How the Broadband Stimulus So Far Fails Innovation

[qi:004] The rules surrounding the release of $4 billion in federal funds aimed at providing better broadband and creating jobs announced last week have so far disappointed applicants hoping to deliver advanced broadband services such as fiber to the home. Instead, the rules associated with the first release of grant funds appear to be targeted at getting connectivity to rural areas — ignoring places where customers can get the minimum standard of broadband, which the government has set at 768 kbps. This means projects like a downtown fiber optic pipe in tiny Canby, Ore., aren’t going to get money, since that area of Canby already has service that meets the definition of broadband.

Keith Galitz, the CEO of Canby Telcom, who spoke to Om about his plans back in February, told me yesterday that he will still apply for grants to provide DSL to the fewer than 100 residents who live outside of Canby Telcom’s service area, a project that will result in service speeds of 10 Mbps or 20 Mbps to residents who have no access. But he’s disappointed, saying that so far the stimulus program doesn’t seem to give him the opportunity to improve access for most of his customers. If I were on the planned fiber route, I’d be more than disappointed, as 768 kbps was slow five years ago, and feels almost like dial-up today. The government so far looks to be spending $4 billion to push outdated technology.

Rich Wonders, vice president of strategic marketing for Alcatel-Lucent (s alu), a telco gear provider hoping to see a boost in equipment buys from grant applicants, believes that this first phase will not impress those hoping to see advanced broadband services. However he expects applicants trying to deliver rural coverage and wireless broadband to benefit under this set of rules. This first set of rules, announced on July 1, governs how $4 billion of the $7.2 billion will be spent. It releases almost all of the money allocated to the Department of Agriculture’s Rural Utilities Service under the stimulus bill and about a third of the money allocated to the National Telecommunications and Information Administration program.

“I believe the object is by end of first round to produce a map of the United States that shows the entire U.S….as having 768 kbps service,” Wonders said. “This round has less to do with advanced broadband such as fiber and fourth-generation wireless, and is more binary — a place either has coverage or it doesn’t.”

He also said the rules are surprisingly favorable to wireless, something he wasn’t anticipating before the first round of rules came out. Given the speed criteria, he expects that cellular providers wanting to use grant money or loans to expand their 3G networks to rural locations might win under these grants. However, since those carriers would have to abide by net neutrality provisions if they accept federal grant money, it may not be something to which the larger carriers are ready to commit.