Posted by: Ann Treacy | March 19, 2013

Federal Energy and Commerce Committee looking at Lake County

The ARRA-funded Lake County Fiber Network (LCFN) is getting attention again. A press release from the Energy & Commerce Committee reports…

In a letter to RUS Acting Administrator John Padalino, the members [Republican leaders of the House Energy and Commerce Committee] requested information regarding the agency’s management and oversight of the BIP program, particularly its review process for awarding $66.4 million in grants and loans to Lake County. Members expressed concern that the Lake County project may be overbuilding areas already served by existing broadband providers, instead of expanding access to underserved or unserved areas, as required by ARRA.

The leaders wrote, “While the committee recognizes the importance of expanding broadband access to rural areas of the country, we are concerned with suggestions that the BIP program may have been used to overbuild existing systems rather than extend service to areas that legitimately meet the underserved/unserved eligibility requirements. Materials reviewed by committee staff also raise questions as to whether RUS adequately considered the financial viability of the Lake County project before committing $66.4 million in government funding.”

The letter to the RUS (Rural Utility Service) asks a series of pointed questions:

Q1: Please provide an overview of your application review process. What information was required from Lake County and how was that information verified?

Q2: Why did RUS reject Lake County’s Round 1 BIP application? Did RUS make recommendations for Round 2 BIP funding? If so, what were those recommendations, who communicated them to Lake County, and what was RUS’s rationale for making such recommendations?

Q3: What review did RUS conduct to verify data regarding served, unserved, and underserved populations in Lake County Fiber Network project area? Did the Lake County Fiber Network project enter a market that already served (in whole or in part) by an existing broadband provider? If so, please list those providers and state whether they offered broadband services at speeds in excess of 5Mbps. In addition, what percentage of the projects’ target wholesale and retail customers were already served by one or more broadband providers at the time the Round 2 application was filed?

Q4: How did RUS define the term “household” for purposes of calculating the number of served, unserved, and underserved premises in the Lake County Fiber Network project area? Did that definition make a distinction for seasonal residences (i.e., cabins and summer homes)? If so, did RUS consider this distinction in reviewing the pricing and take rate assumptions used in Lake County’s financial projections?

Q5: Is RUS aware of any misrepresentations or inaccuracies in the Lake County Fiber Network project application? If so, what were those misrepresentations or inaccuracies and how there they addresses by RUS?

Q6: What review did RUS conduct to ensure that Lake County had the necessary legal authority to build the Lake County Fiber Network project? What review did RUS conduct to ensure that Lake Communications would be capable of operating and managing the proposed network? What review did RUS conduct to ensure that the Lake County Fiber Network project would be financially viable?

Q7: Why were neither National Public Broadband Inc nor Lake Communications listed as co-applicants on the Lake County’s Round 2 BIP application or considered sub-recipients of the load and grant proceeds?

The also request a large number of documents – such as all written and electronic communications related to the project.

For better or for worse, many of these issues have already come up for Lake County. They seem to magnets for attention. In fact many of these issues came up last summer in an issue of Communications Daily and then in a House Subcommittee on Communications and Technology. Here are the allegations that came up in the Communications Daily article…

  1. Lake County didn’t have the funding required at the time it.
  2. Lake County didn’t use the most recent census data in its original application.
  3. To be successful, the Lake County plan would require 100 percent take rate, which would be very difficult to obtain.
  4. Lake County has been assured that even if they default on the loan, the RUS would not seek repayment beyond the proceeds of a foreclosure auction on the network.
  5. The replacement consultants hired to manage the project are more like an extension of the County than a separate entity.
  6. There are questions on how much the consultants are getting paid to run the network versus the amount they set to pay the County for access to the network ($8 per line per month).
  7. Minnesota law prevents municipalities from owning a telephone exchange without a super majority approval through a referendum.

It seems as if the Republican leaders of the House Energy and Commerce Committee have picked up where the House Subcommittee on Communications and Technology left off. It also seems as if many of these issues were discussed and dismissed at the House Subcommittees meeting last summer.

Some of these issues may be new – but it sort of feels like déjà vu – especially since the same issues have come up in different ways since the Subcommittee Hearing…

  • Soon after the Hearing, local leaders chimed in (Duluth News Tribune) to refute the claim that there had been sort of misrepresentation
  • In July there was some back and forth between Mediacom has been outspoken and local leaders on whether the business plan and take rates are unrealistic. There have also been discussions (Op-Ed letters anyways) seemingly between Minnesota Cable Communications Association and local leaders based on who would pay back the loan in case of default.
  • In August 2012 the Minneapolis Star Tribune ran an article on unserved areas of Lake County. They refer to Mediacom and the Minnesota Cable Communications Association as other providers in the area. Reliability is also mentioned as a factor for infrastructure in Northeast Minnesota. Lake County has had a few major outage issues in the last few years.

 


Responses

  1. Mediacom has found a willing audience with some House Republicans that want to tar the stimulus as being a failure. This whole discussion is premised on the claim by Mediacom that is not fair for them to have to compete in Silver Bay and Two Harbors with a network that will connect all of Lake County and part of St Louis County, rural areas that Mediacom would never connect. Mediacom is literally fighting to protect its monopoly in two towns and prevent the rest of the county from being connected.


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