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Local telecoms see opportunity in rural broadband stimulus package

The smallest local telecoms may gain the most from Obama's rural broadband stimulus package. As larger service providers pass up potential stimulus grants, rural service providers are seeing a potential boon in an otherwise tough telecommunications industry.

Despite the fact that larger service providers are passing up potential federal broadband stimulus package grants, some rural broadband providers are seeing a potential boon in an otherwise tough industry.

Cinergy MetroNet, for example, has ambitions to double the number of Midwestern communities it serves to about 22 if it can get a share of the $7.2 billion in the broadband stimulus fund that will be doled out by the federal government. The Obama Administration's broadband stimulus package is targeting local telecom service providers like Cinergy that want to provide rural broadband access for the first time.  

"Larger providers like Verizon have given indications that they're not interested in the money due to the strings attached," said Vince Vittore, an analyst with Yankee Group.

These potential strings (since little about the broadband stimulus package is quite final yet) include rules about network sharing, which is common in Europe but a major bone of contention for many U.S. service providers.

"That would be a significant policy shift for most of the service providers out there," Vittore said. "There's even the possibility of foreign entities like BT coming into this market to get government money."

Local service providers see broadband stimulus package upside

Local service providers are seeing opportunity, however, particularly since the broadband stimulus stipulates that all 50 states must receive at least some funding.

John Cinelli, president of Cinergy MetroNet, said those conditions make his company the perfect recipient for a grant as it tries to replicate the successes it has had in towns around Indiana with populations below 20,000.

Cinergy has targeted towns like Seymore, Ind., home to just over 18,000 people and birthplace of John Mellencamp. Passed over by Verizon's FiOS and AT&T's U-verse, Seymore can offer its citizens Fiber-to-the-Home (FttH) with a triple-play package that includes HD television, broadband access and IP telephony, all for a price that would be the envy of many more-urban subscribers: $99 a month.

In Seymore, Cinelli said, subscriber penetration is about 30%, which is high enough for Cinergy to recoup its investment over an eight to 10 year time frame for most markets. He said an extended time frame for return on investment only works out because of long-term loans the government has previously extended in an effort to improve rural broadband access.

"If you were trying to get a business case proofed out without that long-term loan, that would be very hard," he said. But the business case becomes more attractive with the stimulus dollars because the grants, unlike the long-term loans, don't have to be paid back.

Broadband stimulus package could mean job creation

If Cinergy receives some grant money, the priority will be to create jobs to build out its network and to provide the kind of high-speed Internet access that small towns and rural communities usually don't see, Cinelli said.

"That's the No. 1 thing -- create jobs, because of the economy right now," he said. "We don't even know what's going to be created. YouTube wasn't even around before 2005, and now it's 7% of the Internet."

Competitive pricing and symmetrical service -- with equal upload and download speeds -- were key enablers of this kind of innovation.

Key vendors take stimulus package support role

Since the broadband stimulus package was announced, Cinergy has been working closely with towns in Indiana and neighboring states to begin work on likely proposals, while keeping in touch with key vendors like Alcatel-Lucent for updates on the broadband stimulus plan.

Alcatel-Lucent, like other vendors, is lobbying on behalf of customers and the industry for every dollar it can get. The company has even created a homepage, Broadband for All, to share information.

Although the grants for rural broadband might be a golden opportunity for dozens of local telecoms, Vittore remains unconvinced that the program will ultimately do much either to stimulate the economy as a whole or dramatically improve the U.S.'s lagging broadband penetration.

"It's great intentions and not-so-great execution," he said.

Vittore adds that without the involvement of the biggest service providers, large-scale change will be difficult to achieve.

"Some service providers [will see] infusions of cash [because of the stimulus package]," he said. "Whether or not it's going to be good for the country is still open to debate. I'm leaning toward it not having a significant effect overall on broadband penetration in the country."

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