Viewpoints
By: Steven S. Ross, Broadband Communities
Beware outdated preconceptions about whether BEAD money should go to local or major carriers, community-run broadband or a public-private partnership. But also, beware of the details.
My answer to “who should build broadband networks” has always started with what should be obvious: Usually, the deployer with the lowest cost of capital. But technology and the $42.25 billion Broadband Equity, Access and Deployment (BEAD) Program and other funding mechanisms have warped the equation. What are your community’s options? What are the deployer options? What are the traps?
I’ve been talking to many executives, mainly from smaller communities and telephone companies, wondering if they should take the plunge. Most are rural and have or are near broadband service areas that are either underserved or unserved.
All want to do right by their customers but most also fear overbuilding by competitors using BEAD money or other funds. A few represent underserved multiple dwelling unit (MDU) communities, which are generally eligible to apply for BEAD funds, or exurban planned unit developments. A few represent low-income communities for which $30 per month per household current federal subsidies look particularly attractive.
None have been from national or large regional carriers – they have in-company folks to talk to. But these larger carriers are absolutely expecting to get in on the action. They know how to lobby effectively, especially at the state level. And decisions for awarding BEAD funds are, by design, happening at the state level.
A few large carriers cleaned up their balance sheets by going through bankruptcy a few years ago. But the biggest carriers all have a lot of long-term debt on the books – over a third of a trillion dollars for AT&T, Verizon, and Comcast combined. They have been shedding debt lately but could use the federal money. I’m not opposed, but communities going that route must travel with care.
One fuzzy issue: Some academics have argued that major carriers’ prices are too high, compared for instance to Europe. But in Europe, over half of all residential premises are in MDUs. That soars to over 70 percent in urban areas. In the US, fewer than 30 percent of dwelling units are in MDUs. So far this year, the communications sector of the S&P 500 has indeed outpaced the overall S&P 500 index, but long-term, it has lagged. Wall Street does not think of broadband as particularly profitable.
Nevertheless, when a major U.S. carrier has no competition, the norm is for it to raise prices, often by a lot. This is well noted and easily tracked in the pricing for connections to middle-mile trunk lines. That particular issue also affects local deployers seeking to connect to the national networks. BEAD funds prioritize last-mile customer connections but can be used for middle-mile spurs as well. The regulatory language reads “Middle Mile Infrastructure in or through any area required to reach interconnection points or otherwise to ensure the technical feasibility and financial sustainability of a project” are allowed.
A strong argument for local deployers has been that a greater proportion of customer fees paid to them tends to stay in the community. With the rise in remote network monitoring, however, and modern equipment that typically requires no truck roll for routine installs and maintenance, that issue is also less important.
Nevertheless, local call centers and servicing still have a strong edge. Good local deployers are also more sensitive to specific local needs – the community’s specific economic base, population profile, and even content preferences.
But even local deployers come in many flavors. Under BEAD, states cannot exclude cooperatives, nonprofit organizations, public-private partnerships, private companies, public or private utilities, public utility districts, or local governments for grants. To the extent that a “public health institution” or similar service falls into one of those categories, it is eligible to be a subgrant recipient – and I’ve heard from several of them.
Communities actually have to be careful about that. Under BEAD, an MDU, planned unit development, or community anchor institution such as a library, school, public safety operation, or health center could be cherrypicked. That, in turn, makes the business case worse for a deployer who gets only hard-to-service customers. That is one reason national carriers often have an edge – they may already serve community schools through the E-rate program, and Wi-Fi for school buses may be coming.
Finally, the COVID-era Affordable Connectivity Program (ACP), that monthly $30, will likely run out of existing funds by early summer 2024. The program is popular on both sides of the political aisle. It is an entitlement, but it puts a revenue floor under deployer’s cash flow projections. It helps stretch BEAD dollars by attracting non-government investors.
It also seems popular with normal customers, even if they don’t qualify, because it helps justify service to a whole region and it creates an inexpensive, affordable service tier in BEAD and USDA projects for everyone. But at a cost of roughly $7 billion a year, the deficit hawks have it in their sights. One fallback is to use FCC revenue for ACP and reduce or end the Rural Digital Opportunity Fund.
