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Sunday
Aug282011

More Rural Broadband Loans Announced as Past Recipients Wait On Funds

Telephone Coops to Receive a Large Portion of the $103m

Agriculture Secretary Tom Vilsack dusted off his rural broadband speech earlier this week, and announced the recipients of $103m in funding for projects targeted to bring broadband to low-income and remote areas. The loans included around $13m of Community Connect grants and $90m of USDA Telecommunications Infrastructure loans slated for 18 cablecos and telcos located in 16 states. While the funding is great news for the rural communities, the experiences of at least one prior recipient serves as a cautionary tale for this round of awardees.  

The Community Connect grants are awarded to rural communities of less than 20k citizens that currently lack broadband transmission service. The grant winners—who must match the funds they receive—can either put the funds towards broadband infrastructure or towards a community center than will provide free broadband for its citizens. Eighteen rural communities will benefit from the grants--which ranged from $480k to $1.1m.

The term ‘rural’ in this case does not do justice to exactly how sparsely populated some of these locations are.  One of the five loans received by Crystal Broadband Networks will be spent to develop broadband for residents of Birdsong Town, Arkansas—all 37 of them. Other grantees include the Karuk Tribe in the impoverished community of Orleans, California and Wichita Online which will bring high speed Internet to the tornado damaged town of Tushka Town, Oklahoma.

The $90m in USDA Infrastructure Loans comes on top of last month’s round of $192m in funding. Coleman County Telephone Coop in Santa Anna, Texas was the only repeat awardee from July, securing another $22.5 for its fiber build out. Elsewhere, Wabash Telephone Exchange was awarded around $22m with which it will install 777 miles of fiber optic cable in Clay County, Illinois. The Hemingford Coop in Nebraska, the Vernon Telephone Coop in Wisconsin, and the Dubios Telephone Exchange in Wyoming round out August’s loan recipients.

The Dubios Exchange will use its $11.4m to remove outdated copper cables and replace them with fiber-optic lines.  The general manager at Dubois, Mike Kenney, commented that rural customers for a long time have wanted faster Internet speeds, which Dubois’ current infrastructure could not deliver.

“They are demanding more and more, greater broadband speeds for home-grown businesses,” Kenney said. “The only way that we can get faster speeds to them is not with existing copper and existing digital technology, but to go to the next generation of broadband.”

Kenney added that the likelihood of the fiber build out without the loan was extremely low—citing that raising capital for the project would take 10-15 years. While the sparse availability of funds plays a role in why rural areas such as Dubois aren’t currently equipped with broadband, the main reason for the lack of access remains that building fiber to rural areas simply isn’t profitable—a fact that is not lost on the USDA’s Jonathan Adelstien.

“There’s a big gap that remains between rural and urban areas because it’s just hard to make a business case (for broadband) in rural areas,” Adelstein said in a call discussing the recent loans on Monday.

The dollar amounts to be invested in broadband per customer for this round of infrastructure projects bears out Adelstein’s point. Wabash, which serves only 320 Internet customers, will spend $68k per customer to complete its fiber build, followed by Coleman County at $42k and the Hemingford Coop. at $36k per customer. The Vernon Coop, serving by comparison a metropolis of 3.7k Internet customers, will still invest $6.5k per customer to connect Westby, WI with broadband. The payback for most of these projects is at least a few generations down the road—if that.

Despite the lack of return, a few rural telcos have been supplementing USDA loans with their own funds, but a slow down in the delivery of the infrastructure loans have left some providers high and dry. 

OmniTel Communications has been a recipient of government loans and grants multiple times, including this past July. Ron Laudner, ceo of OmniTel, stated the company worked 18 months to secure $30m of funding from the government and began building its fiber network in 2010. After OmniTel was announced as a repeat loan winner this past July, the USDA even made a trip to Rudd, Iowa to tout the effectiveness of the rural loan program. The trip to the site of OmniTel's fiber build was complete with a photo-op and a staged event of Adelstein watching a farmer download a file while sitting on his tractor. Mission accomplished!  Right?  Well, not so fast…

The work OmniTel had done up to the point of the USDA’s visit was funded solely from the $10m internal loans it secured.  The telco had yet to receive a check for its first government loan awarded in the summer of 2010, let alone the funds that the USDA announced this July. Even worse, this delay had forced OmniTel to shut down the project until the USDA funds were in hand—which as of the beginning of August had still not occurred. 

I know what you’re thinking, ‘the government is slow and inefficient at times, not much of a shock.’  The point is that when your ‘success stories’ are not really all that successful and loans are slow to be released, these shovel-ready broadband projects that are announced may not get underway for a long time.

Despite the bureaucratic slowdown, the intent of the loans and grants remain unquestioned—providing high speed Internet to underserved areas benefits rural citizens and their communities immensely. We’re learning however that in many areas it will take longer than expected to make rural broadband a reality.

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