regions. That was politically astute. But it also reflected the political reality: Both major parties have come to like broadband! .

Steven S. Ross

Steve Ross is the founding editor and now editor-at-large for Broadband Communities. He can be reached at steve@bbcmag.com.