Whose Broadband Did RUS ‘Stimulate’?

In phase one of the Rural Utilities Service's funding for improved Internet service, last-mile projects, co-ops and private companies came out on top.

 

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The Rural Utilities Service (RUS) last week released a detailed report of its Round 1 broadband stimulus awards — all 68 of them. It’s a good read, particularly for the advice communities still planning broadband projects can glean from descriptions of proposals that RUS has funded so far.

Connecting Rural America summarized the allocations in Round 1 and some of the expected benefits. RUS awarded $1.068 billion to 68 recipients in 31 States and one U.S. Territory. This report also provides details on many of the projects that received awards.
 
Before diving into the report, it’s important to remember that this was a process unlike any previous broadband initiative. Though the stimulus program received a lot of criticism, much good came from it that will ripple out to other communities.

Understanding the numbers

RUS contends that the projects it funded will bring broadband service to 529,249 households, 92,754 businesses, and 3,332 anchor institutions such as schools, libraries and hospitals across more than 172,000 square miles. These broadband programs should create approximately 5,000 immediate and direct jobs. The summaries of award winners list additional expected benefits.

The report confirms what everyone following individual award announcements suspected, which is the heavy emphasis on wired networks: 48 projects are fiber networks and 14 are DSL, while only 23 are wireless. Because the report doesn’t show the awards for hybrid wired-and-wireless networks, it’s hard to say how many grantees are deploying them. However, I got the sense from some applicants’ comments during Round 1 that there should have been more hybrids funded. I concur.

While fiber is generally accepted as the most future-proof broadband technology, I don’t believe it is the best solution for all communities for reasons such as cost, terrain, distance between residential customers and so forth. I feel RUS could have gotten a bigger bang for its bucks even for last-mile projects by funding more proposals that were heavy on wireless — such as WiMAX — while relying on fiber mainly for select institutions.

At a much lower cost for each such project, and thus enabling funding for more projects, give people what’s needed now. Let businesses pay for network expansion to their premises as local economies improve and eventually deliver cheaper fiber to residences later. Though I don’t expect this heavy emphasis on fiber to change in Round 2, communities pursuing broadband sans stimulus should evaluate a hybrid strategy.    
 
The decision to fund 49 non-remote last-mile networks is helpful. As West Virginia Senator Jay Rockefeller pointed out, many communities are well within 50 miles of major metropolitan areas (the cutoff point to be considered “remote”), but due to geographic obstacles they are as lacking in broadband as communities in remote areas are.

Most of the proposals funded by the Rural Utilities Service’s Round One of broadband stimulus monies were last-mile non-remote projects.


I hope that all of the last-mile remote grant winners are bringing to the party their own middle-mile (the part of the network that transports data between communities and the public Internet), or that they have solid plans to tie their networks into existing and stimulus-funded middle mile infrastructure. For one thing, how well they can upgrade these networks to faster speeds in the future will depend heavily on the quality of the middle mile. Second, these are supposed to be open networks, meaning any additional service providers can come onto the network to provide services, delivering the competitive pressure that ensures prices stay affordable. Weak middle-mile infrastructure can hamper this objective.

An interesting item in the report involves the percentage of grants versus loan guarantees the awardees received. Most last-mile non-remote and middle-mile projects were awarded a 50/50 balance between loans and grants, but the last-mile remote projects only have a tiny percentage of loans compared to grants. Rivada Sea Lion in Alaska, for example, received a $25 million grant, no loan. The RUS rules allowed these projects to be funded up to 100% with grants.

The financial composition of last-mile remote projects shown in Figure 1 causes me to wonder. Is the reason we don’t see a higher percentage of loans that RUS believes lenders find these projects too high risk to fund, preferring for RUS to award grants and so avoid the chance of defaults?

Here’s my conclusion for communities that aren’t chasing stimulus money. If you plan to build a last-mile network in a remote area, particularly more than 50 miles from a major metro area, give extra attention to the financial planning. Where are you going to get your revenue given the sparse population? Will the cost of building that middle-mile to remote locations bump up your financial risks? You’ll need to be creative in sourcing revenue and super-effective at grant writing in order to reduce the risks. It could very well be that grants are the only way to ensure these projects get off the ground.

Co-ops and public private partnership (shown on the left) received the most funding, but the greatest number of awardees were for-profit projects (37). Only three not-profit broadband projects were funded.


Who received money

More money ($500 million) went collectively to telecom co-ops, in which all of the customers are technically stockholders, and to public-private partnerships, while the greater number of awards (37) went to for-profit companies. Only four public entities and three nonprofits won grants, and these amount to a very small percentage of the total dollars awarded. I believe this breakdown could shortchange some communities.

I’m in favor of strong community control of broadband networks or outright ownership because that’s how you ensure constituents’ needs are best met. Private companies’ first loyalty is to stockholders, so community leverage can be limited. It varies by community as to how much control constituents exert over a co-op; how effectively local governments write contracts determines how well constituents fare with partnerships.
 
Overall, I believe you can look at RUS’s Round 1 awards and be reasonably satisfied that quite a few communities should benefit from the stimulus program. It depends on whom you speak with, though, whether you think that the program will achieve as much as it could. We’ll all know more late next year, when some of these projects should bear early fruit.

Craig Settles, an Internet consultant based in Oakland, CA, offers more on this topic in “What’s Next After Broadband Stimulus.”

 

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