Wireless Broadband Operators Position Themselves for the Rural Broadband Stimulus

More than 1,000 comments were filed when the 60 day public comment period for input into the joint “Request for Information” (RFI) published by NTIA and USDA was scheduled to close on April 13, and late comments continued to be posted on the BTOP web site as recently as May 11..   These federal agencies had set an initial target of approximately 60 days from April 13, or June 12 for officially publishing a Notice of Funds Availability (NOFA) along with grant and loan application guidelines, evaluation and selection criteria.  Even if this date may be postponed until the end of June, applicants will likely be asked to submit their proposals within 60-90 days for the $4.7 billion NTIA “Broadband Technology Opportunities Program” (BTOP) $2.5 billion Rural Utilities Services (RUS) Broadband grant and loan programs.  The goal is to make the make the first round of funding awards by the end of September.

In an effort to assess how existing service providers are positioning themselves for the “fast track” rural broadband stimulus, I conducted an interview program with four wireless broadband operators, Clearwire, DigitalBridge Communications, Xanadoo and Main Street Broadband. In addition to these interviews, I reviewed their RFI comments, press releases and other relevant information on their web sites. In each case I focused on their BTOP and RUS loan and grant initiatives, their actual rural broadband experience, partnership strategies and unique technology strategy and business case to make rural and small town broadband financial viable.  The resulting article provides a starting point for assessing how well each is positioned to leverage the rural broadband stimulus programs.

DigitalBridge Communications (DBC) is a highly experienced operator that currently uses Alvarion equipment to provide fixed wireless broadband services to some 250,000 households (620,000 consumer POPs), businesses, educational, healthcare and public safety institutions in 15 small and medium sized towns and rural communities in Idaho, Montana, Wyoming, South Dakota, Indiana and Virginia.  DBC was also one of the first operators to launch standards-based mobile WiMAX, enabling customers with self-install desktop modems and mobile broadband through WiMAX-enabled laptops, netbooks and USB modems.  DBC is well positioned to extend wireless broadband and VoIP services to additional rural and underserved regions of the US, leveraging a state-of-the-art network operating center, scalable billing and customer care systems.

Leveraging this experience, DBC filed a response to the NTIA/RUS joint RFI along with the National Rural Telecommunications Cooperative (NRTC).  This filing called for RUS to award grants rather than loans, clear grant award criteria, rapid award determinations, and for states to eliminate conflicts of interest by electing how they will participate in BTOP/RUS programs.  In this filing, DBC announced its intention to collaborate with NRTC and its more than 1,500 rural telecommunications and electric cooperatives serving 80 percent of US counties.  In a subsequent press release, DBC announced that NRTC was among the five Series B investors that participated in its latest round of equity financing. DBC is taking a two prong approach to the broadband stimulus programs.

• Rather than focusing on major metros, DBC is focusing on providing mobile WiMAX service in unserved and underserved markets in a total of 20 states in partnership with county governments in areas where it already has or can obtain access to suitable licensed BRS/EBS spectrum in the 2 GHz. band, and
• DBC is also partnering with the NRTC, which already provides dial-up and satellite-based Internet services, and in wholesale relationship with NRTC members who will perform sales and front office functions.

DBC’s ambitious broadband stimulus plans promise to create jobs through home based call center agents and local sales teams, technicians and managers in each region served.  DBC’s experience suggests there is pent up demand in rural markets, suggesting rapid adoption of wireless and mobile broadband.  DBC is committed to rapid deployment and estimates that it can rollout WiMAX network to an area of 500,000 households in 6 to 9 months.  In addition to NRTC members, DBC is open to partnerships with cable companies, rural telcos, other wireless broadband operators and regional economic development corporations to accelerate network deployment and sales of wireless broadband services.  DBC is also working with Alvarion on compatibility, interoperability and certification of WiMAX customer equipment to ensure seamless’ roaming between operators.

Launched in 2006, Xanadoo is one of the first wireless broadband network operators to bring WiMAX services to three states in America’s Heartland, including seven communities in Texas, Oklahoma and Illinois. In early 2009, Xanadoo launched its first innovative, mobile broadband solutions in Springfield and Decatur, IL, with plans to expand into current and future markets. Utilizing the Cisco mobile WiMAX base station and customer equipment (acquired from Navini Networks), Xanadoo is the only North American WiMAX network operator to be selected as a designated Cisco Powered partner.  Xanadoo has extensive 2 GHz. spectrum holdings to expand its wireless broadband coverage to underserved markets in 12 states throughout the Midwest, but has been capital constrained in deploying new networks.  Xanadoo is also a licensee of 700 MHz spectrum covering almost 1.56 million people in major markets, such as New York, Boston, Philadelphia, Pittsburgh, Cleveland, Detroit, Chicago, Miami, Tampa, San Francisco, Portland and Seattle. Xanadoo expects that a wide range of 4G services will be deployed in the 700 MHz frequency band.

Xanadoo has experience successfully navigating the arduous RUS application process, and repaid its loan early to avoid the many restrictions imposed by this agency in early rounds of funding.  Recognizing that the new rural broadband stimulus programs represent a unique opportunity for expansion, Xanadoo is cautiously working behind the scenes to develop the public-private partnerships necessary for submitting successful BTOP grant proposals.  The company is considering a variety of partnership strategies to enhance its ability to rapidly deploy and operate WiMAX networks in a much larger 12 state coverage area, but will wait until the rules and selection criteria are published before making these plans public.

Mainstreet Broadband is a young, privately held wireless broadband provider that has successfully navigated the lengthy USDA RUS loan application process over a period of three years to close an initial $34 million loan in January 2009.  Leveraging a small equity investment of approximately $7 million from company founders and strategic partner Xiacom Wireless, Mainstreet Broadband is one of the largest RUS funded initiatives to date.  Mainstreet Broadband, together with its subsidiary Broadband South LLC, is currently building a wireless broadband network that will ultimately serve some 350,000 households in 66 markets covering 129 rural communities in rural southern Georgia and northern Florida.

Like DigitalBridge, Mainstreet recently announced the selection of Alvarion to supply WiMAX equipment for this project, based on its outstanding resiliency, scalability and service performance..   Alvarion’s solution for Mainstreet has received USDA Rural Development acceptance and complies with “Buy American” requirements of USDA Rural Utilities Service.  The Alvarion BreezeMAX customer premise equipment is optimized for low upfront investment and the base station solution can support 2.3/2.5/3.65 frequency bands in the same chassis providing a low total cost of ownership for rural underserved broadband markets.

Mainstreet has also recently expanded its coverage area through the acquisition of Coastal Broadband, a rural wireless ISP using the WCS band to serve Waycross, GA.  Mainstreet plans to pursue additional funding from NTIA BTOP and USDA RUS grants and loans to expand into other rural areas in the southeast region.  In preparation for these applications, the company is working to develop public-private partnerships with anchor tenants including school districts and regional economic development authorities.   The company plans to use low priced and high quality to stimulate adoption of its wireless broadband services and promotes job creation as a key element of its market strategy.

Clearwire is the largest wireless broadband operator in the US, both in terms of network deployments, customers served and spectrum position.  After consolidating the 2 GHz spectrum position of Clearwire and Sprint Xohm, the new Clear™ is in the enviable position of having the largest coverage area and more spectrum capacity – some 43 billion MHz PoPs nationwide - than any other US wireless broadband operator.  Clearwire currently provides fixed and nomadic wireless broadband services to more than 500,000 subscribers in some 45 markets nationwide, and launched commercial mobile WiMAX services in Portland, Oregon in early 2009.

Clearwire recently updated its plans to rollout its Clear™ mobile WiMAX services for the remainder of 2009 and 2010:

• 2009 -  Atlanta and Las Vegas to launch in the summer with Chicago, Charlotte, Dallas/Ft. Worth, Honolulu, Philadelphia, and Seattle among the cities going “Clear” in
• 2009.2010 -  New York, Boston, Washington, D.C., Houston and the San Francisco Bay Area lead list of planned Clear launches in 2010.

Although Clearwire’s spectrum position would support extensive WiMAX network deployments in rural unserved and underserved broadband markets, the company plans to focus its capital on building networks in major metropolitan areas across the US to enable the coverage of up to 120 million Americans across 80 markets as mandated by the end of 2010.  Clearwire has already initiated network deployments in 75 of these markets with more than 18,000 cell sites deployed to date, and its plans are designed to deliver an unprecedented combination of broadband speed and mobility.

Clearwire currently plans to invest $1.5 to $1.9 billion of the $3.2 billion in capital raised during the merger with Sprint Xohm to build-out its mobile WiMAX networks and finance operations until the business turns cash flow positive.  It is widely believed that the company needs an additional $2 billion to $2.3 billion to complete its network plans.  Raising additional capital, either through equity or debt, would be challenging and expensive in today’s economy.  Gaining access to hundreds of millions in federal broadband stimulus grants and loans would appear to be a high priority for Clearwire’s new CEO and CFO.

Based on our interviews, Clearwire does not view either BTOP or RUS to be one of those game changing opportunities that come along once a decade.  Clearwire does not plan to change its current strategy, but is exploring methods of using its existing spectrum, backhaul and WiMAX network operations to extend wireless broadband services to unserved and underserved small towns within reach of its major metros.

One example is the Clearwire plan to work with the state of Georgia to build out a WiMAX network to serve the town of Milledgeville as an outgrowth of the Atlanta network more than 80 miles away in “middle Georgia.”   In September 2006, Milledgeville received an $862,000 grant from the Georgia Technology Authority through the Wireless Communities Georgia program to turn the city into one of several model communities to show the benefits of using wireless access to improve economic development, educational access and governmental services.  To receive the Wireless Communities Georgia grant, Milledgeville proposed a wireless service that would improve public safety resources, include low-to-moderate income consumers, improve access for area students and help facilitate economic development.  The WiMAX network will be designed to help bridge the digital divide and Clearwire will provide a discounted service to low-to-moderate income persons who would not otherwise be able to afford Internet access.  To facilitate access for low-to-moderate income persons, the city is partnering with One Community and the Knight Foundation to provide low-interest loans to purchase computer hardware and computer training resources to reach out to the broader Milledgeville community. Public safety is another fundamental application proposed in the city’s grant, and a primary use of the wireless service will be computer-aided dispatch for emergency response personnel. The Milledgeville Police Department will allot part of its technology budget to the purchase of laptop computers so officers will have more efficient and effective access to the Georgia Crime Information Center while on patrol.

However, this example is more of an isolated case rather than part of a larger strategy, and Clearwire is not likely to be distracted from its primary focus by the opportunity to leverage government funding and serve rural broadband markets.   Clearwire could apply for federal funding to extend wireless broadband coverage to underserved areas within reach of its major metros, but our interviews revealed uncertainty regarding this approach until the rules and selection criteria are published.  Clearwire has been approached by third parties seeking to utilize its spectrum resources as an affiliate to extend service to more rural areas.  Without a formal affiliate program, the new Clearwire is considering these offers opportunistically as a way to expand beyond major metros into rural markets.   Recognizing that consistent service quality and the Clear™ brand are important to be recognized as the premier service in the 4G space, Clearwire is cautious about using affiliates to provide a unique service package for the rural market.  If Clearwire decides to implement a rural wireless broadband stimulus initiative, the company’s senior management would prefer to provide a consistent Clear™ branded offering nationwide.

I will continue to closely monitor the rural broadband stimulus programs and the activities of wireless broadband operators, and we will conduct a 4G Trends Webinar once the rules are published in June.  So stay tuned.