When I first heard about the BIP and BTOP programs, it was the first day I learned anything of substance about my client, a wireless company with a very bright future. The programs seemed tailor-made for them, ostensibly available to build broadband infrastructure in rural areas, the company's sweet spot.
We built a great team, and filed very impressive applications in both rounds. Great infrastructure in place. Proven track record. Matching funds. Shovel ready. Incredibly low cost per subscriber. Big projects covering over a million people. Tons of new jobs.
Like any cynical lawyer, I fretted over the need for the client to "up its public profile," i.e., to contribute to the campaigns of key politicians who could recommend our project, or perhaps even lean on folks within the administration. We did that. We got glowing recommendations from every politician within shouting distance.
But when I saw the list of awardees for Obama's speech I knew in my heart it was over. For all our hard work, for all our popularity with our local politicians (living on borrowed time though they are), and despite the compelling sense it would make to throw a few bucks our way, I knew what I think I always knew on one level or another: the fix is in against wireless.
I'm trying to develop a metaphor that captures the abject stupidity of what the administration has done here. One could say, for instance, that they've lit hundreds of millions of dollars on fire, but that actually would have been far less destructive. At least that would have, in some small part, fought the coming inflation of our currency by depleting the money supply. It's not the wasting of the money that has me so frustrated; I expect the government to waste money. It always does. It's inevitable. We all waste money. If we don't earn it, the problem tends to be even worse.
I'm frustrated because this money was not only used, but leveraged to distort markets and subsidize losers against winners. Subsidizing losers is worse than wasting money, because you waste time and discourage investment too. That costs you jobs and economic activity. Those are kind of important, aren't they?
OK, I've got my metaphor - something that truly captures it: This BIP and BTOP debacle is like invading Mexico. Not only is it a stupid idea with no upside, but the eminently forseeable consequences are entirely negative, though difficult to quantify because the public policy is so breathtakinly idiotic that there's really nothing to compare it to.
And this is the week we will all look back on as the end. When we knew that our own government was injecting $7 Billion worth of poison into our industry.
Monday, July 5, 2010
Friday, February 26, 2010
How Bad is the Administration Bungling BIP and BTOP?
I've been very critical of what I've seen so far, and now I think I've seen some numbers to back it up: Recently, an analysis of the awards made so far in Round 1 of the BIP/BTOP processes revealed that only 6.5% of the funding announced thus far was for wireless projects.
I ask you, how does this make sense given that:
1) Urban and suburban customers are cord-cutting at ever-accelerating rates, and everyone basically agrees the PSTN is obsolete;
2) DSL and other POTS-based technologies (Even FTTN) are getting slaughtered in the marketplace by competing technologies;
3) No serious argument can be made that sparsely populated rural areas are better suited to wireline technology. They are obviously less suited for it, and great candidates for wireless broadband.
4) Almost every dime of private investment that has been made in rural broadband over the years has been made in wireless technologies. No one will spend their own money to install fiber in rural areas, but many have opened their checkbooks to install 3G and WiMax.
If this is the way the administration is going to spend these dollars, I suppose we should be glad they're spending them so slowly. Not only are they wasting valuable tax dollars (though what's a few Billion between friends, honestly?), but subsidizing the ultimate losers will actually hurt rural economies. By allowing wireline operators to cherry-pick downtown areas, as small as they are, they make serving outlying ares with wireless technology even more expensive, as revenues per tower decline. A farm five miles outside Burlington, Colorado will never have a fiber connection, and will be left on the wrong side of the broadband divide for years, maybe forever.
It may not be financially wise for wireless broadband carriers to deploy in rural areas without any government support, but frankly it is a lot closer call than one might think. Having a legitimate shot at all of the customers in a community makes these projects nearly viable, even with all private investment (but not quite). However, if you take a huge percentage of those customers off the table because they're being served with ultra-subsidized, totally overpriced fiber networks, then we're locked into subsidizing these communities at a higher rate, with less coverage, for a long, long time.
We'd be better off burning the money than using it for this purpose. Not only is the government in a position to pick winners and losers in the marketplace, they seem determined to pick the losers. Slowing the winners down will stunt growth for at least a decade.
I ask you, how does this make sense given that:
1) Urban and suburban customers are cord-cutting at ever-accelerating rates, and everyone basically agrees the PSTN is obsolete;
2) DSL and other POTS-based technologies (Even FTTN) are getting slaughtered in the marketplace by competing technologies;
3) No serious argument can be made that sparsely populated rural areas are better suited to wireline technology. They are obviously less suited for it, and great candidates for wireless broadband.
4) Almost every dime of private investment that has been made in rural broadband over the years has been made in wireless technologies. No one will spend their own money to install fiber in rural areas, but many have opened their checkbooks to install 3G and WiMax.
If this is the way the administration is going to spend these dollars, I suppose we should be glad they're spending them so slowly. Not only are they wasting valuable tax dollars (though what's a few Billion between friends, honestly?), but subsidizing the ultimate losers will actually hurt rural economies. By allowing wireline operators to cherry-pick downtown areas, as small as they are, they make serving outlying ares with wireless technology even more expensive, as revenues per tower decline. A farm five miles outside Burlington, Colorado will never have a fiber connection, and will be left on the wrong side of the broadband divide for years, maybe forever.
It may not be financially wise for wireless broadband carriers to deploy in rural areas without any government support, but frankly it is a lot closer call than one might think. Having a legitimate shot at all of the customers in a community makes these projects nearly viable, even with all private investment (but not quite). However, if you take a huge percentage of those customers off the table because they're being served with ultra-subsidized, totally overpriced fiber networks, then we're locked into subsidizing these communities at a higher rate, with less coverage, for a long, long time.
We'd be better off burning the money than using it for this purpose. Not only is the government in a position to pick winners and losers in the marketplace, they seem determined to pick the losers. Slowing the winners down will stunt growth for at least a decade.
Thursday, January 28, 2010
Why Round 1 Was a Total Failure
By now, we've all heard the bad news. NTIA and RUS are not interested in funding the projects we worked so hard to propose. One would think we "losers" would have the feeling of someone that lost a church raffle, or missed out on another Powerball jackpot. Or perhaps lost a game to the better team. You know the feeling - you shrug, and think hey, you win some, you lose some.
I, for one, do not feel that way. I feel a sense of disgust that I did not think a grizzled, semi-jaded poor country lawyer was capable of. The reason for this sickening feeling? The process has exposed how dysfunctional our federal bureaucracy truly is, and is a harbinger of market distortions that will take a decade or more to repair. If this is how all of the stimulus funding is being handled, our country is sinking deeper into debt for nothing. In fact, the feds are making the situation worse.
1. The NTIA "Switcheroo". Perhaps nothing was more frustrating for me personally than the NTIA, after hours upon hours of workshops and issuing a NOFA rivaling an epic novel, changing their mind and deciding only to fund middle mile projects. At no time during the pre-application process was this preference expressed, and yet it was freely expressed after the fact, when it was too late for applicants to make adjustments. For an administration that preaches transparency, this was, well... not cool.
2. The RUS love affair with Rural ILECs. Imagine you're infatuated with someone. You covet them, imagine your future with them, all that gushy stuff. Then one day they invite you to a party at their house. You're thinking yes! This is it! My big chance! He/she feels the same way! You count the hours until the party, fussing over what to wear, what to say, but confident that your feelings will not be unrequited. The big day comes. You open the door, and there is the object of your desire, on the couch, sucking face with someone else!
If you can empathize with this tale, then you feel my pain. I will spare you the details, but I walked into such a room and got that same kick to the stomach. The unexpected rival? You guessed it, a rural ILEC that has a stellar record of borrowing, and shamelessly wasting, the USDA's money. Dance with who brung ya, right?
The consequences of this RUS-ILEC love affair will be extremely negative. If Round 2 looks anything like Round 1, the agency is hell-bent on giving the whole enchilada to undermanaged companies that are building sickeningly inefficient networks, and have been on the government dole for decades. This will have at least two serious consequences: 1) Less rural Americans will benefit from Recovery Act dollars in the form of a real broadband connection (perhaps by a factor of 10 or more) and 2) the companies that can deliver service more efficiently will be left to battle competitors that, as inefficient as they are, will have built fiber networks in the most densely populated areas they serve, giving them a head-start on key markets.
Make no mistake; wireless technologies will prevail. But the administration's error is the equivalent of Eisenhower rejecting the interstate highway system in favor of more railroads. This President claims emphatically (last nights SOTU being the most recent example) that these Recovery Act "investments" are designed to develop the next generation of innovation. His administration has done the opposite with BIP. By subsidizing inefficient, obsolete networks, they've made true progress a more expensive and distant hope, rather than a near term reality.
3. The "Volunteers". Let us not forget the Volunteers. I love the Volunteers, for two reasons: 1) They are the ultimate, and laughable, symbol of how completely out of their depth our dutiful public servants were, and presumably still are; and 2) They remind me of Ross Perot, which reminds me of Dana Carvey playing Ross Perot on SNL, which makes me smile. However, the secrecy surrounding the Volunteer process only feeds my distrust. Who are they? Who do they work for? Every knowledgeable engineer I know has a marked bias toward one technology or another. Not surprisingly, it's the network they know inside-out. Clearly, the Volunteer pool was short folks who truly understand the power of wireless networks, because almost none of the wireless projects were funded. And how can you possibly evaluate a serious proposal without talking with the applicant? I understand there were thousands of applications, but someone sat down to read them. Why couldn't they host a conference call to discuss the issues of concern?
As Round 1 closes, I am more concerned than ever that this process with harm our industry, which already bears too many scars delivered by the hand of government. One cannot effectively regulate what one cannot understand, and telecommunications has been the poster child for this axiom for quite some time now.
That is not to say the situation is unrecoverable. There is plenty of stimulus money left. It is possible that some good investments that encourage real growth could be made. "Keep hope alive" is my outlook -- remember, I'm only semi-jaded.
I, for one, do not feel that way. I feel a sense of disgust that I did not think a grizzled, semi-jaded poor country lawyer was capable of. The reason for this sickening feeling? The process has exposed how dysfunctional our federal bureaucracy truly is, and is a harbinger of market distortions that will take a decade or more to repair. If this is how all of the stimulus funding is being handled, our country is sinking deeper into debt for nothing. In fact, the feds are making the situation worse.
1. The NTIA "Switcheroo". Perhaps nothing was more frustrating for me personally than the NTIA, after hours upon hours of workshops and issuing a NOFA rivaling an epic novel, changing their mind and deciding only to fund middle mile projects. At no time during the pre-application process was this preference expressed, and yet it was freely expressed after the fact, when it was too late for applicants to make adjustments. For an administration that preaches transparency, this was, well... not cool.
2. The RUS love affair with Rural ILECs. Imagine you're infatuated with someone. You covet them, imagine your future with them, all that gushy stuff. Then one day they invite you to a party at their house. You're thinking yes! This is it! My big chance! He/she feels the same way! You count the hours until the party, fussing over what to wear, what to say, but confident that your feelings will not be unrequited. The big day comes. You open the door, and there is the object of your desire, on the couch, sucking face with someone else!
If you can empathize with this tale, then you feel my pain. I will spare you the details, but I walked into such a room and got that same kick to the stomach. The unexpected rival? You guessed it, a rural ILEC that has a stellar record of borrowing, and shamelessly wasting, the USDA's money. Dance with who brung ya, right?
The consequences of this RUS-ILEC love affair will be extremely negative. If Round 2 looks anything like Round 1, the agency is hell-bent on giving the whole enchilada to undermanaged companies that are building sickeningly inefficient networks, and have been on the government dole for decades. This will have at least two serious consequences: 1) Less rural Americans will benefit from Recovery Act dollars in the form of a real broadband connection (perhaps by a factor of 10 or more) and 2) the companies that can deliver service more efficiently will be left to battle competitors that, as inefficient as they are, will have built fiber networks in the most densely populated areas they serve, giving them a head-start on key markets.
Make no mistake; wireless technologies will prevail. But the administration's error is the equivalent of Eisenhower rejecting the interstate highway system in favor of more railroads. This President claims emphatically (last nights SOTU being the most recent example) that these Recovery Act "investments" are designed to develop the next generation of innovation. His administration has done the opposite with BIP. By subsidizing inefficient, obsolete networks, they've made true progress a more expensive and distant hope, rather than a near term reality.
3. The "Volunteers". Let us not forget the Volunteers. I love the Volunteers, for two reasons: 1) They are the ultimate, and laughable, symbol of how completely out of their depth our dutiful public servants were, and presumably still are; and 2) They remind me of Ross Perot, which reminds me of Dana Carvey playing Ross Perot on SNL, which makes me smile. However, the secrecy surrounding the Volunteer process only feeds my distrust. Who are they? Who do they work for? Every knowledgeable engineer I know has a marked bias toward one technology or another. Not surprisingly, it's the network they know inside-out. Clearly, the Volunteer pool was short folks who truly understand the power of wireless networks, because almost none of the wireless projects were funded. And how can you possibly evaluate a serious proposal without talking with the applicant? I understand there were thousands of applications, but someone sat down to read them. Why couldn't they host a conference call to discuss the issues of concern?
As Round 1 closes, I am more concerned than ever that this process with harm our industry, which already bears too many scars delivered by the hand of government. One cannot effectively regulate what one cannot understand, and telecommunications has been the poster child for this axiom for quite some time now.
That is not to say the situation is unrecoverable. There is plenty of stimulus money left. It is possible that some good investments that encourage real growth could be made. "Keep hope alive" is my outlook -- remember, I'm only semi-jaded.
Monday, January 4, 2010
NOFA I First Wave: Sign of things to come?
With both NTIA and RUS having blown each and every stated [and leaked] deadline for disbursing ARRA funds, one is still left to wonder where they will spend the bulk of their cash.
To date, they've funded state mapping projects, a few computer centers, and a handful of relatively small infrastructure projects. Is much to be made of what they've funded so far? Alternate theories:
1. No. The projects funded to date are more "public" in nature because they sent the political message the administration was looking for, on the only day this program will get much publicity. In the end, even this administration will realize that government ownership and control of broadband infrastructure (the "public private partnership" model) invites disaster and waste, and they will begin funding more financially viable projects. WHY THIS THEORY IS RIGHT: PPPs are only as good as the people who run them, and without exposure to real world market forces and business risks they will be undermanaged, will fail, and will eventually be bought at fire sale prices by the big carriers. Government doesn't run telecom networks, and there are good reasons for that. This administration is not peopled with stupid, pie in the sky thinkers, and they realize the bulk of the funds need to be dedicated to flexible, upgradeable, modern networks that maximize passings. WHY THIS THEORY IS WRONG: There is absolutely nothing in the administration's conduct to suggest they understand any of this. Both NTIA and RUS leadership continue to stress the value of public private partnerships, seem to be in love with "community broadband" and seem more interested in the false value created by "leveraging" their funds with private matching funds. The reasons this focus is ill-conceived is a subject for another day.
2. Yes. What can be gleaned from the first round of grants/loans is that the focus will be on funding "middle mile" projects in areas where incumbent resistance is low, and everyone agrees are remote. The administration does not want to be seen as providing a leg up for any serious market competitors so they will confine the bestowal of their largesse to small, inoffensive projects. WHY THIS THEORY IS RIGHT: Scoreboard. Look at the projects that have been funded. They spend too much money building what are essentially charity projects that will struggle to break even despite the Feds fronting all of the capex. They're the sort of projects that could generate consensus at a Grateful Dead afterparty, but don't look much like any successful infrastructure model I've ever seen. Why should we think future grants will be any different? WHY THIS THEORY IS WRONG: The administration is under intense pressure to actually accomplish something with all this money. They pride themselves on spending money wisely, and they're not going to want a cataclysmic failure featured on 60 Minutes. A $7.1 Billion dollar flameout is not going to get those poll numbers up, and it's not going to help friendly governors get re-elected.
My gut feeling is that most of this money will end up in the hands of ventures controlled by government entitities and rural ILECs. Both of these uses will be catastrophic wastes of money because they have no real opportunity for growth. No private enterprise wants to purchase telecom infrastructure from the government, and as budget pressures worsen the pressures to mismanage will intensify, either through cutting funds for network maintenance, price hikes, or unwillingess to invest in first-class management. I hope I'm wrong, but we seem to be on the road toward massive, ineffective waste.
To date, they've funded state mapping projects, a few computer centers, and a handful of relatively small infrastructure projects. Is much to be made of what they've funded so far? Alternate theories:
1. No. The projects funded to date are more "public" in nature because they sent the political message the administration was looking for, on the only day this program will get much publicity. In the end, even this administration will realize that government ownership and control of broadband infrastructure (the "public private partnership" model) invites disaster and waste, and they will begin funding more financially viable projects. WHY THIS THEORY IS RIGHT: PPPs are only as good as the people who run them, and without exposure to real world market forces and business risks they will be undermanaged, will fail, and will eventually be bought at fire sale prices by the big carriers. Government doesn't run telecom networks, and there are good reasons for that. This administration is not peopled with stupid, pie in the sky thinkers, and they realize the bulk of the funds need to be dedicated to flexible, upgradeable, modern networks that maximize passings. WHY THIS THEORY IS WRONG: There is absolutely nothing in the administration's conduct to suggest they understand any of this. Both NTIA and RUS leadership continue to stress the value of public private partnerships, seem to be in love with "community broadband" and seem more interested in the false value created by "leveraging" their funds with private matching funds. The reasons this focus is ill-conceived is a subject for another day.
2. Yes. What can be gleaned from the first round of grants/loans is that the focus will be on funding "middle mile" projects in areas where incumbent resistance is low, and everyone agrees are remote. The administration does not want to be seen as providing a leg up for any serious market competitors so they will confine the bestowal of their largesse to small, inoffensive projects. WHY THIS THEORY IS RIGHT: Scoreboard. Look at the projects that have been funded. They spend too much money building what are essentially charity projects that will struggle to break even despite the Feds fronting all of the capex. They're the sort of projects that could generate consensus at a Grateful Dead afterparty, but don't look much like any successful infrastructure model I've ever seen. Why should we think future grants will be any different? WHY THIS THEORY IS WRONG: The administration is under intense pressure to actually accomplish something with all this money. They pride themselves on spending money wisely, and they're not going to want a cataclysmic failure featured on 60 Minutes. A $7.1 Billion dollar flameout is not going to get those poll numbers up, and it's not going to help friendly governors get re-elected.
My gut feeling is that most of this money will end up in the hands of ventures controlled by government entitities and rural ILECs. Both of these uses will be catastrophic wastes of money because they have no real opportunity for growth. No private enterprise wants to purchase telecom infrastructure from the government, and as budget pressures worsen the pressures to mismanage will intensify, either through cutting funds for network maintenance, price hikes, or unwillingess to invest in first-class management. I hope I'm wrong, but we seem to be on the road toward massive, ineffective waste.
Friday, December 18, 2009
Wecome, Imaginary Friends!
Hello everyone,
This blog is dedicated to my thoughts on the federal broadband stimulus effort that simply don't fit the cozy confines of Twitter. As TV's Craig Ferguson recently said, "if you can express your thoughts in 140 characters, you don't think that much," or something to that effect. So true. Twitter seemed the ideal vehicle for organizing street protests in Iran, but when it comes to a full analysis of the federal government's dispersal of $7 Billion and change, an extra word or two might be in order.
On to the disclaimers: 1) The views expressed here are my own, and not those of any employer, client, associates, or any other person or organization (if you were to bother figuring all that out - which wouldn't necessarily be difficult, but really, aren't there better uses of your time?) 2) The views expressed herein are not intended to be definitive academic works, and while I will make some effort to verify things I seem to remember, or have heard as rumors, cite me at your peril. 3) I enjoy expressing off-the-wall ideas from time to time. Sometimes I refine, tone down, or outright flip-flop on issues as I think more about them and discuss them with colleagues, or with myself. I enjoy these views being challenged - I think starting an interesting discussion where creative ideas are expressed is more useful than being right. Being right is only important when you have to make a decision with consequences.
With those things in mind, I hope you enjoy my scribblings. All three of you (one can dream, can't one?)
This blog is dedicated to my thoughts on the federal broadband stimulus effort that simply don't fit the cozy confines of Twitter. As TV's Craig Ferguson recently said, "if you can express your thoughts in 140 characters, you don't think that much," or something to that effect. So true. Twitter seemed the ideal vehicle for organizing street protests in Iran, but when it comes to a full analysis of the federal government's dispersal of $7 Billion and change, an extra word or two might be in order.
On to the disclaimers: 1) The views expressed here are my own, and not those of any employer, client, associates, or any other person or organization (if you were to bother figuring all that out - which wouldn't necessarily be difficult, but really, aren't there better uses of your time?) 2) The views expressed herein are not intended to be definitive academic works, and while I will make some effort to verify things I seem to remember, or have heard as rumors, cite me at your peril. 3) I enjoy expressing off-the-wall ideas from time to time. Sometimes I refine, tone down, or outright flip-flop on issues as I think more about them and discuss them with colleagues, or with myself. I enjoy these views being challenged - I think starting an interesting discussion where creative ideas are expressed is more useful than being right. Being right is only important when you have to make a decision with consequences.
With those things in mind, I hope you enjoy my scribblings. All three of you (one can dream, can't one?)
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