Broadband Stimulus Awards Wrap Up This Month, But the Drama Continues

By Paula Bernier, Executive Editor, TMC  |  September 01, 2010

Sept. 30 is the date by which the National Telecommunications Information Administration and Rural Utilities Service are required to disclose publicly all the winners of the broadband stimulus program. But just 45 days before that deadline, there was still a significant amount of money left to be awarded, a question about just exactly how much money would be available for the program, and at least a handful of winners that indicated they didn’t want the funds they’d been awarded after all.

On the up side, however, money from the first round of the broadband stimulus program started flowing in the second quarter of 2010, which meant new capital for network operators, new business for equipment suppliers and engineering firms, and potentially new jobs for the people in the communities in which these efforts are taking place. While the first networks to use the stimulus funding could launch as early as this year, it could take a couple months for award winners to start spending enough to have a real impact on the economy.

As of Aug. 16, when this article was being written, several round one and at least one round two broadband stimulus award winners had named their equipment suppliers for the network builds.

For example, Wabash Mutual Telephone, a subscriber-owned telephone exchange and first round broadband stimulus fund winner, selected Occam’s BLC 6000 multiservice access platform to expand broadband services in west central Ohio. The $4.3 million broadband stimulus fiber project, through which Wabash will provide digital television, high-speed Internet and voice services to Fort Recovery and the surrounding area, is being funded through a combination of RUS Broadband Initiatives Program, or BIP, grants and loans.

Meanwhile, TEC revealed it will use ADTRAN’s (News - Alert) Total Access 5000 Multi-Service Access and Aggregation Platform and Total Access fiber-to-the-node DSLAMs for its broadband stimulus project at Bay Springs Telephone Co. That network, for which TEC received a broadband stimulus award from RUS in the first round, will employ FTTN technology.

Then, in early August, Calix (News - Alert) Inc. said it had been tapped by South Central Telephone Association and Madison Telephone LLC to supply broadband gear for three separate initiatives. As a result, rural subscribers across southern Kansas will be served via a combination of fiber access technologies, including gigabit passive optical network, active Ethernet, and 10-gigabit Ethernet transport technologies, capable of delivering broadband of up to 1gbps.

Rules around dividends seem to be one key reason that some are thinking twice about taking broadband stimulus monies.

Taking Count

All told, round one of the broadband stimulus effort ended up totaling $2.2 billion in 150 grant and loans.

As noted above, round two of the program is ongoing, but as of mid August, an estimated $640 million in BIP funds remained to be awarded by RUS, and the NTIA still had between $2.5 billion and $3.5 billion on hand, according to ADTRAN’s estimates.

About 74 percent of the BIP money and 26 percent of the NTIA BTOP round-two money had been spoken for as of mid August. At that point, about 73 percent of the round-two money had been allocated to last mile projects; 24 percent had been earmarked for the middle mile; and the other 3 percent had been awarded for public computer center and sustainable broadband adoption efforts. To get a sense of how that compares to round one, in the first round about 41 percent of the funding went to last mile projects; 48 percent went to middle mile efforts; and 11 percent went to public computer centers, sustainable broadband adoption programs, and mapping.

The initial plan for the broadband stimulus program, as laid out in the American Recovery and Reinvestment Act of 2009, was for RUS and the NTIA to dole out $7.2 billion in federal monies in an effort to expand broadband to a larger set of the population, create new jobs, and otherwise stimulate the economy. ARRA indicated RUS would allocate $2.5 billion of that in loans and grants, while the NTIA would provide $4.7 billion, primarily in grants. But Kevin
Morgan of ADTRAN notes that RUS at the time also said it had budget authority of up to $7 billion to $9 billion, so its exact allocation would depend on how the agency split loans and grants. As of mid August, Morgan says, RUS had announced $1.6 billion in grants and $1 billion in loans relative to broadband stimulus.

While that would seem to be a windfall for the broadband stimulus, at the same time, Congress was working on legislation that could pull several hundred million dollars in federal funds away from broadband efforts. In mid August, following the Senate’s lead, the House voted to pass HR 1586. The legislation has to do with funding education and Medicaid, but that would come at the expense of the broadband stimulus, from which it would pull $302 million in funding.

On a separate front, Morgan of ADTRAN says the Department of Agriculture has been talking about a rescission of $122 million in unobligated funds, but it’s unclear at this point what exactly that means, although Morgan says this would not seem to impact broadband stimulus/ARRA funds.

However, while the moves by Congress could mean less money is available for the broadband stimulus, it also appears that there are now fewer organizations seeking that money. As noted earlier, at least a handful of broadband stimulus award winners have indicated they no longer want the funds they’ve been awarded. At least that was the case at press time in mid August.

“I do know some customers that were initially awarded money have decided that they’re not going to take it, for a variety of reasons,” Morgan tells NGN Magazine. “A lot of it had to do with the way the terms were – just not very favorable in terms of … reporting structures and other things.”

Rules around dividends seem to be one key reason that some are thinking twice about taking broadband stimulus monies, he says. Apparently, the government wants to have some input into the decision process relating to dividends for broadband stimulus award winners, at least in some cases.

“The concept is this: If I’m the government and I’m giving out money, I don’t want the shareholders of a company to benefit just because I’m passing them money, and there’s a chance that a company could then just take it and pass it on to the shareholders in terms of dividend,” says Morgan. “So there’s language in the contracts to try to prevent that from happening.”

Morgan says he’s heard of three or four broadband stimulus award winners that ultimately decided against taking the money, and talk about three or four others that may do the same. He declined to provide the names of these organizations.

So, one might logically ask, didn’t these organizations know what the rules were for all this at the onset of the broadband stimulus effort?

“The requirements for qualifying for the applicants were very clear,” explains Morgan. “When you get the award though, you basically start the negotiation process….” And each negotiation is unique.

That said, the federal government agencies involved in the broadband stimulus could potentially adjust their rules or requirements on this front. Morgan notes that the government showed a fair amount of flexibility earlier in the broadband stimulus program, when it adjusted its second round NOFA rules in response to industry input.

But even after all of the award winners have been named, the negotiations have been tied up, the equipment suppliers have been selected, and the networks have built, more work will remain to be done, notes Diane Duffy, Telcordia’s (News - Alert) executive director of advance technology solutions. She says that as these broadband stimulus fund winners design and build their networks, they need to ensure they are bringing into service networks that will operate cost effectively, scale as growth requires, and deliver secure communications over both the near and long terms. NGN