I keep having a nagging premonition that BEAD grant requests are going to ask for a lot more money than State Broadband Offices are predicting. There are a number of reasons I’m sensing this is what is coming.

First, there has been considerable inflation in the industry over the last two years. Building a new network using any technology is easily 20% or 30% higher than when Congress first established the grant program. Any ISP using debt financing has to be concerned about interest rates, which are way higher than in 2020 when BEAD was first announced.

There are also extra costs associated with complying with the BEAD grant rules:

• The biggest impact comes from the requirement that BEAD grants must pay prevailing wages. Most State Grant offices have interpreted that to mean Davis-Bacon wages, which can be anywhere from 15% to 20% higher than the labor rates that might be found in the market.
• Anybody accepting a BEAD grant must obtain an irrevocable letter of credit, which equates to paying additional interest expenses for the BEAD project.
• In many cases, a BEAD award will require environmental or similar studies prior to starting construction. This adds cost, and also time (which always equates to cost).
• Buy America Build America requirements will translate, in some cases, to paying more for things like electronics.
• Many State Grant Offices have proposed a slow reimbursement process for BEAD, which means that many ISPs will need a temporary line of credit to cover labor outlays while waiting for BEAD payments.
• Most ISPs are going to accept the 2% administrative fee that can be added on top of construction costs to cover the heavy cost of grant compliance paperwork.

There is one impact in the costs of building BEAD locations that I haven’t seen anybody talking about. Over the last four years there have been a lot of other federal, state, and local broadband grant awards in areas that would still be eligible for BEAD if these grants hadn’t been awarded.

These other grants have often been awarded to projects to cover the ‘lowest hanging fruit’. For those not familiar with that slang, state and local grants have often been awarded in areas where the grants had the biggest benefit by covering the most locations possible with grant funds.

It doesn’t take a lot of state or local grant funding to change the cost profile of the remaining locations. For example, I’ve seen a lot of state broadband grants awarded to serve rural towns and villages with 50 to 200 homes. Peeling such locations away from the BEAD-eligible areas leaves a higher cost per passing for the remaining homes. That’s important, because most State Broadband offices will use the average cost per passing as one of the most important factors in scoring grant applications.

On top of all of these factors is the biggest unknown factor – which is local conditions that can drive up construction costs. The two biggest such factors are the cost of pole make-ready for aerial construction and the percentage of rock in the substrate for buried construction. State Broadband Offices have made estimates of the total cost to build BEAD networks. In doing so they had to estimate these kinds of cost drivers. If a Broadband Office estimated that 10% of pole have to be replaced as part of fiber construction, the actual costs for BEAD will be a lot higher if that turns out to be 15% or 20% of poles.

It will be a pleasant surprise if State Broadband Offices have been conservative and have overestimated the amount of BEAD grant they will be asked to fund. But my nagging premonition is that most will have underestimated.