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 The Broadband Stimulus Program Update And Review of Sensible and Less Sensible Projects
by Scott Slater
 The final push is on for the approximately 2,200 applications pending at the Rural Utilities Service (RUS) and the National Telecommunication Information Administration (NTIA) for critical broadband infrastructure dollars funded through the American Recovery and Reinvestment Act of 2009 (ARRA). Applications were submitted by the hopeful project sponsors in August. Funds provided for the programs by Congress, totaling $7.7 billion, are to be divided up this year and next year through competitive processes. Under rules released by the agencies in June they hope to begin making awards for Round 1 projects in the first week of November with all funds for Round 1 awarded by December 31 2009.
While no official decision has been made it appears there is momentum within the agencies to condense what were to be two future rounds of funding opportunities next year into one large Round 2 application process. That announcement could come this December with funding decisions for Round 2 made by next summer.
The word on the street, from those in the know, is that RUS may be making the first phase cuts in the next 7 to 10 days, whittling the field of applicants down from many hopefuls to the chosen few who are worthy of possible funding, subject to due diligence reviews. This will be an interesting exercise to watch. It appears from even just a casual review of the many project descriptions and executive summaries available on the agencies’ websites (http://www.ntia.doc.gov/broadbandgrants/applications/search.cfm & http://www.broadbandusa.gov/) that several project sponsors did not read the rules carefully enough or simply ignored them. In other cases problems with the agencies’ chosen mapping software and data sources for populations, households and census information was confusing or at odds with other data sources. Regardless of why an application technically is inaccurate, it likely will be thrown out by the agencies as being “non-qualified” or “non-responsive”, lest the agencies open themselves up to the risk of litigation and protests from candidates who were dropped in Round 1 but otherwise had technically met all the minimum qualifications of the rules in favor of a non-qualified application. We are told differences in population assumptions by applicants may be allowed so long as you can cite a valid source for your population assumptions. Given the need to act quickly in support of job creation it seems the prudent path is to drop all non-conforming applications to avoid the risk of further delay in getting broadband dollars on the street.
As for NTIA, they appear to have thrown a key piece of the decision making to the States which are allowed to prioritize the pending projects for their areas by Oct 14. From there it is unclear how NTIA will proceed, although both agencies claim they are still tracking with one another for final announcement dates of funding awards beginning early to mid-November.
Qualifications – The devil is in the details
So what are some of the key checklist items likely to impact an applicant’s chances of getting a serious look? Here is a list we came up with after reviewing the rules, the policy goals and the reality of needing to see money spent responsibly to maximize job creation and targeting connections where the most needs exist.
- Jobs, Jobs, Jobs – Need we say more? This was, after all, the reason for enacting the Stimulus Act, and why funds were put into broadband deployment. If your project is high cost and short of direct jobs during construction you better go back to the drawing board. Unemployment is getting worse and little sign of hope is on the horizon. The Obama Administration needs to show real movement on tangible jobs now. As of this writing the President and his economic team were huddling in the White House to discuss the problems with the economy. The key question here is how to count a job. For purposes of the stimulus funding we will focus on direct jobs involved with a project’s construction, not studies that talk about potential one-off job support down the line or magical numbers derived through econometrically based calculations.
According to a recent study by the World Bank, as reported by The Economist, using Africa as the model, an increase of ten percentage points in broadband access and adoption in a developing region increases growth in GDP per person by 14.4 percentage points. Given that economic conditions in many rural region of the US are similar to developing countries, it will be interesting to see if similar growth can take place here (http://www.economist.com/
specialreports/displaystory.cfm?story_id=14483872)
Winners: Fiber Optic and Coax Cable based projects - fiber and cable were not given blanket import waivers by the agencies, meaning they must be purchased from domestic sources – to qualify for taxpayer supported broadband funding. Fiber based projects create a lot of jobs over a greater amount of time and employ lots of people across the spectrum given the uniqueness of the product; Heavy Construction – projects that involve a great deal of supporting infrastructure, large scale digging, etc; Backbone projects – They are usually larger in scope, meaning more jobs, but they also are necessary before you can do last mile build out. Without real backbones you simply strand last mile investment.
Losers: Projects requiring lots of imported products because the Stimulus Act was about putting Americans to work. A proposal to simply build WiMax deployment largely means importing lots of electronics and installing the pieces at centralized points. That doesn’t take too long, meaning a burst of very short term jobs. Satellite based projects – want to spend $500 million dollars, “create” just 400 jobs during construction, and then end up with slow internet? Build a satellite. Cost to you the taxpayer per job? $1.25 million.
Instead go with a fiber optic-based proposal at half that ($250 million) that employs 4,000 people for a cost per job of $62,500. Which one makes your tax dollars go further during the construction and installation window of the Stimulus Act, which was the requirement? The other problem for satellite sponsors is that it will be tough to show reviewers that they can meet the desired broadband speeds required of middle-mile projects very far down the road as more devices and larger bandwidth requirements come on line.
- “Unserved” and “Underserved” – Projects that target “unserved” and “underserved” areas are required. If you live in urban New York City, Chicago or Seattle then you are likely not going to see much investment in this first round. Congress intended the funds to target unserved areas (areas lacking advertized speeds of 768k) – typically rural, remote and isolated areas, because the market is already throwing money at the densely population regions. In other words, this money will likely end up in very rural, very remote locations first, because without this investment those areas will never see broadband investment.
Winners: Rural America where a business case does not exist absent these funds – specific winners include rural Iowa, Colorado, Washington, Virginia. The biggest winner under this metric is probably Alaska, because given its location, size and rural features, broadband build out will never happen absent a federal investment like this. Same goes for parts of Montana, Wyoming and Idaho. For those opposed to investing serious federal dollars in rural America, remember before the Tennessee Valley Authority consumed billions of federal taxpayer dollars, the entire SE region of the US was rural, poor and lacked hope. Today broadband is the commodity equivalent of the TVA through needed build out in rural America.
- Shovel Ready – Permits, Land Agreements, Vendors, Contractors – This will be interesting to watch. Remember the dollars need to flow quickly. Projects that seek money to assist in getting permits shouldn’t qualify. That can take months – years in some places. If you have not already started the permitting process by now for your project we wonder what you are thinking and why you applied for this funding in the first place. Under the RUS score sheet it appears if you don’t have permits under control you lose 10 points right off the top.
- Education, Health and Public Safety – Key focus areas of the Act and the rules. While every project proposal will discuss these groups to try to gain points, realize there are some parts of the country that are so remote and isolated that health care and educational opportunities are severely limited. This is true in rural West Virginia, Idaho, Montana and Alaska. Isolation, rugged terrain, lack of backbone access or reliance solely on satellite means these students and patients are not getting equal access to care or education.
- Rural, Remote, Ready – The more remote your location and the more rural your service area, the higher you score under the rules. 1 point for every 10,000 households you pass up to a max of 50,000 homes. 1 point for ever 50 miles you are from an urban area, up to 250 miles. Only a few areas of the country are maximized under this formula. Given that mobile smartphones are replacing both the landline and the home computer for many people it seems silly for RUS and NTIA to focus only on households. Each individual user device can now be counted as a household given the amount of data they consume. The days of counting as “served” a household having a landline are gone when you consider dad, mom and the two teenage kids will all have their own mobile smartphone, a landline at home, perhaps a business line at home, desktop or laptop computer with wireless router, plus the delivery mechanism of choice for television. Plus this analysis leaves out the large bandwidth users in a region or community, such as the school, central government offices, public safety offices, hospital and businesses, university extension campuses, etc. The amount of data they consume or would consume with adequate bandwidth is a better metric for measuring population usage than just counting households. Also, there remains an unanswered question: for areas that experience a high influx of people during critical seasons (such as food harvest in some states, or commercial fishing season along the coasts, or seasonal tourist destinations) those new bodies each season do not count towards the full time household head count for BIP and BTOP points, but those people do consume resources and bandwidth wherever they go. It only seems fair that their presence as an end user on a device gets counted for a region if the number of seasonal bodies dramatically increase an area’s population.
- Experience – While it is true that small business is the driving force of the American economy, if you are trying to start a “broadband” business simply to get government money, then you might as well stop waiting for your phone call. There are too many qualified companies – large and small - with real experience designing, building and running networks, with 2,200 applications submitted, to pick a newby with no track record. Also, a real business plan helps. Oh, and a sustainable adoption model is always good.
- The Need for Government Intervention – Again, once all factors have been taken into account, the reviewers at RUS and NTIA should ask themselves, “which areas will never gain access to true broadband if the federal government doesn’t kick in funding now?” Those areas should receive the highest level review.
- Vulnerable Populations – Which technologies and projects will assist vulnerable populations the most, such as low income households, areas with chronically high unemployment or high rates of joblessness, lack of total access to non-satellite based backbone or middle-mile connectivity, Indian Tribes, deaf and hard of hearing populations, etc?
- Other Compelling Need or Plan – Does a plan or project help reduce an area’s over-reliance on the Universal Services Funds, eRate or Distance Health subsidies? If so it should be considered for funding so that those subsidy dollars can flow to other areas. Does a project meet all the requirements of the rules and provide a critical need in the area of national security or national defense? Does a project open up new options for studying climate change or collecting data? Did the project sponsor put a considerable amount of thought into the proposal beyond just meeting the minimum requirements of the rules? Does the project leverage other federal, state or local programs, such as Smart Grid grants, Smart Grid technologies, health grant programs (digital health records), or does it leverage other specific pots of funds in the Stimulus Act? These factors all add to an application’s overall credibility.
- What to do About Those Unspoken Perks - Private Jets and Swanky Club Memberships – Completely lost in the discussion over the use of these broadband funds are the kind of secondary activities that taxpayers may be asked to indirectly support. Looking back during the debate over TARP funds, the Congressional hearings last year with the US car makers, and other restricted uses of funds in the Recovery Act, we wonder whether RUS and NTIA will inquire about the ownership or leasing of frivolous items by grant and loan seekers. Should taxpayers be asked to give grants or loans to telecom firms and start ups that have hangers full of privately owned or leased jets for the exclusive use of insiders and executives? Should taxpayers be asked to give money to firms that cover membership fees at lavish private resorts, properties or golf clubs used by insiders and executives, or to entertain top clients, politicians or regulators? Aren’t all Americans being told now is the time for “sacrifice” for the collective good? It seems then like good policy of RUS and NTIA reviewers to require of grant or loan recipients using this special recovery funding that the recipient firms do not own or lease these exclusive and excessive perks during this time of national sacrifice. Because money is fungible it seems a stretch to say that taxpayers won’t be supporting or subsidizing such behavior, therefore those insisting on keeping such perks should be willing to forgo these federal funds.
In short there are lots of questions on lots of projects. It is clear the reviewers have their work cut out for them, especially if they are going help President Obama in jumpstarting job creation in the US. We wish the reviewers luck and we hope they take the right policy considerations into account.
Remember, America was built on visionary ideas and lofty goals. We hope RUS and NTIA don’t sell the country short by shooting too low on the project scale. Rather than try to spread the money around equally or pro-rata the agencies know there are areas where real needs exist more urgently than others. They know some areas will never see broadband if they don’t step in. They know some areas will require significant federal investments if they are going to be connected. No one can fault the agencies for wanting to avoid controversy, but not everyone will be happy when this process is done no matter what you do. Better to make the right call, even if it is tough, by putting the money where it is needed most and where the most jobs will be created during construction.
This involves bravery, courage and foresight. Up until now it looked like Washington, DC was lacking in all three. Here is a chance to prove the pundits wrong by making some bold choices and funding the right options.
Some ideas on this are below.
PBIA’s Best of the Best:
The Top ARRA Broadband Projects
Deserving Consideration of Funding
- Fiber of the future – The Kodiak Kenai Cable Company’s Northern Fiber Optic Link. Some critics question the price tag, but we suspect there will be some positive surprises to come out of this one. And with almost 6,000 direct jobs across nearly half the states while the fiber is being built, it clearly meets goal #1 of the funds – job creation. Plus it covers the most rural and unserved area of the country, an area that soon will be active with more US Coast Guard and Department of Defense activity than most Americans are aware. And KKCC shrewdly picked up on the needs of the Arctic in the fight on climate change research by designing the proposal around collecting this data in real time in addition to fulfilling the basic rules of the program. They say they are shovel ready – that would be good with 6,000 jobs on the line. With an annual job spend of approx $28,000 per job it is a very efficient use of funds if the Obama Administration truly wants to get dollars out the door fast on large projects that will put lots of Americans to work. Remember, fiber optic based projects will create more jobs. Interesting is that KKCC’s project appears to be supported by other federal and state agencies which is always a good sign.
*One thought for the agency staffs to consider: given the extraordinary need of the region to be covered by the KKCC project and the national interests the project would serve in terms of science, climate, coastal defense and national security, it seems reasonable that the agencies fund this project out of the National Contingency pool of funds they have set aside within the broadband program. That way the rest of the projects in the Lower 48 are competing for funds with one another and not this project from the larger pools of RUS and NTIA funding.
- Three-Ringed Binder Project – Rural Maine - sponsored by a consortium led by Biddeford-based Internet service provider GWI, the project seeks $26 million for a fiber-optic network that would serve 100 rural communities and 600 community institutions, including the University of Maine System, with a secure fiber ring. From publicly available information the project will be run as an open network so that all last mile carriers and service providers can have equal access to the system. This should encourage competition and allow for new innovation in this rural part of Maine. Thankfully it appears the project sponsors are seeking a combination of loans and grants, meaning the debt they will take on must be repaid. The willingness of project sponsors to take on debt helps to prove the long term sustainability of the business model. This project was one of three approved by the Maine State Broadband Strategy Council. The recommendation now sits on Gov. Baldacci’s desk. Under NTIA rules the Governors have until Oct 14 to submit their state priorities. This one should be up there.
- Tulalip Tribes of Washington – A Tribally led consortium already operating the Washington Rural Broadband Cooperative (WA-RBC) to build a fiber based solution providing 10 Gbps speed for governments, Indian Tribes, community associations, colleges, police/firefighters and individual citizens in Snohomish, Skagit and Whatcom Counties. Again, central backbones are the key, especially fiber based solutions. Projects like these, owned by a carriers’ carrier or non-monopoly operator allow new entrants into the last mile markets without the need to invest in costly infrastructure on their own. The centralized approach via the backbone supports large data centers and small wireless providers alike. Tulalip and the WA-RBC have a proven track record of operating networks, so RUS or NTIA reviewers should feel better knowing the funding would go toward a known commodity who can deliver on the use of taxpayer funds. And like other projects on our list, supporting job creation in Indian Country will help close the widest of the digital divides in the US.
- Wyoming – Wherefore art thou, Wyoming? Only 1 real proposal using middle-mile solutions for Wyoming, with the remainder of the proposals claiming to cover Wyoming using satellite. How uninspiring. Wyoming has needs, just like other parts of rural America. Hopefully a centralized entity, like the University system or the two federally recognized Indian Tribes in the State (the Shoshone and the Arapaho) will come together in the next round of RUS/NTIA funding to put together a real, backbone based solution that supports the deployment and build out of services to the off-highway areas of Wyoming – because that is, after all, where the real holes in coverage are. Our thoughts are let the RUS and NTIA take a pass on the Wyoming applications this round in hopes a better offering comes forward next year. This is a real chance for the elected leaders of Wyoming to take control of the process and find a larger scale solution.
- The Rahall Broadband Initiative– A West Virginia fiber optic solution serving already identified unserved regions of this mountainous state, including the counties of Fayette, Greenbrier, McDowell, Mercer, Monroe, Nicholas, Pocahontas, Raleigh, Summers, Webster, and Wyoming. The project sponsors claim the project will directly support 143,000 households, a population of 350,000, 7,400 businesses, and 191 anchor institutions. Another fiber based solution that should get the thumbs up. Anyone sensing a theme here?
- Imperial County Office of Education – BorderNet Project – A fiber optic based solution led by Imperial County, California, the Imperial County Office of Education through a Public Joint Powers Authority – the Imperial Valley Telecommunications Authority (IVTA). This project will serve the 13 communities of the county located in southeastern California, a desert region bordering Arizona to the east, San Diego County to the west, Riverside County to the north and Mexico to the south. This is a highly impoverished area in need of fast and reliable telecom service to support new job opportunities and to support federal and state homeland security missions. Again, another fiber play and another example of the type of location that needs federal investment to make projects economically viable.
- Norlight Telecommunications – Southern Illinois – A 1,600 mile fiber optic proposal to cover twenty-four southern most counties of Illinois including Alexander, Hamilton, Massac, Saline, Clay, Hardin, Perry, Union, Edwards, Jackson, Pope, Wabash, Fayette, Jefferson, Pulaski, Wayne, Franklin, Johnson, Randolph, White, Gallatin, Marion, Richland, and Williamson. The project sponsors have several impressive pricing models for relatively large bandwidth use, which is where things are headed nationwide as end users move to more mobile and video applications. This project covers a pretty large population by rural standards. Hopefully it can generate technology-based and knowledge-based job opportunities through its attractive pricing.
- Bresnan Communications/Montana Native American Reservation and Rural Community Middle Mile Broadband Connectivity Project – Another fiber based proposal in partnership with Bresnan, the State of Montana and the tribal governments of Montana‘s 7 Reservations for a statewide middle mile fiber optic network. The project would connect the Blackfeet, Crow, Flathead-Salish and Kootenai, Fort Peck, Fort Belknap, N. Cheyenne and Rocky Boys Reservations while also bringing service options to unserved and underserved communities along the proposed route. This is another example of bringing core infrastructure to the most unserved and economically challenging areas of the country, such as Indian Country.
- The Navajo Tribal Utility Authority- A project whose service area spans over 15,120 square miles on Navajo Lands within Arizona, New Mexico, and Utah. The project claims to enable wireless fixed and mobile broadband access to 30,694 households and 1,000 businesses, a middle-mile backbone to at least 49 community locations, of which 25 communities will have access via microwave and 24 via fiber. The project will provide access for a total of 1,039 critical facilities, which by definition includes tribal and federal facilities, including police, detention, and fire response centers; health, social service, and emergency care facilities; public, BIE, and private schools; and 110 tribal Chapter Houses.
- Kennebec Communications LLC’s wireless solution for South Dakota. Here is an example where a blanketed wireless solution can make sense since they may be able to effectively cover the entire state with such service. Unlike West Virginia, Alaska, and northern Idaho, where mountains rule the day, the flat plains of South Dakota are a good fit for this solution. The trick will be to convince RUS and NTIA staff that the throughput levels will remain high, even as more users are added to the system and that they can overcome the weather and blizzards of the harsh South Dakota winters. Importantly, if the project sponsor does succeed in getting funding to essentially cover the entire state, they will end up the de facto monopoly, which will not be good for consumers. Before winning funds from RUS or NTIA the agencies should include a requirement that Kennebec operate the system as a neutral “carriers’ carrier”, not just a common carrier.
-- And Now, Some Proposals That Make Less Sense --
- Satellite proposals – They are expensive to build, they provide relatively few direct jobs during construction, making their per job cost very high, they claim more in offerings than they’ll be able to support as more users come on line and drain bandwidth, and their useful life is around half of fiber based solutions. Since those who understand telecom know terrestrial based solutions are key (and in fact some satellite owners are on record at the FCC arguing that fiber is a better way to go from a throughput perspective), we question why the RUS or NTIA would fund even a single satellite offering. Now is not the time to undershoot on our goals of creating a true nationwide broadband network.
- Aircell – This company is asking for $65 million to fill, in their words, “the unserved US airspace”. In other words, connectivity on airplanes. We highly doubt this is what Congress had in mind when they funded a broadband network for unserved areas of the country. And the jury is still out whether Americans want air service on their flights. It is the last respite of quiet time we have.
- Webpass Inc – While they are not asking for much money (less than $1 million), they want to use the funds to “design and build” new components for connectivity. Again, the intent of the broadband funds was to build infrastructure, create jobs and do it now using off the shelf technology. This is not an R&D pot of money. Makes us wonder if folks actually read the rules before putting applications together.
- Gray Holding Corp – Seeking $38 million to cover national parks and recreational facilities. Seems like a completely commercial venture that covers few, if any houses, schools, hospitals, etc. Most Americans would prefer to see Parks be funded to stay open the way they are. And these days aren’t vacationing Americans looking for down time when they go to the national parks and forests (see also Aircell above)?
- Broadband for the Deaf and Hard of Hearing – Not to appear insensitive as the deaf and hard of hearing communities do need access to all the great services telecommunications providers can offer. But paying for their monthly Internet access for a short period of time is not one of those things. This seems to miss the point of what these underserved communities need in terms of enhanced services, unique service offerings and adaption of key technologies to make the Internet more usable for them. This proposal requests $70 million to pay for internet access to the homes of deaf and hard of hearing people for 2 years. What happens after that when the money runs out? What’s the business model? How is it sustainable? And why are we limiting their Internet access to the home? A real plan to assist the deaf and hard of hearing communities would encompass a range of services for both fixed and mobile access and use. The NTIA and RUS should focus resources for the deaf and hard of hearing in more efficient ways. We hope there are others out there who are more creative, and frankly more realistic, who can come up with some cool ideas on how to use this money for the long-term, fixed and mobile benefit of the deaf and hard of hearing communities. We suspect there are others in the US more capable of figuring this out and we hope to see their applications in the next round of funding due later this year. For now we recommend a pass on this one.
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