Making Sense of the NOFA Rules (pt 1)

Update

Finally, the NOFA’s out (click here). It’s 121 flippin’ pages! Be patient while I grab breakfast and try to sort this bad boy out. I’ll post Part 2 of this NOFA assessment as soon as I can.  

 This NOFA is more than a tick list of items that grant proposals must contain, or requirements to which applicants must adhere. It’s the big step off on the long march toward a [hopefully] successful national broadband strategy. It creates a framework for what U.S. broadband looks like as the next decade begins, who benefits from the technology and how strong a foundation is created for Mr. G’s eventual strategy.   

As you plow though the pages, here are a few things to pay attention to so we determine just how good this first step is going to be. 

Definitions

What’s in a word? A lot.

How the NOFA defines “un-served” and “underserved” determines not only where the lion’s share of these networks are built, but also the competitive landscape for telcos, WISPs, cable companies and other service providers.

If a very heavy emphasis is placed (via points, prioritization, etc) just on reaching “un-served” constituents, and un-served is defined as areas currently with no broadband at all, then most of the networks likely will be built in rural areas. Tier 1, 2 and 3 cities may want to send their grant writers home. Tier 4 cities could have better odds if they’re isolated enough. What’s more, incumbents get to relax because they likely won’t see competitors where they currently are the only game in town.

Should the NOFA, however, give balanced weight to building in un- and underserved areas, and the “underserved” definition includes areas where there is existing service with crappy coverage and/or unaffordable rates, then life is good. Urban, small-town and rural America all get a shot at the pot, and the gods of true competition are appeased.

How “broadband” is defined as it pertains to speed (and whether wired and wireless broadband get their own definitions) determines who’s popping the champagne corks. Anything less than 1.5 mbps symmetrical hands a bonus to incumbent telcos and cable companies, and depresses the heck out of broadband advocates. Defining the speed anywhere above 5 mbps symmetric is problematic for incumbents and maybe mesh wireless providers. WiMAX, fiber and consumers in general are going to be loving it.

Benefits for exceeding definitions represent the wild card 

If the NOFA gives bonus points to proposals that exceed NTIA/RUS’ minimum definitions of broadband, there’ll be happier hearts in the Heartland. Given how many communities have shown that they and public utilities can build faster networks at cheaper subscription rates than incumbents, bonus points give these types of networks a boost in the grant game.  

Open access

This is one NOFA element that’ll be either a boon to the drive to get broadband that matters, or a bona fide bust. Either NTIA/RUS go to the heart of why our broadband position in the world sucks and help rectify it through mandated open access, they show no heart by punting to the big guys or they try to have it both ways with some wishy-washy rule. Either of the latter two options is not good for communities.

Be sure to scan through the verbiage to see if, in deference to the new FCC Chairman, the NOFA also takes a shot at cranking up the heat with a little net neutrality support. We see that, it’s Katy bar the door! Communities and smaller providers should make out quite well, but there’ll be bitterness in other quarters. 

Where are local governments in the pecking order 

In the broadband bill that left Congress, the list of who gets priority for receiving grants starts with local and state governments on top and private sector companies last. Dig into the NOFA and see how much it adheres to this prioritization– or not. To me, this ultimately gets to the core of broadband’s ability to be transformative in its impact.

If local government (caveat to follow) is the main recipient, that makes them the major drivers in what broadband looks like in the respective communities that win grants. The networks are more likely to meet the unique needs of their communities, both economic and societal. Unless mandated or incentivized to form public-private partnerships with government as equal partners, rules that favor private sector companies over public entities will produce a mixed bag of networks, with many falling short of broadband’s potential.

The caveat pertains to state governments. I believe project teams for county-wide or even regional efforts within a state can build networks that produce great results when local governments are in the lead. However, the thought of some state governments getting block grants and thus controlling network development gives me the willies. I worry private companies would have too much influence, better projects without “insider pull” will have less, and/or the funding process will take longer to complete.

For example, one state allegedly plans to bring 40 local and regional project teams into a room to do 3-minute presentations each. Best presentations win state backing to participate in a block grant. If true, my only thought is, WTF! That said, reality dictates state involvement, which means it’s another river you should plan to navigate. 

Sustainability

Pay attention to how the NOFA mandates or otherwise influences applicants to come to the table with a plan to financially sustain networks once they’re built. With luck, these rules will instill a widespread understanding that you must treat these networks like a viable business if you want to advance the public good.

What We Can Learn From Canada’s Broadband Stimulus

Canada has a federal broadband stimulus program going on as well as the U.S. There are some elements of their broadband effort we in the U.S. should take note of as we get the long awaited rules this week. 

Last week I had the honor of chairing the Broadband Strategies for Cities conference in Toronto. Don’t let the title fool you. It was mainly about getting broadband to rural areas, though many of the presenters addressed a cross section of urban, small town and rural issues. I’ll pull out a few points that struck me as being items to note.

The first shocker was the dollar amount of Canada’s stimulus – $225 million. Not a lot compared to $7 billion, you say? True, but then look at how far they don’t have left to travel to get broadband adoption.

Canada vs US in BB adoption

Last week there were some shouts of joy about a PEW report that sites a significant increase in U.S. broadband adoption. In the general population we moved from 55% to 63% of households with broadband, while just looking at the rural US population, we’ve move from 38% adoption in 2008 to 46% in 2009.

In Canada, 93% of their total households have access to broadband, with virtually all of their urban households covered. Mainly it’s the rural areas that fall short with just 81% penetration in these households. So $225 mil isn’t a lot of money, but Canadians definitely a shorter row to hoe. We definitely want to applaud our progress in the U.S., but don’t lose sight of how far we still have to go.

Mapping before disbursement

Industry Canada, the agency handling the stimulus program, has determined that it doesn’t make much sense to hand out money without good maps, so they won’t. Gotta have maps before you get money. Provinces (similar to our states) are being tasked to take care of this as the main drivers with help from the feds.

If it weren’t for the fact that Connected Nation seems poised to do much of this in the U.S., I’d be more adamant that where appropriate we hold up grants until mapping is done where currently there is none. At least in the U.S. some states (e.g. Virginia, California, Arizona) are doing mapping on their own, and appear to be getting it done before their proposals go to D.C. As it is, I think money spent on C N is of limited value and we may as well throw the money out the door first.

The match game

Instead of paying for 80% of the broadband buildout projects, Industry Canada is doing a 50-50 split for funding. What’s more, the money’s only going to private sector companies. Since everyone admits $225 million is not enough stimulus money to get the whole job done, IC is leaning on provincial and local governments to both provide additional funds and advocating (heavily, I gather) for public private partnerships. IC is also setting zones based on size of geographic area and populations so as to induce competition.

An interesting way to tackle the fact that you believe in the private sector’s role, and you also believe local government has to have a strong hand in the process. Furthermore, the feds also believe that free market competition needs a helping hand since IC is basically saying “we’re going to make sure an area is large enough so there’s incentive for  more than one player. And to ensure this outcome…

Open access

Because there’s a lot of pressure from the public for open access and because, to quote the IC Director General giving the presentation, “this is the people’s money we’re giving away,” the IC is leaning toward an open access requirement for receiving grants. Supporting this are the provincial and local governments that set precedent by mandating open access for broadband projects already in motion.

Wow. Take all of these pro-competition rules, and if the net neutrality bill introduced last month in Canada actually becomes law on this its third introduction, Canadian consumers stand to get a pretty good shake from their broadband stimulus. Will we in the U.S. be as fortunate?

Broadband and un-served defined

IC defines broadband as technology neutral networks having a minimum speed of 1.5 mbps. The province of Nova Scotia came up with a solid definition of an un-served residential or business constituent: “an inhabited civic address with a reliable power source, accessible by road that unable to get broadband connections at prices, quality and level of service comparable to urban areas of Nova Scotia.

Hmmm, that’s good. The minimum speed requirement that IC set is, by itself, a debatable option for some folks who want a higher minimum. But coupled with mandated open access and zoning to ensure competition, 1.5 mbps allows you to raise people up way beyond where they are now, and also expect a competitive environment that forces speeds up and prices down. Then you add a definition of un-served that ties rural speeds to speeds of high-population, probably wealthier cities that you know will always get the best service, you further induce faster networks.

The role of local governments

Tim Scott, the speaker from open access network provider Axia NetMedia, stated that “local government is the primary customer of community networks. Without them there is no business case” Other speakers echoed his assessment.

I wonder how many proposals for U.S. stimulus grants will reflect this reality in their network sustainability models?

My next post looks at a pretty awesome analysis of the five most prominent business models for community broadband networks. Everyone, be sure to read this before you submit your proposals for stimulus money. Subscribe to my RSS feed.

The Underserved’s Role in Broadband Sustainability

This week I spoke at the Internet Innovation Alliance on the topic of Making Broadband Affordable for All Americans. Besides reinforcing some of my previous thoughts about sustainability, partnering and local governments’ role in broadband development, I threw out a provocative thought that broadband advocates can address now or address later when it costs more money to resolve.

When I laid out the list of contributors to the financial stability of broadband networks, I stated that low-income constituents need to pay for their network services. Not something you hear everyday, but nevertheless it needs to be said. Whether true or not (often not), digital inclusion in some circles is perceived to be free access for poor people.

I believe that currently the price of broadband and its lack of availability  are legitimate barriers to adoption in lower-income communities, and whatever community networks are built must address this issue. However, everybody needs to pay something, and you should be clear about this upfront.

Even if it is just $5 a month to start, people need to associate a cost with the benefit they’re receiving in their homes and community centers so they appreciate it and use it to make something better of their lives. As subscribers’ improve their job status, start businesses or improve the ones they already have, their subscription fees should rise to match the rest of subscribers.

Constituents receiving donated hardware and broadband access should be required to complete personal or career advancement programs. Those completing broadband training should, if they don’t pay a fee for the training, should be required to put in hours helping others in their community with tech services and other support.

There are three reasons for this.

First, as my grandmother told me repeatedly when I was a kid, if you’re too nice to people they won’t respect you and they won’t respect what you give them. So it is with broadband. This is a service offering immense value, but if you’ve never had a computer or surfed the Web site, you have to apply yourself to maximize their value. If it costs nothing to reap the benefits, nothing is what you’ll put into using it.

Wireless Philadelphia (now Digital Impact Group) has a couple of years of experience bringing broadband access, hardware and training to hundreds of underserved constituents. They quickly learned at the start that everyone has to pay something in money and time if constituents are to benefit as much as possible from what they receive.

Second is financial sustainability. Read this column. It costs a lot of money to run a digital inclusion program that produces results. Recruiting nonprofits to help you identify and reach constituents is staff-intensive. It’s more time intensive reaching and convincing constituents, who by default are not part of the mainstream, to join the digital age. Training, getting entities to donate computers, renting facilities, all of this is requires money. Washington is about to give communities a lot of money to reach the underserved with broadband networks. Where’s the money coming from to actually move people from behind the digital curve and help them become a 21st century digitally proficient citizen? 

Network subscription fees that grow as individuals become more financially sufficient offset network operating costs. Requiring individuals who receive access and support packages to give back to the program offset digital inclusion programs’ expensive human resource costs. People I interviewed who run these programs say “graduates” are the best recruiters and trainers, the most motivated activists and great role models. And besides stretching your personnel budget, graduates pick up additional skills and contacts that improve their ability to get a better paying job.  

Finally, there is political sustainability. I get so sick and tired of reading after every digital inclusion news article snide comments bitterly complaining about “my tax dollars” helping the poor. But the reality is, in rough economic times it is difficult to champion and fund programs targeted to poor and poorly educated people. You have to look no further than California’s budget fights to see what I mean.  

Broadband and digital inclusion supporters face continuous pushback from certain political circles that make funding of your programs a constant challenge. You get a lot more political clout to smack down these challenges when you can point to the ability of your digital inclusion program to self-fund many of its expenses.  

P.S. Next time someone complains about spending “my tax dollars” to give poor people Net access, tell them to waltz over to Wall St. and pitch their complaint there. Let’s see, $800 billion and rising to bail out rich guys, $7 billion for digital inclusion. Hmmm.

Needs Assessments: Building block to broadband success

My previous post explores some of the facts of life when you treat community broadband networks as a business venture. Today’s post addresses needs analysis, the foundation of any network project if you want to be sure that people actually pay for and also use it. It’s also a necessary exercise if you want a decent shot at broadband grants.  

What created many the muni wireless disasters, even with private sector companies offering free networks, was the complete lack of thorough needs analysis to determine who was going to use these networks. Politicians fell for the three myths of tech innovation: 1) if you build it, they will come, 2) market it enough, they will buy and 3) first one out with an innovation wins.

Cities that claimed they were going to cure all the ills of modern life with muni WiFi could not answer the question, who exactly would be the network users and was WiFi really the best technology for them? When faced with skeptics, many clamored louder for “free” networks. And I could have financed a car if I had $10 for every headline in 2006 claiming some city or other was going to be the “first” with wireless for everyone.

The lure of all this government free stimulus money is driving similar action without forethought once again. However, if you haven’t walked the streets, attended town meetings, surveyed businesses coordinated focus groups and the like, how can you know with some degree of certainty which constituents and stakeholder groups will financially sustain the network?

Ask, build, ask

I recommend the ask-build-ask-again approach to needs assessment. After presenting a general picture of the benefits possible with highspeed Internet access (both wired AND wireless), ask constituents what they want or need, how getting what they want will benefit them and how much can they pay for the service. Also pose these questions to the type of businesses you want broadband to bring to your community.

After asking the questions, develop on paper a prototype of the network infrastructure and capabilities you think best suited to meet these stated needs. Take this prototype to those constituents and ask “this is what we think you asked for, but is it really what you want?” Even if you’re talking to constituents who aren’t able to afford to pay a lot for service, you still have to know that they’ll be able to use what you build.

One community leader from a low-income neigborhood in Philadelphia who was involved with focus groups for that city’s wireless network explained how city representatives would talk to them about being able sit in the park and use laptops. She told them, “our folks do not have little laptops that they can take to the park. Listen to them. Otherwise you’re just wasting people’s time.”   

The creation orientation

When you’re doing needs assessment, I strongly suggest you use a creation orientation. When you try to create something you bring something new into being. There’s a lot of energy you get with “wouldn’t it be cool if…?” brainstorming. Or President Kennedy’s approach in the 60’s of presenting the vision of going to the moon in 10 years, and challenging those around him to create the best way to make it happen. This inspires incredible vision with lots of people contributing to it because they become part of the dream.

To get the most accurate picture possible of your constituents’ and stakeholders’ needs, cast your net wide to get feedback from a variety of people. Get people within each targeted segment who have opposing opinions and have different needs for the network. The more needs one network can meet effectively, the more potential customers you’ll have. Look at needs a couple of years down the road as you do your best to forecast for constituents what technology is on the horizon.  

When you’re developing schematics of how the network might look, evaluate a range of technologies. Consider the practicalities of your different options when you evaluate geography and costs-versus-benefits issues. The biggest threat to the network’s success is the foregone conclusion that you create before doing your needs assessment, rather than the logical conclusions that should come from an effective assessment.

Broadband mapping 

One element of the needs assessment I’ll tackle in my next post is broadband mapping. Though is it often discussed in policy wonk circles, it’s starting to break into everyday discussions. Mapping is a core part of determining needs because if you don’t know who has or doesn’t have adequate broadband, it’s difficult to convince NTIA and RUS that your grant proposal is more worthy than someone else’s.

A company that I think people should seriously consider for mapping is RidgeviewTel. I interviewed them recently and found their approach to the task to be simple, logical, accurate, quick and affordable. You can see a sample of the output their software produces in the last slide of my PowerPoint.

More on mapping and needs assessment soon.

Facing the Business Side of Community Broadband

It’s time for a discussion of a topic that gets hinted at, argued about and danced around. Do you run community broadband networks like a typical public service project or a business enterprise? And do advocates of the latter comprehend what a completely different mindset this requires? 

In my 2006 book on muni wireless, I argued that cities have to think like a business if they want to build a network that generates enough cost savings and revenues to sustain network operations. A conservative think tank critiqued my book with the counterargument that this is why governments shouldn’t build these networks; governments are incapable of thinking like a business.

Government administrators are quite capable of adopting a business mindset for broadband projects. But they do have to commit to assigning and hiring people to drive the project who can execute using business principles while achieving public policy and economic development objectives.

I interviewed Michael Johnston, VP of IT and Broadband at Jackson Energy Authority, a public utility in Tennessee, for my last Snapshot Report. The City of Jackson has a population of 75,000. Their fiber network is currently a success story with 16,000 subscribers, but it had a rocky start. Johnston gives a straightforward assessment of why “you need to do a gut check before you go after stimulus money. You can’t be a nice fluffy business person.”

Take this simple example. Your stimulus proposal (any proposal, for that matter) has to prove you can financially sustain the network after it’s built. But have you adequately planned for business success?

“Let’s say we just borrowed $10 million with the assumption we’ll get 100 new subscribers every month for a year. But what about the price of success? If you get 200 subscribers a month, what do you do? You need more customer service people, more technicians. Beating your ‘take plan’ is counterproductive if you can’t get any more ‘free’ government money and you have to go to the bank for real money.”

Recently I commented on the value of partnering, the staple of any business venture. With community stakeholders, these partners are likely on the same page as you in terms of what they want. But the public/private partnership that has become a community broadband orthodoxy also can be the source of great heartburn.

“Partnering with a telco does help because you have to be ready for the different world of telecom operations. The difficulty, however, is that regardless of which telco you partner with you can have completely different goals that are at cross-purposes. The city wants to deliver services in places where it’s currently not offered. The partner needs to make money. There’s a reason that partner isn’t already delivering service in your area.”

Though easier said than done, I suggest you spend a lot of time in frank conversation so both parties thoroughly understand how the other’s business works. Such a discussion opens your eyes to where potential troubles lie that could lead to irreconcilable differences.    

You have to think about your business model as relates to partners. UTOPIA, the municipal network in Utah, took on debt and didn’t provide anything but the Internet pipe. Providers deliver services directly to consumers. UTOPIA makes money on fees from providers based on how many of their customers use the network.

“This kind of arrangement should be a winner, but it doesn’t always work. ‘My plan says if I add 100 customers/month, I pay off the bond.’ But what if the partner doesn’t add that many customers. The city has no leverage because partners want the least number of customers for most profit. Acquiring more customers costs money that cuts into profits. If the city insist on getting their fee anyway, the partner leaves, so obviously the city can’t raise fees.”

As the broadband stimulus grant process appears to be unfolding, it’s going to be smaller local service providers stepping up to partner with municipalities to build networks, and these providers are limited on what costs they can carry. So you need additional revenue options than monthly subscriptions from individual consumers.

Business strategy includes how you’re going to price services. The school district wants to be a customer. The city wants to ensure all citizens get the best education. So you offer the district service 10 times faster and at a price 70% lower than the incumbent’s bid. Perhaps you can do this and still cover network operations costs. Should you? Heavens no! Don’t gouge them, but institutional customers expect – and budget – to pay more for premium service that delivers better value. Trust me, one day you’ll need the money.    

And speaking of competition, does your grant proposal reflect the future competitive landscape? What, you think that incumbents won’t jump in just because they initially refused to build the network?  Put your business hat back on!

“People are assuming their competitors are going to stand still. They think ‘we’re going to go in and take 60% of the market away.’ Take away 60%, the competition doesn’t sit there and say ‘oh well.’ They fight back. ‘I’ll give you free cable for a year, Mr/Ms Muni Customer, if you just come back.’ Municipalities have to match these kinds of offers or lose customers, and typically they don’t think about this.”

This leads to the battle of churn. You have a couple of options. One is to play this game, but that requires an aggressive marketing mindset and sizeable monetary resources. From years of marketing experience, I recommend *not* playing that battle. I suggest creating services that incumbents can’t easily match, or can’t match at all for several years, and sell them to institutional customers at premium prices.

I also suggest reading my column on sustainability.

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