Monday, July 11, 2011

An Open Letter to the FCC: USF Reform Poses a Critical Threat to Rural America

Dear FCC Commissioners and Staff:

With a decision on Universal Service Fund reform drawing near, I want to take a moment to share my feelings on this highly important issue in a public forum, with hopes that my message will be heard by a diverse audience in addition to its intended recipients: telecom regulators at the FCC. I have been involved in the rural telecommunications industry my entire life, as I come from a family-owned rural telecom business (Walnut Communications) that has been operating in rural Iowa for nearly 100 years. I have been a student of telecommunications for five years, and I have spent the last six months almost exclusively focused on USF reform—I have read nearly every filing in this proceeding, attended conferences, lobbied Congressional offices, written dozens of articles analyzing different aspects of the reforms, talked to various stakeholders about the potential impacts, and I intend to do my Master's thesis on the outcomes of the reforms on the RLEC industry once the rules are finalized. I am extremely pleased with how vocal the RLEC industry has been about the critical threats that the Commission's USF proposals, as described in the February 9, 2011 NPRM, pose to these small, independent, cooperative and family-owned businesses—businesses which are each unique and important to their rural communities as employers, carriers of last resort and contributors to local economies. Although I am proud of my colleagues in the RLEC industry for their extremely hard work in this proceeding, I am scared for them as well.

Against all odds in the early 1900s, my great-great uncle, my great-grandfather, and a group of farmers built the foundation for Walnut Telephone Company. It was truly a community effort, for famers and volunteers offered assistance, equipment and even their own wagons to help build the phone lines miles outside of town. Over the years, the company faced great adversity, survived the Great Depression, and even earned the respect of AT&T during a time when AT&T stopped at nothing to squash competition, including destroying farmers' telephone equipment and ripping out lines. Now, Walnut Telecommunications faces its greatest challenge yet—surviving the directives of the National Broadband Plan. I care very much for my family's business and the rural area that I came from, and I cannot ignore four generations of ancestors who have poured their lives into providing telecommunications in a very small community in Iowa—a community that has little growth, an aging demographic, few high-income residents or large businesses. Despite these demographic and geographic challenges, Walnut Communications has historically been a leader in advanced telecom technologies, installing the first digital switch in Iowa, offering the first cellular service in Iowa, upgrading all customers to DSL in the 1990s, and most recently, deploying high-speed Fiber-to-the-Home to rural homes and businesses.

Walnut Communications and hundreds of other RLECs have been able to make these groundbreaking investments and provide advanced telecommunications services at rates reasonably comparable to urban Americans because of the financial stability that the current rate-of-return and USF facilitate. USF enables these companies to take risks on technologies and secure private capital for critical investments in broadband infrastructure, despite being located in economically challenged and sparsely populated high-cost regions. Yet, the FCC contends that RLECs are wasteful, inefficient, and apparently not worthy of ongoing USF subsidies to continue providing telephone and broadband service in rural areas. In my analysis of the USF reform proceeding, I have personally found very little evidence to suggest that RLECs are in any way wasteful and inefficient—sure, there are likely a few "bad actors" in the industry, but the bad actions of the few should not be used to penalize the RLEC industry as a whole. Large companies like AT&T, Verizon and Windstream echo the FCC's accusations against RLECs, but provide no evidence to suggest that they are actually willing to provide service in extremely rural high-cost, low-return areas. If these companies wanted to serve rural areas, they could have done it already with their billions of dollars in revenue—but they haven't, because of the fundamental economic principles of investor-owned public companies, where low-return investments are scrapped in favor of higher return ventures. The RLEC industry is not a high profit game; RLECs provide outstanding service to their rural communities because they care about the communities. 100 years ago, AT&T did not want to provide service in extremely rural areas, and today, they still don't. RLECs were established to help prevent an urban-rural divide in telephone service, and yet here we are 100 years later facing the same problem with broadband service.

I do believe that USF should be modernized for a broadband era—there are certainly aspects of USF, and Intercarrier Compensation in particular, which are in dire need of modernization and simplification. However, there is no need for the FCC to achieve USF reform by causing irreparable harm to thousands of companies, and there is absolutely no excuse for the FCC to create broadband black holes in rural areas by excluding RLECs from future USF support for broadband. I strongly urge the FCC to look at alternative plans submitted by Hargray Telephone Company, the Rural Associations (NTCA, NECA, OPASTCO and WTA), and the Federal State Joint Board on Universal Service. Each of these alternative plans include compromises, meet the FCC's four objectives for USF reform, will keep the RLEC industry viable in the long term, and will help increase broadband deployment in rural areas. Of the proposed USF reforms in the NPRM and the National Broadband Plan, I am most concerned with proposals to cap the High Cost Fund (there is no need if contributions are expanded), reverse auctions (which are unproven, untested and would favor large carriers), and eventually eliminating rate-of-return (why fix what's not broken?). I deeply fear that these three actions together would sign the death certificate for the RLEC industry.

I am also particularly concerned with FCC sentiments that RLECs should consolidate—there is no evidence to support the argument that consolidation would yield positive impacts on rural broadband deployment and adoption. Rather, it is an ignorant conclusion based on "bigger is better" attitudes. Bigger is not always better, especially in rural areas, where small, locally-owned businesses are actually important. Just because every sector of the information and telecommunications industry is moving towards consolidation—and borderline monopolization—does not mean that it is the best outcome for everyone. Rural cultures value small local businesses, and forcing consolidation in the industry will result in a devastating loss to many vibrant rural communities. Furthermore, actions that force RLECs to consolidate (or worse, go out of business) will result in thousands of lost jobs and opportunities for rural Americans.

I felt that comments by Warinner, Gesinger and Associates best described this situation, and specifically reflect my own personal feelings about possibly moving back to a rural community after leaving rural America at a young age to receive a world class education in a major city. They explain, "The FCC would limit a small rural company's ability to attract personnel with advanced degrees, by limiting their corporate expenses or capping the amounts they can recover. Limiting or eliminating these expenses would put an immense strain on a company's ability to attract and keep qualified employees for a specialized industry. In fact, it could be counter-productive because many of the students in rural areas that go to urban colleges and universities would lose the opportunity that the telephone company would provide in offering a job that allows the individual to work in the rural area from which they came or a rural area that provides the benefits of living in a small close-knit community" (at pg. 21-22). As America slowly begins to emerge from the worst economic crisis in decades, the government should not be preventing any small business from attracting, hiring, and paying skilled workers—workers who could help revitalize rural economies and cultures, contribute to local tax revenue, and start families of their own in rural communities; which in turn will help revitalize rural schools and businesses, and possibly even help change the urban world's perspective of rural America. I highly recommend a recent study by Wichita State University Center for Economic Development and Business Research, which describes how the FCC's USF proposals would impact Kansas RLECs. The outcome is not good—between 2012 and 2016 Kansas RLECs could lose a total of $143m in USF funding, 367 direct and indirect jobs would be lost, and the state would lose around $5m in combined income, property and sales tax revenue. This study is a perfect example of why the FCC needs to look at the "bigger picture" before hastily implementing USF reforms based on a shaky foundation and unsubstantiated conclusions. It isn't just the rural telecom industry that will suffer, it is ancillary businesses, equipment vendors, state and local governments; and most of all—rural communities. In addition to the Kansas RLEC study, there are dozens of comments and ex parte filings that demonstrate the financial impact of the FCC's reforms on RLECs, and some filings even include letters from community schools, hospitals, businesses and public safety entities who all provide testimony about the benefit of RLECs and broadband to their local communities—benefits that will undoubtedly disappear if RLECs disappear as a result of USF reforms.

FCC, please take seriously the overwhelming amount of evidence that your USF proposals will harm RLECs and rural communities as you move forward with the final rules. There is no reason to change the game so dramatically that companies will actually go out of business as a result of overly aggressive and intrusive government actions, especially when there are very reasonable alternative proposals available. I fully recognize that every USF stakeholder will have to make some compromise and sacrifices going forward in order to transition USF into the broadband era. However, sacrificing entire companies will not achieve the end goal of deploying broadband to 100% of the country—it will have the exact opposite effect. RLECs have been leaders in providing broadband to rural Americans since before broadband was even considered an important service, and there is no reason to take funding away from these companies in order to give it to companies that will not serve extremely rural areas simply because their investors won't profit from it. Ensuring that all Americans have access to, and utilize, high-speed broadband is an extremely admirable vision, but the path to achieve this lofty goal should not be hastily planned or build upon an unstable foundation. There is simply too much at stake—from the viability of small businesses to the opportunities for extremely rural Americans to participate in the global Internet ecosystem—to implement rules without considering the full spectrum of short and long term outcomes for each stakeholder. RLECs have depicted a bleak future as a result of the proposed reforms, and I sincerely hope that the FCC can conceptualize and implement an alternative suite of USF reforms where RLECs have a bright and profitable future, and where all rural Americans have access to broadband.

Respectfully submitted,

Cassandra Heyne, Rural TeleCommentary


  1. Very nice! I love your writing style and position. Wish you the best of luck! :)

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  2. Nice work Cassandra. I remember really struggling to get BT to roll broadband out when I lived in the New Forest... I even considered satellite broadband, but the dish would have been unsightly on a 'listed' property, so that was a no go too!

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