By: Hailey Farrow, Marketing Manager, on behalf of CostQuest Associates.
Per NTIA’s BEAD NOFO, as part of the rules of the BEAD program, states and territories must define what is called an “Extremely High-Cost Per Location Threshold.” This threshold will dictate locations that are considered “high-cost.” The threshold acts as the cost point for which the state will begin to consider alternative technologies instead of fiber-to-the-premise (FTTP) solutions that are more feasible to service an area and allow the state to make efficient use of BEAD funds to service all unserved and underserved areas in the state with high-speed broadband service.
It is likely states will wait for their state BEAD programs to run to see how the bids come in from applicants and move down the scale of cost per home passed to help determine what that threshold will be.
Before we start discussing how states and territories might consider setting their thresholds for BEAD, let’s dive into what exactly is a high-cost area, with a real-life example of why setting an Extremely High-Cost Threshold matters.
What is a high-cost area for the BEAD Program?
A high-cost area “means an unserved area in which the cost of building out broadband service is higher, as compared with the average cost of building out broadband service in unserved areas in the United States.”
Incorporating factors include:
- The remote location of the area
- The lack of population density in the area
- The unique topography of the area
- A high rate of poverty in the area
- Any other factor identified by the Assistant Secretary, in consultation with the Commission, that contributes to the higher cost of deploying broadband service in the area.
*“For purposes of defining “high-cost area,” the term “unserved area” means an area in which not less than 80 percent of broadband-serviceable locations are unserved locations.”
What is an Extremely High-Cost Threshold for the BEAD program?
As stated in the NOFO, “An Extremely High Cost Per Location Threshold is a BEAD subsidy cost per location to be utilized during the subgrantee selection process in which an Eligible Entity may decline to select a proposal if the use of an alternative technology meeting the BEAD Program’s technical requirements would be less expensive.”
In other words, it is the minimum cost to serve per location, where if the cost to serve a location with a Fiber to the Premise (FTTP) solution exceeds the state or territory’s threshold rate, alternative solutions that still meet BEAD requirements exclusive of fiber can be accepted.
Goal of the BEAD Program and Extremely High-Cost Threshold
The goal of NTIA’s BEAD program is to deploy high-speed connectivity solutions that are “future-proof” to meet the increasing bandwidth needs of tomorrow while balancing the current need to leverage funding to service the most unserved and underserved locations as possible. This is where the Extremely High-Cost Threshold rule comes in, to act as a balancing scale to distribute BEAD funds in an efficient manner that meets the overall BEAD program’s goals in providing high-speed broadband access across the states and territories.
To accurately set this threshold, broadband offices have shown on focus on leveraging real-time data and stakeholder feedback. Some emerging strategies include:
- Finalizing an Extremely High-Cost Threshold after the first round of grant applications have been reviewed: this ensures the threshold will be based on up-to-date project data and is inclusive of all operational costs for the network’s lifespan.
- Employing the use of cost model tools to streamline application reviews: broadband offices plan to utilize resources such as the NTIA CostQuest National Cost Model, historical grant program data, and various other external or internal models.
- Determining if setting a threshold is necessary: some regions, such as Delaware, do not believe a threshold is needed and will be able to deploy widespread Fiber-to-the-Premises (FTTP) without it.
Considerations when setting an Extremely High-Cost Threshold
In determining the financial feasibility of expanding broadband, particularly through Fiber-to-the-Premises (FTTP), it’s critical to establish an Extremely High-Cost Threshold. To effectively determine high-cost areas and define the threshold, it is vital to have a precise count of unserved locations across your state and a detailed cost model of the investment required to service all unserved locations with FTTP. Broadband Offices recognize that certain regions inherently incur higher costs, making fixed wireless a practical choice to ensure universal coverage.
Without a precise count of unserved locations and cost model detailing the required cost investment for each location, it becomes challenging to determine the cost to service each location with FTTP and determine how many locations fall within the average cost and high-cost ranges. Therefore, a lack of information would make it difficult to define a state’s “Extremely High-Cost Threshold,” which dictates when a non-FTTP proposal can be accepted.
This threshold is not just a figure but a strategic pivot point that influences the broader agenda of maximizing fiber rollout while remaining open to other viable technological solutions in cost-prohibitive scenarios.
Why it’s important for States and Territories to consider setting Extremely High-Cost Thresholds for BEAD funding distribution.
When states and territories set their thresholds, it becomes a matter of incentivizing the deployment of fiber (FTTP) to as many unserved locations as possible while considering an efficient distribution of the total BEAD funds to provide sufficient broadband access to as many unserved and possibly underserved locations as possible. In other words, stretching BEAD funding in a manner that meets the state or territory’s broadband goals. These goals likely include not leaving unserved locations behind due to exceptionally costly areas tying up significant portions of the BEAD funding pool.
Above is an example of how a state’s (let’s call it State A) cost model might look like when calculating the total investment and average unit investment to deploy Fiber to the Premise to all unserved locations. In this example, the average unit investment for FTTP is $5,589.
To start visualizing how many locations fall within a high-cost range, in the chart above, the purple dots represent the low-density areas with locations in the top percentile in terms of needed investment. As you can see, 2.5% of the total locations in State A will require 28.1% of the total fiber investment if fiber is deployed to all.
Conversely, 46% of the total locations require 29.2% of the total investment. These competing values demonstrate the potential need for a threshold that provides funding for more total locations in a state.
Let’s dig further into the numbers to help visualize:
State A:
| Unserved Location Count | Fiber Cost to Serve | % of Total Locations | % of Total Fiber Investment |
|---|---|---|---|
| 2,508 | $157,579,741 | 2.5% | 28.1% |
| 48,163 | $163,748,343 | 46% | 29.2% |