Nearly all broadband subsidy proposals could survive California’s chopping block. Nearly

by Steve Blum • , , , , ,

There won’t be enough money in the California Advanced Services Fund (CASF) to pay for all the broadband projects proposed for subsidies last month. Grant requests total $533 million, but there’s only $145 million in tax revenue projected to be available for CASF infrastructure projects, as the program is designed and run now.

Something has to give. But not everything. One potential remedy is to top up project budgets with federal money. Two other possibilities are to reduce the share of those budgets paid for by CASF and/or eliminating some proposals completely.

Limited changes to CASF rules landed in the hopper at the California capitol on Monday. Two state budget clean up bills – “trailer bills” – with identical language were introduced: assembly bill 82 and senate bill 108. The tweaks allow CASF grants to be combined with subsidies from the federal Rural Digital Opportunity Fund (RDOF), even when a project area has existing broadband service that exceeds California’s achingly slow 6 Mbps download/1 Mbps upload standard. A project area is eligible for RDOF money if it lacks service at 25 Mbps down/3 Mbps up.

Maybe the feds will ride to the rescue, but that’s a question for later. RDOF broadband subsidies are awarded via a complex reverse auction that is scheduled for October. For now, Californians have to rely on what’s left in CASF for broadband infrastructure upgrades. That means pruning back the $533 million thicket of grant applications.

Start by tossing Exwire’s $4.5 million proposal for the Kingswood neighborhood near Lake Tahoe. Charter Communications filed a competing (and more plausible) application and can upgrade broadband service there for less money. Pull out Hunter Communications’ $290 million fiber project in Mendocino County, too. Even if it were cut in half, it would soak up all the money remaining in CASF. To get back into the game before RDOF money shows up, Hunter will have to dramatically downsize and redesign the project. Maybe it will, but for now consider it sidelined.

That leaves 52 grant applications, most of which are asking CASF to pay for 100% of project construction costs. If you dial the subsidy level down to 60%, the total ask drops to $143 million, which is a neat fit for the estimated money available.

The world doesn’t run that neatly, though. Requiring 40% matching funds would likely eliminate many, maybe most, applicants – bankrupt Frontier Communications comes to mind. So another way to filter out proposals is by cost per home served.

There are four projects needing subsidies of more than $50,000 per home: Darlene Road, Ventura County (Charter), Cuyama, Santa Barbara County (Frontier), Long Valley, Plumas County (Plumas Sierra Telecoms) and the biggest ask remaining, the $82 million proposal made by a startup ISP, WiConduit, in western Sonoma County. Lop off those four and the remaining 48 projects total $132 million, leaving enough in the kitty to maybe add one or two (but not three) of the high cost proposals back in.

The culling process that California Public Utilities Commission staff will ultimately use won’t be this simple. There are many ways to stray from the CASF trail. For example, some projects could be killed off by eligibility challenges from competitors. Others could be rejected because of incomplete or inchoate applications. And some applicants might be deemed unfit or unqualified – project budgets have to backstopped by letters of credit and company financial statements have to be blessed by outside accountants.

This natural attrition combined with a shot at extra money from RDOF means there’s hope for everyone. There’s even the tantalising prospect that hybrid CASF/RDOF proposals for new projects will be entertained. Stay tuned.

The Central Coast Broadband Consortium (CCBC) supported Charter’s San Benito County proposal and assisted Etheric Networks with its application. The Connected Capital Area Broadband Consortium (CCABC) assisted DigitalPath. I assisted the CCBC and the CCABC, and also kibitzed on other projects. I also have opinions about what the CASF program should be (in case you haven’t noticed). I’m not a disinterested commentator. Take it for what it’s worth.