The essential role of broadband connectivity in modern life—highlighted by the shift to virtual activities during the COVID-19 pandemic—has added urgency to efforts to close the digital divide. While people living in cities typically enjoy ready access to high-speed connectivity, rural internet customers are often less fortunate, with few if any options for broadband service. In response, agencies throughout the federal government have launched initiatives ranging from FCC funding for carriers building and upgrading rural broadband network infrastructure, to the Affordable Connectivity Program (ACP) program included in the Biden infrastructure bill, which provide subsidies directly to consumers.
A recent STL Partners Executive Briefing, How Regional ISPs Are Bridging the Digital Divide through Innovation, explores the opportunities for rural internet providers seeking to expand broadband connectivity, including business models and funding sources that can help make these projects more profitable for carriers. You can learn more about new business strategies around technology, partnerships, financing, and the introduction of new services and customer segments in our blog post, How Rural Broadband Carriers Are Closing the Digital Divide. Below, we’ll explore the public funding available for these projects.
The Connect America Fund (CAF)
One of the federal government’s flagship rural broadband initiatives, the FCC Connect America Fund is an ambitious multi-year program to expand high-speed rural internet in markets traditionally overlooked by internet service providers (ISPs). While Phase I of the program in 2015 focused on large carriers such as AT&T, Frontier, and Windstream, the Connect America Fund (CAF) Phase II auction currently underway will subsidize projects by smaller carriers in areas where a digital divide persists. Service providers eligible for CAF Phase II support include electric cooperatives, wireless internet service providers, cable operators, telecom carriers, and satellite companies, which can compete in reverse auctions to receive funding in exchange for offering voice and broadband services that meet program requirements.
Rural Development Opportunity Fund (RDOF)
An extension of the Connect America Fund (CAF), the Rural Digital Opportunity Fund (RDOF) is a $20.4 billion, 10-year program to finance rural broadband internet projects in unserved rural communities. Under RDOF, service providers must deploy broadband to 40 percent of the locations in their service delivery area within three years, and all locations by the end of the sixth year. Unlike CAF, RDOF does not offer first right of refusal to incumbent service providers, making it more accessible to smaller ISPs. At the same time, requirements for gigabit speed and low latency tend to favor fiber technologies over alternatives such as fixed wireless and 5G.
Emergency Broadband Benefit Program
As the COVID-19 pandemic abruptly expanded the role of internet connectivity in daily life, from virtual education and telehealth, to work-from-home, and ecommerce and online banking, the FCC launched the Emergency Broadband Benefit Program. Funded by Congress with $3.2 billion, the program offered subsidies for broadband internet to households already participating in an ISP’s low-income or pandemic relief program, subscribers to its Lifeline program, households with children receiving free or reduced-price meals at school, Pell Grant recipients, people on Medicaid or receiving SNAP benefits, and others who have lost their jobs over the past year. As part of the Biden infrastructure bill, the Emergency Broadband Benefit Program will be subsequently replaced by the long-term Affordable Connectivity Program (see below).
Infrastructure Investment and Jobs Act
The $1.2 trillion Infrastructure Investment and Jobs Act signed into law by Joe Biden in November 2021 included a variety provisions focused on expanding broadband networks, improving affordability, and strengthening cybersecurity. Among these, the Biden infrastructure bill included $65 billion in funding for internet initiatives by state and local governments, of which $42.5 billion was designated for a new Broadband Equity, Access, and Development Program administered by the National Telecommunications and Information Administration (NTIA). NTIA has been directed to allocate a minimum of $100 million funding to each state, and an additional $100 million to be allocated equally among U.S. territories. Approximately $32.2 billion will go to broad projects in underserved areas, including rural broadband initiatives.
Affordable Connectivity Program
As mentioned above, the Biden infrastructure bill also included the replacement of the temporary Emergency Broadband Benefit Program with a long-term successor, the $14.2 billion Affordable Connectivity Program (ACP). Emergency Broadband Benefit providers will automatically qualify to provide ACP-authorized service. Under ACP, qualifying consumers receive up to $30 per month toward broadband service (up to $75 for tribal communities), and up to $100 toward a broadband access device, excluding smart phones. Higher subsidies are also available for qualifying families in high-cost areas and households participating in the Women, Infants, and Children (WIC) program. Eligible carriers for the program include cable and wireless internet service providers as well as municipal broadband programs and co-ops. By making broadband connectivity more affordable for rural internet customers, ACP will increase the market potential for ISPs while helping to close the digital divide through better access to services at a lower cost.
American Rescue Plan
The far-reaching American Rescue Plan of 2021 for COVID-19 related aid included billions of dollars in broadband subsidies to help reduce consumer prices, build out network infrastructure, and develop the skills needed to close the digital divide. The ARP Capital Projects Fund made $10 billion available to support capital projects related to work, education, and health, with a primary focus on broadband connectivity. An additional $7.171 billion went to the ARP Emergency Connectivity Fund to lower costs for educational connections and devices for library patrons and school students. Rural broadband initiatives and other digital divide projects were also eligible to compete with other types of relief and recovery needs for $370.9 billion in more flexible ARP funds. In particular, ARP Coronavirus State and Local Fiscal Recovery Funds made digital inclusion funding available to state, local, territorial, and tribal governments.
USDA ReConnect Loan and Grant Program
Beginning in November 2021, the USDA made $1.15 billion in funding available through the ReConnect Loan and Grant Program. State, local or territory governments; corporations; Native American Tribes; and limited liability companies and cooperative organizations are all eligible to apply for funding for projects serving rural areas where at least 90 percent of households lack broadband service. ReConnect funds are separate from and beyond the rural internet subsidies provided through the Biden infrastructure bill. Applicants must commit to deploying infrastructure capable of providing broadband service to every location in their proposed service area at the same time.
To learn more about these programs and explore the business models behind innovative rural broadband initiatives, read the STL Partners Executive Briefing, How Regional ISPs Are Bridging the Digital Divide through Innovation.
