Broadband Grant Rules Likely to Draw ‘Serious’ Applicants

“We are still reviewing the rules, which as expected, track the legislative language,” including a mandate that applicants show projects could not be done without federal money, said a Stifel Nicolaus report. That requirement helps ensure serious applicants will apply for the grants, said attorney Andy Lipman, who represents competitive and rural phone companies that may be interested in applying for grants: “I think the rules will attract a diversity of players.” Stifel analyst David Kaut agreed.

USTelecom also was still reviewing the requirements, but is “concerned that some of the new mandates seem to go well beyond current laws and FCC rules, and may lead to the kind of continuing uncertainty and delay that is antithetical to the President’s primary goals of economic stimulus and job creation,” said President Walter McCormick. With record high unemployment, McCormick said, “it is troubling that those who do not intend to invest a single penny in broadband deployment are calling for broad new mandates, while those who want to move forward with shovel-ready projects are faced with ambiguity as to what they may or may not be allowed to offer under the terms of the new federal grants and loans.”

Coordinating the rulemaking between two different agencies was a challenge, especially since each had different requirements imposed upon them in the Recovery Act. NTIA was ordered to impose network nondiscrimination requirements on its grants, following at a minimum the FCC’s existing broadband policy principles. RUS had no such mandate. But the NOFA imposes nondiscrimination rules on both agency grant programs. One of the five nondiscrimination requirements directs applicants to offer interconnection “on reasonable rates and terms,” including the ability to connect to the public Internet and physical interconnections for the exchange of traffic.

The interconnection requirement is “very significant,” said Public Knowledge Legal Director Harold Feld. It’s the first time in many years that interconnection has been raised in the regulatory arena, he said. Other countries that have imposed some type of interconnection requirements have “leapfrogged” over the U.S. in broadband deployment, he said. Lipman said the nondiscrimination principles provide a “window into the FCC’s thinking about where network neutrality is headed.” Essentially the NOFA takes the terms imposed upon AT&T in its merger with BellSouth and applies them across the board to the broadband grant program, he said.

Overall, Feld said he was pleased with the NOFA: “It’s important to recognize that this isn’t perfect and there is no way it could be.” Feld had no qualms about the NOFA’s setting broadband speed at the existing FCC standard of 768 kbps, saying it reflects the realities of the marketplace where it could be impractical to build out higher speeds in the extremely rural areas the government wants to reach. Feld also praised the NOFA’s point system for evaluating applications, which will work to give incentives to companies that offer more than the minimum requirements. “There is an incentive to get applicants to put their best offers on the table,” he said.

Stifel said the speed requirement was “low,” but noted that the grant requirements give preference to projects offering higher speeds. The minimum connection speed “is easily attainable,” said Washington Research Group analyst Paul Gallant. “Applicants get bonus points for committing to higher speeds, but RLECs clearly won’t be disqualified for proposing somewhat lower speeds than are available in large metro areas.”

Gallant said rural telcos like Windstream, Frontier, CenturyLink, Iowa Telecom, Fairpoint and Consolidated Communications could be positioned well to “capture a share of the broadband funding.” Wireless Internet service providers “could win some of these funds, but we think RLECs’ relative financial soundness and deep management expertise will give them a clear advantage in final funding decisions,” he said.

The NOFA creates a new broadband infrastructure program at RUS that will award grants, loans and loan/grant combinations. The BIP is funded initially with $2.4 billion, of which $1.2 billion is dedicated to last-mile projects, which can include both remote and nonremote projects, and $800 million is available for middle-mile projects. The middle-mile projects would cover interoffice transport, backhaul and special access. It sets aside $325 million in a special reserve fund.

NTIA’s Broadband Technologies Opportunity Program gets $1.6 billion in budget authority. But it will spend initially $1.4 billion, with $200 million set aside in a national reserve. The law requires the agency to make at least one grant in every state “to the extent practical” by the Sept. 30, 2010, deadline for completing the program. Of the $1.4 billion, $1.2 billion will be spent on broadband projects, $50 million for public computer centers and $150 million for projects to encourage broadband adoption.

Both for-profit and non-profit entities may apply for BTOP grants. Those applying for last-mile projects must provide service to the entire territory of each census block included in the service area unless a waiver is granted. RUS projects must serve areas where at least 75 percent of the population lacks sufficient broadband access, whether they are deemed unserved or underserved.

BTOP applicants must provide 20 percent in matching funds for each project, and must prove that projects would not have been built without federal assistance. BTOP grants for middle-mile projects can include “interoffice transport, backhaul, Internet connectivity, or special access.” NTIA said it will announce finalists in the first round of funding Sept. 15, and then gather input from states on potential projects while the government studies the financial viability of the finalists. Funding is expected to flow by Nov. 7.

The “biggest unknown” is how NTIA will screen applications, and who it will hire to do the work, Feld said.

The agency has yet to announce its contractor for the job, and agency officials did not have an answer by our deadline on the timing for contractor selection. Feld said he would be concerned if NTIA selected a firm that has long-standing ties to incumbent providers.