ARRAUpdated later July 30 and again on August 2 with additional information

The Politico website has published a scathing yet apparently heavily researched post criticizing the Rural Utilities Service’s role as administrator of the $3.5 billion broadband infrastructure program (BIP) that was part of the stimulus program adopted by U.S. lawmakers in 2009.

According to the author, the RUS cancelled or delayed some stimulus projects for inappropriate reasons and provided insufficient program oversite. The agency, Politico said, was “miserly and risk averse at times – and unfocused and overly generous at others.”

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The upshot, according to Politico, is that a program that was expected to bring broadband to 7 million people has to date reached only several hundred thousand people.

Politico also estimates that roughly half of the nearly 300 stimulus projects that the RUS approved have not yet drawn down the full amounts they were awarded. If true, that’s a potentially big concern, as network operators are no longer allowed to draw funds after the end of September.

The value of untapped funds is $277 million, according to Politico, which also notes that more than 40 BIP projects never got started at all – a number that Telecompetitor reported about a year ago. It isn’t clear if the 40 projects are included in the untapped $277 million that Politico references. It also isn’t clear if Politico’s “several hundred thousand” number includes homes passed or people who have actually signed up for service.

Because of the way the stimulus program was set up, unused funds cannot be re-awarded. According to Politico, 430,000 residents in rural areas did not receive broadband because of the cancellation of the 40-plus projects.

The RUS did not respond to an inquiry from Telecompetitor asking for comment on the Politico piece.

RUS Broadband Stimulus Program
Politico isn’t the first to question the RUS’s administration of the broadband stimulus program. As Telecompetitor reported last year, a Government Accountability Office report criticized RUS’s oversight of the stimulus program after awards were made.

“RUS has not shown how the approximately $3 billion in funds awarded for BIP projects [has] affected broadband availability,” the GAO wrote. As stimulus-funded networks were built, the RUS was not tracking the number of locations reached or the number of customers who had signed up for service, the GAO noted.

The Politico author takes that argument a step further. The RUS, he said, never asked whether residents who had gained service lived in unserved rural areas or areas that had some broadband access before the stimulus program started.

That’s important information to know, considering that the stimulus program allowed network operators to obtain funding for areas that included some homes that already could receive broadband service – as long as a certain percentage of homes in the area were unserved. The National Cable & Telecommunications Association previously attacked the RUS program for funding some projects that included overbuilds of areas that already had some broadband.

If indeed some network operators are unable to finish their projects, it would be particularly disheartening if we were to learn that the areas that had already been completed were in areas that already had some broadband.

The telecom industry undoubtedly will be watching closely to see what recourse, if any, is found for any projects that aren’t completed on time. The Politico article references a project in Lake County, Minnesota that ran into trouble, at least in part because of a lack of support from the RUS, and notes that the award recipient may need to draw on additional state and local money to complete the project.

Reporting Time Lag?
It certainly sounds as though the RUS made some blunders in administering the stimulus program. Having said that, I would be very surprised and disappointed if a large number of funding recipients ultimately fell far short of their goals. Perhaps the “several hundred thousand people” number only references people who have signed up for service as of now. It’s quite common for rural network operators to see take rates in the range of 60% to 70% after a few years of providing service. It’s also unclear what the lag time is between when service is installed and when it is reported – or between when funds are drawn and reported.

One of the biggest winners in the BIP program was TDS Telecom, which won about $125 million. Telecompetitor today asked the company about the status of its BIP projects and funding. The company’s answer:  “We have completed and drawn funds for 43 of our 44 projects. We still have one project in Arizona open. We expect to complete this project and draw the remaining funds prior to September 30. In our application we anticipated enabling service to 27,000 households.  We will enable over 32,000 households when complete.  That’s 18% more than originally anticipated.” At an average of between two and three people per household, that’s between 64,000 and 96,000 people just for TDS.

The response from TDS suggests either that its experiences are atypical or that individual BIP recipients ultimately may not fall as far short of their goals as the Politico report might suggest.

At $181 million, Windstream Communications also was a big BIP winner. The company did not immediately reply to an inquiry from Telecompetitor about the status of its projects, but the company said previously that it expected to reach 75,000 homes in 2014 as a result of the program. That’s between 150,000 and 225,000 people. We will publish an update whenever we hear back from them.

It also would be interesting to hear from Telecompetitor readers who won RUS stimulus awards about their experiences – whether they have drawn all of their funds, how close they are to completing projects, and how many people they have signed up as of now, but more importantly, how many they expect to have signed up within a few years.

Updated later July 30-
Windstream got back to us to say that it has received all of the funding for 17 of the 18 RUS broadband stimulus grants that it was awarded, and that it anticipates receiving the remaining funding for the final grant in August.

The grants allowed Windstream to make service available to 356,297 households, a spokesman wrote in an email to Telecompetitor. Apparently some of these were upgrades to existing lower-speed service, as the spokesman said about 30,000 subscribers “took advantage of increased broadband speeds that were made available” as a result of the program.

This apparently is in addition to 38,560 new customers that did not have Internet service available previously. This is in the line with the 40,000 new broadband subscriber target that Windstream projected when it applied for funding, the spokesman said.

The spokesman also noted that the company spent about $6.5 million less than it was awarded because some projects came in under budget.

Updated August 2-
The RUS got back to Telecompetitor with this statement from the agency’s administrator Brandon McBride:

I understand the hard work that has gone into ensuring these 255 broadband projects funded by the Recovery Act deliver broadband to rural areas. More than 90 percent of the funding has been drawn down and all but a few projects will meet their goals before the fiscal year is over.

As your article noted, the experience of TDS and Windstream is indeed typical of many others across the country. These projects help rural communities attract new businesses, allow schools to improve educational opportunities, and improve healthcare with cost-effective remote diagnosis and care.

We know that the risks associated with building broadband infrastructure in rural areas can be cost prohibitive for the private sector to take on alone.  USDA works carefully with our borrowers to balance the need to provide broadband service to underserved and unserved areas with the risks associated in funding large infrastructure projects in rural areas with low population density.

Our work is not done. Just yesterday, we kicked off the next phase of the Farm Bill broadband program. We look forward to continuing our work to deliver broadband to rural America.

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6 thoughts on “RUS Broadband Stimulus $3.5 Billion Program: Was it a Failure?

  1. That program helped Pioneer Telephone Cooperative and Pioneer Cellular expand, upgrade and introduce LTE service over their entire service area, much of which is not served with LTE by any major carrier and is not served natively at all by Sprint and US Celluar, so yes, this program has been a success at least in Pioneer's 2-state service area.

    1. Valid point Glenn, but is it accurate to say that the program was a success only because the money financed an expansion that a public/private enterprise would not have otherwise invested in (in other words, did not expect a reasonable return on the investment)? Granted, I don't think market demand or reasonable return on cash invested were ever really serious considerations of the program.

  2. I agree with Steve, market demand or reasonable return on cash invested were ever really serious considerations of the program. However, I also look at the results of a Social return on cash invested. Using Oklahoma as an example, results such as data to support a direct correlation that, as a result of this investment, Oklahoma has seen an increase in student test scores in Reading, Writing or in the STEM areas. Also, data to support a direct correlation that there was a significant increase in the number of participants in Oklahoma's Health Care Exchange Services. I think the same results should be required from any public/private partnership that received RUS funding.

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