Stimulus Grantee Spent More Than $9 Million ‘Overbuilding’ Local Fiber, Commerce IG Says
The broadband stimulus grantee known as Eagle-Net may have overbuilt private networks to the tune of millions of dollars and has fallen short of the goals it once set, Commerce Department Inspector General Todd Zinser told Republican lawmakers in a long document released this week (http://1.usa.gov/MgYE0W). But NTIA Administrator Larry Strickling questioned the findings and the way overbuilding has been talked about, sending Zinser a letter outlining many concerns.
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Last summer, Communications Subcommittee Chairman Greg Walden, R-Ore., joined with Colorado Republican Reps. Cory Gardner and Scott Tipton to send a letter to the IG asking several questions. The Colorado grantee had received $100.6 million from the Broadband Technology Opportunities Program and has faced much scrutiny and debate, with allegations of waste, overbuilding and other struggles, even once suspended for many months due to problems in complying with its environmental review process. Several telcos in Colorado had attacked Eagle-Net for alleged overbuilding, a charge that inspired an equally strong defense from Eagle-Net and other observers -- Eagle-Net was building a statewide network and did try to partner, they've told us. Walden led a House hearing scrutinizing Eagle-Net at length last spring. Last fall, Eagle-Net partnered with a private operator, Affiniti, as a way to acquire millions in cash it then lacked.
The IG acknowledged there’s no overall agreed-on definition of overbuilding. “Conscious of this imprecision and looking to the question of laying fiber next to existing fiber lines, we focused our review on instances where ENA fiber and competitor fiber were in proximity to each other and could potentially service the same CAIs [community anchor institutions],” IG said in the 19-page report. Proximity meant within eight miles and where beginning and end points were in the general vicinity of each other, the IG said. Eagle-Net did try to partner with existing providers, according to the findings.
The report found 192 miles laid in proximity to existing fiber, but the number would likely have been much higher if the IG had been able to compare all miles of fiber laid by Eagle-Net, it said. IG cited a July meeting with Eagle-Net when it determined each mile of new fiber laid by Eagle-Net, then amounting to 660 miles, cost $49,000. By those calculations, Eagle-Net’s overbuilt fiber cost around $9.4 million.
Strickling fired back in a three-page letter dated Tuesday. He slammed the IG’s definition of overbuilding as “arbitrary” and agreed there’s no widely accepted definition of overbuilding. Proximity of broadband facilities doesn’t demonstrate that, Strickling said. And more than two thirds of Eagle-Net’s deployed miles are either leased or upgraded from existing providers, he said. He called eight miles a “random benchmark,” likely to invite “ill-informed criticism.”
"More importantly, regardless of the definition, the OIG letter acknowledges that prior to building new fiber ‘in proximity’ to fiber owned by other broadband providers, EAGLE-Net made reasonable efforts to contract with existing providers to utilize their broadband facilities,” Strickling told Zinser, saying other providers had not responded to Eagle-Net’s requests for proposals or information. Those 192 miles also amount to less than five percent of the 4,175 network miles made possible by the BTOP grant, Strickling said.
NTIA has provided “rigorous oversight” of its grants, including Eagle-Net, Strickling said. “We do not think the facts support the OIG suggestion that NTIA did not promptly address environmental and historic preservation (EHP) issues related to route changes.”
The IG report also noted how little money Eagle-Net has now and its struggle to move forward in light of that. As of July, Eagle-Net had spent $90 million of the grant money, citing matching funds that didn’t come through and anchor institutions requesting fiber instead of microwave connectivity. It spent two-thirds of all grant money before NTIA had suspended it for its violation of terms, the IG found. It also worried about ongoing internal financial control problems. Strickling disputed that, saying NTIA is ensuring “prudent” spending. As of June, Eagle-Net had connected 102 anchor institutions. “ENA’s current plan is to reach a total of 131 of 223 CAIs with grant funds,” IG said. “The remaining 92 will only be connected if additional, non-grant funding is obtained.” It had completed 2,895 miles as of June, 69 percent of the revised network design, according to IG.
The IG analyzed Eagle-Net data to find that average monthly costs were $273,068 and revenue $94,799. Operating costs were expected to drop once Eagle-Net partnered with a private provider, as it since did. Eagle-Net, as far as the IG knows, is meeting commitments to customers, it said. Strickling highlighted this in his letter, emphasizing the satisfaction of Eagle-Net customers in his opening paragraph. But ensuring sustainability is a concern, and the project is “complex” and fraught with “numerous challenges,” the IG said.
Strickling defended the sustainability, pointing to the “long-term” Affiniti partnership, which came with an agreement of $3.5 million over multiple years “to connect additional rural and underserved school districts, and $8 million in success-based capital that will be made available as schools and communities express interest in receiving services and as income from operations permit,” Strickling said. Eagle-Net covers much of the same geography despite shifting routes and plans, Strickling observed.
Gardner, meanwhile, a prominent Eagle-Net critic within Colorado, formed what he called a rural broadband coalition, he said Tuesday (http://1.usa.gov/1aIiNso). It’s devoted to bringing high-speed Internet to unserved and underserved parts of Colorado and includes members from CenturyLink, state telcos and the Colorado Telecom Association.
"It is past time to deliver this essential service efficiently, and to areas that are actually in need of it,” Gardner said in a statement. “The opportunities that come with a solid broadband infrastructure are limitless when it comes to small businesses, healthcare, and education, allowing growth that was not possible before.” Walden, Gardner and Eagle-Net did not comment by our deadline.