As the deadline for broadband stimulus grant applications approaches (August 14th), wireless and wireline operators are evaluating whether to apply or not. One consideration is whether they can meet the deadline—will they have a sustainable plan that they feel comfortable with? Given the strict deadline, this may be tough for some operators, especially new ones that lack the experience of having run a network and served customers for years. But we all knew that the broadband stimulus was coming, so there has been time to prepare, look at market demographics and equipment costs, and build a business plan.
Yet, it seems that not all the operators are jumping at the opportunity. Some have not announced their intentions yet—but that seems a wise choice regardless of their decision. Their competitors are likely to be the ones to benefit the most from knowing whether they will apply or not.
On the face of it, federal funding is finally available to wireless operators, so why not take advantage of it? Can wireless operators afford to miss this opportunity in the current environment where funding is tight?
For many operators this is a compelling argument. The broadband stimulus funding will enable them to develop projects that they were not able to fund or that require some level of subsidy to succeed. In some cases, the money will go to projects that would have been completed even without federal funding—and this will be a waste of federal funds, but it is going to be difficult to avoid entirely. These operators are well positioned to apply for funding and to receive it.
In some cases, however, applying for federal funding may not be the right decision. Fundamentally, there is a reason some areas are not served by broadband providers, or are served by only one provider: they are areas which are difficult to reach or to cover and where demand is low, because population density is low and/or because of demographics (broadband penetration tends to be lower in areas with more elderly or low-income population). While in these areas broadband availability and affordability benefit the local economy, it is still difficult for wireless operators to develop a solid, sustainable business model.
This is not to say it is impossible to roll out a wireless network in unserved or underserved areas. Networks have been deployed for a long time and there are many successful operators. But it is not trivial for operators to succeed. Operators need to carefully choose where to operate, which technology, vendor, and base station configuration to select, and which markets to address and with which services and pricing. I often get queries from prospective operators that are widely underestimating the challenges they have to face.
The way the broadband stimulus is structured may have the unintended effect to encourage these less experienced operators to apply and to request funding for projects which are not sustainable in the long term. Broadband stimulus grant provide capex funding, encouraging operators to roll out infrastructure as quickly as possible, but with the risk of running into financial trouble with the operating costs if they either assume a too fast rate of service take up or a too short time to meet the subscription targets—both very common occurrences in business plans, especially from new operators who often underestimate how long it takes to launch commercial service.
How can these issues be addressed? Obviously, it is crucial for wireless operators to develop realistic business plans, based on experience and a solid understanding of the market in which they plan to operate, and the technology they plan to adopt.
At the same time, a rigorous selection process at NITA and RUS of grant applications may help weeding out projects that lack long-term sustainability. Unfortunately, the strict timing the reliance on volunteer (read: unpaid) expert reviewers may make this step less effective than it could be.
Finally, however, there may be a need in some markets to go beyond simply providing capex support. Maybe low-income households living in underserved areas should receive subsidies for broadband service or to buy PCs to broaden the addressable market for the broadband service providers to have the economies of scale to survive—and at the same time to allow the local economy to fully benefit from the newly built infrastructure. In the US, subsidizing services is likely to run into acceptance problems, but could we realistically expect that someone that lives below poverty level can afford a new $40/month bill?
There are many arguments that can be made to justify the new monthly bill, but I would suspect it would be difficult to convince most people. After all, lack of service availability is not the main reason households do not have a broadband connection. Typically they see no point in having one or they do not have money. Building the infrastructure is a necessary first step to bring connectivity to more people, but more may be needed to convince them to sign up for service.