Ethernet cables, multi-coloured

Broadband by bureaucracy

America's plans to extend the reach of broadband have become mired in bureaucracy, E&T investigates.

The US economic stimulus bill set aside $7.2bn to spend on the delivery of broadband connectivity to rural and other 'unserved and under-served' locations.

As the American Recovery and Reinvestment Act (ARRA) became law in February 2009, there was talk of a two-fold benefit from its communications provisions. Equipment suppliers, network operators and construction companies would receive the short-term Keynesian boost.

Then, once fibre was in the ground and 3G/4G basestations transmitting, the money would help bridge the digital divide between the cities and the prairies, fostering longer-term economic growth in some of the country's more deprived regions.

So, how have things gone? Well, the agencies charged with distributing the money - the National Telecommunications and Information Administration (NTIA) and the Rural Utilities Services (RUS) division of the Department of Agriculture - did not make any awards whatsoever until late December 2009. Even then, they allocated only $183m, less than 10 per cent of the $2.4bn allotted to the scheme's first phase.

The good news was that NTIA and RUS had by then rejected 1,400 of the 1,800 first-round applications they had received, and were working hard to progress the remainder. Inevitably, lessons had been learned - one of the best being that the agencies had perhaps underestimated the challenge when they hired just 40 salaried staff and 1,000 people who were 'practically volunteers' to assess detailed submissions.

Apart from tackling the lack of appropriate human resources, the NTIA and RUS said that they would simplify the applications process for the second phase - containing the remaining $4.8bn - and make their own priorities much clearer.

However, while they defined a tight month-long window for applications, which ended in mid-March, they have still given themselves until September 2010 to announce where all the cash is going.

Senator Richard Shelby, an Alabama Republican, recently described the broadband stimulus as the poster child for wasteful spending. Meanwhile, Senator Barbara Mikulski, a Maryland Democrat who might be expected to go easier on the Obama administration's efforts, showed how frayed tempers are getting during a Capitol Hill committee hearing on the NTIA's work in January.

'Our question is, 'When the hell is this going to create jobs?',' she said.

Not just the Feds

From the start, there was widespread fear that the broadband stimulus would lumber when it should leap. The stimulus legislation divided the work between two agencies: $4.5bn to the NTIA's Broadband Technology Opportunities Program (BTOP) and $2.7bn to the Broadband Initiatives Program (BIP) at RUS. The programme was then split again, into a first phase of $2.4bn and a second phase of $4.8bn.

Whilst it was widely assumed that this meant the NTIA would handle urban and suburban projects while the RUS provided aid in the country, this was not made clear at first. The only thing that was clear was that you could not take the same application to both agencies. Meanwhile, both grants and loans were made available under the scheme - with grants reaching up to 80 per cent of a project's value - but it was debatable what kind of project would qualify for each scheme, what kind of assistance each project would qualify for, and how much they might receive.

There was always plenty of scope for delay here and the federal agencies explored much of it. But many of the potential recipients must also shoulder some of the blame. Part of the problem can be found by visiting the NTIA website, where the agency lists the applications and the various public comments made on them. Many - arguably most - are challenged for not meeting the 'under-served' criterion.

A typical scenario finds a local authority applying to run Wi-Fi in its metropolitan area, only for a carrier to object because it has plans to offer a 3G or 4G data service in the same place - some day. The wireless operators are not alone in doing this. A wired carrier might step forward and say that a co-op-proposed area is on its roadmap - but again, not just yet. Naturally, this game of claim and counter-claim is also taking place among the various communications companies themselves.

Nor do the co-ops emerge entirely blameless. Phase one payments came with a more 'liberal' set of conditions for network management and net neutrality requirements than many private-sector players felt comfortable with, so co-ops quite often placed bids for what were effectively overbuilds rather than new capacity.

Each of these objections has had to be investigated, further congesting a system already prone to blockages.

Clarity of purpose

Nobody is saying it out loud, but at some point late last year, it looks like the White House decided to intervene. A report EF restating the aims of the broadband stimulus was published in December by the National Economic Council (NEC), part of the Executive Office of the President rather than a division of the NTIA or its Federal Communications Commission overlord.

The report more tightly defines the NTIA's role as supporting the 'middle mile' - 'the critical link between the Internet backbone and the local networks that connect homes, businesses and community institutions'. In other words, it will encourage operators to extend their networks into districts that might be less economically attractive, but it will not pay to take the cable to the door of a domestic subscriber.

There is a further trade-off.

'Middle-mile projects are designed to improve connections to community institutions such as schools, hospitals and libraries, to enhance the quality of their critical services and reach large numbers of people,' the NEC says. 'By focusing on these institutions, federal investment will connect more workers to broadband at their jobs, empower more children with digital skills through schools and libraries, and lead to increased broadband adoption in homes and businesses.'

The RUS is then tasked with supporting the 'last mile', projects that 'facilitate connections to homes and businesses that would otherwise be left behind in the digital economy'.

'In highly rural areas of the country, low population-density may mean that middle-mile investment is not enough to make last-mile service cost effective for private providers. For these communities, the government has an important role to play in bringing broadband service to homes, businesses and rural anchor institutions,' the report says.

This is a much clearer definition of the roles of BTOP and BIP than anyone had last year. It also sets two other important markers.

First, the explicit inclusion of connections to public institutions among the goals for middle- and last-mile projects provides a measure that will make it much more difficult for traditional telcos to challenge proposals from local co-operatives. An emphasis on public-service broadband and utility provision has been placed above the traditional market-based notion of connectivity being offered predominantly according to a network's commercial potential.

Second, the original Keynesian driver for the stimulus has largely disappeared. After all the delays, it would be hard - perhaps even comical - to promote the idea that this scheme is funnelling money into the economy to fight a downturn. Progress has been, to say the least, ponderous.

Instead, the government has firmly stated that the money will now be dispersed to garner longer-term benefits that will accrue by making broadband more accessible to more people, especially those who are either financially or geographically disadvantaged.

But is it enough?

For the first time since commercial broadband began to be tracked in the US in late 2000, overall penetration fell in the period from April to December 2009, to 60 per cent of the population from 63 per cent, according to the latest data from the Pew Research Center.

The recession's impact on spending on communications and thereby the operators' willingness to invest is no surprise. Data from the Telecommunications Industry Association has total 2009 investment falling to just under $29bn, compared to $31.6bn in 2008, and projects spending in 2010 to contract further, to $27.7bn.

There is another number to consider here, bearing in mind that those cited in the last paragraph are what telecoms companies have spent or will spend regardless of the recession. The new number is $19bn, representing the total value of all the grant applications that NTIA and RUS received for the first phase of the broadband stimulus.

It is likely that stimulus applications were made for projects that were going to be funded anyway, and that there were genuine cases of duplication where successful applications would have competed with commercial ventures. That said, the $19bn total suggests the scale of the work be done far exceeds the $7.2bn on the table from Washington.

The Pew Center user data suggests that there is, however, plenty of demand to underwrite the cost of a full build-out - just perhaps not on as fast a return as commercial players would like. Broadband penetration in urban America stands at 61 per cent, but in rural America, it is 47 per cent. However, the difference for all Internet usage is far narrower: 74 per cent urban against 70 per cent rural. If they build it, chances are that rural users will come to use it.

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