The recently approved Infrastructure Investment and Jobs Act ("the Act") allocates $65 billion to expand high-speed internet access to rural and otherwise underserved populations across the US. The money carries with it significant business opportunity, as well as considerable complexity given the economics of building networks and the reasons these areas were largely left behind in the first place.
Two issues are particularly challenging:
A sizable number of broadband have-nots are scattered across the country.
No precise count exists of homes and businesses without access to broadband; no real clarity exists about where they are located.
The Federal Communications Commission has estimated that approximately 21 million Americans lack broadband access. Many more — 100 million — have access but do not subscribe to broadband services.
In order to fund these broadband-extending infrastructure projects, much of the investment will be channeled to suppliers such as internet co-ops, regional utilities, engineering firms and wireless broadband service providers. Large carriers may participate, depending on whether the investment might lead to new, consistently-paying subscribers. Under provisions of the legislation, projects are meant to be prioritized, in part, to select high-poverty areas.
In the past decade, billions of dollars in funding have been allocated to rural broadband, yet the numbers of unserved homes and businesses remain high. Success could result in a virtuous circle. Access to broadband enables small business development, remote higher education, telehealth and precision agriculture, all of which nurture local economies and create a larger customer base that’s able to pay for high-speed subscription services.
So, what’s the problem? Some of the difficulty lies in distance and terrain. Getting internet access to, say, a remote neighborhood high in the Rocky Mountains represents a different challenge than providing it to urban neighborhoods. The mammoth investment required to bring broadband to far-flung farming communities is another hurdle, requiring companies to lay miles of fiber to reach a few remote homes.
Wireless carriers have the opportunity to perhaps use funds to extend 5G wireless rollout to previously underserved markets, which would create a “leapfrog” effect, jumping areas that have no access or slow access up to next-generation wireless speeds.
The unit economics of internet access suggest that companies capable of monetizing high-speed internet in an area — but lacking the capex leverage to build the network — can benefit from the funding.
Large telecom carriers long ago conceded these underserved markets to regional companies and co-ops. This new federal investment might make them reconsider. If closing the access gap is the goal, then the big companies have the most ballast in terms of moving quickly with their own teams and know-how.
Planting miles of fiber will require enormous investments in human capital, and it’s a seller’s market. Tower crews and fiber construction teams already are in high demand, driven by the continued growth of the internet and the emerging rollout of 5G mobile networks. Unless a network operator is willing to give them a signed purchase order and reserve capacity months in advance, for example, the tower crews will find a company that does.
Another question: How can companies optimize the funding’s impact? As of now, $42 billion of the $65 billion is earmarked for infrastructure. That’s barely half of the industry’s capital expenditures in a single year. Because the funding is to be spread out over several years, this represents just a 10% to 15% investment above large telecommunications companies’ current spending. That’s helpful, but perhaps not transformative unless the money is deployed wisely.
Much of the funding approved by the Act is likely to go to the states to mete out. Some states may choose to manage — or even own — some of the infrastructure themselves. A significant portion may go to regional operators and local co-ops serving rural areas. They already receive federal money, and, arguably, some are better equipped to rapidly deploy the investment. Beyond the large providers, dozens of local providers also stand to gain.
While the impact of the federal boost may be modest in the long run, industry stakeholders can take these steps to capture the benefits of this legislation:
Incumbent providers of broadband and telephone services need crews ready to pursue funds from the states in which they operate.
Engineering and service firms can market their services, strengthening relationships with potential customers and expanding capacity.
Manufacturers of network equipment, fiber and customer-premise equipment need amply prepared supply chains.
These steps will prepare companies to act immediately when disbursement begins.