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.

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 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

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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.

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 The California regulatory environment prior to 2006 was not very pro-
broadband. 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.

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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.

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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

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 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

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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:

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 • 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

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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.

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