Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos


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ANPI and Vecima Networks featured this Webinar to discuss broadband applications and sustainable business opportunities for rural telco’s exploring some of the business and technology options.

Frank Ohrtman recently completed writing $27 million worth of Broadband Stimulus grants for entities who will compete with rural telcos, and shared his insights from that experience in this Webinar.

He notes that wireless broadband enables:

* A cost per rural household reached (a prominent question on the application) of only a few hundred dollars (compare with FTTH at a few thousand dollars per household reached);
* Voice services that qualify for USF funds you might be receiving; and
* “Shovel ready” deployment schedules that cover thousands of square miles in less than a year.

About the Speaker:
Frank Ohrtman has almost 20 years experience in telecommunications and wireless applications. He is a former Naval Intelligence Officer (1981–1991) who specialized in electronic warefare. Frank is the president of WMX Systems, LLC, a Denver, Colorado-based consulting and systems integration firm. A former employee of Lucent Technologies, his wireless consulting clients include national governments, tier one as well as rural telephone companies, municipalities, school districts and wireless broadband vendors.

Frank wrote The WiMAX Handbook: Building 802.16 Wireless Networks for McGraw-Hill in 2005. He holds a master’s degree in telecommunications from Colorado University. He is currently compiling grant applications made possible by the American Recovery and Reinvestment Act of 2009.

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Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

  1. 1. BIP/BTOP & the Rural Telco Threats and Opportunities
  2. 2. Ohrtman farm near Ringsted, Iowa Ohrtman farm near Pomeroy, Iowa
  3. 4. BIP/BTOP Bragging Rights <ul><li>$27 million in grant/loan applications in Round One </li></ul><ul><li>3 applications/3 states </li></ul><ul><li>2 WISPs, 1 Indian tribe </li></ul>
  4. 5. BIP/BTOP Round One <ul><li>2200 applications totaling $28 billion </li></ul><ul><li>880 (18 per state) applications for infrastructure </li></ul><ul><li>Applications for every state of the union plus territories, etc </li></ul>
  5. 6. What’s the threat to telcos? <ul><li>New market entrants take your market share </li></ul><ul><ul><li>WISPs </li></ul></ul><ul><li>Neighboring telco takes market share </li></ul><ul><li>Whoever it is takes your subsidies; your USF money becomes their USF money </li></ul><ul><li>One grant/loan recipient per service area. If they get grant/loan, you don’t; </li></ul><ul><li>Your DSL doesn’t compete with their wireless service </li></ul>
  6. 7. How will we know who might be coming to our market? <ul><li>Federal Register: Awards to be announced 07 NOV 2009 </li></ul><ul><li>Incumbents will have 30 days to contest awardees contentions of unserved or underserved status of proposed funded service areas </li></ul><ul><li>Incumbents will have to provide broadband speed and location information at census block level plus take rates </li></ul><ul><ul><li>Greater than 40%? Please document… </li></ul></ul>
  7. 8. Broadband Mapping?
  8. 9. Broadband Mapping <ul><li>Good idea to participate and share info </li></ul><ul><li>If you don’t, mappers may assume there is no broadband in your market leading to federal funding of a competitor </li></ul><ul><li>FCC Form 477 not considered credible </li></ul><ul><ul><li>Defines broadband as 200 Kbps down; new definition is 768 kbps down and 200 kbps up </li></ul></ul><ul><ul><li>Service providers not identified </li></ul></ul>
  9. 10. 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
  10. 11. BIP Eligibility Map: non-pink is eligible for BIP grant/loan
  11. 12. Hypothetical Example Calhoun County Iowa • 570 square miles • 4,500 households
  12. 13. One base station covers all of Calhoun County Base station on grain elevator
  13. 14. Do the math: <ul><li>Base station with backhaul: $20,000 </li></ul><ul><li>Households: 4,500 </li></ul><ul><li>Square Miles: 570 </li></ul><ul><li>Infrastructure cost per household reached: $4.44 </li></ul><ul><li>Cost per square mile: $35 </li></ul><ul><li>Cost of CPE: $400 </li></ul><ul><ul><li>Can be included in the grant/loan application </li></ul></ul><ul><ul><li>Lease to subscriber at $X/month </li></ul></ul>
  14. 15. Advantages <ul><li>Wireless broadband county-wide; everybody gets it :) </li></ul><ul><li>No 15,000 ft DSL limitations </li></ul><ul><li>No in-town only cable TV limitations </li></ul><ul><li>“ Real” broadband (at least 768 Kbps down, 200 Kbps up) </li></ul>
  15. 16. Wireless: “shovel ready” projects?
  16. 17. Speed of Deployment <ul><li>5 days to deploy a 3-sector base station </li></ul><ul><li>1 day to deploy a backhaul link </li></ul><ul><li>1 hour to deploy CPE </li></ul><ul><li>Assuming no new tower construction, no shovel required </li></ul>
  17. 18. “ What if”: BIP/BTOP Lessons Learned <ul><li>USDA takes notice of low cost per household reached of wireless vs. fiber </li></ul><ul><ul><li>A few hundred $ vs. a few thousand $ </li></ul></ul><ul><li>Reviewers may favor wireless applications as delivering broadband to the greatest number of households at the least cost to the taxpayers </li></ul><ul><li>Congress may inquire about what’s “reasonable” for broadband grant/loan programs </li></ul>
  18. 19. Do the math (cont.) <ul><li>Low barrier to entry, especially with “free” CAPEX </li></ul><ul><li>Creates new business models for rural telecom services </li></ul>
  19. 20. Wireless Backhaul <ul><li>Gigabit to 5 miles </li></ul><ul><li>500 Mbps to 20 miles </li></ul><ul><li>Spectrum license on demand ($2,000) </li></ul><ul><li>Install on existing towers/grain elevators/ water towers/silos, etc </li></ul><ul><li>Eligible for Middle Mile Infrastructure grants/loans </li></ul><ul><li>Rural telco is no longer the “bottle neck” sole source of connectivity (i.e. T1 to the WISP, etc) </li></ul>
  20. 21. VoIP and WiMAX <ul><li>QoS as good as copper </li></ul><ul><li>Latency at <20 ms over the air </li></ul><ul><li>Vonage, skype, etc over wireless broadband are now your indirect competitors </li></ul><ul><li>“ Free” long distance is attractive </li></ul><ul><li>Lose the line, lose the subsidy </li></ul>
  21. 22. 3.65 GHz: “free” spectrum <ul><li>5 minutes and $60 for my nation-wide license </li></ul><ul><li>Great compromise in spectrum </li></ul><ul><li>Not expensive like 700 MHz/2.5 GHz </li></ul><ul><li>Not commonly used like 2.4 GHz, 5.8 GHz, etc </li></ul><ul><li>Spectrum is not a barrier to entry for wireless competitor </li></ul>
  22. 23. “ Free” Sales and Marketing $ <ul><li>Broadband Adoption grants </li></ul><ul><ul><li>$ to hire trainers, buy equipment </li></ul></ul><ul><ul><li>Educate public and business leaders on benefits of broadband </li></ul></ul><ul><li>Public Computing Centers </li></ul><ul><ul><li>$ for broadband connected computers in libraries and community centers </li></ul></ul><ul><ul><li>Grow more subs </li></ul></ul>
  23. 24. Broadband and Education <ul><li>E-Rate for schools </li></ul><ul><li>WiMAX and “the 5% solution” </li></ul><ul><ul><li>Netbook lease and WiMAX at home enables 7x24x365 instruction for school kids </li></ul></ul><ul><ul><li>Cost is 5% of annual per student allocation </li></ul></ul><ul><li>Another anchor tenant lost to new competitor? </li></ul>
  24. 25. BIP/BTOP: Open Networks Provision <ul><li>Grant/loan awardees must offer open networks </li></ul><ul><li>Applies to both Last Mile and Middle Mile applications </li></ul><ul><li>Could lead to “subcompetitors” entering your market via virtual network operators entering your market </li></ul>
  25. 26. 10-year Provision <ul><li>NOFA dictates that while funded assets are the property of the awardee, they cannot be sold in less than 10 years without federal permission </li></ul><ul><li>Awardees must be in the venture for the long haul, ie they are not going away soon… </li></ul>
  26. 27. Previous impact of wireless: Telcos losing landlines at 7%/year
  27. 28. Its not just the big city...
  28. 29. Threat Summary <ul><li>Competitor can enter your market with “free” CAPEX </li></ul><ul><li>Competitor could qualify for the subsidies you are now receiving; depriving you of same </li></ul><ul><li>Competitor could take your anchor tenants leaving you with low margin accounts </li></ul><ul><li>If competitor is using BIP/BTOP $, you can’t get BIP/BTOP $ in later round </li></ul><ul><li>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 </li></ul>
  29. 30. What’s the opportunity? <ul><li>If you can’t beat ‘em, join ‘em </li></ul><ul><li>You get the grant/loan so no one qualifies for a grant/loan for your market </li></ul><ul><li>You get the grant/loan so no one gets subsidies for subs in your market </li></ul><ul><li>You get the grant/loan for a Middle Mile Infrastructure network </li></ul>
  30. 31. Upgrade your existing plant <ul><li>Awards are for CAPEX only, your OPEX growth is probably a small increment (if any) over current levels </li></ul><ul><li>May be a good opportunity to “future proof” your existing network </li></ul><ul><li>New routers, softswitch, etc are eligible expenses </li></ul>
  31. 32. What’s your expansion plan? <ul><li>Death of distance: with IP, geography is meaningless </li></ul><ul><li>Limitations of copper wire no longer protect your market </li></ul><ul><li>Grow or die? How do you grow? </li></ul><ul><li>Move into neighboring market before it moves into yours? (“clecing”) </li></ul><ul><li>Neighboring telco is weak, not upgrading to meet demands of broadband users, community needs, needs for education, healthcare or public safety, etc </li></ul>
  32. 33. Apply for BIP/BTOP <ul><li>If you don’t, someone else will </li></ul><ul><li>Of 880 infrastructure grant/loan applicants, one of them may have designs on your market </li></ul><ul><li>May not be an opportunity like this again in our working lives or the life of your telco </li></ul><ul><li>Low cost wireless infrastructure and IP brings change to the industry; can you change with it? </li></ul>
  33. 34. Who wins the grants/loans? <ul><li>Incumbent service providers because </li></ul><ul><ul><li>Track record, financial and service </li></ul></ul><ul><ul><li>Know the community, got their support </li></ul></ul><ul><ul><li>Know the business for their markets </li></ul></ul><ul><ul><li>Bonus points for previous RUS borrowers </li></ul></ul><ul><ul><li>Bonus points for remote market applications </li></ul></ul><ul><ul><li>Already support the 5 statutory purposes of the ARRA 2009 </li></ul></ul>
  34. 35. What’s the next step? <ul><li>Have a plan you are enthusiastic about </li></ul><ul><li>Start “penciling” it out for your grant application </li></ul><ul><li>Online Mapping Tool: be prepared to list your desired market down to the census block level </li></ul><ul><li>Attachment C - Broadband penetration: what is the percentage of households with broadband in the desired market? </li></ul><ul><li>Attachment G: Bill of Materials what do you need and what will it cost </li></ul>
  35. 36. What’s the next step? <ul><li>Deadline for Round Two TBA (probably late NOV/early DEC) </li></ul><ul><li>Awards for Round One out NOV 07 </li></ul><ul><li>Round Three: may not be a Round Three </li></ul>
  36. 37. Thanks! <ul><li>Frank Ohrtman 720-839-4063 [email_address] </li></ul><ul><li>ANPI 877-FON-ANPI [email_address] </li></ul><ul><li>Interested in deploying a wireless broadband network? </li></ul><ul><li>Starter kits are available to inexpensively test and evaluate a non-line-of-sight system for business and residential subscribers. </li></ul><ul><li>Learn more... </li></ul>