The federal government has allocated nearly $42.5 billion to expand broadband connectivity across the United States, a move that could spell a windfall for broadband equipment and service providers, though that windfall could come with risks.

The allocation is through the National Telecommunications and Information Administration’s (NTIA) Broadband Equity, Access and Deployment (BEAD) program, which was itself part of the federal government’s $65 billion Infrastructure Investment and Jobs Act (IIJA). The BEAD funds are targeted at expanding broadband networks to unserved and underserved areas and to provide ongoing financial support to increase access.

Portions of that nearly $42.5 billion in funds have been allocated to all 50 states, the District of Columbia and five U.S. territories: American Samoa, Guam, Northern Mariana Islands, Puerto Rico and the U.S. Virgin Islands.

Texas has access to the largest tranche, with the Lone Star State having been allocated more than $3.3 billion in funds. California has access to nearly $1.9 billion in funds, Missouri more than $1.7 billion, Michigan nearly $1.6 billion and North Carolina more than $1.5 billion.

On the other end, Delaware was allocated $108 million, the District of Columbia $100 million, Northern Mariana Islands $81 million, American Samoa $38 million, and the U.S. Virgin Islands $27 million.

Allocations are based on data showing areas that either lack broadband access or have access with speeds of less than 100 Mb/s on the downlink and 20 Mb/s on the uplink.

Dan Hays, partner at consulting firm PwC, noted the broad allocation worked out to about $336 per U.S. household, but that the specific mix showed interesting dynamics. This includes Alaska being allocated approximately $4,000 per household; states like Wyoming, West Virginia and Montana receiving around $1,500 per household; and a surprisingly high amount for some of the U.S. territories, though he did acknowledge some of those are important to the U.S. from a military perspective.

"It's not surprising at a macro level," Hays said. "What will be more interesting is once the actual grants start to be rolled out. But certainly, the numbers for some of the U.S. territories were fairly surprising."

BEAD fiber focus expected

States and territories have up to 180 days to submit plans as to how they will allocate the allotted funds. The program states this time is set aside for a “challenge process under which a unit of local government, nonprofit organization or broadband service provider may challenge a determination made by the (state or territory) in the initial proposal as to whether a particular location or community anchor institution is eligible for BEAD funds, including whether a particular location is unserved or underserved.”

This could help narrow the geographical focus and technology used to support broadband services.

The economics around fiber are likely to make that transport model most compelling for broadband expansion, with fiber-focused telecommunication providers having already bolstered their deployment plans.

"Fiber is clearly right in the crosshairs for the program and we're expecting to see a preponderance of fiber networks, both from established players and from new entrants, that will be recipients of these allocations," Hays said.

AT&T, for instance, late last year initiated the Gigapower fiber broadband joint venture with venture capital firm BlackRock. The venture’s initial plans are to deploy a multi-gigabit fiber network to 1.5 million customer locations outside of AT&T’s traditional 21-state wireline footprint using a commercial open-access platform. This will be in addition to AT&T’s own fiber deployment plans targeted at reaching more than 30 million locations within its 21-state wireline footprint by the end of 2025.

AT&T CTO Jeremy Legg told attendees at this week's Collision Conference that "there's a lot of money flowing in this space."

"There's federal money, there's corporate money and there's private equity money; and we are at a generational shift in terms of fiber and 5G technology going into the ground and going up on towers," he said.

Cable broadband providers are also expected to be compelling options.

"Cable is often overlooked and, in some respects, fiber has become the core of most cable networks, but we're also seeing a significant interest from cable companies in applying for and targeting BEAD funding to expand their footprints and their reach," Hays said, adding that "somewhere around 60% of the U.S. broadband market is served by cable and they have a good reason to want to preserve their role in all of this."

Comcast President Michael Cavanagh told an investor conference earlier this year that his company “will be a participant in” these government funding programs.

“We don't see any reason not to bid, but it's going to be opportunity by opportunity, market by market,” Cavanagh said. “But we do have – we certainly have a bias to, if it's going to meet our hurdles, to be extending the footprint.”

Hays noted this fiber and cable focus will drive the need for more fiber and optical network terminal equipment to link these services, as well as ancillary pieces like pull hangers for fiber.

BEAD opportunity for 5G FWA

There should also be an opportunity for 5G-based fixed-wireless access (FWA) systems that are becoming a broadband option for mobile operators.

Tammy Parker, principal analyst at GlobalData, wrote in a report last year that while she expects fiber to be prioritized over “other technological approaches … fixed wireless and satellite solutions will most certainly need to be considered as part of the technology mix because it is not feasible to deploy fiber to many of the unserved and underserved areas that are supposed to be prioritized under BEAD.”

All three of the nation’s largest wireless operators, to varying degrees, have been expanding the reach and speed of their 5G FWA services.

Sowmyanarayan Sampath, EVP and CEO for Verizon Consumer Group, told investors at last month’s SVB MoffettNathanson TMT Conference that the carrier’s C-band-fueled FWA service accounted for nearly 40% of all industry broadband net connection additions for the first quarter of this year, a result that highlighted the carrier’s build-out plan for that spectrum and service.

“That’s how strong our fixed-wireless franchise is and it could not have been possible if we didn’t have 5G both from a capacity and a speed perspective,” Sampath said. “And I’ll tell you, look today on the current C-band that we have, we can reach speeds of 900 [Mb/s] to 1 [Gb/s] speed. When we get the new band, we can go up to 2.4 [Gb/s] in terms of speed. … It’s a great business and we made the right call on C-band to grow that space.”

T-Mobile US Chief Marketing Officer Mike Katz during the carrier’s most recent earnings call labeled its FWA-based “home internet service” as “one of the big killer apps for 5G that you are seeing play out right now.” This was linked to the carrier adding approximately 600,000 new FWA customers during the first quarter, pushing T-Mobile's U.S. customer base to 3.2 million subscribers.

"Fixed wireless is a great alternative, but fixed wireless still requires some degree of fiber connectivity for backhaul," PwC's Hays said. "What we may see is some degree of hybrid solutions in some of these markets, where fixed wireless becomes the last-mile distribution mechanism and you have fiber really as a middle-mile, backhaul-type of solution."

The FWA focus could also spike interest in the private 5G and Citizens Broadband Radio Service (CBRS) space.

Broadband opportunities and challenges

Hays also noted that this funding will come with challenges tied to program requirements. He explained that this is not the first time the U.S. government has distributed funds in an attempt to bridge the broadband divide, "and not all of the past programs have been particularly successful."

"It's a great opportunity for these companies to either expand footprints or start up new businesses, which is part of the economic objective," Hays said.

But this investment could also stress the broader ecosystem, which could make it tough to fulfill program objectives.

"There are challenges already with finding the skilled labor to go out and actually deploy these networks," Hays said. "We're seeing already constraints arising in skills like fiber slicing and micro trenching and things like that. As a result, there's a lot of concern in the market right now about potential inflation in labor rates and cost per mile of installed infrastructure, as well as constraints in the supply of raw materials."

These could be particularly challenging for smaller providers that take advantage of this funding opportunity, but could also impact larger providers that have to deal with increased government compliance regulations.

"If you take the money you have to follow the rules, and government accounting and government compliance for these programs is far from simple," Hays said. "A lot of the service providers that we work with are really thinking ahead about how they're going to comply with the whole labyrinth of regulations that come along with accepting this money and whether they have the skill sets and the capacity to manage that. There's going to be a lot of scrutiny on whoever takes these funds and that's not something that most of them are used to in the normal course of business."

Despite the challenges and increased scrutiny, the BEAD allocation announcement is an important next step toward bridging a critical infrastructure need.

"As Americans, we should all be looking to the government to really measure and report on the benefits from this because this is important, not just for people having connections to the internet, but it's important for education, it's important for commerce, it's important for public safety," Hays said. There's a higher set of goals here that we just can't lose track of."