Final Tips on Surviving Broadband Stimulus March to Madness

[This is really long. Print it out for the train ride home]

There are two large incumbents in the Cape Cod, MA area. OpenCape is the nonprofit-driven public/private partnership that just won a bunch of BTOP stimulus grant money to build a massive middle mile network. And here is a total random event that typifies one reason why they won despite the incumbents’ presence.

A few days ago in the outer Cape, a tree fell on an electrical cable that in turn started a fire involving a piece of telecom infrastructure. The fire took out all communications in five towns. Everything. There was no phone, Internet, 911, cable. Zip.

The Cape area is, for practical purposes, an island. A couple of bridges link it with the “mainland” across the canal on the Cape’s northwest side. One bridge carries the single communications pipe that both incumbents use to bring service to the area. In OpenCape’s vision, one day there ideally will be two big pipes plus the current one.

The primary reasons I’m bullish on OpenCape is their patience in planning, and their savvy in understanding that you plan first for the business success of the network, and then you worry about winning the grant application. Doing the reverse severely reduces your chances to succeed at either.

I interviewed OpenCape months before the stimulus bill was even a discussion topic. Their intense planning for a community network caught my attention. I’ve referenced them frequently throughout the stimulus process. I even included them in my new book, Fighting the Next Good Fight, in the chapter on creating a winning project team. You should get a copy. Good thing they won a grant ‘cause this could have been embarrassing.

Dan Gallagher is the point person for OpenCape Corporation who has driven this broadband effort. He has some valuable insights to share as you prep for the final march to madness, oops, I mean broadband stimulus success.

What’s the secret of your network’s expected success?

Any private sector company should be happy to do business with us, including the incumbents Comcast and Verizon. Verizon almost comes to the Cape, making its decisions based on per-house cost. We eliminate a lot of costs for backhaul since last mile providers won’t have to pay for building it out, and we’re not creating a high-cost service. OpenCape is creating a rate structure for any last-mile provider to capitalize on since we don’t want to define the services in the market, but rather give providers every possible opportunity to offer whatever constituents feel is valuable.

Some have criticized what they think is too much money going to middle mile projects. Is this criticism valid?

I think middle mile is the answer for meeting the greatest need with stimulus grants if these networks are done right. Our proposed network provides enough capacity and distributes the infrastructure in such way that we reach all potential crossroads where last mile providers can connect and deliver services. If points of your middle mile infrastructure collectively fall 1/2 mile from 90% of your population, then it’s close enough so building that last mile (wired or wireless) is practical and affordable. The general customer base that will grow from this will be natural.

We design network drops to pick up a tribe here, an institution there. It wasn’t difficult in the engineering design to jog the path to pick these up. Where we have a total lack of ability bring in a network extension, we offer interconnection paths for, say, wireless because fiber may not be best last mile option because of low population density.

Did you focus on one main idea in the application, and then complete the picture of the network in due diligence?

In general, all the concepts were laid out in the original application. Most of due diligence was spent refining and explaining those concepts in a much deeper way. The level of financial analysis to demonstrate the network’s sustainability was far more detailed than we had anticipated. In addition to our pro forma, they wanted real meat.

We spent lot of time in dealing with the nuances of accounting. For example, how does a lease offered as an in-kind contribution get recorded on the income statement? We submitted our pro forma with the application, but needed to flesh this out more. They wanted multiple scenarios of net present value (NPV) under lower or higher levels of loan interest rates. We had to get some outside help.

You need to think about surviving this scrutiny as you complete the part of the application showing viability and sustainability of the project over time. The agencies want detailed customer descriptions, realistic customer uptake analysis. What’s the market in your area? What services will customers sign up for and for how much?

We ended up putting more depth in the model on the front end. The more you do in the initial application, the better it’s going to look. The agency might see enough to inspire them and give you a chance even if the numbers are weak, but why take that chance? I believe people who did Round 1 have a much greater chance in Round 2 because they have the foundation completed.

Any software tools help you survive the process?

Our team used Microsoft Project because we needed a detailed project plan that generated numbers all perfectly aligned with the financial plan and an exact match with financial statements. The grant application includes the Fed’s SF24C form with categories that are not the same when you’re creating detailed project costs, but you have to translate between the two. If you use a spreadsheet, you may need 24 tabs and all interlinked so a change in one area updates everything else. This skill is beyond some people, so they need to hire someone to help.

How did you compensate for OpenCape not having previous experience?

We put out an RFI for a partner to cover for weakness in this area. Our volunteer board has experience with networks, but it’s not the same as actually running a network. So the partner had to be an experienced provider who has been successful. We chose RCN Metro who brought the expertise of network design, operations and overall management.

Why do you think some applicants did not win grants?

The reasons will be different for each application. Sustainability is probably the greatest downfall of proposals, though. Can this network sustain itself AND can you prove it? If you can’t prove it, I don’t believe you’re going to get any money. The agencies are not giving grants to people they think will have to come back to the trough in three or four years for more money.

For large cities, it’s hard to make a case that there’s not competition in the urban areas even if there are plenty of people who don’t have and can’t get access. How do you prove that your concept is going to be sustainable once the network is built and competitors decide to go after your customers?

What’s also complicated is that there are a lot of variables in urban areas that affect broadband adoption: economic status, education, price, and so on. Typically the first thing to do is have competition to drive prices down. If you get three providers or more into a low-income area, you get the price down, then sustainability is unattainable because of the costs exceeding revenue. This leads to the question of will the government provide subsidies. Furthermore, even with the low cost, constituents may not adopt broadband because of education issues.

Recommendations

Ok, it’s 2nd and a long two-and-a half weeks to goal. A hefty distance to cover, but little time left to make it (how’s that for a mangled metaphor). So here are some practical tips, mainly of the tinker-around-the-edges type since, if you don’t have the main stuff together, the overtime we got isn’t going to help you much.

I’ll start with some thoughts from two of my Twitter buds, communications lawyers Scott Seab and Broadband Lawyer. B L is kinda like one of those comic book super heroes whose identity we don’t know, but we’re incredibly glad to have around.

Scott Seab: I know this sounds obvious, but I would get someone outside of the industry (like an aunt or nephew) to read your proposal. If they can’t understand it, you should consider making it easier to understand, especially for those middle-mile projects where the text is usually geared towards the tech-heads in the group.

When addressing subscriber needs, I see wireless mobile delivery of ones and zeros as the future on every platform, while cable operators will realize increasing growth in the wireless backhaul services, both of which you should use to support your sustainable adoption case. Having a local or state government official at your side as the proposal moves along, figuratively and literally, will be crucial.

Broadband Lawyer: As you hit these last two weeks, make sure the message comes across that: (1) you have the best top-notch team of experienced professionals; (2) the technology makes sense; and (3) you can do what you say you will in a timely manner with the most efficient use of government funds.

First, spell out precisely the size, scope and budget of past projects that members of the team have managed in the past. There’s no room for figureheads. Your technology team has got to be the best.

Second, you don’t want your application to be tossed in the category of “too complex and difficult.” You risk not even making it to the due diligence stage if pieces of it doesn’t make sense.  One sure fire way to be in that “too difficult” category is to not do your homework cataloging competitors and making the strong case for the project being needed despite these competitors. Third, your numbers have to make sense. Go over the books and move as many tangential and incidental costs over to the capital expenses category.  Have the matching funds cover that portion of the budget.

The last word

As for my two-cents worth, here are a few more tips.

  1. Buy a copy of my book. Yeah, it’s shameless promotion. But you’re reading this blog aren’t you? Like the blog, you’ll love the book.
  2. RUS issued new guidelines with 36 changes, NTIA has issued updates to their FAQs. Get ‘em. Read ‘em.
  3. Expect incumbent challenges. Proactively take them on in your application narrative, show in detail why your proposal is needed despite the incumbents.
  4. Create your middle network infrastructure engineering design as if you were building a hybrid middle and last mile, fiber and wireless network. By showing where all the points of intersect are for last mile and wireless providers to connect with you, you strengthen the sustainability case.
  5. Have a person who writes for Hallmark edit your final document, especially for RUS proposals. They have no due diligence, so your application is all there is. Get a grant reviewer misty eyed, you get a leg up on other applicants.
  6. Unless you or someone on the project team crunch numbers for a living, get some outside help. NOW!
  7. If you don’t have a partner or people with serious network management successes under their belt, you should be in church every day until the 29th lighting candles. Your church doesn’t do that? BYOC.
  8. Expect there to be utter online mayhem when you go to upload your files. Have a 14-year old relative who has 500 Facebook friends (but I repeat myself) handy to nursemaid your files through this hell. Keep CDs of everything you submit. Be prepared to fight to the death if your files gets rejected.
  9. Drink heavily, swear often, start looking at Universal Service Fund reform as your next source of capital. The NOFA’s been so much fun you’ll go through painful withdrawals unless you have another grant program to take it’s place.

One Response

  1. Excellent post, friend. I say that not only because I am quoted in it. Really.

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