An open letter submitted to the National Telecommunications and Information Administration (NTIA) this week proposed several alternatives to its contentious letter of credit (LOC) requirement for the $42.5 billion Broadband Equity, Access and Deployment (BEAD) program.

The letter had nearly 300 signatures, including leaders from organizations like the American Association for Public Broadband, The Internet Society and the Schools, Health & Libraries Broadband (SHLB) Coalition, along with internet service providers (ISPs), local government officials, state broadband offices, rural associations and other stakeholders.

Those groups echoed long-standing worries that the current LOC requirement will block small and community-centered ISPs, minority and women-owned providers, nonprofits and municipalities — “the very entities the program aims to prioritize” — from participating in the BEAD program.

Currently, BEAD applicants will need to get an LOC covering 25% of the grant amount from an FDIC bank with a Weiss rating of B- or better. These LOCs must be collateralized by cash or cash-equivalent assets, which means grant recipients will need to set aside a substantial amount of capital for the entire duration of a BEAD project. Realistically, each project could span several years.

The letter to the NTIA claims that factoring in the additional 25% match requirement, awardees will face a capital hurdle of more than 60% of their grant. For example, a provider seeking a $7.5 million grant for a $10 million project would need to have at least $4.6 million of their own capital available upfront.

“The LOC requirement, intended to ensure accountability in the distribution of broadband grants by the NTIA, has raised concerns as it may hinder participation from ISPs best suited to connect underserved communities,” the letter states. “Instead of safeguarding taxpayer funds, the LOC creates prohibitive capital barriers.”

The letter’s coalition maintained that alternatives to the LOC should be allowed for several other reasons. Among them, municipal providers often face legal restrictions against obtaining LOCs.

Also, banks haven’t expressed willingness to provide the $10.6 billion in LOCs that would be required for the $42.5 billion BEAD program, according to the coalition. Even if banks could be persuaded to issue LOCs at the required scale, “the substantial capital required to collateralize them would leave billions of dollars idling, rather than being utilized for equipment purchases, fiber deployment and workforce training.”

Past federal broadband investments have had either a match requirement or a letter of credit. The USDA’s ReConnect program requires a 25% match but not a LOC and releases grant funds on reimbursement, the letter to the NTIA noted. And the Treasury Department’s Capital Projects Fund doesn’t have any requirement for a match or an LOC.

The anti-LOC coalition told the NTIA that above all, it recommends waiving the requirement "entirely.” But if the NTIA is determined to keep the LOC rule, the group suggested two alternatives are made available to BEAD applicants.

The first option would be performance bonds, a financial guarantee that is typically issued by an insurance company or a bank to ensure that a contractor or company involved in a construction project fulfills their contractual obligations. Commonly used in construction projects, the letter said these bonds would be a suitable alternative to a LOC, guaranteeing “the delivery of the project without requiring providers to front such a large amount of capital to secure BEAD funding.”

Performance bonds have the "additional benefit that the bond issuer performs significant due diligence on the applicant, providing an additional layer of qualification. And, as bond issuers are incentivized to ensure performance, this mechanism adds further assurance of project completion,” the letter stated.

The second option would be delayed reimbursement, which would mean providers and state broadband offices have to agree on milestones that must be met to release each portion of an awarded grant. Grants would be made available to providers incrementally over the course of the build, an approach the letter said would enable broadband offices to “work effectively with the applicants they deem best positioned to connect unserved and underserved communities in their state.”

While the letter said these alternatives won't replace the due diligence that state broadband offices should conduct on applicants to verify their ability to execute BEAD deployments, they do offer options that allow the program’s objectives to be “achieved without unnecessarily excluding ISPs otherwise ready and able to connect communities across the U.S.”

Gigi Sohn, Executive Director for the American Association for Public Broadband and signatory to the letter said, “As things stand, BEAD is engineered to shut out the providers most willing and able to build for America’s least connected communities… So we’re calling for Secretary Raimondo and Assistant Secretary Davidson to make a fix that will make the program more competitive and live up to its promise to connect the millions of American families still living without the broadband they need.”

The NTIA included the LOC requirement in its BEAD statute, released in June of this year, despite repeated criticism leading up to the notice of funding opportunity.  

“Ensuring that these funds flow to entities with proven track records of financial and operational capability is important for taxpayers to receive the networks that they’ve been promised,” an NTIA representative previously told Fierce.“This is part of our role as good stewards of taxpayer dollars.”

However, the NTIA might be open to some of the suggestions made this week. 

The NTIA in August said it acknowledged that in some cases an alternative to LOCs may be appropriate, such as for municipalities who can access capital in the bond market, and urged states and territories to “accommodate these differences in establishing their requirements.” 

According to the rep, the NTIA "invites states and territories to propose alternatives ‘if they are necessary and sufficient to ensure that the program’s objectives are met.’"