New broadband clause in U.S. infrastructure deal could hurt AT&T, Lumen: analyst

New Street Research warned AT&T, Frontier Communications and Lumen Technologies could be negatively impacted by a new broadband provision which takes aim at “digital redlining" in the latest version of a $1.2 trillion U.S. infrastructure deal.

As announced in June, the legislation includes $65 billion in funding for broadband infrastructure, with this money meant to fuel deployments to achieve universal broadband access and lower costs for consumers. A fresh fact sheet released by the White House on Wednesday noted the deal now also includes passage of the Digital Equity Act, “ending digital redlining and creating a permanent program to help more low-income households access the internet.”

Additionally, NATE: The Communications Infrastructure Contractors Association indicated in a statement the bill makes wireless players eligible for deployment funding.

The fact sheet did not provide a funding breakdown for how the broadband money would be allocated. However, New Street Research analyst Blair Levin, who obtained a draft of the legislation last Friday, said in a note to investors the bill would devote $40 billion to infrastructure deployments and $11.75 billion to supplement the Federal Communications Commission’s (FCC) existing Emergency Broadband Benefit program. He added the FCC would be tasked with creating rules to combat digital redlining and promote equal broadband access within two years.

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Biden said in a statement the package represents “the most significant long-term investment in our infrastructure and competitiveness in nearly a century.” He added it “will help ensure that America can compete in the global economy just when we are in a race with China and the rest of the world for the 21st Century.”

But Levin warned the provisions around digital redlining could be “significantly negative” for AT&T, Lumen, Frontier and rural operators. He explained “we think AT&T and Lumen would be the principal targets by any FCC efforts—at least during a Biden Administration—to implement the legislation,” citing recent campaigns accusing the companies of contributing to the digital divide.

Meanwhile, Lumen and other rural providers could be hurt by mandates to extend coverage beyond their current expansion plans. For instance, if the government forced Frontier to deploy fiber to all 11 million homes within its footprint, “our colleague Jonathan Chaplin believes Frontier would do zero, as Frontier simply couldn’t afford it and the capital markets wouldn’t fund it,” Levin wrote.

Levin tempered these comments in a fresh note to investors Thursday morning after reviewing the latest draft of the legislation. While New Street believes there is still a risk the FCC could pursue enforcement action against telcos found to be in violation of digital redlining rules, "we think the defenses for the telcos are now significantly stronger than they were under the prior language. As a practical matter, we think that the companies will likely litigate against any specific action that forces them to do anything that materially impairs their business model," he concluded.

The bill must be passed by Congress and signed by Biden before it becomes law.


This story has been updated to add New Street' Research's revised commentary from Thursday morning.