WASHINGTON DC, United States – WHEN Congress included US$7.2 billion for broadband in last year’s stimulus bill, its goal was to bring high-speed Internet connections and information-age

jobs to parts of America desperate for both things.

Now as the government awards the money, some phone and cable companies complain that not all of it is being used to bring broadband to places that lack it. Instead, these companies say, much of the money will fund new networks in places where they already offer service.

Some local phone and cable companies across the US fear they will have to compete with government-subsidised broadband systems, paid for largely with stimulus dollars. If these taxpayer-funded networks siphon off customers with lower prices, private companies warn that they could be less likely to upgrade their own lines, endangering jobs and undermining the goals of the stimulus plan.

“It is extremely unfair that the government comes in and uses big government money to harm existing private businesses,” says Gary Shorman, president of Eagle Communications, a Kansas cable company with about 16,000 customers.

Eagle is bracing for competition in its hometown of Hays from Rural Telephone Service Co, a phone company awarded US$101 million in stimulus grants and loans to bring broadband to rural Kansas. Shorman’s prediction: “This hurts our company.”

Yet government officials handing out the awards and the backers of the projects being funded insist the money is being well spent. They contend that the stimulus dollars should be used to expand high-speed Internet access not only to places where it is totally unavailable, but also in regions where what is available is not good enough.

Many existing systems, they note, lack the capacity to meet mushrooming demand for bandwidth. The new stimulus-funded networks will provide far more robust connections — many with speeds of up to 100 megabits or even 10 gigabits per second to schools, libraries and other “anchor institutions”. That’s roughly 20 to 2,000 times faster than the DSL and cable wires linking most American homes today.

“It’s a little disappointing that companies that aren’t adequately serving these areas are trying to undercut those of us who are trying to step in and get the service where

it’s needed,” says Lawrence

Strickling, head of the National Telecommunications and Information Administration (NTIA), the arm of the Commerce Department handing out much of the stimulus money.

The NTIA and the Agriculture Department’s Rural Utilities Service have given out more than US$2 billion in stimulus grants and loans and

now are sorting through piles of applications for the remainder of the money. The funding is going for high-speed networks, computer centres and programs to encourage broadband

use. Government agencies, rural cooperatives and private companies are among the eligible recipients. Even some of the phone and cable companies concerned about getting government-subsidised competition, including Eagle Communications in Kansas, have applied for stimulus money too.

Of the 140 awards made so far, 108 will help pay for broadband networks. And roughly 70 per cent of them cover areas already served at least in part

by existing broadband providers, according to a US Telecom Association analysis of data that existing carriers have filed with the government.

One such project is the North Georgia Network Cooperative, a coalition of county economic development authorities, a state university and two electric co-ops. It got a US$33.5-million NTIA grant to build a 260-mile fibre-optic ring in the Appalachian foothills.

The system will form the backbone of a “middle-mile” network that will provide connections as fast as 10 gigabits per second to schools, government offices and other “anchor” institutions, as well as telecommunications carriers that want to serve their own customers. It will also reach as many as 20,000 homes.

Some of those homes can get service now from Windstream Corp, a rural phone company with three million customers in 21 states. Windstream says it has invested US$5 million in network upgrades across

the area covered by the Georgia project over the past three years.

The stimulus-funded project undermines the economics of those investments, maintains Michael Rhoda, Windstream’s senior vice-president of government affairs. In particular, he points to low-density areas where Windstream will now have to share a limited pool

of customers with a

subsidisfed competitor.

Windstream today offers broadband to 89 per cent of its three million customers, with typical connection speeds ranging from three megabits to 12 megabits per second

and one-gigabit connections available to high-volume users. The stimulus money, Rhoda believes, should be targeted at places where it is uneconomic for private companies to provide broadband — “the last 11 per cent”, in Windstream’s case. Windstream has in fact applied for US$238 million in stimulus funding to reach many of those customers.

FairPoint Communications Inc, a phone company with operations in 18 states, has voiced similar concerns about a US$25.4- million NTIA grant to build three interconnected fibre rings in Maine.

The so-called Three Ring Binder project is backed by the state government, the state university system and small telecommunications companies. The 1,100-mile (1,770-kilometre) network will also be “middle mile” — bringing one-gigabit connections to University of Maine campuses and other anchor institutions and

Internet service providers that need bandwidth.

Yet FairPoint, which bought phone lines in Maine, New Hampshire and Vermont for US$2.3 billion from Verizon Communications Inc two years ago, insists the project would duplicate much of its system. According to FairPoint President Peter Nixon, the company has built more than 400 miles (643 kilometres) of fibre and invested more than US$100 million in broadband since it bought the Verizon network. Today, roughly 75 per cent of FairPoint’s customer base has access to broadband, primarily DSL with speeds

as high as 30 megabits

per second.

FairPoint complained to Maine lawmakers, but recently called a truce. It has reached a deal that will enable it and other phone companies to expand broadband with fees collected from users of the new fibre network.

Still, FairPoint argues that the Three Ring Binder distorts the market. “We support broadband expansion,” Nixon says. “We support competition. All we are asking for is a level playing field.”

Government officials say such arguments reflect a fundamental misunderstanding of the stimulus programme.

The US$101-million Kansas project, for instance, will bring connection speeds of up to one gigabit to businesses and up to 100 megabits to as many as 23,000 homes. While the network will cover the population centre of Hays, where both Rural Telephone and Eagle Communications already offer broadband, that accounts for just eight of the 4,600 square miles (11,914 sq kilometres) to be reached. Much of the area has no broadband at all, says Larry Sevier, Rural Telephone’s

chief executive.

The goal is to “close the digital divide between Hays and the outlying areas”, says Jonathan Adelstein, head of the Rural Utilities Service, which awarded the money.

Meanwhile, in Maine, FairPoint is struggling. The company wrestled with service problems when it bought the Verizon network, which needed major upgrades. It also took on over US$2 billion in debt to buy the system, which ultimately helped push the company into bankruptcy protection.

That has left FairPoint — which has applied for stimulus money as well — unable to bring broadband to wide swaths of rural Maine, says Dwight Allison, chief executive of Maine Fiber Co Maine Fiber, which was created to build and operate the new stimulus-funded network, represents a serious competitive threat to a company that “feels its monopoly is being attacked”, Allison says.