Carriers Face Myriad Rip-and-Replace Challenges Despite Full Funding

“Some people have already had to delay planning” owing to the funding delay, Musey said, adding that “some damage may have already been done, and it may take ... time to ramp up.” As such, there could be delays before work can accelerate again. Moreover, the additional funding may not arrive quickly enough, resulting in some providers going out of business, he added.

Another problem is that the program's total cost, $5.08 billion, is based on 2021 estimates and doesn’t account for “significant inflation,” Musey said. “It’s getting harder and harder to meet those numbers."

Companies that ran out of money haven’t been working to obtain permits, create architectural drawings or "order long-lead items for the spring and summer seasons,” Musey said. The providers in the best position are those who went slowly and still have funds, he said: That’s “completely the opposite of what the FCC and Congress wanted. They wanted people to get this project done fast, and the people who started out fast are the ones who have run out of money.”

Musey noted that FCC cost catalog numbers tend to be higher than actual costs. “If you used the cost catalog or just used very high estimates, you’re in a better position,” he said. “The more honest you were and the more you complied with what Congress wanted, the worse position you’re in.”

Pine Belt Concerns

Alabama-based Pine Belt Wireless deferred work on “quite a few sites” because of funding uncertainty, President John Nettles told us. “We had to hold some of our prorated reimbursement funds in reserve in case removal and destruction at these sites was all we could ultimately handle.” The company hit an impasse 10 months ago and it’s “going to take time to reengage with our site contractors," he said.

“We are fortunate in a small sense in that our primary vendor has already delivered most of the critical site hardware,” Nettles said. “But some of these last sites require the [greatest] amount of work, with almost all of them needing to be rebuilt from the ground up for one reason or another.” That process is restarting, he said, but the construction crews “we were using have all moved on to other work” and “getting them remobilized, back in market, and in motion is certainly not going to happen overnight.”

Nettles defended using catalog averages as the best way of working within the system. “It was clear upfront that we would only be allowed one swing at the ball and, in the end, we would only be reimbursed for our actual costs consistent with the mandate,” he said: “It only made sense to try to establish a top-end amount that would have a good chance of covering it all,” and costs have increased.

Nettles criticized a prohibition on using the remaining funds to accelerate 5G deployment. A policy change “would both help ensure that the newly government-subsidized network facilities are not out of step with current technology right out [of] the gate and would also take some pressure off and be consistent with the objectives of the 5G Fund."

Rural Wireless Association General Counsel Carri Bennet said she hoped Congress would allow carriers to use the money for 5G, especially because 4G technology is getting “harder and harder” to find. “The technology has moved on, but the reimbursement program doesn’t allow funding for 5G technology,” Bennet wrote in an email. Compounding the problem, many rural carriers participating in the rip-and-replace program are “also getting legacy mobile USF support, which requires that all the legacy support be used to build out 5G.”

The Competitive Carriers Association “appreciates the FCC's push to take quick steps to secure the additional funding,” a spokesperson emailed: “We will continue work with the policymakers and stakeholders to complete this important work.”

Update to Congress

Meanwhile, this week the FCC released an annual report to Congress about the program, which described continuing progress, with 31of 126 total applicants completing work. As of Nov. 30, “we have granted 154 individual requests to extend for up to six months the one-year deadline for a recipient to complete” removal, replacement and disposal of the Chinese gear, the report said. The Wireline Bureau “expects this number to increase by the time it submits the next Report,” Monday’s report said. Several recipients have also requested extension of their performance deadlines “frequently citing” the program’s $3.08 billion shortfall in congressional funding as the cause. The fund administrator and Wireline Bureau had received 35,465 reimbursement claims from 116 of the 126 applications approved for funding and the Office of Managing Director had approved $944,230,486 in reimbursement claims, the report said.

The FCC last week released a public notice saying it would take “quick action” to obtain funds from the Treasury needed to complete the program (see 2412260012). Also, the Wireline Bureau emailed program recipients, saying it will notify them "when their full allocations are reflected in the Supply Chain Reimbursement Program portal": “We encourage recipients to continue submitting all relevant invoices for the work completed under the Reimbursement Program, even before receiving a notice of an updated allocation amount.” Musey welcomed the notice, though he said it was light on details.

John Strand of Strand Consult said the rip-and-replace program is very generous, and no other country has reimbursed operators for changing out equipment that would have to be changed anyway as technology advances.

“Many of these operators have chosen to buy Chinese equipment to build vital infrastructure in the United States,” Strand said in an email. "They did this despite public knowledge of the risk and the warnings from many authorities, going back to 2011/2012 and even before. Effectively, these operators get rewarded for making a bad decision.”

These carriers “accepted an offer from the Chinese that was too good to be true” and normally when “companies make stupid decisions, their shareholders foot the bill,” Strand said.