Broadband stimulus scandals: Missteps in the buildout, and what's at stake

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broadband stimulusHow are broadband stimulus funds being used in the United States? Are providers and contractors meeting the goals set out in their respective network buildouts? While many broadband expansion projects are moving forward, others never got off the ground. Let's take a look at some notorious missteps in U.S. broadband expansion.

Stimulus dollarsLouisiana dithers, and loses an $80.5 million grant

In October of 2011, the U.S. Dept. of Commerce  revoked an $80.5 million grant provided to the state in the first round of broadband stimulus funding. Why? Because although the money was awarded in 2009, state officials including governor Bobby Jindal dithered and bickered and failed to start any meaningful construction.

Governor Jindal held up the construction because he wanted the state to use existing network facilities owned and operated by incumbent carriers. But the Commerce Dept., which was administering the Rural Utilities Service-provided funds, felt that "it was not in keeping with the broadband infrastructure program's mission of funding new network construction," reported Joan Engebretson at Telecompaper.

The governor's move was the cherry on top of a big messy sundae of "schedule delays, uncertainties and contingencies," Commerce wrote in a letter explaining why it was taking the funds back, adding that the state demonstrated "a lack of management ability and control by Louisiana to get this project built on schedule and on budget."

What's at stake? Loss of the grant means that the expansive plans of the Louisiana Broadband Alliance (LBA), a collaboration of six state agencies, are indefinitely on hold. The LBA planned to lay 900 route miles of fiber across some of the most rural and economically impoverished areas of the state, and to directly connect more than 80 institutions to the network--schools, libraries, healthcare facilities, and universities--at 10 Mbps to 1 Gbps.

North Florida jeopardizes its middle mile build

Florida in general is a blooming garden of bad press around mismanaged stimulus funds, so the suspension of a $30.1 million grant earmarked for use by the North Florida Broadband Authority (NFBA) in September 2011 may not have come as a surprise to some.

The trouble in this case is conflicts of interest. "According to a Miami Herald article, some of the NFBA's members argued there was a conflict of interest between the manager of the project's government services group and Capital Solutions, which will ensure the grant money is being administered correctly," FierceTelecom reported in September.

Robert Sheets, who serves as the government services group's CEO, owns a 25 percent stake in Meridian Services group, a company led by CEO and president Lisa Blair. Blair also serves as the CEO of Capital Solutions.

The National Oceanic and Atmospheric Administration, which is overseeing this particular stimulus grant, decided to suspend it while it investigated the conflict of interest allegations.

What's at stake? The rollout of the fixed wireless Ubiquitous Middle Mile Project to 14 rural counties in north central Florida. Calix (NYSE: CALX) and Level 3 (NYSE: LVLT) are two of the providers already signed to provide ESANs (Ethernet Service Access Nodes) and HSIP (high-speed Internet Protocol) services, respectively.

Political opposition ends funding in Tallahassee

A similar conflict of interest case led the city of Tallahassee to give back $1.2 million in stimulus funds, after a political opponent of Mayor John Marks pointed out that the mayor was also a paid employee of the Alliance for Digital Equality. Additionally, the mayor admitted that the first phase of the project for which the funds were slated would not meet its July 2012 completion date.

What's at stake? A program that would pay for high-tech training for youth and adults at the Apalachee Ridge Technology Learning Center in the city.

Wisconsin hands their funding back

The first state to hand back millions of dollars in federal money was Wisconsin, which in February 2011 returned $23 million in funding to BTOP.

While not really scandalous, it was an unusual precedent: In a time of economic uncertainty, a state handed back millions of dollars in basically free money. Why did they make such a radical decision? Political pressure by Republican lawmakers to reject what they called wasteful spending was one factor. The state's relationship with incumbent provider AT&T (NYSE: T), which has a vested interest in Wisconsin's current intranet, BadgerNet, was another, perhaps bigger, factor.

When Wisconsin made the move to build BadgerNet--an internal intranet largely unknown to residents--it decided to lease hybrid fiber-copper facilities from AT&T at five-year intervals rather than invest up front in broadband infrastructure. "Currently BadgerNet largely exists as an extension of AT&T's network in Wisconsin.  That is a critical point," Phillip Dampler wrote in a Stop The Cap article last year reviewing the funds return. "Had BadgerNet initially been created as an independent entity, today's stimulus rejection might never have happened."

What's at stake? The stimulus funds were slated to replace Wisconsin's existing BadgerNet, which uses leased facilities from AT&T, with a state-owned middle mile network stretching to 380 Wisconsin communities, including libraries, schools, and public safety offices.

There is a ray of hope, however. The University of Wisconsin in July 2011 won a decision allowing it to go forward with a $37 million project, funded through federal broadband stimulus, to provide connectivity to several public institutions including schools, hospitals and first responders.

Fishing fiber cableDelays threaten more stimulus projects

Revocations, suspensions and handbacks of portions of the $3.53 billion in broadband stimulus money granted across the United States so far is not at huge levels. But that could change. The RUS is warning other states to get a move on with their projects--or hand back their money, too. While some broadband projects are already shaping up to be success stories, including Chattanooga's 1 Gbps municipal fiber build being managed at a profit by EPB Fiber, there's a risk that others will not even get off the ground.