BIP/BTOP & the Rural Telco Threats and Opportunities

Ohrtman farm near Ringsted, Iowa Ohrtman farm near Pomeroy, Iowa

BIP/BTOP Bragging Rights $27 million in grant/loan applications in Round One 3 applications/3 states 2 WISPs, 1 Indian tribe

$27 million in grant/loan applications in Round One

3 applications/3 states

2 WISPs, 1 Indian tribe

BIP/BTOP Round One 2200 applications totaling $28 billion 880 (18 per state) applications for infrastructure Applications for every state of the union plus territories, etc

2200 applications totaling $28 billion

880 (18 per state) applications for infrastructure

Applications for every state of the union plus territories, etc

What’s the threat to telcos? New market entrants take your market share WISPs Neighboring telco takes market share Whoever it is takes your subsidies; your USF money becomes their USF money One grant/loan recipient per service area. If they get grant/loan, you don’t; Your DSL doesn’t compete with their wireless service

New market entrants take your market share

WISPs

Neighboring telco takes market share

Whoever it is takes your subsidies; your USF money becomes their USF money

One grant/loan recipient per service area. If they get grant/loan, you don’t;

Your DSL doesn’t compete with their wireless service

How will we know who might be coming to our market? Federal Register: Awards to be announced 07 NOV 2009 Incumbents will have 30 days to contest awardees contentions of unserved or underserved status of proposed funded service areas Incumbents will have to provide broadband speed and location information at census block level plus take rates Greater than 40%? Please document…

Federal Register: Awards to be announced 07 NOV 2009

Incumbents will have 30 days to contest awardees contentions of unserved or underserved status of proposed funded service areas

Incumbents will have to provide broadband speed and location information at census block level plus take rates

Greater than 40%? Please document…

Broadband Mapping?

Broadband Mapping Good idea to participate and share info If you don’t, mappers may assume there is no broadband in your market leading to federal funding of a competitor FCC Form 477 not considered credible Defines broadband as 200 Kbps down; new definition is 768 kbps down and 200 kbps up Service providers not identified

Good idea to participate and share info

If you don’t, mappers may assume there is no broadband in your market leading to federal funding of a competitor

FCC Form 477 not considered credible

Defines broadband as 200 Kbps down; new definition is 768 kbps down and 200 kbps up

Service providers not identified

Attachment K: $1 service/$3 subsidy Local Voice Service 0 0 13560 38974 30123 32668 31596 Broadband Data 0 0 115500 662720 2E+06 3E+06 4E+06 Universal Service Fund 0 0 22800 93600 85200 90000 84000

BIP Eligibility Map: non-pink is eligible for BIP grant/loan

Hypothetical Example Calhoun County Iowa • 570 square miles • 4,500 households

One base station covers all of Calhoun County Base station on grain elevator

Do the math: Base station with backhaul: $20,000 Households: 4,500 Square Miles: 570 Infrastructure cost per household reached: $4.44 Cost per square mile: $35 Cost of CPE: $400 Can be included in the grant/loan application Lease to subscriber at $X/month

Base station with backhaul: $20,000

Households: 4,500

Square Miles: 570

Infrastructure cost per household reached: $4.44

Cost per square mile: $35

Cost of CPE: $400

Can be included in the grant/loan application

Lease to subscriber at $X/month

Advantages Wireless broadband county-wide; everybody gets it :) No 15,000 ft DSL limitations No in-town only cable TV limitations “ Real” broadband (at least 768 Kbps down, 200 Kbps up)

Wireless broadband county-wide; everybody gets it :)

No 15,000 ft DSL limitations

No in-town only cable TV limitations

“ Real” broadband (at least 768 Kbps down, 200 Kbps up)

Wireless: “shovel ready” projects?

Speed of Deployment 5 days to deploy a 3-sector base station 1 day to deploy a backhaul link 1 hour to deploy CPE Assuming no new tower construction, no shovel required

5 days to deploy a 3-sector base station

1 day to deploy a backhaul link

1 hour to deploy CPE

Assuming no new tower construction, no shovel required

“ What if”: BIP/BTOP Lessons Learned USDA takes notice of low cost per household reached of wireless vs. fiber A few hundred $ vs. a few thousand $ Reviewers may favor wireless applications as delivering broadband to the greatest number of households at the least cost to the taxpayers Congress may inquire about what’s “reasonable” for broadband grant/loan programs

USDA takes notice of low cost per household reached of wireless vs. fiber

A few hundred $ vs. a few thousand $

Reviewers may favor wireless applications as delivering broadband to the greatest number of households at the least cost to the taxpayers

Congress may inquire about what’s “reasonable” for broadband grant/loan programs

Do the math (cont.) Low barrier to entry, especially with “free” CAPEX Creates new business models for rural telecom services

Low barrier to entry, especially with “free” CAPEX

Creates new business models for rural telecom services

Wireless Backhaul Gigabit to 5 miles 500 Mbps to 20 miles Spectrum license on demand ($2,000) Install on existing towers/grain elevators/ water towers/silos, etc Eligible for Middle Mile Infrastructure grants/loans Rural telco is no longer the “bottle neck” sole source of connectivity (i.e. T1 to the WISP, etc)

Gigabit to 5 miles

500 Mbps to 20 miles

Spectrum license on demand ($2,000)

Install on existing towers/grain elevators/ water towers/silos, etc

Eligible for Middle Mile Infrastructure grants/loans

Rural telco is no longer the “bottle neck” sole source of connectivity (i.e. T1 to the WISP, etc)

VoIP and WiMAX QoS as good as copper Latency at <20 ms over the air Vonage, skype, etc over wireless broadband are now your indirect competitors “ Free” long distance is attractive Lose the line, lose the subsidy

QoS as good as copper

Latency at <20 ms over the air

Vonage, skype, etc over wireless broadband are now your indirect competitors

“ Free” long distance is attractive

Lose the line, lose the subsidy

3.65 GHz: “free” spectrum 5 minutes and $60 for my nation-wide license Great compromise in spectrum Not expensive like 700 MHz/2.5 GHz Not commonly used like 2.4 GHz, 5.8 GHz, etc Spectrum is not a barrier to entry for wireless competitor

5 minutes and $60 for my nation-wide license

Great compromise in spectrum

Not expensive like 700 MHz/2.5 GHz

Not commonly used like 2.4 GHz, 5.8 GHz, etc

Spectrum is not a barrier to entry for wireless competitor

“ Free” Sales and Marketing $ Broadband Adoption grants $ to hire trainers, buy equipment Educate public and business leaders on benefits of broadband Public Computing Centers $ for broadband connected computers in libraries and community centers Grow more subs

Broadband Adoption grants

$ to hire trainers, buy equipment

Educate public and business leaders on benefits of broadband

Public Computing Centers

$ for broadband connected computers in libraries and community centers

Grow more subs

Broadband and Education E-Rate for schools WiMAX and “the 5% solution” Netbook lease and WiMAX at home enables 7x24x365 instruction for school kids Cost is 5% of annual per student allocation Another anchor tenant lost to new competitor?

E-Rate for schools

WiMAX and “the 5% solution”

Netbook lease and WiMAX at home enables 7x24x365 instruction for school kids

Cost is 5% of annual per student allocation

Another anchor tenant lost to new competitor?

BIP/BTOP: Open Networks Provision Grant/loan awardees must offer open networks Applies to both Last Mile and Middle Mile applications Could lead to “subcompetitors” entering your market via virtual network operators entering your market

Grant/loan awardees must offer open networks

Applies to both Last Mile and Middle Mile applications

Could lead to “subcompetitors” entering your market via virtual network operators entering your market

10-year Provision NOFA dictates that while funded assets are the property of the awardee, they cannot be sold in less than 10 years without federal permission Awardees must be in the venture for the long haul, ie they are not going away soon…

NOFA dictates that while funded assets are the property of the awardee, they cannot be sold in less than 10 years without federal permission

Awardees must be in the venture for the long haul, ie they are not going away soon…

Previous impact of wireless: Telcos losing landlines at 7%/year

Its not just the big city...

Threat Summary Competitor can enter your market with “free” CAPEX Competitor could qualify for the subsidies you are now receiving; depriving you of same Competitor could take your anchor tenants leaving you with low margin accounts If competitor is using BIP/BTOP $, you can’t get BIP/BTOP $ in later round Competitor could deploy 4G network that offers superior performance and reach over your network at very low cost per sub, i.e. low barrier to entry

Competitor can enter your market with “free” CAPEX

Competitor could qualify for the subsidies you are now receiving; depriving you of same

Competitor could take your anchor tenants leaving you with low margin accounts

If competitor is using BIP/BTOP $, you can’t get BIP/BTOP $ in later round

Competitor could deploy 4G network that offers superior performance and reach over your network at very low cost per sub, i.e. low barrier to entry

What’s the opportunity? If you can’t beat ‘em, join ‘em You get the grant/loan so no one qualifies for a grant/loan for your market You get the grant/loan so no one gets subsidies for subs in your market You get the grant/loan for a Middle Mile Infrastructure network

If you can’t beat ‘em, join ‘em

You get the grant/loan so no one qualifies for a grant/loan for your market

You get the grant/loan so no one gets subsidies for subs in your market

You get the grant/loan for a Middle Mile Infrastructure network

Upgrade your existing plant Awards are for CAPEX only, your OPEX growth is probably a small increment (if any) over current levels May be a good opportunity to “future proof” your existing network New routers, softswitch, etc are eligible expenses

Awards are for CAPEX only, your OPEX growth is probably a small increment (if any) over current levels

May be a good opportunity to “future proof” your existing network

New routers, softswitch, etc are eligible expenses

What’s your expansion plan? Death of distance: with IP, geography is meaningless Limitations of copper wire no longer protect your market Grow or die? How do you grow? Move into neighboring market before it moves into yours? (“clecing”) Neighboring telco is weak, not upgrading to meet demands of broadband users, community needs, needs for education, healthcare or public safety, etc

Death of distance: with IP, geography is meaningless

Limitations of copper wire no longer protect your market

Grow or die? How do you grow?

Move into neighboring market before it moves into yours? (“clecing”)

Neighboring telco is weak, not upgrading to meet demands of broadband users, community needs, needs for education, healthcare or public safety, etc

Apply for BIP/BTOP If you don’t, someone else will Of 880 infrastructure grant/loan applicants, one of them may have designs on your market May not be an opportunity like this again in our working lives or the life of your telco Low cost wireless infrastructure and IP brings change to the industry; can you change with it?

If you don’t, someone else will

Of 880 infrastructure grant/loan applicants, one of them may have designs on your market

May not be an opportunity like this again in our working lives or the life of your telco

Low cost wireless infrastructure and IP brings change to the industry; can you change with it?

Who wins the grants/loans? Incumbent service providers because Track record, financial and service Know the community, got their support Know the business for their markets Bonus points for previous RUS borrowers Bonus points for remote market applications Already support the 5 statutory purposes of the ARRA 2009

Incumbent service providers because

Track record, financial and service

Know the community, got their support

Know the business for their markets

Bonus points for previous RUS borrowers

Bonus points for remote market applications

Already support the 5 statutory purposes of the ARRA 2009

What’s the next step? Have a plan you are enthusiastic about Start “penciling” it out for your grant application Online Mapping Tool: be prepared to list your desired market down to the census block level Attachment C - Broadband penetration: what is the percentage of households with broadband in the desired market? Attachment G: Bill of Materials what do you need and what will it cost

Have a plan you are enthusiastic about

Start “penciling” it out for your grant application

Online Mapping Tool: be prepared to list your desired market down to the census block level

Attachment C - Broadband penetration: what is the percentage of households with broadband in the desired market?

Attachment G: Bill of Materials what do you need and what will it cost

What’s the next step? Deadline for Round Two TBA (probably late NOV/early DEC) Awards for Round One out NOV 07 Round Three: may not be a Round Three

Deadline for Round Two TBA (probably late NOV/early DEC)

Awards for Round One out NOV 07

Round Three: may not be a Round Three

Thanks! Frank Ohrtman 720-839-4063 [email_address] www.wmxsystems.com ANPI 877-FON-ANPI [email_address] www.anpisolutions.com Interested in deploying a wireless broadband network? Starter kits are available to inexpensively test and evaluate a non-line-of-sight system for business and residential subscribers. Learn more...

Frank Ohrtman 720-839-4063 [email_address] www.wmxsystems.com

ANPI 877-FON-ANPI [email_address] www.anpisolutions.com

Interested in deploying a wireless broadband network?

Starter kits are available to inexpensively test and evaluate a non-line-of-sight system for business and residential subscribers.

Learn more...