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.
Thursday, January 28, 2010
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.
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