Kentucky at Work: The E-Opportunity Blueprint

1. Kentucky at Work: The E-Opportunity Blueprint Expanding broadband access in unserved and underserved communities -- through innovations such as “Micro-Lending” -- to deliver 21st century job opportunities to Kentuckians who need them most

2. In 2005, Thomas Friedman revealed in The World is Flat how rural towns in remote areas of India and China are emerging as global economic leaders, in part due to their expansion of broadband access and fiber-optic micro-cable. In 2006, Mohammad Yunus won the Nobel Peace Prize for providing access to credit to the rural poor in Bangladesh, under the concept of “micro-lending.” In 2009, Governor Steve Beshear’s E-Opportunity Blueprint will apply these globally-tested concepts to help deliver new economic opportunities to underserved areas of Kentucky.

3. The Challenge Rural and underserved areas of Kentucky share many characteristics with the rural poor throughout the world: • The lack of a diverse and robust economy limits job opportunities for talented young people, causing a “brain drain” of the best and the brightest • Remote geography and poor infrastructure discourage new businesses from locating in these areas As a result, these regions are often caught in a self-fulfilling prophecy of generational poverty and underdevelopment.

4. The Solution: The E-Opportunity Blueprint Governor Steve Beshear sees the opportunity to break that cycle by transforming the existing physical infrastructure in order to allow rural areas to better compete in an ever evolving and increasingly globalized economy. By linking rural communities economically and digitally to the outside world, they stand a much greater chance of thriving in the 21st century economy. The Governor’s broadband plan will not only provide wider Internet access, but it will also have a spillover effect into a number of other cutting-edge policy areas, such as promoting e-health and developing a smart grid, both of which require universal connectivity. His Solution--The E-Opportunity Blueprint: A plan to use innovative, globally-tested financing models to bring high-speed Internet access to underserved Kentucky communities.

5. Broadband in Kentucky Today Kentucky has aggressively pursued statewide broadband service for all. Through ConnectKentucky (CK), the first statewide initiative of its type, it is reported that more than 90% of the state’s citizens have access to at least one broadband service provider. However, other surveys are conflicting: • The Federal Communications Commission states that 73% of Kentucky citizens and businesses have access to broadband • The National Telecommunications and Information Administration reports that only 40% of homes have actual broadband penetration • In 2007, Leichtman Research group found Kentucky with only a 32.7% broadband penetration, ranking 46thof the 50 states, while the Information Technology and Innovation Foundation ranked Kentucky 40thin broadband deployment Moreover, technical issues have been raised concerning the quality of the broadband access—in too many areas, even where there is “access,” the online speed is far too slow to handle necessary modern online tools, such as video-conferencing.

6. The Unserved and the Underserved Even using the more expansive ConnectKentucky numbers, it is clear that there are many rural areas that are unserved, with no broadbandaccess(grey in the map below), and even more areas that are underserved, with only one source of broadband (light blue and dark pink in the map), or with inadequate, low-speed service (no indication on the map).

7. A Demonstrated Statewide Need The statewide need is obviously significant. To date, the Governor’s office has received 33 requests from local entities for “shovel ready” Recovery projects that include broadband expansion and/or improvements totaling more than $132 million. These requests aim to bring affordable, quality, high speed access to hundreds of thousands of Kentucky’s homes, schools, businesses, community centers, and recreational areas Projects range from a few thousand dollar improvement efforts to multi-million dollar construction projects to bring boradband to the unserved Many of these projects have been on the shelf for years awaiting a source of funding, as well as a willing commitment from government Representative projects include: The Barbourville Utility Commission is requesting $75,000 to build a fiber system to areas in this Eastern Kentucky town that do not have high-speed service The West Kentucky Broadband Stimulus Plan is a $2.5 million request to provide state-of-the-art service to underserved areas Bowling Green Municipal Utilities is requesting $5 million to build a fiber connection to neighboring rural counties that do not have high-speed access The town of Owingsville is asking for $9,205 to provide free Internet service to its residents Lexington is requesting monies to build a fiber connection to connect downtown to the Kentucky Horse Park in preparation for the 2010 World Equestrian Games which will attract over 800,000 international visitors 3/12/2014 DRAFT 7

8. The E-Opportunity Blueprint The E-Opportunity Blueprint addresses the gaps in state broadband coverage through a four-stage strategy, using the federal stimulus as a “start-up” fund to establish an ongoing, self-sustaining program. 3/12/2014 DRAFT

9. E-Opportunity Blueprint, Stage 1Direct Grants: Linking the Known Unserved It is clear, even when using Connect Kentucky’s more expansive assumptions, there are still many rural areas in Eastern, Western, and Southern Kentucky that are completely unserved, having no broadband access. (The grey areas on slide 6). Often, these unserved areas are among those that need Internet service the most, where opportunity has been stymied for decades by the same economical and geographical obstacles that have made it cost-prohibitive for private service providers to build the infrastructure necessary to bring high-speed broadband service. Accordingly, we will first use funds to build the Internet infrastructure and provide economic incentives to ensure that healthy competition among service providers enter these currently unserved rural marketplaces, bringing down prices and ensuring higher quality. 3/12/2014 DRAFT 9

10. E-Opportunity Blueprint, Stage 1Direct Grants: Coordinating with the “Smart Grid” Where possible, construction of the broadband network and the new electricity “smart grid” should go hand and hand, in order to secure cost savings and the synergies of joint coordination: Direct grant monies will first go toward the most capital intensive phase of infrastructure development, building onto the existing Internet “backbone” (in tandem with the smart grid’s “first mile”), and ensuring that all regions of the state have equal potential to gain connectivity in the future. The“dig once” concept will be applied, where if known changes to infrastructure are under construction, broadband lines will be incorporated to leverage efforts and address clear needs. “Anchor tenants” such as community colleges and hospitals will be identified to reduce costs of constructing the “middle mile” of the smart grid, and to facilitate programs such as e-health and tele-education. Coordination will also allow exciting new capabilities that apply to the “last mile,” as the smart-grid reaches the home: with better IT, home meters and smart appliances, consumers will become better managers of their energy use. $37 million in stimulus dollars will bring connectivity to the confirmed unserved areas and facilitate the “smart grid” 3/12/2014 DRAFT 10

11. E-Opportunity Blueprint, Stage 2Mapping: Identifying the Remaining Unconnected Due to conflicting data, it is essential for Kentucky to determine with adequate precision both the reach and quality of Kentucky’s broadband service. As part of this process, Kentucky will: • Establish a consistent methodology and system for auditing and validating existing information to identify those areas that are not connected, or are underserved; and • Forge public and private partnerships with service providers, technology suppliers, and area businesses to aid in our identification process. Fortunately, Kentucky’s existing, nationally-honored GIS program will allow us to integrate current data with new broadband information. Our program of audit, validation and mapping will serve as a basis for future infrastructure initiatives, ensuring that investment decisions can be targeted at the most underserved populations. $3 million of stimulus dollars will pay for adequate mapping, auditing, and validation services for a statewide inventory.

12. E-Opportunity Blueprint, Stage 3The E-Opportunity Bank: Loan funds for the Underserved In an effort to create an ongoing “process” of economic development, rather than simply funding a series of “projects,” Kentucky has developed a revolving loan fund and a pilot project that will utilize the principles (although not the precise contours) of “micro-lending” techniques pioneered by Mohammad Yunus. The E-Opportunity Bank will be established, structured as a revolving loan fund. The money in the pool will be loaned to underserved areas throughout the state. As those loans are repaid, the monies will in turn be made available to new recipients. Funds will be available as low interest, no interest, and forgivable loans, based on need, demand and capacity to deliver. Loans can be made to both individual local governments or to consortiums of cities and counties using principles pioneered through “micro-lending.” Regional approaches will be encouraged when possible to achieve better broadband coverage and economies of scale. $50 million in stimulus dollars will serve as startup funds for capitalizing the Bank. 3/12/2014 DRAFT 12

13. E-Opportunity Blueprint, Stage 3The E-Opportunity Bank: Micro-Lending Pilot To assist rural areas that need to access to capital and need to minimize their risk for providing broadband services in underserved areas, a pilot project will be created based on Yunus’ “micro-lending” work, which will pool risk by keeping individual loan amounts low among multiple borrowers (a “Consortium”). The details: Site selection for infrastructure will be weighted to promote smart grid technology and ensure access for schools, hospitals, community colleges and universities. Once the infrastructure is built, the Consortium can provide the services directly to customers, or they can lease the right to provide services to a private firm, subject to the Bank’s approval. The revenues from the services or the lease will first go toward repaying the loan to the Bank, and any excess revenues will be returned to the cities and counties that took out the original loan. Through the partnership of the E-Opportunity Bank and the Consortium, the creation of the necessary broadband infrastructure becomes possible, allowing service providers (either public or private) to increase their customer base with no up-front cost and minimal risk to them. For example, a Consortium of ten small towns could take out a loan of $350,000, necessary to build broadband infrastructure, with each town responsible for only $35,000. 3/12/2014 DRAFT 13

14. E-Opportunity Blueprint, Stage 3The E-Opportunity Bank: The Benefits • State Economic Development: The state benefits by having a more economically competitive workforce, with access to broadband Internet in rural areas that will serve to improve farming practices, educate the population, better serve area medical facilities, and allow more small businesses to participate in the global economy. • Local Government Economic Development: Cities, counties, and regional groups that participate in the program will directly benefit from the new broadband infrastructure by having affordable access to the Internet. These local governments will have further benefit from revenues which are generated by leasing the subsequent broadcast rights on an ongoing basis. • Small Business Development: Individuals, farms, and businesses will benefit from the increased availability of technology, as well as the other positive results of having a better educated and healthier workforce. • A true public/private partnership: A key reason why broadband service has not expanded to some of the most remote areas of the state is that building the physical infrastructure is cost-prohibitive to both public and private service providers. With the Bank, these providers will benefit from an expanded customer base, without the upfront risk of heavy capital expenditures, providing them a market-based incentive to provide service to more remote, rural areas.

15. E-Opportunity Blueprint, Stage 4Collaboration: Accessible and Affordable Broadband Even with universal broadband access, there still could remain thousands of low-income families who could not afford service and/or computers in their homes, and thousands more who do not know how to use the Internet to improve their lives. That’s why the final component must be expanding on public/private partnerships that promote training and access to equipment: Project Lead the Wayis a nationally-recognized state program that trains high school students in STEM fields with online-based instruction to prepare them for higher education. Kentucky Dataseaminitiative: By harnessing the untapped computing power sitting throughout Kentucky's K-12 schools and businesses, the Dataseam computing grid allows researchers across the state to access much needed computing capabilities to forward research and commercialization of ideas. With nearly 6,000 processors, Dataseam operates one of the largest managed computing grids in the world. Dozens of public/private partnerships have brought Internet access and computer equipment to schools, public libraries, and community centers. $10 million in stimulus dollars will help Kentucky expand its accessibility and affordability programs. 3/12/2014 DRAFT 15

16. Start-up Financing: The Obama Stimulus To provide start-up financing for the E-Opportunity Blueprint, Kentucky will request $100 million from funds established by the American Recovery and Reinvestment Act to be awarded competitively by the US Departments of Agriculture and Commerce and the Federal Communications Commission: • Direct Grant Program: $37M to provide grants to eligible groups to install broadband service in unserved rural towns, cities and counties. • Mapping: $3M to update and maintain the Commonwealth’s inventory of broadband services so as to identify gaps in high-quality service and be well-positioned to serve as a full participant in a nationwide broadband inventory map. • Infrastructure Lending: $50 M to provide start-up capitalization of the E-Opportunity Bank, a revolving loan program (including “micro-lending”) to support sustainable broadband services in unserved and underserved areas. • Collaborative Access through Existing Programs:$10 M to eligible groups to support local efforts to train and bring computer equipment to unserved and underserved citizens, with state matching funds.