The dust is nearly settled on the first NOFA round, and BIP and BTOP will accept applications for the second round from February 15 through March 15. A lot of information, and some misinformation, continues to swirl around on differences between NOFA 1 and NOFA 2, the application process, as well as content required in the applications. To maximize the probability of receiving loans and grants from the NOFA process, as well as to make the best use of service providers' time, it's necessary to have a clear understanding of this information. In NOFA 2, BTOP and BIP will be separated, with BTOP focusing primarily on middle mile projects, while BIP will focus on last mile. This article focuses primarily on BIP.

There were a number of observations about the application process and strategies employed during NOFA 1. The most obvious is that many service providers were frustrated with the complexity, expense, and delay of the NOFA 1 process. Some challenges were expected. After all, service providers are dealing with government agencies in charge of scrutinizing broadband financing requests.

Unfortunately, the early communication difficulties were only exasperated with the compressed NOFA 2 schedule. Based on my interpretation of NOFA 2, it is expected that the USDA and NTIA organizations are focused on setting clear application deliverables and funding criteria as part of NOFA 2. More details will be highlighted later in this article.

Another area of frustration associated with NOFA 1 was the "due diligence" phase. Many service providers advanced to this intermediate stage of the application process where further information could be solicited in order to further validate an application. Unfortunately, at the time of writing this article, many applicants are still unsure of the fate of their applications even though NOFA 2 is now underway.

One encouraging observation of NOFA 1 is that service providers appear to be taking a "build it once" strategy. The RUS BIP program has largely awarded Last Mile infrastructure projects to service providers with successful operational track records that leverage FTTP technologies. While there is still ample time and financing for DSL and wireless broadband projects, this is a clear indicator that providers are looking to maximize both the long-term revenue potential and longevity of stimulus funded projects.

While at the time of writing this article it is unclear if BIP or BTOP will award the full allotment of financing identified in NOFA1, it does appear that NOFA 2 will be where the bulk of funding activity will happen. As is the case, there are significant considerations to be made as applicants prepare for what promises to be a better organized, more streamlined application process.

NOFA 2 Opportunities
The broadband stimulus program (BSP) creates new opportunities for service providers that make it well worth the effort to apply for funding during this NOFA round, even if rejected during the NOFA 1 process.

Bandwidth demand will only increase in the future among consumers, businesses, government, educational, and healthcare organizations. The NOFA process provides a unique opportunity for service providers to accelerate their network upgrade timeline. A strategic investment in FTTP or even DSL technologies will provide a foundation for future revenue streams that are vital as service providers face voice associated revenue erosion.

In addition, nimble service providers are viewing the NOFA process as an opportunity to overbuild competitor service providers' networks in what they perceive as underserved and often rural areas. In a competitive environment, the customer wins in terms of improved services offered, better customer service and extended involvement in community outreach. And perhaps more importantly, the service provider has the potential of expanding their coverage area and overall business.

Finally, high-speed and high-quality broadband access is a critical factor for economic development. The BSP provides a unique opportunity for service providers to participate in and enhance the economic development activities of their towns and cities. This direct connection to the local economy is a strength for applicants and should be highlighted during the application process.

Specifics on NOFA 2
There are several distinct differences between NOFA 1 and NOFA 2 that service providers should understand. First, service providers must designate from which program they are seeking funds -- BIP or BTOP. This is a departure from the original NOFA where applicants were considered by both programs.

Each program also has a clear area of focus. BTOP will focus on Middle Mile projects aimed at bringing Middle Mile facilities and capacity to geographic regions or communities while BIP will predominantly focus on last mile infrastructure. One caveat is that with BIP, current RUS borrowers or grantees can seek funds for middle mile projects.

Of particular note is the simplified definition of eligible service areas. The RUS BIP service area must be at least 75 percent rural. In addition, within the rural portion of the proposed funded service area, at least 50 percent of the premises in the rural area must have no access to broadband service at the rate of 5 megabits per second (Mbps) upstream and downstream combined. This definition is significantly easier to grasp than previous service are eligibility requirements. Further, the removal of requirements to report service by census block should be a time-saver for applicants.
   
NOFA 2 funding categories will include $1.7 billion for last mile projects and $300 million for middle mile projects. For these projects, distributions will be 75% grants and 25% loans unless an applicant seeks a waiver on the loan requirement. Further, applicants that provide private financing will score higher in the BIP scoring sheet and strengthen their overall applications. Satellite projects will garner $100 million and rural library broadband and technical assistance projects will receive $5 million, all of which will be grants. In total, BIP is making $2.2 billion available in NOFA 2.

The criteria for satellite projects are different, as one would expect, and include existing satellite ISPs, resellers of satellite ISP services, distributors or dealers of satellite ISP services, and consortia of organizations from the above categories.

To maximize the number of eligible projects as well as ensure as many premises as possible gain access to high speed broadband service, BIP will limit awards to $10,000 per premises passed. RUS will use a very simple formula to calculate cost per home passed: The total project cost divided by the number of homes, businesses and community organizations passed is the cost per premise passed.

Application Remains Daunting
The BIP application itself remains daunting. Service providers must include information on the following for each project:

• Description of project (this is made public)
• List of communities served
• Executive summary
• Proposed service offers and rate packages
• Subscriber projections
• Nondiscrimination and interconnection plan
• Number of jobs created or saved
• System design
• Proposed service area maps
• Management resumes
• Legal opinion   
• Pro forma financial analysis
• Evidence of Recovery Act collaboration   
• Self-scoring sheet
• Itemized budget of proposed project   
• List of any outstanding obligations
• Description of working capital requirements
• Environmental questionnaire
• Historical financial statements
• Description of service metrics

Service providers applying for multiple projects must include all the information outlined above, as well as consolidated pro forma financial statements for a 5-year period, additional sets of financial statements with each application, as well as a commitment from investors indicating willingness to provide funds if all applications are not approved.

Details on Project Description
The most complex and detailed portion of the application will be the project description, which must include multiple components.

The System Design should consist of a detailed description of the proposed solution and must cover the proposed technology, deployment strategy, and ensure mandated service levels are met. Service providers must outline specifics of the proposed system architecture, such as how "nodes" are configured within a wireline system or copper loop lengths for DSL and the flavor of DSL to be deployed. It should also include a discussion of how traffic will flow from the Internet through to the end user.

If the organization applying for funds is an existing provider, managers must include a description of their existing network and how it will integrate with the proposed system. Service providers will also have to demonstrate the system is designed to support the forecasted load as well as any contractor/vendor relationships that will be required.

Identifying the location of major network elements and listing the assumptions used in designing the access portion of the network should be included in the Network Diagram, with a description of the connections between major network elements including type, capacity, distance and whether the connection will be owned by the applying organization or leased from a provider, and finally, a description of interconnections with other service providers, including the location and provider name when known.

The Budget Worksheet should break down the project into budget categories such that the BIP reviewer can clearly tie together the System Design and Network Diagram and determine if the costs are reasonable.

In the Service Level Objectives section, those applying must identify the methods they will use to ensure adequate service quality to consumers. Elements of this should consist of capacity planning, customer service, order fulfillment and network management.

The Environmental Questionnaire is a one-step process in NOFA 2 versus a 2-step process in NOFA 1. The Questionnaire must be included with the funding application and consists of a 10-question form describing all project related construction activities and including maps with project construction activities clearly indicated.

Scoring Criteria
As with NOFA 1, there are scoring criteria for NOFA 2 that BIP officials will use to assess applications. These criteria include:

• Percent of rural residents served in unserved areas (10 points) -- For each 10 percent of unserved households compared to total households that will receive broadband service, 1 point is issued up to a maximum of 10 points. For Middle Mile projects awards are based on the location of interconnection points.

• Rural area targeting (10 points) -- Two (2) points are awarded, up to a maximum of 10 points, for every 5 percent increase in the total proposed funded service area over 75 percent rural. For Middle Mile products, awards again are based on the location of interconnection points.

• Distance from non-rural areas (5 points) -- As many as 5 points are awarded for proposed funded service areas at least 10 miles form the closest non-rural area. Additional points are available based on the distance of proposed funded service areas from non-rural areas. For Middle Mile projects, points are awarded based on the location of the interconnection points.

• Title II Borrowers (8 points) -- BIP officials will award 8 points to applications that are submitted by entities that have borrowed until Title II. In NOFA 1, the maximum was 5 points.

• Other Recovery Act awards (5 points) -- Points are provided for cooperation with other Recovery Act programs, where collaboration would lead to greater project efficiencies.

• Potential service performance (10 points) -- For Last Mile projects, this includes wireline projects that deliver 5 Mbps service to the premises (upstream and downstream combined) for 5 points, or that deliver 20 Mbps service to the premises for 10 points. For Middle Mile projects service providers would earn 20 points for projects constructed to deliver 100 Mbps service to all interconnection points.

• Service to Important Community Facilities and SDBs (6 points) -- Service providers that offer discounted rate packages of 25 percent or more for at least 3 years can earn up to 4 points, and those offering discounted rate packages of 25 percent or more for to SDBs in the funded service area for at least 3 years can earn 2 points.

• Strength of management team (10 points) -- As many as 10 points are available based on the quality of the projects managerial team.

• Socially and economically disadvantaged small business entity (3 points) -- Applicants that are SDBs can earn as many as 3 points.

• Utilize outside resources (10 points) -- BIP will award up to 10 points based on the amount of outside resources contributed to the total financing. This will occur on a sliding scale, starting with 3 points awarded for 25 percent to 49 percent, up to 10 points for 100 percent. The ratio is based on the new equity the applicant proposes to support the project compared with the requested amount of the award.

• Extent of grant funding (10 points) -- BIP will award up to 15 points based on the amount of grant funds requested as compared to total award requested. This is also on a sliding scale with 0 points granted if the grant funds percentage is greater than 70 percent, up to 15 points if the grant is between 0 and 15 percent.

• Cost effectiveness (8 points) -- This applies to Last Mile projects only. This is also on a sliding scale starting with 2 points awarded if the cost per premises past is less than $8,000, up to 8 points awarded for cost per premises passed of less than $5,000.

• Administrator's bonus points (10 points) -- The last criteria is more discretionary and provides extra awards for strength in the following areas:

- Offer assistance to critical community facilities
- Promote rural economic development
- Support persistent poverty counties
- Serve chronically underserved areas
- Demonstrate cost effectiveness
- Offer low-cost service options
- Recognize geographic diversity

Service providers may request a waiver to exceed the 75 percent grant limitation based on one or more factors including distance from a non-rural area, rural area targeting, density, media household income, and unemployment.

Application Review Process
RUS will post a public notice of each of the proposed funded service areas for each Last Mile application, and the communities in which interconnection points terminate for Middle Mile applications for a 30-day period.

If there is additional available funding, service providers with applications that have not been approved under the first review may be requested to provide additional information. These service providers will have 15 days to provide this information.

NTIA may transfer BTOP applications that officials choose not to fund to BIP, and BIP officials will determine if these applications meet its requirements. Conversely, RUS may also transfer applications to the BTOP program at its discretion.

RUS has indicated that it will meet the program legislated completion date of September 30, 2010, which requires all funds to be awarded. RUS has also stated it intends to finalize all award decisions by September 10, 2010, assuring this deadline is met. This gives RUS approximately 180 days to complete its evaluation and award announcement process.

It is expected that RUS will continue to announce BIP awards throughout the NOFA application and evaluation periods. While applicants are encouraged to submit their applications as soon as possible, no preference is given to early submissions.

Conclusions
While the first NOFA round was frustrating for some, NOFA 2 provides an exciting opportunity for service providers to move their networks and businesses forward. RUS and NTIA have created realistic criteria that will help award winners make an impact on their communities and their competitive position.

RUS and NTIA have streamlined the review process and have eliminated the due diligence phase while adding clear application requirements. While this creates a logistical, and in some cases a capital expenditure challenge, it also makes the evaluation process easier for reviewers which will ultimately lead to a more efficient process.

Given the insatiable appetite for bandwidth, service providers could leverage the NOFA process to accelerate the pace of their investments in the future of their companies. By staying informed of application requirements and documenting a compelling case for broadband investment, service providers may be rewarded with the business stimulus intended when legislators passed the American Recovery and Reinvestment Act of 2009.

About the Author
Juan Vela is Director of Solutions Marketing & Strategy for Occam Networks, Inc. He has more than 10 years experience in Last Mile access technologies. Prior to joining Occam, he split his time between telecom service providers and broadband equipment suppliers, holding a variety of positions including member of technical staff and network engineering positions with national ILEC and CLEC companies, as well as product management and systems engineering positions with global communications equipment manufacturers. For more information, visit Occam Networks at www.occamnetworks.com.

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