Keynote Address of Rachelle Chong, Special Counsel, Advanced Information and Communications Technologies, Office of the CIO, State

of California Rural Telecom Congress November 11, 2010 “The Secret Sauce to Rural Broadband” Thank you very much for inviting me to speak today. I appreciate the introduction by my former FCC staffer Angela Wu. She has an important role getting better broadband to the State of Washington, and I am very proud of her work there. I also wanted to thank Galen Updike for his kind invitation to be here. I always enjoy these meetings because I learn so much from other states. Closer collaboration and upgrading our state’s broadband expertise is critical to our shared success. Now when you think of California, usually you think of our big cities: San Francisco and Los Angeles. But actually, California is a big state with many rural areas. From our broadband mapping exercise that began in 2007 in our State, I know that the far north, the Central Valley, the Eastern Sierras, the Central Coast and the southeast areas of California have slow or no broadband. And we know why: there are fewer consumers out there and so the Return on Investment (ROI) often does not “pencil out” for the broadband providers – usually rural telcos and rural cable companies - in these regions. Further, in my state, the dated regulatory scheme reimbursed cost of service telephone companies for voice service only, not broadband. So the regulatory incentives were wrong. One of our groups did a state broadband survey through Public Policy Institute of California and decided to focus our Digital Divide efforts on the four groups that survey highlighted as being on the wrong side of the divide: low income, certain minority groups (particularly Hispanic in my state), rural/remote, and people with disabilities. I am going to focus on what we did on the rural side today only. So what can a state do to try and bring broadband to rural areas? California has been working on this challenge since 2006. Today, I am going to reveal some ingredients that might turn into a recipe for success to get broadband to your rural areas. I don’t have any surefire recipe for success. Every state is different but we have tried a lot of things in California – we sort of threw up a lot of mud on the wall. So I am going to share with you what stuck. This was all well before there was a ballyhooed National Broadband Plan! Maybe some of this may work for you. 1


You Might Try Forming a Broadband Task Force or a State Broadband Leadership Council

In California, state leadership made all the difference. We were lucky in that we had a rare convergence of leadership on broadband in the Governor’s Office, the state Legislature and the California Public Utilities Commission. I cannot emphasize enough how much that leadership made all the difference. So you need to find some champions in those places to help you make broadband happen in your rural areas. In 2006, Governor Schwarzenegger formed a blue ribbon Broadband Task Force in 2006 to make recommendations to him on how to improve broadband in the state. He was our own action hero! His Hollywood roots led him to understand our broadband pipes were inadequate for the work that major studios needed to do around the world. He felt it was critical to economic development. Like schools and freeways, broadband was infrastructure that had been not keeping pace with other global economies. I was privileged to serve on that Task Force, and to be one of the state officials charged with implementing those recommendations in the last four years, both at the California PUC and then at the Office of the CIO. Under the Task Force, California issued two reports on what to do about broadband. Our reports are on the Office of the CIO, State of California website, and I urge you to read them, as they are chock full of very good recommendations and ideas. When the FCC wrote the National Broadband Plan, I am told they were all required to read the California Task Force report as a starting point. The great thing about the Task Force Report is it put focus on the problem and united leaders in the state to try and solve it. Then the Governor assigned implementation of the report’s recommendations to particular state agencies, and ordered us to get it done. Recently, a bill (SB 1462 - Padilla) was passed to create a California Broadband Council. It establishes in state government a council to maximize California’s opportunities for federal funds under the new National Broadband Plan released by the FCC, to increase coordination in BB deployment and adoption by state agencies. It brings together secretaries of key state agencies, the public utilities commission, the legislature, the Governor’s Office, and the CETF president. This is another path to creating state leadership. 2. You Want to Be Sure To Do Your Broadband Mapping

One of the things the Task Force did in 2007 was to perform the State’s first every broadband mapping. We learned about mapping from Connect 2

Kentucky. I always give them credit because it was key to everything we did later. The California Broadband Task Force had to cajole the phone and cable companies to give us the availability information. It wasn’t easy! Phone calls by regulators to senior company personnel had to occur, if you get my drift. But in their infinite wisdom, the major phone companies and cable companies voluntarily agreed to do so. Interestingly, later on, the providers privately admitted they were glad they did. One, they benefitted from the California mapping results. In fact it revealed a lot of things that surprised them, they said. And second, when the debate about the national broadband mapping took place a few years later, they had some experience with mapping. Give California their data was not as bad as they thought initially, and so it helped pave the way to the national agreement with the federal agencies on data. The reason mapping is so important is you can then nail down with particularity where the real broadband gaps exist. This helps you avoid all the “waste, fraud and abuse” arguments later when you are proposing infrastructure projects -- because you can prove the areas are unserved or underserved. It helps you find allies in the rural areas with legislators and county leaders. By the way we defined underserved areas as places with speeds below 3 Mbps download and 1 Mbps upload. 3. You Might Set Up a Non Profit Organization Whose Sole Job is the Narrowing the Digital Divide

It is hard to do this work part time. In 2005, two CPUC commissioners, Mike Peevey and Susan Kennedy, had the foresight to put some focus and muscle on the problems by forming a non profit organization, the California Emerging Technology Fund (CETF), whose job is to try and narrow the digital divide. Quite a mission statement. The California Emerging Technology Fund (CETF) was funded using $60 million in seed money donated by AT&T and Verizon in relationship to two mergers in 2005. CETF matches this seed money in a 3:1 ratio to leverage it into $240 million. CETF has performed much of the work in rural demand aggregation, which I will discuss more in #10. 4. You Might Set the Regulatory Table for Broadband. 3

The California regulatory environment prior to 2006 was not very probroadband. Everything was regulated in silos: Telephone, cable and wireless. In 2006, the California PUC approved significant deregulation of telephone company rules that put them on a more level playing field with their competitors. This helped encourage the two major landline phone companies, AT&T and Verizon, to invest their broadband dollars in our state and bring our consumers Uverse and FIOS services. We understood we were competing to bring those products to our state first. So get help at the public utilities commission to change outdated rules that inadvertently discourage broadband investment in your state. 5. You Might Try Finding Legislative Champions Having a few legislative champions really helps. In 2006, we had a few legislators who understood the need to relax old rules that did not recognize the convergence of voice, video and Internet. In 2006, the state Legislature passed a significant state Video Franchise law that allowed cable companies to obtain state wide franchises (instead of local franchises), allowed telephone companies to enter the video business, and imposed non redlining restrictions on both. This encouraged providers (particularly telcos and cable) to bring faster broadband to our state. So find some legislative champions who “get it” and enlist their help in legislation and pressure on the broadband providers. 6. You Might Try Creating a State Broadband Infrastructure Program.

After the Broadband Task Force made its report and our mapping was done, one of the key recommendations it had was to ensure broadband infrastructure was build to places that were unserved or underserved. In 2007, the California PUC created a $100 million California Advanced Services Fund so broadband providers could apply to serve any unserved or underserved area of California. We raised the money over two years using a small all-end-user surcharge (.25%) on intrastate telecommunications services. It funds 40% of a broadband infrastructure project. We opened filing windows, first for unserved areas, and then second for underserved areas. We published criteria that had to be met. Applications were taken on a first come, first serve basis. The Legislature helped the CPUC by blessing the CASF with a bill, and classifying it in a way to protect it similar to the high cost funds. 4

As of July 8th, CASF has achieved the following: Unserved: 3,235 square miles now served by BB, 27,427 Households, at a cost of $4,909,921; funds per customer $179 Underserved: 8,572 square miles, 83,403 Households, cost $83,487,610. Funds per customer $521 Totals 11,808 square miles, 110,830 households, $48,397,531 CASF funds spent, $437 funds per customer. When Broadband ARRA program hit, the CPUC acted swiftly to allow ARRA applicants to obtain CASF funds to serve an unserved or underserved area for up to 10% of the project. Having this additional 10% match towards their projects helped give California applicants a leg up in the rush for BB ARRA grants. Just this year, a legislative champion, state Senator Alex Padilla, got a bill SB 1040 passed to extend the CASF for another five years for another $125 million total. 7. You Might Try Creating a New Broadband Infrastructure Revolving Loan Account.

In SB 1040, Senator Padilla put in a new $15 million for a Broadband Revolving Loan Account. This account provides another source of funding for the portion of broadband deployment capital costs not covered by a grant (say from ARRA or the CPUC’s CASF program). It will be administered by the California PUC. 8. You Might Build A Telehealth Network.

The Broadband Task Force report recommended we build a telehealth network. So when the FCC put out calls for applications for a Rural Health Care Pilot Program grant, California jumped on it. With the blessing of the Governor’s office, we leveraged our UC Davis system’s telemedicine group to organize a statewide application which we hoped would ultimately be 863 sites connected by secure, medical grade, robust broadband. The CETF provided the 15% match money for the FCC grant of $20.1 M. Recently the California Telehealth Network applied for a Broadband ARRA SBA grant and received $9.1 million to create 10 eHealth model communities to demonstrate telehealth applications. We hope to lead the nation in trials and data on telehealth benefits. 5

Now why is the telehealth system particularly important for our rural broadband goals? Like many of you, California did not get as many broadband ARRA grants as it would have liked for its vast rural areas. But through our telehealth network, we will push infrastructure to hundreds of rural areas throughout our state. We expect that our BB provider, AT&T, will build enough capacity to serve others in those communities. Further, the FCC rules allow the telehealth network to sell excess capacity to others in the rural areas by paying their fair share of the network costs. Sustainability is the key question for our telehealth network. In addition to selling broadband connectivity, we expect the network to offer unique applications to health care providers that will provide valuable to them and for which they will pay. Examples of these applications include medical continuing education, store and forward applications, remote patient monitoring, health information exchange and electronic medical records capabilities. 9. You Might Leverage Tele-education, State Level E-Rate, Public Library, Digital Literacy and 2-1-1 Efforts.

Another idea is to try and leverage any tele-education, STEM or digital literacy efforts going on in your state. So for example, if you have tele-education projects going on through ARRA grants for example, can you open the school’s tech center to the general public after school or on weekends to make the PCs available to the public? The FCC in its September Schools and Libraries NPRM, suggested it is thinking about letting a school or library provide broadband “off campus” and asked questions about impacts on universal service fund cost. This is a pretty important movement for the FCC. CETF and the Children’s Partnership are working on a large statewide project called School2Home. It is targeting our worst performing middle schools and giving laptops to students whose families cannot afford a computer. The program emphasizes training the school personnel, student and the parent. It does two things, solves the achievement gap for our low income at risk kids, and brings broadband access at home to these low income families. This project directly gets at low income non subscribers in rural areas. Does your state have a state e-Rate type fund? California has our Teleconnect fund that assumes a school, library, health care facility and community-based tech center takes the federal e-Rate discount and gives them another 25% discount off Internet and telecom services. It is funded through an end user surcharge on intrastate communication services. Can 6

you use your state e-rate personnel to do outreach on broadband awareness? Public libraries are natural public access points for PCs and digital literacy training centers. Can you take their broadband signal and throw it via WiFi into the parking lot or an outdoor patio to provide after hours broadband access for a rural community? If you are lucky enough to be a state that received a Gates Foundation Opportunity Online Broadband Opportunity grant for your libraries, this will help your rural libraries increase their broadband speeds to 1.5 Mbps and upgrade their PCs. Can you throw that broadband signal via Wi-Fi into the library patio or parking lot for after hours access for the community? Similarly, can you get community based organizations (say the YMCA, service organizations) to set up Wi-Fi hotspots for community access to the Net? As to digital literacy training you might have going on due to Broadband ARRA or public library efforts, can you leverage them particularly in the rural areas? As for 2-1-1 referral services, if you have a 2-1-1 referral service in your state, consider adding your public computer training and digital literacy training sites to the local referral service so people who call the service can be referred to those services. 10. Finally, You Might Try CETF’s Secret Sauce: Rural and Urban Regional Consortia I want to hone in what CETF has done to develop rural leadership on broadband for our rural areas of California. CETF’s “secret sauce” is the process of sincerely engaging the regional leaders as true partners in an agreement to achieve a specific set of outcomes with accountability. We have found that by doing this, there is a dynamic relationship that has several components that re mutually reinforcing, driving continuously to clear outcomes. First, California divided our rural areas into groups of 6-7 rural counties in geographic areas that made sense. We had seven groups and we call them our Rural Regional Partners. In each Rural Region, we looked for organizations to partner with in order to match CETF seed money at least 1:1. For example, in our Redwood Coast Region, the Humboldt Area Foundation stepped forward to partner with CETF. The California Partnership for the San Joaquin Valley matched the CETF money to plan a regional telemedicine network. Most recently, the 7

McConnell Foundation has become an investment partner with a 1:1 match in a strategic joint venture in North California. Here are some key project phases we went through with each Rural Region. Initial Fact Finding & Planning Phase (2-3 months) Work Product: Detailed Project Work Plan First, CETF staff performed initial fact finding to listen to regional leaders and stakeholders about three things: 1. Their perception of the challenges of getting broadband to their region; 2. Who needs to be involved. We have found it very important to create a critical mass of civic leaders. These civic leaders should includes folks like the heads of the schools, libraries, chamber of commerce, mayor, heads of city counsels or boards of supervisors, public safety, community colleges, universities, and heads of community based organizations. 3. Find out in this process which entity is the most trusted and logical to be the “fiscal agent” or “managing partner” of the broadband project. The Planning Phase takes about 2-3 months to gather input in order to formulate this work product: A detailed project Work Plan for that rural region. Developing a Detailed Work Plan: Have the group develop a letter of agreement that is acceptable to all. Hold a major planning meeting among all the counties and key stakeholders to develop a detailed work plan and investment proposal. The work plan should have specific plans to: 1. qualify and quantify the prospective demand for broadband service and, 2. identify a preferred infrastructure scenario in a multi-county region. Aggregation of Demand Phase (12 months) Next, we would gather and analyze data about potential aggregated demand by the user sector, including an assessment of telemedicine, public safety and emergency response opportunities. To be specific, we set forth by category or sector of prospective broadband users to be interviewed or surveyed and the proposed timetable by county. This should include outreach to: 8

all public agency groups (law enforcement and public safety including prisons, emergency response and services, K-12 education, higher education and research, libraries, general government services from fed/state/local agencies, public health and medical care, and national/state parks) and key business sectors (at least the top ten employer groupings).

Be sure to develop the interview or survey instruments to be used to quantify or qualify prospective BB users and subscribers. You might look at Redwood Coast, ConnectKentucky and other aggregation of demand projects to see what are the best available practices. We have found that the interview or survey documents need to ascertain demand by purpose, speed of communications and affordability. Develop the process and format to track the potential demand by user category in order to quantify the potential aggregated demand by community and county. Identify the specific personnel who will be involved in interview and surveys. Describe the outreach and engagement plan to local, state and federal elected officials. Identify the Preferred Infrastructure Scenario: Work Product: Investment Prospectus Next identify what is existing broadband infrastructure in the rural region, and identify a preferred scenario of where to bring in broadband. The work product of this aggregation of demand phase is to have an Investment Prospectus on potential aggregation of demand for broadband and preferred infrastructure scenario to attract broadband providers. Negotiation for Broadband Deployment and Services (6 months) Next, we take the investment prospectus that we have developed and meet and negotiate with broadband providers that CETF and the local partners have convened. We show the broadband providers the demand from the stakeholders and our preferred scenario for new infrastructure. Our goal and work product for this phase is to have an agreement from a broadband provider(s) to deploy broadband in the region. Success! Annual Learnings Workshops


Another critical part of the Secret Sauce: Each year, CETF convenes the rural consortia in person to share lessons learned and tackle common challenges. These annual meetings are pivotal in getting the Regional consortia and leaders to be responsible for and accountable to each other to demonstrate progress. It has fostered tremendous collaboration and an esprit d’corps that adds “magic” to the “secret sauce”. A power learning tool is to introduce a discipline of feedback using performance data. The CETF president Sunne McPeak says that its success comes from putting “dedicated people together with an agenda and then relentlessly pursing it. She emphasizes regular reporting and monitoring of progress and results. CETF uses quarterly progress reports, annual visits and public reporting at annual workshops and peer reviews of final reports to create established mechanisms of disciplined accountability. Conclusion I have given you a possible recipe for broadband success in your state. Have hope! California began with just a small handful of people with a lot of determination. We were fortunate to have strong state leadership develop as we went along, but much of our success is setting goals and pursued them in relentlessly with non traditional, “out of the box” ways of thinking. As to the new Broadband ARRA grants, again the state is playing a leadership role convening meetings of the grantees, facilitating permitting at state agency levels for infrastructure projects, encouraging collaboration and sharing of resources between them, and providing information to the groups. I strongly encourage you to find champions, leverage what assets you’ve got in your state already, and use Rural Regional Consortia to develop leadership and an infrastructure plan, as you promote rural broadband. Together we can get this job done. Thank you.