Financing Broadband in Hard-to-Reach Communities (SSIR)

(Photo by iStock/deepblue4you)

When floods hit West Virginia in February 2025, McDowell County put out a call asking residents to complete an online form detailing their property damage. For many residents, that wasn’t an option. Even in the best of times, 1 in 5 McDowell households have no internet. With floods damaging cell towers and broadband infrastructure, the problem became far worse. For McDowell, a once-thriving coal county, the lack of broadband made it harder to demonstrate its urgent need for recovery aid.

Broadband has become essential to the survival of rural communities. Research shows that rural counties with high broadband adoption see 213 percent faster business growth and 44 percent higher GDP gains than those unconnected. Without reliable internet, McDowell’s businesses reach fewer customers, workers can’t access remote jobs, and students fall behind, deepening a cycle of economic decline.

McDowell County is not alone. In West Virginia, Kentucky, and across Appalachia, tough terrain and small populations mean internet service providers (ISPs) frequently sideline rural communities. And nationwide, 15 percent of US households—more than 48 million people—still lack high-speed internet.

The broadband gap is a solvable problem. The technology exists. What’s missing is the right financial structures to get investment where it’s needed most. Impact finance can be the bridge.

Why Public Investment Hasn’t Closed the Gap

Broadband deserts exist largely because traditional finance and big-name ISPs do not build for communities too rural or too poor to hit their profit targets. Successive governments have responded with programs to attract providers to underserved communities, with mixed success. One hundred billion dollars in federal funding between 2010-2020 closed the digital divide by less than 1 percent. Why has so much money had so little impact?

First, these grants have too often funded technology that is obsolete by the time it is built. Take the Connect America Fund II (CAF II), a $10 billion Federal Communications Commission (FCC) program to connect rural areas with download speeds of 10 Mbps. By the time the program took effect in 2015, the broadband standard had been updated from 4 Mbps download/1 Mbps upload to 25/10 Mbps, leaving communities with outdated and inadequate infrastructure. Penn State Professor Christopher Ali calls this pursuit of short-term fixes “the politics of good enough,” repeatedly leaving rural and low-income communities behind. Instead of bursts of investment every five to 10 years, funding future-proof connectivity would offer far better use of tax dollars.

Second, program design has often led to poor results or outright failure. The Rural Digital Opportunity Fund (RDOF), a $20 billion program to fund high-speed rural internet, is a prime example. The FCC used a “reverse auction” structure, awarding funds to the lowest bidder rather than the most feasible proposals, creating a race-to-the-bottom. Combined with a lack of due diligence to ensure winners could deliver, the result has been a series of ongoing defaults, with ISPs dropping out and handing back funds. Of $9.2 billion awarded, defaults have so far reached $3.3 billion. That’s almost two million rural homes and businesses that will not receive service. In most cases, these areas were excluded from other funding opportunities and so will now likely get no help at all.

Third, public investments have too often been geared to benefit the large incumbent providers over the local, regional, and community-centric ISPs best placed to serve hard-to-connect communities (more on these later). Program rules and requirements, which may be speed bumps for large ISPs, can be roadblocks for smaller competitors that lack vast capital reserves and back offices. The effect is reinforcing a status quo where a few name-brand providers dominate an uncompetitive sector.

This is not to say public investment isn’t part of the solution (it’s vital). And that programs can’t be better designed to address the root problem (some have been). The $42 billion Broadband Equity Access and Deployment (BEAD) program passed by the Biden administration was designed to sidestep some of these pitfalls, including 1) a clear preference for fiber as a resilient, long-term technology, 2) investing in state capacity to administer awards and ensure winners can deliver, and 3) provisions to make sure small providers are given a fair shake. Now, under the Trump administration, BEAD is headed for significant changes and a likely shift toward satellite providers like Elon Musk’s Starlink. While we remain hopeful that BEAD will make a real difference, it alone won’t solve the problem, even if administered perfectly.

Private Equity Is Not the Solution

In a world where traditional markets haven’t met the needs of underserved communities, and federal funding alone won’t close the gap, there’s a need for alternatives that can. One major source of capital comes from private equity and mega infrastructure funds, which have poured billions into broadband and data centers. According to Pitchbook, private equity funds have raised $800 billion to invest in digital infrastructure over the last decade. While this may sound like progress, the return expectations of these investors are fundamentally incompatible with the realities of rural and low-income markets.

As we’ve seen with the privatization and consolidation of other critical industries, private equity’s need to generate super returns incentivizes the cherry-picking of lucrative markets along with cost cutting and price hiking to maximize profits—often at the detriment of quality and availability of service. We expect to see an M&A consolidation of BEAD-subsidized networks in coming years—industry insiders are calling it a “get rich slow scheme.”

If this is the road we go down, expect to see less consumer choice and rising prices in an already monopolistic sector. While some communities will see improved connectivity, the most marginalized will continue to be without affordable, reliable service.

Community Broadband Can Close the Gap

Connecting communities left out by the market requires new approaches. Many goods—transportation, education, low-income housing—don’t work on a pure profit-maximizing basis. Broadband is no different. If we start from the position that connectivity is essential, we can align mission-driven capital to community-centric models that will deliver it, just as has been demonstrated in the sectors noted above.

Community broadband models are emerging to fill the gaps. One of the first was Chattanooga, Tennessee, which created EPB, a municipal fiber network, in response to lackluster connectivity. Despite fierce industry resistance, city leaders showed that community-owned broadband was not only possible but could deliver far better than the status quo, becoming the first city in the nation to offer gigabit broadband (today it operates at 25 Gbps speeds). Built with a combination of municipal revenue bonds, ARPA funds, and a loan from the electric utility, the economic impacts of the network have exceeded its construction costs many times over, generating $2.7 billion in economic benefits and 9,500+ jobs over 10 years.

The Utopia Fiber network takes another approach. Founded by a consortium of Utah cities where residents were unhappy with poorly performing incumbents, Utopia provides an open access wholesale platform on which other ISPs operate, rather than sell internet direct to customers. By removing the upfront costs of construction, Utopia has created a dynamic, competitive broadband marketplace which has expanded high-speed, affordable internet across the region.

Utopia and Chattanooga are not flukes. The Institute for Local Self Reliance (ILSR) tracker of community broadband networks shows over 400 networks now serve almost 800 communities nationwide. Community networks, whether city-owned, cooperatives, or locally and regionally owned social enterprises, consistently outperform traditional models, with better speeds and more affordable pricing. Compare online reviews for EBP and Utopia with AT&T and Comcast, and you’ll get the picture.

But the answer isn’t simply replicating and rolling out what was done in Tennessee and Utah. Communities have a range of needs and realities that call for various models and different blends of financing. Organizations like ILSR and the American Association for Public Broadband are working to help communities find solutions that work for them. The missing piece is a dedicated capital market that can make these models work.

Connect Humanity was created to show that by blending capital and structuring financing to meet the realities of broadband in low income and rural areas, it can be done sustainably. Our pilot fund has invested $3.1 million in five projects, catalyzing a further $47 million of public and private capital. These investments have put over 100,000 people on the path to connectivity, all while tracking a 12 percent IRR. This is not fast money chasing “hockey stick” profits—it’s the steady approach needed to solve the digital divide long-term.

The Ripple Effects of Community Broadband Investments

In Macon County, Alabama, Connect Humanity partnered with the local development authority, providing a $500,000 loan as part of a capital stack with a blend of public and philanthropic grants, private capital, and in-kind resources from the local utility. The investment unlocked the construction of a fiber network that has connected 1,400 rural homes, businesses, libraries, and health-care facilities to high-speed fiber internet, including local schools for the first time. Because this network remains in the hands of a commercial ISP, we required a “community benefits agreement” as a condition of our investment, with terms to ensure long-term transparency and benefits for residents and local businesses.

Lawrence Haygood (left), mayor of Tuskegee, and Joe Turnham (right), head of Macon County Economic Development Authority (MCEDA), Connect Humanity’s partner in the Macon County community broadband project. (Photo courtesy of Connect Humanity)

The ripple effects are striking. The Macon project was followed by a wave of economic development, with the county securing a $128 million investment in a new auto parts manufacturing facility, bringing 170+ new jobs, and generating an estimated $140 million in annual economic output. The network also helped catalyze $20 million for a new logistics park, projected to attract a further $386 million and create 1,800 jobs. And it made possible Alabama’s first telehealth Care Station at Tuskegee University, expanding access to remote health care for 3,800 students, faculty, and staff, and the wider Macon County community.

Building the Capital Market That Community Broadband Needs

Access to finance for community broadband projects remains scarce. Connect Humanity alone has a pipeline of $800 million in investable ISPs that want to expand broadband but lack access to capital. Community-centric providers fall into a “missing-middle” trap of having needs too large for foundation grants but being too small to attract institutional finance. Further, broadband projects can be complex relative to their size and most lenders lack the tools to properly price the risk of broadband and so charge a premium on fees and rates that makes the financing unaffordable.

Broadband today is essentially a utility with utility-like cash flows and predictable returns—and data consumption is only going up. Therefore, projects need utility-like financing. But unless you’re a city with the ability to issue bonds, existing capital markets treat you like a high-risk start-up with rates to match. For the right funding partnerships, community broadband projects are good investments. In much the same way as impact finance, traditional finance, and government have partnered in the past to build housing, health clinics, and other public goods, such collaboration is needed here. This is an opportunity for impact investors willing to take a long-term position in a growing sector offering reasonable rates of return.

It’s Time to Think Differently

As part of the Federal Reserve Bank’s “Making Markets” initiative, Connect Humanity is partnering with the New York Fed to build a vibrant capital market for community broadband. We convened the demand side—communities, ISPs, and state broadband offices—all who pointed to the same barrier: a lack of access to capital that understands the nuances of broadband in low-income, rural communities.

Now, we’re assembling a group of forward-thinking foundations and impact investors to design and scale supply-side solutions to fill this gap.

We’re not starting from scratch. With hundreds of community-based broadband networks already operating across the United States—and Connect Humanity’s own lending experience—the pieces to make this market exist. What’s needed is to standardize tools, raise awareness, and bring others along. Success depends on collaboration across the impact capital spectrum. As we prepare our next fund, Connect Humanity is working with CDFIs, impact investors, bank CRA, foundations, and institutional capital to structure a private credit fund that delivers returns—while bridging connectivity gaps in places long left behind, like McDowell County.

If we want every community to thrive in the digital age, we can’t rely on the same approaches that have left millions behind. The choices we make now will shape the future — who is connected, who is left behind, and what kind of economy we build. We don’t have time to wait and see how BEAD plays out. It’s time to rethink how we invest in broadband and ensure every community has access to the opportunities of a connected world.

Read more stories by Brian Vo & Clara Miller.