Rip and Replace: Latest Developments

Last week, the FCC released its final filing procedures for telecom providers seeking reimbursement through the FCC’s $1.895 billion Secure and Trusted Communications Networks Reimbursement Program, informally called “Rip and Replace” within the industry. See the FCC’s PN here:  https://www.fcc.gov/document/fcc-announces-final-supply-chain-reimbursement-program-procedures. This is the program through which Congress will pay for the removal and replacement of certain Huawei and ZTE equipment deemed to pose cybersecurity risks to small, mainly rural networks.  Applicants may have no more than 10 million customers, and reimbursable equipment must have been purchased prior to June 30, 2020.

The FCC is targeting October 29, 2021, to open the application for Rip and Replace reimbursements.  The window to submit applications will be at least two months and potentially longer.  The FCC must still announce when the online portal will be opened for application submissions.  But in the meantime, there is plenty of advanced work for applicants.

Where to Start?

Appendices A and B to the FCC’s PN provide a checklist for applicants.  Of note:

• Applicants will need CAGE Codes from the federal government’s System Award Management (SAM) portal and matching DUNS numbers from Dun & Bradstreet.  If any applicant does not have these numbers already, we highly recommend you apply for them promptly, as the process can be time-consuming. For applicants with multiple entities, the CAGE Code and DUNS number must be for the same entity.
• Applicants also must have no more than 10 million customers.  If an applicant has filed its most recent Form 477 (for “Local Telephone Competition and Broadband Reporting”), the FCC can look to that for verification of customer numbers.  However, if an applicant has not filed a Form 477 in the most recent filing period, then now is the time to compile alternative proof of customer count.
• The final key eligibility requirement is that the Huawei and ZTE equipment must have been purchased or obtained prior to June 30, 2020.  So applicants should begin to locate invoices and other supporting documents.

Cost Estimates

Similar to the FCC’s broadcast repacking reimbursement program following the 2016 broadcast incentive auction (Auction 1000), the FCC will seek cost estimates from applicants to determine (i) if the $1.895 billion will cover all of the reimbursement program cost and, if not, (ii) to determine what percentage of costs each applicant will receive.

• Appendix C to the FCC PN is the Final Catalog of Eligible Expenses and Estimated Costs for replacement equipment and related services. The Cost Catalog lists both low and high cost ranges for the equipment and services listed, but to arrive at its initial total estimate of the program cost, the FCC will use the average of those high and low costs.
• Thus, for the initial estimated costs, applicants may not cite a cost within the low-high range but must request the average cost in its application.
• Any applicant whose cost average of a particular item does not fully account for that item’s actual cost can provide individualized cost estimates and related vendor quotes. So applicants should use the coming weeks to collect or request from vendors any such supporting documentation for equipment with above-average reimbursement costs.
• Applicants should also use this time to agree with their equipment vendors on a quote and invoice format and process to allow consistent FCC submissions.
• Finally, the FCC is collecting these cost estimates on a site-by-site basis.  So, depending on how many sites an applicant has, applicants with many sites should establish an internal process for organizing all invoices, quotes, and other supporting documents by site.  This will make it much easier for timely uploading of estimates when the portal opens.

As applicants turn to prepare their filings, questions will arise concerning “like-for-like” equipment replacement, whether new equipment is an “upgrade” or not, and unforeseen costs not contemplated in the Cost Catalog.  Stay tuned for updates on these and new issues as this process unfolds.