Wednesday, September 15, 2010

Alert: Open Range Large National USDA Funded Service Area Is In Play

USDA-RUS Suspends $266 Million Loan to WiMAX Provider Open Range Communications 09/15/2010 San Francisco - The largest loan made to date by the Broadband Program of the U.S. Department of Agriculture (USDA), for a total of $267 million, issued to the wireless provider Open Range Communications is now in jeopardy.  The Rural Utilities Service (RUS) of USDA informed Open Range in a letter dated July 14 that the federal loan extended to the company was suspended for "all future advances."

National Footprint of Open Range Communications
shown in blue (Source: The Company)
Most significantly, the majority of the large national footprint -- an area comprised of 540 rural communities -- that make up the funded service area of Open Range is now most probably in play for other operators seeking USDA broadband subsidies going forward.

The vast tracts of rural areas in 17 states for which the $267 million loan, issued in March of 2008 under the Bush Administration, is written are unavailable to any other broadband network operators seeking USDA subsidies as long as the Open Range loan agreement with RUS remains in force.  At a potential point to be determined in the future, the suspension of the loan facility to Open Range will thus have the effect of bringing regions fir potential federal capital subsidies back before the wireline and wireless telecom sectors.

Given that the loan award was made to Open Range prior to the launch by the Obama Administration of the broadband stimulus program, the 540 communities in 17 states were unavailable for funding under that program, pursuant to the rules of RUS.  Those rules were spelled out in the 2 documents called Notice(s) of Funding Availability (NOFAs) which guided funding processes in the first (NOFA1) and second (NOFA2) funding rounds of the $7.2 billion program.

The RUS Broadband Program is a legacy effort of the USDA funded by appropriations from periodic congressional rewrites of the Farm Bill.  The Broadband Program is distinct from the Broadband Initiatives Program (BIP) funding by the Recovery Act of 2009, although many of the same senior agency managers are involved in administering both.

Federal Communications Commission (FCC) action triggered the USDA notice to Open Range.  The federal regulatory agency has made a series of determinations on the petition of Globalstar, Inc. (NasdaqGS: GSAT).  In a decision issued yesterday afternoon Washington time, the FCC revoked Globalstar's license to use radio frequency spectrum until it met a variety of "gating conditions" which the Commission found the provider had not met irrespective of prior allowances and extensions of time.  

Globalstar provides portions of its licensed spectrum under lease to Open Range, a wireless service provider using WiMAX technology for the access legs of its network and based in Greenwood Village, Colorado.  Thus, a major portion of the radio frequency spectrum required by the operations of Open Range has now been legally suspended by the FCC rendering the firm at risk of loan default in the decided opinion of RUS.  Since announcing the award of its $267 million in funding from RUS in 1Q 2008, Open Range has been building out some of its hundreds of communities primarily using WiMAX equipment from vendor Alvarion Ltd (ALVR).

RUS took its action to suspend further disbursements of the loan authorization to Open Range in July, with full knowledge of the ongoing FCC proceeding yet 2 months in advance of yesterdays final decision and Order of the Commission.  As expressed by RUS Administrator Jonathan Adelstein to  FCC Chairman Julius Genachoswki in a letter dated September 10, the action was taken to protect the basic function and integrity of the RUS loan program itself. 

The suspension by RUS of going forward loan authority to Open Range was issued to the the carrier in a letter (below) dated July 14 signed by Kenneth Kuchno, the Director of the agency's Broadband Division. The document sent to Mr. William Beans, CEO of Open Range, states "all future advances are hereby suspended on the grounds that Globalstar's noncompliance constitutes a Material Adverse effect on Open Range's ability to perform its obligations."   

This complex story, engendered by the arcane rules of the 2 federal agencies having the greatest impact on U.S. rural telecom, will play out as an increasingly contentious battle between those agencies, Globalstar, Open Range, and the rural communities and equipment suppliers waiting to bring broadband to rural America.

(Editor's Note: This story was first posted at 12:20 PM (EDT) as a short Alert, given the large potential impact to the rural telecom sector in the months ahead.  The article was added to throughout the day as we gathered more information. The last updates were made at 11:35 PM.  This article is now closed to further updates. We will publish a new stories as we assimilate the information being received from industry experts, federal officials, and corporate management at the firms involved.)  

References & Links to this Story:
09/18 - Denver Post by Andy Vuong: Open range may soon be out of range of net customers
09/16 - FierceBroadbandWireless by Lynette Luna: Open range left holding the bag  
09/15-  Sidecut Reports by Paul Kapustka: Open Range Getting Closed Down? 

Open Range Letter Adelstein to Genchowski 09-10-2010
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