Suppose cable operators and other service providers want to stay ahead in the U.S. broadband market. In that case, it’s time for them to get involved with the Broadband Equity, Access, and Deployment (BEAD) program.
BEAD is the largest funding source for new broadband networks to reach unserved and underserved areas nationwide. A prominent piece of the Infrastructure Investments and Jobs Act (IIJA) passed by Congress and signed into law by President Biden nearly two years ago; BEAD will shell out $42.5 billion in federal matching grants to subsidize new broadband deployments across the country over the next few years.
Plus, through the grant process, it will leverage another $22 billion in private investments for more than $64 billion in fresh spending.
Notably, the program is designed to further and fund all-fiber network builds. The federal government’s National Telecommunications and Information Administration (NTIA) overseeing the program has clarified that fiber-to-the-premises (FTTP) is Washington’s preferred technology platform for meeting BEAD’s coverage goals.
Fiber focus
FTTP is expected to be the de facto platform for BEAD-funded projects. Service providers seeking to use an alternative platform, such as cable’s hybrid-fiber coax (HFC) networks, telco copper lines, or fixed-wireless access, must prove why that option makes more economic sense than fiber in areas that exceed the Extremely High-Cost Threshold that each state will determine.
Trade associations representing both large and small providers have embraced this fiber-first approach. One such group is ACA Connects, which advocates for more than 500 smaller and medium-sized independent operators serving 23 million nationwide subscribers.
In its latest study of the program released in July, ACA Connects concluded that there should be enough BEAD funds to deploy fiber lines to “the vast majority of unserved and underserved [U.S.] locations.” Even in its “Maximum Fiber” deployment scenario, the association found that it would cost no more than $59 billion in subsidies to feed fiber to 82% of such locations, leaving money left over for connecting additional locations.
“Congress and NTIA made the right call when they established fiber as the preferred broadband technology for BEAD projects,” ACA Connects President and CEO Grant Spellmeyer commented in a written release. “Fiber connectivity will be a game-changer for rural households and communities across the country that lack quality broadband options today.”
Shifting the competitive balance
Thanks to BEAD’s emphasis on FTTP, the nation’s current frenetic fiber construction pace will likely continue, or even accelerate, over the next several years. That construction activity will likely shift the competitive balance between fiber and cable’s legacy HFC networks.
Jaimie Lenderman, a principal analyst at Omdia covering the broadband access market, has said that “BEAD will certainly introduce robust FTTP competition into the U.S. market” and that “[Cable] MSOs will need to weigh capex plans, opex projections, network expansion, future-proofing, and competitive positioning simultaneously to remain ahead of the curve.”
Jeff Heynen, vice president of broadband access and home networking at the Dell’Oro Group, goes even further. Although it’s difficult to know precisely how many of the nation’s estimated 12 million unserved and underserved homes will be connected by fiber, he predicts that the country will end up with “a total of somewhere around 85 million fiber homes passed by 2028,” thanks to BEAD, other federal subsidy programs, and private investments by operators. That would represent a hefty increase from the estimated 63 million homes passed by fiber at the end of 2022.
“I think BEAD will result in a meaningful increase in fiber homes passed and connected,” Heynen said. “So, BEAD will certainly impact and push fiber closer to parity with cable regarding availability.”
States, providers gear up
In line with the BEAD program’s rules, all 50 states ― along with the District of Columbia, Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, and the Northern Mariana Islands ― are now drafting their initial proposals to the NTIA for how those funds should be allocated to qualified service providers in their regions. Once NTIA approves those proposals, all 50 states, along with D.C., Guam, and Puerto Rico, will receive at least $100 million each in marching grants to hand out to eligible providers.
Under this funding process, nearly 20 states will get $1 billion or more apiece to dispense, likely starting in early 2025. Not surprisingly, the nation’s two biggest states, California and Texas, lead the list with $3.3 billion and $1.9 billion in BEAD allocations, respectively. Missouri, Michigan, North Carolina, and Virginia all rank high on the list, each in line for $1.5 billion or more in grants.
“This is a watershed moment for millions of people across America who lack access to a high-speed Internet connection,” U.S. Assistant Secretary of Commerce for Communication and Information and NTIA Administrator Alan Davidson said, announcing the BEAD allocations in late June. “States can now confidently plan their Internet access grant programs and engage with communities to ensure this money is spent where it is most needed.”
To qualify for the public subsidies, service providers must put up at least 25% of the project costs, with the feds picking up the rest of the tab. Participating providers must also submit credit letters covering their share of the costs.
How much of that money will flow to cable operators? Although that’s tough to predict, Heynen estimates that cablecos could get 20% to 25% of the access network subsidies, or up to $11 billion.
With so much public funding available, the BEAD opportunity looks promising for operators of all sizes and stripes. In a July research note, for instance, the analyst team at ISI Evercore predicted that such significant providers as Comcast, AT&T, and Charter would be the biggest BEAD beneficiaries because of their presence in large states that will receive the bulk of the funding, such as California, Texas, and Michigan.
“The larger the presence an operator has in a state with a sizable allocation of BEAD funding, the greater the opportunity there is for it to see benefits from a buildout near its existing footprint and fill in additional pockets across its DMAs [designated market areas] with edge-outs,” the analysts wrote.
But it’s not just the big national players that stand to benefit from BEAD. Small and midsized operators also have much to gain. Indeed, industry lobbyists stressed this point at The Independent Show in Minneapolis in late July, urging smaller providers to play offense and defense by applying for the BEAD grants in their regions as soon as possible.
“The clock is ticking,” noted Thomas Cohen, a communications lawyer with Kelley, Drye, and Warren, speaking on a show panel. He said time is running short because the states have about 180 days from when the BEAD allocations were announced in late July, or roughly until the end of the year, to submit their required five-year broadband action plans to the NTIA.
While the window of opportunity for the initial BEAD grant applications may be closing, industry lobbyists also note that service providers still have time to influence the funding process. “They [the state broadband office directors] are still very open to input from stakeholders,” Melissa Mitrovich, vice president of public policy at the FBA, told Light Reading. “I think this will take a lot of input, and big decisions must be made to get this right.”
That explains why BEAD was the prime topic of conversation at our Fiber Connect conference in Orlando in August, with multiple panels, workshops, and vendor announcements devoted to the subject. “BEAD hovered over everything,” Heynen shared. “BEAD certainly is, and will remain, a scorching topic for the next few years.”
It also explains why FBA and Cartesian, a telecom research and consulting firm, have jointly developed a new financial tool to assist state broadband offices in calculating their cost thresholds for funding fiber builds. This tool, the BEAD Threshold Financial Model, is designed to help states figure out their Extremely High Cost Per Location Threshold (EHCT) to determine when it makes economic sense to use other broadband platforms because the cost of installing fiber is too high.
Supplier support
These BEAD-related developments come as more major tech suppliers invest in U.S.-based fiber and related equipment manufacturing facilities to support the BEAD program. Over the past few months, prominent vendors like CommScope, Nokia, ATX Networks, Calix, and STL have all unveiled plans to build or expand fiber-related plants.
In one of the latest examples, STL announced the launch of a new optical equipment plant in Lugoff, S.C., last month. STL said the 168,000-square-foot facility, known as The Palmetto Plant, will “specialize in future-ready optical solutions, including high-fiber-count cables with similar diameters,” to help “address the market demand for 5G and FTTX and the push for rural broadband.” STL will initially invest $56 million in the project and employ 150 people there.
In another recent example, Calix announced a partnership with Jabil last month to shift more manufacturing of optical network equipment to the United States as part of a broader effort to meet the BEAD program’s “Build America, Buy America” (BABA) requirements. The five-year deal will enable Calix to produce optical network terminals (ONTs) at Jabil’s Auburn Hills, Mich plant.
Speaking at a press event announcing the investment, the NTIA’s Davidson hailed the new spending by Calix and other vendors. “It is amazing that we’re here in 2023 in America, and there are still millions of homes that do not have the basic capability to access this broadband infrastructure,” he said. “That needs to change and is about to change.”
We are proud to be part of that change.
Gary Bolton is the CEO of the Fiber Broadband Association.