Entries in RUS (14)


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.


Paul Bunyan Communications Bets on Broadband 

As Traditional Services Decline, Cooperative Says Broadband is THE Future

As our Richelle Elberg reported last week, telcos providing broadband serve about half of all broadband connections in the U.S.—numbers that, so far, are holding steady against cable-provided broadband connections. In the same study, Richelle predicted that ILEC broadband connections would overtake the number of access lines as early as 2015, as ILECs increasingly are deploying fiber and upgrading their broadband offerings.

As a case in point, Paul Bunyan Communications in Minnesota has aggressively incorporated broadband into its business strategy and is about to complete its final year of a fiber-to-the-home upgrade for its entire 4,500-square-mile service area. The cooperative's broadband initiative has been well-received, too, with take-rates at 60%, representing some 17k subscribers.

But Paul Bunyan isn't just a small company benefiting from a forward-thinking business plan; it's an ILEC that attests to the collective power of a cooperative to implement broadband buildouts and forge strategic partnerships with local electric co-ops.

In fact, the Minnesota cooperative has made broadband a focus of service for many years, according to Brian Bissonette, marketing supervisor for the company. Paul Bunyan first started offering broadband in its service areas in 1999, and now Bissonette says that 100% of its service area has broadband access. In the majority of its service area, Paul Bunyan is the only provider of high-speed Internet. “In rural areas [of the state], there are no real competitors. Wireless and satellite service is available, but it's much more expensive, with slower speeds, and less reliability,” Bissonette said.

Paul Bunyan's service packs a good punch too, with speeds up to 10Mbps for both upload and download, and up to 25Mbps service and higher available. The co-op's extensive fiber build has allowed it to offer digital and high-definition television services to all its customers as well, complete with DVR and On Demand. According to Bissonette, these television services have about a 50% take-rate so far. The company now uses vendors like Calix, Minerva, ADB, and Clearfield, but Bissonette said television services will be transitioning to offer the Microsoft Mediaroom IPTV platform.

Last month, Minnesota received some press for the release of Connect Minnesota's Consumer Broadband Adoption Survey, which reported that “only” 28% of Minnesota's consumers do not subscribe to a broadband service. Among those who don't subscribe, the majority said they don't need broadband or that there isn't content relevant to them on the internet; the second reason was that it was too cost-prohibitive. But while that 28% figure is lower than the national average of 35% non-subscribers, once again there was a marked gap in broadband availability in rural communities versus more populated areas. In rural parts of the state, 39% of Minnesotans do not have broadband, usually due to lack of availability, not lack of desire.

Because Paul Bunyan's service area is primarily rural, Bissonette said its diverse services and broadband deployment are even more dependent on federal stimulus monies. Just this year, the cooperative was awarded a $19.7m Rural Utility Service (RUS) grant through the USDA, and will use the funding to expand broadband FTH service into two more underserved areas—rural areas of Park Rapids and Trout Lake.

Overall Paul Bunyan has seen a steady increase in broadband subscribers and revenue, something Bissonette credits to the “millions of dollars” the company has invested in “upgrading and expanding our network to offer broadband services. And they have been well received.” He says that back in 1998, the company had just 8k access lines and no broadband Internet customers. “Today we have more than 28k access lines and more than 17k broadband subs,” Bissonette said. But even while noting these gains, he added, “This could be radically affected by access and universal service reforms if they are unfavorable to high-cost-to-serve rural areas.”

According to Bissonette, service availability is overwhelmingly contingent on sustained FCC funding. “The biggest challenge we face is intercarrier compensation and universal service reform,” he said. “The majority of our service area is rural and high-cost to serve. If these mechanisms are eliminated or drastically reduced, the result would be much higher costs for the services to consumers. That would create a significant barrier to receive the services that most [of our customers] consider essential. We'd also be unable to continue to expand our broadband services to those rural areas, and that includes our planned expansion with the recent $19.7m RUS loan.”

As a cooperative, Paul Bunyan has also realized the advantages that come from local and regional partnerships. Bissonette cited one such example in Paul Bunyan's alliance with Beltrami Electric Cooperative. Together, the two formed Cooperative Development, “a construction company that serves both cooperative's network expansion and replacement needs,” Bissonette said. “This greatly reduces the need for both cooperatives to outsource this work and provides dozens of full-time local jobs during the construction season.”

Paul Bunyan has also partnered with seven regional electric co-ops to form Northern Safety and Security—an entity that provides security systems, smoke and carbon monoxide sensors, a latch-key feature, gas leak monitoring, agricultural environment sensors, camera systems, and more, along with a 24/7 response center. Together, Bissonette said the group “shares investment costs and a resource base providing a variety of services to 52k co-op members and 150k households throughout Minnesota and eastern North Dakota."

Going forward, the cooperative is planning on taking advantage of cloud services for its data hosting and online backups, which it already provides for some of its larger customers. Ultimately, Bissonette said it all returns to broadband and its potential—be it for cloud services, high-speed internet, or IPTV. Facing the current reality for telecommunications providers, Bissonette stated, “We anticipate that wrapping more service around our broadband will be important in the future, as our traditional services decline.”


Broadband Stimulus Program Ends

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.


Broadband Stimulus Deadline Approaching

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.


Broadband Stimulus Funds Awarded En Masse as Deadline Looms

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.