February 19, 2010 By Andy Opsahl
Before the federal government announced the winners of broadband stimulus awards in December 2009, conventional wisdom suggested government-run projects would capture most of the money. Stimulus applications from vendors, in this scenario, would face lower priority. The awardees were publicized, and all middle-mile and last-mile grants went to small telecommunications companies. This gave private vendors roughly a $173 million share of the money. Compare that to the $9.7 million governments got for public computing center expansions and broadband adoption programs. Large vendors didn't apply because they found the eligibility requirements too onerous.
Having run themselves ragged meeting a short application deadline, government CIOs suddenly found themselves deflated and doubtful about playing a strong role in the federal government's stimulus agenda, according to Alan Shark, executive director of the Public Technology Institute.
"Any idealistic hope that we may have had has been evaporated by what they funded," Shark said.
Indicators have come from the federal government that state and local agencies will have a little more influence during the second round of funding, set to be disbursed in September. In round two, the federal agencies charged with awarding broadband stimulus money promised to give higher priority to public-private partnerships in which governments gave endorsements. A more developed look at why the federal government snubbed public-sector applicants and what to expect for the next funding window could further illuminate the direction broadband stimulus is moving.
The reason for the seeming shutout of government broadband stimulus applications was a lack of preparedness and expertise, according to Alex Winogradoff, research vice president with Gartner. He was among those vetting broadband stimulus applications for the National Telecommunications and Information Administration (NTIA), one of the two federal agencies tasked with disbursing $7.2 billion set aside in the American Recovery and Reinvestment Act for broadband projects.
With time and resources scarce and applications to review from nearly 2,200 entities, favoring vendors was less complicated because they wrote savvier proposals and required less follow-up, in Winogradoff's view.
"They were inundated with $28 billion worth of projects. Then they had to get 2,000 people to go through each and every one of these projects and justify and mark them off," he said. "From an administrative standpoint, that was difficult to begin with."
Winogradoff said he empathized with government applicants, given the complicated list of eligibility requirements they faced at a time when agencies were laying off staff. Vendors couldn't help but have an upper hand.
"There were so many limitations and so many problems with this, and that's why it took so long," Winogradoff said. "Most of the money was supposed to be allotted by Nov. 17,  and at this time, we're almost two months later and only $182 million was let go."
He considered that amount a paltry dent in the $7.2 billion intended for distribution by the NTIA and Rural Utilities Service (RUS), the other federal agency disbursing broadband stimulus money. Originally the NTIA and RUS expected to have three funding windows, but later changed it to two. Assuming that decision goes unchanged, $4.8 billion will leave federal coffers after Sept. 11, 2010, the next funding payout. Money remaining after this round will fund a national broadband coverage map and the administration costs of distributing the money.
Winogradoff described the difficulties the NTIA and RUS created for themselves with complex application requirements for the first round of funding.
"Most of those pages talked about the process -- what they had to submit, how they had to submit it, how it was going to be managed, how much weight was going to be given to what part of the submission," he said. "It was so much in there that for anybody reading the submissions that were coming into the NTIA or RUS, it would take a lot of time to go through this and to do it right."
For the second funding window, RUS simplified its rules. The first set of requirements had two funding options -- grants of up to 100 percent in remote rural areas, and 50/50 loan-grant combinations in non-remote rural areas. For the second round, RUS eliminated this distinction and adopted a base 75/25 grant-loan combination for all projects. RUS says its new approach provides flexibility for seeking a waiver if additional grant resources are needed for areas that are difficult to serve.
Oakland, Calif.-based municipal broadband analyst Craig Settles, who runs broadband consulting firm successful.com, predicted applicants would find this simplification a welcome change. That's not to say RUS and the NTIA simplified their rules considerably. Analysts expected less stringent eligibility rules for the second round, and that didn't happen, in Settles' view. He expects larger telecoms to avoid the grant process, leaving the money to smaller providers. Settles thinks telecommunications companies will retain advantage during the second funding window. However, governments will likely have more influence. The NTIA announced it would give greater priority to public-private partnerships. A public-private partnership network would largely be driven by the vendor, but it would need buy-in from the governments affected by it. That could give governments authority to require the network to serve various aspects of their communities in exchange for their endorsements.
Applications for middle-mile broadband infrastructure got most of the funding during the first round -- more than last-mile, sustainable adoption and public computing applicants. "Middle-mile" refers to the backbone fiber that cuts broadly through sections of the country. "Last-mile" is a term for projects extending equipment from the backbone to buildings requiring services.
Winogradoff said middle-mile projects dominated because they're simpler to implement. Last-mile projects often involve more points of approval and have more potential for unforeseen challenges. Most of the last-mile projects were for rural areas, typically rife with obstacles to broadband.
"We're talking about people who live in out-of-the-way places where the cost would be horrendous," Winogradoff said.
That doesn't necessarily mean the federal government is afraid of the challenge. For the second funding window, RUS announced it would focus on last-mile projects, while the NTIA would stay focused on middle-mile proposals.
While telecoms dominated middle-mile applications in the first round, governments were more successful with broadband adoption and public computing grant applications. Those awards often went to consortiums of local government agencies, usually involving public libraries and community centers. Strategies for public computing typically involved expanding existing computer centers, while broadband adoption efforts took the form of added usage classes.