When starting a fiber optic project, most people focus on communications, route, cable plant and other obvious issues. Having watched the progress of many projects, I would argue that two other topics need to be priority concerns: economics and time. In many ways, these two concerns are the same thing. 

Still awaiting funding for BEAD

Nothing illustrates this better than the projects funded by the federal Broadband Equity Access and Deployment (BEAD) program. The need to expand broadband to unserved and underserved areas became apparent during the pandemic. Remote work, school and healthcare made broadband’s importance very apparent. So, the government put together a program to fund its expansion.

Almost as soon as the program was announced, the industry started “spending” that money. Manufacturers began expanding production and distributors started stockpiling cable and other supplies. People talked about a worker shortage.

All of this was, of course, premature. There were consequences: a bubble was created in the supply chain, overproduction led to excess inventory, workers were hired and then laid off and prices rose and fell quickly.

It has been a couple of years since the programs were announced, and we’re still waiting for the funding to arrive at the state level. We’ll be waiting longer to get projects started. 

Another delay came from the mechanism of distributing the funding. Each state had to create a broadband agency to approve the projects and distribute the funding, adding to the time and cost of a project. Rising uncertainty didn’t help, as it opened the door to consultants and lobbyists—but that’s another subject. 

Timing concerns add up

Timing is very important with any project. Time means uncertainty and, with economics, it usually means inflation. In the United States, overall consumer inflation was taking off when BEAD was announced, reaching almost 10%. It is currently back down to about 3% overall, but what will it be for the components and labor to build fiber optic broadband networks when construction starts? 

Companies planning projects now, staffing up or building inventory and needing to borrow operating funds for a project are facing 7%–8% interest rates, which are likely to stay high for a while.

Even projects submitted to state agencies may take several years to receive funding. Does the pricing and funding process take into account inflation and high interest rates?

Even more important is that when a project is finally approved, it may take a few more years to break ground, considering the time to plan the project, design the network, secure permits, order components and hire workers. That can add another year or more. It can easily take three or four years to start construction, meaning that components and labor costs could be 25%–30% higher than when the project was first planned and costed.

Economic possibilities enter the ring

Furthermore, the U.S. economy has been cruising along, but there are some signs that may not last. Consumers have been driving the economy, but they have been doing it on credit, which is at record levels. There are signs that consumer spending is slowing. 

Here in California, activity is slowing at the warehouses suppling online and physical stores. Tech companies are already laying off workers. What will happen if we finally get the postpandemic recession that some economists have been predicting?

Economics involves lots of forecasting, which we know is as reliable as—or even less than—weather forecasting. Economic analysis is complicated; it depends heavily on human behavior, and we all know how unpredictable that can be. Federal funding on programs such as BEAD is also dependent on politics, and this is an election year.

When I took an economics elective in college, I learned enough about the subject to later become a successful entrepreneur. What I remember most about the class was the professor’s definition of economics: “The study of the allocation of scarce resources.” He meant money, time and labor.

As I think about this topic, perhaps a better warning than any economic forecast is the old saying, “Don’t count your chickens before they hatch!”