Telecommunications: Projects and Policies Related to Deploying Broadband in Unserved and Underserved Areas
Published: 2014-04-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Broadband service provides users with many opportunities to improve communications and broadband deployment is particularly critical in rural areas to provide advanced communications to remote users and communities. In 2010, FCC estimated that 7 million U.S. housing units—about 5 percent of the nation's housing units—did not have access to wireline broadband service, mostly in rural areas. Some municipalities, cooperatives, and non-traditional private providers are exploring ways to sponsor and fund broadband projects in unserved and underserved areas.
GAO was asked to provide information on options for broadband deployment in unserved and underserved areas. This report examines (1) what is known about the alternative approaches unserved and underserved areas have used to deploy broadband and some factors considered in deployment decisions; (2) stakeholders' views on broadband deployment in unserved and underserved areas; and (3) efforts FCC has undertaken to foster broadband deployment in unserved areas. GAO reviewed relevant documents and interviewed FCC officials, representatives from industry, and incumbent providers. GAO also conducted an in-depth review of 21 geographically dispersed broadband projects selected to include various sponsor types, such as municipalities, non-traditional private providers, and cooperatives, and various ownership and financing approaches. GAO provided FCC with a draft of this report for comment. In response, FCC provided technical comments, which have been incorporated as appropriate.
section_title: What GAO Found
paragraphs: The unserved and underserved areas that GAO reviewed used alternative approaches and considered various factors to deploy broadband. Broadband project sponsors in those areas included municipalities, non-traditional private providers, consortiums of sponsors in a region, and cooperatives. In making broadband deployment decisions, project sponsors said they considered diverse factors related to their ability to fund successful projects, such as the (1) likelihood of near-term service upgrades by incumbent providers, (2) potential demand for new services, (3) potential broadband technologies, and (4) existing infrastructure and potential local assistance available to providers. For financing approaches, some project sponsors used local private and public funds while others leveraged federal funds. In addition, project sponsors used a variety of ownership structures that ranged from public ownership to local private investors.
Stakeholders and project sponsors GAO contacted cited economic, legal, and policy concerns in deploying broadband in unserved and underserved areas. For example, regarding funding, stakeholders said that remote areas generally face high broadband deployment costs due to the expense of deploying technologies over long distances or difficult terrain and that often the return on investment is low since there are relatively few potential subscribers in those areas. Project sponsors and industry experts noted legal concerns, including concerns with laws in some states that limit or ban companies that are not telecommunications companies from deploying broadband due to concerns about unfair competition. For example, in Louisiana, a city official GAO contacted said state laws bar any municipality from deploying broadband directly to consumers, so the city is planning to build and own a fiber-optic network, but to comply with the state law, will not offer retail service. Stakeholders also noted several policy concerns, including concerns over the accuracy of federal broadband-mapping efforts and whether the Federal Communications Commission's (FCC) broadband-speed benchmark is set high enough. While there may be valuable lessons in the examples profiled in our case studies, their limited number does not allow us to generalize findings to the broader universe of all entities seeking to deploy broadband networks.
FCC has several efforts under way to increase broadband deployment in unserved areas, efforts that help address the economic and policy concerns raised by stakeholders. FCC established the Connect America Fund in November 2011 to support voice and broadband access in areas where no private business case exists to provide broadband—one of the key challenges these areas face in deploying broadband. Additionally, in January 2014, FCC adopted an order in which it stated that it will solicit proposals from non-traditional providers, including utilities and municipalities, to deploy broadband technologies in rural, high-cost areas. Through this effort, FCC plans to explore broadband policy issues and gather information on viable business models for deploying fiber-optic or next-generation wired technology in rural areas. FCC plans to also gather information on the conditions under which rural consumers would prefer next-generation wireless services over wireline.

section_title: Letter
paragraphs: Broadband Internet service provides users and their communities with  many opportunities to improve communications, including enhancements  in e-commerce, telemedicine, and educational tools, and can drive  economic growth, productivity, and innovation. Broadband is particularly  critical to provide advanced communications to remote communities and  offer rural Americans new ways to participate in our economy and society.  The American Recovery and Reinvestment Act of 2009 (Recovery Act)  directed the Federal Communications Commission (FCC) to develop a  national broadband plan to ensure every American had access to  broadband service. In March 2010, FCC issued the National Broadband  Plan that included a centralized vision for achieving affordability and  maximizing use of broadband to advance community development, health  care delivery, education, job creation, and other national purposes.
Throughout most communities in the United States, cable and telephone  companies have upgraded their networks or deployed new technologies  to provide broadband services to their customers. Nevertheless, in 2010,  FCC estimated that 7 million of the 130 million American housing units did  not have access to wireline broadband service. Most of those who lack  access live in rural areas where low population density makes expanding  cable and telephone networks considerably more expensive than in urban  areas. FCC estimated in 2010 that it would cost $23.5 billion to reach all  unserved areas, of which $13.4 billion would be needed to just reach the  most remote 250,000 households. Furthermore, deployment costs vary  according to the broadband technology and type of construction used. For  example, according to FCC, the costs for new fiber construction can  range from $11,000 to $24,000 per mile for aerial construction to $25,000  to $165,000 per mile for buried construction.
In this report, we refer to areas that lack broadband as “unserved,” and  areas that have access to low quality broadband service and may have  some households without access as “underserved.” In some unserved  and underserved areas, entities other than traditional telephone or cable  Internet service providers—such as municipalities, non-traditional private  providers, consortium of sponsors in a region, and cooperatives—are  exploring ways to sponsor and fund broadband projects. However, these  entities face a range of challenges in deploying broadband in unserved  and underserved areas.
You asked us to provide information on options for broadband  deployment in unserved and underserved areas. This report examines (1)  what is known about the alternative approaches unserved and  underserved areas have used, or attempted to use, to deploy broadband  and some factors considered in broadband deployment decisions; (2)  stakeholders’ views on broadband deployment in unserved and  underserved areas; and (3) efforts FCC has undertaken to foster  broadband deployment in unserved areas.
To address these objectives, we conducted a review of relevant published  literature and interviewed FCC officials and a broad array of stakeholders  from 40 organizations, including associations representing consumers  and industry, broadband consultants and providers, and officials from  local agencies in selected areas where broadband projects were  deployed or attempted. In selecting industry experts and incumbent  providers, we considered relevant published literature and stakeholders’  recommendations. We conducted an in-depth review of 21 broadband  projects, selected because they were geographically dispersed and  included various sponsor types, such as municipalities, cooperatives,  economic development agencies often in regional consortiums, or private  companies. For the 21 projects, we reviewed the broadband options that  project sponsors considered and factors affecting their decisions. We  interviewed project sponsors to obtain their views on economic, legal, and  other issues they believe affected their ability to deploy a network. The  economic, legal, and other issues identified by project sponsors should  not be viewed as identifying all issues that could affect broadband  deployment in unserved and underserved areas; however, project  sponsors consistently raised the issues presented. Also, the economic,  legal, and other issues that we report on should not be viewed as being  representative of all entities deploying broadband in unserved or  underserved areas. We also interviewed incumbent providers on their  views of municipalities and cooperatives providing broadband service. We  interviewed industry experts, incumbent providers, project sponsors, and  stakeholders about FCC’s efforts to facilitate broadband deployment in  unserved areas and what further actions, if any, FCC might take. Further  details of our scope and methodology are provided in appendix I.
We conducted this performance audit from May 2013 to April 2014 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Broadband allows users to access information via the Internet through  one of several high-speed transmission technologies. Broadband  capacity, typically referred to as “speed,” is described in download and  upload capabilities and is measured by the number of bits of data  transferred per second and include kilobits (1 thousand bits per second— kbps), megabits (1 million bits per second—Mbps), and gigabits (1 billion  bits per second—Gbps). Download speed refers to the rate at which data  is transferred from the Internet to the consumer. Upload speed refers to  the rate at which data is transferred from the consumer to the Internet.
A range of broadband technologies provides high-speed Internet access.
Digital subscriber line (DSL) service is delivered by local telephone  companies over upgraded copper-wire telephone networks that were  originally built to provide traditional wireline voice service.
Cable modem service is delivered by cable television companies  through the same coaxial cables that deliver sound and pictures to  television sets.
Fiber-optic lines are a wired technology that converts electrical signals  carrying data into light and sends the light through transparent glass  fibers about the diameter of a human hair. Telephone companies  provide most fiber-optic broadband service.
Satellite is a wireless technology that transmits data using a  subscriber’s receiver dish and a satellite in a fixed position above the  equator.
Other wireless services, such as Long Term Evolution (LTE)—a  commercial data standard for wireless technologies—use cellular  radio links for consumers to access the Internet using their smart  phones, tablets, and other portable devices.
Broadband speeds vary significantly depending on the particular type of  service provided and may range from as low as 256 kbps to 1 Gbps. In  2010, the National Broadband Plan stated that every household and  business in America should have access to affordable broadband service  with a speed of at least 4 Mbps download and at least 1 Mbps upload. In  2011, FCC adopted this 4 Mbps/1Mbps benchmark for broadband  projects to be eligible to receive universal service support. The federal  benchmark allows for such Internet applications as accessing websites,  emailing with attachments like pictures, and simple video conferencing,  but does not support some of the newer Internet applications that require  faster speeds to use, as shown in figure 1. For example, applications  such as distance learning, telecommuting, and telemedicine, which can  involve transmitting large amounts of data and images in real-time,  cannot perform acceptably at the federal benchmark speed of 4  Mbps/1Mbps.
Unserved and underserved areas tend to have conditions that increase  the cost of constructing and maintaining broadband networks. These  conditions include low populations who might also be widely dispersed  and in remote areas that might have challenging terrain, such as  mountains, that increase construction costs. The choice of broadband  technology and the ability to use or extend existing infrastructure also  affects the costs of constructing and maintaining broadband networks.  Certain technologies like cable and fiber, which must be buried  underground or placed on raised poles, could be more expensive to  deploy in remote areas than wireless technologies, such as cellular  towers.
Within the federal government, FCC, the Department of Commerce, and  the Department of Agriculture (USDA) have roles in broadband  deployment. In particular, Congress gave FCC a large role in fostering  broadband deployment when it directed FCC to “encourage the  deployment on a reasonable and timely basis of advanced  telecommunications capability to all Americans.” In responding to that  directive, FCC developed goals to broaden broadband deployment to  unserved areas and encourage investment and innovation in broadband  technologies and services. As part of the Recovery Act, the Department  of Commerce’s National Telecommunications and Information  Administration (NTIA) received $4.7 billion to create the Broadband  Technology Opportunities Program (BTOP). Through this program, as of  September 2013, NTIA had awarded 233 competitive grants for a total of  $4 billion to a variety of entities for broadband infrastructure, public  computer centers, and innovative projects to stimulate demand for and  adoption of broadband. In addition, the Department of Commerce’s  Economic Development Administration also had programs in 2008  through 2012 that supported the construction of public infrastructure,  which could include broadband infrastructure. USDA administers  programs that support broadband deployment, including three Rural  Utilities Service (RUS) programs: the Rural Broadband Access Loan and  Loan Guarantee Program, the Community Connect Grant Program, and  the Telecommunications Infrastructure Loan Program. USDA provided  over $7 billion in grants and loans for broadband projects from 2008  through 2012.
See www.broadbandmap.gov. The map is a joint effort of NTIA and FCC to report  broadband speeds and technology available across the United States. According to NTIA  and FCC, the map represents the most comprehensive nationwide data on broadband  availability. receive BTOP grants.show underserved areas, it is unknown how many of these areas exist or  what percentage of the population they represent.
Since the National Broadband Map does not  The National Broadband Plan noted that because Internet service  providers are unlikely to earn enough revenue to cover the costs of  deploying and operating broadband networks in unserved areas, it is  unlikely that private investment alone will bring service to these areas. To  improve Americans’ access to broadband, the National Broadband Plan  recommended that FCC create the Connect America Fund to provide  funds in geographic areas where there was no private sector business  case to provide broadband. FCC established the Connect America Fund   In doing so, FCC  in 2011 as part of the Universal Service Fund (USF). reformed the USF high-cost program and adopted new rules to allow USF  monies to be used to support voice and broadband capable networks.  FCC established a $4.5-billion annual program budget for the Connect  America Fund for 6 years.
section_title: Unserved and Underserved Areas Used Alternative Approaches and Considered Various Factors to Deploy Broadband
subsections: section_title: Alternative Ownership and Financing Approaches
paragraphs: Project sponsors we spoke with pursued various approaches for financing  and deploying broadband in unserved and underserved areas that  differed from more traditional commercial project models, such as those  often built by incumbent providers in more urban areas. In particular,  types of project sponsors included (1) municipalities, (2) non-traditional  private providers, (3) a consortiums of sponsors in a region, and (4)  cooperatives. The following examples describe some of the alternative  ownership and financing approaches we found (for summaries of all our  21 case study projects, see app. II).
subsections: section_title: Municipalities
paragraphs: Municipal networks are eligible to receive federal funding, but not all  municipal networks discussed in this report received federal funding.  Some municipalities support broadband deployment by funding, building,  and operating networks to provide broadband access to their  communities, much as some cities offer utilities such as water and  electricity. The municipal entity providing this service may be, for  example, a department within the city government or a cooperative  formed among several communities. Communities have used federal  funds, issued bonds, and taken out loans to fund the construction of  municipal broadband networks. In some instances, voter referendums  have been required for the city to take out loans or bonds for this  purpose.
East-Central Vermont Community Fiber-Optic Network (EC  Fiber); publicly owned, privately funded. A group of 23 Vermont  municipalities collaborated to build this “open-access” fiber-optic  network to provide Internet and voice service to homes and  businesses. EC Fiber contracts with a non-profit Internet service  provider to operate the network. Construction costs were  approximately $5 million, most of which was financed through local  private investors. By December 2013, EC Fiber had 550 subscribers  and had raised $4.7 million from 365 investors—90 percent of whom  are residents of towns the network serves or will serve. The founders  decided on a local private-funding model after the 2008 financial crisis  made private financing from the U.S. capital markets difficult to obtain  and after the project did not receive the Recovery Act’s broadband  deployment funds. However, project sponsors said one of the  challenges of privately funding a publicly owned network was that the  time frame for completing the network depends on the rate at which  investments can be raised, which can vary according to the economic  circumstances of each area’s residents. For example, the construction  of the network is progressing in phases, with new segments being  built as investments are raised by residents, a process that makes  rapid expansion difficult. The service provider operating the network  leases 39 miles of middle-mile and last-mile fiber-optic capacity from a  statewide open access network being built by the Vermont  Telecommunications Authority, a state agency that in 2013 provided  EC Fiber a grant of $167,569 that funded an expansion into unserved  portions of two communities.
Utah Telecommunication Open Infrastructure Agency (UTOPIA);  publicly owned, publicly funded. UTOPIA is a local government  agency owned by 16 Utah municipalities, 11 of which raised public  funding through bonds to build a $177-million fiber-optic open-access  network over which private providers offer Internet, voice, and video  services. Five municipalities decided not to raise funds, but remain on  the network’s board and can decide to pursue financing for their cities  at a later date. Some of the network’s municipalities own  infrastructure, such as utility poles, which sponsors said helps reduce  the cost and increase the speed of deploying broadband. Project  sponsors said their goal is for the network to be financially self- sufficient, but said that goal has yet to be attained for various reasons.  The project used $16.2 million of BTOP funds to connect 288  community institutions with middle-mile service over UTOPIA’s fiber  backbone. In addition, UTOPIA received partial funding from a $66  million RUS loan for broadband deployment to rural areas. After  disbursing $21 million to UTOPIA, RUS suspended the loan until  UTOPIA could demonstrate improved financial performance. Project  sponsors told us that they have taken steps to improve the  performance and that 3 years ago they began deploying the network  to areas that promise greater return on investment.
section_title: Non-Traditional Private Providers
paragraphs: Private networks are eligible to receive federal funding but not all private  networks discussed in this report received federal funding. Some private  companies fund, build, and operate networks to provide broadband  access to communities. In some instances, companies have used federal  funds, contributed capital, and taken out loans to fund the construction of  broadband networks. Some private companies we contacted used  municipal resources, such as fiber-optic infrastructure or took construction  loans backed by the federal government.
Lit San Leandro; privately owned, privately and publicly funded.  Lit San Leandro is a private venture that built, owns, and operates an  11-mile fiber-optic network providing Internet service directly to over  150 businesses and some community institutions in San Leandro,  California. The network cost approximately $5 million to build, and  was financed in two stages. The owner of a local software company,  who committed a total of $3 million to the project, paid for initial  construction; the second construction phase, covering the last 7.5  miles, was paid for with a $2.1 million grant from the Department of  Commerce’s Economic Development Administration. The project was  designed to use “dark fiber”—fiber-optic cable that had already been  installed by the city but was not being used—and 10 percent of that  capacity was reserved for the city’s current and future municipal  needs. In exchange for financing and constructing the network, the  city waived leasing costs for the first 10 years of Lit San Leandro’s  operation, at which time the costs revert to prevailing market rates,  should the venture be profitable.
Valu-Net; privately owned, privately funded. This fiber-optic  network in Emporia, Kansas, provides Internet, voice, and video  services directly to over 300 businesses and over 400 residences.
While a survey issued by the city’s Chamber of Commerce indicated  strong demand by business owners for broadband, project sponsors  said there was substantial opposition against the city using tax  revenue to deploy a broadband network, and there was a general  consensus that a private service provider should develop the  infrastructure and provide the service. The network is being built first  to areas where the most businesses operate, and project sponsors  told us they would only connect a home once a subscriber requests  service. They told us the company financed approximately $5 million  of the construction cost so far through community investors and  approximately $5 million through bank loans, including a low-interest  Small Business Administration loan. They anticipate needing up to $3  million more to complete construction. In addition, a healthcare firm in  the northern part of the city that desired higher capacity broadband  service helped finance part of the construction costs to deploy fiber- optic cable under a highway.
section_title: Consortiums of Sponsors in a Region
paragraphs: Regional networks are eligible to receive federal funding and all regional  networks discussed in this report either received federal funding or are  planning to apply for it. These networks focus on building middle-mile  infrastructure and providing broadband services to schools, medical  providers, public safety agencies, and other community anchor  institutions. The availability of broadband service to end users depends  upon access to adequate middle-mile facilities, which can be costly to  deploy in rural areas, especially in mountainous or heavily forested areas  where additional infrastructure can be required. In some cases, regional  networks also provide the last-mile service to end users.
MassBroadband 123; publicly owned, publicly funded. Built by a  state economic development agency, this open-access, middle-mile  network provides 122 towns in western and central Massachusetts  with a fiber-optic backbone over which private service providers offer  Internet, voice, and video directly to community institutions across  western and central Massachusetts. The project is owned by a state  technology agency and includes a public-private partnership with a  company to sell network capacity to Internet service providers on a  wholesale, open-access basis. Officials said they assigned the risk for  operating and maintaining the network to the company, and structured  a revenue-sharing agreement with it so that it would be motivated to  operate the network efficiently. The project cost approximately $90  million to build and was financed through a $45.5 million BTOP grant  in combination with $44.5 million in state funds.
New Hampshire FastRoads; publicly owned, privately and publicly  funded. This open-access middle-mile and last-mile network provides  last-mile connectivity to 233 community institutions in 19 communities,  and 1,300 residences and businesses in two towns. Four private Internet  service providers use the network to serve customers directly. The  venture is a wholly-owned limited liability corporation of a local economic  development non-profit, and officials structured the network as a for-profit  to allow them to raise additional private equity to expand service in the  future. Two local economic development organizations and 42 towns  collaborated on the project, which cost $7.6 million to build, and was  financed using $5.4 million of BTOP funds, as well as additional funding  from a variety of sources including banks, a county economic  development corporation, individual donors, and vendors who offered in- kind contributions.
section_title: Cooperatives
paragraphs: Networks that are owned by cooperatives may qualify to receive federal  funding. According to project sponsors for the cooperative networks we  contacted, three rural electric cooperative networks received no federal  funding and the fourth plans to seek support payments from FCC’s  Connect America Fund. Rural electric cooperative networks serve areas  that have lower customer-per-mile density levels than those of privately  owned or municipal utilities, levels that can make return on investment  projections for broadband deployment less attractive to investors. Some  cooperative networks link their broadband deployment efforts with “smart  grid” efforts that allow two-way communications between the cooperative  and the customer.
Douglas Fast Net; privately owned, privately funded. This  subsidiary of the Douglas Electric Cooperative in southwest Oregon  owns and operates a hybrid fiber-optic, DSL, and wireless network in  collaboration with five other rural electric cooperatives and one Native  American tribe, and provides connectivity, Internet, and voice services  to businesses, residences, schools, and medical and community  institutions in Douglas County. In extremely rural areas, rather than  using wireless technology to reach residences, the fiber-optic network  uses leased copper telephone lines—DSL. Like most rural electric  cooperatives, Douglas Electric is a non-profit corporation incorporated  under state statutes; however, its broadband subsidiary was  established as a for-profit entity, so it can declare dividends and  channel excess funds back to the electric cooperative. Officials  financed $6.5 million in construction costs using a $300,000 grant  from a county economic development entity, a loan of $4.2 million  from the electric cooperative, and $2 million from customer installation  charges. Project sponsors said existing infrastructure and personnel  improved the project’s business case, and they cited experienced line  crews and ownership of most of their own plant—with the exception of  a limited number of leases from third parties—as beneficial project  components. While they have not sought federal funds for commercial  deployment yet, officials said USF E-Rate funding allowed them to  deploy broadband to schools and libraries, which lowered the  deployment costs when they subsequently expanded the network to  businesses and homes.
Midwest Energy Cooperative, Pilot Project; privately owned,  privately funded. Midwest Energy is building a 243-mile fiber-optic  network to create a high-speed communication link to allow smart grid  applications. As part of that effort, project sponsors said the  cooperative has begun building a $9.5-million pilot project connecting  963 homes and businesses with fiber-optic cable in order to assess  the feasibility of a potentially larger future network deployment.  Officials said they hope to reach 24,000 homes and 2,500 businesses  by potentially financing approximately half the construction costs for  the larger project with monies from FCC’s Connect America Fund,  should they be eligible for those funds in the future. Project sponsors  cited the cooperative’s experience maintaining utility rights-of-way and  electrical power infrastructure as factors that would allow them to  deploy a broadband network quickly and cost-effectively.
section_title: Factors Considered
paragraphs: In making broadband deployment decisions, project sponsors told us they  considered various factors related to their ability to fund successful  projects, including the (1) likelihood of near-term service upgrades by  incumbent broadband service providers; (2) potential demand for new  service; (3) potential broadband technologies; and (4) existing  infrastructure and potential local assistance for providers.
subsections: section_title: Likelihood of Service Upgrades by Incumbent Providers
paragraphs: Project sponsors told us that in evaluating the market, they considered  existing broadband service, including speed available from current  providers in their area, and whether further deployment or upgraded  service from these providers was likely. The following examples describe  some of the projects for which sponsors told us they considered existing  service, including by asking incumbent providers about their plans to  expand or improve service:
Camino Fiber Network Cooperative, Northern California  (Planned, but currently inactive). This municipal network was  planned as a consumer telecommunications cooperative corporation,  and was designed to provide open-access fiber-optic broadband  service to about 50,000 mostly rural residences in El Dorado County,  California. Officials told us that while planning the network, they asked  the incumbent provider companies whether they had plans to extend  broadband service to currently unserved areas in the county and were  told the population density was too low in many areas to justify the  cost of extending service. As a result, officials said they decided to  attempt to build their own fiber-optic service over an open-access  network. However, officials told us they could not secure enough  public or private funding to hire engineering consultants to design the  network and plan the business, and as a result the project is inactive.
Greenlight, Wilson, North Carolina. Project sponsors for this  municipal network said they approached both local cable and  telephone incumbent carriers to ask if they had plans to improve their  cable and DSL broadband networks for underserved areas or to  extend their networks to unserved areas, and were told the  companies had no plans to do so. Officials said they then asked if the  companies would consider entering into a public-private partnership  with Wilson; the companies declined to do so. As a result, officials  said they decided to build, own, and operate their own fiber-optic  network, and to use existing city-owned infrastructure, such as  telephone poles and utility rights-of-way, to do so. Officials said they  decided to offer retail Internet, voice, and video services directly to  customers to secure enough subscribers to support the network. To  finance the $35 million cost of construction, the city issued certificates  of participation—a form of extended lease agreement secured by city  property, payments on which are subject to annual appropriation by  the city, and which are not considered a long-term obligation or debt.
section_title: Potential Demand for New Service
paragraphs: Project sponsors told us they considered potential demand for new  service in their area. The following examples describe some of the ways  sponsors told us they estimated potential demand for new service to  ascertain the business case for deployment:
Gold Country Broadband Consortium, Northern California  (Planned). Project sponsors for this open-access regional network  are investigating potential technologies and partners to bring  broadband service to residential and commercial customers across  five counties in the foothills of the Sierra Mountains. Officials told us a  non-profit economic development agency leads the consortium. To  determine the demand for broadband service, the agency held  community meetings and conducted telephone and Internet surveys  about current and desired levels of service and willingness to pay a  competitive rate to subscribe. Currently the agency is presenting this  demand data to independent Internet service providers at community  meetings to determine when and if they are planning to offer service,  and to investigate technologies they could use to deploy broadband.  The agency helped potential Internet service providers apply for state  and federal grants, and plans to use the knowledge gained to pursue  other opportunities in the future.
Vermont Telecommunications Authority, Montpelier, Vermont.  This state-chartered entity provides infrastructure grants to finance  regional open-access fiber-optic and wireless broadband networks,  and develops infrastructure such as dark fiber, on which it leases  capacity to multiple private service providers that serve customers.  Authority officials told us they helped lower the cost of deployment in  rural areas where population density is low by building and funding  telecommunications infrastructure that is open to multiple uses and by  gauging the combined demand of businesses, municipal  governments, healthcare facilities, and community institutions such as  libraries and state colleges that want broadband service and working  to meet their broadband requirements. They said aggregating demand  in this way, when combined with lowering the capital costs of the  infrastructure, improves the business case for investing in broadband  networks, and may encourage providers to consider investing in  network construction.
section_title: Potential Broadband Technologies
paragraphs: Project sponsors told us they considered various broadband technology  options available to meet potential demand for service. The following  examples describe some of the technologies sponsors told us they are  using, have considered using, or have been unable to use:
Rappahannock Electric Cooperative, Fredericksburg, Virginia.
Officials from the rural electric cooperative said they have investigated  various technologies and are considering using any one of them, or a  combination of different technologies, to make broadband service  available to cooperative members. They acknowledged that it might  not be possible to deploy fiber-optic cable because of the high cost.  Previously, the cooperative invested in a wireless company to provide  broadband service, but the company went bankrupt before it could  complete the network. Rappahannock officials said they are now  considering marketing the services of a satellite broadband provider to  customers, rather than constructing a network, primarily due to the  expense of building a network.
Co-Mo Comm, a Subsidiary of Co-Mo Electric Cooperative,  Tipton, Missouri. Officials told us they considered deploying a  wireless broadband network, but decided that the terrain in their area  would obstruct wireless signals. They also considered satellite  broadband, but cited concerns about speed and latency—that is, the  time it takes for a set, or packet, of data to travel from one designated  point to another in a network. They were also concerned about caps  on data use that would make satellite service too expensive for larger- capacity users such as businesses. Officials said they decided to  deploy a $1.3 million fiber-optic pilot network, and possibly a larger  $60 million expansion project mainly because their members will need  increasing amounts of bandwidth capacity in the future as new  applications emerge.
section_title: Existing Infrastructure and Potential Local Assistance to Providers
paragraphs: Project sponsors told us they considered their existing available assets as  well as the extent to which assets or assistance from local governments is  available to reduce costs for broadband providers. The following are  examples of project sponsors who told us using existing assets can  improve the business case for deploying broadband:
Google Fiber, Kansas City, Missouri. This private network received  assistance from Kansas City to deploy broadband. Kansas City  officials counted among the city’s available assets ownership of the  rights-of-way and city properties, including public parks. The city  helped facilitate an agreement for use of certain utility easements— the areas surrounding power lines—for approximately 90,000 utility  poles owned by Kansas City Power and Light, a local utility owned by  private investors. The city negotiated with Google Fiber the use of  these rights-of-way and of city properties free of charge in exchange  for the company’s construction of a $250—$300 million fiber-optic  network to serve homes with Internet and video service, as well as an  agreement to provide free Internet connectivity to 300 public buildings,  schools, community centers, and libraries. As the authority in charge  of local regulation, the city streamlined the regulatory process  governing permitting, fee waivers, and other requirements to allow for  the accelerated construction of the Google Fiber network, and of any  other potential future broadband networks. As part of that effort, the  city utilized its online permitting system and expedited its reviews of  pole attachment applications.
Municipal Power Utility, Princeton, Illinois. The municipality initially  installed fiber-optic cable to enhance its internal communications  capacity. Princeton officials said the town’s mayor then led a  subsequent effort to deploy broadband on a larger scale as part of an  economic development initiative to attract industrial companies. They  said the combined cost for equipment, design, and construction for  both networks was approximately $1.2 million, and they told us they  considered their utility crews’ previous experience installing the fiber- optic cable as an asset that helped attract an independent service  provider to provide broadband service to customers over the network.
section_title: Stakeholders Cited Economic, Legal, and Policy Issues in Deploying Broadband in Unserved and Underserved Areas
subsections: section_title: Economic
paragraphs: Stakeholders we contacted, including project sponsors, broadband  providers, and industry experts, told us that broadband deployment  projects in unserved and underserved areas face challenging economic  issues. As noted above, remote areas generally have high costs to deploy  broadband due to the expense of deploying technologies over long  distances and potentially difficult terrain to often relatively few potential  subscribers. For these reasons, stakeholders told us that being able to  cover costs with potential revenues and thus make a return on investment  is a key issue to deploying broadband in unserved and underserved  areas. Stakeholders told us that deployment costs can be reduced if there  is easier access to rights-of-way, public facilities, and conduits already  underground. For example, the opportunity to install cellular antennas on  public water towers or thread fiber into existing conduit can reduce  construction costs while leveraging public infrastructure. Stakeholders  also told us that the costs of financing projects affect the projects’ overall  costs. Project sponsors that could use public-financing, such as municipal  bonds, had lower capital costs than private companies and thus could  more cheaply finance their projects. Project sponsors that could use  revenues from existing services, such as electricity subscribers, had  funds available to deploy broadband which allowed them to leverage  financing.
Project sponsors noted that the projects receiving federal funds were able  to reduce their own costs of the project and obtain better financing terms  due to the federal subsidy. However, project sponsors we contacted told  us they are challenged by a lack of clear information about which federal  funds are available for broadband deployment, which entities can make  use of the funds, and how to apply for them. One sponsor from a small  town said his staff lacked the expertise necessary to meet reporting  requirements tied to using federal funds and his department did not have  the financial resources available to hire consultants to assist. Another  sponsor in a rural area said paying for telecommunications-engineering  consultants to estimate construction and operating costs was the main  challenge the project faced, because without such estimates, the project  could not apply for federal funds. We found some trade associations  provided educational materials about federal broadband programs, but  such associations typically only provided information or resources to their  members. We also found the mission of some trade and industry groups  steered them to advocate for a particular technology, rather than offering  neutral advice on technological alternatives.
section_title: Legal
paragraphs: Project sponsors and industry experts we contacted told us that some  states have laws that limit or ban companies that are not  telecommunications companies from deploying broadband, on the basis  that it creates unfair competition. As a result, project sponsors told us  they considered their state’s legal environment when considering  alternate broadband service options. For example, in Vidalia, Louisiana,  an official told us that state laws bar any municipality from deploying  broadband directly to consumers, so the city is planning to build and own  a new fiber-optic network, but will not offer retail service in order to  comply with the law and avoid competing with incumbent cable and  telephone companies. Instead, a Vidalia official said they will seek to  improve broadband service options by offering independent service  providers the opportunity to provide Internet, telephone, and video  services over the network to the town’s approximately 4,000 residents.  According to one legal expert who works with states that we contacted, as  of May 2013, 20 states had in place restrictions on community broadband  services or other public communications initiatives. Some of the project  sponsors we interviewed said that they had been affected by such laws.  For instance, some, but not all, existing public providers in North Carolina  are partially exempt from such requirements and can offer broadband  service. We spoke to officials from one such provider, the city of Wilson,  who said that they built their fiber-optic network before the state law that  limits municipalities providing broadband service and were granted an  exemption to operate the network which serves 6,000 accounts.  However, the officials said they are not permitted to expand the network  or otherwise provide telecommunications services outside the county due  to the state’s requirements, which limit their ability to bring broadband  service to unserved and underserved areas in the region. While California  public entities are generally allowed to provide communications services,  Community Service Districts have the authority to provide  communications services only as long as no private person or entity is  willing to do so. However, if such a private-sector operator emerges, the  Community Service District must sell or lease its communications system  to that person at “fair market value,” which could be below cost. An official  from Lit San Leandro, a private California alternative provider, said two  companies were formed as protection against incumbent provider  lawsuits, which he said have been directed at some California  municipalities for allegedly gaining unfair advantage by using city-owned  conduit to compete against a private entity. A cable broadband provider  told us that cable companies generally will not invest in broadband  deployment in municipal areas that are already receiving public  deployment funds because the public funds amount to subsidized  broadband service, against which it is difficult for private companies to  compete. According to the National Broadband Plan, Congress should  make clear that state, regional, and local governments have the right to  build broadband networks in the absence of private investment.
section_title: Policy
paragraphs: Stakeholders we contacted, including project sponsors and industry  participants, noted that there are several policy issues that affect  broadband deployments in unserved and underserved areas. First,  stakeholders expressed concern that an area’s inaccurate designation on  the National Broadband Map can have financial consequences when the  map deems an area as served even if not all premises in the area have  access to broadband service. For example, an official from an industry  group told us accurate mapping is important because without it, areas  that are served only by dial-up service can be ruled ineligible for federal  broadband deployment funds. In one case, the official said the National  Broadband Map shows the top half of an Indiana county as covered by  broadband service and the bottom half as not covered, but in reality the  entire county only has access to dial-up service (which is not considered  broadband). Stakeholders stated that it could be difficult to obtain funding  for broadband projects if the entire area is deemed served, so the  accuracy of the National Broadband Map is very important. The data on  the National Broadband Map is displayed at the census block level and if  one house or building has broadband access, the entire census block is  deemed served. Stakeholders told us that this is an issue particularly for  remote areas that are part of large census blocks and have premises  located long distances from one another and from existing broadband  networks.
Second, project sponsors told us that while they are required to meet the  federal benchmark of 4 Mbps download/1 Mbps upload when applying for  some types of federal funding, this benchmark generally does not allow  for the use of advanced Internet applications such as video conferencing  for online education and telemedicine, which project sponsors said their  communities would like to have. Stakeholders told us that often  universities and hospitals are located far from rural communities and  therefore the ability to use online education and telemedicine could  reduce the need to drive long distances to get a higher education or see a  medical specialist. However, stakeholders stated it was difficult to garner  political support and funding for broadband technology projects that  provide the higher speeds needed for these advanced applications when  the areas have been designated as served by the National Broadband  Map. Moreover, stakeholders told us that federal universal service funds  were provided to projects that met the federal benchmark although  communities wanted projects that provided higher speeds. Stakeholders  told us that federal funds could be more effectively used by granting funds  to projects that provided the highest broadband speeds rather than to  projects providing the federal benchmark. On the other hand, officials  from a cable association told us municipal projects in particular result in a  mismatch between demand for service and the costs of providing that  service, because they tend to deploy the most advanced technology— fiber-optic—to the most remote areas with the least demand.
Third, stakeholders representing cable and telecommunications  companies stated that they have policy concerns related to public funds— both federal and local—being used in areas in which there was an  existing broadband provider. A trade association representing cable  companies noted that federal funds such as Recovery Act grants have  been used in areas already served by private broadband providers, such  as cable companies, which built their networks with no public funds. The  stakeholders representing cable and telecommunications companies  stated that municipalities have used local public funds such as tax  revenues to back municipal bonds in areas already served by private  broadband providers. A trade association representing cable companies  and an industry group representing small-community telephone  companies told us that they believe that using public financing to  “overbuild” in already served areas is unfair competition in that the private  broadband provider has built its network with private capital and does not  have the same financial advantages as the municipality. For example, an  official from an industry group representing small community telephone  companies told us that rather than overbuilding, municipalities should  work with telephone companies to upgrade existing broadband  infrastructure. The official said municipalities should not be in the  business of providing broadband services themselves and, as evidence,  cited bankruptcies and judicial opinions involving municipal networks in  cities such as Provo, Utah, and Philadelphia, Pennsylvania. In addition,  we heard from incumbent service providers that project sponsors that are  public entities, such as municipalities, can use their existing infrastructure,  property, and facilities to install broadband technologies which can reduce  their deployment costs—an advantage that private companies do not  have. These incumbent service providers noted that broadband networks  proposed by alternate project sponsors generally have not targeted  unserved areas without including already served areas, as it is more  financially attractive to deploy networks in more densely populated areas  that are often already served.
section_title: FCC Has Undertaken Various Efforts to Foster Broadband Deployment in Unserved Areas
paragraphs: As one of its primary goals, FCC has several efforts under way to  increase broadband deployment, efforts that help to address the  economic and policy issues raised by stakeholders. In particular, FCC  established the Connect America Fund in the November 2011 USF  Transformation Order to provide funds for voice and broadband capable  networks in areas where there is no private business case to provide  broadband—one of the key challenges to deploying broadband. As of  March 2014, FCC had authorized the Universal Service Administrative  Company (USAC) to distribute almost $438 million from the Connect  America Fund for projects that, according to FCC, would reach an  estimated 637,000 households and businesses by 2016. As a condition  of receiving funds, FCC requires an eligible telecommunications carrier  (ETC) to offer voice and broadband services in its supported service area,  meet certain broadband performance requirements, and report regularly  on associated broadband performance measures. Many project  sponsors we contacted said they would like the opportunity to receive  support from the Connect America Fund to deploy broadband in unserved  and underserved areas, but since they do not have the ETC designation,  they are not eligible to receive funding. FCC told us that any entity,  including cooperatives and municipalities that meet the requirements for  becoming an ETC under Section 214 of the Communications Act, can   However, project sponsors told us they  petition for ETC designation.believe they are ineligible to become an ETC because they do not provide  the type of phone service that would make them eligible. Although project  sponsors we contacted said they provide, or could provide, Voice over  Internet Protocol (phone service that is provided over the Internet), they  told us they believe such service does not satisfy the ETC phone service  requirement. FCC officials told us that FCC has guidance on becoming an  ETC and that Voice over Internet Protocol can be acceptable to satisfy  ETC requirements.
In addition, FCC has taken other actions related to broadband  deployment in unserved areas and to address some of the policy issues  noted above. For example, FCC acknowledged that some have claimed  that the National Broadband Map is not completely accurate and adopted  a process by which parties can challenge whether a location was in fact   Furthermore, as part of FCC’s January  served by an existing provider. 30, 2014 Technology Transition Order, FCC adopted an experiment in  which it intends to solicit proposals from non-traditional providers,  including utilities and municipalities, to deploy wireline or wireless  technologies in rural, high-cost areas.receive Connect America Funds for projects in high-cost areas and must  meet requirements similar to those of ETCs including providing service to  all those in a designated service area, reduced rates for voice service  plans for low-income populations, and the ability to operate during  emergency situations. Providers are not required to be ETCs to apply but,  if selected for the program, must be designated an ETC before receiving  funding. FCC has stated that it will use the experiment to gain experience  and generate data that could help inform its future policy decisions,   Providers will be eligible to  including those related to streamlining the ETC designation process and  whether and how to make support from the Connect America Fund more  widely available. In addition, FCC has stated that it will collect information  on viable business models that could support the deployment of fiber- optic or other next-generation wired technology in rural areas, despite the  challenges in doing so. FCC plans to also gather information on the  conditions under which consumers would prefer next-generation wireless  services instead of wireline services. Most recently, in April 2014, FCC  told us that the FCC Chairman indicated that he had circulated to his  fellow Commissioners a draft notice of proposed rulemaking to review the  broadband speed benchmark, as well as other issues relating to  implementation of the Connect America Fund.
FCC also provides assistance to help unserved areas deploy broadband  by participating in a federal working group that looks at streamlining  policies and permitting on federal properties. Many rural areas have  federal highways and lands and stakeholders told us that attaining rights- of-way is costly, so streamlining federal policies and permitting could  expedite broadband deployments and lower costs. The Broadband  Deployment on Federal Property Working Group consists of seven  federal agencies that plan to develop recommendations to create a more  coordinated and consistent approach in implementing agency  procedures, requirements, and policies related to access to federal  assisted highways, lands, buildings, and rights-of-way and the leasing of  federal assets for broadband deployment. FCC also provides policy  assistance by looking at ways in which broadband capacity and  infrastructure could be shared, a step that could lower deployment costs  and leverage private participation in broadband projects. For example, in  response to a request from FCC’s chairman, FCC’s Intergovernmental  Advisory Committee identified potential ways to use excess fiber capacity  to accelerate broadband deployment through public-private partnerships  in January 2013.broadband capacity with public and private partners, where such an  arrangement advances public purposes.
section_title: Agency Comments
paragraphs: We provided a draft of this report to FCC for its review and comment.   FCC provided technical comments, which we incorporated into the report  as appropriate.
We are sending copies of this report to the Chairman of FCC and  appropriate congressional committees. In addition, the report will be  available at no charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-2834 or goldsteinm@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. Contact information and major contributors to  this report are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report provides information on (1) what is known about the  alternative approaches unserved and underserved areas have used, or  attempted to use, and some factors considered in broadband deployment  decisions; (2) stakeholders’ views on broadband deployment issues in  unserved and underserved areas; and (3) efforts FCC has undertaken to  foster broadband deployment in unserved areas.
To gather information on the alternatives unserved and underserved  areas used, or attempted to use, to deploy broadband, and on  stakeholders’ views on deployment, we conducted a review of relevant  published literature that included government reports, industry articles,  and publications from associations, non-profits, and public policy research  organizations. We also interviewed telecommunications stakeholders  involved in broadband deployment to unserved and underserved areas to  obtain their views on the deployment alternatives that unserved and  underserved areas used, or attempted to use, their views on broadband  deployment issues, and the extent of FCC’s role in broadband  deployment in these areas. We reviewed and analyzed reports provided  by these stakeholders as appropriate. Those we interviewed included  associations representing consumers and industry, broadband  consultants and providers, and officials from local agencies in selected  areas where broadband projects were deployed or attempted. To identify  stakeholders, we referred to prior published literature, and we considered  the recommendations stakeholders made during our interviews. Table 1  contains a detailed list of the stakeholders included in our study.
To gather in-depth information on the deployment alternatives that  unserved and underserved areas used, or attempted to use,  stakeholders’ views on deployment, and the extent of FCC’s role in  deployment to these areas, we interviewed officials from 21 broadband  network project cases studies and analyzed documents they provided to  us. To select the 21 case studies, we analyzed the results of our literature  search and stakeholder interviews to assemble a list of potential  broadband network projects in unserved and underserved areas and  assigned each to one of four categories of networks established by:  municipalities, private companies, regional consortiums, and  cooperatives. The potential projects included some networks that were  planned but did not come to fruition for various reasons. From these, we  selected 21 case studies that represented all four project types and that  included public, private, or a mixture of both types of funding. We sought  geographic variety by assigning the cases to six U.S. regions: Midwest,  Northeast, Northwest, South, West, and Mid-Atlantic, and as we selected  cases, we included ones from each region. While there may be valuable  lessons in the examples profiled in our case studies, their limited number  does not allow us to generalize findings to the broader universe of all  entities seeking to deploy broadband networks. The information we  present on the deployment alternatives that have been used in our 21  case studies represents information provided by project sponsors. It was  beyond the scope of our work to assess the reliability of this  information. It was also beyond the scope of our work to determine  whether all, or any, of the examples deployed, or not deployed, are the  most effective models for broadband network deployment to unserved  and underserved areas.
To assess what existing broadband speeds and technologies were  available in the case study areas and to compare them to those offered  by our case study projects, we took a sample of 6 of our 21 case studies  and collected data from those areas from the National Broadband Map,  which measures national access to broadband as of December 2012, and  depicts available broadband technologies and maximum advertised  speeds that are available in the United States. Our sample included  projects from three municipalities and one each from the private  company, regional consortiums, and cooperative categories. Because the  National Broadband Map was designed to provide data for one address  or one town, and 14 of our 21 networks operated regionally, covering  multiple towns, we did not try to determine broadband speeds for all 21 of  our case study locations. Instead, we took a sample of the case study  networks. To choose the sample, we considered the 7 networks (4  municipals out of 6, and 3 private companies out of 4) that operated in  discrete locations, and chose 4 of those: 3 municipals and one private  company. We chose a higher number of municipal networks because  there were 6 in our case study sample, versus 4 private companies.  Because we wanted to include examples of all 4 network types, we also  chose one regional consortium network and one cooperative network.  Even though all the networks from these two categories were regional in  nature, and served large areas with multiple towns, we searched for and  found one from each category that served a smaller population for a  discrete area that was appropriate to enter into the National Broadband  Map. For that reason, we included New Hampshire FastRoads, a regional  network that directly serves customers with broadband in two New  Hampshire towns, and Co-Mo Comm, a cooperative that serves  customers in two Missouri towns as part of a broadband pilot project.
To gather information on stakeholders’ views on economic, legal, and  other issues they believe affected their ability to deploy a network, we  interviewed project sponsors where projects were deployed or attempted  and associations representing consumers and industry. The economic,  legal, and other issues identified by project sponsors should not be  viewed as identifying all issues that could affect broadband deployment in  unserved and underserved areas; however, the issues presented were  consistently raised by the project sponsors. Also, the economic, legal,  and other issues that we report on should not be viewed as being  representative of all entities deploying broadband in unserved or  underserved areas.
To gather information on actions, if any, FCC has taken to foster  broadband deployment in unserved areas, we interviewed FCC officials  and analyzed documents they provided us. We also interviewed industry  experts, incumbent providers, project sponsors, and stakeholders. In  addition, we analyzed the 2010 National Broadband Plan and its  recommendation that FCC create the Connect America Fund to provide  universal service funds in geographic areas where there is no private  sector business case to provide broadband. We analyzed the 2011 USF  Transformation Order and the January 2014 Technology Transition  Order,made enhancements to Connect America Fund eligibility.   and we interviewed FCC officials about how, if at all, FCC has  We conducted this performance audit from May 2013 to April 2014 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Selected Information on Broadband Projects in 21 Case Study Areas
paragraphs: We gathered data on broadband projects in our 21 case study areas from  interviews we conducted with project sponsors and, in some cases, from  documents they gave us. As described in appendix I, we assigned each  project to one of four categories. We collected information on scope,  status, construction costs, and funding from officials we interviewed.  Table 2 summarizes the information we collected from the project  sponsors.
We compared existing broadband network speeds to those offered by  alternative fiber-optic networks for a sample of our case study locations,  as shown in table 3. We found that speeds for wired services in some of  our case study project areas varied depending on the extent of fiber-optic  technology deployed, and that alternative network speeds were generally  faster than speeds offered by existing networks. Our results showed that  some alternative networks offered speeds substantially higher than  existing networks, while for others the differences were slight. Alternative  network speeds differed less from incumbent cable company network  speeds than they did from telephone company DSL networks. As shown,  wireless service was available in all the six areas, though speeds were  much slower than wired technologies. Because each of the six areas  featured multiple wireless providers, for our illustrative purposes, we  chose the one provider that served all areas, Verizon, for inclusion in the  table.
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Mark Goldstein, 202-512-2834, or goldsteinm@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In addition to the contact mentioned above, Sally Moino, Assistant  Director; Amy Abramowitz; Gary Guggolz; Bert Japikse; Maureen Luna- Long; SaraAnn Moessbauer; Joshua Ormond; and Hai Tran made key  contributions to this report.