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Over the last three decades, accessible and affordable high-speed internet (often called "broadband") has increased in importance for the health, safety and economic wellbeing of communities. Municipalities that are interested in expanding broadband to their communities have several options in both how to build out broadband networks and how to finance such expansion. This paper explains the basics of broadband connectivity and outlines two methods of broadband expansion: (1) municipal owned network and (2) public-private partnerships.1
Broadband is a general term that refers to high-speed internet access. The Federal Communications Commission (FCC) sets the speeds that qualify as adequate broadband. Since 2015, that speed has been 25 megabits per second (Mbps) download and 3 Mbps upload often referenced as "25/3 Mbps."2 As of 2022, 488,327 households in Ohio lack access to 10/1 Mbps broadband, which is currently considered the "bare minimum of connectivity."3 In addition, 37% of Ohioans lack access to 25/3 Mbps broadband.4
Several avenues exist to deliver high-speed broadband, including fiber, DSL/cable and wireless networks. Current federal and state programs are incentivizing fiber networks over other delivery methods.5 Fiber, short for fiber optic cables, consists of bundles of glass or plastic strands that carry data at the speed of light. Fiber presents several benefits over other types of internet service. First, fiber more easily allows for higher speeds than other methods because fiber transmits data at the speed of light, the data travels faster than it would on copper cables.6 Fiber cables can carry much more data than a copper cable of the same size.7 Additionally, fiber networks can transmit data for much longer distances before needing to be amplified than traditional copper wires.8 Importantly, fiber cables are also "futureproof" due to fiber's ability to handle huge amounts of information; fiber does not corrode or deteriorate like copper wires.9 All of these qualities make fiber the optimal infrastructure for broadband expansion, despite fiber being more expensive than traditional cables. Although fiber easily offers speeds of 1 gigabits per second (Gbps),10 many consumers with fiber internet service will not be able to access that speed due to bottlenecks within other non-fiber parts of the broadband system.
The "Last" and "Middle" Miles
The internet generally consists of three parts: the global internet network, the middle mile and the last mile.11 The global internet network is a connection of trans-oceanic fiber optic cables that reach centralized stations, sometimes called "internet backbones."12 These internet backbones are usually in major cities and can transmit data at very high speeds. For example, Google's new Dunant transatlantic fiber optic cable is the width of a garden hose and can transmit 250 terabits per second13 fast enough to transmit the entire digitized Library of Congress three times a second.14 Broadband can only be as fast as its slowest component, so the key to getting high-speed internet is having a stronger connection to this internet backbone via the last and middle miles.
The last mile is the part of the internet service infrastructure that reaches the premises of the end user, such as a house or an apartment building.15 The last mile cannot connect directly to the internet backbone it has to connect to the middle mile. The middle mile16 is what carries data from an internet backbone to your local internet service provider (ISP), which is the entity that provides last mile connectivity.
Within a fiber network's last mile, there are two primary ways of connecting buildings to the fiber: fiber to the premises (FTTP) and fiber to the curb (FTTC). FTTC is cheaper, but the copper wires between the household and the curb act as a bottleneck for broadband speed. FTTP is more expensive to install than FTTC, but provides fast and reliable internet and is more durable than other methods because it eliminates the slow copper cables between the curb and the premises.
Almost all of the money in both state and federal programs is currently going to last mile projects. Under the Ohio Residential Broadband Expansion program, the grants are limited to last mile infrastructure by statute and most grants approved were for FTTP projects.17 Under federal programs, US$42 billion was designated for last mile infrastructure projects through the BEAD program, while just US$1 billion was dedicated to middle mile infrastructure projects through the Federal Enabling Middle Mile Broadband Infrastructure program.18
Municipal broadband is a common term for broadband provided and owned by public entities. Throughout the country, municipal broadband ownership can take many forms, including, but not limited to, public utility models, city departments dedicated to providing service, and cooperative models.19 One prominent example of a municipal broadband network in Ohio is FairlawnGig, a fiber-based internet service provided by the city of Fairlawn that describes itself as a "municipal broadband utility."20
In Ohio, a variety of public entities can currently build out public broadband infrastructure and provide service under existing constitutional and statutory authorizations.21 However, state support for municipal broadband has come into question in recent years. Currently, 18 states outside of Ohio have explicit restrictions on municipal broadband networks.22 In 2021, the Ohio Senate proposed and approved a budget bill that nearly banned municipal broadband networks.23 Although this version of the budget bill was not enacted, many in the municipal broadband space are concerned that such initiatives may resurface and have formed organizations to advocate for the adoption and growth of municipal broadband networks.24
Whether ISPs constitute public utilities in Ohio (and in the US) is still an outstanding question. On the national level, in 2015, the FCC voted to regulate internet service as a public utility,25 but the FCC reversed this decision in 2017.26 The fate over internet service as a public utility remains lively on the national scene, with most discussions centering on net neutrality.27 In Ohio, although the Public Utilities Commission (PUCO) regulates traditional landline services, it does not regulate internet service or ISPs.28 However, in June 2021, Ohio Attorney General Dave Yost filed a lawsuit against Google alleging that Google constituted a common carrier and/or a public utility and should be regulated as such. Attorney General Yost noted in his complaint that "[a]n entity can be a common carrier and/or public utility under Ohio common law, even if it is expressly excluded from regulation by PUCO."29 Although such a case is factually different from the case for an ISP, since in Ohio Google only provides search capabilities and not internet service, the arguments made and opinion that come out of the case may be instructive on the future of internet service as a public utility within the state. Thus, municipalities should be aware of technical, financial and political risks when considering building a municipal broadband network.
Municipal broadband can be financed through several sources, including (1) grants provided by federal or state governments, (2) through the issuance of municipal bonds or (3) through an appropriation for such expenditures. Two grant programs are analyzed in depth in this article: Ohio's Residential Broadband Expansion Program and the Federal Broadband Equity, Access, and Deployment (BEAD) Program. The Federal Enabling Middle Mile Broadband Infrastructure Program is also analyzed.
a. Federal Broadband Equity, Access, and Deployment (BEAD) Program
In 2021, Congress appropriated US$42.45 billion for states and territories to utilize for broadband deployment, mapping and adoption projects. States will ultimately award the grants to eligible entities, including cooperatives, nonprofit organizations, public-private partnerships, private companies, public or private utilities, public utility districts and local governments.30 Each state will receive US$100 million to implement its grant program plan and the remaining funding will be distributed based on a formula that considers the number of unserved and high-cost locations in the state, based on information provided by the FCC in 2022. Ohio is expected to receive about US$900 million in total through this program.31 The BEAD program moves beyond current FCC measures of adequate speed. Under BEAD, the first priority for funding is for providing broadband to unserved areas (those below 25/3 Mbps), followed by underserved areas (those below 100/20 Mbps),32 and then serving community anchor institutions (1/1 Gbps).33 Unserved projects receive first priority, with underserved projects only receiving funding when all unserved locations have adequate broadband, and then finally community anchor institutions.34 Additionally, states must give priority to projects that serve counties with persistent poverty or other highpoverty areas, and give priority to projects that will deliver the highest speeds with the shortest construction time.35
The program is run through the National Telecommunications and Information Administration (NTIA), but the funding will be administered by the individual states and territories. In May 2020, the NTIA released its notice of funding opportunity and states had until July 18, 2022, to submit a letter of intent.36 After submitting a letter of intent, a state can receive US$5 million in funding for planning purposes and it must submit a five-year action plan, in collaboration with local and regional entities. All 50 states, plus Washington DC and Puerto Rico, have submitted their letters of intent. 37
In order to distribute BEAD funds to the states, the NTIA must first release "broadband data maps." These maps are created by the FCC and are designed to accurately capture locations that lack broadband access. The FCC will likely publish the broadband data maps in late 2022 or early 2023.38 After the maps are published, the NTIA will notify each state of how much money is available.39 The state will then submit its initial proposal, which must include local coordination, as well as a challenge process.40 The state must launch its challenge process and resolve any challenges at least 60 days before giving out grants.41 If the state's initial proposal is approved by the NTIA, it will receive 20% of its allocation. After receiving this allocation, the state must submit its final proposal.42 As part of this final proposal, the state must provide a definition of "low-cost broadband" to the NTIA. In order to receive grants, any broadband provider must supply at least one service option that meets its state's definition of "low-cost broadband."43 If the NTIA approves a state's final proposal, the state then receives the other 80% of its allocation.
In order to receive funds, states must submit a five-year action plan as part of the initial proposal. This plan has to "be informed by collaboration with local and regional entities."44 The NTIA is responsible for creating local coordination requirements so that states know what level and type of coordination is needed. As of July 2022, the NTIA has yet to release those requirements. At a bare minimum, the state must allow political subdivisions to submit plans to the state and comment on the state's initial and final proposals.45 As highlighted above, states must allow grants to local governments in addition to cooperatives, nonprofit organizations, public-private partnerships, public or private utilities, public utility districts and private companies.46 Matching Requirement
At least 25% of the total project cost must be paid by either the state or the entity receiving the grant. The matching requirement does not apply in high-cost areas and may be waived by the NTIA if requested for projects not in high-cost areas. A high-cost area is not explicitly defined in the statute, but the assistant secretary of commerce is given authority to determine what counts.47 The factors the assistant secretary can look at include how remote the location is, lack of population density, unique topography, high rate of poverty, and any other factor deemed relevant by the assistant secretary.48
The state may use money from the CARES act to provide matching funds, of which Ohio still has yet to spend US$2 billion.49 In addition, states cannot use BEAD money to replace state money for broadband expansion. They are only allowed to use BEAD money as a supplement to state money.50
b. Enabling the Middle Mile Broadband Infrastructure Program
Congress established a US$1 billion program for the construction, improvement or acquisition of middle mile infrastructure. Like the BEAD program, eligible applicants include states, political subdivisions of a state, tribal governments, technology companies, electric utilities, utility cooperatives, public utility districts, telecommunications companies, telecommunications cooperatives, nonprofit foundations, nonprofit corporations, nonprofit institutions, nonprofit associations, regional planning councils, Native entities or economic development authorities. The purpose of the grant program is to expand and extend middle mile infrastructure to reduce the cost of connecting unserved and underserved areas to the internet backbone.51 As part of this program, federal funding is capped at 70% of total project cost.52 This money is distributed by the NTIA directly, as opposed to the individual states, so each entity seeking funding under this program must apply directly through the NTIA. Applications opened on June 21, 2022, and are due September 30, 2022.53 Because this US$1 billion is spread across the entire country, grant awards for this program are expected to be scarce.
To date, there are no state statutes prohibiting local government entities from owning, operating or financing municipal broadband networks.54
In some cases, municipalities can issue bonds to pay for the physical infrastructure necessary to build out the network. Whether and how such bonds are issued will depend on how the broadband network is owned and operated. Issuance options can include general obligation bonds, industrial development bonds,55 special obligation bonds or revenue bonds. Most commonly, industrial development bonds are utilized to ensure flexibility for the broadband network to support economic development and job creation initiatives. If the municipal network is planned exclusively for public use, such bonds may be issued on a tax-exempt basis if they meet certain conditions. The type of bonds available and the tax-exempt status is highly fact dependent and we recommend that you consult with a member of our team regarding your options in issuing municipal bonds for your prospective municipal broadband project.
Municipal entities may appropriate funds annually to build out and operate a municipal broadband network provided such appropriations and expenditures comply with state law and their local charter (if applicable).
Broadband networks can also be expanded through a public-private partnership. Municipal entities can partner with their forprofit or nonprofit providers to provide internet access to their communities. Public-private partnerships can come in a variety of structures, such as public payment for the expansion of service to certain communities or the leasing of publicly owned infrastructure to public entities to provide service.56
Financing of Public-Private Partnerships for Broadband
Public-private partnerships for broadband projects can be financed through several sources, including (1) grants provided by federal or state governments or (2) through the issuance of industrial development bonds or other bonds under the authority of Article VIII, Section 13 of the Ohio Constitution.
Public and private entities may both apply for BEAD funding, as well as Enabling Middle Mile Broadband Infrastructure funding as outlined in the Municipal Broadband Grants section above.
b. Ohio Residential Broadband Expansion Program
In 2021, Ohio passed the Ohio Residential Broadband Expansion program, which provides US$250 million in state grants to help ISPs build last mile infrastructure.57 The program had its first round of grant awards in March 2022, which saw 33 projects receive a total of US$232 million in funding.58 The program can do up to two rounds of grant awards per year.59 Only private entities who are a video service provider or a provider of tier one or tier two broadband service that is a telecomm, satellite or wireless provider are eligible for this program.60 As of August 2022, municipal entities are not eligible to apply.
The program is designed to cover the "broadband funding gap," which is the difference between the costs necessary to build the last mile of a network, and the amount of money that would make that network construction cost-effective.61 Ohio's law authorizing this grant program uses the FCC definition of 25/3 broadband as adequate broadband speeds.62 The program provides grants to projects that will provide at least 25/3 broadband to areas that are currently either unserved (<10/1) or underserved (<25/3) by current broadband offerings. Although projects have to provide at least 25/3 to qualify, every project that was awarded grants in the first round was well above that. Of the 33 projects to receive funding, 14 had speeds of 1,000/1,000, 17 had 1,000/500, and the remaining two had 1,200/35 and 900/200.63 The program relies on more than just the projects receiving grants to expand access; it also has a robust challenge system.64
Broadband Ohio evaluates and awards grants based on a transparent scoring system.65 The largest allocation of points is for projects that will reach unserved (<10/1), rather than underserved (<25/3), households. This section has 700 possible points. To incentivize ISPs to reach those with the worst broadband, points are awarded based on the number of unserved residents in a project area divided by the number of unserved and underserved households in that area. The closer the resulting number is to one, the higher the score. This number (between zero and one) is then multiplied by 700 to give a score for the section.66 More than 20 of the 33 successful projects are for only unserved areas, giving them a ratio of one and, therefore, a perfect score for this section.
The second largest allocation for points pertains to how much of the project is in an "economically distressed" area as defined by the Ohio Revised Code. This section has 630 possible points. For either a county or an individual municipality to be "distressed," it must meet at least two of the following criteria: (1) the five-year unemployment rate must be at least 125% of the average unemployment for the US in that same period, (2) it has per capita income equal to or below 80% of the median county per capita income of the US, (3) for a municipality, at least 20% of residents must be below the poverty line, and (4) for a county, in years between censuses, the county has more than 25% of its income come from transfer payments from the state. Similar to the first scoring section, whatever the proportion of the project is in a distressed area (a number between zero and one) is then multiplied by 630 to get the total points for that section.
These criteria are set by statute and designed to help economically disadvantaged areas receive extra aid.67 Other than one small project in Licking County, every project that received grant funding was in an economically distressed county.
The third largest allocation for points is for projects that receive financial or in-kind contributions toward the broadband funding gap. This section has 420 possible points. The more funding received from sources other than the grant program, the higher the score in this section. The ratio of contributions to the total funding gap is multiplied by 420 to give the total points for this section.68
The remaining 125 points will be allocated based on criteria such as utilizing public facilities (50 points), scalability of projects (40 points), and the ISP's history in Ohio, its technological and financial capability to complete the project, and demonstrated community support for the project (35 combined points). The lowest score to receive a grant in the first round of funding was 1,911.
Most of the broadband expansion projects credited to the program are from challenges. Thirty-three grants were given out, but 71 challenges were approved. The challenge process is designed to allow incumbent ISPs to preempt grants to competitors by committing to build adequate broadband in the proposed area. Incumbent ISPs are able to challenge specific applications submitted by their competitors. ISPs know which grant applications to challenge because all completed applications are published on Broadband Ohio's website. After the application process closes, ISPs have 65 days to submit challenges to other applications.69
In order to challenge a grant, an ISP must submit documentation to Broadband Ohio committing to build, within two years, broadband in the proposed area with a notarized letter of intent stating a summary of construction efforts and existing or planned broadband offerings in that geographic area. The incumbent ISP can also submit documentation that it is already providing adequate broadband service in the area proposed by the other application. If Broadband Ohio suspends an application because of a challenge, the original ISP that applied has 14 days to revise and resubmit its application. Broadband Ohio then has an additional 14 days to determine if it will uphold the challenge or allow the original application to proceed.70 Just because an application was successfully challenged does not mean that the application would have received grant funding. Being successfully challenged removes the application from the pool of applications to be scored; if the application was unchallenged, or challenged but the challenge was not granted, the application would proceed to the competitive scoring process where it may or may not have scored high enough to receive a grant.
If the challenge successfully blocks a grant application, but the challenger fails to provide adequate service within two years, the challenging ISP will have to pay into the program the amount originally requested by the application before it was successfully challenged, as well as pay any other penalties.71 There is no limit on the amount of challenges that could be approved. This challenge system resulted in a majority of projects publicized under this program not funded by the program directly, but instead by incumbent ISPs trying to keep their competitors from receiving grant funding.72
2. Industrial Development Bonds and Port Authority Bonds
Article VIII, Section 4 of the Ohio Constitution limits the ability of local government entities to lend aid and credit to private parties in most instances. However, Article VIII, Section 13 provides an exception to Article VIII, Section 4 and permits local governments to issue debt that will benefit private parties for the purpose of economic development. Such debt may be issued as industrial development bonds pursuant to ORC 165, other special obligation or revenue bonds under the authority of Article VIII, Section 13 of the Ohio Constitution, or through a Port Authority as a conduit under ORC 4582.73 Note that such bonds cannot be backed by a general obligation or taxation pledge. In addition, a variety of cooperative powers exist within the Ohio Revised Code that permit cooperation among Ohio governmental entities that can facilitate a municipal broadband project. For example, under ORC 701, municipal corporations, counties and townships can engage in cooperative economic development agreements to provide joint services and improvements within incorporated and unincorporated areas. Cities and villages can issue industrial development bonds in support of these efforts.74 Port Authorities may also engage in cooperative agreements with municipal corporations, counties and townships for economic development purposes pursuant to ORC 4582.
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