The timing of the American Recovery and Reinvestment Act’s passage in February could not have been better for the satellite industry. After months of panicked discussion among analysts and executives over a devastated economy and which financial institutions would be willing to invest in the next-generation broadband projects — let alone survive the recession — the U.S. government put $7.2 billion up for grabs in a battle between telecoms, WiMax providers and satellite companies to propose the most efficient and job-creating solutions to close the digital divide and connect underserved areas with modern Internet service.

At the time, of any news of available credit was good news and if satellite companies could get even a small piece of the pot, the government work could provide the extra padding that would bring the satellite industry through the recession unscathed if a prolonged crisis became reality. But the satellite sector’s optimism was short-lived. From nearly the start of the process, the broadband stimulus program was plagued with problems —from a lack of program leadership on the government side to rampant analyst assumptions declaring WiMax the dominant future provider of government-issued broadband services.

Fast forwarding through months of government scrambling to organize the application process, new and largely misunderstood funding requirements and the surprise withdrawal of the WiMax players, the satellite sector finds itself at the close of the first funding window and the beginning of the second in a process where there is no such thing as a veteran. Everyone involved, including the U.S. Department of Agriculture’s Rural Utilities Service (RUS) and the U.S. National Telecommunications and Information Administration (NTIA), named the responsible parties to issue out the funds, is new to it all.

What lessons were learned and what is the satellite strategy of the future? If the last few months are any indication, no one really knows.

The Predetermined Winner

In December, when a group of telecoms players comprised of AT&T, Google and Verizon lobbied the U.S. Congress to call to action for a comprehensive national broadband strategy, satellite platforms and delivery services were left out of the submitted document and largely ignored when qualifications for funding under the broadband stimulus package were being negotiated. Analysts immediately picked up on this, and when reports lifted WiMax and fiber providers as the predetermined champions of the stimulus funding, which was passed in February, satellite companies energized their lobbying efforts from the outside. Hughes and WildBlue led the effort to highlight that the U.S. government was trying to fix a problem that the satellite industry was already trying to solve in rural areas largely and, in some cases, exclusively served by satellite providers for some time. When competitors retaliated by promoting the idea that broadband funding issued at the local state government level would favor them, smaller local satellite companies stepped up their own efforts.

Skycasters, a broadband satellite Internet solutions provider based in Ohio, launched an extensive press and political campaign in an effort to promote its ability to supply government customers with Internet connections for schools, libraries, rural communities, remote industrial sites, disaster response teams and oil, gas and mining operations to the web. Skycasters President Michael Kister seemed to be making statements and exclusive state government contacts every week — presenting satellite infrastructure as the economically viable solution to potential customers. “There are funds available [in the bill] to build Wi-Fi networks to connect small communities that were previously ‘off the grid’ as far as the Internet is concerned,” says Kister. “Wi-Fi is often a great solution, but there’s still a missing link. How do you connect the Wi-Fi network to the rest of the Internet backbone? Fiber buildouts can be prohibitively expensive, costing $10,000 to $20,000 per mile, or more, depending on the terrain. Satellite is a viable alternative in these situations.”

WildBlue’s proposal ended up state-specific. The company filed for $30 million in the bill’s first funding window to help subsidize satellite broadband connections for about 10,000 homes in Colorado and Wyoming and another 10,000 in Arizona that are out of reach of high-speed cable, fiber and DSL lines. About $15 million of that sum would go toward the Colorado/Wyoming effort, with the rest earmarked for the Arizona project, the company said. SkyTerra Safety Access LLC filed its application requesting $37 million in order to deploy two new wireless devices for public safety workers. In addition to the $37 million of stimulus funding, SkyTerra said it would contribute $9 million more to build out the wireless device deployment infrastructure it needs to launch new services. Hughes delivered a variety of first-step solution proposals offering managed network services to assist smart-grid technology — a product of the stimulus bill’s tenfold magnification of the U.S. Department of Energy, enterprise virtual private networking and emergency communication services for municipalities.

Along the way, satellite companies mentioned personal contacts in their press releases — from Rep. Chris Van Hollen (D-Md) to Gov. Ted Strickland (D-Ohio), while the giants of land-line services, like AT&T and Verizon, and even software kings Google, Microsoft and Cisco Systems, went big. Fortunately for the satellite sector, the NTIA and RUS’ funding requirements, which were released late in the game on July 1, a mere two weeks before the start of the first funding window, leveled the playing field by throwing a wrench into everyone’s plans and cranked up the overall confusion. The RUS and NTIA’s Notice of Funds Availability (NOFA) declared that all broadband stimulus money must be disbursed by Sept. 30, 2010 and grant recipients have three years to fully complete their projects. The outlines also revealed that the agencies would issue funding to a single provider per region and that companies with solutions that cover several areas would have to break up their applications and provide specifics in separate applications. This provided good news to satellite companies, which were focusing on individual areas and a nuisance to the land-line providers, who were forced to reorganize. However, the three-year project deadline cast more doubts on satellite’s role. Could the next-generation systems proposed by WildBlue be finished and launched in time? Once again, some analysts went to work on satellite write-offs. But others noticed problems that the WiMax industry was dealing with on its own, and brought attention to the fact that its investors were jumping ship.

The Surprise Retreat

A week after the close of the first funding window, Research firm Analysys Mason released a report the questioned the ability of North American and European WiMax markets to grow and sustain the interest of continued investments from their partners in the software industry. Terry Norman, senior analyst at Analysys Mason, said his firm especially was alarmed by WiMax investors such as Cisco Systems, Google, Intel and Motorola were writing off billions of dollars in Clearwire, majority-owned by Sprint, as sales had been slower than expected. Norman wrote that the finance drain may stall plans for WiMax network rollouts. “This does not look good for WiMax,” said Norman. The report also predicted that North American CDMA operators may opt to move with WiMax’s competitor platform, Long Term Evolution (LTE) — an assertion supported by Ericsson’s purchase of Nortel’s interests in CDMA and LTE in North America.

Despite the tense environment and the less-than-smooth sailing of the government’s stimulus administration, the RUS and NTIA have reported that they are swamped with applications and that competition is healthy. “Over the last several days, the online application system has experienced service delays due to the volume of activity from potential applicants,” the Departments of Commerce and Agriculture said in a joint statement, released Aug. 14. But the process itself has its own share of critics. The U.S. Federal Communications Commission held a workshop Sept. 1 with some of the country’s leading economists that revealed frustration, as economists and capital investment managers warned the agency that there is insufficient research data to enable the U.S. government to accurately assess what type of national broadband plan would benefit the economy.

With the broadband stimulus bill application process approaching its halfway point, with two more windows, October to December and April to June, on the horizon, the agencies and companies involved find themselves facing several new questions, without having answered the basic ‘”who, what, where, when and how” that the NTIA and RUS were tasked to determine. With economists and investors throwing ‘why’ into the mix, the concept and definition of the U.S. broadband problem becomes a little broader.