How Will the US$42.5 Billion BEAD Program Impact the U.S. Broadband Market?

In 2Q 2024, there was a flurry of announcements related to the US$42.45 billion Broadband Equity, Access, and Development (BEAD) program for upgrading the U.S. broadband infrastructure. On May 9, the National Telecommunications and Information Administration (NTIA), the agency responsible for administering the fund, formally approved the requests from the District of Columbia (DC), Delaware, and Washington to access and begin implementing BEAD funding. The BEAD allocations were US$100 million, US$107 million, and US$1.2 billion, respectively. This was followed by the authorization of US$826 million for Colorado and US$196 million for New Hampshire on June 11, and Illinois’ US$1 billion, Oregon’s US$688 million, and Puerto Rico’s US$334 million on June 13. At the same time, there has also been a marked uptick in domestic production of optical fiber to supply BEAD projects. Highlighting these developments, in May, Secretary of Commerce Gina Raimondo visited the Norcross, Georgia headquarters of optical fiber designer and manufacturer OFS to celebrate the expansion of its production capacity. On the surface, it appears that momentum is building behind the BEAD program, but questions still remain as to which companies and what technologies are eligible for funds, when the grants will begin to be distributed, and most importantly, how impactful the initiative will prove to be in the long term. This ABI Insight aims to answer these questions, in the process providing guidance to the industry on how to capitalize on the opportunities that BEAD presents.

The BEAD program is a US$42.45 billion fund for improving U.S. broadband infrastructure introduced in November 2021 as part of the Biden administration’s broader Infrastructure Investment and Jobs Act (IIJA). The program is administered by the NTIA, and prioritizes the deployment of fiber optic networks in locations identified as unserved (classed as those lacking Internet speeds of 25 Megabits per Second (Mbps) downlink and 3 Mbps uplink) or underserved (those with 100 Mbps downlink and 20 Mbps uplink). The US$42.45 billion will be divided up between all 50 U.S. states, DC, and Puerto Rico, as well as four American overseas territories, for a total of 56 entities. The 10-step application and approval process that each entity must complete in order to access their respective funds is lengthy and complex, so it won’t be recited in full here, but the key milestones to note are that all 56 entities successfully submitted their initial proposals for fund distribution before the December 27, 2023 deadline, and they now have until the end of 2024 to submit their final proposals. Once these final proposals are approved by the NTIA, the entities can start handing out their respective funds to subgrantees. Currently, 12 entities have reached this final stage, meaning they can begin implementing their BEAD plans. Alongside those mentioned in the opening section, these 12 also include Kansas, Louisiana, Nevada, Pennsylvania, and West Virginia. Throughout 2H 2024, the remaining entities can be expected to submit their final proposals, meaning that the majority of BEAD funds will be distributed in late 2024, 2025, and into 2026.

As with all government grants, BEAD funding does not come without strings attached. Most significantly, the Build America, Buy America (BABA) Act, enacted in November 2021 as part of the Biden administration’s broader IIJA, mandates that in order to be eligible for IIJA funding (inclusive of BEAD), recipients must procure products manufactured in the United States from components of which at least 55% (by cost) are sourced directly from the United States. These restrictions will pose a major challenge to an industry that has, in recent decades, relied on imported goods from overseas, although the Department of Commerce (DOC) has reduced the potential impacts by restricting the scope of BABA’s applicability and issuing strategic waivers. Regarding the former, the DOC designed the restrictions so that they extend only to the terminal at the customer premises (i.e., the Optical Network Terminal (ONT) or Optical Network Unit (ONU)), and do not encompass what the DOC terms the Customer Premises Equipment (CPE), which refers to the end-user access point. In practice, this will mean that a Wi-Fi gateway with a built-in modem is within the scope of BABA (i.e., a Wi-Fi 6 Passive Optical Network (PON) gateway), but a standalone router (with Wi-Fi functionality only) would not.

Additional exemptions from BABA were also carved out for specific components. Most notably, the DOC made the decision to authorize a 5-year exemption for non-optic glass inputs, the overclad cylinder of the fiber optic cable required for the production of the end product. The DOC was forced to exempt this item from BABA due to industry concerns that a dearth of domestic supply of this vital element would hold back the manufacture of optical fiber cable in the United States, hindering the industry’s ability to achieve the original target of BEAD. It was also concluded that because non-optic glass inputs only constituted a low single-digit percentage of the final fiber optic cable Bill of Materials (BOM), this compromise was an acceptable one.

Alongside buy American requirements, there are many further obstacles facing companies that wish to take advantage of BEAD funding, including technology requirements and exclusions in applicable program provisions, a lengthy permitting process, and workforce shortages. In February 2024 the DOC released a report with recommendations for how to address these challenges. These included, alongside a national database of critical broadband industry jobs and a formal oversight process to limit overbuilding, a recommendation that the preference for fiber in the BEAD’s Notification of Funding Opportunity (NOFO) and the Extremely High Cost Per Location Threshold (EHCPLT) provision are relaxed. This was in recognition of the limited availability of resources to support fiber rollout in many instances, and therefore a portion of the funding will be directed away from fiber and toward alternatives, including unlicensed Fixed Wireless Access (FWA) and Low Earth Orbit (LEO) satellite broadband.

With 12 entities already authorized to begin distributing BEAD funds, and the remaining 44 anticipated to be granted authorization over the next 6 months, fiber deployment in the United States is set to ramp up markedly from late 2024. This will, in turn, lead to a surge in demand for PON modems and gateway to connect to the newly deployed fiber lines across the 2025 to 2027 period. Furthermore, the installation of fiber will enable customers who previously lacked broadband connectivity or were stuck with legacy technologies to be able to adopt the latest Wi-Fi technologies for the first time. The Wi-Fi CPE replacement rate for households that migrate from legacy access technologies to fiber can also be expected to increase, because in contrast to legacy technologies, fiber has the capability to unleash the full potential of more advanced Wi-Fi technologies, incentivizing consumers to upgrade CPE more frequently. In short, increased fiber deployment will expand the serviceable market for Wi-Fi 7 CPE and, in the future, Wi-Fi 8 CPE.

That said, the industry shouldn’t discount fiber alternatives. The DOC’s February 2024 recommendation that fiber be deprioritized provides additional scope for alternative connectivity technologies to benefit from BEAD funding. The prospects for alternative solutions are particularly strong in remote rural unserved and underserved regions, where the cost of fiber deployment is likely to exceed the EHCPLT threshold, meaning that alternatives like FWA or LEO satellite broadband may prove to be the only viable options. The possibility of FWA solutions securing BEAD funding is higher in states with a favorable stance toward the technology, including Louisiana, Indiana, Pennsylvania, Oregon, and Kansas. In light of the DOC’s change in stance toward fiber alternative, vendors of FWA and LEO satellite broadband should explore participation in BEAD projects. Additionally, it should be remembered that the legacy connectivity technologies of Hybrid Fiber-Coaxial (HFC) and Digital Subscriber Line (DSL) still qualify for funding, so in select instances, these access technologies could still receive funding.

The BEAD program will also boost the Return on Investment (ROI) for U.S.-based broadband infrastructure manufacturing investments, as the Buy American requirements on BEAD will favor domestic manufacturers. Domestic manufacturers of broadband electronics in the United States include Nokia, Adtran, Ciena, Calix, and Vecima Networks, while manufacturers of fiber-optic cable include CommScope, Corning, Superior Essex, Prysmian, PPC Broadband, AFL, and OFS. Even for elements that fall outside the BABA restrictions (e.g., Wi-Fi routers), going forward, production in the United States will increasingly be a preference during Requests for Proposal (RFPs), so those seeking to enlarge or maintain market shares in the U.S. market should look to expand manufacturing in the country. Aside from this, manufacturing in friendly U.S. neighbors can also be considered.