Friday, July 3, 2009

Communications Workers of America: Buy American Waiver is "Symptom of Decline of US Manufacturing" 07/03/09 The Communications Workers of America (CWA), the national industrial union representing 740,000 organized members within the telecom sector, stated today its displeasure with the the recent waivers, issued by the Departments of Agriculture and Commerce, of the Buy American provisions of the Recovery Act.

CWA, a delegate organization of the AFL-CIO, was the only arm of the American labor movement to have lobbied the Obama Administration in favor of a strict enforcement and interpretation policy regarding the applicability of the Buy American clause to the "broadband stimulus" provisions of the overall $787 billion American Recovery and Reinvestment Act of 2009 (ARRA).

In an e-mail of this afternoon, responding to inquires of earlier this week by, CWA Spokeswoman Ms. Candice Johnston stated, "This is a symptom of the decline in US manufacturing. Most companies now also outsource some tech work and (the) overall impact isn't good. I believe the intent of Congress in this program was to stimulate the US economy and US jobs. We need to do more to keep and grow quality US jobs."

CWA endorsed then Senator Barack Obama for the presidency on June 23, 2008.

Late last Friday afternoon, June 26, the National Telecommunications and Information Administration (NTIA), a division of the US Commerce Department, and the Rural Utilities Service of the US Department of Agriculture (RUS) both issued nearly identical "limited waiver" notices for the Buy American provision.

NTIA and RUS are the 2 federal agencies designated by Congress to disperse the total of $7.2 billion in Recovery Act funds to spur broadband deployments in "unserved" and "underserved" areas of the US. Each notice was separately based on a "finding" previously issued on June 19 by the Secretaries of Agriculture and Commerce, Tom Vilsack and Gary Locke, respectively. Both waivers are referenced in the federal guidelines, called a Notice of Funds Availability (NOFA), issued July 1 to launch the first competitive broadband stimulus application round (download: . PDF).

The waivers are applicable to certain specified network and telecom equipment purchases to be funded by the broadband stimulus appropriations of the Act. Actual expenditures on network and telecom equipment covered by the waivers will be spent by successful applicants competing for the federal funds under competitive grants, loans, and grant / loan combinations. Both waivers were published in the Federal Register on July 1 (download: PDF).

The waiver issuance marks a clear victory for network and telecom gear makers Alcatel-Lucent (NYSE: ALU) and Cisco Systems (NASDAQ: CSCO), and the Washington-based trade group the Telecommunications Industry Association (TIA). All 3 entities had lobbied NTIA and other federal agencies in favor of a permissive interpretation of the Act's Buy American language, and had requested the waiver issuance.

“We are encouraged by the RUS and NTIA decisions to waive the Buy American requirements for certain broadband network equipment", said TIA President Grant Seiffert in an e-mailed statement sent to

"These announcements recognize that technology is manufactured on a global scale and that American consumers should have access to the best available technologies, regardless of origin. TIA continues to support open markets and free trade", concluded the trade group president.

Alcatel-Lucent and Cisco are TIA members, together with some 300 other gear makers, system integrators, and associated industry groups and vendors.

As we had previously reported, first on April 16th, Cisco has been conducting a series ex parte discussions with decision makers at NTIA.

We also speculated that what Cisco and other major players in the American technology sector saw at stake in the Buy American controversy could be far more significant that the equipment portions of the $7.2 billion in broadband stimulus funding. We believe that American tech firms having substantial foreign manufacturing operations feared being frozen out of the much larger information technology (IT) purchasing opportunity represented by ARRA. We have always concurred with analysis, like that of the Baller Herbst Law Group (download: PDF), that the Act's total IT-centric appropriations can be seen as reaching as high as $100 billion.

If Cisco, Alcatel-Lucent, and TIA are the equipment sector industry lobbying Goliaths of the Buy American debate that has simmered in industry journals, and on tech blogs over the past 60 days, surely scrappy Zhone Technologies, Inc. (NASDAQ: ZHNE) has been the industry's David.

Zhone, a telecom equipment manufacturer headquartered in Oakland, California, having its primary manufacturing facility in Largo Florida, has been the leading industry voice for a strict interpretation of the Buy American clause. In public comments filed as part of the NTIA-RUS rulemaking process that lead up to the NOFA release of this week, Zhone argued the essential point that the ARRA was first and foremost about creating American jobs. As a domestic manufacturer, Zhone sought competitive advantage via its lobby effort.

S spoke with Steve Glapa, Vice President of Product Management and Marketing at Zhone within hours of the release of the NTIA and RUS documents.

"While we still believe the Administration could have found a reasonable way to guide the broadband stimulus funds more explicitly toward creating and sustaining American jobs -- as was the ARRA's original intention -- we respect their decision to place more emphasis on speed in the process and just move on from what had become a surprisingly contentious issue," said Glapa.

"We have many customers who are anxious to get started with the formal grant proposal process, as soon as NTIA and RUS can release their guidelines. We expect to have ample opportunities to help turn these funds into America jobs nonetheless, and we're eager to get started as well," concluded the Zhone spokesman.

The Obama Administration's disclosure regulations for lobbying activities directed at federal agencies involved in the dispersal of federal stimulus funds mandate that lobbying contacts be made a matter of public record.

Our Take: The betting was on Cisco, Alcatel-Lucent, and TIA to win this lobbying round. As we said back in April, whatever the politics and merits of the arguments, the simple fact that a sizable portion of the value, in particular semiconductor arrays, of networking gear is fabricated abroad will make a strict interpretation of the Buy American section of ARRA difficult.

Joining Cisco and Alcatel-Lucent as the big industry winners in the waiver decision is Corning Incorporated (NYSE: GLW), for just the opposite reasons.

Foreign made optical fiber received no waiver. Is Corning ramping-up more capacity, as in the halcyon days of the telecom boom, days in which some of us couldn't spend Wall Street's money fast enough to put glass in the ground?

The NOFA released on July 1 has an obvious tilt toward middle mile projects financed with NTIA grants. Service providers are now building FTTx and HFC plans into their RUS loan applications. The waivers specifically state that they do not waive the Buy American clause in ARRA for "fiber optic cables." We think industry analysts will be ringing-up a certain American manufacturer headquartered in Corning, NY to ask the same question we pose.

Kudos to CWA and Zhone for putting up the good fight, and helping to articulate an important issue.

As we have said repeatedly before -- and iterated in our 8 Points analysis published Wednesday morning prior to the NOFA release -- the waivers for Buy American were fully expected, but the Made in America and technical certification programs of RUS will remain untouched.
CWA's past filed comments on Buy American and today's statement of respectful yet obvious disappointment with the Obama Administration on this issue, by the labor movement's largest organization in the technology sector, will very likely be considered a bright line by the Administration going forward vis-a-vis other waiver requests.
Web Analytics