RUS Announces Last Four Award Recipients

Round two of the Broadband Stimulus program ended quietly on September 30, 2010.  The Rural Utilities Service (RUS) announced four additional awards totaling approximately $18.3m in grant and loan funding.  All told, RUS has leveraged $2.5b in Recovery Act funding to provide loans and grants of $3.6b, and the National Technology and Information Administration (NTIA) has awarded more than $3.9b in grant and loan funding. 

Throughout the awards process we have noted that projects utilizing fiber—for both middle and last mile networks—were receiving the lion’s share of the funding.  In the end, of all the middle and last mile projects funded under the Broadband Stimulus program, more than 62% were fiber-based, 12% were wireless-based, and 17% were a combination of fiber and wireless.  Projects deploying DSL technology made up a little more than 5% of middle and last mile awards. 

Some industry experts point to the heavy favoritism shown towards fiber projects as an example of a major flaw in the stimulus program.  These critics argue the program was lacking in innovation and creativity.  And while wireless can be much more cost effective to deploy over large swaths of sparsely populated rural areas, there have been few successful large-scale wireless broadband deployments.  Fiber, on the other hand, has been used reliably in many networks.  As a result, wireless projects tended to be viewed as riskier than their fiber counterparts. 

Another complaint raised by some analysts was that the application requirements heavily favored incumbent communications providers.  For instance, applicants were required to submit historical financial statements and cash balances, which was a particular problem for non-profit organizations, startups and some public-private partnerships. And for those applicants that were able to provide the required paperwork, the economics of the projects didn’t always look good, especially when compared to applicants with larger balance sheets (many of which also have long-standing relationships with NTIA and RUS). 

Despite these complaints, the consensus seems to be that NTIA and RUS did an admirable job awarding a large amount of money in a relatively short period of time.

There are, however, some exceptions.  Last month we noted RUS rescinded a $19m grant awarded to TierOne Converged Networks (The ILEC Advisor, 9/10, p.9).  This month brings word local governments in Silicon Valley are calling for federal and state probes into the $50m public safety grant awarded to Motorola, Inc. for The San Francisco Bay Area Wireless Enhanced Broadband Project (BayWEB). The funding, awarded by NTIA, was for the construction of a middle mile wireless network to expand service for emergency responders utilizing 4G LTE technology.  Allegations include public ethics violations and problematic procurement practices.

Not all news on the Broadband Stimulus front is of the acrimonious sort– North Carolina’s governor broke ground on MCNC’s North Carolina Research and Education Network on October 8, 2010.  MCNC, a public-private partnership, won two awards from NTIA totaling nearly $104m in grant funding to build a middle mile fiber network in 37 counties.  And even as RUS administrator Jonathan Adelstein announced the end of the stimulus funding, he pointed to the $1b Farm Bill as a source of additional funding for broadband projects. 

Other Broadband Stimulus Developments: Chokio, Minn.-based Federated Telephone Cooperative, which received nearly $4.3m in grant and loan funding from RUS, has selected Calix for its two projects to build fiber-to-the-home systems in Morris and Appleton, Minn…….Bellingham, Minn.-based Farmers Mutual Telephone Company, which received approximately $9.7m in grant and loan funding from RUS for its fiber-to-the-premises project in partnership with Lac qui Parle County, has selected Calix gigabit passive optical network (GPON) services for its fiber deployment……XFONE held a ground breaking ceremony on October 11, 2010 to mark the official beginning of construction of its PRIDE network.  The PRIDE network received nearly $100m in grant and loan funding from RUS to deploy fiber-to-the-premise technology in parts of Texas and Louisiana….Sunbright, Tenn.-based Highland Telephone Cooperative has selected the Calix Unified Access portfolio for its $66.5m Broadband Stimulus project to build a fiber-to-the-home network in parts of Tennessee and Kentucky.

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.