Broadband Grants in the United States: Checking in on Buildout

By Matt Kalmus, Hannah Hill , Austin Lajoie

The June 30th state allocations of Broadband, Equity, Access, and Deployment (BEAD) program funds marks the beginning of operators’ journey through the largest telecom CapEx injection in US history. These dollars, as well as subsidies from the Capital Projects Fund (CPF), NTIA Middle Mile program, and smaller state grants present a unique strategic opportunity for network operators and policymakers to bridge the digital divide in an efficient and equitable manner. Across the country, grant programs utilizing these funds have begun to take shape, with state BEAD initial proposals currently being submitted and CPF-funded programs in progress. As operators and state broadband offices prepare for the flow of funds, a key question persists: how do we maximize the societal return on these grant dollars? Phrased differently, what challenges should network operators look out for, and how should state broadband offices help grantees navigate the complex and daunting grant environment?

To inform our perspective on these questions, we surveyed 63 small, regional, and national network operators participating in federal and state grant programs across the United States. Our results indicate that the current broadband environment is filled with roadblocks, uncertainty, and fundamental economic challenges. From permitting challenges to labor shortages and supply chain frictions, the path to full broadband coverage is treacherous and complicated. Below, we discuss three factors impacting grant-funded buildout in the United States and the implications for grant applicants and state broadband offices.

Methodology and Market Context

We worked closely with three state broadband offices with active or recently concluded broadband grant programs to aid in outreach and survey design. The content of the survey was jointly formed between BCG and state officials, giving the broadband offices an inside look into the challenges of their grantees while yielding a sufficient sample of operators. We begin with an overview of respondent characteristics.

Our sample is skewed heavily towards local operators and utility co-ops; together, they comprise 78% of all responses. This is not surprising given the high incidence of local operators in grant programs as well as the growing trend of utility co-ops seeking grant funding for broadband infrastructure. There are 6 national incumbents in our sample and 39 local operators.

Figure 1: Share of responses by operator archetype (N = 63)

Fiber dominates the grant space, with 92% of respondents deploying at least some fiber and 85% of all builds by count of homes passed being built with fiber. Given the updated definition of underserved as having less than 100/20 mbps service, it is unsurprising to see fiber dominate new builds.

Figure 2: Technology share of respondents (N = 65)

Fiber’s dominance is made even clearer when considering each technology’s share of operators’ incremental homes passed over the last year. Fiber constitutes 85% of all new builds in states surveyed, with cable maintaining a small but material share of 11% and fixed wireless access (FWA) comprising 3%.

Figure 3: Share of yearly incremental homes passed by technology (N = 65)

Supply Chain

The broadband supply chain has faced myriad slowdowns over the last five years, from chip shortages to insufficient domestic fiber component manufacturing. Increased component lead times are a direct threat to operators' buildout timelines and their bottom lines, as most grant programs stipulate timelines for completion of grant-funded buildout. From our survey, 68% of respondents have experienced some increase in component lead times since 2022. Particular pain points include fiber cables, handholes, conduit, and vaults. Headend equipment such as switches and routers have also become increasingly difficult to source.

Figure 4: Year-over-year component lead time changes by operator, % of respondents (N = 62)

Dramatic component price increases add to the supply chain pressure operators face in the United States. On average, key broadband component prices have increased 10 to 50% over the last year. Moreover, shipping and distribution costs have increased approximately 20%.

Figure 5: Year-over-year component price changes by operator, % of respondents (N = 59)

Operators' strategic responses are varied, with regional and national operators leveraging their capital reserves to stockpile components well in advance of construction start. Respondents note they are now ordering components 15 or more months in advance to offset the 6-9 month average lead time for key components. More sophisticated operators have employed longer-term component demand forecasting combined with distribution partnerships to ensure construction can start as planned. Small and local operators bear the brunt of supply chain frictions due to their lack of on-hand capital to purchase components in bulk as well as limited in-house component demand forecasting capabilities.

These supply chain difficulties are further compounded by BEAD's Build America, Buy America (BABA) stipulation, which requires grant-funded builds to use American made components, often at significantly higher cost. Local operators are more often negatively impacted due to their limited on-hand capital, leaving little room for expensive American components. Despite recent improvements to US manufacturing capabilities, including Nokia’s announced intent to manufacture fiber optic components at its facility in Wisconsin and Adtran’s $5 million investment to boost telecom equipment capabilities at its factory in Alabama, BABA will likely continue to be a pain point for operators. These difficulties were confirmed with the NTIA’s recently released draft BABA waiver, which provides guidance that 90% or more of all components used in BEAD-funded buildout should be manufactured in the US, with limited exceptions for scarce components such as semiconductors.

Labor

Sourcing labor continues to pose a threat to operators' build-out ambitions. 80% of respondents are experiencing labor challenges, and one third are experiencing significant challenges. There are two classes of labor driving the issue: experienced telecom labor and contract labor. Nationally, there is a shortage of individuals with telecom expertise, leaving roles such as fiber splicers and broadband technicians unfilled. For local and regional markets with ongoing grant-funded buildout, the contract labor market is at near full utilization, with locate firms experiencing the longest queues in history and contractors jumping from job to job based on who bids the highest. Put simply, across both classes of labor there is not enough supply to meet demand, and respondents express worry that the problem will only get worse as more grant funds are disbursed. Operators' future labor strategy is unclear, although early experiments with in-house construction teams and local upskilling partnerships show promise. It is clear that creativity on labor will be required for operators to meet their buildout obligations.

Figure 6: Labor challenges by operator, % of respondents (N = 49)

The surge of infrastructure funding for BEAD and related Infrastructure, Investment, and Jobs Act (IIJA) will have knock-on effects across the traditional supply chain. The magnitude of such impacts are unclear, but the funding and the demand it will create in local labor markets across rural America will undoubtedly depress the supply of labor in other related industries. For example, network operators’ outsized reliance on contractor labor will likely create hassles for homebuilders and commercial developers as the utilization of labor supply increases.

Regulation

Above supply chain and labor frictions, regulatory topics were the number one cited cause of buildout delays. Nearly every respondent expressed confusion and difficulty with regards to navigating their respective state’s regulatory environment. Common pain points include pole attachment, permitting, identification of BABA-compliant vendors, and use of existing state infrastructure. The extent to which state offices should increase their involvement in (often local) matters such as pole attachment disputes and workforce training will vary from state to state, but one conclusion is clear: there is intense demand from operators for heightened state involvement. This is especially true for small and local operators, many of whom are undergoing some of their first greenfield network expansion projects in years and need help to deliver on their buildout obligations. To the extent possible, making the regulatory logistics of buildout easier and more seamless for grantees will pay dividends by ensuring grant dollars are not wasted in foraging through complex permits and state rights-of-ways.

Recommendations for operators and policymakers

In grant-funded markets, competition will be fierce and the economics will be tight. BEAD borders on a paradigm shift for conventional buildout wisdom. Operators must be creative, flexible, and agile if they wish to win. Increased local component and labor demand will persist at a minimum and likely increase as grant dollars are disbursed, so it is critical for network operators to start thinking far ahead with regards to their buildout objectives and what it will take to achieve them. To address supply chain frictions, grantees should increase their procurement forecast timelines; refine cost and network models to reflect differing penetration, geographic difficulty, and pricing assumptions in grant-funded areas versus overbuild or greenfield markets; and openly consider partnerships with municipalities, utility co-ops, and even other ISPs to alter buildout economics. On the labor front, it is likely that local labor supply in rural grant-funded areas will not increase enough such that all operators’ labor needs are met. As such, ISPs must begin the process of upskilling their existing workforce while engaging with contractors well in advance of their first trench or drop. To increase the pool of available labor, operators should also consider partnering with community colleges, trade schools, and local workforce development organizations to facilitate training programs and upskilling initiatives. Such activities will provide a new supply of well-paying telecommunications jobs while increasing the local economic impact of their network builds. Above all, grantees must develop and implement central governance to orchestrate the myriad relationships, regulatory hurdles, and unexpected buildout impediments with minimal internal barriers or frictions.

"Connecting the local labor market to network operators is perhaps the largest impact the state broadband office can have on buildout timelines and the feasibility of projects."

There is ample room for state broadband offices to help grantees in successfully deploying grant-funded broadband infrastructure. Policymakers will need to be creative in designing local and state-level policy which relieves frictions in the supply chain, improves labor market dynamics, and streamlines permitting processes. We suggest state broadband offices be flexible on supply chain by considering waivers, facilitating group purchasing of key components, and incentivizing state-based manufacturing. Group purchasing, for example, can aid local ISPs and utility co-ops who lack the on-hand capital to procure their supplies sufficiently in advance. On labor, broadband officials should act as a middleman between their communities and grantees by establishing relationships with community colleges, trade schools, and ISPs to implement broadband-related job training programs, as well as publishing and marketing information on broadband career opportunities. Connecting the local labor market to network operators is perhaps the largest impact the state broadband office can have on buildout timelines and the feasibility of projects. Lastly, given the pervasiveness of permitting issues throughout our survey, we recommend state broadband offices have a fresh look at the common regulations grantees will face, from pole attachments to rights-of-ways and use of state infrastructure. Moreover, the state broadband office should empower municipalities and local governments to conduct the same exercise by providing guidance on how to make efficient permitting processes.