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Why should the US stimulus rules change for the big carriers?

Smaller fish are more agile and just as voracious

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Now that the US broadband stimulus funding applications are in, there is rising debate over whether the rules should be changed for subsequent rounds of financing.

Many of the applicants are putting forward highly innovative plans that go far beyond simple best effort access to underserved communities and look forward to a wide range of new services and business models. This is leading powerful lobbyists to argue that, while the large operators want less stringent net neutrality conditions for future awards, the government has no need to compromise, since there are plenty of contenders capable of diversifying the US market without the large carriers getting involved.

There is a hotbed of innovation going on among smaller carriers that know that, long after the kickstart of stimulus awards runs out, they need to stay competitive, and that means adopting the most modern business models and network technologies right now.

Most large carriers have steered clear of the first round of applications for funds, deterred by some of the requirements, including conditions on net neutrality. So from the start, the process is favouring those who can adapt to the emerging world of open access and unfettered web services. However, there is still talk of adapting the rules for a subsequent round, to make them friendlier to large telcos. But why?

Hallmarks of the new US government's broadband and telecoms policies include an accelerated move towards neutrality and universal access, so even the biggest names will need to adapt. As US specialist magazine Government Technology observed recently: “Should anyone care if big broadband providers don‟t like the rules?” Many expect the rules will change, as the firms lobby for fewer conditions attached to the second and third rounds of awards. Carl Russo, CEO of Calix, said at a recent investor conference: “There are a lot of people that may not choose to be in round one; if you think for a moment that they‟re not going to be back in right after round one, you're dreaming. This is not going be three tranches of the same rule set done the same way.”

But the first tranche was over-subscribed with companies more than happy to live with the neutrality rules, and there are even a few high profile players that realize they will benefit from being in the vanguard of the new open world. Clearwire, while not a major carrier yet, is backed by major operator interests, notably Sprint and three cablecos, and is applying for funds in a few rural areas. The key, then, is not size, but willingness to be innovative and offer real prospects of new services at affordable prices. And if some of the more conservative big hitters remain unconvinced, the innovators are becoming more organized.

Some are pooling efforts in consortia to lobby or prepare bids collectively, and in some cases they are backed by far larger organizations than their own – high profile supporters of the new open web models on ubiquitous broadband, such as Cisco and Google, have been powerful forces in supporting the efforts of smaller but disruptive players.

Others are being even more aggressive, snapping up other providers. For instance, KeyOn Communications, which has applied for stimulus funds, says it will launch an acquisition initiative it calls Rural UniFi, to expand its WiMAX-based footprint more rapidly than it could do organically. The wireless broadband, satellite video and VoIP provider says its network now covers 50,000 square miles in 11 states, and it has made four acquisitions so far. KeyOn requested an unspecified amount of broadband stimulus funds to build a WiMAX network in the 3.65GHz band to expand its current rural coverage area from 2.5m POPs to 6.5m in 16 states.

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