Stimulus funds for high-speed Internet access tangled up
The goal was to quickly create tens of thousands of jobs and connect millions of poor and rural communities to broadband, a technology that's essential for economic development, modern medicine and education.
But officials had no idea that the demand for the cash would be so overwhelming. They also were bombarded with questions and challenges from large cable and phone companies including Comcast, Time Warner Cable and AT&T.
The combination has swamped the agencies in charge and created a bottleneck that might threaten disbursement. After nearly a year, about 7% of the funds has been assigned to specific projects.
As a result, "There's significant doubt as to whether the monies can be awarded before the end of September," when the funding authorization expires, says Dan Hays, who directs the communications practice at consulting firm PRTM.
Officials scrapped their original plan to assign $4 billion by the end of 2009, followed by two more funding rounds. Instead they're poised to hit as much as $2 billion when the first round ends this month, as they begin to consider applications to the second — and last — round up to March 15.
The effort to spend that money quickly but responsibly is like "trying to use a fire hose with a garden hose nozzle," says Craig Settles, an independent consultant who helps companies develop broadband strategies. "Getting broadband to the American public is not going to be easy."
Such concerns have trained a spotlight on two agencies grappling with the biggest telecommunications program either has ever handled. Congress gave the Commerce Department's National Telecommunications and Information Administration (NTIA) responsibility to allocate $4.7 billion. The remaining $2.5 billion is being handled by the Agriculture Department's Rural Utilities Service (RUS).
The agencies say that they'll meet the Sept. 30 deadline for allocating the funds.
"We're expecting quite a few announcements in the next month and a half," says NTIA Administrator Lawrence Strickling.
The grants are designed to address a real need: As many as 10 million households, representing about 9% of the country, "will have significantly inferior choices in broadband" in 2013, Columbia University's Columbia Institute for Tele-Information said in a November report.
And people who live in rural communities are 29% less likely than the rest of the country to have a broadband connection, research firm Parks Associates found in two surveys.
In many cases people simply can't get broadband at an affordable price.
"Without government loans or grants, it's often too expensive to (lay broadband lines or build transmission towers to) reach such areas and still generate an adequate return," says William Wallace, founder of rural wireless broadband firm DigitalBridge, a leading applicant. "They're low-density areas."
The broadband stimulus awards target areas that need the most help. For example, last month NTIA gave $33.3 million to a firm that will build a 955-mile fiber-optic network through an area in Michigan's Lower Peninsula that includes 886,000 households and 45,800 businesses.
In December RUS awarded a $985,000 grant to a Bretton Woods, N.H., phone company that hopes to promote tourism by building out broadband services. The connections will enable people to stay in touch with their businesses while they're visiting the area.
Officials discovered the magnitude of the problem they're trying to address when invitations went out in July for applications for the first round of allocations. They received more than 2,200 requests, asking for a total of $28 billion, four times the amount up for grabs. Most included hundreds of pages of technical details about proposed projects that included build-outs of fiber-optic lines, wireless services, computer labs and municipal networks.
"We were surprised at the number of applications that we got," says Strickling. "We had to have three reviewers review every application. That clearly became a challenge in terms of getting that process done as quickly as we could."
On top of that, cable and phone companies flooded the agencies with objections to the proposed projects. "There are 11,000 public comments (about the funding applications), and I'm willing to bet that 9,000, at least, were a challenge or protest of one sort or another," says Settles. "We're at a point where it's the general public's interest vs. the entrenched incumbents."
In many cases, challengers said that they already provide broadband in areas targeted by applicants for federal assistance. "You don't want to fund projects that will be replacing private investment with government investment," says James Assey, executive vice president of the National Cable & Telecommunications Association, an industry trade group. "That's going to set broadband policy back and not necessarily scratch the itch you're trying to scratch on the (economic) stimulus side."
For example, Comcast, Charter Communications and AT&T questioned an application for $13.5 million to provide broadband services in Columbia County, Ga. And Time Warner Cable said it offers broadband to more than half of the homes in an area of southwestern Ohio and northern West Virginia to be covered by a $12.6 million application to build a 710-mile fiber-optic ring.
AT&T says that its filings were "not objections," but "provided information about areas where we currently offer broadband service."
Most of the big broadband companies did not apply for stimulus funds. The rules require recipients to open their networks to everyone and agree to network neutrality requirements, meaning that they can't favor some Web services over others.
"It wasn't worth the uncertainty," Assey says.
Still, the protests against those who did apply for help added to the bureaucratic burdens.
"We take very seriously any claims that there is service in an area that we're planning to fund, and we get to the bottom of that before we make any final decision," RUS Administrator Jonathan Adelstein says.
Determining service gaps is more complicated than you might imagine.
"Because the United States has not taken (broadband needs) seriously until the Obama administration arrived, we don't know exactly how many people are unserved" by broadband, or precisely where they are, Adelstein says.
NTIA has begun to fund projects that will draw maps showing which neighborhoods either can't get broadband, or have access only to services that are relatively slow or expensive.
Assey says that it's "a little backward" to move forward without better information. "It's far more important that we do it right, than that we do it right now," he adds.
It also will be hard to judge the effectiveness of the broadband stimulus effort, because it does not have clear benchmarks for success.
"We're just not sure what money will come forth and how or if it stimulates jobs," says Parks Associates CEO Tricia Parks. "We're not even sure of the goal."
Strickling says, "We're learning as we go."
While that's taking place, the agencies tend to give applicants the benefit of the doubt when there's a dispute over whether an area is covered. In addition to looking at whether a company serves an area, they consider the speed of the broadband and how many people subscribe.
That pretty much rules out satellite broadband services, which blanket the country but tend to be slow and expensive.
If the government considered only whether there's a broadband service that could connect people in a community, then "many of our areas would not have qualified," Wallace says. In some cases, as many as 80% of homes could get broadband. "But it's adoption that becomes problematic," he says, often because the existing broadband provider charges too much.
The NTIA made things easier for applicants last month. For the second round of allocations, it got rid of the requirement for funds to go to unserved or underserved areas, although Strickling says that projects that fill that need "will receive additional consideration."
Some analysts say that while the funding approval process may speed up now, another change in the NTIA requirements may slow the process of connecting homes and businesses.
The agency says that it will focus on projects to build what's known in the industry as the "middle mile" — taking the Internet from national trunk lines into the community — instead of the "last mile," which connects people to the Web.
"It's going to significantly delay the realization of benefits to the end user," Hays says. "The applications and interest that's been shown in last-mile solutions demonstrates a level of demand that the program isn't meeting."
Although Hays says he doesn't know what accounted for the shift, the early protests from cable and phone companies "probably gave pause to NTIA and RUS about just how many last-mile applications they should fund. Middle-mile applications are less controversial."
Regardless of how or why the change was made, the middle-mile projects make sense, Strickling says, because the infrastructure's available to everybody and will "increase the chance that a last-mile project will be successful."
