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Regulation - What is it Good For?

Are BEAD Grants Large Enough?

One of the biggest questions associated with the $42.5 billion BEAD grant program is if that is enough money to solve the national rural digital divide. The funding will be allocated to states in a three-step process. First, States will get an automatic $100 million. Next, $4.2 billion will be directly allocated to States using the relative percentage of locations in each state defined as unserved and high-cost. This will rely on the new FCC maps, and the NTIA may still refine the definition of high-cost areas. The remaining $38.1 million will also be allocated to States using the new FCC maps, and will also use the relative number of unserved locations in each State.

The funding works out to be around $850 million per state, but the funding will vary significantly by state. Preliminary estimates have a number of states only getting $100 million – Connecticut, Delaware, District of Columbia, Hawaii, Maine, New Hampshire, North Dakota, Rhode Island, and Vermont. The largest estimated allocations are estimated to go to Texas at $4.2 billion and California at $2.8 billion.

States have been doing the math to see if they think the BEAD grant funding will be enough to reach every rural household with good broadband. I’ve only been able to find one article that cites an estimate of the effectiveness of the BEAD grants, but this one example raises some good questions.

The State of Minnesota is estimated to receive about $650 million in BEAD grant funding. In March of this year, the State Legislature approved $110 million for the existing Border-to-Border grant program, with most of the funding coming from federal ARPA funding given to the state. At that time, the State broadband office estimated that the state will need around $1.3 billion in total grant funding to reach everybody in the state. If that is a good estimate, then even after BEAD grants and the $110 million State grants, the state will be $540 million short.

This raises a lot of questions. First, inflation has hit the broadband industry hard, and I’ve seen a lot of estimates that the cost to build broadband networks is between 15% to 25% higher than just two years ago. That means that the $42.5 billion in BEAD funding is not going to stretch nearly as far as was estimated when Congress established the BEAD grants. This also raises the question of how much inflation will further increase costs over the years it’s going to take to build BEAD-funded networks. It’s not hard to imagine BEAD networks still being constructed in 2026 and beyond.

I’ve also seen estimates that the rules established by Congress and the NTIA for the BEAD grants could add as much as another 15% to the cost of building broadband networks compared to somebody not using grant funding. These extra costs come from a variety of factors, including the requirement to pay prevailing wages, expensive environmental studies that are not undertaken for non-grant projects, the requirement of getting a certified letter of credit, etc. The extra grant-related costs and the general inflation in the industry might mean that BEAD projects could cost 30% or more than building the same networks two years ago without grant funding.

This also raises an interesting question about how states allocated ARPA funding to broadband. Minnesota’s allocation of $110 million to broadband from ARPA is smaller than what many other states have done. As an example, my state of North Carolina allocated nearly $1 billion of the state’s ARPA money to broadband, and there are many states that have allocated $300 million or more to broadband. Part of the blame for a state like Minnesota not having enough money to reach everybody could be placed on the Legislature for not allocating much ARPA funding for broadband.

Another interesting question to be addressed is how State broadband offices will deal with areas where a 75% grant is not enough for an ISP to make a business case. From the feasibility work I’ve been doing this year, I think there are a lot more areas that fit the high-cost category than might be expected. The NTIA says that it might allow exceptions for grants up to 100% of the cost of assets – but asking for extra funding will probably open up the possibility for a State to instead fund less costly technologies. It might turn out that finding solutions for the many high-cost areas might be the unpredictable wild card in the BEAD grant process.

Finally, there are going to be areas where a State doesn’t make a BEAD grant award. It’s not hard to imagine a situation where only one ISP asks to serve an area, and a State broadband office decides that the ISP is unqualified to receive funding.

If the Minnesota estimate is even roughly accurate, it’s likely that Minnesota won’t be the only state that doesn’t receive enough BEAD money to get broadband to everybody. We’re not going to know this for sure until ISPs start applying for grants, but it won’t be a surprise if the BEAD grants are not large enough.

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