Tag Archives: funding

Antique tech is good enough for USDA, so it must be fine for everyone else

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We’re upgrading to Pong next year.

All of a sudden, the U.S. Department of Agriculture’s – and, consequently, the Federal Communication Commission’s – belief that slow 10 Mbps download and 1 Mbps upload speeds are adequate benchmarks for rural broadband infrastructure development makes sense. Technologically, the USDA is a decade behind everyone else. That’s an entire lifetime in Silicon Valley dog years.

I had signed up for a USDA webinar on the new round of the Community Connect broadband grant program yesterday (which sets an even lower, 4 Mbps download standard). An hour before it began, I received a “friendly note” from one of the coordinators telling me 1. the webinar uses Microsoft’s LiveMeeting platform, 2. it won’t run on a Mac, and 3. I could expect no help from USDA.

Since the only computer operating systems I use are Mac and Linux, the “note” did not strike me as particularly “friendly”.

The latest rev of LiveMeeting is a 2007 release that Microsoft discontinued five years ago, replacing it with a Skype-based platform. In fact, you can use it on a Mac, if you’re willing to install a runtime version of Java and do some command line tinkering via Terminal. That might be a fun project for a rainy weekend, but it’s a waste of time during business hours. And a significant security risk.

The USDA is simply incapable of dealing with technological change. It’s not unique in that regard – federal agencies have a tremendous problem maintaining IT infrastructure, as the continuing stream of major security breaches and iPhone fumbling demonstrate. But ag tech is booming in California, and will change food production forever. If the USDA can’t keep up, its particular clients in the midwest and south will fall even further behind California and the rest of the world.

That’s the general problem. The specific problem is that the USDA unit entrusted with developing telecommunications infrastructure lives in the past, isolated from the technological pressure that’s driving the ever increasing demand for bandwidth in rural communities.

Faster broadband standard set by federal agriculture department

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It’ll get there eventually.

Minimum speeds for guaranteed broadband infrastructure loans from the federal agriculture department have been raised. The Rural Utilities Service (RUS) opened another round of loans earlier this month, and upped the benchmark speed for both area eligibility and funded infrastructure from 4 Mbps download/1 Mbps upload to 10 Mbps down/1 Mbps up, for wireline and fixed and mobile wireless projects.

That brings the RUS minimum speeds in line with other federal broadband subsidy programs, particularly the Connect America Fund program run by the Federal Communications Commission, which will be giving more than half a billion dollars to incumbent telephone companies in California alone.

On the whole, the RUS loan program is also tilted toward incumbents – the nature of the beast is that it’s a lot easier for an existing business to borrow money than a start up. That’s true whether you’re applying to a bank or a subsidised rural loan guarantee program. Like all RUS programs, it’s also designed to serve rural areas that fit midwestern and southern conditions: small counties with small farms and small populations.

California is different. Our state has large agricultural operations, and workers who commute to the fields from towns that federal agencies consider too large to help. Standards are also different here – the minimum set by the California Public Utilities Commission is 6 Mbps down and 1.5 Mbps up. Slower download speeds, but higher on the upload side, which is more critical for businesses than for consumer applications. But federal rules are moving in the right direction, and make the case, if not the requirement for even better speeds…

With the development of new applications and the need for greater bandwidth, [RUS] strongly suggests that applicants applying for funding under this program consider system designs that will allow for 25 megabits downstream and 3 megabits upstream. Building to these requirements will ensure that facilities that are constructed today will also be able to handle the needs of the future.

It’s the direction that California should be heading towards too.

Metro broadband: without the political cards, you’re not playing with a full deck

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Political value: the need for speed at the San Leandro public library.

There’s an argument to the effect that the prices charged for broadband service by telcos and cable companies in urban areas are higher than necessary to provide that service and make a reasonable profit.

It’s not crazy talk. You can make a case that more densely populated areas have lower per household costs – opex and capex – and that more affluent areas have higher profit margins. There are counter arguments too, not least of which is that telecoms network costs should be spread across all users. Personally, I favor the whole system approach – the more people reached, the more valuable the network – but the marginal cost approach has valid uses.

However, it doesn’t follow that an independent competitor in a metropolitan area will be able to charge less for equivalent service or the same for better service. The telecoms business has huge economies of scale: fixed operating costs are high relative to variable costs and large purchases by big companies bring hefty discounts. Particularly for television programming. A local competitor operates at a significant cost disadvantage.

A significant fraction (30%? 40%?) of households passed have to be willing to pay more ($50 per month more is a good placeholder) to either incentivize an incumbent to bring in fiber or support the operating cost and capital requirements of an independent system. The market research I’ve seen says that’s not happening.

People may value significantly better broadband services highly in many senses of the word, but not economically. At least not to the extent that an independent, privately financed metro scale FTTH overbuild in a competitive market is economically sustainable. Not yet.

Something else has to be on the table for an independent FTTH overbuild to work. Construction and operating subsidies, (significantly) below market rate financing, publicly owned assets are examples. In other words, you’re adding political value to whatever economic value is present in order to make a business case.

Whether the political value exists is a legitimate topic for debate, and some communities or state and federal policy makers might conclude that it is. The California Advanced Services Fund (CASF) is one example of policy-driven broadband investment. Leveraging a public owned electric utility, such as in Chattanooga (FTTH) or Palo Alto (dark fiber), is another. So is partnering up public assets and private investment, as in San Leandro. And there are more. And there are counter-examples too.

Claims made by some that ordinary metro FTTH overbuilds are self sustaining investments with no risk to taxpayers are at best distractions. For now, it is as much a political question as an economic one. Debate should be encouraged.

The weather is here

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A stormy morning on Monterey Bay got me thinking about Blueseed, a plan to anchor a high-tech haven twelve nautical miles off the San Mateo County coast, in international waters.

It looks like a floating city in conceptual images, but if it actually puts to sea version 1.0 would have to be a converted cruise ship. If it takes off, then maybe enough capital will be there for custom ship building. For now, they’re working with a six-figure seed fund.

Days like today would be the most serious natural challenge to the project. Half Moon Bay, the nearest landfall, is home to Mavericks, “a winter destination for some of the world’s best big wave surfers.” Maneuvering capability would be essential, unless Blueseed accumulates enough experience and baseline data to figure out how to keep something stationary in a far from benign environment.

A ferry connection is planned, weather permitting. A rough ride at times, but probably as predictable as any other commute along the U.S. 101/I-280 corridor. Not particularly, in other words.

Internet access would be a challenge, for the same reason. A microwave link from shore would have to shoot through 12 miles of muck occasionally. That’s a lot of signal attenuation. A submarine cable might be the ultimate solution, if a regulatory nightmare can be avoided.

The stated purpose is to provide a location within day trip distance of Silicon Valley that doesn’t require foreign nationals to get a work visa. On board, the laws of whatever flag of convenience it flies will apply – the Bahamas and Marshall Islands are given as examples.

It’s crazy enough to work.

The problem with FTTH is there’s no problem

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It’s not about finding a mass market solution. It’s about finding a sufficiently acute mass market problem.

The struggle to develop a general fiber-to-the-home (FTTH) or premises (FTTP) business model for city-wide deployments doesn’t result from a market failure. Quite the contrary. It’s evidence that the laws of supply and demand are in full effect.


Demand, meet supply.

People generally get the broadband service someone else – a business or government agency mostly – is willing to give them for the price they’re willing to pay. FTTH market research tracks closely with actual results. If you ask consumers if they’d like faster broadband, they say yes (who wouldn’t?). But when you test price points, they’re generally pleased with what they’re paying now and don’t perceive enough additional value from higher speeds to motivate them to pay more.

From the point of view of a city or other prospective overbuilder, it’s a competitive market. AT&T, Comcast and the rest do a fair job most days meeting most customer expectations. They leverage that complacency to fiercely defend their turf. Successfully, for the most part.

Cities are good at filling broadband infrastructure gaps where immediate economic demand exists, either directly or by bringing a private partner to the table. Lit San Leandro, Palo Alto’s dark fiber and Mountain View’s WiFi system are good examples. But those are specific solutions in largely unique business circumstances that also suit the particular political character of each city.

There won’t be a market-driven case for FTTH until a sizable fraction of the residents and small business owners in a community have a problem that 1. they’re willing to pay an extra, say, $50 a month to fix, and 2. can’t be solved to their satisfaction by existing technology and service providers.

Adding institutional IT budgets to the kitty is not as helpful as some FTTH backers, such as Gigabit Squared, think. An organization with an IT budget hefty enough to make a difference is really looking for wholesale service. Big IT systems need big pipes and budget accordingly. That’s helpful, maybe decisive, for funding a middle mile project, and there are examples where it’s done the trick.

You need a significant fraction of the available homes and businesses ready to spend more now, to tip the balance for an FTTH business case. Until the economic demand (i.e. marginal willingness to pay) develops, the Gigabit Squared model will only work if it leverages political demand: grants, direct tax money, cross-subsidies from other municipal utilities or other public support, in healthy quantities.

Gigabit Seattle’s financial vehicle is still a concept car

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Car of the Future as conceived by Studebaker's Director of Styling, Raymond Loewy, in the August 1950 issue of Science and Mechanics. Loewy wrote about the new styling for tomorrow's rocket age population. Via Wikimedia Commons.
Thanks for the down payment. Just need to find someone to co-sign the loan.

“Gigabit Squared is providing the capital, although details of the financing model aren’t clear,” wrote Stacey Higginbotham in a story for GigaOM following Gigabit Squared’s announcement last May that it had formed a partnership with Gig.U and was bringing $200 million to the table to fund fiber networks in as many as six cities.

The financing model was equally unclear last week when the City of Seattle and the University of Washington blessed a plan by Gigabit Squared to build a demonstration fiber-to-the-premises network in 12 Seattle neighborhoods. No cash is committed or, according to the City of Seattle, even contemplated.

Higginbotham aside, most of what’s been written about the $200 million fund is uncritical and assumes it’s a done deal. Not so. Gigabit Squared’s public statements are nuanced, to put it gently.

In the 23 May 2012 announcement, president Mark Ansboury didn’t say he had the cash in hand. “We intend to make available $200 million in investment capital,” he said. His words speak to plans, not accomplishments.

The next day, Ansboury expanded on his funding strategy in an interview with industry blogger and consultant Craig Settles.

“Our initial commitment of $200 million is based on the combination of some equity and leveraged financing. Each of our deals will be different,” Ansboury said. “So how much equity versus how much financing we’re going to do are going to be really dependent on the mix of what a community brings to the table: how much in kind, how much support and the things we need to do.”

Translation: we don’t have the money yet, but we think we can find it if the locals put enough on the table.

“It was the idea that a community has underutilized assets,” Ansboury explained. “That a community has a certain pent up service demand, that the community has the capability to aggregate capacity and demonstrate the need and value for broadband. In doing that, then you can create the financial vehicles. You don’t care if its public, private, grant…you can create the vehicle that justifies the value proposition for bringing that kind of capital to the table to help build out out the network.”

Translation: give us your dark fiber and city, county, school district and university IT budgets, wheedle some pork out of the feds and the state and have residents sign pledges (with maybe, say, a $100 deposit) to pay for installation and subscribe to service. We’ll get back to you.

His financial model assumes that if community demand can be demonstrated and big users, particularly government and educational organizations, commit future budget dollars, plus whatever broadband assets and grant money they can find, then that’ll be a sufficient guarantee for private investment and bonds, bank loans or vendor financing.

That puts the Seattle announcement in a clearer context. “The City, the University and Gigabit Squared have signed a Memorandum of Understanding and a Letter of Intent that allows Gigabit Squared to begin raising the capital needed,” the joint press release read.

There’s the demonstration of demand. Now it’s time to show that the financial vehicle has wheels.

Seattle passes the fiber (50 mega) buck

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The unveiling of Gigabit Seattle yesterday is just the first step on a long road to building a fiber to the premises (FTTP) service for residents. The City of Seattle and the University of Washington have endorsed a plan by a consulting firm – Gigabit Squared – to “begin raising the capital needed” for a demonstration project.

Gigabit Seattle coverage

It’s not small change. The 200 miles of fiber needed to reach 50,000 homes and businesses in 12 neighborhoods will cost something like $50 million to install and light up. In round numbers, the Seattle demo looks remarkably similar to plans for building an FTTP network in Palo Alto: similar mileage, existing city-owned dark fiber network, urban terrain, prevailing wage rules, environmental standards and university-leaning demographics. Depending on the assumptions made, construction costs would be around the $40 to $60 million range.

I did an extensive analysis of the costs, potential revenue and overall FTTP business case for the City of Palo Alto earlier this year. Specifically, I looked at whether or not it could be built and operated solely on the basis of subscriber revenue, including up front charges. The short answer is no. The long answer is hell no.

On the other hand, if you build it with money that doesn’t need to be paid back for a couple of generations, then it’s possible. Not certain, though. Depending on the assumptions, such a network might generate enough revenue to pay operating costs. Or might not.

Either way, the City of Seattle won’t be picking up the tab. “The City’s only costs are for existing staff,” says the FAQ on the City’s website. “There is no additional City money going into this project, and there is no risk to the taxpayer.”

In fact, the City of Seattle is expecting to be paid for the dark fiber it’ll be contributing. It’s up to Gigabit Squared to find the money. And as Esme Vos points out, “they are an engineering and consulting firm, not a traditional ISP” with a track record to show investors and cash flow to smooth out the bumps.

So far, the only source mentioned is a $200 million kitty that gigabit Squared says it has raised in partnership with Gig.U, a consortium of U.S. universities. Gig.U is led by former FCC staffer Blair Levin, who headed up development of the National Broadband Plan. That money is intended to be split amongst at least six projects, of which Seattle is the second announced (first was Chicago).

Even though details on the cash are vague, Gigabit Seattle has surprisingly firm plans. Initial engineering work is scheduled to begin in the next two or three months, with project completion by the end of 2014.

That’s for the demo project, which will only reach 12 Seattle neighborhoods out of more than 100. According to the city’s FAQ, Gigabit Seattle has set a benchmark of a 15% take rate. Once 15% of the potential subscribers in the first 12 neighborhoods sign up for service, the network will be rolled out to the rest of the city in phases. That’s not an impossible figure to hit. Palo Alto’s research shows there’s a fair chance of getting to 15% even with a $100 per month price tag.

But first they need to find the cash to build it, and it won’t be easy if they have to show a plausible timeframe for an investment grade return on investment.

EDA opens new source for broadband funding with $2 million for San Leandro conduit

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The City of San Leandro will fill in key gaps in broadband availability in industrial and commercial areas, thanks to a $2.1 million grant from the U.S. Economic Development Administration. The press release is here.

As far as we can tell, this award is the first ever given by EDA for a community broadband project, with credit largely due to the City’s economic and business development staff. They worked closely with the EDA to develop the innovative framework required and to meet the stringent requirements of the program. Tellus Venture Associates assisted staff during the process.

The money comes from EDA’s Public Works Economic Development Assistance program. It will pay for 7.5 miles of conduit, which will be connected to the City’s existing infrastructure. The new conduit will make it possible for Lit San Leandro, a privately funded fiber optic system, to extend the reach of its 11 mile network to more than 18 miles. The work is expected to be completed within a year.

Lit San Leandro, the brainchild of Dr. Pat Kennedy, the CEO of San Leandro-based OSIsoft, offers dark fiber and lit broadband services up to 10 Gbps to businesses along the existing route. The City and Lit San Leandro are working in partnership, with the City leasing conduit to the venture.

Thanks to this project, San Leandro is home to the fastest library in California. The main library is connected to the Lit San Leandro network and has clocked speeds in excess of 300 Mbps. It can do even better – right now, the limitation comes from the ability of computers to handle high data speeds, not from the network itself.

The new conduit will largely complete the job of making 21st Century broadband available to San Leandro’s industrial land. The three areas targeted – Doolittle/Adams, Marina/Catalina, Alvarado/Teagarden – were identified in a study conducted by Tellus Venture Associates, which has served as a consultant to the City throughout the negotiation and implementation phases of the Lit San Leandro project.

The study resulted in the approval by the San Leandro City Council last month of a strategic plan for commercial and industrial broadband development. Other action items identified include bringing additional fiber and wireless access to Downtown San Leandro, offering business assistance grants for broadband projects and adopting broadband-friendly planning, public works and community development policies.

Learn more by watching the San Leandro “Get Connected!” video.