Company Track Records, Growth Analysis Cast Doubt On Some BEAD Recipients

ZiTEL, a small broadband provider based in Virginia, previously had to withdraw from receiving broadband grants in North Carolina due to concerns about its operations and is now facing questions in Alabama about its ability to complete projects there. Yet the company was awarded nearly $150 million in grants through the federal Broadband Equity, Access, and Deployment (BEAD) Program.

ZiTEL is just one of dozens of companies that will greatly expand their footprints thanks to taxpayers and the $42.5 billion program designed to close the digital divide. However, critics question whether BEAD will accomplish its goal, given the struggles of the previous Rural Digital Opportunity Fund (RDOF) after the Federal Communications Commission (FCC) had to rescind awards when small providers struggled to scale their networks and provide the services promised.

A new analysis from Alex Karras and Michael Santorelli at the Advanced Communications Law & Policy Institute at New York Law School found that 42 broadband providers intend to increase their service footprint by at least 50 percent, with some even hoping to increase their service areas by astronomical numbers.

Provider IBT Connect (based in Florida), now serves four locations, per the FCC broadband map, but would connect 44,906 locations after receiving BEAD awards of more than $111 million, according to the ACLP study. A news bulletin on IBT Connect’s website indicates it is now working on a broadband infrastructure project in Arcadia that would service more than 4,700 locations paid for, in part, from grants from the Florida Department of Commerce, U.S. Department of Agriculture, and U.S. Department of the Treasury. IBT Connect did not respond to a request from the Taxpayers Protection Alliance (TPA) for comment about this exponential growth.

Illinois-based Shawnee Communications (formerly Shawnee Telephone Company) will get a whopping $784 million haul from BEAD to grow its business by a factor of 10, from 14,588 locations to 139,217. For reference, the $784 million that Shawnee will receive is more than such heavy hitters in the telecom industry as Starlink, Spectrum, Frontier, Verizon, and Mediacom will get from BEAD. Shawnee also did not respond to a request from TPA to discuss its expansion plans.

Santorelli told TPA the goal of the study was not to pass judgment on any BEAD subgrantee.

“The analysis and accompanying write-up merely observe that the internet service providers (ISPs) that will use BEAD to expand their service territories incrementally might be better positioned to do so given their existing scale and track record compared to those that are seeking to greatly scale their footprints with BEAD dollars,” he said. “Those smaller entities might find this more difficult to do since they [don’t have] a track record of being able to build and sustain networks at such scale. This isn’t to say they can’t or won’t be able to do this, but, in all likelihood, their path forward will likely be more difficult than for larger ISPs.” 

Advocates for closing the digital divide hope BEAD will not become the trainwreck that was RDOF. A study by the Benton Institute for Broadband & Society found that ISPs had defaulted on at least $3.3 billion of the $9.2 billion awarded through RDOF, with 1.9 million of the 5.2 million eligible locations not scheduled to receive service. New Jersey experienced defaults by every RDOF recipient, while California and Massachusetts saw default rates of 94 and 89 percent, respectively.

The FCC fined LTD Broadband $2.3 million for defaulting on 768 census block groups in Kansas and Oklahoma, which represented more than half of the $4.3 million in fines that the Commission imposed on 73 auction participants in 2022.

“These defaults have put at risk the timely deployment of broadband access for many and necessitate this strong enforcement action,” Acting FCC Enforcement Bureau Chief Loyaan Egal said at the time.

Some public documents show there is reason for concern with at least one of the rapidly expanding BEAD participants. TPA obtained a letter from the North Carolina Department of Information Technology (NCDIT) from February 22, 2024, raising concerns about a conflict of interest with ZiTEL and its subcontractor having common ownership and management. ZiTEL currently owns 500-plus miles of fiber in three Virginia counties and operates the Danville, Virginia, municipal broadband network.

An open records request by the law firm Wilkinson Barker Knauer produced that letter and emails between NCDIT and ZiTEL indicating that the provider withdrew from the broadband grant awards in eight counties because it couldn’t provide requested info from NCDIT about its plans and was in violation of some requirements of the grant program, including keeping its cash match funds in separate accounts on a per-award basis. ZiTEL President and CEO Brandon Camden conceded the company had not segregated the money in a separate email.  

Despite the troubles in North Carolina, ZiTEL has received BEAD grant awards in six states: Alabama, Florida, Kentucky, South Carolina, Tennessee, and Virginia. The largest award was for nearly $54 million in Alabama, much of it in Baldwin County. The Alabama Department of Economic and Community Affairs (ADECA) didn’t name ZiTEL in the final BEAD proposal it produced, but expressed concerns with “the presumed awardee for Baldwin County” (of which ZiTEL was the sole grant award winner) because it had not provided evidence of its ability to self-fund the locations it plans to serve and had not responded to a request for a revised proposal. ADECA said in its report that it “anticipated a significant change in the proposal” for Baldwin County, including a reduction in the number of served locations. 

ZiTEL did not respond to a request from TPA for comment.

Santorelli noted that the National Telecommunications & Information Administration (NTIA), which administers BEAD, has said on several occasions since the release of the ACLP analysis that it has vetted that subgrantees have the know-how and financial capability to complete their projects.

“We take them at their word on that and appreciate that the states, too, have done their due diligence,” he said. “But in reality, there will likely be defaults and struggles.”

Hopefully, given the immense amount of taxpayer money allocated toward BEAD, it will not be a repeat of the failures of RDOF. TPA will be among those watching for waste, fraud, and abuse in the program.