LC Requirements for US Entities Seeking Rural Broadband Support Scrutinized

The US Federal Communications Commission (FCC) which oversees program requirements for entities attempting to secure federal funding support for broadband deployment projects issued a Proposed Rule on 5 July 2024 in which it sought comment on changes to its rules regarding letters of credit for recipients of high-cost support awarded through competitive bidding. The comment period closed in August.

In particular, the FCC asked for comment on changing the rules governing which US banks are eligible to issue such LCs. It also requested comment on modifying its LC rules for Connect America Fund Phase II (CAF II) support recipients that have satisfied their deployment and reporting obligations and on allowing certain Rural Digital Opportunity Fund (RDOF) support recipients to lower the value of their LCs.

FCC rules presently require that entities authorized to receive high-cost support have an LC from a US bank with a Weiss bank safety rating of B- or better.

According to the FCC, some 3,600 banks were qualified to issue LCs when the FCC adopted this rule in 2016. In the last two years however, nearly half of those banks have lost their eligibility to issue LCs due to their Weiss rating falling below B-.

As a result, many carriers authorized to receive federal funding support face the possibility of having their support withheld until they obtain a new LC from a qualifying bank, leading to increased costs and administrative burdens for impacted carriers. Consequently, the FCC invited feedback on whether it should modify its current requirement of a B- or better Weiss safety rating.