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Broadband Access
Funding broadband
Telcos enter uncharted waters
by Samantha Bookman
Telecom consulting firm Civitium is no stranger to the intricacies of obtaining government funding for expansion projects. In 2008, the consulting firm assisted with the SGRITA expansion in north Georgia (see SGRITA wants to close Georgia’s bandwidth gap), and this year is helping a number of telecoms develop and submit applications for broadband stimulus funds being offered as part of the American Recovery and Reinvestment Act of 2009 (ARRA).
It’s been no mean feat. ARRA is a new government program, with all of the hiccups, frustration and confusion accompanying the startup of a massive bureaucratic process. Its funding mission covers a number of initiatives, from bridge-building to science grants. Expanding broadband into rural areas is just one initiative in a big pond – although it’s a pretty significant one, for both telcos and the U.S. population in general.
Broadband providers potentially have access to $7.2 billion in funding, exclusively for broadband development. But the application process is not easy. That’s where Civitium plays a role, as a company exclusively dedicated to getting providers through the process.
“This is definitely new territory,” says Bailey White, Senior Partner at Civitium. “We’ve administered grant programs and worked with states in running grant programs in (the) past, so we’ve got a lot of experience in what this looks like, but … I think both for the federal government to design a program this extensive, with this much money at stake, and for applicants to understand it and to apply, to do it properly, in both areas are really challenging.”
Civitium worked with five clients during the first round of ARRA funding, submitting applications for about $170 million. It was a full-time process for the firm.
“We worked with our clients in round 1, and (were) finding new interpretations of the rules and regulations and updating and changing our strategy really up until probably the last week until the applications were due,” White says. “And that doesn’t mean that the clients didn’t know what they were doing or that there was any sort of uncertainty regarding their plans, it was really that the regulations are so complex and up to many different interpretations that you really had to be careful and in figuring out how to put these projects forward.”
To help the process, Civitium is working with Quantrix, a vendor that helps companies develop business models. Broadband applicants working with Civitium are able to take advantage of the Quantrix Modeler software solution, a business modeling and analytics tool.
“When you build a business model, you have to make certain assumptions,” says Chris Houle, CEO of Quantrix. “One of the most important things you need to do (when trying to raise funds), and one of the things that adds credibility to a business model is introduce what-ifs or scenarios into your analysis that suggest ‘here’s our assumptions, but here’s what the impact would be of changes to those assumptions.’ So in the process of raising money, it’s very important to both demonstrate that you’ve thought through these factors when you built your business model and to demonstrate the actual impact on your business model of changes in these factors.”
“The barrier – the requested information on this is really tough to pull together,” White says. “It’s really extensive. It’s everything from explaining why there’s a need for better broadband capabilities and capacity to designing networks and business partnerships and operational plans and financial projections and everything else.”
The complexities of applying for broadband funding has led to frustrating delays. In November, the NTIA (National Telecommunications and Information Administration), which is responsible for $4.7 billion in funding under the BTOP (Broadband Technology Opportunities Program) portion of the stimulus, pushed back its awards timeline into December and expects to start actually handing out funds in February 2010.
White says this has not been good for growth. “The stimulus has unfortunately had an adverse impact to the telecom industry this year. It’s really slowed down the purchasing decisions of our clients and I’m sure others as they wait to learn what will happen regarding stimulus. No money has been disbursed yet by the federal government. So that means that anyone who thought they might have a hardware sale or a services sale of some kind to an entity that’s applying – there are over 2000 applications – they’re likely not making any sales until the awards are decided.”
NTIA’s first awards were announced at the beginning of this month, all going to fund broadband data collection and mapping activities in Alaska, Colorado, Delaware, Kansas, Louisiana, and Missouri. The USDA’s Rural Utilities Service (RUS), which is responsible for handing out $2.5 billion under the Broadband Initiatives Program (BIP), is moving more slowly.
Meanwhile, the second and final round of applications is scheduled to begin in February. White recommends that companies seeking stimulus funds “start considering the details of such an application now. Waiting for the revised application will be too late.”
Civitium’s first-round applicants, White reports, all made the application deadline or have completed the due diligence phase with NTIA. The RUS has not completed due diligence, he says.
Despite the challenges of getting these funds, White says that the broadband initiative will challenge telecoms to think about new business models. “(Unserved and underserved areas) don’t have good market reasons, good independent economic reasons for operators to be there. That’s why those areas have tended to be unserved or underserved in many cases. So one of the big challenges here was thinking about this in a different way and saying ‘okay well, if now my capital cost is reduced through economic stimulus, what areas can I get to, and what would my operating model look like and my financial model, if those capital costs were reduced? And where could I go that I might not be able to go otherwise? Or what kinds of services could I deliver that I couldn’t normally deliver?’”
The lack of a clear picture on broadband penetration has also had an impact on telecoms’ decisions to apply for funding. “There’s no nationwide atlas we can go to that tells us if an area is eligible for broadband stimulus funds or not,” White says. While this is something the broadband data collection and mapping effort will hopefully address, the information isn’t there for either round of funding. “In fact, we know some people who had ideas for great projects, hooking up hospitals and doing things like that that tend to be very much supported by the stimulus effort, but they felt they could not make the justification that it was unserved or underserved.”
Determining how successful the stimulus will be in expanding broadband is a long way away -- the data collection and mapping activities alone are expected to take two years to complete. And despite the enthusiasm surrounding the idea of extending broadband capabilities to rural areas, making this concept sustainable and profitable is a significant challenge for providers.
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