Financing the end of the digital divide

Executive summary  

Billions of people live without access to the internet. Far from simply a development issue, connecting the unconnected has become a central arena of geopolitical competition, with long-term implications for national security, economic growth, policy, and control over digital infrastructure. 

The People’s Republic of China (PRC) has recognized this reality and has placed digital infrastructure investment at the core of its global strategy. Through state-directed financing, bundled technology offerings, and sustained engagement, China has positioned itself as the dominant provider of telecommunications infrastructure in large swathes of the Global South. This approach simultaneously advances China’s commercial interests, enhances its surveillance capabilities, and supports its broader ambitions for technological strategic advantage. 

By contrast, the United States and its democratic allies have approached connectivity investment in a fragmented and under-resourced manner. Existing efforts have tended to focus on large-scale, upstream assets such as submarine cables and big tower deployments, or narrow technology interventions, while leaving the challenge of last mile connectivity largely unaddressed. Despite possessing powerful tools—particularly development finance institutions (DFIs) armed with blended finance mechanisms—democratic governments have yet to deploy these capabilities in a way that can credibly compete with China’s model. 

This report argues that connectivity represents a decisive and still underutilized entry point for countering China’s digital influence while advancing economic and strategic US objectives. It outlines why markets alone have failed to close the digital divide, why replicating China’s state-led approach is neither feasible nor desirable, and why blended finance offers a comparative advantage. Ultimately, we argue that success will depend on democratic governments rethinking what connectivity itself means. Building digital infrastructure is not an act of charity or a narrow effort to expand access. It is a strategic effort to shape the future architecture of the global internet, including who governs it, how data flows across it, and which political and technical values are embedded within it. 

Drawing on four targeted Chatham House roundtables, two public panel events, policy research, and dozens of expert interviews from October 2024 to May 2026, the report presents a practical playbook organized around five pillars: reforming the US International Development Finance Corporation, building enabling environments, building markets, catalyzing capital, and working with allies. Together, these recommendations offer a road map for mobilizing public and private resources at scale to expand connectivity while reinforcing an open, interoperable, and rights-respecting internet.  

Core points are summarized below by pillar: 

DFC reform and financing strategy 

• Enshrine closing the digital divide and mobilizing private capital explicitly in DFC’s mandate, priorities, and incentives. 
• Increase DFC’s risk appetite and willingness to provide concessionary capital and credit enhancements including providing lower-cost capital, first-loss positions, guarantees, and political risk insurance. 
• Encourage and incentivize DFC staff to take a more active role in facilitating deals across the investment life cycle. 
• Build dedicated connectivity finance expertise and leverage private-sector knowledge through federal details (i.e., assignments for detailees). 
• Expand early-stage technical assistance to improve investment readiness and support pipeline development. 
• Shift investment toward community-focused internet service providers and specialized intermediaries. 

Enabling environment 

• Provide grant funding to expand and maintain open telecom data mapping, and advocate for public disclosure of telecom infrastructure data and adoption of common standards. 
• Require reporting of infrastructure data from publicly financed projects. 
• Use domestic policy tools to promote open telecom data standards globally. 
• Fund regulator capacity building to support more conducive policy. 
• Use diplomatic engagement to support pro-competitive regulatory reforms. 

Market building 

• Support three to five specialized intermediaries to source, structure, conduct due diligence, and manage investments while providing technical support, aggregating capital, and making appropriately scaled investments.  
• Pool capital through intermediaries to reduce fragmentation and lower transaction costs. 
• Provide grant funding for pipeline development and pre-investment technical assistance. 
• Deploy demonstration capital to validate models and inform larger-scale investment. 

Capital mobilization 

• Adopt a blended finance approach to catalyze private-sector investment. 
• Use concessional capital to shift risk-return profiles and crowd in private investors. 
• Expand use of guarantees and political risk insurance to reduce the cost of capital. 
• Pursue coordinated structures to provide holistic capital support.  
• Prioritize fiber deployment for durability, capacity, and long-term cost efficiency. 
• Explore innovative financing structures for infrastructure, particularly revenue-based financing. 

Allies and international coordination 

• Encourage allies to contribute capital and pool resources through global or regional funds. 
• Coordinate with partners and DFIs to align financing tools and investment strategies and leverage existing coinvestment partnerships where possible. 
• Treat allied coordination as a central component of connectivity strategy and engage allies to share lessons learned, coordinate approaches, expand intelligence sharing, and address capacity gaps. 

Diplomacy and strategy 

• Elevate connectivity as a diplomatic priority in bilateral and multilateral engagement. 
• Embed information and communications technology (ICT) financing within broader diplomatic and regional initiatives. 
• Empower the State Department’s Bureau of Cyberspace and Digital Policy with a mandate and resources. 
• Train diplomats to identify and advance connectivity opportunities. 
• Adopt a whole-of-government approach and align diplomatic, financial, regulatory, and intelligence tools. 

Multilateral and convening mechanisms 

• Support multilateral efforts to develop global connectivity financing mechanisms. 
• Support the World Summit on the Information Society (WSIS+20) working group to design financing systems. 
• Launch a global connectivity finance conference to mobilize capital and coordinate stakeholders. 

Staff

Kenton Thibaut

Senior Resident Fellow, China

Digital Forensic Research Lab Indo-Pacific Security Initiative

China Disinformation

Fellow

Jochai Ben-Avie

Nonresident Fellow

Digital Forensic Research Lab

Americas Digital Policy

The Democracy + Tech Initiative creates policy practices that align global stakeholders toward tech and governance that reinforces, rather than undermines, open societies. It builds on the DFRLab’s established track record and leadership in the open-source field, empowering global communities to promote transparency and accountability online and around the world.

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Image: Photo by Kamran Abdullayev on Unsplash