Handicapping Broadband Stimulus Picks

The $7.2 billion in Broadband Stimulus prize money in the American Recovery and Reinvestment Act of 2009 (ARRA) is creating quite a buzz around the telecom race track.

With its objective “to expand broadband services in the U.S.”, the Broadband Stimulus makes money available to build broadband facilities where little or none exist. The huge response to the July 1 Notice of Funds Availability (NOFA) was overwhelming, filling the barns with over 2,200 entrants ready to saddle-up for the big race.

Here’s what we know for sure.

The 2,200 applications for the first race tallied more than $28 billion in proposals, or four times the money appropriated. Interestingly, about one-third of the applications involve some sort of broadband wireless infrastructure, up to now a telecom long shot.

The Rural Utilities Service (RUS) Broadband Initiative Program (BIP) has a $2.5 billion appropriation that will be disbursed in the form of loans and loan guarantees, grants or loan/grant combinations. BIP funds are for broadband infrastructure in unserved and underserved rural areas.

The National Telecommunications and Information Administration (NTIA) Broadband Technology Opportunity Program (BTOP) will hand out $4.7 billion in the form of grants. Some BTOP grants will support community entities (schools, libraries and municipal facilities), public safety, and broadband education and training programs.

Infrastructure projects are grouped as Last Mile Wireline and Wireless, referring to links from a network node or base station, and Middle Mile, referring to interoffice or interexchange plant, or wireless backhaul facilities.

BIP and BTOP funds were originally expected to be awarded in three rounds, but it looks like the race card will be trimmed to just two. All the funds are to be awarded by September 30, 2010, and the projects that are funded must be ‘substantially complete’ within two years, and fully complete within three years of the date of the award.

Here’s the big unknown: Which projects will get picked?

The blogs are atwitter with a lot of speculation, but nobody knows if they’ve bet on the right horse. The first Round 1 winners are to be announced on November 7, but the results aren’t official until they are posted to the Government website.

Here is my informed tip on the likely outcome. (I’m staking my reputation here!)

BIP priorities include: 75% in rural areas lacking broadband, giving a choice of providers, serving the highest proportion of rural residents, current or former RUS borrowers, fully-funded and ready to start, and a high percentage of loan versus grant funds. The RUS is looking at projects from established rural carriers that have a history of borrowing money and paying it back. Established rural telcos are the favorites in this race. Many rural telcos won Advanced Wireless Services (AWS) and 700 MHz licenses in recent FCC spectrum auctions, and want to use BIP funds to build them out. Regional wireless carriers, small cable operators and wireless ISPs with AWS/700 MHz licenses or authorizations for unlicensed band operation will also place high. Wireless infrastructure is faster to market, with lower costs per subscriber, than most wired solutions.

Beyond that, new companies proposing large geographic coverage to millions of POPs are strong contenders, especially if they are asking for a big loan versus a grant. The RUS prefers to disburse funds in a few big chunks versus many smaller bits. It makes sense to go for wide coverage while reducing the associated administration expense.

BTOP favors projects that offer clear socio-economic benefits for disadvantaged businesses and residents, are relevant to the overall goal, are technically feasible and financially viable, can meet the timelines, and create a lift for the local economy. Since the Federal government wants to spread the wealth, there will be at least one award in every state.

That said, State governments can tip the odds towards their favorites ahead of the BIP/BTOP final selections. Many BTOP projects are government- and nonprofit-run broadband networks, or public-private partnerships that have local or state governments as the dominant partner. Most of these projects will be funded with BTOP grants in metro and suburban underserved areas as opposed to unserved rural areas that BIP addresses. The BTOP pot is almost twice the size of the BIP budget. So we might see more projects in the public sector than with private operators.

At this juncture, no one knows for sure what the picks will be, no matter what you read. Unqualified projects are being scratched as the field of applicants nears the starting gate. Once the final awards are officially announced, then the race is on!

John M. Celentano is President, Skyline Marketing Group, a Baltimore, MD-based telecom market analysis and consulting firm. He is currently on a special assignment in the wireless industry. He can be reached at john@skylinemarketing.com.