As $7 Billion Program Ends, a Look Back

The last month has brought nearly $1.4b of grant and loan award announcements under President Obama’s Broadband Stimulus program.  The funding is being awarded under the Broadband Technology Opportunities Program (BTOP)- administered by the Commerce Department’s National Technology and Information Administration (NTIA); and the Broadband Initiatives Program (BIP)– administered by the Department of Agriculture’s Rural Utilities Service (RUS).  The nearly $7b program, part of the Recovery Act, was reduced from $7.2b over the summer. 

U.S. Commerce Secretary Gary Locke announced the final 14 BTOP awards on September 27, 2010.  All told, NTIA has awarded approximately $4b in funding to 233 projects nationwide.   The majority of BTOP awards are for middle mile networks that expand high-speed Internet availability to communities and connect community anchor institutions. Other types of projects include public computer centers and sustainable broadband adoption initiatives.

According to a September 13, 2010 RUS press release, RUS has leveraged $2.5b in Recovery Act funding “to provide loans and grants of $3.6b to construct 307 broadband infrastructure and satellite projects in 46 states and one territory.”  It is unclear whether or not RUS will make any further award announcements, but all funding must be awarded by September 30, 2010. 

Barring any large last minute awards, California has emerged as the biggest beneficiary of broadband stimulus funding, garnering more than 6.0% of total funding ($448m).  Delaware received the smallest amount of funding of the 50 states, receiving just $5.1m.  On average, each state or U.S. territory received more than $126m; the average award was $13.9m per project. 

Last month, we noted the largest award to date was $126m in first round grant funding awarded to the executive office of the state of West Virginia for construction of a middle mile network utilizing microwave and fiber technology.  That award has since been topped by $154m grant funding awarded to the Los Angeles Interoperable Communications Systems Authority, which will deploy an inter-operative wireless public safety broadband network across Los Angeles County to serve more than 80 public safety agencies and up to 34,000 first responders. 

The Broadband Stimulus Program has not been without controversy– we’ve seen complaints about everything from companies claiming award recipients are gaining unfair competitive advantage in a particular region to awardees complaining the grant/loan terms are too onerous.  Windstream Corporation (Nasdaq:WIN) announced recently that it is seeking to amend certain provisions of its existing credit facilities because the “amendment is required to permit the signing of rural broadband stimulus grant agreements” with RUS.  WIN has received 16 awards totaling $168m in grant funding to deploy ADSL2+ technology, not including the $17m awarded to recently acquired Iowa Telecommunications. 

And on September 7, 2010, Connected Planet reported RUS has rescinded a $19m grant awarded to TierOne Converged Networks.  According to the website, RUS used a “clawback” provision provided in the award because the recipient is currently being investigated by the U.S. Securities and Exchange Commission for alleged federal securities violations. 

It seems in some instances recipients have withdrawn their requests for funding after receiving awards.  There is little information available disclosing the reasons behind such withdrawals.  For example, round one recipient Allegiance Communications, which was awarded $29m grant funding to deploy more than 680 miles of fiber optic network, makes no mention of the award on its website. Further, although an April 16, 2010 press release from NTIA describes the grant, the applications database no longer lists the project under “awarded.”  As best we can determine, Allegiance Communications withdrew its request sometime after being notified it had been awarded funding. 

With the September 30, 2010 deadline upon us, we expect the focus to shift from applications and award announcements to grant/loan term negotiations, and, eventually, progress updates on the projects themselves. 

Other Broadband Stimulus Developments: Occam Networks announced it has been selected to provide access network equipment to the Marquette-Adams Telephone Cooperative.  The company was awarded $13.8m grant and $6.2m loan funding to extend fiber optic service from the existing service area to unserved rural areas bordering the telephone company’s current territory……CommScope, Inc. reported it has been selected by BTOP round one award winner MCNC—which received $28m grant funding to build a 494 mile fiber optic middle mile network—to provide all materials related to the project……Infinera announced its partnership with United States Unified Community Anchor Network (U.S. UCAN) on September 7, 2010.  U.S. UCAN received $62.5m grant funding to build a national scale middle mile network to connect all community anchor projects funded by BTOP with each other.

287 Projects Have Received Funding in Second Round So Far

Over the last month, NTIA and RUS have announced approximately 220 Broadband Stimulus awards totaling more than $3.0b in grants and loans.  The awards are part of President Obama’s $7.2b Broadband Stimulus Program.  By our count, more than $6.1b has been awarded thus far.  In the first round, nearly $2.3b in funding was awarded to 150 different projects; so far in the second round, more than $3.8b has been awarded to 287 projects.  All funding must be awarded by September 30, 2010. 

Of the 437 awards announced so far, the average award is approximately $14m; the largest award was given to the executive office of the state of West Virginia– $126m in first round grant funding to build a middle mile network with multiprotocol label switching (MPLS) over microwave and fiber technology.  The smallest award went to Big Island Broadband/ Aloha Broadband, which received $107k in first round loan funding to bring terrestrial fixed wireless broadband services to an unserved area in the northern part of Hawaii’s Big Island. 

A substantial number of incumbent local exchange carriers (ILECs) have received awards– 200 projects have received a total of $2.4b in funding.  Telephone & Data Systems’ (NYSE:TDS) subsidiaries have received funding for 41 projects in round two of funding, on top of the two projects that received funding in round one.  All told, TDS has received approximately $103m in funding.  The company plans to bring high-speed DSL services to unserved rural areas within its subsidiaries’ service territories. 

Similarly, Windstream Corporation (Nasdaq:WIN) has received 12 awards in the second round, totaling nearly $131m, not including the $17m awarded to recently acquired Iowa Telecommunications (The Deal Advisor, 06/10, p.8).  WIN will deploy ADSL2+ technology to reach unserved homes and businesses.  The two Iowa Telecommunications projects include deploying fiber-to-the-node and last mile DSL. 

LICT Corporation subsidiaries have received nearly $22m in funding for six projects.  Five of the projects include a fiber build-out; but LICT subsidiary Cal-Ore Communications broke from the pack and will deploy wireless broadband in California’s north central Siskiyou County. 

Princeton, Mo.-based Grand River Mutual Telephone has received $62m in funding for five fiber-to-the-home projects. 

We’ve noted in the past that fiber-based projects have received a substantial portion of awards– in the first and second round thus far, fiber-only projects have received more than 60% of total awards, and projects that combine fiber and another technology—such as wireless, DSL or broadband over powerline—comprise nearly 16% of awards.  Wireless projects are a distant third, making up just more than 10% of awards. 

The second round of BIP funding includes a new category– Satellite.  Although the funding is being distributed under a separate RFP and applicants benefited from a later application deadline than other project types, thus far only four satellite projects have received funding.  The range of funding for satellite projects seems to vary considerably– from $59m for Hughes Network Systems’ “Hughes RUS” project—which will offer satellite broadband service to residential and commercial subscribers nationwide—to $7.5m for Spacenet, Inc.’s “StarBand Open Skies Initiative”—which will bring satellite broadband service to residential subscribers in Alaska and Hawaii. 

The other pieces of the broadband expansion puzzle—namely increasing broadband adoption and providing computer workstations capable of utilizing the increasing speeds—have received a much smaller proportion of Recovery Act funding.  Sustainable Broadband Adoption projects have received nearly $142m in funding, or 2.32% of total awards, and Public Computer Center projects have received nearly $125m in funding (2.04%). 

Other Broadband Stimulus Developments:  Congress passed a $26b state aid package—HR 1586—that will trim broadband stimulus funding by approximately $302m, reducing the $7.2b Broadband Stimulus program to $6.9b.  The bill was aimed at preventing layoffs among state educators and other employees……Stimulus award winner Wabash Mutual Telephone has selected Occam Networks’ BLC 6000 multiservice access platform (MSAP) for its project to expand broadband services in west central Ohio.  Wabash Mutual received $4.3m for its fiber-to-the-home project……Medicine Lodge, Kan.-based South Central Telephone Association has selected the Calix Unified Access Portfolio for its two stimulus projects.  The company received $871k grant funding to deploy fiber-to-the-home in its Lake and Sun City exchanges, and $558k grant and $560k loan funding to deploy fiber-to-the-premises in Attica, Kan…….Madison, Kan.-based Madison Telephone Company selected the Calix Unified Access Portfolio for its fiber-to-the-premises project in the company’s Madison and Lamont exchanges.  The company received $3.5m grant and $3.5m loan funding for the project in round one.