Verizon, AT&T may tell US to keep $7.2 billion stimulus money

by Molly Peterson, Bloomberg

Verizon Communications Inc. and AT&T Inc. may have this response to the U.S. government’s offer of $7.2 billion for high-speed Internet projects: Keep it.

Unlike the businesses that welcomed the $787 billion stimulus package approved by Congress last month, the two biggest U.S. phone companies have reservations. They’re urging the government not to help other companies compete with them through broadband grants or to set new conditions on how Internet access should be provided.

“I don’t think there’s much for them to gain financially from going after this money,” especially if the government attaches strings to it, said Rebecca Arbogast, an analyst at Stifel Nicolaus & Co. in Washington.

The companies have remained noncommittal as they lobby to shape rules for the grants.

“We do not have our hand out seeking government funds,” James Cicconi, AT&T’s senior executive vice president, told reporters March 11. While the company is “open to considering things that might help the economy and might help our customers at the same time,” he said AT&T’s primary focus for broadband is its own investment program.

The $7.2 billion is intended to bring fast Internet service to “unserved” areas that don’t have it and other regions the government deems “underserved,” according to the stimulus measure. The Commerce Department’s National Telecommunications and Information Administration will disburse $4.7 billion and the Agriculture Department $2.5 billion. Both agencies must decide what “underserved” means before awarding any grants.

Verizon and AT&T say if they seek funds, they are more likely to apply to NTIA because the law requires the Agriculture Department to give priority to rural carriers that have already participated in its loan programs for telephone service.

‘They’re All Coming’

NTIA will receive a “massive” number of applications, mostly from small companies, said former Federal Communications Commission chairman Michael Powell.

“If you’re an entrepreneur or a businessperson, you’re sitting in a room right now, figuring out every way to Sunday how to get this money -- and they’re all coming,” Powell, a Republican who headed the FCC from 2001 through 2005, said in an interview.

Officials at NTIA say more than 2,000 companies, local governments, community groups and consumer advocates have contacted them about the agency’s rules for disbursing its stimulus money. The first public meeting on the funds, held jointly by NTIA, the Agriculture Department and the FCC on March 10, drew an overflow crowd of more than 500 to the Commerce Department.

Adding Staff

NTIA’s portion of the stimulus will be the largest grant program run by the agency. NTIA, whose original grant budget for this year was $592 million, will add staff to its 22-person disbursement office and hire contractors to allocate the stimulus money, said Bernadette McGuire-Rivera, the agency’s associate administrator.

The law requires all grants to go out by Sept. 30, 2010, funding at least one project in each state.

Rural mid-sized carriers such as CenturyTel Inc., Embarq Corp. and Frontier Communications Corp. are likely to push aggressively for grants, said Jessica Zufolo, an analyst with Medley Global Advisors in Washington.

Frontier, the Stamford, Connecticut-based company that offers phone, Internet and television service in 24 states, hopes to use stimulus money for “shovel-ready” projects to expand broadband access in rural areas, Chief Executive Officer Maggie Wilderotter said in an interview last month.

Verizon’s Discussions

New York-based Verizon, like Dallas-based AT&T, may forgo the grants if it doesn’t like the conditions.

“We don’t have any plans to apply; we also have not made a decision not to apply,” Verizon Executive Vice President Thomas Tauke told reporters last month. “We’re certainly going to participate in those discussions to the extent that we can.”

The stimulus measure has a provision that makes NTIA a new battleground in the debate over so-called net neutrality. That’s the idea that broadband providers shouldn’t be permitted to favor some Web sites by delivering their content faster than similar content from other sites.

The law says recipients of NTIA grants must practice “nondiscrimination” in access to their networks and “at a minimum” must comply with broadband guidelines adopted by the FCC in 2005. Those principles, which aren’t formal FCC rules, say carriers should let subscribers have access to any legal Web content or service they choose as long as it doesn’t harm the network.

Managing Congestion

AT&T, Verizon and Comcast Corp., the largest U.S. cable provider, say the rules are unwarranted and would hinder their ability to manage congestion on networks they have spent billions to build.

Attaching “onerous” requirements for the grants would discourage companies from applying for them, said AT&T’s Cicconi.

Verizon, AT&T and Qwest Communications International Inc., also say most of the grant money should go to areas that they and other broadband companies don’t already serve.

“I’m opposed to the government subsidizing competition,” said Steve Davis, senior vice president for public policy for Denver-based Quest, which operates in 14 Western states, in an interview. “While we have unserved areas it’s inappropriate to spend the limited dollars on underserved areas.”

Cisco Systems

Cisco Systems Inc., the largest maker of networking equipment, wants broadband grants to go to underserved areas as well, said Jeff Campbell, the company’s director of technology and communications policy. While San Jose, California-based Cisco doesn’t plan to apply for grants, it will sell broadband equipment to carriers that win funds, he said.

“The underserved are people who have access to broadband at slow speeds with little likelihood that that infrastructure will be upgraded to current-level technology without government assistance,” Campbell said in an interview.

Broadband spending by Verizon and AT&T dwarfs what they would get from a portion of the new federal grants. AT&T plans to invest more than $11 billion this year to expand its high- speed networks. Verizon is spending $23 billion over seven years to build out its fiber-optic network.

So if the companies ultimately seek grants, their goal may be partly to fend off potential competition in underserved areas, Arbogast said.

“They would not welcome competitors coming in with a lot of grant money to markets they’re serving,” she said. “So they might have more of a defensive agenda than an offensive agenda.”

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