Entries in Broadband Stimulus (6)

Tuesday
Nov292011

Griswold IA Cooperative Looks Forward to $12.7m Broadband Loan

Much-Needed Funds will Help “Ramp up Speed and Bandwidth”

On November 14, JSI Capital Advisors reported that Agriculture Secretary Tom Vilsack announced the recipients of over $400m in USDA Rural Utilities Service broadband funding. 22 rural telecom providers in 15 states will receive broadband loans ranging from $3.7m to $32m “to build, expand and improve broadband in their rural service territories” (The Monitor: Vilsack Announces Additional Telco Funding to Expand Rural Broadband).

One company slated to receive funding immediately jumped out to me—Griswold Cooperative Telephone Company (Griswold, Iowa), which will receive $12,747,000 “to complete a system-wide FTTP network, enhancing broadband service to all subscribers.” I grew up about 20 miles away from Griswold, so I was naturally curious to check in with general manager Robert Drogo and learn more about his company’s plans to expand FTTH near my homeland in Southwest Iowa.

Drogo explained that the Griswold board of directors started discussing their options two years ago, and in order to be successful “we knew we had to look at fiber.” In addition to improving Internet speeds and capacity, the fiber will also support other capabilities like IPTV for all customers (which Griswold currently offers just in the towns it serves). Over the past 18 months, Griswold has been deploying middle-mile fiber and preparing for the end-goal of FTTH, “should we be fortunate enough to get the loan.” Griswold’s $12.7m good fortune will be used to take the company from its current 60% fiber deployment to FTTH for its entire customer base—1,700 lines in the communities of Griswold, Lewis, Elliot and Grant.

The company’s current DSL speeds go up to 3/1 Mbps tops, but with IPTV also running on the lines to the in-town customers, the bandwidth is getting crowded. Once the fiber is fully deployed, Drogo estimates that customers will experience 5/1 Mbps at the low end and 10/3 Mbps at the high end. He also commented that “now speed isn’t an option,” and it is absolutely necessary for the company to keep reaching for higher limits—hence the importance of the RUS loan.

Many RLECs surely hope that deploying high-speed FTTH will attract new businesses to their service areas, and a few new medium- or large-sized businesses would obviously be a real catch for a rural community like Griswold (located about mid-way between Des Moines and Omaha). Drogo wasn’t sure if the project would help attract any significant new businesses to the area. However, he explained, “I don’t see a big draw on the top end, but [the FTTH] will definitely be a benefit to home based, small and agricultural businesses.” As I grew up in this area, I can certainly see the appeal of being able to run a business from home—the hour plus drive to Omaha or Des Moines can get quite monotonous (especially every day for a job), and volatile Iowa winters definitely add an element of uncertainty to a long commute. Griswold’s FTTH may facilitate more teleworkers and home-based start-ups, and it will surely benefit the area’s important agricultural economy.

Companies eager to deploy FTTH are often quick to claim that the investment will bring new business to struggling rural economies, but it really might be just as important to focus on bolstering the community’s current small businesses. Hopefully Griswold’s broadband loan will help ensure that the local businesses (current and future) will have the tools to move forward at a pace that matches economic and business development in urban areas.

The fiber expansion should help Griswold become more competitive on the video front as well. IPTV will become available for the rural consumers, who currently can only receive pay TV from satellite providers. Of course, the FTTH will also give the rural consumers an opportunity to “cut the cord” on traditional video if they desire, since the FTTH connections will be able to handle plenty of Netflix. Drogo speculates that Mediacomm may come to the community in several years, but by that time Griswold could have a significant competitive advantage on video services. Drogo does not see wireless broadband as an immediate competitive threat, but he anticipates that 4G will eventually be available in the area—although that could also be years down the road too. Even so, it is likely that wireless broadband will complement, and not substitute, Griswold’s FTTH service offerings.

Griswold will probably not see the $12.7m RUS loan money for at least 18 months, but the company has been approved for interim investments such as ordering the fiber. Drogo believes that the $12.7m will be enough to complete the entire FTTH build out. He added that this amount is “very conservative” and was calculated to account for various regulatory, legislative and resource uncertainties. Drogo is “not concerned” about the bad publicity that has been hanging over USDA and BTOP broadband loans like a dark cloud in the past few months. For the most part, RLECs have been putting their broadband loans to good use and have not been caught up with any of the various failures or mismanagement catastrophes that some other  loan recipients have encountered.

With this $12.7m broadband loan, it sounds like Griswold Cooperative Telephone Company will be in a position to achieve its strategic goals and bring benefits to the community. The FTTH deployment could solidify the company's competitive advantage if it is completed before cable and 4G competitors start knocking on the door.

Tuesday
Nov012011

Bad News BTOP: $80.6 Million Broadband Grant Revoked in Louisiana 

Project to Connect Schools and Impoverished Rural Areas Derailed by Delays, Strategic Changes

Over the last six months or so, a situation unfolded in Louisiana that culminated last week with the termination of an $80.6m BTOP broadband stimulus grant. In the aftermath, Governor Bobby Jindal’s (R-LA) administration is catching much of the blame, but a deeper look at this saga shows that the project has struggled to meet its deadlines and goals since the grant was awarded in 2010.

First, some background information: The Louisiana Broadband Alliance (LBA) project, led by the State of Louisiana Board of Regents was a collaboration of 6 state agencies (Louisiana Department of Education, Louisiana Department of Health and Hospitals, Louisiana Educational Television Authority, Louisiana Geographic Information Center, and Louisiana State University Agricultural Center’s Delta Rural Development Center). The LBA project was awarded a federal grant for $80.6m to construct over 900 miles of fiber to provide service to a 3,488 square mile area that included “12 impoverished parishes targeted by the state’s Louisiana Delta Initiative” (according to the NTIA’s profile of the project).  The project would provide 10 Mbps – 1 Gbps broadband service to libraries, hospitals, schools and anchor institutions in underserved rural areas to “promote education, research, and healthcare delivery in some of Louisiana’s neediest areas.” The open network would include 38 points of interconnection and serve several Native American communities.

On October 26, 2011, the Louisiana Broadband Alliance project was terminated by the NTIA – this was the largest BTOP grant termination to date.

What possibly went so terribly wrong? Well, for starters, the project suffered ongoing delays and several significant changes in direction and oversight. According to StimulatingBroadband.com, “the Louisiana termination resulted from delays in the environmental engineering phase of the project, and from the absence ‘of a strong deployment plan in place’ a full year after the funding award of March 2010.” Furthermore, the “pattern of schedule delays, uncertainties and contingencies demonstrate a lack of management ability and control by Louisiana to get this project built on schedule and on budget.”

Basically, the project was suffering from delays and a fuzzy vision from early in the process.  Then, earlier this year, the state assumed control over the project and proceeded to propose significant changes.  This was where the real trouble started. Instead of building the fiber network from scratch, as was a key ingredient in the original proposal (and possibly why the grant was so substantial), the state changed course and proposed to “purchase indefeasible rights-of-use (IRUs) from local providers,” according to an October 27 press release by Senator Mary Landrieu (D-LA). StimulatingBroadband.com explained, “Under the stimulus package legislation, the rules of NTIA for BTOP, funds are to be expended for the capital construction of large networks and the telecom equipment to operate them. Funds may not be expended under the program for operating costs, like those included in carrier line rental” (emphasis added).  

StimulatingBroadband.com wrote that Governor Jindal’s Administration essentially “attempted to convert grant funded state owned last mile fiber connections slated for scores of community anchor institutions (CAIs) to investor-owned carrier circuits to be installed by existing broadband providers.” I can’t help but wonder—didn’t the Administration know that this proposal was a violation of the terms of the grant? Apparently the Administration figured that purchasing IRUs would help overcome delays, so maybe their head was in the right place… But wouldn’t it be difficult to justify keeping $80.6m for the purpose of constructing a fiber network when they weren’t actually going to construct a fiber network?

The letter explaining the termination from NOAA Grants Management Division Director Arlene Simpson Porter illustrates that the project team had received plenty of warnings and opportunities to “take corrective action” going back to early 2011. NTIA conducted a site visit in March 2011 and determined that the project was already 9 months behind schedule; and at a follow-up site visit in July, “NTIA staff learned of additional impediments threatening the implementation of the project.”

At that time, Louisiana proposed its course-correction plan of purchasing IRUs instead of constructing the network. NTIA gave the state several more opportunities to explain the new strategy, but NTIA found that the response “did not provide sufficient detail, such as a comprehensive implementation schedule or an adequate business plan.” Louisiana had a final chance to get its affairs in order in October, but NTIA again found that the response was inadequate and insufficient.

Reactions to the news about the grant termination have largely placed the blame on the Jindal Administration. StimulatingBroadband.com spoke with Assistant U.S. Commerce Secretary Lawrence E. Strickling, who reportedly said that NTIA “did all it could to save the large broadband stimulus network project in Louisiana.” Strickling also explained that “NTIA is vigorously overseeing broadband grant projects to ensure they are completed on time, on budget, and deliver the promised benefits to the communities they serve.” A press release by Senator Landrieu expressed frustration with the Jindal Administration: “Despite receiving the green light for more than $80 million in federal funds, the State fumbled the ball;” and “This is yet another missed opportunity to improve the lives of Louisiana residents, particularly rural Louisianans who are often left out of such initiatives.”

What will be the impact of this decision? Surely, the anchor institutions and unserved communities in rural Louisiana who were expecting to be connected to the LBA fiber backbone will suffer as a result of the grant termination, but will private companies step in and build fiber to these unserved locations? Apparently, the funds will be returned to the U.S. Treasury, so there won’t be any opportunity for other worthy organizations to utilize the funds for a similar objective.

What lessons can be learned from this unfortunate situation, particularly for the RLECs who have received federal broadband grants? Clearly, it is probably not a good idea to fall significantly behind schedule, and an even worse idea to drastically change the deployment strategy in order to overcompensate for delays. While processing this story, I kept thinking of the political quotation, “Don’t change horses in midstream.” It also appears, from my perspective anyway, as though the management team made a number of “Project Management 101” faux pas, and possibly fell victim to an unclear strategic direction, especially when the decision was made to abandon plans to construct the fiber network organically.

Unfortunately, delays cannot always be avoided or overcome (especially in a project of this scale and scope), and in at least one case a BTOP-funded project has been halted because the funding from the government has actually been delayed (The ILEC Advisor: More Rural Broadband Loans Announced as Past Recipients Wait on Funds)…So, what do you think – did the NTIA make the right decision to revoke the grant, or should the state have been given more time to course-correct?

Wednesday
Jun222011

Rural Telcos Illustrate Impact of USF Reform

Three RLECs Provide Evidence of Financial and Community Harm in Ex Parte Filings

Over the last few weeks, representatives from three RLECs have held ex parte meetings with the FCC on the topic of Universal Service Fund reform. Randy Fletcher and Tom Bowden from Lennon Telephone Company (Lennon, MI); Jeff Leslie from ITS Telecommunications Systems, Inc. (Indiantown, FL); and Jan Lovell, Tom Lovell and Doug Klein from Clear Lake Independent Telephone Company (Clear Lake, IA) each met with members of the Wireline Competition Bureau. Each company was represented by John Staurulakis, Inc., and each company illustrated the significant financial harms and negative community impacts that could come as a result of the FCC’s proposed USF reforms.

In their June 15 ex parte meeting, representatives from Lennon Telephone Company (“Lennon”) argued that the company is “heavily dependent on universal service support.” Lennon is a family-owned business with 15 employees, and the company provides service to 392 broadband customers and 981 voice customers. Lennon is concerned that reforming USF will hinder the company’s ability to repay loans, noting that they currently have two outstanding loans (one is for a softswitch). Lennon argued that “the near-term proposals in the FCC’s Notice of Proposed Rulemaking on universal service reform would significantly reduce the amount of universal service support that the company receives,” and the company currently receives 53% of its regulated revenues and 28% of its total revenues from USF support.

ITS Telecommunications Systems, Inc. (“ITS”) representatives held their ex parte meeting on June 9, where they stressed their company’s importance to the local community in Martin County, FL, noting that they are a top employer, a leader in economic development in an economically depressed area, and they support schools, community organizations and help attract new business to the area. ITS has 1,011 broadband and 2,973 access lines. ITS has utilized RUS loans and made significant investments in infrastructure to provide broadband at speeds of 10-100 Mbps based on the current USF support system, but unfortunately, “ITS would default on Rural Utilities Services loan commitments under the proposed reforms.” ITS illustrated that under a USF scenario based on the FCC’s NPRM, the company would fail the Times Interest Earned Ratio (TIER) test, with a TIER of less than 1.0000 for each of the next 3 years. As a result, ITS would default on its RUS loans and be unable to secure any additional capital investment opportunities.

Both Lennon and ITS provided “impact statements” showing probable financial losses to the companies as a result of reducing High Cost Loop Support, Local Switching Support, Interstate Common Line Support, and Safety Net Additive Support. As you can see in the chart below, these two companies stand to lose approximately 30-45% of their annual total universal service support if the FCC’s NPRM proposals are implemented:

The financial loss is only one side of the story. Clear Lake Independent Telephone Company (“CL Tel”) provided testimonials from members of their community to illustrate that RLECs are more than just telecommunications service providers in many rural areas. CL Tel has a total of 2,423 broadband and 5,299 voice access lines, and the company’s role in the Clear Lake, IA community should not be overlooked. CL Tel’s ex parte filing notes that “the company is a major contributor to the local communities both financially and with managers lending their expertise to community organizations and the area community college which recruits new industry and supports existing ones.” CL Tel also provides backhaul to four major wireless companies, and their fiber network helps bring new businesses to their rural Northern Iowa service area. CL Tel argues that rate-of-return regulation has facilitated long-term investments and has allowed the company to secure RUS and RFTC loans. According to CL Tel, these sources of capital will be at risk if the FCC’s USF reforms are implemented.

I found the testimonial letters from the Clear Lake community to be especially critical evidence to support first how important RLECs are to rural communities, and second how detrimental the FCC’s reforms may be to many rural Americans—not just RLECs alone. The superintendent of the Clear Lake Community School wrote, “CL Tel has always worked with the Clear Lake Community School District to improve telecommunications and to expand broadband to enable students, teachers, administrators and parents to keep up in the rapidly evolving world of technology.” I remember FCC Chairman Julius Genachowski’s opening remarks when the USF Reform NPRM was introduced back in February. He told an emotionally-charged story about a young student who had to spend the night in a parking lot of a library in order to complete a class project—the student did not have broadband at home and had to resort to using the library’s Wi-Fi network. Does the FCC really want to eliminate support for a company like CL Tel, which provides a 100Mbps WAN connection to all of the Clear Lake Community School buildings? CL Tel apparently provides free and reduced services to the school that amount to an annual savings of $25,856.20. The superintendent noted that this is particularly crucial as the school faces increasing budget cuts and layoffs. I believe that if funding is reduced for RLECs who strive to support their community schools, the FCC will have many more sad stories to tell about students going to great troubles to complete their homework.

In addition to the school, the Clear Lake Public Library, Clear Lake Arts Center, Clear Lake Police Department and the Mayor of Clear Lake all provided letters in support of CL Tel’s admirable community involvement. Each of these organizations receives free or discounted broadband services. CL Tel has also contributed to library and arts center renovations, and they are helping the police department install a fiber network for security cameras. The Mayor of Clear Lake commended the company’s support, adding that CL Tel “has been a major contributor in all our public/private capital campaigns such as: the Public Library, swimming pool, Central Gardens, lake restoration and Arts Center projects.” In total, Clear Lake public institutions save thousands of dollars per year on telecommunications services as a result of CL Tel’s community-oriented corporate philosophy. I am particularly impressed by CL Tel, because I imagine that offering free and reduced-cost services to community institutions probably hurts the company’s bottom line, yet the company clearly cares about the community enough to continue these programs despite the constant onslaught of financial, regulatory and technological challenges that most RLECs face these days. 

CL Tel is by far not the only RLEC that goes to great extents to support its rural community. I think it is very important for the FCC to realize just exactly how much rural America stands to lose if USF support is drastically reduced or eliminated for RLECs. I don’t argue with the FCC that in some cases, the RLEC might not be the proverbial “most efficient” broadband provider, but I do argue that it is absolutely critical for the FCC to acknowledge the goodwill contributions of RLECs to their communities in addition to the financial data. Should there be some type of goodwill or community support weighting factor in the new USF methodology, and if so, how would that work? I have to wonder if an investor-owned large price cap carrier would provide tens of thousands of dollars each year to ensure the survival of small-town schools, libraries and public safety departments—what would their stockholders and Wall Street brokers say?

You can read Lennon Telephone Company’s ex parte filing here, ITS’s filing here, and CL Tel’s filing here.

Tuesday
Jun142011

Broadband Battle Rages in the Badger State

Wisconsin State Telecom Association Deems WiscNet Unlawful

A fierce battle is brewing in Wisconsin over a proposed broadband network build-out, with the debate reaching the state legislature this week. WiscNet, a statewide broadband network, has been providing Internet services to member organizations in the Badger State since 1991, but has recently come under fire for its plans to use federal dollars to expand into four more communities. The Wisconsin State Telecommunications Association (WSTA) and Access Wisconsin (AW)—both of which represent state and local telcos— argue that WiscNet violates state law by fostering unfair competition and impinging on the ability of telcos to provide similar services.

The debate has been ongoing since October of 2010 when WSTA first launched a campaign against the University of Wisconsin's plans to use federal stimulus money to extend WiscNet's reach. This week, at the urging of WSTA and AW, Republican legislators introduced a bill that would make WiscNet's expansion plans unlawful, sever WiscNet from the University of Wisconsin at Madison's Division of Informational Technology, and prohibit WiscNet from making any profit through UW. The bill would also force WiscNet to return $39m in federal stimulus funds—money earmarked for public broadband build-out in the state. The proposed law would even go so far as to prohibit UW from taking National Telecommunications Information Agency (NTIA) broadband stimulus money or joining any entity that offers broadband to the general public.

Those rallying behind WiscNet say the outcome of this legal battle could effectively end low-cost Internet for the state's libraries and educational institutions, cost the state's public network millions of dollars, and even set a new precedent for future conflicts between public and private broadband. But for telcos in the region, the battle represents one more struggle in fending off what they see as unfair competition.

But in the days since the bill was introduced to the Wisconsin legislature, some industry insiders have criticized AT&T (NYSE:T) for being the real bully who started this fight. If the bill passes and WiscNet loses its stimulus funding, Wisconsin's state schools, libraries, and other public offices would necessarily turn to BadgerNet instead. Built in the mid-1990s, BadgerNet is Wisconsin's state wide-area-network—owned almost entirely by AT&T. And some analysts are saying that AT&T has exerted questionable amounts of pressure on the state legislature, hoping to shuttle the bill through at the eleventh hour.

Not surprisingly, there have been sharp words exchanged between sides. Wisconsin's State Superintendent of Public Instruction Tony Evers said last week, “These provisions [in the proposed law] will have a devastating impact on the University of Wisconsin System campuses and our schools and public libraries," financially and operationally cutting WiscNet and its Wisconsin institutions. He stated, “The provision in this legislation will very likely make it impossible for WiscNet to continue offering Internet access. If our schools and libraries must use other Internet providers, most will pay at least 2-3 times more than what WiscNet now charges."

As for turning to BadgerNet, UW's CIO Ed Meachen argued that such a move would be cost-prohibitive: “If the UW System used BadgerNet to meet its current bandwidth requirements, it would pay an estimated $8 million a year. It currently costs the UW System $2 million a year for WiscNet, which is provisioned so that the costs to the customers do not increase with increasing bandwidth. Instead, the fee is based on the size and type of institution.” Meachen says the UW System would spend $27 million for BadgerNet by 2016, based on an annual growth rate of 35 percent. “I, for one, would not want to stand before the taxpayers having just spent $27 million of their money when I knew I could have done the same thing for $2 million.”

But on the other side, WSTA's Executive Director William Esbeck said that a “duplicate network” would “increase costs for everyone and impact the ability of local telecommunications providers to invest in their communities.” He pointedly asked, “With scarce state resources, do we really need the UW using government money to stifle private sector investment and threaten local jobs and businesses?”

Esbeck cited statutes and provisions in state law 16.972(2)(a), that no Wisconsin state entity “may offer, resell, or provide telecommunications services, including data and voice over Internet services, that are available from a private telecommunications carrier to the general public or to any other public or private entity.” But in statute 16.972(2)(b), the law states that departments can “provide such computer services and telecommunications services to local governmental units and the broadcasting corporation and provide such telecommunications services to qualified private schools, tribal schools, postsecondary institutions, museums, and zoos, as the department considers to be appropriate and as the department can efficiently and economically provide.”

Still, Esbeck deemed WiscNet's expansion plans unlawful, stating, “The legal issues are being researched and lawsuits are a possibility. The UW does not belong in the telecommunications business . . . the current statutes are very clear on that point."

One thing is for certain: the timeline for a decision is likely to be short. Executive Director of WiscNet, David Lois predicts a new compromise proposal to emerge very early next week.

Update: On June 15th, local representatives rallied around WiscNet, and their efforts managed to save the state network. WiscNet will continue to receive the federal stimulus grant for expansion of fiber optic cable, and health care facilities, schools, and libraries. In the next two years, the state's Legislative Audit Bureau will undertake a thorough review of the cooperative, specifically examining its financial ties to UW. The audit report is due in January of 2013, and legislators would need to approve WiscNet's continued operation beyond July of that year.

Friday
Mar252011

Some Broadband Stimulus Recipients Return Funding

But Not As Many As You Might Expect

With the recent news that the LENOWISCO Planning District Commission in Virginia has given back $20.2m in Broadband Stimulus funding, coming on the heels of the mid-February announcement that the State of Wisconsin was returning nearly $23m in grant funding, I was curious to find out if these were two anomalies in an otherwise successful program or part of a coming trend. 

Based on award recipient-reported data released by RUS and NTIA, as well as press releases and announcements, I count only six awardees who have either returned/ declined funds, or who have had funds rescinded by the awarding agency, and two who received funding according to BTOP award announcements, but who are now listed as “application withdrawn.”  Despite all the grumbling we heard back in the fall, it seems the majority of awardees were able to successfully negotiate the various terms and conditions of the funding.

The reasons for awardees either declining or returning awards varied somewhat.  The State of Wisconsin reportedly returned the funds because it could not meet the grant’s precise requirements, claiming “there were too many strings attached to stimulus money that was supposed to be for expanding high-speed Internet service in schools, libraries and government agencies.”  The money would have paid for 200 miles of fiber optic cable to be deployed as part of the BadgerNet Converged Network, which runs on infrastructure owned and managed by AT&T.   According to the state, this public-private partnership was a sticking point for federal officials.

In Virginia, the LENOWISCO Planning District Commission was forced to return the award due to an “impasse of the organizations inability to enter into the Loan/Grant and Security Agreement” despite two deadline extensions.  The impasse is a result of a year of negotiations between LENOWISCO and its operating partner, Sunset Digital Communications.  LENOWISCO wanted to renegotiate the gross revenue split of 10.4% per year paid to the District under a multi-year network management contract between the entities.  Ultimately, as a result of the failed renegotiations, the parties were unable to resolve the related issue of repayment of the loan portion of the award.

And in Utah, the South Central Utah Telephone Association returned the $9.2m grant it received due to “inability to comply with grant requirements regarding finance consideration.” The project would have deployed both fiber-to-the-home and high-speed copper architecture over the “last mile.”

Similarly, in Florida, Litestream Holdings declined more than $5m in grant funding that would have extended existing fiber trunk to serve over 940 unserved locations in a rural portion of St. Lucie County, Florida. According to Litestream, “There were a number of contract requirements that, despite some efforts to seek modification, proved prohibitive, including the requirement to maintain the plant in service for 22 years that is imposed by the proposed contract.”

But not all recipients who declined funding cited stringent funding requirements as the basis for their decision to return funding.  Mid-Hudson Cablevision, which was awarded $3.7m grant funding to bring high speed broadband to over 11,000 homes and businesses in a rural area between New York City and Albany, NY, encountered an entirely different challenge.  Although at the time of application the area was unserved, some of the recipient’s competitors extended service to parts of the proposed service area after learning of the recipient’s application.  As a result, upon review of this and program requirements, Mid-Hudson Cablevision decided the project was no longer feasible.

Finally, I wrote back in September RUS had rescinded a $19m grant awarded to TierOne Converged Networks because the company was under investigation by the SEC over federal securities violations.

By and large, recipients of Broadband Stimulus funding have made peace with funding requirements, and many projects are well underway.  Recipients who have returned or declined funding, despite garnering a fair amount of media attention, are very much in the minority.