BEAD Funding: $42 Billion in Government Funding to Accrue to Telecom Operators in the Next 9 Months – Opportunity for Value Creation Through Investments and Financing
What Is BEAD Funding?
The Broadband, Equity, Access, and Deployment (BEAD) initiative is a $42.5 billion government program aimed at expanding broadband access in underserved or unserved areas.[1] BEAD offers operators an unparalleled growth opportunity, allocating more government funding in a single year than all federal programs combined over the past decade. In the planning stages for the last three years, the funds will be allocated to selected providers in the coming nine to 12 months and deployed over the following three to four years. This will represent an unprecedented level of contribution to the industry.
Why Does This Matter to Investors?
The BEAD program is intended to bring fiber infrastructure nationwide, to currently unserved and underserved areas, which are mostly rural. Small and regional players are poised to gain the most due to their local connections and involvement in economically marginal territories.
The BEAD program will create private investment, financing and acquisitions of operators that otherwise may not have met certain risk and return thresholds. The program also provides for much needed network enhancements that benefit customers through faster, more reliable service. It presents value creation opportunities for investors by expanding reach and increasing recurring revenue and earnings.
What Is the BEAD Process and What Complexities Are Involved?
The BEAD process involves key phases that vary by state:
- Prequalification: Operators must demonstrate financial readiness, scalability and past regulatory compliance.
- Bidding: Prequalified operators will enter competitive, multiple-round, state-by-state bidding and negotiation processes.
- Build and Deployment: Investors and lenders will play a critical role in providing liquidity for capital projects in addition to BEAD subsidies that can only partially finance network builds and enhancements. After securing awards, operators have four years to design and build.
- Audit, Compliance and Reporting: Operators must maintain detailed audit trails and meet ongoing federal, state and local reporting requirements throughout the project’s lifecycle.
BEAD processes will differ across states, and complexities in execution and compliance will vary. With up to 200+ bids per state, operators and private equity firms need to act quickly to determine if BEAD aligns with strategic priorities.
The Case for BEAD-Related Participation: Significant growth, operational synergies and financing opportunities.
BEAD has the potential to reshape the competitive landscape in the United States. Because of the breadth of the program and the amounts involved, once the BEAD program has ceased, few attractive territories will be left to build. This makes BEAD a strategic priority with the following results:
- Opens the door for smaller players to access $42.5 billion in federal funding, enabling small players to become ubiquitous and grow substantively.
- Large operators bring execution and compliance capabilities, while regional players offer local expertise. These qualities can allow for greater likelihood of winning BEAD funding and successfully executing projects.
- Private equity firms can invest in regional operators positioned to win BEAD funding and offer lucrative project financing and/or exit opportunities as networks are built and subscriber bases grow.
The Case Against BEAD-Related Participation: The (hidden) costs are too high and there are better ROIs elsewhere.
While the BEAD program offers a significant funding opportunity, there are considerations that could make participation less attractive, especially for smaller operators and risk-averse investors.
- There are still significant pockets of opportunity in appropriately dense markets. Preemptive builds may be in order.
- BEAD rules, both federal and state, open a Pandora’s box of requirements and reporting that can distract operators from core business activities and drive up administrative costs.
- The reimbursement requirements may be such that the operator will still have to take much of the risk with limited upside.
How to Identify the Right Investment Opportunities if Deciding to Pursue BEAD?
- Understand state processes by reviewing each state’s Volume 2 Initial Proposal to understand its BEAD process.
- Model out operator’s market positioning in regions of interest by conducting due diligence on regional operators’ existing networks, relationships with local officials and past performance in state broadband initiatives.
- Conduct a capabilities and synergy assessment to ensure there is enough capability in target companies to handle the volume of bidding and potential network build across states and territories.
- Conduct a bid gaming analysis to best understand bidding cycles and variability that can arise state-by-state.
- Assess the current compliance and reporting capabilities of target operators and evaluate the cost of building up their systems to ensure that federal, state and local regulations are met at scale.
How Can A&M Help?
A&M is deeply familiar with BEAD processes, having helped numerous states craft their approach. We understand the program intimately. A&M helps investment partners and operators evaluate when and where to apply for BEAD funding. A&M can help make the process successful across each stage of the funding process, including Prequalification; Bidding; Build and Deployment; and Audit Compliance and Reporting.
BEAD funding will be available only for the next nine to 12 months. Contact our broadband experts so you can more quickly decide if the BEAD program is an appropriate investment opportunity for you.
[1] National Telecommunications and Information Administration, Broadband USA, https://broadbandusa.ntia.doc.gov/funding-programs/broadband-equity-access-and-deployment-bead-program
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