Tim Stelzig: Explaining BEAD, Trying to Bridge the Digital Divide

As with most other essential services, there are many places in the United States where no purely private business case will support investment in broadband networks. Federal subsidies therefore are necessary for ubiquitous access to internet service. Primarily, these are rural markets, although some suburban, exurban, and even urban areas suffer from poor coverage economics as well.

The U.S. has used federal subsidies in an attempt to close the so-called “digital divide” for decades, until recently primarily by relying on the FCC’s Universal Service Fund program. The FCC’s USF Fund was initially designed as a ratepayer cross-subsidy program to ensure all Americans had access to telephone service.

The USF Fund contributed significantly to increasing telephone service coverage from less than 50% of occupied housing units in the 1940s, to 78.3% in 1960, to 90.5% in 1970, to 92.9% in 1980, to 94.8% in 1990, and to 97.6% in 2000. The value of mobile phone service has changed market dynamics and today more than 99.1% of occupied housing units have a fixed and/or mobile telephone service subscription. There also are more mobile devices in the U.S. (and globally) today than people. Call that “Mission Accomplished.”

In the internet’s early days, federal regulators hoped that retooling the USF Program to provide financial support for broadband deployment would achieve similar success. Unfortunately, there is an important difference between telephone service and internet service. The bandwidth required for a voice telephone call is low and fixed, meaning that once the capital investment is made to support telephone service in a location, that location has telephone service for the effective life of the facilities (i.e., for decades).

In contrast, the demand for internet bandwidth has been growing exponentially, and shows no signs of abating. In 2000, which is after the dot com boom, the average user consumed by some estimates only 0.245 GB/month globally. By 2014, average global usage had risen almost 6000% to 15.1 GB/month. By 2017, global internet traffic had doubled again, and by now has since doubled again twice.

What this exploding demand for internet capacity means in practice is that the capital investments the nation has been making in non-fiber technologies to connect unserved and underserved Americans with broadband service keep being swamped by increased demand.

Given resource constraints, the FCC’s USF Program and other federal broadband grant programs typically are designed to achieve the biggest bang for the buck. In other words, and over-simplifying, these programs have awarded broadband infrastructure subsidies based on which provider could bring more people from an un- or underserved status to served status for a given amount of money. This is a reasonable policy choice given limited resources and shows good stewardship of taxpayer (or ratepayer) money.

The problem with this approach however, as alluded to above, is the exponential growth in broadband demand means that public and private investments in DSL, fixed wireless, satellite, and to a lesser extent cable modem technologies only satisfy consumer expectations for several years before needing expensive upgrades. Thus, over the past couple of decades as new rounds of federal funding have become available, the “biggest bang for the buck” can be achieved by upgrading locations that have existing broadband infrastructure that is not keeping up with demand, rather than by bringing infrastructure to communities that are much worse off, including communities that have no terrestrial internet service at all.

The result is that some areas of the country that are relatively easier to serve (though still requiring subsidies) have received multiple rounds of federal investment, allowing those residents to keep up with growing consumer expectations for internet service, while other areas of the country perpetually remain left behind.

There was a growing recognition of this problem throughout the 2000s and a growing bi-partisan consensus that a different approach was needed. By 2016, legislators had formed the bicameral and bipartisan Rural Broadband Caucus with over 60 members. There also was a growing bipartisan interest in expanding public investment in infrastructure more generally. Then, in early 2020, as we all know, the COVID-19 pandemic hit and the need for universal access to broadband became understood viscerally in a way previously unimaginable as people witnessed children being unable to attend virtual school and adults being unable to support their households through remote work due to lack of adequate connectivity.

So, in 2021, Congress with substantial bipartisan support finally provided enough money in the Infrastructure Investment and Jobs Act to solve the challenge identified above, namely to once and for all deliver fast, affordable, and reliable internet service to the entire nation. The $42.45 billion BEAD program is an amount sufficient to achieve this result when combined with the additional billions in funding Congress provided to NTIA’s other broadband grant programs, the COVID-relief Treasury Department broadband infrastructure funding programs, and the FCC’s and USDA’s Rural Utilities Service’s ongoing broadband support programs.

Having sufficient money is just one ingredient for success though. Without smart program design, it would be easy to burn through even this large amount of money without achieving universal access to broadband service. In the next post, I’ll discuss the groundbreaking (at least in this context) design Congress chose for the BEAD program and how that moves beyond the incrementalist approach that has for decades has been doing good work but failing to finish the job of connecting all Americans to fast, affordable, and reliable service.

Tim Stelzig is a former Senior Policy Advisor and Regional Director of NTIA's BEAD program. This piece was first published on his personal Substack on May 15, 2025, and is republished with permission.

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