What you need to know about NOFA 2 rules - page 2

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Middle-mile should have a big impact. On the agency side, middle-mile projects are easier and faster to review, fund and administer. From an industry perspective, you're putting in literally the backbone of effective broadband because without it, your last-mile networks are challenged to get enough backhaul so they can give end users fast enough speeds.

On the community side, it is in some respects more practical to pursue middle-mile than last-mile projects. Cambria County, Pa., for example, built a middle-mile network because it didn't want to get into the business of providing services directly to customers. They and a private partner built the network, and local service providers come in to sell consumer and business services. There are few issues with open access because everyone realizes there are opportunities that can be created and carved out with multiple providers.

NTIA/RUS have added a new dimension, which is to encourage middle-mile projects to include direct links to institutional customers. Providers such as Fairpoint are having a conniption because they claim this arrangement "cherry picks" the best customers (pretty odd claim from an entity that failed to provide adequate services to people who want them). The reality is, NTIA's strategy tackles a problem that has plagued some middle-mile projects, as described in my upcoming book on broadband strategy, "Fighting the Next Good Fight."

Michael Johnston, vice president of IT and Broadband at Jackson Energy Authority, a public utility in Tennessee that built a city-wide fiber network, believes that a middle-mile network that prevents the owners from selling to customers and only allows them to collect fees from last mile providers "should be a winner, but it doesn't always work."

"What if my plan says 'if the provider adds 100 customers/month, the total amount of fees from the provider that I get for those 100 subscribers pays off the monthly bond debt?' But then the partner doesn't add that many customers. The city has no leverage because private partners want the least number of customers to ensure the most profit. Acquiring more customers' costs money that cuts into profits. If the city insists on getting their fee anyway for 100 customers, the partner leaves. So obviously the city can't raise fees."

By wiring libraries, hospitals and local governments as part of the middle-mile package, this allows the operator to generate more revenue and not be at the mercy of last-mile fees. And contrary to Fairpoint's claims, the stimulus program has taught us one thing if nothing else: Make it easy to get over the financial hurdle of bringing service to customers' doorsteps, plenty of entities will step up or start up to create or build a market. 

Craig Settles, president of Successful.com, is an industry expert who helps organizations pursue stimulus grants. Follow Craig at twitter.com/cjsettles

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