There are several States already estimating that the BEAD grant funding is not going to be enough money to reach all of the unserved and underserved areas. California, New Mexico, and Minnesota have estimated that BEAD will fall short. By the time the dust settles there will likely be more states.

I’m not surprised by this. Just since the BEAD grant program was enacted by the Infrastructure Investment and Job Act in November 2021, there have been some significant cost increases for building broadband networks. Network design engineers are telling me that costs have gone up in most places by 20% to 25% over the last two years. Part of this comes from inflation, which has driven up the cost of materials and labor. But a lot of the increase comes from perceived labor shortages in the industry, which has prompted construction contractors to raise prices faster than inflation.

The BEAD grant process also adds significant costs in some markets. I’ve done the analysis in some states where having to pay prevailing wages will increase the cost of a network by 10% to 15%. BEAD has other requirements that add significant cost. For many smaller ISPs the cost of obtaining a letter of credit is going to be expensive. There are environmental studies required for grant projects that add costs.

The various cost increases mean that BEAD funding won’t cover nearly as many locations as might have been supposed by whoever determined that $42.5 billion was enough money. As unbelievable as it sounds, we might have needed a BEAD pool of $60 billion or more to provide the same coverage as $42.5 billion in 2021 construction costs.

I think the problem is a lot larger than folks suppose because all of these estimates begin with the assumption that the FCC broadband maps are accurate. I think grant offices are going to be jammed with grant applications where ISPs and communities demonstrate the maps are wrong and the supposed FCC coverage doesn’t exist. I’m also coming to realize that there are a lot more underserved places in urban areas than are shown on the FCC maps.

There are also going to be grant projects that fail. The NTIA rules have gone far overboard to try to prevent failure, but we only have to look at the two-year-old RDOF program to see ISPs saying they can’t afford to build the projects with the funding they received. Some BEAD projects are going to take four years to build, and that’s four years of inflation eating away at the value of the grant.

Where might the money come from to cover these shortages? There are several possibilities:

• There might be other grant programs that can plug some of the holes. For example, the Agriculture bill pending in the House and Senate has more funding for the USDA ReConnect grants. Hopefully, the USDA will change the rules a bit because ReConnect grants are not currently friendly to grant areas consisting of disjointed pockets of serving areas. Unfortunately, in much of the country, that’s what the remaining unserved areas look like on a map – scattered unserved pockets between areas built with other grants.
• It’s always possible for the FCC to have another round of RDOF. I have to wonder if it learned any lessons from the first round of RDOF? Is there any hope that the FCC would give money to states rather than hold another reverse auction? Also, RDOF and other federal programs are also going to struggle if they insist on only funding areas identified on the FCC maps rather than areas that really need broadband.
• Congress could always step up – but that seems like a remote possibility in the current dysfunctional Congress. Hopefully, if Congress provides the funding, it will give the money to the States again.
• State legislators could come up with the funding. However, the vast majority of State funding in the last few years came from CARES and ARPA funding. The level of state broadband funding before those programs was relatively small. I remember joking with folks in Minnesota that the State’s broadband grant program at $20 million per year was a hundred-year plan to bring broadband everywhere.