Community Broadband Case Study: CASF funding for Central Coast broadband

Tellus Venture Associates raises $12 million for Central Coast Broadband Consortium

California’s Central Coast is famous for surfing, but only on ocean waves. Web surfing, or any kind of broadband connectivity, is pretty ordinary. Except when it’s bad.

Tellus Venture Associates managed a successful proposal to the California Advanced Services Fund for about $5 million in funding and coordinated another $7 million in capital contributions toward the $60 million needed to bring the region into the 21st Century.

Mostly, the Central Coast’s economy relies on agriculture and tourism. On the other hand, several major educational institutions can be found within the sound of the breakers, and the U.S. Department of Defense still has a major presence. At the northern end of the region, Santa Cruz is a funky, neo-sixties bolt hole for refugees from Silicon Valley, which is about fifty kilometers of treacherous mountain driving away. At least it’s treacherous compared to San Jose’s wide, if crowded, freeways.

In cyberspace terms, it’s even further. Until recently, there was a single big fiber pipe coming into town. Then the University of California’s Santa Cruz campus teamed with Sunesys to run a second fiber line “over the hill”, which was then pulled into town by Cruzio, which is a local Internet service provider and the lead partner in the CCBC project.

This link certainly helps the small, but aggressively geeky, central Santa Cruz tech community. In the rest of the region information technology professionals, and the vital businesses and public agencies they serve, are at the mercy of expensive and fragile, single path links. The perilousness of that predicament was driven home on 9 April 2009 when someone took an axe to a fiber vault just south of San Jose, and knocked the Central Coast off of the net.

At a stroke, emergency communications went down, phone systems were out and businesses were left stranded. In the City of Watsonville, it was payday and, without access to cloud-based payroll processing, things were looking pretty bleak for employees who needed to make a house payment. The city’s CFO, Marc Pimentel, jumped in his car and drove south, until his mobile phone started working again. A quick phone call to colleagues at another city that was on the bright edge of the dark zone and had a compatible payroll system solved the problem: checks were cut and bills were paid.

No major incidents unfolded that day and, as far as anyone knows, no one died or was seriously injured because the Internet disappeared. Which was due in large part to luck.

The incident gave fresh impetus to the Central Coast Broadband Consortium (CCBC), which was already in the preliminary stages of preparing a proposal for a broadband stimulus grant. The objective was to create a backbone linking unserved and underserved areas to better served communities, and connecting the entire region to Tier 1 Internet facilities in Silicon Valley.

Steve Blum, president of Tellus Venture Associates, was the principal consultant to the regional middle-mile project, and served as project manager for the team that completed the application, as well as developing the business and funding plan. Other services provided by Tellus Venture Associates included creating the plans and budgets for the construction and operational phases, preparing the required financial documents and managing the grant process. Blum serves on the CCBC’s board, and is a member of its three-person executive committee, which also included CCBC chairman and technical lead Joel Staker, who is a network administrator for the City of Watsonville, and Nancy Martin, the executive director of the Economic Development Corporation of San Benito County.

The deadline for the first round of American Reinvestment and Recovery Act (ARRA) broadband proposals was in August 2009. Because most of the CCBC’s region, which takes in Santa Cruz, Monterey and San Benito counties, is rural, a joint application was made to the National Telecommunications and Information Administration’s (NTIA) Broadband Technology Opportunities Program (BTOP) and the Rural Utilities Service (RUS) Broadband Initiatives Program (BIP).

The project totaled nearly $50 million, with about $40 million requested from the federal government. Tellus Venture Associates worked with local government agencies, non profits, educational institutions and private developers to raise about $5 million in matching funds, mostly in the form of real estate. To fund the remaining 10%, the team applied for a second grant from the California Public Utility Commission’s (CPUC) California Advanced Services Fund (CASF).

The CPUC unanimously approved a $4,975,009 grant from the California Advanced Services Fund to the CCBC on Friday, 20 November 2009. CPUC’s approval followed endorsements by California Governor Arnold Schwarzenegger and the region’s legislators, including Congressman Sam Farr, Senator Abel Maldonado and Assemblyman Bill Monning.

Then the waiting began. The CCBC team knew that it wasn’t in the running for a BIP grant. The Central Coast region did not qualify as a remote rural area under the program’s criteria, which meant that RUS would only provide a combination of loans and grants. Because the CCBC was not able to sign for a loan, that option was off the table. The program required that the application first go to RUS, though, because remote or not, the region is largely rural.

NTIA had about 1,800 grant applications to review. It’s a small agency, and needed several months to do its work. The CCBC’s proposal cleared the first hurdle, which was a review by outside experts, who deemed it worthy of serious consideration. NTIA staff moved CCBC’s application into the second, due diligence stage of review. That process continued into February 2010, even as NTIA announced a second round of BTOP grants.

With a month to go before the second round grant applications were due, NTIA rejected the CCBC application, apparently in a batch with several hundred others. The team took the second round BTOP grant criteria, and began putting together a revised project proposal that met the new specifications.

One of NTIA’s top priorities for the second round was the establishment of public-private partnerships. Tellus Venture Associates structured a partnership between Cruzio, a three-county group of local government agencies headed by the City of Watsonville and the Corporation for Education Network Initiatives in California (CENIC), which was acting on behalf of local educational organizations.

The network plan was also redesigned to take in hundreds of community anchor institutions, and the budget was increased to $55 million. The revised application for $43 million in federal funding was submitted in March 2010. The application was headed by Cruzio Media, Inc., which will own and operate the 310 mile fiber optic system.

Tellus Venture Associates worked with Cruzio to raise an additional $2 million in local matching funds, bringing the local contribution to about $7 million, and prepared an amendment request to CASF for the balance, to bring the total match to $12 million. The second round application made it through NTIA’s due diligence phase, but in the end wasn’t funded.

The consortium won a $450,000 regional consortia grant from CASF on 1 December 2011. The effort to develop regional broadband facilities and resources continues.