Origin of “tech neutral” shift for BEAD subsidies lies in 2021 infrastructure bill

This week’s policy shift on the advanced telecommunications infrastructure subsidy component of the Infrastructure Investment and Jobs Act (IIJA) to make it “tech neutral” and give less preference to fiber to the premises (FTTP) has its origins in 2021 as the IIJA was being enacted. The change -- which emphasizes rapid deployment -- is expected afford greater consideration to subsidizing providers of fixed terrestrial wireless and low earth orbit (LEO) satellite Internet.

The original bill sponsored by the Biden administration would have appropriated $100 billion for fiber infrastructure to be primarily deployed by local governments, nonprofits and consumer cooperatives. The administration noted supporting these entities would allow subsidy dollars to go further since they operate without the need to generate profits for investor-owned entities.

Opposition from legacy telephone and cable companies watered down the bill to cut the funding to $43.45 billion for delivery infrastructure. Instead of FTTP, the bill employed a throughput versus infrastructure-based standard for the subsidies.

Accordingly, the funding program was chartered as Broadband Equity Access and Deployment (BEAD). Funding was restricted to premises not able to obtain bandwidth of 25Mbs down and 3Mbps up. “Broadband” was defined as 100Mbps down and 20Mbps up with latency of 100 milliseconds or less.

At that point, the legislation – nominally dedicated to improving various categories of essential infrastructure – deemphasized infrastructure and instead the level of “broadband” service available at a given address. It retained a market-based policy despite widespread market failure the bill was intended to mitigate. This favored incumbent telephone and cable companies looking to incrementally edge out their existing infrastructures and providing a substantial degree of protection from publicly owned and utility cooperative operators.

The administration however sought to maintain an FTTP infrastructure focus in its rules for the BEAD program, describing it as less prone to obsolescence and thus able to deliver the best long-term value.

This week’s policy shift and the designation of throughput – broadband – in the IIJA now puts fixed wireless and satellite providers on a strong footing for subsidization. They could plausibly argue that any technology that can deliver “broadband” as specified in the IIJA should be eligible.

Survey: About half of all households passed by fiber in 2024 -- with less than half of those connected.

Internet connectivity is regarded as a utility as was voice telephone service before it where most every address had service. Nevertheless as legacy telephone companies replace the twisted pair copper that delivered voice telephone service, less than half of the homes where it is available have fiber service, according to the Fiber Broadband Association’s 2024 Fiber Deployment survey by RVA LLC Market Research & Consulting (RVA).

The 2024 survey estimates suggests that fiber now passes 56.5 percent of U.S. households with a bit less than half – around 45 percent – having fiber service. With IP connectivity considered a utility, one might expect that figure to be much higher, around 90 percent or more. Particularly given the pent up demand accumulated over decades as Internet Protocol (IP)-based services such as the web, email, and streaming video accelerated and IP connectivity became an essential element of commerce, education and medical care. Also, given fiber’s high desirability for reliability and capacity.

The most likely explanation is the growth of IP service over coax cable television infrastructure that grew rapidly since the mid-2000s as telephone companies delayed the transition to fiber, instead using their existing copper networks with digital subscriber line (DSL) technology.

Another probable factor that began to take off in the following decade is the smartphone. That allowed people to gain both mobile and home IP connectivity. Over the past few years, mobile providers like Verizon and T-Mobile have rolled out fixed wireless technology that some households are using instead of higher priced cable service.

The infrastructure for this service can be put in place much faster than fiber to the home. Until it reaches a natural capacity limit due to the technical limitations of high radio frequencies to reliably deliver service, it will satisfy at least some household demand for connectivity and deemphasize the role of fiber in meeting it.

Incoming federal government could place greater emphasis on “broadband” bandwidth over fiber, cut subsidies

For the past three decades, U.S. advanced telecommunications policy has been bandwidth focused: defining and delivering “broadband” speed – and not modernizing the nation’s legacy metallic telephone and cable TV delivery infrastructure to fiber. That policy focus is likely to gain greater emphasis with a new federal government taking office in 2025.

Blair Levin, a widely quoted analyst and former U.S. Federal Communications Commission official, told Fierce Network that “the biggest question is whether the new administration will take the view that satellite broadband is equal or better than terrestrial alternatives.”

More than likely it will given president-elect Donald Trump’s indicated approval for LEO satellite internet service over subsidizing fiber to the premises (FTTP) landline infrastructure preferred by the Biden administration’s Broadband Equity, Access, and Deployment (BEAD) Program.

In an interview with podcaster Joe Rogan less than two weeks before his election, Trump impliedly suggested Congress could end subsidies for FTTP, pointing to Elon Musk’s Starlink LEO satellite Internet service. “We're spending a trillion dollars to get cables all over the country, right up to upstate areas where you have like two farms,” Trump told Rogan. “And they're spending millions of dollars [via BEAD]…Elon can do it for nothing.”

Fiber Broadband Association (FBA) President Gary Bolton holds out hope modernizing twisted pair copper and coax cable delivery infrastructure to fiber will nevertheless remain on the table in the incoming government. "We’re optimistic the new Congress and administration will provide opportunities to build out more robust rural fiber connectivity," Bolton said in a statement to Fierce Network.

Industry sponsored white paper points to public, consumer utility coop ownership of fiber telecom delivery infrastructure to achieve broad socioeconomic benefit.

In the fourth decade since telecommunications began to shift to Internet protocol-based technologies, about half the connections to U.S. homes have not yet been modernized to fiber optic lines. That’s according to a recently published white paper commissioned by the Fiber Broadband Association and Frontier Communications.

The paper points to a clear reason: excessive reliance on investor owed deployers who lack incentive to fully build out fiber. According to the paper, this is because they naturally look to benefit their own economic interests and are not directly seeking the broader socioeconomic benefits that come with fiber connections reaching most every doorstep. Those are identified in economic terms in the paper as positive externalities: unintended, incidental (i.e. external) benefits beyond the narrow economic incentive of investors to earn the highest level of profit in the shortest time. That leads to micro market segmentation as seen on so-called “broadband maps” that an East Texas local government official compared to the spotted coat of a Dalmatian. (Related story from The Texas Tribune)

 

Lonnie Hunt, with his spotted map to visualize broadband availability in East Texas, at the McKenzie-Merket Alumni Center at Texas Tech University in Lubbock on Nov. 18, 2022. Credit: Mark Rogers for The Texas Tribune  

The paper’s authors estimate deploying fiber to 56 million households that are in tracts unserved by fiber has the potential to generate at least $3.24 trillion in terms of net present value (NPV) in incremental economic impact.

“Society as a whole benefits from the positive externalities of fiber deployment,” the paper notes. “However, no group of private investors can fully capture these benefits. As a result, a private market equilibrium that balances the marginal revenue and marginal cost of fiber deployment will lead to an under-provision of fiber resources, resulting in market failure.”

The 1996 Telecom Act and the Telecommunications Infrastructure Act of 1993 before it recognized the broader socioeconomic knock on effects of ubiquitous access to advanced telecommunications infrastructure. But the flaw in both is their exclusive reliance on investor-owned providers and market forces to bring them to fruition. They overlooked the economic misalignment identified in the white paper between the more limited, short-term interests of private players and the longer-term public interest. Both failed to establish clear, well thought out public policy to balance them.

For analog voice telecommunications, public policy is to regulate them as common carrier utilities under Title II of the Communications Act of 1934 to ensure widespread, affordable access. However, even though Internet access is now seen as a de facto utility, it is still not legally recognized as such four decades after the Internet digitized and transformed telecommunications.

While the FBA/Frontier paper doesn’t do so explicitly, it makes a strong argument for public and consumer utility cooperative ownership of advanced telecommunications infrastructure. By definition, these ownership structures are affirmatively intended to realize the positive socioeconomic benefits of access and affordability. For them, these are not merely incidental externalities but an organizing principle.

Incoming Congress, administration could revamp direction of BEAD from sell to buy side subsidization

Longtime telecom blogger Doug Dawson speculates the $43.45 billion Broadband Equity, Access, and Deployment (BEAD) Program funded by Infrastructure Investment and Jobs Act (IIJA) of 2021 could see its appropriation reduced to $10 billion under the incoming Congress and Trump administration. Dawson further postulated that reduced allocation could instead of subsidizing fiber to the premise (FTTP) landline delivery infrastructure go toward Starlink LEO satellite service.

If there is a big political movement to undo President Biden’s signature accomplishment [the IIJA], then infrastructure spending of all types could be curtailed, and it’s naïve to think that broadband spending couldn’t get swept into a bigger effort to cut spending. It’s not hard to imagine cutting the program to $10 billion, giving the money to Starlink, and declaring rural broadband to be solved.

https://potsandpansbyccg.com/2024/11/12/the-new-administration-and-bead/

Since LEO-delivered Internet requires far less infrastructure than deploying fiber delivery infrastructure, it calls into question whether subsidies are even needed to deploy it to reach homes and small businesses lacking fiber connections. They recover their costs through relatively high service charges. For example, Starlink runs $120 per month with a one-time hardware cost of $499.

If Dawson’s $10 billion scenario comes to pass, we could see that reduced appropriation converted from sell side to buy side subsidization since households lacking fiber access could find those costs unaffordable, limiting access and impeding BEAD’s programmic goal of promoting universal service.

But LEO service may come with some significant limitations since it requires a clear sky that may not be available at homes and small businesses in heavily wooded areas. "If they try putting BEAD mostly in the LEO basket, lumberjacks will be replacing drilling crews," writes Chris Scharrer of DCS Technology Design. "The idea of Starlink being a cure-all for the nation is literally, not seeing the forest through the trees."

Connecticut's inexplicable archipelago strategy for BEAD subsidies

In breaking up the state into workable regions, the Connecticut broadband office is asking grant applicants to propose bringing fiber to every location. But, Pisacich says, “terrestrial-based providers may not be able to serve those locations without huge costs, so they may not even bid.”

As a result, the office is allowing the islands to be separated into their own region, when needed. That way, one provider can bring fiber to the area aside from the islands, and other providers employing alternative technologies can deliver broadband to the islands.

By using this approach, Pisacich expects to receive “multiple applications, have multiple options, and then we’ll be able to get those harder locations served within the timeframe.”

https://blandinonbroadband.org/2024/10/16/connecticut-has-99-percent-broadband-coverage-but-so-do-many-mn-counties-what-can-we-learn/ 

Assuming locations in the surrounding "sea" are on the electrical grid, what doesn't add up is why the "islands" can't be reached with fiber to the premises (FTTP) particularly with substantial subsidization from the Infrastructure Investment and Jobs Act's BEAD program intended to reach high cost areas. Are they off the grid? Most likely not. If they can be served by electrical power infrastructure, why can't they be reached with fiber?

First with fiber: Private capital maneuvers for first mover advantage

Some critics, including telecom writer Karl Bode, have characterized Tier 1 players’ sudden embrace of public-private partnerships, including those based upon an open access approach, as a strategic move to capture federal subsidies before smaller players can. In comments on Broadband Breakfast’s website, Bode said that this shift was less about promoting competition and more about securing government funding while maintaining market dominance.

“Now that there's billions of dollars of potential subsidies there for them to glom onto, they want to get a hold of this cash before a municipality, cooperative, or city-owned utility does,” Bode said. “I find the flip funny given their historical, often virulent lobbying opposition to both open access policies, open access networks, and open competition – especially municipal or cooperatives – more generally.”

https://broadbandbreakfast.com/exclusive-series-at-t-t-mobile-bet-big-on-open-access/?ref=alerts-newsletter

Bode's analysis goes to the fundamental tension between investor owned advanced telecom infrastructure and the socialization that tends to occur when the availability of private investment capital is insufficient relative to market demand for advanced telecom services. Private investment capital however realizes the long term value is in owning the fiber connection to homes and other premises as well as first mover advantage that accrues to whomever first installs it.

That's what's attracting private equity as in the case of AT&T's Gigapower joint venture with BlackRock, mentioned in this article. That infuses private capital to finance those fiber connections that AT&T couldn't otherwise without displeasing its current and future investors. AT&T gets help with the sizeable capital expenditures needed and BlackRock retains the option to sell out its stake in the future to AT&T or other network assets consolidator. 

Private capital also wants to foreclose public and consumer utility cooperative ownership since it too would benefit from first mover advantage and disadvantage private investment over the long term.

Draft BEAD program update would give states more leeway to use LEO, FWA services using unlicensed spectrum when more economical than FTTP.

In a March 2023 interview, U.S. Secretary of Commerce Gina Raimondo said, “If we're going to connect every American, including the tens of millions of Americans who now don't have the internet, we're going to have to lay fiber all across this country.” But $43.5 billion in construction subsidies appropriated in the Infrastructure Investment and Jobs Act of 2021 appears insufficient to bring fiber connections to most every American doorstep as with copper telephone lines in the previous century.

Instead, Low Earth Orbit (LEO) satellite and fixed wireless service (FWA) using unlicensed spectrum may have to suffice to fill the many thousands of holes in the Swiss cheese deployment of landline advanced telecommunications infrastructure over the past three decades. That has left a considerable number of discrete locations lacking it or served by older telephone and cable infrastructure that falls short of current federal standards for reliable internet protocol-based voice, video and data service.

That’s the upshot of draft Broadband Equity, Access and Deployment (BEAD) program guidance issued this week by the Department of Commerce’s National Telecommunications and Information Administration (NTIA). Those voids are seen on splotchy federal and state “broadband maps” of existing service where investor owned providers bypassed discrete locations they determined would not produce an adequate return on investment or profit.

While the draft guidance reiterates a preference for fiber to the premise (FTTP) projects in existing program guidance, it permits state subgrants to LEO satellite service providers and ground-based fixed wireless providers using unlicensed spectrum for projects where FTTP would require such a large degree of subsidization (up to 75% of project costs) -- or a lack of interest from service providers -- that states would be challenged to connect all premises to service meeting specifications for minimum throughput and reliability as required by the BEAD program. Accordingly, the draft revised guidance states these “alternative technologies” can to be used when it would be “less expensive” to do so.

Moreover, the draft guidance would bar states from funding projects where LEO satellite or fixed wireless service meeting minimum service specifications already exists or is being subsidized by another government program, which could potentially render large portions of the nation ineligible for BEAD subsidies.

The draft guidance would authorize states to use their grant funds to make subgrants to these providers to help customers pay for non-recurring installation and premise equipment costs, which for LEO service can run several hundred dollars. However, it’s unclear whether these services would meet the existing BEAD program guidance requiring states to ensure subgrant funded projects offer service at rates affordable to low and middle income households.