Rip & Replace Data Understates Participants Incurred Spending Costs

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Participants in the FCC’s Secure and Trusted Communication Program (“SCRP” or “Rip & Replace”) are much closer to hitting their initial 39.5% allocation budgets than publicly available data from their “Spending Reports” or the FCC’s semi-annual report to Congress would suggest.[1] As a leading provider of FCC reimbursement support services, Summit Ridge Group (“Summit Ridge” or “SRG”) has a unique viewpoint about what these reports measure and what they miss.[2] SRG estimates that Rip & Replace expenditures may be as much as 50% higher than is reflected in FCC reports. This significant undercounting of Rip & Replace participants’ incurred costs may give lawmakers a false impression that the need to fully fund the Rip & Replace program is less urgent than it actually is.

Report Only Captures Spending on Reimbursed Invoices

Despite the name, the Spending Report does not measure how much Rip & Replace participants have spent or committed to spend on the program. Rather, it accounts only for the money Rip & Replace participants have paid on the invoices the FCC has reimbursed, which is a lagging indicator. Likewise, the amount reimbursed is generally significantly lower than the total costs expended.

Reimbursed Invoices are Significantly Lower than Incurred Costs

Significant delays between the time a Rip & Replace cost is incurred and when it is reimbursed are common due to the nature of the project and the FCC reimbursement process.

 

  • Services must be completed before being reimbursed. Before the FCC reimburses an invoice for a service, the reimbursement rules generally require that the work be completed. Often, there are final engineering tests that can delay acceptance for weeks or even months. At this point, the work is usually 90%+ complete, and there is little doubt the carrier is committed to paying the costs. After formal acceptance, the contractor sends an invoice to the carrier, typically once a month.

 

  • Modifications slow the process. At SRG, we often refer to invoices not submitted due to pending modifications as “shadow backlog.” After formal acceptance and receipt of an invoice, the carrier can submit the invoice for reimbursement. However, if any item on the invoice differs by any amount from their January 2022 application (usually based on 2021 estimates), they must first file for and receive approval for a “modification.” Modifications can take weeks or even months to process. The Fund Administrator often requests additional information (“RFIs”) that require the carrier to get additional information from the vendor or provide elaborate explanations as to why the request is not possible. SRG has clients with more shadow backlog invoices than invoices that have been reimbursed.

 

  • The invoice submission process is time-consuming. Submitting invoices for Rip & Replace is unlike submitting invoices in a traditional corporate environment. Government rules intended to avoid waste, fraud, and abuse make reimbursement labor-intensive. A rounding issue of a few pennies on a large invoice can cause it to be rejected and require the applicant to spend dozens of hours tracking down and resolving it. Resolving the rounding error frequently requires another modification before the invoice is resubmitted. It is also not uncommon that once one issue is resolved and the invoice resubmitted, the reviewer comes back with an entirely different question, and thus, the cycle continues.

 

  • Many applicants have large backlogs of invoices. The FCC reimburses incurred costs as far back as April 10, 2018. Furthermore, it encouraged applicants who had the resources to wait until they were near the one-year anniversary of their July 17, 2022, allocation to begin submitting invoices. As a result, many applicants have large backlogs of invoices, almost all of which will require modifications that they have not yet submitted. It will likely require years for them to be resolved.

Incomplete Cost Analysis May Mislead Policymakers to Participants’ Detriment

Many more Rip & Replace applicants have incurred costs that are pushing up against their 39.5% allocation than the FCC data would suggest. It creates a misleading impression that applicants have more runway before funding runs out than they actually do. Since applicants are only allowed to request reimbursement for invoices up to their allocation limit, the total spend of applicants who have already exceeded the 39.5% threshold is not represented. SRG is aware of applicants that have already exceeded their current allocation, but you would not know it just by looking at their Spending Report. In turn, this understates the urgency for Congress to fully fund the Rip & Replace program.

 

Moreover, the Reports do not include future commitments applicants must make. The required planning process often requires applicants to commit to expenditures months in advance. Applicants in rural, difficult-to-access areas heavily affected by winter weather are particularly dependent on advance planning commitments. To have the SCRP-compliant equipment and a tower crew to install it this summer, an applicant may need to get local regulatory approvals, order equipment, and commission the services today. They are essentially committing to the associated expenses months before the work event starts and perhaps a year from when it is reimbursed. This places applicants who are quickly approaching their allocation limit in a difficult position since they have no way of knowing whether the program will be fully funded by then. Their only options are 1.) to continue moving forward with the Rip & Replace project, knowing that if the program is not fully funded by the time the work is completed, they will need to find alternative financing to pay their vendor, or 2.) cease work entirely and likely incur steep penalties and delays. Because none of these costs are captured by the current Spending Report or the semi-annual Wireline Competition Bureau reports to Congress, those Reports significantly understate the industry progress and funds committed towards the SCRP process.

 

[1] Indicating that as of December 31, 2023, the Rip & Replace program had reimbursed participants $396,526,243 million. See, FCC Wireless Competition Bureau, “Secure and Trusted Communications Networks Reimbursement Program Third Report” (January 5, 2024), page 3. https://docs.fcc.gov/public/attachments/DOC-399600A1.pdf
[2] Summit Ridge Group had facilitated over $425 million in client reimbursements from the TV Broadcast Repack, the C-band Clearing, and the Secure and Trusted Communications Program (SCRP or Rip & Replace) programs and was recently selected as the 3.45 GHz Clearinghouse. Summit Ridge is also an internationally recognized provider of complex business valuation, financial advisory, and industry analysis in the global telecom, media, and satellite sectors.