Broadband Stimulus: Who is "Unserved," and Why?

The National Telecommunications and Information Administration and Agriculture Department's Rural Utilities Service have gotten around to accepting public testimony about what an "unserved" or "underserved" community is.

That public input on this subject, which began in Las Vegas on March 17, continues today in Flagstaff, Ariz., and will continue on March 19 in Washington, D.C., already offers us a chance to make a few observations.

Though most of the meeting testimony was non-quantifiable, it is clear that there are "unserved" areas in the sense of places where the cost of wired networks is extraordinary, and many places where service might exist, but is "underserved" in the sense of not receiving speeds that now are increasingly common in urbanized areas with significant competition.

The moderator of the Las Vegas meeting thanked the presenters for illustrating that unmet demand exists. Anybody who has been in the communications business long enough, and especially those familiar with the broad expanse of the intermountain West and Great Plains, knows exactly what an "unserved" or "underserved" area looks like, and why those areas either are unserved or underserved by wired facilities. It's a bit like pornography: people tend to know, without a precise definition, what it is.

Almost as predictably, some observers are wagging their fingers about mean old greedy telephone companies that don't want to provide service. Typically, people who make those charges don't live in any parts of the non-urban intermountain West, the expanses of the Great Plains, up and down the Yukon River or the Alaska panhandle, for example.

People often assume that customer demand is unmet because service providers don't want to provide service. Nothing could be further from the truth. Most small, rural communications providers, some of which are cooperatives, suffer from a lack of customers. Of the 1,000 or so small, independent telcos or cooperatives in the United States, half to 70 percent (or more, in some cases) of total revenue comes from other telecom companies in the form of "access charges" (allowing customers to receive long distance calls) or from support mechanisms such as the Universal Service Fund.

That means half to 70 percent of revenues do not come directly from customers, in part because there are so few customers, and in part because those customers do not pay anything like a rate that would provide an actual financial return on providing service. Put another way, the most-important revenue sources are other telecom providers and taxpayer subsidies provided precisely because, in the absense of those subsidies, wired network service simply is not feasible.

At the same time, terrestrial wireless and satellite alternatives do exist, and may in many cases represent rational ways to deliver services fast, at reasonable cost. Nobody disagrees that rural users should have services comparable to those provided to urban customers, at equivalent rates. The problem is that the cost of providing such services, using wired facilities, in rural areas, is disproportionately, punishingly high. "Average" costs don't make sense where it comes to actual access facilities.

Wired providers have a key role to play, but will lose money for every new "unserved" customer they add. Asking them to do that without subsidies ensures they will not act. At the same time, mobile, satellite and other technologies now offer alternate ways to provide voice and bandwidth services very fast or relatively fast, with less investment. Only satellite actually is positioned to offer service on a continuing basis with any actual hope of making an actual profit, at prices equivalent with those paid by urban or suburban users. Terrestrial wireless might or might not offer a return, depending on "density," where there might be an average of half a person per square mile.

Access is a real issue. Ability to provide access without some sort of subsidy is questionable in many cases. All the more reason to be rational about getting investment to people who need it, in a rational way. In some cases, that will mean ensuring a wired networked alternative. In other cases wireless might make more sense. In lots of cases, only satellite makes genuine sense.

Hopefully rational investments is what we will get.

Turnkey Wireless "Broadband Stimulus" Package

Berkeley Varitronics Systems, Inc., EDX Wireless, DoceoTech, and EGS Technologies have developed a turnkey package to help the rural broadband build-out that is part of the American Recovery and Reinvestment Act of 2009 (ARRA) economic stimulus package providing broadband access to the rural and underserved areas throughout the United States.

The collective, integrated package allows for a streamlined procurement of wireless propagation test equipment, RF planning tools, geodata tools, and tailored technical training for several broadband technologies. These include WiFi, WiMAX and LTE.

It is not immediately clear whether the package is RUS-certified.

Broadband Stimulus: "Access" is Only 1 of 3 Problems

The "broadband stimulus" programs established by Congress in the American Recovery and Reinvestment Act, making $7.2 billion available to improve broadband service in rural, un-served and underserved areas, actually must address three different sets of problems, says the National Cable & Telecommunications Association.

The NCTA notes that "unserved areas" represent about nine to 10 million households, typically in rural areas. NCTA refers to areas without "wired" access, as satellite broadband is available in those areas, though in some cases not technically accessible because of obstructions (mountains are the biggest issue, though foliage and trees or other structures in the line of site can be an issue in some cases). NCTA thinks projects extending broadband access to these households should be given highest priority.

"Underserved populations" represent a different problem. About 35 million households already have access to wired and satellite broadband, but do not currently use the services. The problem there is not "access," but "affordability" or "perceived value." Many of these potential users simply do not use PCs or the Internet, even if affordability is not the key problem. Simply building more access networks will not solve these problems. Instead, "demand stimulation" is the problem to be addressed in the "underserved" bucket of potential users.

Demand-side stimulus is what is needed here, and that might include training, equipment subsidies or usage subsidies.

Separately, there are households in underserved areas which have broadband access, but not at speeds generally available throughout the rest of the country. In these areas, the government should proceed with caution, NCTA says.

The need for subsidy in these underserved areas is not as great as in unserved areas or for underserved populations, and subsidizing infrastructure in these areas runs the risk of subverting the commercial deployment already taking place, NCTA argues.

Subsidies to these underserved areas should therefore be carefully structured so as not to favor one technology over another, one provider over another, the public sector over the private sector, or otherwise upset marketplace dynamics, NCTA argues.

NCTA notes that more than 92 percent of U.S. households actually have wired broadband access available to them. Satellite providers would argue that the eight percent without wired access are precisely the segment best served by satellite services.

About 18 states are least represented by wired access facilities, where households unable to buy a wired broadband service are less than 94 percent of all homes.

Among unserved geographic areas, subsidies therefore should be targeted first to areas in which service would not otherwise be provided and that could support the ongoing costs of providing broadband service if government funded the costs of the underlying infrastructure, NCTA argues. These are areas where infrastructure cost prevents commercial payback, but where an on-going business case can be made, if infrastructure deployment is not an issue.

New mapping of broadband facilities will be finished only after the funds have been disbursed, so "mapping" does not help either NTIA or RUS make its awards.

Merely providing broadband access does not necessarily mean that customers will subscribe to it, NCTA and other policy advocates note. The larger problem is that many consumers fail to subscribe to broadband service even when it is available. That's a "demand" problem, not a "supply" problem. "Researchers studying broadband access have concluded that 'lack of interest' in broadband is the main reason that people do not purchase the service.

Indeed, about onequarter of adult Americans do not use the Internet at all; these individuals are disproportionately lower-income and older than average Internet users, NCTA notes.

Grants should be used to provide targeted subsidies to make broadband services more affordable, NCTA suggests.

Access isn't the only problem the "broadband stimulus" investments must tackle.

Broadband Stimulus: Commercial Entities "Need Not Apply"

Some observers say large telcos are "dragging their feet" about applying for "broadband stimulus" funds. That's not the best way to describe it. By RUS rules, large telcos are ineligible to apply.

By NTIA rules, which are targeted to non-profit organizations, most commercial entities likewise are ineligible to apply, at least not as "prime" contractors, unless they get a waiver that says the proposed projects are in the public interest. That might or might not be difficult.

Putting aside other concerns about strings attached to funds received under either the RUS or NTIA programs, the language of the statute, while not forbidding grants to commercial applications, requires a waiver.

Ultimately, commercial entities may find they do best by partnering with a submitting organization that is a government, medical, educational or other non-profit entity.

The single statutory exception is for Small Business Administration firms that already have qualified for "minority set aside" treatment.

Even if service provider concerns about wider business model impact are addressed by the final rules, which remain fluid, the fact remains: NTIA rules heavily favor prime contractors that are non-profits. It remains likewise unclear the degree to which these rules also will apply to RUS funds.

Broadband Stimulus: Questions, Questions and More Questions

Thousands to tens of thousands of applications are expected for the National Telecommunications and Information Administration $4.7 billion in new broadband project funds, and the Agriculture Department’s Rural Electrification Service $2.5 billion in grants and loans to promote broadband services for “rural broadband.”

One obvious problem, among many, many others is that thousands to perhaps tens to scores of thousands of applications now will hit agencies ill-equipped to process them. RUS has a staff of 130, about 24 working on the broadband stimulus program. Observers say they aren't even sure the NTIA has even 130 people, total. That has some proponents arguing for state-level review, whether or not states actually are delegated authority to make the awards. Others say that is an unnecessary hurdle.

Consider the enormity of the challenge: the statute requires that applicants receive funds received under one program, not both. That requires some way of identifying which projects are funded under each program. But nobody wants a complicated, burdensome, expensive application process. But the RUS program objectives are distinct from those of the NTIA program.

Mark Cooper, director of research at the Consumer Federation of America, argues that maximum coverage and sustainable projects are important. And though many observers probably are thinking about extending access, Cooper thinks investments in backhaul and mobile infrastructure are desirable. “Two that come to mind are mobile computing and Internet back bone to unserved areas."

“I would suggest a rough justice approach: the funds should be divided equally between physical infrastructure and human and social capital, and within the human and social capital area, it should be divided equally between the adoption, training, institutional network and stimulation aspects of the statute,” Cooper said

Mark DeFalco, Appalachian Regional Commission Telecommunications Initiative Manager, thinks it will be tough to create a unified application process, though. “We see each agency having a separate process for processing the loans and grant applications,” DeFalco says. “RUS has an existing process in place, and we expect the new stimulus dollars will flow through that process.”

“NTIA will need to develop their process and quite honestly, with the time limits on this, it is a daunting task to get that process in place and get the money out the door,” he noted. “But both processes should use the same definitions of broadband, un-served and under-served and we would like to see rules specifying minimum speed requirements for rural areas,” DeFalco said.

And though Ramsay favors state level screening, Owens disagrees. “If it comes to the point of the states actually making the determination on who's getting the funding, that may pose a problem for our members,” Owens said.

Cooper suggested there might be danger if the state level became a second level at which grant politics had to be faced. Arnold tended to agree. “Helping NTIA and RUS facilitate this and make it quicker, that's better, but I'm with Mark: if it becomes an impediment, it could be a real problem for us,” said Arnold.

“I honestly believe the only way this is going to get done” is to have the states rank the proposals, with NTIA making the final decisions, said Ramsay.

DeFalco says “the states are probably in the best position to know what rural areas need the coverage in the first round, so we would be strongly advocating the state role in this process.”

But Cooper argues that replacing consultants in Washington, D.C. with consultants at the state level does not represent a lot of progress. In fact, Cooper suggests that if states are to have a strong role, NTIA and RUS “have to come up with some very, very specific criteria, so that it's not really a lot of discretion to the governor or a public utility commission.”

“If they are truly just evaluating against a set of criteria, those criteria are going to have to be really, really carefully defined or else you get into what is essentially a lobbying bailout for PUCs,” says Cooper.

Ramsay predicts that larger states are where most of the proposals will be focused. “I would be surprised” if California did not get thousands if not hundreds of thousands of proposals. “People will go where the money is,” Ramsay says. “With the smaller states, with smaller populations, there will be correspondingly fewer projects.”

Arnold and DeFalco predict there will be thousands or proposals. Owens predicts that there are 1,000 or so rural companies that are interested and likely to submit applications.

“Assuming there would be thousands if not tens of thousands of applications, I have encouraged the entities I work with to make them statewide or regional applications, says Cooper.

DeFalco says what is not wanted is maximum coverage at minimum speeds. “We want to have good coverage in all rural areas.”

“We cannot afford to take these rural areas and give them adequate coverage today which is not going to be adequate for tomorrow,” he says. “If we do that, then we are going to be back in this same situation in a couple of years where they have broadband and they have low-speed DSL service and what they need is something far more robust, while the urban areas have FiOS in place or u-Verse or fast cable and these rural areas are left behind with a slow speed service.”

“We lack internet backbone in rural America, and no matter where the network eventually goes, we are going to need that backbone,” says Cooper.

Arnold suggests that at least in the first of three funding rounds, emphasis should be on infrastructure. “Let's stick with shovels in the ground; get this stuff deployed,” Arnold says.

Harmonizing the NTIA and RUS programs is going to be challenging. RUS loans go to rural telephone companies and private sector providers where NTIA guidelines are set for grants to public or non-profit entities, says DeFalco. “They can't be identical because quite frankly, they are reaching different audiences to a certain degree and they have different programs than the statutes.”

In any case, the application itself, and the sorting process, must, by statute, ensure that projects getting funds from one program do not receive funds from the other, implying some unified way of tracking applications and disbursements. Owens argues the simplest procedure is simply to modify the existing RUS application form, and use it as the vehicle for applying for either NTIA and RUS grants or loans.

Some issues are quite practical: what information does the application form require? How are applications tracked? Who does the tracking? How is the consultation process structured?

Others are practical but directly linked to fulfilling legislative intent. The definitions used for “un-served,” “underserved” and “broadband” are examples. Likewise, what rules govern regional projects that cross political boundaries, include rural and non-rural areas or that might require “prime” contractors to be entities of a certain type according to NTIA or RUS rules.

Cooper argues there is no single technology that best serves all areas and users. “We need to find a minimum standard that really meets needs, that delivers services that are going to be durable, and we need to do that allowing the technologies to compete on their costs,” he said.

Among the other unsettled issues is how disbursements in the first of three funding rounds might differ from second and third rounds, if at all. If the award philosophy is consistent, then applicants will have a better idea of what NTIA and RUS are looking for in the later rounds.

DeFalco pointed out that in the most difficult areas, grants are the only practical solution, as there never will be a payback from any commercial deployment.

Cooper argued loans and grants be linked in some way to the intended retail price of the service offered. “I am very concerned about loans and grants going out and then having people price their services to the market or commercially.”

Another issue is the requirement for a 20-percent project match. There is a waiver clause, and NTIA and RUS will have to figure out what conditions are sufficient to qualify an applicant for a waiver. Even where the match requirement is applied, it is not yet decided whether in-kind matches are permitted, or whether the match must be in cash.

One way or the other, fully rational or not, well-considered or not, there is little time. The statute requires that the first funds be awarded no later than June 2009. It is mid-March and we still are in the "comment" phase. And make no mistake, there will be huge battles over the rules, as there always are when large sums are to be awarded.

Will Private Companies Be Able to Bid for Broadband Stimulus Funds?

Lots of people seem to very interested in the $7.2 billion in "broadband stimulus" funds the NTIA and RUS will be awarding. But there are some very big caveats. With one little exception, only non-profits are, by statute, allowed to apply. And there is some possibility that unless an entity already has in the past gotten a grant from RUS, it might not be well positioned to apply under the RUS rules, either.

And though RUS and NTIA are holding lots of hearings, there remains more uncertainty than clarity.

At a March 16 National Telecommunications and Information Administration hearing, presenters said about what you would expect them to say about bidding rules for the upcoming round of NTIA and U.S. Department of Agriculture Rural Utilities Service "broadband stimulus" grants, loans and loan guarantees.

A service provider representative suggested service providers should be able to apply. "NTIA should extend eligibility to any existing entity that holds an FCC license, state certificate of public convenience and necessity, cable franchise or similar

government authorization or who is otherwise providing broadband service under applicable federal and state law," said Curt Stamp, president of the Independent Telephone and Telecommunications Alliance.

"No additional or individual review of any such entity should be required"Curt Stamp, president of the Independent Telephone and Telecommunications Alliance.

A representative of the Communications Workers of America urged that service provider entities be given "priority" so long as projects proposed by such entities have endorsements from non-profit entities specifically named in the legislation.

"Priority should be given to entities that add substantial infrastructure and focus on unserved areas," said Debbie Goldman, Communications workers of America telecommunications policy director. "An applicant should be required to demonstrate that it has the financial, technical, managerial, and operational qualifications to complete the project in timely manner, and then it has the capacity to continue operating after stimulus funding is no longer available."

"Past performance shall be a strong consideration to determine the applicant's qualifications," Goldman argued.

The New America Foundation representative argued that telcos and cable companies should not be given special priority, but rather "the types of eligible private entities we must support must go far beyond usual suspects," said Sasha Meinrath, New America Foundation Open Technology Initiative research director. That's what one would expect from an entity in favor of open access.

Betty Ann Kane, chairwoman of hte District of Columbia Public Service Commission, emphasized the need to consult with state and political subdivisions including state public utility commissions, state broadband authorities and state service administrative agencies. "Private firms or sole proprietorships or individuals should be considered eligible when those entities act in partnership with any of those state entities."

Grant Seiffert, Telecommunications Industry Association president, argued that focusing on eligibility is the wrong focus. "NTIA should not focus on what type of entity an applicant is but rather on, one, to the value the proposed project to the American people and two, the applicant's ability to use the funds to achieve the project's objective."

Seiffert said he does not "believe that this program can be successful and meet the goals set by Congress and the administration without private parties being involved."

What Next for Salesforce.com, other SaaS Providers?

Salesforce.com has been the poster child for how voice and communications capabilities can be integrated with enterprise applications.

But Salesforce.com now is a decade old. Pretty obviously, the focus on applications that can benefit from voice has to shift elsewhere.

And analysts at Forrester Research say enterprise interest in SaaS might be slowing. That could suggest that organizations are having a harder time figuring out where SaaS really delivers measurable benefits.

Web conferencing might be the only application for which there is broad-based recognition of the value of voice and communications tightly integrated with an existing business app (presentations and meetings).