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Kentucky Deploys State-Wide Fiber Network Through Public Private Partnership with Macquarie Capital

LEXINGTON, Kentucky, September 21, 2015 – The lieutenant governor of Kentucky, a bevy of state officials and their private sector counterparts here celebrated the finalization of the deal to build a $324 million broadband infrastructure project.

The project, KentuckyWired, is a public-private partnership (also dubbed a PPP) of the state and of the Australian financier Macquarie Capital. It is a 3,400-mile open access “middle mile” network that will span all 120 counties in the Commonwealth of Kentucky.

In planning, financing and negotiating stages for nearly a year, the Macquarie project closed on September 3, 2015. Bonds are set to be issued and construction of the network – albeit in very early phases – has begun.

When completed in 2018, the network will include six fiber rings around regions of the state, and fiber connections to at least one point in every county.

The Kentucky Wired network was the highlight and toast of each of four days at the Broadband Communities economic development conference here.

Kentucky Lt. Gov. Crit Luallen speaking at Broadband Communities conference in Lexington.

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LEXINGTON, Kentucky, September 21, 2015 – The lieutenant governor of Kentucky, a bevy of state officials and their private sector counterparts here celebrated the finalization of the deal to build a $324 million broadband infrastructure project.

The project, KentuckyWired, is a public-private partnership (also dubbed a PPP) of the state and of the Australian financier Macquarie Capital. It is a 3,400-mile open access “middle mile” network that will span all 120 counties in the Commonwealth of Kentucky.

Kentucky Lt. Gov. Crit Luallen speaking at Broadband Communities conference in Lexington.

Kentucky Lt. Gov. Crit Luallen speaking at Broadband Communities conference in Lexington.

In planning, financing and negotiating stages for nearly a year, the Macquarie project closed on September 3, 2015. Bonds are set to be issued and construction of the network – albeit in very early phases – has begun.

When completed in 2018, the network will include six fiber rings around regions of the state, and fiber connections to at least one point in every county.

The Kentucky Wired network was the highlight and toast of each of four days at the Broadband Communities economic development conference here.

It was lauded both for its open access nature and for its unique financing structure: “The KentuckyWired transaction is the first time a PPP has been able to access the tax-exempt market, where that PPP is not eligible for exempt private activity bonds,” according to a Macquarie flyer.

This unique financing structure, in which Macquarie Capital shares with the state both the benefits and the risks of the project, was touted as a model for broadband infrastructure projects throughout the country.

The project will “hopefully be an example for the rest of the United States,” said Lt. Gov. Crit Luallen, speaking at a luncheon on Wednesday. Speaking of Gov. Steve Basheer, she said that “this whole broadband initiative is one of the most significant things he has done in his career, and he has had a long career.”

A Private Sector Company Building a State’s Project

At the core of the project are 288-count strands of fiber-optic wires that will connect Kentucky’s counties, delivering dedicated high-speed fiber broadband to 1,100 anchor institutions. These are generally the schools, libraries, hospital and other government sites across the state.

Although the network is being built by the private sector company Macquarie and a range of national and local subcontractors, the network will be owned and controlled by the state through a newly-created entity, the Kentucky Communications Network Authority.

The state and the federal government provided seed funding. But the vast bulk of the $324 million network will be funded by debt and by equity raised by Macquarie.

In exchange, Macquarie receives an annual concession fee of about $29 million. As the business model for the network came to be defined, this annual funding steam comes from the state moneys already spends on broadband connectivity, now redirected to Macquarie.

IMG_7109Indeed, the exact size and scale of KentuckyWired were determined by “backing into” the annual amount already paid to other companies for lower-speed internet. Now, advocates say, Kentucky will get a better level of service for those government facilities connections — and the state will get the benefit of an open access network.

The important benefits of open access networks should not be understated. Under the American Recovery and Reinvestment Act, the federal government invested almost $7.2 billion into broadband projects across the country. Most of the funds went to fiber-optic infrastructure, and most were for middle-mile investments. Such funding came with the requirement that these middle-mile networks be “open access.” That means that private companies could connect and offer last-mile broadband services within the local regions.

Recovery Act investments in open access middle-mile networks has increased broadband competition, and hence created faster speeds and better service and lower prices. Importantly, these middle-mile networks offer the ability for cities and others to build local Gigabit Networks off of middle-mile connectivity.

The Politics Behind the Beginning of KentuckyWired

Many states benefitted from extensive middle-mile projects in recent years, including California, Illinois, Maryland and North Carolina.

But Kentucky didn’t have the right opportunity at the right time. Indeed, the only Recovery Act infrastructure project awarded exclusively within the state was a modest $535,308 project in Owen County.

Luallen said that while Kentucky has been forward-thinking in some aspects of technology innovation, “Kentucky consistently ranked at the bottom for broadband. In the latest state of the internet report, Kentucky ranked dead last.”

Kentucky Lt. Gov. Crit Luallen

Kentucky Lt. Gov. Crit Luallen

Likening broadband to electricity, water, sewer and other utilities, she highlighted the necessity of fiber-optic capacity for economic development, for improving health care, for enabling first responder communications, and for enhancing consumer benefits such as better cellular service.

Additionally, the coal-producing prowess of the eastern, Appalachian portion of the state has been badly hampered by growing concerns about climate change, and by regulations on coal.

Democratic Gov. Steve Beshear teamed up with Republican Rep. Hal Rodgers, who represents the region in Congress, about collaborating across party lines to benefit Eastern Kentucky. In the fall of 2013, they created SOAR, Shaping Our Appalachian Region, to find solutions.

“This push for higher broadband was something that emerged from SOAR,” said Luallen. Looking beyond partisanship, the initiative began to focus on broadband as the way to promote investment in a region battered by “dramatic changes in the coal industry.”

In spite of the region’s poverty and remoteness, “broadband can level the playing field despite physical or geographic isolation,” she said. By contrast, “spotty or overpriced broadband stifles entrepreneurship.”

With support from Rodgers, chairman of the House Appropriations Committee, the state received $23.5 million in federal funds, and the Kentucky General Assembly allocated $30 million in state funds last year. It also has support from the Appalachian Regional Commission.

“The remaining funding will come from the private sector, and the starting point for financing is that we began with existing payments that the state is making for information services [connectivity] to universities, public schools and state agencies,” she said. Those funds are between $26 million and $29 million a year.

“Since the state already pays for them, those funds will be transitioned to pay for the network,” providing “a stable foundation” for the middle-mile network, said Luallen. Additionally, as the owner of the network, the state “will benefit from the financial gains one this is fully operation and it begins to turn a profit.”

Macquarie’s Central Role in Building Kentucky’s State Network

Speaking on a variety of sessions throughout the conference, Nick Hann, senior managing director of Macquarie, described the network as providing a “transformative power for the Commonwealth of Kentucky.”

Because of the network’s wide footprint across the state, and because of its open access nature, it will enable multiple “last mile” Gigabit Networks to be built throughout the state.

Panelists Mike Lee, Mike Hayden, Steve Rucker and Nick Hann

Panelists Mike Lee, Mike Hayden, Steve Rucker and Nick Hann

Those are likely to happen next in the state’s major cities of Louisville and Lexington. Speaking at Thursday’s luncheon panel, Lexington mayor Jim Gray asked audience members involving in building Gigabit Networks to raise their hands. Many of them did.

“You all represent the nation’s fiber army,” he said. As a result of their efforts, he said, “Kentucky is at the forefront in the nation with their open access and open infrastructure model.”

Added Aldona Valicenti, chief information officer for the City of Lexington: Fiber optics “is not just about warehouses anymore. It’s about just-in-time everything.”

“We need to invest today so that we can thrive today and in the future,” said Valicenti, who praised the role that Next Century Cities has played in facilitating the city’s and the state’s plans for fiber-optic networks.

In a panel with the public and private officials most directly responsible for the Macquarie partnership, Lori Flanery, secretary of the Kentucky Finance and Administration Cabinet, said that Kentucky was able to avoid the mistakes of other states by visiting and learning from their experiences.

“Twenty years ago, things would have been differently,” she said, referring to the newly-available opportunity to build with companies in public-private partnerships.

“Most states haven’t gotten to the point that they know what their [annual broadband] spend is,” added Steve Rucker, deputy secretary of Kentucky’s technology department. Knowing that the state was already spending at least $26 million annually gave it the ability to plan a network with a payment in that amount.

Lexington Mayor Jim Gray

Lexington Mayor Jim Gray

Hann said that every state in the nation could do something similar: Reallocate what it spends on inferior-quality broadband, and use that to fund a state-wide Gigabit Network.

Although the discussion at the conference was largely on the network’s middle-mile component, Macquarie and its partners also highlighted future last-mile benefits.

“When we first came in and did our analysis, we found a huge amount of last-mile fiber within the state,” said Mike Lee, chief operating officer of Macquarie partner First Solutions.

Unfortunately, the last-mile was scattered and unconnected to a bandwidth-intensive information highway, he said. “They had built themselves a beautiful island. The problem lay not in the last mile, but in the middle mile,” which lacked robust access.

Generally, the problem for broadband deployment elsewhere in the country is the reverse: There is middle-mile competition, but not sufficient last-mile investment.

Hann described fiber-building as a natural extension upon Macquarie’s background as the constructor of roads, bridges, airports and pipelines. “We are building the highway, not regulating which cars or trucks drive on it — all of that will still be determined by the market,” he said on the panel.

“Fiber is such a good fit with the PPP model because fiber is not complicated, not cutting edge,” Hann said, distinguishing the infrastructure from the applications and content that ride on top of fiber wires. “It is a basic utility, a 30-year-plus life asset, and like the electric cable of the last century, or the water line, or the road.”

Drew Clark is the Chairman of the Broadband Breakfast Club. He tracks the development of Gigabit Networks, broadband usage, the universal service fund and wireless policy @BroadbandCensus. He is also Of Counsel with the firm of Best Best & Krieger LLP, with offices in California and Washington, DC. He works with cities, special districts and private companies on planning, financing and coordinating efforts of the many partners necessary to construct broadband infrastructure and deploy “Smart City” applications. You can find him on LinkedIN and Twitter. The articles and posts on BroadbandBreakfast.com and affiliated social media are not legal advice or legal services, do not constitute the creation of an attorney-client privilege, and represent the views of their respective authors.

Education

Metaverse Can Serve as a Supplement, Not Replacement, For Educators: Experts

The virtual world where avatars can meet as if they were in real life can be a companion for education.

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Screenshot of the Brookings event Tuesday

WASHINGTON, June 29, 2022 – Experts said at a Brookings Institution event said Tuesday that while the “metaverse” can go a long way toward improving education for some students, it should serve as a supplement to those educational goals.

The metaverse refers to a platform of 3D virtual worlds where avatars, or virtual characters, meet as if they were in the real world. The concept has been toyed with by Facebook parent Meta and is being used as a test for the educational space.

“The metaverse is a world that is accessible to students and teachers across the globe that allows shared interactions without boundaries in a respectful optimistic way,” Simran Mulchandani, founder of education app Project Rangeet, said at Tuesday’s event.

Panelists stated that as the metaverse and education meet, researchers, educators, policymakers and digital designers should take the lead, so tech platforms do not dictate educational opportunities.

“We have to build classrooms first, not tech first,” said Mulchandani.

Rebecca Kantar, the head of education at Roblox – a video game platform that allows players to program games – added that as the metaverse is still emerging and being constructed, “we can be humble in our attempt to find the highest and best way to bring the metaverse” into the classroom for the best education for the future.

Anant Agarwal, a professor at MIT and chief open education officer for online learning platform edX, stated the technology of the metaverse has the potential to make “quality and deep education accessible to everybody everywhere.”

Not a replacement for real social experiences

Kathy Hirsh-Pasek, senior fellow of the global economy and development at the Center for Universal Education, said that while the metaverse brings potential to improve learning, it is not a complete replacement for the social experience a student has in the classroom.

“The metaverse can’t substitute for social interaction. It can supplement.”

Mulchandani noted the technology of the metaverse cannot replace the teacher, but rather can serve to solve challenges in the classroom.

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Digital Inclusion

FCC Chairwoman Jessica Rosenworcel Emphasizes 100 Percent Broadband Adoption

‘It’s about making sure wireless connections are available in 100 percent of rural America,’ said the chairwoman.

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Photo of Kelley Dunne, CEO of AmeriCrew, leading panel on workforce issues at the Rural Wireless Infrastructure Summit by Drew Clark

PARK CITY, Utah, June 28, 2022 – The Federal Communications Commission is making progress towards bringing “affordable, reliable, high-speed broadband to 100 percent of the country,” Chairwoman Jessica Rosenworcel said at the Rural Wireless Infrastructure Summit here on Tuesday.

Rosenworcel pointed to the $65 billion Infrastructure Investment and Jobs Act now being deployed across the country, with a particular focus on unconnected rural and tribal areas.

Although the Commerce Department’s National Telecommunications and Information Administration will take the lead with these funds, the FCC’s new broadband coverage maps will be important in implementing state digital equity plans.

In her remarks, Rosenworcel also discussed how the upcoming 2.5 GigaHertz spectrum auction will involve licensing spectrum primarily to rural areas.

At the July FCC open meeting, said Rosenworcel, the agency is scheduled to establish a new program to help enhance wireless competition. It is called the Enhanced Competition Incentive Program.

The program aims to build incentives for existing carriers to build opportunities for smaller carriers and tribal nations through leasing or partitioning spectrum. Existing carriers will be rewarded with longer license terms, extensions on build-out obligations, and more flexibility in construction requirements.

“It’s about making sure wireless connections are available in 100 percent of rural America,” she said.

She also indicated her commitment to work with Congress to fund the FCC’s “rip and replace” program to reimburse many rural operators’ transitions from Chinese-manufactured telecommunications equipment. She also touted the role that open radio access networks can plan in more secure telecommunications infrastructure.

In other news at the conference, FCC Commissioner Brendan Carr addressed the role of funding broadband operations in rural America, the challenges of workforce training, and ensuring that rural carriers have access to high-cost universal service support.

In a session moderated by AmeriCrew CEO Kelley Dunne, panelists from the U.S. Labor Department, the Wireless Infrastructure Association and Texas A&M Extension Education Services addressed the need to offer a vocational career path for individuals for whom a four-year degree may not be the right choice. AmeriCrew helps U.S. military veterans obtain careers in building fiber, wireless and electric vehicle charging infrastructure.

Broadband Breakfast Editor and Publisher Drew Clark contributed to this report.

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Broadband's Impact

Broadband Speeds Have Significant Impact on Economy, Research Director Says

From 2010 to 2020, a 10.9 percent growth in broadband penetration drove .04 percent increase in GDP, the study found.

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Photo of Alan Davidson of the NTIA, Caroline Kitchens of Shopify, Raul Katz of Columbia University (left to right)

WASHINGTON, June 28, 2022 – Broadband and higher speeds have made significant contributions to economic growth over the last decade, according to a study discussed at a Network On conference Tuesday.

Raul Katz, director of business strategy research at Columbia University, conducted his research to determine where the United States economy would be if broadband had not evolved since 2010. He developed four models to explain the economic contribution of broadband, and all found support to suggest that broadband development has contributed to substantial economic growth.

The long-run economic growth model showed that between 2010 and 2020, a 10.9 percent growth in broadband penetration drove a .04 percent increase in gross domestic product – the measure of the value of goods and services produced in the nation. States with higher speed broadband had an economic impact of an additional 11.5 percent.

“States with higher speeds of broadband have a higher economic effect,” said Katz. “Not only is there penetration as a driver, but there’s also… return to speed. At faster speeds, the economy tends to be more efficient.”

The study found that if broadband adoption and speed had remained unchanged since 2010, the 2020 GDP would have been 6.27 percent lower, said Katz.

Caroline Kitchens, a representative for ecommerce platform Shopify, said Tuesday that there’s been great growth in the ecommerce business, which relies entirely on a broadband connection. “Worldwide, Shopify merchants create 3.5 million jobs and have an economic impact of more than $307 billion. It goes without saying that none of this is possible without broadband access.”

“We have really seen firsthand how broadband access promotes entrepreneurship,” said Kitchens, indicating that this has promoted a growing economy in over 100 countries.

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