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Questions over federal broadband grants roil Minnesota’s rural internet program

Should the state government subsidize competitors to a controversial winner of a federal broadband grant?

Optical fiber cables
Last week, the FCC announced $9.2 billion in grants across the country to be spent over 10 years on rural broadband development, roughly $408 million of which would be for Minnesota.
REUTERS/Alessandro Bianchi

When the Federal Communications Commission announced $312 million in grants for one relatively small company to build broadband in Minnesota earlier this month, it stirred controversy among those who worry the internet provider can’t deliver what it promised. 

Now that squabble over the company, LTD Broadband, has spilled over into Minnesota’s own grant program for development of high-speed internet.

The Minnesota Rural Broadband Coalition — made up of internet developers, local governments and other groups like Mayo Clinic — sent a letter Wednesday to state officials asking them to award grant money to build broadband in areas expected to be served through the federal program, in part because they have so little confidence in LTD Broadband. Some internet companies said the state asked them to submit bids for cash outside of the federal program zones.

Minnesota officials haven’t made a decision on how to proceed, but the state must navigate the fight over broadband money and territory while balancing the best way to get internet to rural residents — and to spend taxpayer dollars.

Small company, big doubts

Last week, the FCC announced $9.2 billion in grants across the country to be spent over 10 years on rural broadband development, roughly $408 million of which would be for Minnesota.

The cash was awarded through what the feds call a “reverse auction” system, in which companies bid on service areas to see who can offer broadband at the lowest price. The government subsidizes broadband expansion because it can be costly enough to build that internet companies won’t serve the areas on their own.

The big winner of the auction was LTD Broadband, a company with about 100 employees based in Nevada that serves six states in the Midwest. Most of its workers are in Minnesota, and LTD serves customers in large patches of the state outside of the Twin Cities metro area.

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LTD Broadband won $1.32 billion nationally and $312 million in Minnesota — the most of any one company in the country and the state. The money is doled out over 10 years but projects are supposed to be built in six years. LTD’s CEO Corey Hauer said they will deliver gigabit service through fiber-optic internet.

Competitors in the business balked at the auction results because LTD Broadband is a relatively small company with expertise in fixed-wireless internet, where homes get service from a signal placed high on a structure, such as a silo. It can be cheaper to build than fiber, which requires a physical connection to houses, though state officials who run the Minnesota grant program have avoided fixed wireless, arguing it is slower and less reliable than fiber.

Hauer says LTD Broadband has some experience in fiber and is ready to quickly expand and meet the challenge of providing gigabit service to a huge and disparate geographic area.

But competitors argue LTD can’t pull off the gargantuan challenge and wonder if they will pass the next step in the application process, in which the feds will scrutinize their plans in greater detail. Winning bidders have to give the feds more information about their qualifications, their funding and show a bank will issue them a letter of credit.

Some frustrated with the FCC grants have begun reaching out to Minnesota’s congressional delegation. A spokeswoman for Sen. Tina Smith said she’s “exploring ways to raise what she’s heard with the FCC” and gathering more information about the federal awards. A spokesperson for Sen. Amy Klobuchar said the FCC program is an “important step” toward giving all Minnesotans affordable high-speed internet, but said their office has heard concerns, too, and are “looking into this matter.”

Should state award money to competitors of LTD?

What started out as a debate over federal money has now morphed into a political tussle over state grants, however. 

Minnesota’s border-to-border broadband program, run by the Department of Employment and Economic Development, has $20 million in state money to dole out. Barbara Droher Kline, a broadband development consultant working with Le Sueur County, said DEED asked people to submit bids that don’t overlap with areas to be served under the FCC initiative. That’s meant to ensure a wider swath of the state can be covered.

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But with deep skepticism from developers over LTD’s ability to actually deliver services, many are asking DEED to reconsider. 

Le Sueur county spent $547,000 from the federal stimulus CARES Act to build fiber infrastructure, a project completed by Dec. 1. The county wants to extend that work to more subscribers nearby and put in two grant applications to the state for help.

Yet those areas are now partly in a federal grant zone covered by LTD Broadband. 

Bill Eckles, CEO of the Blue Earth telecom company BevComm, is working with Le Sueur County on one of the projects and hopes to reach about 226 subscribers. The county and BevComm would put money in, in addition to the state. Eckles said they have a track record of delivering fiber internet quickly, and waiting for LTD to build would be an unnecessarily delay — even if the company gets final approval from the FCC.

Darrell Pettis, Le Sueur County Administrator, said in a letter to DEED on Tuesday that getting boxed out by LTD would “invalidate our planning process and carefully configured budgets,” as well as make the county projects unviable.

“It is our concern that LTD Broadband may not be able to fulfill the FCC’s phase 2 verification and with a denial from the state, we would then be put even further behind in the process,” Pettis wrote.

Vince Robinson, chairman of the Minnesota Rural Broadband Coalition, wrote to DEED saying the agency should award cash in areas that developers had originally asked for, regardless if they will be covered in the FCC initiative.

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Robinson said DEED has “thoroughly vetted” applicants and said the FCC isn’t far enough along in their process to know what areas will be served by that program and at what internet speeds.

“We have shovel-ready projects and a brief construction season in Minnesota, and we cannot afford to wait to see the results of this uncertain process,” Robinson said.

In an interview, Hauer, the CEO of LTD Broadband, said internet developers knew what areas would be bid on before he won them in auctions and said deploying state money to serve areas LTD would build in would be an “egregious intentional waste of taxpayer money.”

The purpose of the border-to-border program is to put broadband in unserved or underserved areas, not to duplicate networks, Hauer said. And he said developers can always just use their own money to build out fiber networks. “We would never consider asking for grant money for another area that already received grant money,” he said.

DEED still deciding how to proceed

Angie Dickison, executive director of DEED’s Office of Broadband Development, said she was limited in what she could say because the state is in an open grant round and because there are federal limits right now on discussing development plans for the FCC program. An FAQ posted by DEED says: “In deciding which projects should be awarded state grant funding, information on any federal funding announced prior to the state announcement will be considered.”

Dickison said the state is still evaluating applications and hasn’t decided how to proceed with the state grants in light of the federal auction results.  Final decisions on grants are planned for January. LTD Broadband’s “long-form application” is due to the FCC in mid-February and review could take months, Robinson said in his letter.

“We are aware of the concerns that folks have and are taking that all into consideration,” Dickison said. “We’re in a wait and see mode until we learn more about the final outcome of the auction and the end of the ‘quiet period.’”

Still, despite the questions swirling around the FCC broadband initiative, Dickison said the auction would ultimately be a good thing for the state and urged patience in responding to it. “We’re going to do our best to get the best possible outcome for our state,” she said.