When rural electric cooperatives began considering deploying broadband internet, thanks to a flush of billions of dollars in federal funding to close the digital divide, they had one goal in mind — ensuring their members had reliable access to high-speed internet.
What they probably weren’t expecting, however, was the one-two punch of inflation and higher interest rates. Just as inflation has pinched consumers, it’s also put a squeeze on the construction of broadband infrastructure projects. Higher interest rates and rising prices for materials and labor are one issue. And provisions under a new federal grant program allocating money towards the build-out of broadband infrastructure could complicate matters even further.
“It just caught everybody off guard,” Doug Dawson of CCG Consulting, a broadband consulting firm, said of inflation. “We were spoiled with low interest rates, low inflation. For 15 years, we were lucky — we had that long period of economic lows,” Dawson, who has decades of experience in the telecommunications industry, said. “That’s behind us now.”
The pivot to remote work and distance learning caused by the COVID-19 pandemic in 2020 heightened the significance of having access to high-speed internet, particularly in rural communities, where the infrastructure for broadband internet is lacking compared to urban areas.
In recent years, the federal government has spurred efforts for the buildout of broadband to close the digital divide in rural America. This includes the Federal Communications Commission’s Rural Digital Opportunity (RDOF) fund, a $20.4 billion subsidy program to assist internet service providers with the buildout of broadband internet projects. In December 2020, the FCC announced $9.2 billion from RDOF would go to 180 bidders throughout the country for broadband buildout.
And, under President Joe Biden, the Infrastructure Investment and Jobs Act, signed into law in November 2021 and more commonly known as the Bipartisan Infrastructure Law, allocated $65 billion for broadband infrastructure deployment. This includes the Broadband Equity, Access, and Deployment (BEAD), a grant program which set aside $42.5 billion to improve high-speed internet throughout all 50 US states as well as US territories.
When Northeast Louisiana Power Cooperative began looking at the viability of providing broadband internet to its roughly 12,000 residential members scattered throughout seven parishes in the northeast part of the state, known as the Louisiana Delta, it was on the assumption that the interest rate for 30 year loans was 3%, according to Jeff Churchwell, the cooperative’s general manager.
By the time the cooperative started borrowing money for the buildout of their fiber network, which began in May 2022, interest rates doubled.
“When you’re borrowing millions and millions of dollars, the interest rate is the problem,” Churchwell said. “The interest price alone, we were thinking we’d be paying around $115,000 a month for our interest only” to lenders. With rates hiked, that monthly payment is closer to $180,000, according to Churchwell. “That’s why I say it’s a real issue.”
Across the Mississippi River in the Mississippi Delta, Delta Electric Power Association, which serves parts of 13 counties in northwest Mississippi, also faces similar issues with hiked interest rates, according to David O’Bryan, general manager.
“The cost of capital has gone up dramatically. Inflation is still high and all these things are affecting everybody,” O’Bryan said. He described the Federal Reserve’s consecutively increased rates, now between 5% to 5.25%, as a “shock to the economic system.”
Inflation has slowed down the deployment of Delta Electric’s broadband project – which started in late 2020 – but not enough to derail it.
“The good news is we’re still ahead of schedule,” O’Bryan said. As of April, DELightspeed, Delta Electric’s broadband subsidiary, passes through 11,300 locations — both businesses and households — in parts of five counties. DELightspeed is now expanding its broadband network westward.
Northeast Louisiana Power Cooperative, which runs its broadband service through VoltBroadband, has also kept up pace with construction, despite getting “lambasted” with the current interest rates, Churchwell said.
“We’re too far down the rabbit hole… there’s no turning back now,” he said, emphasizing the commitment to reach every single member. “It does not matter if they live at the end of a five mile gravel road and you’re the only customer on that gravel road, we’re going to that customer.”
Of the cooperative’s 12,000 residential members, about 4,000 have access to fiber internet, Churchwell said. The goal is to complete construction by mid-2025 and offer fiber connections to any members within the cooperative by the end of that year.
Churchwell recognized that the Fed’s hiked interest rates may have stopped some cooperatives from building out their broadband projects as they wait for rates to taper. He referenced a neighboring cooperative in Louisiana, where he recalled the general manager there as saying, “Man, at this point the cost of the money is just too great.”
Dawson, the broadband consultant who has 1,200 clients across the country, a mixture of internet service providers, like cooperatives, as well as municipalities, said he had spoken with a client who was told by a bank that the interest rate for a loan was 9% – double of what they would’ve been two years ago.
“We have to hope in a year or two they go back down,” Dawson said.
Outside of interest rates, the costs of materials and labor have also risen.
For Delta Electric, the average cost of a mile of fiber optic cables, used for broadband internet, now costs around $30,000, O’Bryan said, whereas pre-inflation it was 20% less that cost. Costs have also increased for conduits, which the fiber optic cables are placed in if the cables run underground. There’s also now a two-year wait for the arrival of newly-ordered bucket trucks which are needed for the deployment of fiber cables.
The cost of labor has also increased on two fronts, Dawson said. For one, general inflation has meant employees need to be paid more to adjust to the higher cost of living. Secondly, due to the demand for labor, outside contractors can charge cooperatives and other internet service providers jacked up costs, accepting whoever bids out the highest amount of money, Dawson said.
At East Mississippi Electric Power Association, based in Meridian, Randy Carroll, the CEO, said that last December he had to double the typical salary increases for the cooperative’s 140 employees to keep them on board. That will likely be the case again this year, he added.
Like Delta Electric and Northeast Louisiana Power Cooperative, East Mississippi Electric’s broadband deployment has not stopped despite rising costs, something Carroll attributes to having bought much of the materials needed for the deployment ahead of the inflation curve.
The buildout of the fiber project, which began in late 2020, and currently reaches 9,400 households throughout east Mississippi, is expected to end in June, Carroll said.
Both Carroll and O’Bryan said that they have not had to pass off the higher costs of building broadband onto their customers, which would have meant higher internet service prices. That could change, however, if building costs continue to climb.
The hundreds of electric cooperatives throughout the country have historically served crucial roles in modernizing rural America. Thanks in large part to the Rural Electrification Act of 1936, cooperatives received federal funding to construct their own electrical power systems to transmit electricity to the communities they serve. Now, in a similar fashion, rural electric cooperatives bear the responsibility of closing the digital divide through the deployment of broadband internet.
East Mississippi Electric, Delta Electric, and Northeast Louisiana Power Cooperative all received federal funding from the RDOF program.
Dawson, as well as Jonathan Chambers, a partner at Conexon, a Kansas City based contractor that designs and builds out broadband networks for rural electric cooperatives, say the provisions under the BEAD program from the Biden Adminstration’s Investment and Jobs Act will only raise costs for future broadband projects as well as delay the buildout of these projects.
Both Chambers and Dawson say that broadband projects funded under BEAD aren’t likely to begin construction until 2024 or 2025.
Then there are the provisions attached to BEAD, such as requirements for broadband projects to undergo environmental and historic preservation studies and to buy American-made materials, that will raise the costs of broadband projects, Dawson and Chambers both said.
“It’s hard enough to build this kind of network in places nobody has built before,” Chambers said of rural communities.
Despite recent and expected setbacks, heads of rural electric cooperatives, committed to building out their broadband networks, underscored the significance of their projects in keeping rural communities alive.
“Big (internet service) providers aren’t interested in serving rural Northeast Louisiana so we pulled up our boots and decided that we would do it in hopes to attract our own customers to stay where they are,” Churchwell said.