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Why federal grants may set rural broadband in some areas of Minnesota back for years

Companies that could quickly build out fiber optic internet have been squeezed out of areas covered by a federal grant to a company with limited resources and experience, something state funders said was necessary to avoid duplicate use of taxpayer money.

Steve Grove
Steve Grove, the DEED commissioner, said Thursday that after the federal RDOF awards were announced, the state said applicants for state grants could change their proposals to be outside of the federal coverage areas.
Minnesota Department of Employment and Economic Development

State officials on Thursday announced the winners of $20.6 million in grants to develop high-speed internet across Minnesota, the latest infusion of money approved by lawmakers to fully connect the state.

Many celebrated the cash, which Steve Grove, commissioner of the Department of Employment and Economic Development, called a “vital” push to correct disparities in internet service that were highlighted during the pandemic.

Yet the grants also drew frustration from some broadband developers.

That’s because Gov. Tim Walz’s administration won’t award state money for projects where telecom companies won more than $408 million in federal grants to provide new internet service across swaths of northeast, central and southern Minnesota. The biggest federal grant winner was the controversial LTD Broadband, a company the governor’s own broadband task force is skeptical can meet its promises for a huge range of projects.

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State officials say it could be a waste of taxpayer money to subsidize internet where another company plans to build infrastructure with other grant funding. And LTD Broadband maintains it can deliver a huge surge in broadband service in Minnesota. But some local developers say LTD’s failure, or even success, could delay broadband internet for areas they could quickly serve.

“Communities in Minnesota have worked diligently with providers to develop applications and had shovel-ready projects that could have been built as soon as this summer if they received a state grant,” Vince Robinson, chairman of the Minnesota Rural Broadband Coalition, said in a statement. “Now, communities that applied for state grants but were included in (federal) auction areas could have to wait up to six years before they receive service.”

A controversial provider

The Walz administration plans to award state grants for 39 projects, enough money to bring high-speed internet to 6,922 business, homes and other customers. Minnesota lawmakers have periodically approved money for the grant program, which is aimed at helping telecom companies build internet infrastructure in areas where terrain or lack of customers make service otherwise too expensive.

In 2019, the Legislature approved $40 million for DEED’s Border-to-Border Broadband Development grant, to be used in 2020 and 2021. Minnesota has poured $126.2 million into the grant program since it launched in 2014, and the state continues to inch toward its goals for universal high-speed internet.

The federal government has also spent a considerable amount of money advancing broadband development. In December, the Federal Communications Commission announced $9.2 billion in broadband grants nationwide, $408 million of which will be spent for projects in Minnesota.

The biggest recipient of those awards, through the Rural Development Opportunity Fund (RDOF), was LTD Broadband. The company, which had roughly 100 employees in December and is based in Nevada, won nearly $312 million from the feds to build internet infrastructure in rural pockets across huge parts of the state, from outside Moorhead to outside Mankato, Marshall, Duluth and east of Mille Lacs Lake.

LTD also won $1.32 billion nationally — the most of any company. The money was awarded based on a reverse auction system, in which companies bid on who could offer service to areas with the least money from the government for help building infrastructure.

The choice of LTD has been controversial. The company primarily offers fixed-wireless internet, where homes get service from a signal placed high on a structure, like a water tower or a silo. While fixed wireless internet can be built cheaper than fiber-optic cables, state officials and local broadband developers say it’s often slower and less reliable than the more expensive fiber.

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Corey Hauer, CEO of LTD, said the company will be obligated to build fiber in the grant areas, something it has some, but not much, experience with. It also has to deliver blazing fast gigabit speeds. There are still few details about LTD’s plans, in part because of a “quiet period” for grant winners imposed by the FCC. Still, Hauer says LTD can meet the challenge and is poised to expand rapidly to complete its projects over the required six-year period. The company is completing a longer application process with the feds that will more closely scrutinize LTD’s ability to meet its goals.

The Minnesota task force report, however, says LTD Broadband “has limited experience delivering broadband with the technology needed to meet the service speeds demanded by the RDOF program,” and said there “is concern some providers” in the federal grant program “will not be able to secure the funds awarded to them in the initial grant allocation.”

A Jan. 19 letter to the FCC about the RDOF awards signed by dozens of members of Congress didn’t mention LTD Broadband — but it urged the FCC “to validate that each provider in fact has the technical financial, managerial, operational skills, capabilities, and resources to deliver the services that they have pledged for every American they plan to serve regardless of the technology they use.” It was signed by much of the Minnesota delegation: U.S. Sens. Amy Klobuchar and Tina Smith, who have acknowledged concerns with LTD Broadband, as well as GOP Reps. Pete Stauber, Michelle Fischbach and Jim Hagedorn.

In the meantime, local providers say they would be sure bets to get fiber-optic internet into areas where it’s needed, and faster.

Barbara Droher Kline, a broadband consultant working with Le Sueur County, said the county had applications rejected by the state for two broadband projects for roughly 500 homes in areas that could potentially be served by LTD. Both are next to parts of the county where the county and other partners built fiber infrastructure with $547,000 from the federal stimulus CARES Act.

Droher Kline said about two-thirds of eligible areas in Le Sueur County are now covered by LTD’s winning bids, which means they may get broadband, but it also may take years. She suggested the state ask the feds to withdraw RDOF funding in areas where the state program can build infrastructure quickly. “It would have been a drop in the bucket (for LTD) and we’d have fiber in the ground this spring,” Droher Kline said.

Submitting new applications outside the LTD zone quickly after the federal awards wasn’t feasible, Droher Kline said, and there are few areas left in the county they could try to build. Angie Dickison, executive director of DEED’s broadband office, said 10 projects were denied grants because they overlapped with RDOF coverage areas. Two applicants also withdrew their projects. DEED got 64 applications for this current round of grants.

Robinson, chairman of the rural broadband coalition, said they were “incredibly pleased to see further investment in rural Minnesota to expand broadband.”

“However, we asked the Office of Broadband Development to award grants regardless of if the projects included RDOF auction areas,” Robinson said. The coalition includes telecom companies, county officials, advocacy groups and businesses like Mayo Clinic.

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State hopes to avoid ‘duplicative’ grants

Grove, the DEED commissioner, said Thursday that after the federal RDOF awards were announced, the state said applicants for state grants could change their proposals to be outside of the federal coverage areas. Ultimately, “we did want to make sure that none of the taxpayer dollars that we put into our program are going to be duplicative,” Grove said.

He also said the state didn’t want to wait to see if any federal grants didn’t get approved by the FCC because the state hopes to move on a faster timeline.

Hauer told MinnPost Thursday that governments have tried to prevent “overbuild” of broadband infrastructure in the past, an issue Congress has investigated. And he said internet developers all had the opportunity to bid on RDOF grants. “If there are subsidies to be made, they should be made for areas that don’t have an opportunity to get broadband,” Hauer said.

Since 2014, the agency says its grant program will have served more than 56,800 homes and businesses with the projects once this round is complete.

Several telecom companies who won state grants applauded the program at the press conference Thursday, saying it would still help build out critical infrastructure in rural areas. BEVCOMM, which is based in Blue Earth County, won two grants in southern Minnesota for roughly $1.4 million. Both projects will be for gigabit-speed fiber, which far exceeds the state’s speed goals and will cost about $3.5 million in total.

Bill Eckles, the CEO of BEVCOMM, said the company canvasses potential customers in areas they hope to serve with grant money to learn more about why they need broadband. “The letters we get — it’s just astounding the need out there,” he said.