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© 2009 Associated Network Partners, Inc. All rights reserved. BIP/BTOP & the Rural Telco Threats and Opportunities

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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Page 1: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

BIP/BTOP & the Rural Telco

Threats and Opportunities

Page 2: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

Ohrtman farm near Ringsted, Iowa

Ohrtman farm near Pomeroy, Iowa

Page 3: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos
Page 4: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

BIP/BTOP Bragging Rights

$27 million in grant/loan applications in Round One

3 applications/3 states

2 WISPs, 1 Indian tribe

Page 5: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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

Page 6: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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

Page 7: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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…

Page 8: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

Broadband Mapping?

Page 9: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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

Page 10: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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

Page 11: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

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

Page 12: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

Hypothetical Example

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

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

Page 13: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

One base station covers all of Calhoun County

Base station on grain elevator

Page 14: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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

Page 15: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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)

Page 16: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

Wireless: “shovel ready” projects?

Page 17: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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

Page 18: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

“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

Page 19: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

Do the math (cont.)

Low barrier to entry, especially with “free” CAPEX

Creates new business models for rural telecom services

Page 20: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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)

Page 21: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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

Page 22: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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

Page 23: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

“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

Page 24: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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?

Page 25: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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

Page 26: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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…

Page 27: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

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

Page 28: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

Its not just the big city...

Page 29: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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

Page 30: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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

Page 31: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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

Page 32: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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

Page 33: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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?

Page 34: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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

Page 35: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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

Page 36: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

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

Page 37: Rural Broadband Stimulus. Opportunities & Threats to Rural Telcos

© 2009 Associated Network Partners, Inc. All rights reserved.

Thanks!

Frank [email protected]

[email protected] www.anpisolutions.com