IHS Global Insight Perspective | |
Significance | The deadline for the first round of broadband stimulus applications has closed. |
Implications | States and wireless service providers so far dominate the applications, with projects including middle-mile connectivity, wireless access, training and device development. |
Outlook | Notable absences are the major internet service providers (ISPs), which have reportedly found the rules overly onerous. However, with the likes of Verizon selling off more marginal access lines, they may just have little interest in connecting up the unserved communities targeted by the funding programme. |
With the deadline for applications to receive federal broadband stimulus money closing last week, after extending the deadline by a week due to demand on government servers, details of some applicants have emerged. The overall unfolding picture is that the major players in the industry are not applying for the funds, citing the potentially onerous rules attached (see United States: 2 July 2009: Broadband Stimulus Rules Announced in U.S., Net Neutrality Enshrined and 3 July 2009: USTelecom Complains of Onerous Rules in Broadband Stimulus). The large incumbent telecoms companies—AT&T, Verizon and Qwest—as well as the two largest cable companies, Comcast and Time Warner, are all reported by the Washington Post to have decided that they are better off without directly engaging in the process, which could tie them to unprofitable networks in marginal regions and open them up to having the rules for the new network builds (most specifically network neutrality provisions) later applied to other parts of the network. AT&T noted in July 2009 that it would still receive some benefits from the broader stimulus package as contracts are implemented by its clients (see United States: 16 July 2009: AT&T Will Gain Secondary Benefits from Stimulus Funds).
States form a significant segment of the applicants. As previously reported, Missouri is seeking some US$142 million to fund middle-mile connectivity, with local utilities and service providers engaged to provide access and customer care (see United States: 14 August 2009: Missouri Aims to Tap Broadband Stimulus Funds for US$142 mil.). The Washington Post also reports that 11 Jurisdictions in Maryland—Prince George's, Montgomery, Howard, Charles, St. Mary's, Anne Arundel, Frederick, Baltimore and Carroll counties as well as the cities of Annapolis and Baltimore—are seeking a total of US$100 million to build a 600-route-mile fibre-optic network to connect schools, libraries and government agencies in the state. A further US$30 million would be made available by the local governments to fund the deployment, which would also be used as the backbone for an access network to unserved areas.
Wholesale provider Level 3 is also reportedly applying for US$15 million in funds for fixed-line deployments in six states, to which it would add some US$5 million if successful. While details are scant, these are again likely to be 'middle-mile' projects connecting from the backbone to the community level—the Denver Business Journal reports Monisha Merchant, Level 3 director of product management, as noting that "this opens an opportunity to find new partners providing access in these disparate areas".
The weight of applications is reported to come from wireless providers, which should be able to provide connectivity to the remote areas where the stimulus package hopes to hook up more efficiently than fixed-wireline providers. Marking how unattractive these regions are to the large incumbents, Verizon has been selling off access lines in just the type of region targeted by the stimulus funds (see United States: 1 April 2008: Verizon-FairPoint Deal Closes and 14 May 2009: Frontier Buys 4.8 mil. Access Lines from Verizon). FairPoint, which has struggled since the massive scaling up entailed in the Verizon deal, has applied for US$37.8 million in stimulus funds for northern New England, with five applications for grants that would provide access to 19,300 homes and businesses in Maine (Aroostock and Washington counties), 8,600 homes in New Hampshire (Coos and Grafton), and 2,900 houses and business in Essex and Caledonia counties. FairPoint also made a bid for more than US$1 million to help fund a deployment in Florida to extend broadband to 700 households and US$900,000 to extend broadband to 500 households in Missouri. FairPoint has struggled financially recently, but promised investment in broadband infrastructure as part of the deal to gain regulatory approval of the transaction, handing over a large number of Verizon's lines in northern New England.
Low-cost wireless carrier Leap Wireless has also reported an application for US$8.6 million jointly with One Economy Corporation, a non-profit organisation operating the Project Change Access programme that aims to provide affordable wireless broadband services to 23,000 low-income residents in five cities: Baltimore, Houston, Memphis, San Diego and Washington D.C. The residents would receive low-cost broadband access, but also "digital literacy training", which the funding rules expressly support. One Economy would also provide targeted and localised content for education, employment and healthcare though online portals.
KeyOn, a wireless broadband service provider that uses WiMAX technology in the non-exclusively licensed 3.65-GHz band, has also announced that it is making a significant application for funds, seeking US$150 million. This would be used to target small, underserved communities, with its current network of 382 towers providing coverage to around 2.5 million people across 50,000 sq. miles and 11 western and midwestern states. The funds would be used to expand coverage to some 16 states and a population of 6.5 million.
SkyTerra Safety Access, a wholly-owned subsidiary of Reston-based SkyTerra, has announced that it has also applied to the National Telecommunications and Information Administration (NTIA) for US$37 million, to which it would add US$9 million. Interestingly, this is not for network infrastructure, but is intended to fund development and deployment of two new wireless devices targeted at public safety workers that can access both the satellite system it operates and the 700-MHz terrestrial wireless networks being built out using the spectrum auctioned last year (see United States: 21 March 2008: AT&T, Verizon Dominate 700 MHz Auction).
Outlook and Implications
As evidenced by Verizon's sale of lines in more marginal communities and now the lack of interest in federal funds, these regions are of little interest to the large service providers, particularly when the strings attached to the funds could undermine their bids against regulation with regards to bundled service/content delivery. Rather, the key players in funding applications have been states seeking to deploy infrastructure to support their own key community services, with the objective of using the backbone networks created as the middle-mile connectivity for new access networks. Wireless carriers have also been major applicants, with the nature of wireless networks suited to providing coverage to sparse and remote populations.