$5 million VTel cell service grant cut in half

A state agency has cut a $5 million telecommunications grant to Vermont Telephone Co. in half.

This is the third time the Vermont Telecommunications Authority has pulled VTel grant money in recent months. On March 29, it revoked two broadband grants to VTel worth $3.4 million.

The most recent decision, made at a board meeting last Friday, comes after negotiations between the VTA and the private firm VTel stalled. The $5 million cellphone grant was announced at a news conference by Gov. Peter Shumlin in December 2012.

The VTA cut the original cellphone grant in half and offered VTel $2.6 million. The new grant reflects changes VTel made to its application for cellphone service to underserved areas of the state.

Rep. Sam Young, D-Glover, a Vermont Telecommunications Authority board member, said VTel was unable to work out roaming agreements with AT & T. The decision to cut the grant doesn't indicate any failure on VTel's part, he said.

“There wasn't going to be any roaming in the target corridors where we wanted roaming,” Young said. “So that just kind of didn't comply with what the grant was for.”

The $5 million grant originally targeted specific transportation corridors, and in the new grant offering of $2.6 million, the board asked VTel to build out cellphone service along its existing Wireless Open Network project.

VTel received $116 million from Rural Utilities Service USDA Rural Development in 2010 to provide Internet service to households in southern Vermont, the Northeast Kingdom and other underserved areas of the state.

VTel principal Diane Guité said the new grant shouldn't be viewed as a reduction, because the scope of the project has changed.

Since 3G technology is becoming obsolete, Guité said, “we no longer want to invest in 3G and don't think the state should invest taxpayer dollars in this technology, either.” VTel is moving from a 3G mobile network to a faster 4G system.

Guité welcomed the smaller grant and asked for another $2.7 million to build seven wireless and cell towers along Interstate 91, near Shumlin's hometown of Putney. She said the proposal would improve cell service and connect thousands of residents who have inadequate access to Internet service.

The board rejected VTel's second proposal last Friday.

Peter Meyer, a VTA board member, said the state authority's capital is dwindling and other requests are pending.

“It should be noted these three proposals total $8.7 million, and I don't believe we have that much money available,” Meyer said. “That weighed in on our decision as well.”

The VTA's latest cash-flow statements, attached to last month's board minutes, show that the state authority had $7.28 million as of March 31.

The state authority owns $246,000 worth of property and equipment, including telecom towers and equipment, with $1.3 million of assets considered a “work in progress.”

The authority has received about $15.7 million in state appropriations through the capital budget from 2008 to 2013.

At the meeting last Friday, the VTA board also talked about redistributing money from the VTel broadband grants it canceled earlier this spring.

The state is reallocating the $3.4 million to other firms. EC Fiber, a coalition of municipalities, has applied for some of money, and VTel is eligible to apply, though it has decided not to.

One of the problems the VTA faces is determining just how many underserved households it needs to target.

Much depends on VTel's commitment to connect rural areas of the state to the Internet by the end of 2013. The company said recently that it will fulfill its obligations under its $116 million federal grant in 2015.

Meanwhile, Shumlin has repeatedly promised Internet broadband access to “every last mile” in Vermont by the end of 2013.

VTel's ongoing broadband expansion, funded partly with its own capital, will cover 335 of about 365 addresses without Internet access. Although VTel still plans to serve these households, Guité told the state that the firm wouldn't make a commitment in writing.

“It's hard to untangle how to not serve them, because they're part of our network plan,” said Guité to the board. “I don't know that VTel is comfortable making a sort of contractual commitment. ... It can't be that VTel has the same commitment to serve a certain number of homes, less $6 million from the VTA.

“We have no reason, I don't think, to contractually do anything, unless there's funding attached to that commitment,” she said. “Doing a written commitment, where it's just us promising you something, isn't something that a business would agree to.”

Guité said in an email that the $5.9 million reduction in VTel's overall budget isn't a “positive step forward to bringing broadband to rural Vermont.”

Letters between the state and VTel show that the company requested $500,000 in addition to its $2 million broadband grant, and a deadline extension, from November 2012 to March 2014, just before that grant was canceled.

The request was resubmitted on Dec. 6, 2012, a day before the VTA board voted to add $70,000 to VTel's $5 million cellphone grant, which last Friday was reduced to $2.6 million.

State officials wrote that VTel was “significantly behind schedule,” and that the firm tried to amend the grant terms without written consent from the VTA.

The letter mentions a Master Project Plan, due from VTel on Sept. 15, 2011, which by March 2013 still wasn't complete.

The VTA also refused to pay VTel for any work done to date, “in order to mitigate the VTA's damages due to VTel's default.”

VTel officials said the grant was taken away for “reasons we are still struggling to understand.” Delayed site acquisition, permitting issues and a new vendor contributed to the delays.

VTA board members said Vermont's progress on creating universal broadband access is encouraging, but the expansion of cell phone service has been slower.

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