Broadband stimulus plan draws criticism

WASHINGTON — When Congress included $7.2 billion for broadband in last year's stimulus bill, its goal was to bring high-speed Internet connections and information-age jobs to parts of the country desperate for both things.

Now as the government awards the money, some phone and cable companies complain that not all of it is being used to bring broadband to places that lack it. Instead, these companies say, much of the money will fund new networks in places where they already offer service.

From the Blue Ridge Mountains to the Great Plains, some local phone and cable companies fear they will have to compete with government-subsidized broadband systems, paid for largely with stimulus dollars. If these taxpayer-funded networks siphon off customers with lower prices, private companies warn that they could be less likely to upgrade their own lines, endangering jobs and undermining the goals of the stimulus plan.

"It is extremely unfair that the government comes in and uses big government money to harm existing private businesses," says Gary Shorman, president of Eagle Communications, a Kansas cable company with about 16,000 customers.

Eagle is bracing for competition in its hometown of Hays from Rural Telephone Service Co., a phone company awarded $101 million in stimulus grants and loans to bring broadband to rural Kansas. Shorman's prediction: "This hurts our company."

Yet government officials handing out the awards and the backers of the projects being funded insist the money is being well spent. They contend that the stimulus dollars should be used to expand high-speed Internet access not only to places where it is totally unavailable, but also in regions where what is available is not good enough.

Many existing systems, they note, lack the capacity to meet mushrooming demand for bandwidth. The new stimulus-funded networks will provide far more robust connections — many with speeds of up to 100 megabits or even 10 gigabits per second to schools, libraries and other "anchor institutions." That's roughly 20 to 2,000 times faster than the DSL and cable wires linking most American homes today.

"It's a little disappointing that companies that aren't adequately serving these areas are trying to undercut those of us who are trying to step in and get the service where it's needed," says Lawrence Strickling, head of the National Telecommunications and Information Administration, the arm of the Commerce Department handing out much of the stimulus money.

The NTIA and the Agriculture Department's Rural Utilities Service have given out more than $2 billion in stimulus grants and loans and now are sorting through piles of applications for the remainder of the money. The funding is going for high-speed networks, computer centers and broadband adoption programs. The recipients include government agencies, rural cooperatives and private companies.

Of the 140 awards made so far, 108 will help pay for broadband networks. Roughly 70 percent of them cover areas already served at least in part by existing broadband providers, according to a U.S. Telecom Association analysis of data that existing carriers have filed with the government.

FairPoint Communications, a phone company with operations in 18 states, has voiced concerns about a $25.4 million NTIA grant to build three interconnected fiber rings in Maine.

The so-called Three Ring Binder project is backed by the state government, the state university system and small telecommunications companies. The 1,100-mile network will be "middle mile" — bringing 1-gigabit connections to University of Maine campuses and other anchor institutions and Internet service providers that need bandwidth.

Yet FairPoint, which bought the phone lines in Maine, New Hampshire and Vermont for $2.3 billion from Verizon Communications two years ago, insists the project would duplicate much of its system. According to FairPoint president Peter Nixon, the company has built more than 400 miles of fiber and invested more than $100 million in broadband since it bought the Verizon network. Today, roughly 75 percent of FairPoint's customer base has access to broadband, primarily DSL, with speeds ranging from 7 megabits to 30 megabits a second.

FairPoint complained to Maine lawmakers, but recently called a truce. Still, FairPoint argues that the Three Ring Binder distorts the market.

Government officials say such arguments reflect a fundamental misunderstanding of the stimulus program.

The $101 million Kansas project, for instance, will bring connection speeds of up to 1 gigabit to businesses and up to 100 megabits to as many as 23,000 homes. While the network will cover the population center of Hays, where both Rural Telephone and Eagle Communications already offer broadband, that accounts for just eight of the 4,600 square miles to be reached. Much of the area has no broadband at all, says Larry Sevier, Rural Telephone's chief executive.

The goal is to "close the digital divide between Hays and the outlying areas," says Jonathan Adelstein, head of the Rural Utilities Service, which awarded the money.