More patient capital meets burgeoning demand for fiber

A shift is underway in capital investment in fiber to the premises (FTTP) advanced telecommunications infrastructure. In the United States, FTTP investment has lagged for decades due to the capital investment limitations of investor owned telephone companies. They are constrained by overleveraged balance sheets and investor expectations of traditionally high shareholder dividends that necessitate rapid returns on any capital investment. Those limitations became apparent in the late 2000s when Verizon faced a shareholder revolt, forcing it to scale back plans to modernize its legacy copper outside plant to FTTP. It later moved into fixed wireless that offered lower capital costs. Infrastructure investment is a long term proposition that requires patient capital not found in these companies.

Now AT&T is attempting a workaround to access more patient capital with its Gigapower joint venture with investment firm BlackRock to invest in open access FTTP delivery infrastructure outside of its service area. That patient capital includes state and local pension funds, sovereign wealth funds, and family endowments, Adam Walz, told a panel presentation this week by Broadband Breakfast. Walz is managing director of BlackRock’s Global Infrastructure Fund focused on investments in digital infrastructure opportunities across fiber networks, data centers, and wireless infrastructure.

Notably, other builders of open access FTTP also rely on patient capital including UTOPIA Fiber, owned and financially backed by a 20 Utah municipalities and privately owned SiFi Networks, funded by European pension fund APG. However, Gigapower CEO and retired AT&T executive Bill Hogg, said these players have “nowhere near the scale we will have,” claiming Gigapower will be “much larger than any other provider in the space. The scale at which we are going to operate will be a differentiator in the U.S. marketplace.”

But patient capital doesn’t mean it isn’t concerned about maximizing returns. All these players are targeting more densely developed areas most likely to produce strong ROI and ARPU, capitalizing on the strong demand for FTTP delivered services. Had U.S. telecom policymakers made more erudite decisions decades ago, fiber would have reached nearly all American doorsteps by 2010 at the latest instead of the estimated 40 percent currently. That gives Gigapower lots of runway as well as first mover advantage: first with fiber owns the location for the long term. “We’ve found plenty of attractive locations to build fiber where there’s no fiber today,” Hogg said, pointing to Las Vegas (Google Fiber is looking at that metro as it enters Nevada) and locales in Florida and Arizona. 

The concentration on densely developed areas will require patient capital investment by governments and consumer utility cooperatives to serve less developed areas, particularly those at the exurban edges of metro areas that have seen in migration by knowledge workers as knowledge work decentralizes out of urban cores.

U.S. should create authority to administer long term, low interest loans for open access advanced telecom infrastructure

Concerns have been raised regarding access to grant funds for advanced telecommunications infrastructure appropriated in the Infrastructure Investment and Jobs Act (IIJA) specifically the National Telecommunications and Information Administration’s (NTIA) Broadband Equity, Access and Deployment (BEAD) program that administers the funds. To ensure program integrity – that grant funds subsidize the construction of infrastructure – the NTIA requires a 25 percent match as well as a bank letter of credit that would allow the NTIA to claw back monies not used for that purpose.

In 2022, the U.S. Government Accountability Office identified a patchwork of more than 100 federal programs administered by 15 agencies that could be used to expand access. The GAO recommended the NTIA identify key statutory limitations to program alignment and develop legislative proposals as appropriate. The NTIA agreed with its recommendations, the GAO reported, and agreed to report to Congress by May 31, 2026 on barriers and statutory limitations that limit broadband program alignment and offer legislative proposals to address them.

Earlier this year in prepared Congressional testimony, the GAO called for national strategy needed to coordinate fragmented, overlapping federal programs, noting fragmentation and overlap can lead to the risk of duplicative support. Three months before, the Federal Communications Commission reported to Congress the Broadband Interagency Coordination Act, which directed the FCC, the National Telecommunications and Information Administration (NTIA) and U.S. Department of Agriculture (USDA) to take a whole-of-government approach to advanced telecommunications infrastructure deployment. The FCC reported an interagency agreement among them “significantly facilitated efficient use of federal funds” and “established a consistent, robust channel for communications among the agencies concerning their respective funding programs.”

The NTIA is finding and will continue to find administering the BEAD program to be challenging. Questions over the accuracy of “broadband maps” created by the FCC to map marketed bandwidth to determine funding eligibility threaten to tie up timely disbursement of funds to the states in addition to the aforementioned concerns over the letter of credit requirement. While opponents see the letter of credit requirement as a way of favoring large investor-owned telephone and cable companies and locking out nonprofit and public sector applicants, it builds in a measure of program integrity to protect public dollars from misappropriation. The downside is by favoring the large investor incumbents along with the eligibility requirements based on their current Swiss cheese service offerings, it will promote continued limited, discrete infrastructure builds (they can be as small as one address under NTIA’s program guidance) that conflict with the expressed intent of the guidance that states develop plans for universal service for all their residents.

Here's what NTIA should recommend to Congress -- and not wait until May 2026 but do so ASAP:

• All existing federal grant programs be eliminated and uncommitted funds placed under a federal 501(c)(1) nonprofit Advanced Telecommunications Authority to administer low interest loans with terms of 30 or more years to state and local governments and 501(c)(12) consumer telecom cooperatives to construct universally available, open access fiber to the premises transmission and delivery infrastructure as well as middle mile transmission infrastructure.
• State and local governments and 501(c)(12) consumer telecom cooperatives would be authorized to issue transparent and fair competitive requests for proposals and qualifications for entities to design, build and operate the infrastructure similar to road and highway projects.
• Since the funds would be structured as loans, the authority should be authorized to develop program rules to mitigate the risk of loan defaults and ensure fully (and not partially) built infrastructure, extending loan funds via regional offices as project milestones are complete and meet construction and quality of service standards.
• States would be authorized to create interstate regional advanced telecommunications infrastructure authorities to enhance economies of scale and access to labor and materials and to ensure timely construction of essential middle mile transmission infrastructure.
• States would be encouraged to expedite permitting approvals and access to rights to way for both new aerial poles and underground infrastructure.
• The publicly owned infrastructure built by the regional authorities would be authorized to charge only nominal access fees to end users. They would be authorized to assess access fees on service and content providers offering services on the infrastructure to defray operational and maintenance costs.

Critics of these measures would likely argue they cannot attain universal, affordable access. But the current market and bandwidth (versus infrastructure)-based strategies clearly cannot in a timely manner. Market-based competition has a role. But in order to serve the public interest, government must take the lead to harness market forces and ensure public funds are used for public purposes.

A better alternative to picking winners and losers

One of our aims at the MIC Center in organizing the Democratizing the Internet symposium was to bring together visionaries whose critique runs deeper and whose political imaginary for the internet’s future is more expansive than the tinkerers. This cohort of thinkers relate the manifold maladies that plague the contemporary internet to its underlying political economy. In this view, there is a structural antagonism between the owners of the internet and its users, between the profit interests of digital monopolists and the public’s interest in an open, empowering internet. In other words: we can have an internet that works for Silicon Valley and telecom companies, or we can have an internet that works for the people. But we cannot have both.

https://techpolicy.press/another-internet-is-possible-if-you-believe-it-is/

Why do public policymakers insist on picking winners and losers when it comes to modernizing the nation’s outdated metallic advanced telecommunications infrastructure to fiber reaching most every American doorstep as copper telephone lines did in the 20th century? They typically declare the shareholders of investor owned companies the winners and the public the losers.

The usual explanation is lobbying power of the investor owned players. It’s not that simple. Policymakers know who those lobbyists represent. They are intentionally favoring that much smaller cohort of shareholders over the much larger general public interest in accessible and affordable fiber delivered advanced telecommunications. Good for the shareholders seeking rents in a natural monopoly utility market but poor public policy.

There is an alternative where both groups can win. The public sector owns the infrastructure and the private sector can make money and create jobs designing, building, operating, and offering services over it and compete via competitive public bids.