As Broadband Funding Announcements Dribble Out, Questions Arise

Among the awards getting scrutiny is one by the RUS to BEK Communications, a Burleigh County, N.D., company that got a grant and a loan of $2 million each, which it will combine with $2 million in matching funds to build a fiber-to-the- premises network service for about 540 homes and anchor institutions. That translates to a cost of about $11,000 a home. At a recent hearing, Sen. Richard Shelby, R-Ala., questioned a $33.5 million grant by the NTIA to the North Georgia Network -- which he said operates in a rural area in Georgia already 90 percent served by another carrier -- at a cost of $9,600 per household. “What determines who gets funding?” Shelby asked. “Is it need? Is it [the] amount of people served? What’s the criteria?”

BEK and a spokeswoman for the North Georgia Network defended their projects. It’s shortsighted to look only at per-home cost without considering the capacity and growth opportunities for the infrastructure in rural areas, said Nancy Cobb, executive director of One Georgia Authority, a partner of the North Georgia Network Cooperative. “You have to look at the big picture,” she said. A BEK spokeswoman said the area’s rural nature drove up costs.

“It definitely is not turning out like what I think was hoped for by the Obama transition team or hoped for by Congress,” said an industry source who has advised non- incumbents seeking stimulus money. “What has happened is this thing has become hijacked by incumbents. … Every single award by NTIA on the infrastructure side at least involves a middle mile component. You have a fleet of applicants who went to all this time and trouble to apply for a last-mile solution believing there was a possibility, and NTIA appears to have walked away from doing anything that was exclusively last-mile. It’s grossly unfair.” When middle-mile becomes the focus “it’s all about incumbents,” he said. The source questioned the size of BEK’s grant. “Is this a wise use of the money to spend $11,000 per household on fiber?” he asked. “New entrants are getting locked out almost entirely. They're simply fostering the incumbent carriers.”

“It’s a major-league question mark why it’s almost said, flat out, ‘We think middle mile is the way to go,'” said a second industry source, who also has advised clients applying for broadband funds. “Frankly, middle mile is transport and it’s sort of surprising that it’s not economic to build out on a commercial basis. … They've drawn a conclusion that is somewhat mystifying.” The source said the amount spent on some of the projects approved so far is bound to raise questions. “I think the public ought to have an explanation why applications that are much less expensive per POP are being denied out of hand.”

Telepoly President John Windhausen questioned complaints that the awards favor incumbents. “Many incumbent cable and telephone companies chose not to apply in the first round, so it is hard to maintain that the project favors incumbents when so many incumbents chose not to participate,” Windhausen said. “Many of the Middle Mile awards in round one have been issued to state research and education networks that are seeking to expand and extend their networks deeper into communities to serve anchor institutions. … These are not incumbent telephone or cable companies. These are public- private partnerships that have a history of successfully building networks, and NTIA is rightfully granting applications to applicants that have significant experience.”

Funding middle-mile projects doesn’t just help incumbents, said Public Knowledge Legal Director Harold Feld. “I continue to think NTIA is doing a good job trying to stretch the pay off for every dollar spent to advance the multiple purposes of the program,” he said Friday. “It’s not all perfect. I wish they had more time, I wish they had more money, I wish they could move more quickly, and I wish they would focus less obsessively on the unserved-underserved aspect of the program at the expense of the other three stated purposes. But given the realities of trying to implement something as huge as this in such a short time, starting virtually from scratch, I think they have done a great deal to give money to promote competition rather than simply do the safe thing and give it all to incumbents.”

Grant programs like those created by the recovery act necessarily pick winners and losers, said Randolph May, president of the Free State Foundation. “We just have to hope funding decisions are being made more often than not on the basis of sound economics and not political influence,” he said. “And, remember, one of the primary purposes of the Recovery Act was to quickly stimulate the economy and produce jobs. On this score, it seems NTIA and RUS have been too slow in getting the money out the door -- regardless of who the recipients are.”

It’s premature to draw conclusions about where round one money is going, attorney Jim Baller said. The NTIA and the RUS have announced only a small fraction of their awards for round one and will announce hundreds more in the next few weeks, he said. And considering the modest goals of the stimulus program and the need for prompt action, it wouldn’t be surprising to see a substantial proportion of the money going to providers with long track records, he said. That’s particularly true under the RUS program, because the stimulus law requires the agency to give a preference to those it has loaned or given money before, he said. The historical bias toward well-established projects like fiber isn’t minor, said Craig Settles of Successful.com. The RUS also traditionally has been familiar with incumbent providers and their projects, he said.

Changes in the RUS program seem to have made it more workable financially since the first round. The agency has eliminated the “remote, non-remote” qualifications, along with various combinations of loans and grants, Settles said. Now it’s a straight 75-25 grant-to-loan ratio for all projects, he said. That change could make a big difference, Baller said. He said he won’t be surprised if some big players view the RUS program as attractive. But the NTIA’s rules impose net neutrality and open access on all networks built, Settles said. Considering the extent of carriers’ complaints about net neutrality and open access, many are unlikely to take part, he said. Local and regional operators in partnerships with local governments and communities generally have a better shot, he said. Issues that most concerned the big players haven’t changed significantly in round two, Baller said.

Meanwhile, NTIA announced another award Friday: A $1.2 million grant to OSHEAN, a consortium of not-for-profit organizations. It will use the money to replace 327 computers in Rhode Island libraries and add more than 403 workstations.