May 05, 2020 / 07:50 PM / By Fitch Ratings / Header Image
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.