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Wednesday, February 3, 2010

Cable Trade Group Says Federal Agencies Favor Telephone Companies in Broadband Stimulus New Rules

StimulatingBroadband.com 02/03/2010 San Francisco - The American Cable Association (ACA), says the new rules adopted by the National Telecommunications and Information (NTIA) Administration and the Rural Utilities Service (RUS) for Round II of the federal broadband stimulus program will "further advantage certain segments of the telecommunications industry over small cable operators interested in obtaining broadband infrastructure loans and grants" under the program.

ACA is referring to the 2 new Notices of Funds Availability (NOFAs) issued by the agencies on January 15, and published in the Federal Register on January 22.

"ACA is disappointed that NTIA and RUS structurally modified the programs in a way that makes it harder for small cable providers to receive last-mile funding," ACA President and CEO Matthew M. Polka said in a press release of yesterday.

"The rules seem to favor every entity except small cable operators, who are well-positioned to deliver state-of-the-art broadband facilities in rural and remote communities at low costs. Not surprisingly, we will be closely monitoring the implementation of the programs to ensure that small cable operators are not unfairly treated," concluded Polka.

Small cable operators should not be disadvantaged because regulations have been written that side with competitors to many ACA members, Polka explained in a letter sent yesterday to Assistant Commerce Secretary and NTIA Administrator Lawrence E. Strickling and RUS Administrator Jonathan S. Adelstein.

"The American taxpayer will be disappointed to learn that the program was changed to give greater priority to awarding particular segments of the telecommunications industry with broadband funding over equally or better qualified applicants, including ACA members, that could provide the same broadband service at a lower cost," Polka said.

ACA: 80 Plus Cablecos Applied in Round I of Broadband Stimulus
The trade association, which represents small and medium-sized cable operators, says that more than 80 of its member companies applied for broadband stimulus funding in Round I of the program, for what it estimates is "an array of last-mile and middle-mile projects totaling more than $1.3 billion."

ACA estimates that 80 plus number, only one award has been granted to date by either federal agency. The group states
it is pleased that the Round I award process is moving ahead, as it "is encouraged to learn that NTIA and RUS will soon send out approximately 1,400 letters to applicants whose proposed projects will not be receiving loans and grants under the first round of funding applied for last year." It states its belief however that participation by "ACA members would have been greater if certain funding restrictions had not made it so difficult for small cable companies to apply."

ACA: New Rules Favor USDA Legacy Rural Telco Borrowers
According to ACA, NTIA and RUS made various adjustments to its second-round funding rules that "dismayingly tilt" in favor of rural telephone and satellite companies to a degree that more than likely gives them a decided advantage over smaller cable operators that may choose to apply for last-mile grants and loans in funding Round II.

The ACA notes that in the rules, RUS, the arm of the U.S. Department of Agriculture (USDA) co-managing the broadband stimulus program with NTIA, opted to increase from 5 to 8 the number of points out of 100 automatically awarded to applicants that have borrowed funds under Title II of FDR's Rural Electric Act of 1936, "which are overwhelmingly traditional phone companies."

Additionally, ACA says "RUS plans to set aside $100 million in grants specifically for satellite broadband targeted at rural unserved areas." Given the that
NTIA now says that most of its $2.6 billion in broadband grants will go to middle-mile projects, while the RUS's $2.2 billion in grants and loans will mostly go toward building last-mile infrastructure projects, ACA believes its members are further disadvantaged.

We have reported for months the much overlooked basic fact that RUS has been in the rural telecom financing business since 1949, as a legacy traced to its New Deal era management of the rural electrification efforts.

Responding to decades of congressional mandates, USDA has favored incumbent rural telephony borrowers as it issues new tranches of federal loans. The agency sees this practice as a mechanism to protect its investments throughout rural America. This historically based policy is predictably at odds however with the requirments of broadband deployment in rural regions, as newly and privately capitalized entities like cable operators seek to expand into unserved areas.

"If preference had to be given to past borrowers, we thought 5 points was too much last round. Now, we are perplexed that RUS would make matters worse by increasing that amount to 8 points. In our new era of open government, we would have hoped for a clear explanation of changes that so apparently disadvantage small cable," Polka said.
"Favoritism and disparate regulatory treatment are not a formula for success."

ACA: In the Vanguard of Several Round II NOFA Fixes
As we reported at the time, in large measure because of the response of Congresswoman Nydia M. Velazquez (D-NY-12) to the points raised by ACA last November, NTIA and RUS did respond to some of the concerns of small cable operators with rule changes in the new NOFAs. Rep. Velazquez (left) is Chair of the House Committee on Small Business.

In the new NOFAs, NTIA eliminated the strict prohibition on the sale of funded facilities within 10 years; RUS eliminated the definition of "remote," thereby broadening access to grants in lieu of loans; and the NTIA eliminated the requirement that certain applicants had to apply with RUS first before being eligible to obtain NTIA grants.


"But for the agencies' decision that RUS will be the primary source of last-mile funding and the RUS's increased preference for awarding certain segments of the industry, these rule changes would have encouraged more small cable providers to participate. As it stands now, I'm afraid that we'll see fewer small cable operators seeking to apply for money to help the Obama Administration achieve the goal of making broadband service both universal and affordable to every American in the near future," Polka said.
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