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When will broadband stimulus funds begin to flow.

The biggest news in the broadband world this year has been the passage of the American Recovery and Reinvestment Act (ARRA), popularly known as the stimulus package. Included in the nearly $800 billion of programs designed to stimulate the American economy is $7.2 billion targeted specifically for improving broadband access. The bulk of these funds, to be administered by the U.S. Department of Agriculture's Rural Utilities Service (RUS) and the Commerce Department's National Telecommunications and Information Administration (NTIA), are for grants and loans to upgrade access network hardware and software in hard-to-serve areas. Smaller amounts are designated for broadband mapping and for programs that encourage or enable residents of those areas to use broadband services.

The two programs have somewhat different legislative goals and priorities. The RUS program is aimed at traditional RUS borrowers, while the NTIA program mainly provides grants to public agencies and nonprofits, but the agencies have pledged to align their programs as much as possible to make the rules and application procedures consistent, and to coordinate their timing. They plan to allocate the funds in three tranches beginning in fall 2009 and ending in fall 2010. Funds are expected to begin flowing to recipients toward the end of 2009--several months later than originally anticipated and after the construction season has ended in many of the Northern states.

In many public statements, agency officials have indicated they are not looking for lowest-common-denominator broadband access, but rather are committed to making broadband a transformative factor in the American economy and society. For example, Mark Seifert, a senior adviser at NTIA responsible for the agency's Broadband Technology Opportunities Program (BTOP), said, "We anticipate receiving applications that will allow people who live in unserved and underserved areas to work online at speeds that permit videoconferencing.

We hope to see applications that propose to make broadband available for smart grid technology and health information technology applications. We want applications that will provide researchers and scientists at universities and other institutions the broadband connectivity they need to compete with the rest of the world. Schools, universities, libraries, community centers, job training centers and hospitals are all community anchor institutions that need broadband connectivity. We view these grants as a test-bed or proof of concept for sustainable, viable, and scalable projects."

A notice of funds availability (NOFA) for the first of the three funding rounds, issued jointly by the two agencies on July I, invited proposals for $2.4 billion in RUS funds and $1.6 billion in NTIA funds. RUS funds include at least $400 million in grants for last-mile access in remote areas, $800 million in loans and loan/grant combinations for last-mile access in nonremote areas, and another $800 million in loans and loan/grants for middle-mile projects. NTIA funds include at least $1.2 billion for broadband infrastructure in unserved or underserved areas. Smaller amounts are available for other specialized purposes.

The NOFA spelled out many details left unclear in the legislation, such as the definition of "broadband" (terrestrial wireline or wireless Internet access at speeds of 768 Kbps downstream, 200 Kbps upstream) and the relative importance of the many goals and criteria specified in the legislation (the agencies avoided giving top priority to any one of these). However, these rules and definitions may change in subsequent funding rounds.

At press time, many rural telcos were tentatively preparing applications for funding. A number of them were turning for help and advice to vendors they have worked with in the past. These vendors are doing everything from holding informational webinars to helping telcos draft grant applications and putting them in touch with consulting engineers and other resources.

One vendor that has been actively involved in the grant application process is Occam Networks, which supplies access network equipment to many telephone cooperatives. Juan Vela, Occam's director of marketing and strategy, estimated that between one-third and one-half of his clients hoped to apply for ARRA funding.

Dave Russell, solutions marketing director at Calix, another electronics vendor with a large client base among telephone cooperatives, also said his clients were eager to participate in the program. In a poll of about 300 companies that Calix conducted in April 2009, 34% said they had already started working on their applications, 23% said they would definitely apply and another 39% were considering applying.

In terms of timing, 68% of the companies polled planned to apply for funds in round 1, 58% in round 2, and 29% in round 3 (multiple applications are permitted). The much-criticized delay in the first funding round actually may result in a larger pool of first-round applicants, because the delay gave companies more time to prepare their applications.

The providers that Calix polled (not all cooperatives, but mostly rural) were participating in a webinar about the stimulus program, so the sample is biased toward companies with an interest in applying; on the other hand, these 300-plus providers represent a significant portion of Calix's client base.

"Underserved" Unknowns

Russell noted that some of these companies are using an optimistic definition of "underserved"; if the agencies defined service levels more conservatively, some of the would-be grantees would not actually submit proposals. Others, according to Vela, may alter their projects to meet the guidelines. For example, if it appears that the rules favor higher broadband speeds, applicants will be more likely to bring fiber closer to, or all the way to, the customer.

A large group of cooperatives--those that have already built out high-speed broadband to all of their members and don't see any inviting competitive local exchange carrier (CLEC) opportunities nearby--are not even tempted to apply. For example, Bradley Welp, general manager of La Valle Telephone Cooperative (La Valle, Wis.), said 100% of his members are served with broadband and his company has no need of stimulus funds.

Both Vela and Russell said most of their clients planned to apply for both NTIA and RUS funding--sometimes for the same project, and sometimes for different ones. One co-op manager, Bill Franklin of Scott County Telephone Cooperative (SCTC, Gate City, Va.), is planning to submit all of his projects to both agencies, while others are preparing separate applications for different projects. Collaborative and middle-mile projects are more likely to be submitted to NTIA, while traditional last-mile projects are more likely to be submitted to RUS. Some telcos seem more comfortable with RUS loans, both because they have dealt with RUS in the past and because they are uncertain how NTIA grants will affect their share of the National Exchange Carrier Association long-distance revenue pool (grants will reduce the companies' costs of providing service and thus reduce their ability to recover costs).

The planned broadband projects vary widely, depending on the needs and opportunities that cooperatives see in their incumbent local exchange carrier (ILEC) territories and surrounding areas. Franklin has several projects planned, the largest of which involves overbuilding the parts of Scott County outside his company's ILEC territory. SCTC already provides broadband service over the incumbent's network in a portion of this area, but the available bandwidth is low, and other portions of the area have no broadband access at all. Using its own network, SCTC can provide faster and more universal coverage, and Franklin believes SCTC's locally based customer service also will appeal to area residents. "The people here like to come in and look you in the eye if they want to ask you something," he said.

Outside Scott County, SCTC serves several small, isolated communities with cable or telephone service, and Franklin hopes to run fiber to those communities and then put in fiber to the home (FTTH) or other high-speed networks. This will allow SCTC to sell more services in those communities and also enable home-based and other small businesses to operate there.

To facilitate larger-scale economic development, SCTC plans to increase its connectivity to IRIS Networks, a wholesale transport carrier that it owns jointly with a group of independent telcos. Improved connectivity could help lure more businesses to its tier 3 data center and to an industrial park in its service area.

Finally, Franklin is considering using stimulus funding to provide cellular and wireless broadband service to "some of the nooks and crannies where there's no service available." Offering cellular service with fixed-mobile convergence could help SCTC hold on to its landlines by making it convenient for customers to use the same handset as a cordless landline and a mobile phone.

Strong Backbone

In Curran, Mich., Ron Siegel, the general manager of Allband Communications Cooperative, faces a different set of issues. Allband is nearly finished running fiber to the home throughout its original ILEC area, which did not even have telephone service until a few years ago, and it has applied to extend its ILEC territory to cover other unserved areas nearby. Assuming that the ILEC extension is approved in time, Siegel plans to apply to RUS for stimulus funds to build FTTH networks in these new ILEC areas.

At the same time, Siegel is working on an application to NTIA for improving Internet backbone connectivity throughout Northeast Michigan. The proposed backbone infrastructure would serve not only Allband but also other providers, public safety agencies and institutional users on an open access, nonprofit basis.

Because Northeast Michigan has been hit hard by the economic downturn, Siegel is crafting his plans to help stimulate job growth and improve the quality of life in the area. He is conducting research to find out what services people need and want, how much they can pay for it, and what training they need. His grant application includes funds for community computing centers where residents can learn to use the Internet, and for connections to libraries, museums, churches and schools.

Keith Larson, general manager of Dakota Central Telecommunications (Carrington, N.D.), has been working since March on a stimulus funding application that probably will be submitted to NTIA. While most of the towns in Dakota Central's service area already have FTTH, rural customers are still using dial-up access to the Internet. Larson hopes to bring fiber to the home in the denser rural areas, but in the most sparsely populated places he believes wireless is the best option. In the long term, he hopes to provide long-term evolution (LTE, fourth-generation) wireless service, but he thinks LTE equipment will not be available in time for this funding round.

Dakota Central will provide FTTH customers with video services as well as broadband; wireless broadband customers will probably get Internet access only, and possibly VoIP at a later date. Like Allband, Dakota Central will propose a community learning center where residents can learn computer and Internet skills, in hopes of encouraging small Internet-based businesses. Larson also plans to reach out to the elderly population with training opportunities.

Kevin Beyer, who is general manager at both Federated Telephone Cooperative (Chokio, Minn.) and Farmers Mutual Telephone Co. (Bellingham, Minn.), is preparing stimulus fund applications for those companies, which both belong to a group of 18 companies submitting a joint application to the NTIA through the Minnesota Telecom Alliance. Each of the 18 companies has its own separate projects, but the MTA will administer and monitor the grant as a whole. Beyer may apply separately to RUS in a later round if the joint application is not funded by NTIA in the first round.

Federated and Farmers already have overbuilt their entire ILEC territories with FTTH; they are now proposing to build out FTTH in neighboring underserved areas. Beyer said they are focusing on county seats, where county government offices, hospitals, higher-education facilities and other institutional customers are located, to give their members in-network access to those facilities.

Beyer explained, "We won't have to go to another provider for transport to the Internet cloud, which is expensive and limiting. ... We'll have gigabit connectivity to anything in our network." That means cooperative members can connect to hospitals for post-surgical rehabilitation or medical monitoring, and to colleges or community colleges for online classes. Businesses will be able to communicate with branch offices or other businesses inside the network as if they were in the same building.

Beyer also is researching equipment for videoconferencing and medical monitoring. If he can identify appropriate equipment and ascertain that it is covered by the stimulus programs, he may add that into the applications. "If we can get the equipment out there [to the hospitals] and show that it's better for the cost of medicine, they would like that," he noted. "They just don't have the discretionary funds to do it."

Beyer believes that all customers will eventually subscribe to both wired and wireless broadband connections, but he sees wireless as serving mobility needs. Currently he is planning FTTH connections everywhere; he also may apply for wireless funding in later rounds, depending on how the rules are written and on the availability of LTE equipment. Buying 3G (current generation) wireless equipment, he thinks, is a waste of money: "You'll throw the equipment away in two years and do it again. The big bang for the buck is to put the wired piece in, because fiber is the best answer. That's where the stimulus funds should be spent."

Outreach and Collaboration

Both programs, especially the NTIA's BTOP, emphasize collaboration with "community anchor institutions," and, in Russell's words, "that message really got through." All of the cooperatives we spoke with were reaching out to businesses, local government agencies, schools and health care providers to take account of their broadband needs, and in some cases were involving them in the planning process.

Collaborating with neighboring telcos is trickier because so many companies are planning applications for CLEC areas. According to Vela, Occam Networks is advising its clients to create regionwide applications and collaborate on projects like broadband mapping, and some of the coops interviewed for this article are doing this. In most cases, this collaboration seems to be indirect, through joint ventures like IRIS or associations like the Minnesota Telecom Alliance. Siegel, who is trying to build an Internet backbone line that will be shared among providers, said, "Another concern is ... how to develop a business plan that is both promoting competition and promoting collaboration. How many people do I need to collaborate with? ... The balance between collaboration and competition is frustrating."

One way to balance collaboration and competition is with open-access networks, which are owned and managed by one operator but carry traffic from multiple service providers. Open-access networks, as used by some municipal network operators, can increase customers' choice of service providers (a legislative goal) without wastefully duplicating facilities. Siegel said open-access networks make sense in theory, even if they're difficult to put into practice, and he is trying to apply this theory to Allband's Internet backbone project.

Most telcos, however, arc not enthusiastic about open-access networks either in theory or in practice. Siegel and Franklin both say they are used to dealing with RUS and are prepared for the degree of oversight that it requires. "I guess if somebody's going to give you a million dollars, they ought to be able to kind of tell you a little bit how to use it," Franklin said.

But other companies are wondering what strings will be attached to the funds they receive. The recent example of the federal government's involvement with General Motors, said Vela, makes telco managers worry the FCC might request management or structural changes if their ARRA-funded projects run into problems. These managers are "fiercely independent," in Vela's view, and "to have that kind of uncertainty about FCC oversight of their business is cause to consider whether they should be applying for stimulus dollars."

Telco managers are also uncertain about the role played by the states. The ARRA legislation says NTIA may consult state governments about which areas are unserved and underserved, and about the allocation of grant funds within the state; the NOFA confirmed that states would have the opportunity to list and prioritize recommended projects. The cooperatives we spoke with were trying to keep state coordinators informed about their plans, but some worried their state government would throw its support behind competing projects--perhaps from more politically connected providers--and effectively ruin their chances.

Another concern is project sustainability. Because the stimulus funds do not cover operating expenses, recipients need to develop sustainable business plans. Key to doing this is selling network services beyond broadband access, especially video services. Yet it is unclear whether the cost of, for example, a video headend is eligible for stimulus funds.

Even with all of these concerns, providers are enthusiastic about this infusion of broadband funds into difficult-to-serve areas. "It could be very beneficial to rural America," Beyer said. "It needs to get going soon."

Masha Zager is a freelance writer. She can be reached at
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Author:Zager, Masha
Publication:Rural Telecommunications
Date:Sep 1, 2009
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