By Matt Wiederrecht

August 18, 2021 — Capstone believes the Senate’s passage of the $1.2 trillion infrastructure bill last week brought us a big step closer towards its becoming law, which we continue to believe has 80% odds of happening.

Should it pass, the bill will be meaningfully positive for investors in both major internet service providers (ISPs) and content providers. The bill would provide $65 billion in funding for various broadband-related initiatives with $42.45 billion going to states to fund the deployment of broadband service in unserved and underserved communities. The rest of the funds are focused on programs to promote the adoption of broadband service in underserved populations. While we believe the bill is broadly positive for the broadband sector, we are concerned the bill elevates the role of the National Telecommunications and Information Administration (NTIA) in ways that could cause problems for service providers as it would give NTIA the authority to help shape how states manage their federally funded broadband subsidy programs.

Broadband Winners: This package will benefit content providers such as Alphabet Inc.’s Google (GOOGL), Netflix Inc. (NFLX), and Facebook Inc. (FB) as it increases access to high-speed broadband service. Service providers such as AT&T (T), Frontier (FYBR) and Verizon (VZ) also benefit because the bill largely does not allow the use of capital subsidies to build broadband networks in communities with adequate service. That outcome might have led to competition in communities they currently serve.

What Happens Next: Before the Senate bill becomes law, it must be approved by the House of Representatives without amendment and signed into law. Should the house amend the bill, that could be problematic as it would then go back to the Senate for its approval and there are no guarantees the votes exist to vote for any amended infrastructure bill – particularly if Congress is still in the process of working on a contentious budget reconciliation bill that almost certainly will pass on a strict party line vote with no Republican support.

The NTIA’s Could Complicate Things: The bill has some rather nuanced language surrounding specific implementation issues that somewhat concerns us, including how NTIA defines certain terms used in the bill that the agency has the explicit authority to define. How the NTIA defines “reliable broadband service” will be important. The bills give the NTIA authority to provide additional guidance on how states must prioritize grant funding though exactly how much discretion NTIA has with respect to this provision of the bill is unclear.