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Tuesday,
May 05, 2020 / 07:50 PM / By Fitch Ratings / Header Image
Credit: Medium
Broadband infrastructure is critical as high-speed
internet is proving to be an essential service, similar to a utility, due to
coronavirus-driven lockdowns, Fitch Ratings says. These projects are receiving
more government attention and policy consideration given the level of business,
education and entertainment activity that has shifted online because of the
pandemic. Broadband projects may be either economic or developmental, some of
which can be self-funding, but should be holistic.
Lockdown measures have highlighted the necessity of
internet connectivity and deficiencies in existing broadband infrastructure,
underscoring the importance of expanded and improved access. Broadband will
remain essential after the peak of the crisis as people continue work and
attend classes remotely. Estimates regarding the number of people without
high-speed internet access range from 21 million, according to the Federal
Communication Commission (FCC), to 163 million, according to Microsoft. Uneven
broadband access has social and economic implications, leading to greater
disparities between those that have access and those that do not.
Providing broadband access is more expensive in rural
areas compared with urban centers as there are fewer users and less accessible
geography. High rates to cover the cost of providing service can be prohibitive
for some areas. Broadband projects that are focused on enhancing access to
rural areas and economically disadvantaged neighborhoods in metropolitan areas
will require public sector support, either direct investment or via a public
private partnership (PPP).
PPPs employ private resources to manage design build
requirements and address critical infrastructure needs. PPPs are typically
structured so that bondholders rely on availability payments, but may
incorporate market demand elements as project financing in this space evolves,
necessitating robust revenue forecasts. PPP frameworks will need to anticipate
the range of potential issues and lifecycle of these assets.
States and local governments, some of which already
faced fiscal challenges prior to the current crisis, are managing budgetary
constraints and escalating costs due to the ongoing coronavirus pandemic and
associated economic contraction. Such challenges may limit the ability and
capacity for governments to take on large scale infrastructure investment at
this time. Many governments have various, previously existing initiatives to
increase broadband access but will need to explore alternative funding sources.
Broadband projects have high barriers to entry and
employ established technology. Although construction costs may be high
depending on the terrain, these projects are not complex, and maintenance costs
are low. There is a high level of cost predictability because of limited scope
of projects, and technology is not expected to outpace the investment horizon.
Notwithstanding these positives, right of way issues may arise. Unlike other
infrastructure, it may be difficult to raise rates in certain areas where the
goal is to provide equitable internet access.
The Coronavirus Aid, Relief and Economic Security
(CARES) Act provides broadband funding, allocating $200 million to provide an
85% discount on broadband for the FCC telehealth program; $100 million for the
US Department of Agriculture (USDA) ReConnectProgram, which provides loans and
grants to expand broadband in rural areas; and $25 million for USDA Distance
Learning & Telemedicine Grant Program, which provides broadband funding to
rural communities. CARES also provides $16 billion from the Education
Stabilization Fund for remote education and $50 million for the Institute of
Museum & Library Services to improve library networks.
House members introduced the Healthcare Broadband
Expansion During COVID-19 Act on April 10, and the Emergency Educational
Connections Act introduced on April 21, which would provide $2 billion in
funding for schools and libraries to provide devices and internet for students
at home. This funding is a start but is only a temporary patch to a longer-term
issue that needs a permanent solution.
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