September 2009 Vol. 64 No. 9
Features
Telecom Waits, Hopes For Boost From Stimulus Funds
Various federal economic “stimulus” programs are under way to help bring America out of the crippling recession that has been affecting almost every segment of the economy.
Stimulus programs are not without controversy: some question whether money appropriated is being directed to the proper recipients and whether the spending funds will produce the intended results.
Of interest to the telecommunications industry, and its suppliers and contractors who serve telecom markets, is the U.S. Department of Agriculture Rural Utilities Service (RUS) Broadband Investment Program authorizing $2.5 billion in federal loans and grants to expand broadband services to rural and under served areas. The program is part of the American Recovery and Reinvest Act of 2009, signed into law last February. A key element in the program is an aggressive time frame for completing projects within 24 months of funding.
Agriculture Secretary Tom Vilsack said the Broadband Initiatives Program will bring high speed internet service to communities across the country, create thousands of jobs, and improve economic, healthcare and educational opportunities in rural communities.
Public workshops to share information about funding availability and the application process were held in several cities across the U.S. in July with applications for loans and grants accepted from July 14 through Aug. 14.
Cautious optimism
Reactions from the industry have been generally optimistic, but one researcher expressed doubt that the stimulus incentives will result in a large number of new construction projects.
Robert Rosenberg, president of Insight Research, points out that the internet has come to play an important role in education and that we should appreciate the impetus for this type of upgrade. Insight provides market research, strategic information and analysis for the telecom industry.
“Broadband deployment is market driven, and this program provides subsidies for companies willing to wait longer for a pay back of their investments than carriers that serve urban and suburban areas,” Rosenberg said. “It is analogous to what was done in my grandparents’ time to subsidize bringing basic telephone service to rural areas.”
Rosenberg said lack of availability of broadband in large areas of the country is one indication that the United States is falling behind other countries in many areas of technology.
“There are many reasons for this,” he continued, “including the fact that we are geographically larger while other countries are smaller, more urbanized and government oversight agencies play a prominent role in directing which technologies to adopt. If I want to look at what telecommunications will be like in the U.S. three or four years from now, I look at what is being done today in Asia. Communications capabilities have implications from both trade and defense points of view.”
The broadband stimulus should have a positive impact on the telecommunications industry, believes Mike Render, president of RVA Market Research & Consulting.
“It’s possible that initially some projects were put on hold as carriers waited for details of the stimulus program, but once fund details of implementing the program are fully known and money is available, there should be positive results both generally and for FTTP (fiber-to-the-premises). It can’t be known now how much of the construction will include fiber, but because of the benefits of fiber over other technologies, I would expect a significant amount will be fiber.”
Render said it is not yet known what locations of projects will qualify for stimulus funds, but he expects clarification of many details soon. Most, he said, likely will be small and medium sized. Small, rural carriers and competitive providers who have been frustrated by a lack of capital to fund projects should especially benefit from the program.
RVA, he added, is in the process of preparing a report that will assist carriers to understand data that will be required in applications for funding.
“There will be some red tape involved in applying for funds, but that should not affect contractors,” Render said. “The program should offer opportunities for contractors and specialist subcontractors, and the reaction I am getting from contractors is positive, and some have even expressed concern about having enough equipment to complete work to meet the relatively short completion deadlines that will be required.”
RVA is a research and consulting firm serving a regional, national, and international client list in a variety of industries. RVA conducts ongoing research for the Fiber to the Home Council.
Limited new projects?
Mark Bridgers, utility vertical market leader/consultant for FMI Corp., believes the stimulus program will not result in a large number of new projects.
“We anticipate that this funding will be used to support projects and telecom providers who already have work in motion,” explained Bridgers. “While there will be some positive movement in spending, it will not be a watershed. We are anticipating that over the next telecom construction boom, the majority – greater than 50 percent – of rural carriers will have shifted to high speed/broadband overbuild systems to serve their customers. This trend is occurring naturally and is not directly related to the additional stimulus funding.”
Bridgers said contractors should expect stimulus funded projects to have application and bidding processes similar to any project supported by federal funding. However, he expects some restrictions on delivery systems that can be utilized to design and construct this work.
“Specifically,” he said, “we believe there is a restriction to the use of design/build as a delivery model even though there is much more interest in using this model from the owners or buyers of the construction services. There are legislative issues that prevent this use which don’t have easy or fast solutions in our experience. These limitations should be well known and understood by both the owner and the contractor and integrated into the construction documents and contract specifications.”
Bridgers added that due to the time limitation of the funding, there may be more schedule pressure but again, this will be well known and understood from the beginning by both the owner and the contractor.
To summarize, Bridgers said the overall effect of the additional funding will be positive, but will not shift the market place directionally; there will be bureaucracy and red tape incorporated into the process and some minor restrictions on project delivery systems.
“All in all, positive but not earth shattering impact,” he concluded.
FMI is a leading provider of management consulting and investment banking to the worldwide construction industry.
FOR MORE INFORMATION:
Insight Research, (973) 541-9600, www.insight-corp.com
RVA Market Research & Consulting, (918) 592-3100, www.rvallc.com
FMI Inc., (919) 787-8400, www.fminet.com
Contractors’ perspectives
With construction down and the future uncertain, utility contractors hope new projects will result from the $2.5 billion in stimulus funds of the U.S. Department of Agriculture’s Rural Utilities Service (RUS) Broadband Investment Program to expand broadband services to rural and under served areas.
Ron Tagliapietra, president of the Power and Communications Contractors Association (PCCA) and senior vice president of utility contractor Michels Corp., says that members of the PCCA and his company definitely will seek to be involved in projects funded by stimulus money.
“We would expect to start seeing broadband stimulus funded projects out for bid in the third quarter of 2009,” said Tagliapietra. “With this in mind, projects in northern states may see limited activity in 2009 due to seasonal weather related delays. The timeline for completion is a critical piece of this program. It is our understanding that if RUS and NTIA fail to spend the allocated funds within the required timeline, unspent funds would be taken away from these organizations and revert to the general fund of the treasury.”
Tagliapietra said the projects should provide opportunities for subcontractors, including directional drilling specialists. He added that the short timeline for completion of projects should not be a problem unless the pool of qualified labor and subcontractors becomes drained so that contractors cannot meet the required completion dates.
Contractors considering bidding on stimulus funded programs should evaluate proposed projects to determine if the allocated funding is sufficient for the scope of work involved, advises Tagliapietra.
“Nobody,” he said, “wants to waste time and resources bidding on underfunded projects. Another factor for consideration is these projects will most likely require Davis Bacon or some other form of prevailing wage requirement due to the federal funding.”
Founded in 1945, the PCCA is composed of leading construction, manufacturing, supply and service companies in the United States, Canada and Mexico. Celebrating its 50th year in business in 2009, the Michels Corporation is one of North America’s largest multi-division utility contractors.
Ken Trawick, president of Quanta Services telecom and broadband cable operations, said Quanta Services will seek work under the program.
“Quanta brings a depth of resources to the broadband industry, and we will work with our customers to deploy the appropriate networks and meet the overall goals of the stimulus program,” he said. “The timing outlined by the proposed broadband stimulus program is aggressive. Potential recipients are proactively evaluating the process through which they award projects to ensure compliance with the time and budget parameters.”
Trawick believes the aggressive timeframe has the potential to put a strain on supply, which will impact available resources to meet the timing goals. However, he said award recipients have the potential to minimize the length of the bid process by considering direct awards or negotiated contracts or by seeking a contractor that can provide services for more than one phase of the project.”
“For example,” he added, “combining the engineering and construction functions with one contractor would enable overlap of these two, traditionally independent, phases of construction and compress the deployment schedule.”
Quanta Services is a leading provider of specialized contracting services, delivering end to end network solutions for the electric power, telecommunications and gas pipeline industries.
James Ezell, president of telecommunications contractor SDT Inc., believes the requirement to complete stimulus projects within 24 months from the date of funding will be a challenge.
“With aggressive programs, schedules and result expectations, recipients of these funds will surely require a comprehensive and cohesive team to meet the goals and withstand certain government and public scrutiny,” said Ezell.
The use of conventional sequential delivery is effective only when time lines are more flexible, said Ezell. With a two year project completion window, the majority of the time could end up being spent on planning, designing and permitting, leaving very little time for the implementation. Simply increasing the number of construction crews is not the answer, he added.
SDT’s answer is Integrated Project Delivery, a turnkey approach, combining engineering and design, right of way acquisition, construction and management services under a single cohesive group with reward/risk incentives for timely successful project completion, he explained.
“With the Integrated Project Delivery, stimulus project applicants can be assured that a cohesive team is working in full collaboration to meet the end results in a more timely and cost effective manner,” said Ezell.
SDT is a multi disciplined telecommunications infrastructure services company providing a widely diversified package of services to telecommunications carriers, developers and integration providers.
FOR MORE INFORMATION:
Power & Communication Contractors Association, (703) 212-7734, www.pccaweb.org
Michels Corporation, (920) 924-4300, www.michels.us
Quanta Services Inc., (713) 629-7600, www.quantaservices.com
SDT, (770) 554-4011, www.sdt-1.com
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