The Final USF/ICC Reform Lightning Round: Reply Comments— Iowa RLECs, Iowa Municipals, Blooston Rural Carriers

Reply comments were due September 6, 201 for the Further Inquiry in the Universal Service-Intercarrier Compensation Transformation Proceeding (AKA USF Reform), where the industry was asked to respond to a variety of questions about several proposed alternative frameworks for USF and ICC, namely The Rural Associations’ RLEC Plan and the price cap carriers’ ABC Plan (which together forge the Consensus Framework), and the Federal-State Joint Board’s plan. This is it, people—the final chance for the industry to throw some hard punches at whomever they are so inclined to oppose, be it the FCC, the RLECs, the price cap ILECs, the Joint Board, or any number of commenters who may have said something irksome in any of the previous comments going back to April 1. Many of the reply comments are fairly short and only attack one or two issues, so I’m switching back to the multiple summaries per post format. Today I’m looking at different Iowa telecom perspectives from the Rural Iowa Independent Telecommunications Association (RIITA) and the Iowa Association of Municipal Utilities (IAMU); and the Blooston Rural Carriers (which include a few Iowa companies).

Reply Comments of the Rural Iowa Independent Telecommunications Association (RIITA):

RIITA is a rural telecom organization with 130 members, nearly all of Iowa’s RLECs. Half of RIITA’s members have 1000 or fewer access lines, and all members serve high-cost rural areas—“In most areas, no other providers exist and many areas served have very few customers per square mile, driving up the marginal cost of service” (pg. 1). RIITA supports the NTCA/OPASTCO/NECA/WTA RLEC Plan, but emphasizes the following areas of reform are especially critical for Iowa RLECs:

• Rate of Return: RIITA argues that RoR is critical, and “without [RoR], small rural carriers would have no basis for planning and investing in their communities that would be consistent and reliable enough to justify the investment” (pg.2). Furthermore, RIITA argues that RoR must be based on embedded costs, which “have formed the basis for compensating utilities for over a century” (pg. 2).
• Carrier of Last Resort: RIITA insists that COLR requirements are critical for consumers, and “without a requirement of service, no carrier would be left to serve them” (pg. 2).
• Recovery Mechanism: Small telecom companies need a reasonable transition period to move to a new ICC regulation system, and “capital investments in telecommunications are such that they require long-term planning and involve relatively long lived assets so it is critical that the recovery mechanism be designed to allow these companies to make this transition” (pg. 3).
• Arbitrage: RIITA sternly warns that “any company using our networks to access rural consumers, including companies using the internet for voice service and pushing commercial services over the internet should participate in maintaining those networks” (pg. 3). RIITA explains, “What seems to a VoIP carrier of a commercial internet based provider like a free network is not, in fact, free. All users of these networks should participate in the costs of the networks” (pg. 4).

My Thoughts: Considering the sheer number of RLECs in Iowa (more than any other state), I can only hope that their collective voice is being heard at the FCC. I would have liked to see more detailed analysis in these comments with regards to some of the topics in the Public Notice, $0.0007 access rates in particular. I know the Iowa companies have a lot to say on this topic. I really liked RIITA’s closing comment: “The Commission needs to commit to [the goal of universal broadband] and work to make the funding available or abandon that goal. Under either circumstance, it should stop trying to dismantle the network that already provides broadband communications to rural America” (pg. 4). If you are interested in learning more about Iowa’s efforts to ensure reasonable USF reform such that Iowa RLECs are not “dismantled,” I recommend checking out The Great Disconnect, which is an advocacy project created by RIITA along with the Iowa Telecommunications Association (ITA) and Iowa Network Services (INS). It is a great website and I have really been impressed with this coalition’s advocacy efforts in Iowa over the last few months.

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Reply Comments of the Iowa Association of Municipal Utilities (IAMU):

Iowa doesn’t just have a lot of RLECs; Iowa also has a large number of municipal broadband networks. IAMU has 545 Iowa communities as members, with 28 municipal broadband networks. 19 of these networks provide telephone service as CLECs, and most of them provide cable and broadband via fiber or fiber/coax. IAMU explains, “The systems were established because the residents of the communities in question believed that affordable access to advanced communications capabilities and services was vital to their economic vitality, educational opportunity, and quality of life and that the incumbent service providers were unwilling or unable to provide the necessary infrastructure and services at anything close to competitive rates” (pg. 2). IAMU comments that the FCC has recognized the progress made by Iowa municipal broadband providers, largely due to a 1997 state decision to allow municipals to deliver telecom services. This decision was challenged by the Iowa Telecom Association, but ultimately affirmed by the Iowa Supreme Court. Now, the IAMU members “would like a fair opportunity to bid for Connect America Funds to extend or upgrade their services to unserved or underserved areas” (pg. 3). IAMU does not support the RLEC Plan or the ABC Plan.

On the “Biased and Unreasonable” RLEC and ABC Plans:  IAMU argues: “These self-serving proposals by companies representing only a limited segment of the rural broadband ecosystem would not phase out USF subsidies, but would actually increase them; would require investments of billions of dollars in technologies that would produce broadband with too little capacity to support robust economic development or ever-increasing consumer bandwidth requirements; would do little, if anything, to cure the inefficiencies that have made the USF too costly; and would insulate the carriers from competition from potentially more qualified bidders of CAF funds” (pg. 4).

On ROFR: Rights of First refusal is turning out to be one of the biggest debates in this comment cycle, and IAMU falls on the “no way” side. IAMU urges the FCC to reject the ABC Plan’s ROFR proposal, arguing that IAMU members “became providers of communications services, not because they wanted to compete with the private sector, but because the incumbents were not offering the services that their communities required or were doing so in an inadequate or prohibitively expensive manner” (4). Furthermore, “Dissatisfaction with the incumbents’ services ran so deep in Iowa, that the communities that authorized their municipal utilities to provide communications services did so by overwhelming majorities” (pg. 4). Instead of ROFR, IAMU believes that the FCC needs to “establish an open and competitively-neutral process that gives all qualified providers an opportunity to bid and be judged on the merits of their individual proposals” (5). This is a nice way of saying “reverse auctions,” but IAMU warns that reverse auctions could be gamed by the large carriers, who could submit “lowball bids” in areas where they face competition and high bids in areas where there is no competition. IAMU recommends that the FCC “grant subsidies to those bidders that offer to make the greatest bandwidth available to the greatest number of residents and businesses in question with the funds available” (pg. 5). 

On Separate Mobile and Fixed Funds: IAMU supports establishing separate funds for fixed and mobile broadband because: “Wireline and mobile broadband are not close substitutes but differ in many important ways—including cost structure, performance, reliability, etc. As a result, treating them the same would result in significant foreseeable and unforeseeable distortions” (pg. 6).

My Thoughts: Iowans are nothing if not resourceful and dedicated when it comes to deploying telecommunications services in rural areas. Since most of Iowa is rural, state history has seen some impressive and unique solutions, which is evident in the awesome book Lines Between Two Rivers. Since the beginning of telecommunications, large incumbents (ahem, AT&T) have seen Iowa as a rural wasteland where no investments can be recovered; but both RLECs and municipals have seen the same rural wasteland as a population that needs and deserves quality and affordable telecommunications services. However, the Iowa RLECs and Iowa municipals are not exactly what I would call allies, which is pretty clear by reading the RIITA and IAMU comments—I actually picked these two comments to summarize here today in order to illustrate how much deviation still exists regarding the ideal solution for USF/ICC reform. Even an RLEC and a muni serving the same rural community may have drastically different perspectives on USF, and when you include WISPs, wireless, cable, satellite providers and the price cap ILECs, things start to get pretty convoluted. I still don’t think the industry at large is any closer to a consensus than it was 4 months ago, and in reality, I feel like the “Consensus Framework” has pushed some of the niche providers like municipals even further a consensus. I feel like some of the proposals in the ABC Plan, such as ROFR, are so far from an industry consensus that it is almost an insult to the portion of the industry who did not participate in drafting the proposals. I obviously want the final rules to be advantageous (or at least not destructive) for RLECs, but that doesn’t mean I wish to see other small rural providers be destroyed in the process, especially if this means that rural Americans will lose access to broadband.

I agree with IAMU’s argument that mobile and fixed broadband funds should be separate, specifically because of the different cost structures that exist for fixed and mobile broadband. I just do not think it would be practical or reasonable to lump them all in one fund, however I do think the size of the mobility fund should be larger with a more flexible budget. I don’t necessarily agree with IAMU that wireline and wireless “are not close substitutes;” I actually strongly believe that wireless is both a substitute and a complement to wireline broadband—it just depends on a consumer’s unique needs, and on what services are available given the consumer’s budget and needs. I believe there should be ample funding for both fixed and mobile broadband in rural areas, and consumers should not have to choose between one or the other as a result of regulatory incompetence. 

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Reply Comments of the Blooston Rural Carriers

In these comments, the law firm of Blooston, Mordkofsky, Dickens, Duffy, & Prendergast, LLP represented the interests of 22 RLECs and the South Dakota Telecommunications Association. The Blooston Rural Carriers support the RLEC Plan/Consensus Framework because it “constitutes the best available alternative at this time to enable RLECs to continue to make progress toward the completion of the conversion of their networks to broadband” (pg. 3). The Consensus Framework will allow RLECs to repay loans, upgrade facilities, and “will help preserve the assurance of repayment necessary to induce lenders to continue to fund RLEC broadband investment projects” (pg. 3). The Blooston Rural Carriers oppose commenters “who argue in favor of more drastic changes in universal service and intercarrier compensation that would effectively gut the revenues of rural carriers and endanger the ability of rural customers to obtain high quality broadband services” (pg. 2).

On Ensuring Adequate USF/ICC Support for RLECs: The Blooston Rural Carriers argue against parties that have urged the FCC to eliminate corporate operations expenses (COE) and eliminate all intercarrier compensation revenue. The Blooston Rural Carriers argue that some commenters support eliminating COE “for no other reason than to drastically reduce the amount of support available to carriers,” and COE recovery is important to maintain because these costs are fundamental to providing telecommunications services and include many costs associated with FCC regulation compliance. The Blooston Rural Carriers argue that eliminating ICC and imposing bill and keep is “without merit,” and “this argument is nothing more than a red herring by entities that would like to improve their bottom lines by not paying to use the expensive last-mile networks of other carriers” (pg. 5). Furthermore, “While the elimination of all intercarrier compensation would help certain entities increase profits, it would do damage to the ability of carriers to ensure the continued availability and expansion of broadband networks and to ensure that rural consumers have access to services at reasonably comparable rates” (pg. 5).

On Satellite Service: The Blooston Rural Carriers do not wish to see satellite service providers receive USF support that could be better utilized by RLECs. They argue, “It is well documented that current satellite service is not of sufficient quality and reliability to satisfy a carrier’s requirement to provide reasonably comparable services to rural consumers;” and “a rural carrier’s support should not be reduced if the competitive carrier is a satellite service provider. To do so would endanger the ability of rural consumers to obtain reasonably comparable services, as required by the Act” (pg. 6). 

My Thoughts: I thought the Blooston Rural Carrier comments reflected a neutral and reasonable response to the ABC Plan/RLEC Plan. I have said before that I do not think the Consensus Framework is perfect, but it definitely is better than the alternatives, which seems to be the attitude of the Blooston Rural Carriers as well. I thought this specific comment was especially interesting and telling of the sacrifices that have been made on behalf of the RLECs for the purpose of reaching an agreement with the large price-cap ILECs: “The Blooston Rural Carriers would never have agreed to many of the features thereof (e.g. a decreased 10% RLEC interstate rate of return, expanded caps on RLEC corporate operations expenses, constraints on future RLEC capital expenditures, and virtual elimination of RLEC terminating switched access rates) if these features were not part of a broad industry compromise and offset by other provisions (e.g. the restructure mechanism)” (pg. 3). 

I agree with many of the opponents of the Consensus Framework that certain proposals are not especially fair for specific industry participants, like rural wireless and cable providers—however, one of the primary purposes of this entire proceeding is to reformulate the USF/ICC mechanisms for ILECs and RLECs in order make universal broadband a reality. Just as I don’t think it is fair that 6 price cap ILECs make the USF decisions for the entire wireless industry, I also don’t see it reasonable for the wireless industry (for example) to determine the fate of USF for LECs. I believe the Consensus Framework represents a reasonable solution for the parties that developed these proposals; and that just so happens to be the majority of the industry and the specific portion of the industry where the FCC has called for significant reforms to apply. Unfortunately, not everyone can be a winner, but under no circumstances should rural consumers be the losers. 

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Further reading on USF/ICC comments and reply comments:

Rural TeleCommentary: Alexicon Consulting, ITTA/Mid-Sized Carriers, Rural Broadband Alliance, Comcast, Cellular South, Gila River Telecommunications, Satellite Broadband Providers, Kansas Corporation Commission, FTTH Council, LARIAT, LightSquared

JSI Capital Advisors: Western State Telecom Associations, Rural Telecommunications Group, Nebraska Public Service Commission, American Cable Association, NECA and NTCA ex parte filings, ILECs defend Rights of First Refusal

Cassandra Heyne

ruraltelecommentary@gmail.com

Rural Telecom History: What's Your Story?

A few weeks ago I came across a hidden gem that is probably not well known outside of the Iowa RLEC circle- Lines Between Two Rivers: A History of Telephony in Iowa. This 600-page book was compiled in 1991 by the Iowa Telecom Association (ITA), and dedicated “to those Telephone Company Pioneers who gave their blood, sweat and tears in order to provide an outstanding telephone system to the citizens of the great State of Iowa.” I actually learned about it from a footnote in ITA comments, and I immediately looked for it online where I found a used copy via Amazon.com. It looks like the copy I ended up with came from the Keosauqua Public Library and was marked “Discard” which makes me feel lucky to have ended up with it. In the back, it says that it was a gift for Van Buren Telephone (also in Keosauqua) in August, 1992. There are a few copies available on Amazon still, so I encourage you to grab one if this book sounds interesting (price ranges from $34-$95). If you love history and particularly telecom history (like me), definitely get it. 

Lines Between Two Rivers include short histories of every rural telephone company in Iowa—almost 150 companies in 1991. The stories were submitted by the companies, and include extremely interesting and amazing tales of the early days of telephony going back to the late 1800s. I’ve been trying to read a couple stories every night, so it will probably take me awhile to get through the entire book. Meanwhile, I thought maybe I would put my B.A. in History to good use by investigating and publishing historical accounts from other rural telephone companies outside of Iowa. RLEC readers: I would like to hear stories about how your company was started, the early challenges that it faced, how it grew, technology milestones, and how you managed to stay in the business for 100+ years. I know there have to be some great stories about battles with AT&T in the old days—my own company’s history has proved that, as well as some stories in my favorite book The Master Switch. I’m really interested in family-owned RLECs and the “extremely rural” companies that laid it all on the line (literally) to provide telephone service in the most daunting geographic areas of the country. I’d love to see pictures, maps, old bills, anything! Please e-mail me at ruraltelecommentary@gmail.com if you would like me to share your RLEC’s history on Rural TeleCommentary. In addition to your history, I would like to know your future—how is your company going to evolve in order to stay in business as our industry faces increasing and intimidating regulatory, financial and competitive challenges?

I think that posting histories of rural telecom companies will tie into my advocacy efforts here on Rural TeleCommentary by helping to personalize the companies—I know I have readers “inside the Beltway” who have possibly never visited a truly rural area and who would (maybe) love to learn more about the background of the RLEC industry. I hear criticism of DC-based telecom regulators and lobbyists all the time; that they don’t really know what a rural area means because they never go any further than the Greater DC Area. Why not help them understand rural telecom better by depicting the challenges RLECs have gone through to bring telephone and broadband service to the most rural and remote people in America? I also have a more sinister goal here, which is hopefully not too grim of an analogy, but I see this as a way to “humanize the victim.” People are told that if they are ever in the unfortunate situation of being kidnapped or attacked, they should blurt out information about themselves (I’ve seen it on TV anyway, and Silence of the Lambs), in order for the attacker to see them as real people. RLECs are under attack from the FCC and now Congress, as well as competitors, so maybe if we let them know that we are more than just wasteful, inefficient pieces of technology scattered around rural backwaters, they will be more understanding. It’s a long shot, but it might be fun to try at least. 

Meanwhile, here are some excerpts from Lines Between Two Rivers that I have been particularly impressed with. 

• Ace Telephone Association (now Ace Communications, Houston, MN) came together as a collection of smaller farmers’ telephone companies in 1949 to improve telephone service in the area: “The biggest single reason for the local enthusiasm at this meeting was the recent amendment of the REA Act of 1936.” Apparently, not much has changed since 1950 regarding business incentives to build communications networks in rural areas: “The tremendous cost of bringing telephone service to the hilly, rural, area in southeastern Minnesota and northeastern Iowa had taken all the initiative out of the private telephone companies as well as the Bell system.” My favorite part of Ace’s story was that the switchboards were actually located in the home of the operator, and “manned 24 hours a day and seven days a week.” Area residents would actually come to the operator’s home to make calls—can you imagine? That is definitely true customer service. 

• Amana Society Service Company indeed has a rich history, which I assumed it might. The Amana Colonies were settled in the 1855 by German Pietists, and telephone service came fairly shortly thereafter: “When news of Bell’s 1876 invention reached the community, they could see the practicality of telephones in the villages. The Amana people decided to build their own telephone system. They often copied or modified national brands for their own use, rather than purchasing them. So, in 1880, after studying the subject of telephony, Friedrich Hahn Sr. (1843-1917) of Middle Amana, a cabinet and clock maker, build a magneto telephone. He built the walnut cabinet, as well as the generator, switch hook, ringer movements and induction coils inside the cabinet.” He built all of this himself! Next time I am in Iowa (October probably) I am definitely going to make a point of visiting the Amana Colonies Heritage Society Museum to check out this phone, and eat some delicious German food.

•  Arcadia Telephone Cooperative (Arcadia, IA) started in 1884, and in the early 1900’s their telephone switch was located in the front room of a funeral parlor.  

• Ayrshire Farmers Mutual Telephone (Ayrshire Communications, Ayrshire, IA) struggled during the Great Depression: “Wages of employees were reduced and much emphasis was put on past bills. Also a new rule was made, ‘When toll bill reaches the amount of $2.00 service will be discontinued until too bill is paid.’” Things turned around eventually, and the company “entered the 80’s with a very comfortable feeling—digital office, all buried, one party service, owned toll facilities to and beyond our boundary lines, recently converted to a cost company so the revenues were good. Yes, a real tranquil time!” Ayrshire noted that after the AT&T breakup, they were “bombarded with consultant classes, seminars, etc., all hoping to re-educate the company staff members to a new and different telephone world.” 

• Barnes City Cooperative Telephone Co. (which appears to be no longer in existence) described the multi-faceted role of the telephone operator: “It was not unusual for the telephone operator in the days of the magneto or common batter switchboard to be the central point of information about how to cook certain things or have recipes to share about baking, etc.” During WWII, the operator also had to deliver the news to families when a soldier died in the war.  

• Butler-Bremer Mutual Telephone Company (Butler-Bremer Communications, Plainfield, IA) shared an interesting story about small vs. Bell in the 1930s. The company’s secretary for 30 years, Senator J. Kendall “Buster” Lynes, “formulated the strategy which enabled the company to virtually force the Northwestern Bell Telephone Company to sell its telephone equipment in Tripoli to the Butler-Bremer Mutual Telephone Company. This is probably one of the only cases on record of such an occurrence—the giant of the telephone industry being defeated by a tiny David!” 

•  The location of early switchboards was really interesting. So far I have read of switchboards being located in candy stores, ice cream parlors, grocery stores, funeral homes, banks, feed mills, meat markets, the operator’s home, post offices, and basically anywhere you can think of in a small rural town.

I will definitely continue to share exceptional stories from Lines Between Two Rivers here as I read through the book. I hope that some of my readers take the time to submit their own stories because I think it would make a really great addition to Rural TeleCommentary.

Hopefully everyone has survived the heat wave this week!

Cassandra Heyne

ruraltelecommentary@gmail.com

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

ruraltelecommentary@gmail.com

The AT&T-Mobile Saga Continues: Rural Carriers vs. Rural Organizations

I finally summoned the motivation to read through a month's worth of AT&T/T-Mobile merger filings. Did I learn anything new? No, not really. I've been following AT&T/T-Mobile happenings closely on Twitter and in the news, and I've been waiting for a big story to break that I can write about without sounding like I'm just reiterating what everyone else has been saying. Ironically, the latest big story is literally about merger supporters reiterating what AT&T has told them regarding the alleged benefits of the merger. Last week, the president of GLAAD resigned after it was discovered that the organization submitted a letter in support of the merger which AT&T had written for them. I don't have a problem when numerous companies/organizations submit essentially the same comments in proceedings, but rubber-stamping form letters that supposedly express a group's unique perspective is just deplorable public policy—especially if the letters are written by a company that gives the organization money. GLAAD is not the only organization with questionable motives in support of AT&T/T-Mobile, and this situation has made me extremely suspicious of all of the filings in support of the merger submitted by groups who basically have no clue about the potential harms the merger will cause. No offence to the myriad groups of hotel owners, minority businessmen and women, cattle ranchers, pipefitters, local tourism boards, women farmers, chambers of commerce, Spanish language journalists, Asian-Pacific Islanders in America, senior citizens, aerospace mechanics, Lupus foundations…and the International Rice Festival?!? It's not that I don't value your opinions—I just don't think they are your opinions. But, I believe that you believe that the AT&T/T-Mobile merger will benefit your constituents even though I don't see any evidence to back these positions.

Sarcasm aside, I was really concerned about the number of rural organizations that voiced support for the merger, especially because rural telecommunications providers are largely opposed to the merger. The Rural Telecommunications Group (RTG), a leading organization of rural wireless providers and a sponsor of the No Takeover Project, noted in their May 31 petition to deny that "it is rural consumers who stand to lose the most in a post-merger marketplace," and "the unimpressive truth is that the addition of T-Mobile's network to AT&T's existing footprint only increases the geographic size of AT&T's network by a mere one percent" (pg. 14). Unfortunately, rural consumers, governments and organizations have apparently been duped by *someone* into thinking that AT&T will become some kind of wizard or genie who will magically make low-cost and high-quality broadband appear in areas with 2 customers per square mile. The West Virginia Farm Bureau argues that "As West Virginians fight lingering unemployment and dig deeper into their pocketbooks for gas and commodities, most of us would welcome new opportunity—and lower prices. That trend may be just over the horizon, thanks to the pending merger between AT&T and T-Mobile" (pg. 1). The WVFB also details how important broadband is to farmers and rural residents because it enables them to "track markets, research equipment and methods, and communicate with markets around the world…develop and expand their farms with web-based sales…sell directly to markets and individual customers around the world." WVFB, I couldn't agree more, but I think this comment would be more appropriate in the USF Reform proceeding. West Virginia is notoriously one of the worst states for wireless service, and I don't see how AT&T-Mobile will suddenly decide that WV is an attractive market with a high ROI. I sincerely hope the WV farmers get the high-speed broadband that they deserve, but I just don't think the AT&T/T-Mobile merger will do anything to achieve this goal. Here's an easy test you can utilize to get an idea of whether or not AT&T/T-Mobile will serve your rural area post-merger:

1. Is there currently good-quality AT&T service in your rural area?
   
2. Is there currently good-quality T-Mobile service in your rural area?
   
3. Bonus question—is there a good-quality small/regional wireless carrier in your rural area?
   

If you answered "no" to A or B, then don't count on having lightning-fast 4G service from AT&T shortly after the merger is approved. If neither company has or utilizes spectrum in a rural area, they simply cannot provide service there without acquiring additional spectrum currently held by a real rural wireless provider. If either company has historically shown little interest in serving your rural area, don't count on a sudden attitude adjustment. Furthermore, if you have a small wireless carrier serving your rural area, well… Best of luck to you. According to RTG, small wireless carriers will face increasing anticompetitive pressure from AT&T-Mobile as they will not be able to negotiate cost-effective roaming agreements. RTG's petition to deny filing explains that "AT&T has also been known to harm its own rural consumers by denying them regional roaming access on small competitors. In one such example, AT&T suspended its customers' outbound roaming in select markets in north Texas, despite the fact that AT&T's coverage in those markets was not as extensive as the roaming partner's coverage. AT&T can easily afford to allow its customers to roam off-network, judging by its multi-billion dollar annual net revenue, but instead it deliberately has chosen to deny that option to its rural subscribers" (pg. 25). To sum it up: the merger most likely will not improve wireless broadband service in extremely rural areas and it will possibly put small rural wireless carriers out of business. If you still aren't convinced, take a look at this helpful map from page 61 of the RTG comments. This map was discussed in last month's Wireless Industry Consolidation Webinar (which I wrote about here). The white areas on the map indicate areas where there is neither AT&T nor T-Mobile service. Kansas, Nebraska, South Dakota, North Dakota, Wyoming, Montana, Nevada, Maine, and extremely rural portions of other states—I'm sorry; the merger will not benefit you. 

The rural organizations who support the merger predictably and erroneously claim that the merger will create all these wonderful opportunities for their respective groups. The Montana Farmer's Union argues that "the combined resources of AT&T and T-Mobile, along with an additional $8 billion investment in infrastructure, will make mobile broadband accessible to almost the entire country's population." The Arizona Cattle Feeder's Association expects the merger will help improve border security, for apparently they have "endured no greater challenge to [their] business and quality of life than border security." The Women Involved in Farm Economics believe that the merger should be approved because "better wireless service has the potential to improve non-farm economic life in many hard-hit rural areas that have seen tragic declines in manufacturing and building jobs," and "for an increasing number of farmers and ranchers, advanced wireless systems hold remarkable promise for better, more productive lives." It really hurts me to argue against rural organizations who are clearly in need of reliable wireless broadband and who understand the importance of broadband for rural areas, but I feel strongly that these groups are wrong to assume that the AT&T/T-Mobile merger will make a difference in their rural lives. If they put half as much effort into advocating for RLECs in the USF Reform proceeding, I would probably be able to sleep better.

As evidenced by RTG's exceptional arguments against the merger, rural telecommunications carriers have vastly different opinions than rural consumers/organizations. Actually, it isn't fair to include consumers in the groups of supporters of the merger—AT&T isn't paying off individual consumers (yet anyway, as far as I know), and one consumer comment that likened AT&T to a rapist has been haunting me for the last month. I've seen very little evidence that end-use consumers support the merger, rural or otherwise. Anyway, I was pleased to see that several Iowa rural telecommunications providers submitted opposition comments. FMTC Wireless, Breda Telephone Corporation, Webster-Calhoun Cooperative Telephone Association, and Marne & Elk Horn Telephone Company, all RLECs and providers of iWireless service, voiced their concerns about the merger's potential impact on their "continued ability to provide high-quality advanced wireless telecommunications services to communities and underserved areas in rural Iowa." Each of these companies echoes the concerns raised by iWireless, and they argue that "the iWireless partnership with T-Mobile has been extremely important to our businesses. It has given us access to partitioned spectrum in our rural communities and it has helped to create a larger market and more diverse ecosystem for GSM and UMTS/HSPA infrastructure, equipment and handsets. It has also given us a reliable partner for inbound and outbound roaming and it has given our customers access to a ubiquitous nationwide GSM/UMTS network with voice and high-speed data capabilities."

If the merger is approved, iWireless faces a precarious situation. Although iWireless does not specifically ask for the merger to be rejected, they do ask for the FCC to "agree to certain commitments to foster the continued prevision and expansion of wireless services in rural areas" (petition to deny filing, pg. i.). iWireless is a close relative to T-Mobile (here's how they explain the relationship: "Deutsche Telekom holds a 100 percent ownership interest in T-Mobile, which in turn indirectly holds a 100 percent ownership interest in VoiceStream PCS. VoiceStream PCS holds a 54 percent interest in Iowa Wireless, and DT is authorized by the Commission to hold up to a 60 percent indirect interest in Iowa Wireless, pg. i.). Not to make things more confusing, but then iWireless is in "contractual relationships with 76 small independent telephone companies to extend the reach of its network to include remote rural areas." From what I've been told, the iWireless partnership has been very beneficial for Iowa RLECs and rural customers, and it has facilitated considerable investment in rural wireless networks.

As a subsidiary of T-Mobile, iWireless faces an uncertain or at least challenging road ahead. AT&T has remained mum on the subject of the fate of iWireless if the merger is approved, and "since the announcement of the AT&T/T-Mobile transaction, Iowa Wireless has not been able to obtain any information regarding how—if at all—AT&T will incorporate Iowa Wireless into its long-term plans, nor has Iowa Wireless been able to determine what impact, if any, the transaction will have on Iowa Wireless's rural customers with respect to continued network access at reasonable rates" (pg. 4).To me, this sounds very bad—for RLEC partners and rural consumers especially. To me, this is evidence that AT&T does not have a strong commitment to rural areas, despite what they may claim or convince/pay niche rural groups to claim for them. iWireless has 250 stores and authorized dealers in the Midwest, which surely employ thousands of people. iWireless also provides service to rural areas that "do not have the necessary subscriber densities or potential returns on investment to attract large carriers to invest in the infrastructure…required to serve residents in those locations" (pg. 3). iWireless stops short of outright opposing the merger, but they do request that the FCC impose a variety of conditions such as ensuring that AT&T continue to provide roaming for iWireless partners and making sure that AT&T does not repurpose iWireless spectrum.

I personally do not like the division that has emerged between rural telecommunications carriers and rural consumer/trade organizations, but misinformation is clearly to blame. I encourage RLECs who oppose the merger to come up with creative ideas to educate and inform your consumers about the likely outcome of the merger—that rural areas will not benefit, competition will decrease, jobs will be lost, prices will increase, quality will be compromised, etc. There is plenty of evidence to illustrate the multitude of harms that could befall rural consumers, and there are many advocacy groups who are working tirelessly to provide great information about the merger—information not written by one of the parties involved in the merger!

I will be watching for new information about the future of iWireless, and I am hoping someone will tell me why exactly the International Rice Festival supports the merger.

Next week I hope to look at some international examples of successful USF models. A kind reader from Pakistan e-mailed me some information today about Pakistan's USF program, and I am excited to learn about it.

Cassandra Heyne

ruraltelecommentary@gmail.com

Trying to Overcome Dark Forces in the Rural Telecom Industry

Minnesota rural telecom cooperatives attempt merger for the second time, and other news from this week.

This week has been quite interesting for me—there have been numerous articles and events which have caught my attention and kept me constantly thinking about how exactly the rural telecom industry is going to overcome the monumental challenges ahead with USF Reform, the National Broadband Plan, Net Neutrality, the AT&T-T-Mobile merger, and basically the list goes on for a while… Additionally, several media outlets have published interesting stories on the impact of broadband (or lack thereof) in rural areas. From my perspective, two things are clear: rural America needs broadband now, and barriers must be reduced so that rural telecom providers can provide said broadband in rural areas. Regulatory and financial barriers are not the only thorns for rural telecom providers right now, as we will see in the following story about two rural telecom cooperatives in MN who tried twice, and failed twice, to merge in order to have a better chance at navigating the perilous regulatory waters ahead.

Earlier this week, Blandin on Broadband and the Willmar, MN West Central Tribune reported on a proposed merger between Farmers Mutual Telephone Company (Bellingham, MN, 1.037 access lines) and Federated Telephone (Chokio, MN, 2,350 access lines). The two cooperatives hoped to create a merged cooperative called Advanced Communications in Rural America. According to the West Central Tribune and both cooperatives' General Manager Kevin Beyer, the company's bylaws called for members to vote in person, and the cooperatives failed to obtain a supermajority in favor of the merger in the first vote last November. The cooperatives then changed their bylaws to allow voting by mail-in ballot, in hopes that this would help them achieve the supermajority needed to approve the merger. Unfortunately, the results of Thursday's vote were strikingly similar to the previous vote: Federated Telephone Company members voted 90% in favor of approval in both votes, but only 57.5% of Farmers Mutual members approved the vote in the second round (a decrease from 59% approval obtained in the November vote).

I had a brief conversation with Kevin Beyer, where he expressed disappointment about the result. He said he had hoped the merger would create a stronger cooperative—a cooperative that would be better positioned to overcome the troubling regulatory challenges that the rural telecom industry knows all too well right now. I asked why the merger was not approved, and apparently there was a group of members who strongly opposed the merger who managed to sway enough power to prevent it from happening. However, Beyer added that this group of members never really explained their reasons for opposition, which leads me to the assumption that this is a bad case of small town politics interfering with a potentially valuable business decision, which could have passed benefits along to the community. According to the West Central Tribune, the opponents even placed radio advertisements, but they did not identify themselves.

What is interesting is that the two cooperatives share a general manager and switching and network facilities. My co-writer at JSI Capital Advisors, Richelle Elberg, shared that "the cooperatives had advertised that they could have saved $200,000 per year in expenses and that the uncertainty surrounding Universal Service Funding and other competitive concerns made the merger an important strategic move." Furthermore, no jobs would be lost and both cooperatives' head offices would remain open (JSI Capital Advisors article here).

So what went wrong? I suppose we will never know for sure, but I suspect the opposing members simply do not understand the telecommunications industry well enough to make an informed decision. This tends to be one of the pitfalls of rural cooperatives, where each customer is a voting member with power to drive major decisions. Something tells me that the opposing members did not sit down and read the FCC's 300 page NPRM on USF Reform, nor did they attend an NTCA or OPASTCO legislative conference and lobby Congress on rural telecom issues (but I could be wrong, who knows). However, the general manager and board members possibly did do these things to some extent, which led them to the conclusion that merging is the only way to strengthen the company to face these challenges. The fact that the opposing members did not identify themselves or offer an explanation for their opposition is a real red flag for me, and I can only speculate that small town politics killed this deal.

If you would have asked me a year ago about how I felt about small rural companies merging in order to try to reduce the negative impact of the National Broadband Plan, I would have probably gotten really defensive and angry—in fact, that actually happened at least once. However, my feelings about rural telecom consolidation are starting to change, and I now believe that if the conditions and motivation are right, some of the extremely small RLECs should certainly consider merging (I will most likely write about this topic in greater detail in the near future). It seems as though Federated and Farmers Mutual would have been a great match, and this merger could have possibly paved the way for other small rural cooperatives to take the plunge. Beyer told me that he does not see another vote in the future, and the two cooperatives will just have to do their best to survive. I wish them the best of luck.

Meanwhile, rural Americans are clamoring for broadband. There was a truly excellent two-part series this week on one of my favorite rural blogs, Daily Yonder, by Karl Stauber. Part 1, "Finding a New Rural America," takes a hard look at the disparity between "Old Rural," which is dominated by declining populations and last-century single-economy mentality, and "New Rural," which focuses on innovation, opportunity and a high quality of life. Stauber describes the duality, "Old Rural is often about very limited connectivity between urban and rural. New Rural is intentionally about broad connectivity.  New Rural is about helping regional efforts to build diverse, evolving competitive advantage that grows the amount and distribution of wealth." Part 2, "To Live or Die in Rural America," discusses the challenge that rural America faces in an increasingly urban-centric political environment. Stauber insists that new policies are necessary to ensure that rural communities, economies and cultures survive and thrive. Broadband is the key to the survival of rural communities, and Stauber comments:

"Rural communities have a double disadvantage in making high-speed access universally available.  The population in many rural areas tends to be older, poorer and less educated—all predictors of low utilization of the Internet, thus challenging the economics of traditional utility models. 

In addition, rural areas are often lumped in with urban areas when geography and bandwidth are allocated.  Most companies see more opportunity to make a return on their investment in higher density urban areas, leaving rural parts of their service areas with minimal or little access.

Federal policy should require that Internet access in rural areas be developed at the same rate as adjacent metropolitan regions or that rural utility cooperatives should be given priority when bidding occurs that includes rural regions."

I highly recommend reading Stauber's series if you have not done so already, if anything to gain a better understanding about rural areas in general.

What needs to happen in order for rural telecom providers to overcome the myriad challenges and negative forces facing the industry is facing? Unfortunately, I do not have all the answers to that question, but having good rural leaders and allies in Congress and at the FCC would definitely be a great start. Earlier this week, OPASTCO issues a press release recommending Brian Hendricks, Chief Counsel for the Senate Committee on Commerce, Science and Transportation, to take former Commissioner Baker's empty seat at the FCC. Naturally, I was curious about this individual, and I did a little investigating and he seemed like a great rural ally as he comes from rural Texas. I had no idea on Wednesday when I read the press release that I would actually end up meeting Mr. Hendricks on Thursday! Several distinguished faculty members from my school, University of Colorado, hosted a reception at the DC Disney headquarters to honor three students who were chosen to intern at the FCC and Senate. It turns out that Mr. Hendricks is a big fan of my graduate program at CU, and one of the interns (also a classmate of mine) happens to be working at his office for the summer. Anyway, when he introduced himself I was so excited and I actually said "are you the same Brian Hendricks that OPASTCO recommended for the FCC position?" I ended up having a really wonderful conversation with him, and I can say with certainty that he would make a fantastic FCC commissioner and I sincerely hope he is seriously considering the job. We discussed the importance of an interdisciplinary telecommunications education for telecom professionals, and of course we talked about USF Reform. He fears that the FCC's USF Reforms are misguided and hasty, and he shares practically all of my concerns about the finer points in the reforms. I am so honored to have had the opportunity to talk to him, and he is definitely my top "person of interest" in rural telecom right now.

In other news this week, I had an informal meeting with a member of the FCC where we discussed FCC administrative procedures and I learned about the Wireline Competition Bureau and the Pricing Policy Division—as it was an informal meeting, we could not discuss things like USF Reform or the AT&T merger, but it was still a terrific opportunity for me to learn more about the FCC process. I was encouraged to get involved with filing comments and attending ex parte meetings in the future. Additionally, the Iowa Telecommunications Association hosted a Rural Telecom Forum on June 6, which I did not attend, but heard from attendees that it was a great event. Iowa farmers and Rep. Tom Latham (R-Fourth District) discussed the importance of broadband for Iowa's agricultural economy, and there is a video clip from the Forum here: http://www.whotv.com/news/agriculture/. To see the video, go to the "Afternoon Agribusiness Report (6/7/11)" clip under the video box, and the Rural Telecom Forum coverage is a few minutes in after the farm report.

I hope to complete my reply comment summaries this weekend, and I also added a new feature, "USF Reform Headquarters" at the top of the page where you can go to get the latest news on USF Reform, as well as a comprehensive list of all the blog posts I have written on the subject for both Rural TeleCommentary and JSI Capital Advisors Blog.

Have a great weekend!

Cassandra Heyne

ruraltelecommentary@gmail.com

OPASTCO Legislative & Regulatory Conference: Do Not Leave Rural America Behind in Broadband

Today (Tuesday, May 17), I attended the opening session for the Organization for the Promotion and Advancement of Small Telecommunications Companies (OPASTCO) 2011 Legislative & Regulatory Conference in Washington, DC. As with the NTCA Legislative and Policy Conference back in March, the central theme of this conference was spreading the word about how the FCC's proposals for USF Reform threaten the very existence of small independent rural telecommunications companies and cooperatives. The main difference between these two conferences, besides the attendees, was that this time the rural carriers had significant ammunition to take to their Congressional staff with the RLEC Plan for USF Reform, which was released last month. OPASTCO put forth a strong message of unity with the other Rural Associations (NTCA, WTA and NECA), and urged members to focus on USF and ICC issues above any other current points of contention, such as the AT&T-T-Mobile merger, Net Neutrality and video retransmission consent. This illustrates just how important it is that Congress hears the message of rural telecommunications loud and clear, because rural telecom delegations normally come to DC to describe a variety of issues as many of these individuals only get one or two chances every year to communicate face-to-face with the rulemakers in DC. One of the speakers today really emphasized the importance of focusing on USF Reform by saying that most of the other current big issues won't really matter in the end if rural Americans are left behind in broadband deployment and adoption--which is almost certain to be the case if the FCC's USF Reform NPRM is adopted without change. The FCC is hoping to adopt final rules for USF Reform in the upcoming months, most likely by the end of the year.

I heard something very frustrating at the conference, which is the FCC has not been very warm to the Rural Associations' arguments so far. The FCC Commissioners and staff have somehow managed to develop some really inaccurate perceptions of small rural telephone companies. The FCC apparently thinks rural carriers purposely lose money and that all rural carriers get a rate of return of 11.25%--something we learned is not true from the studies conducted for rural carrier comments in the USF Reform proceeding. The unfortunate truth is that a significant percentage of rural carriers earn a negative rate of return, and yet they continue to make significant and even miraculous efforts to deploy broadband in high-cost, low-density regions of the country. The FCC thinks rural carriers are wasteful and inefficient, and yet they want to give the money to larger companies who are even more wasteful and inefficient, and who have no interest in serving populations more sparse than 20 people per square mile. I can't help but be overwhelmed with questions that I imagine will never be answered to my satisfaction... How did these perceptions come to be in the first place? How can they be overcome...and fast? Why does the FCC want to trivialize the significant broadband accomplishments that hundreds of small companies have made in the last 15 years, in places where there is literally no business case to provide service? I know that I am lucky to have a very unique perspective and insight on the rural telecom industry, and I want to do everything I can to help both lawmakers and the general public to see past faulty premises and misconceptions about rural telecommunications providers. I just hope its not "too little, too late," for me and for all the wonderful rural telecom owners, managers and advocates who are tirelessly communicating these issues in both the state and federal arenas. I definitely felt some sense of satisfaction when I read the Federal State Joint Board comments on USF, they also largely disagreed with the FCC's proposals and they seemed very in-tune with the issues that rural carriers are most concerned about such as reverse auctions and the unfounded cap on the fund, of which there is no legal basis or logical reason for imposing other than pure ignorance, in my opinion. The FCC wants to impose all these significant changes of USF--and I am not disagreeing with the fact that USF needs to be "modernized" to include broadband--but the FCC's proposals will ultimately end up causing significant harm to rural telecom carriers and therefore to rural consumers, either through higher rates, lower quality, or by eliminating broadband service entirely in some rural areas.

NTIA Chief of Staff Tom Powers addressed the conference this morning and touched on several key issues, such as spectrum policy, broadband adoption, and Internet policy. He described the most critical broadband adoption challenges, where 46% of broadband non-adopters (in a recent broadband adoption survey) cited "lack of interest" as the main reason why they do not use broadband. He made some interesting points about the difference in adoption rates between rural and urban users--there is about a 10% difference in adoption and that 10% can primarily be accounted for by lack of availability in some rural areas, especially when factors like income and education are constant between urban and rural groups. The NTIA is encouraging programs to increase broadband adoption by targeting the "lack of interest" non-adopters, especially minorities, senior citizens and persons with disabilities. It is discouraging that some of the people in America who could probably benefit the most from broadband either can't get it or don't understand the benefits. It is even more discouraging that rural telecom providers may not have the chance to convert the remaining non-adopters if USF is restructured in a detrimental way, and as a result the remaining rural non-adopters could be waiting years until another carrier comes along. I think it is important to consider that broadband non-adopters are not going to be clamoring for service, lobbying Congress, and reaching out to competitors if their current broadband provider vanishes from the market. They will not take matters into their own hands and build community wireless networks. They will simply be left behind, and be economically, educationally and culturally disadvantaged without broadband.

I enjoyed this conference and as usual I met many great rural telecom advocates from all over the country. I really applaud everyone who traveled to DC to meet with Congressional and FCC staff this week, because we are running out of time to communicate our concerns about USF Reform on the Hill. I know our efforts at the NTCA Legislative & Policy meeting in March were successful, because the letters that NTCA members presented to the House and Senate were circulated and signed by many senators and representatives. I hope the OPASTCO members will be even more successful with their lobbying efforts this week! I was finally inspired by this conference to start moving forward on my Master's thesis, which will be about USF Reform. My broad topic, "Will RLECs Survive 21st Century USF Reform," is starting to become a little more constrained, and now I am thinking about focusing more specifically on whether (and how) RLECs will survive reverse auctions and a cap on the fund, which I believe will be the most likely and most negative outcomes of the final rules.

Think I'm done talking about USF yet? Think again! Tomorrow is the much-anticipated 3rd FCC Workshop on USF Reform, taking place in Omaha Nebraska, complete with a special FCC Commissioner trip to a rural telecom provider in Diller, Nebraska! I can't even imagine how excited the employees at that rural telco must be right now--I'm really excited for them! I hope to have a review of this meeting posted by late tomorrow evening. I also signed up for a webcast on Thursday about consolidation in the wireless industry, which I am really looking forward to watching.

Cassandra Heyne
ruraltelecommentary@gmail.com

USF Reform Comments Showdown: In This Corner, Price Cap Carriers Want to Have it All

Comments on USF Reform and the Connect America Fund were due April 18, 2011, commencing the second round of comments in this proceeding (following April 1st's ICC comments). For your reference, the following comment summaries are in response to:

In the Matter of:

Connect America Fund (WC DN 10-90)

A National Broadband Plan For Our Future (GN DN 09-51)

Establishing Just and Reasonable Rates for Local Exchange Carriers (WC DN 07-135)

High-Cost Universal Service Support (WC DN 05-337)

Developing a Unified Intercarrier Compensation Regime (CC DN 01-92)

Federal-State Joint Board on Universal Service (CC DN 96-45)

Lifeline and Link-up (WC DN 03-109)

I realize that I said I wasn't going to resume my USF comment summaries until after May 2, but I miraculously finished my rural smart grid synergies paper way ahead of schedule--so I figured I should squeeze in some price cap comments while I have some unexpected free time. Since most of the large carriers submitted rather long comments (as usual), I'm focusing on specific arguments that are either attacks on rural telecom providers or particularly worrisome. Onward with comments from Windstream, AT&T and Verizon..


Comments of Windstream Communications, Inc: 
"Price Cap Areas First" and 4 Mbps/768Kbps
Windstream starts out by boasting that "over the next two years, Windstream will mount one of the industry's most aggressive campaigns to improve rural broadband access" (Windstream, 2011, pg. 2). However, the company is very concerned about making sure that price cap carriers are able to access funding for the most uneconomic areas--"the balance of Windstream's unserved areas, however, are expected to remain unserved until the Universal Service Fund is reformed" (pg. 2). Windstream argues that areas served by small rural telecom providers have access to state-of-the-art broadband, while areas served by price cap carriers go without--because USF is directed, presumably unfairly, at the small carriers. Is it bad that rural customers served by small rural providers have great broadband? Apparently so, at least if you are a Windstream customer. Windstream believes that the current USF system has created a rural-rural divide, and "CAF needs to fully replace this broken funding regime with a program that responds directly to the cost of deploying and sustaining networks in all high-cost areas, rather than the size or business model of the companies serving those areas" (pg. 8). Windstream discusses the challenge of providing broadband to households that are not quite high-cost but not quite low-cost either--they support one-time targeted funding for these semi-uneconomic areas coupled with a minimum private investment requirement. Windstream proposes a "Price Cap Carriers First" plan, which includes combining High Cost Loop funding with the High Cost Model method, then redistributing funds based on wire-center costs. They argue for a capped fund and distribution through competitive bidding. Although the semi-uneconomic areas should only receive one-time support, price cap carriers should receive ongoing support to one provider per area--Windstream is clearly hoping to become that one provider in many rural areas. The other point I found alarming was that Windstream supports the 4 Mbps downstream speed target, but believes the upstream target should be reduced to 768 Kbps. Windstream argues that 4Mbps/768Kbps is more than sufficient for basic Internet applications (since all most people do is check their e-mail anyway), and it will help increase fiber deployment in second- and middle-mile transport--which they believe is more important than deploying high-speed fiber in the last mile. Windstream adds that 768 Kbps upstream is much cheaper than 1 Mbps, and the additional 232 Kbps "is arguably not worth the incremental additional deployment costs and added strain on the universal service fund" (pg. 18). Furthermore, Windstream references a paper by former FCC chief technologist (and my former professor) Dale Hatfield, to support its argument that 4Mbps/768Kbps is sufficient: "fiber optic cable is often regarded as being 'future proof,' and policy makers should focus on the immediate need to bring fiber significantly closer to the customer" (pg. 17). I do not take that statement as meaning that high-speed fiber should stop at the second-mile, but Windstream apparently does not want to commit to bringing fiber to the home at this time, at least until the price cap carriers are securely the sole recipients of USF. The most alarming comment by Windstream was: "The Universal Service Fund cannot continue to bear the strain of expansion of Fiber to the Home that is being deployed in some high-cost areas served by small rate-of-return carriers" (pg. 34). Ouch! Lastly, Windstream is in favor of eliminating all legacy high-cost support for CETCs in order to free up funds and limit the overall size of the fund, because funding competitive providers "has imposed irrational burdens on the consumers who contribute to the Universal Service Fund" (pg. 27).

Comments of AT&T: 
Sweeping Reforms for a "Relic of a Bygone Era"
AT&T opens with some real fighting words directed at the FCC, indirectly at RLECs. With a harsh tone and a hint of irony, AT&T insists: "The existing universal service and intercarrier compensation regime is teetering on the brink of collapse. Adopted in an era of local exchange monopolies, that regime is no longer adequate to the task of rationally promoting universal service even on the legacy [PSTN]. And it is utterly incapable of advancing universal service on the all-IP communications network of the future...The Commission's existing policies are actively hindering broadband investment and adoption in high-cost areas, denying millions of Americans the benefits of next generation technology" (AT&T, 2011, pg. 1). I actually laughed out loud while I was reading the introduction, because AT&T talks about how outdated and inefficient the current USF system is because it was designed for a monopoly-dominated industry, which is not what the industry is today. Really? Because last I checked, AT&T seems to be trying really hard to return the industry to its former AT&T-dominated glory. Regardless, AT&T wants sweeping reforms to abolish "monopoly-era perspective regulations" (pg. 3). New reforms should include market-based approaches and a procurement model, whereby providers are only subject to explicitly agreed upon service obligations, are not compelled to provide broadband but can on their own accord in exchange for universal service support, and this model would create certainty and encourage participation. The new-era USF should eliminate legacy COLR obligations because they are legal obstacles to the transition to an IP-based industry, and they inefficiently maintain both circuit and packet switched networks. New-era USF funding should be targeted specifically to uneconomic areas, and the FCC should adopt a hard deadline of January 1, 2017 for "all legacy high-cost funding and all state and federal legacy service obligations should be terminated, and only the broadband support mechanism should remain" (pg. 6). AT&T wants the FCC to adopt final rules for CAF now, in order to reduce regulatory uncertainty. Ironically, AT&T refers to a comment by CoBank (a primary lender for RLECs), possibly taken out of context: "Lenders don't lend against hypothetical costs and they don't get repaid in hypothetical dollars" (pg. 85, footnote 177). I do agree with AT&T's definition of broadband--they argue that the definition should be based on what consumers actually use now and in the near future, "rather than focusing on the definition of 'broadband' in a vacuum" (pg. 88). I think this is a really good idea, because imposing a static speed limit on the definition of broadband is going to cause the FCC more problems down the road than they are capable of dealing with, and it will pose significant harms to consumers. Unfortunately, AT&T adds that if the FCC does not take a "holistic" approach to the definition of broadband, 3Mbps/768Kbps is probably the best speed-based definition because it is cheaper than 4/1 Mbps and will "ensure faster and more efficient deployment to households in high-cost areas" (pg 94). The bulk of AT&T's comments were in response to the ICC component of the NPRM--which should have been submitted separately on April 1. However, nobody tells AT&T what to do, right? It is really scary to think about how AT&T basically wants the FCC to "eradicate" the entire current USF system, good parts and all (although AT&T doesn't think there are any good parts, clearly), and start over based on their recommendations--will AT&T's lobbying prowess and be enough to overshadow the united RLECs proposals, like the Rural Association Plan? I'm well aware that there will have to be some compromises in this rulemaking and the RLECs will need to make some sacrifices, but I'm really hoping that for once AT&T is not the sole winner of the USF battle.

Comments of Verizon and Verizon Wireless:  
Cap & Reduce USF, Eliminate Rate-of-Return
Verizon's comments are not quite as garish as AT&T's, but they are not without a plethora of dramatic accusations and insults to rate of return RLECs. Verizon argues that the current USF system "discourages carriers from updating their business models for the broadband era in order to hold on to legacy universal service and access subsidies" (Verizon and Verizon Wireless, 2011, pg. 2). This is a direct attack on rate-of-return carriers, which Verizon argues should be forcibly transitioned to price cap regulation. Verizon argues that no carrier deserves the privilege of a guaranteed 11.25% rate of return, and rate of return "rewards inefficiency, insulates carriers from competition, and gives these providers a disincentive to innovate," and "no carrier should be forever insulated from the effects of competition or relieved of the need to pursue innovation" (pg. 53-54). First, we saw in the Iowa Telecom Association comments that 85% of Iowa's nearly 150 rate of return carriers recovered below the 11.25% threshold, and 41% actually earned a negative rate of return. Second, I would like to see proof of one rate of return RLEC who is not concerned about, and is insulated from, competition--this is a ridiculous argument. Competition in the broadband era comes from many sources--including wireless, satellite and VoIP, and I don't think there is a single small rural carrier who isn't sufficiently freaked out about competition for their small number of customers. When you only have 2,000 customers, the impact of losing just one to a competitor is catastrophic. Finally, I would also like to see proof of the rate of return RLEC who does not feel pressure to innovate. In the broadband era, it is innovate or die. Time and again I have heard these accusations against rate of return carriers, yet I rarely see any solid evidence of the claims that rate of return carriers are inefficient and avoid modernizing their networks. As a result of competition, resisting innovation is business suicide. I'm sure there may be a few rate of return carriers who are guilty of inefficiently using universal service support, but it is certainly not the majority, nor should the majority suffer from the bad actions of the few. Anyway, back to Verizon: they argue that the high cost fund should be capped at the 2010 level of $4.3 billion, AND the FCC should "establish an expectation that funding decreases over time as broadband is deployed into unserved areas and technology drives greater efficiencies" (pg. 55). Verizon believes the fund will be reduced over time if the FCC adopts competitive bidding (which will reward carriers who can build broadband for the lowest cost--resulting in an unfair advantage to the largest companies with the greatest economies of scale, and resulting in very low quality broadband networks), targeted support to unserved areas, and only supporting one provider per area. Together, these actions will help the FCC "impose the kind of market discipline on the system that will shrink the fund over time" (pg. 58).

Well, there you have it--the perspective from the large carriers. It is about as diametrically opposite from the RLECs and rural carriers as it can be, further evidence that the USF reform NPRM has initiated an extremely bitter fight where it is almost guaranteed that nobody is going to rise from the rubble completely unharmed. Exactly who will be harmed remains to be seen, and I sincerely hope that the lobbying power and deep pockets of AT&T and Verizon is not a persuasive factor in decisions that will impact the entire country and telecommunications industry for years to come.

For my next installments, I will take a close look at the Rural Association Plan and the FCC's April 27 USF Reform Workshop (which I will unfortunately miss as I will be on a plane while it is happening). If you are just tuning in, you can read my summaries of the rural carriers here, and my summaries if the ICC reform comments here.

Hope everyone had a nice weekend, and don't forget to FOLLOW RURAL TELECOMMENTARY ON TWITTER!

Cassandra Heyne
ruraltelecommentary@gmail.com

USF Reform Comments Showdown: In This Corner, Rural Carriers Stand Somewhat United

Comments on USF Reform and the Connect America Fund were due April 18, 2011, commencing the second round of comments in this proceeding (following April 1st's ICC comments). For your reference, the following comment summaries are in response to:

In the Matter of (emphasized comment summaries in green):

Connect America Fund (WC DN 10-90)

A National Broadband Plan For Our Future (GN DN 09-51)

Establishing Just and Reasonable Rates for Local Exchange Carriers (WC DN 07-135)

High-Cost Universal Service Support (WC DN 05-337)

Developing a Unified Intercarrier Compensation Regime (CC DN 01-92)

Federal-State Joint Board on Universal Service (CC DN 96-45)

Lifeline and Link-up (WC DN 03-109)

I have been anxiously awaiting this day since the FCC released this NPRM, and naturally the comments were due on the worst possible week for me to read them, as I am in the midst of final papers and exams. However, I was prepared and cleared my schedule for two full days to read and summarize key comments in this proceeding. I am planning to divide my comment summaries into two appropriate groups of RLECs/rural associations (in this post), and the "other guys" in the following post. You may wonder why I am spending so much time summarizing these comments (without getting paid anyway), and that is indeed a good question. First, I will be doing my master's thesis on USF reform. My working title is "Will RLECs Survive the New Era of USF?" However, I haven't gotten much further than that. I am hoping these comments will inspire me to move forward with my thesis and refine my topic proposal so I can start writing the paper this summer. Second, I believe it is critically important that all stakeholders in the telecom industry gain a better understanding of rural telecom providers. There is not enough information or understanding about the important role of RLECs within the FCC and within the industry at large, so I am hoping to educate at least a few people on the perspective of the rural telecom industry (which is the overall purpose of this blog) Without further adieu,

 Comments of the Iowa Telecommunications Association (ITA):
ITA was dead on point with their argument that although the National Broadband Plan (NBP) in effect has some very important goals, such as ensuring ubiquitous and robust broadband to all Americans, "the devil is in the details," and in this case, the details are extremely detrimental to Iowa's small telecommunications carriers (ITA, 2011, pg. 5).  Iowa telecom providers have made tremendous progress in deploying quality, high speed broadband to extremely rural areas despite the hardships associated with low population density (the average size of an Iowa community is a mere 3,000 people, and Iowa has over 1,000 communities).  ITA argues that the USF Reform NPRM "erroneously assumes that something significant has changed in Iowa," which would make serving these rural communities attractive to larger carriers in the absence of Iowa's RLECs. I loved that ITA included one of my favorite quotes by Edmund Burke, which I commonly utter in reference to the telecommunications industry: "Those who don't know history are destined to repeat it" (ITA, 2011, pg. 2). History shows that large carriers have not been interested in providing service in rural Iowa, where there is very little economic incentive to invest in broadband networks. History shows that Iowa's RLECs have defied the odds to bring state-of-the-art service to their communities. Those who argue that Iowa doesn't actually need over 100 small companies should note that consolidation will not solve critical economic problems of scope and scale, as is perhaps the case in more densely populated areas. ITA argues that reducing or eliminated the High Cost Fund and ICC support will violate Section 254(b) of the Communications Act which mandates a sustainable and predictable funding mechanism. ITA also provided a really excellent argument regarding the state of rate-of-return carriers in Iowa. Critics of rate-of-return often claim that RLECs are sitting on piles of money and inefficiently utilizing federal funding. ITA cites a study conducted by Keisling Associates which concluded that the average rate-of-return for 111 Iowa regulated RLEC's was actually 1.57% in 2009, down from 3.48% in 2008, and significantly lower than the FCC's authorized rate of 11.25%. Furthermore, 41% of the RLECs actually had negative rates of return, and 85% were below the 11.25% threshold. Another study cited in the comments, by Vantage Point Solutions, described the costs of deploying a FTTH broadband network vs. an LTE wireless network in a hypothetical rural community with a population of 952 (pretty normal for Iowa communities). Although the LTE fixed costs would be less FTTH, the FTTH network would support 70Mbps per customer, whereas the LTE network would only support 0.047Mbps per customer. Even more astonishing is that the LTE network would end up costing $95,556 per Mbps versus $103 per Mbps for the FTTH network. If anyone has doubts about the value and efficiency of FTTH, please read this study. I was really pleased with the arguments in the ITA comments--they accurately reflected the dire concerns that Iowa RLECs have with the NPRM, and they provided some really memorable examples of why continued, sustainable and predictable USF is important for both Iowa RLECs and their rural customers.

Comments of CoBank, ACB: 
CoBank, a cooperative bank for rural businesses, is a critical source of private lending for RLECs. There has been considerable concern that lenders like CoBank will freeze funding resources for RLECs as a result of the regulatory uncertainty plaguing the industry. CoBank provides over $3.5B in loans to 200 rural wireless, wireline, cable and Internet providers; as well as other rural agriculture, energy, water and waste disposal businesses. CoBank supports the NBP and transitioning USF to support broadband, but adds that "there is a troublesome tone in the NPRM that suggests the Commission believes that rural carriers that serve high-cost areas are intrinsically wasteful and inefficient" (CoBank, 2011, pg. 3). CoBank does not believe this is a fair assessment of rural telecom providers, and they stress that rural telecom networks require ongoing capital expenditures which may cost up to 10 times more than comparable urban network expenditures. CoBank also argues that the proposed Connect America Fund (CAF) should not be capped, because "ongoing expenses...do not subside upon completion of the project" (CoBank, 2011, pg. 5). Furthermore, rate-of-return should not be eliminated because the alternative, price-cap or incentive based regulation, is not applicable for companies that service high cost rural areas. According to CoBank, it is a "basic fact of business" that price cap carriers will not invest in rural areas that will not generate sizable profits. CoBank asks the critical question on every rate-of-return carrier's mind: "Why would the Commission dismantle a successful, efficient method of deploying broadband to high-cost areas?" (CoBank, 2011, pg. 6) That is indeed a very good question... Anyway, CoBank suggests that the FCC consider either lowering the 11.25% rate of return, or examining allegations of inefficiency on a case-by-case basis instead of making everyone suffer. I think these are both really interesting suggestions, and I hope to read more about the merits of a case-by-case analysis of inefficient users of USF. I suspect there are far fewer cases than the FCC assumes exist. I though CoBank's comments reflected some of the points that were made at the NTCA Legislative and Policy Conference about the important of rural America to our nation's economy. Rural America provides the bulk of the country's foods, fibers and fuels, and it is absolutely necessary that rural areas have reasonably comparable access to broadband in order to keep pace with urban America--in order to feed and clothe them as well. CoBank will be less inclined to invest in rural telecom providers if there is no guaranteed rate-of-return, where RLECs would be less likely to repay loans. Very scary!

Comments of the Rural Cellular Association (RCA):
Ah, reverse auctions...This NPRM leaves no stone unturned in terms of telecom issues that give me panic attacks (reverse auctions, monopolies, big government; for example). RCA's comments are from a perspective that is clearly different from the wireline rural associations, but nonetheless they made some interesting and insightful arguments. Like everyone else, RCA applauds the FCC for taking steps toward modernizing USF and ensuring that all Americans have access to broadband, but RCA questions whether the FCC even has the proper authority to mandate USF support for broadband or to mandate reverse auctions. RCA recommends that the FCC seek the proper authority from Congress before moving forward with CAF and reverse auctions, and Congress "should be the arbiter of whether to undertake a sea-change in the distribution of high-cost USF support" (RCA, 2011, pg. 3). Next, RCA argues that the FCC should adhere to the following principles in any major USF reform: efficiency, sufficiency, competitive and technology neutrality (don't pick winners and losers!), success-based funding, appropriately targeted support, and transition to broadband without a premature death to voice support. RCA also argues for equal treatment of wireless and wireline, and that the FCC should avoid funding only one eligible carrier. Rather, the FCC should consider proposing a single subsidy per customer. RCA is critical of the current high-cost/rate-of-return support mechanism because it encourages over-investment, "while deterring [wireline] from pursuing efficient business operations driven by market forces" (RCA, 2011, pg. 10). RCA argues in favor of a competitive and technology neutral, market-focused, and unbiased forward-looking cost model. Regarding reverse auctions (I saved the best for last, sorry), RCA warns that they have not been authorized by Congress, they will undermine competition, result in "government created monopolies" (I shudder at the thought...). RCA emphasizes that the FCC doesn't even know if reverse auctions will work, and "it would make no sense to base the future of high-cost support on an auction framework before ascertaining whether such an approach is even workable" (RCA, 2011, pg. 18). In what I have studies of reverse auctions in countries like India and Chile, they end up being spectacular failures. I've gotten over the fact that the FCC will probably test drive them with the Mobility Fund, but I agree with RCA's warnings about tying future USF support to an unfounded auction mechanism. Finally, RCA argues that the 4/1 Mbps funding baseline should actually be reduced so that 3G wireless carriers are not excluded. While I vehemently disagree with this argument, RCA points out that 3G is the "technology of choice" for many consumers, and the proposed AT&T-T-Mobile merger will not deliver 4G to the "last 5%" unserved areas--in fact, AT&T has no intention whatsoever of providing 4G to these largely rural areas. Although I am not convinced that 4/1 Mbps is sufficient in any way, this is definitely a persuasive argument in light of the controversies surrounding the merger.


Comments of the Rural Independent Competitive Alliance ("RICA," David Cosson):
So far we have looked at the perspective from Iowa rural ILECs, rural telecom lenders, and rural cellular carriers. Now I bring you the perspective from rural CLECs, as communicated by the RICA. Although some of the issues in RICA's comments are outside my scope of knowledge (such as the Identical Support Rule), this association made a variety of really compelling arguments against reverse auctions. RICA described the benefits that rural CLECs have brought to underserved communities, noting that their contributions to broadband deployment and adoption are often undervalued by the FCC. Additionally, rural CLECs took the 96 Act Challenge to bring competition to areas that have low business case for one carrier, much less two. RICA argues that eliminating the already meager support for rural CLECs would "at best [result in a] slow strangulation, more likely...grave financial distress" for these companies (RICA, 2011, pg. 6-7). According to RICA, the fundamental flaw of the NPRM is that it expects to fund a broadband future with exploding demand based on revenue from a declining voice telephony world of the past--therefore, the entire rationale for capping the CAF is unfounded.  RICA urges the FCC to eliminate the Identical Support Rule, because "it bears no relationship to the cost of providing service," and "there is no real way to demonstrate how the funds are used" (RICA, 2011, pg. 10). Alternatively, the FCC should implement a cost-based model for support. I found RICA's best arguments to be in response to Phase 1 CAF and reverse auctions. First, RICA is concerned that Phase 1 CAF will impede rural CLECs from expanding into nearby unserved areas because the proposed funding is one-time only. In other words, not for rural high cost areas that require ongoing investment. RICA shares my concerns that reverse auctions will result in the lowest quality, lowest level of performance, and lowest level of reliability in networks funded through this mechanism. Ultimately, reverse auctions may significantly increase the rural-rural divide, as rural CLECs will have little incentive to participate. Furthermore, rural CLECs "cannot expect to outbid large carriers with thousands of times their financial resources" (RICA, 2011, pg. 14). Next, RICA argues that an alternative to reverse auctions should recognize other meaningful factors besides the cost to deploy a network, such as "a [carrier's] demonstrated commitment to the area, demonstrated competence in providing quality service, and a credible business plan" (RICA, 2011, pg. 16). I cannot stress how important it is for the FCC to make sure that these factors are somehow embedded in a funding distribution mechanism. Local businesses are favored in small communities, and a company's reputation is important in this case. Next, RICA argues that funding for both fixed and mobile broadband is critical, because both fixed and mobile broadband are critical services for rural consumers. Ensuring funding for both fixed and mobile networks will also go far to ensure reasonably comparable service for rural areas. Finally, RICA adds that the FCC should not impose artificial boundaries such as Census blocks on participants in CAF funding; rather, recipients should decide their own geographic service territories, within reasonable limits. I highly recommend that rural CLECs take a look at these comments to get more clarification than I can provide regarding the identical support arguments, but overall I was very impressed with the arguments set forth in RICA's comments against reverse auctions.


Comments of the Rural Broadband Alliance ("RBA"): "Speed Matters"
Now that I have covered several of the sub-categories of rural telecom stakeholder comments on an "overall arguments" basis, I want to focus on some specific arguments from other participants. First up, the proposed 4/1 Mbps "speed limit" the FCC plans to impose on rural broadband providers and customers. I have been speaking out against the 4/1 Mbps proposal for awhile now, and it was the focus of a large project I did for a class last semester where I deemed this proposal the "fundamental flaw" of the National Broadband Plan and compared the U.S. to several countries that ensure reasonably comparable broadband for all residents--rural and urban alike. The RBA argues that the widespread criticism of rural rate-of-return companies "gold plating" their networks (read: investing in high-speed networks like FTTH) is unfounded, rather these investments were forward-looking and customer focused. According to the RBA, "to call such customer-focused delivery 'gold-plating' is at best, merely insulting, and at worst, misguided and insensitive to the needs of rural customers" (RBA, 2011, pg. 4). Rural telecom providers recognized the growing demand for fast broadband over 10 years ago, and have done nothing but strive to deliver this critical service to rural customers. Although RBA supports the 4/1 Mbps baseline on an initial, interim basis, the association insists that this definition of broadband must evolve and increase quickly. RBA points to the example of Comcast's recent announcement to provide 105 Mbps to more than 40 million homes. With 105 Mbps, a customer can download a 6 GB movie in 8 minutes. The same movie would take 2 hours with a 6 Mbps connection, and over 4 hours with a 1.5-3 Mbps connection. The RBA emphasizes that broadband speed "can mean the difference between life and death" in rural health care centers, and can mean the difference between economic success and failure for rural businesses (RBA, 2011, pg. 5). The 4/1 Mbps broadband definition for rural areas is contrary to the Communications Act of 1934, which is the central argument I made in my paper "Unreasonably Comparable Broadband Service: An Analysis of Leading International Broadband Plans and Accomplishments." The RBA notes that the FCC has a monumental task of not only ensuring that unserved rural areas gain access to broadband, but ensuring that well-served rural areas gain access to reasonably comparable broadband.

 Comments of the Rural Telecommunications Group (Bennet & Bennet): Long Term CAF
I have been interested in reading the responses regarding the long term CAF proposals, because in my opinion this is the most challenging aspect of revamping USF--we have no idea what the future holds in terms of telecommunications. In the 96 Act, the Internet was barely on the radar, and now we suffer the consequences of regulatory shortsightedness. I fear history will be repeated yet again if the Long Term CAF policies are not crafted carefully and with "room to move" when the telecommunications industry produces the next game changer a la the Internet--the Long Term CAF proposals revolve around disseminating all USF funding through CAF and capping CAF at 2010 high-cost levels. Today I received a Twitter comment criticizing ongoing funding for USF recipients, saying "why subsidize dinosaurs?" Not to veer too far off track, but does the age of a company really matter when it comes to distributing funding to a provider who can efficiently and reliably provide high performance broadband in uneconomic rural areas? Anyway, the Rural Telecommunications Group emphasizes the importance of ongoing support for rural wireless, which I also believe should be a fundamental component of Long Term CAF. My concern is that many rural wireless and wireline carriers simply won't make it to the long term visions of CAF if short term funding is capped or limited to one-time investments. RTG points out that business plans are based on the current USF system, and a 5 year phase-out of CETC support would be devastating to small rural wireless carriers: "simply put, in virtually every case, a loss of high-cost support will make running a high-cost, rural mobile network unprofitable, and therefore unsustainable" (RTG, 2011, pg. 11).  RTG argues that the Long Term CAF should be specific, predictable, and sufficient; again ensuring that rural wireless carriers will be able to develop and accomplish goals in their business plans. Furthermore, Long Term CAF must be consistent with Section 254(b), and it should ideally provide support for one wireless and one wireline carrier. I applaud RTG for recognizing the importance of an appropriate long term vision for CAF, for without assurance of ongoing, predictable and sufficient support rural wireless carriers will not be able to continue investing in rural wireless broadband infrastructure.

Edit 4/19/10: Other noteworthy points:
Comments of the Blooston Rural Carriers:

• "Several of the Commission's proposed actions...are based on assumptions that are either faulty or simply not supported by the record. Specifically, the Commission's Phase I CAF Support proposal is based entirely on the National Broadband Map, which has already been shown in other proceedings to be unreliable" (Blooston Rural Carriers, 2011, pg. iv). 

• "For most price cap carriers their rural service areas are backwaters that are so small relative to their total operations that [the rural areas] have no material significance to their business plans or their financial statements" (Blooston Rural Carriers, 2011, pg. 6)

Comments of John Staurlakis, Inc:

• "Universal Service is not a box of Kellogg's Corn Flakes--a commodity purchased, placed on a shelf and then consumed at breakfast time. Ongoing operational and maintenance expenses constitute a significant portion of annual costs associated with these rural networks" (JSI Inc., 2011, pg. 2-3).

• "The financial impact of the Commission's proposed near-term reforms portents severe financial impacts that are certain to have a negative impact on the preservation and advancement of universal service in areas served by rural ILECs" (JSI Inc., 2011, pg. 7).

• "If the Commission wants to evaluate the best way to deliver universal service to rural areas of the nation, it should not start with the premise that rate-of-return should be abandoned" (emphasis my own, JSI Inc, 2011, pg. 15).

Comments of Moss Adams LLP:

• "Each company [rural providers analyzed on the impacts of the NPRM] is one of the, if not the, largest employers in its rural service territory, providing jobs and financial stability in some of the most rural and economic depressed areas of the country" (Moss Adams LLP, 2011, pg. iv). See Comments of Kalona Cooperative Telephone Company at pg. iv which confirms this argument.

• "The combined result of all the proposed USF rule changes [on the study sample of 57 study areas] is a reduction in net income of $58,766,146 from $61,262,980 to $2,496,835" (Moss Adams, 2011, pg. 5-7). Furthermore, the combined impact of all the FCC's proposals is a loss of $29,353,172, and "no lender will provide capital in this regulatory environment." 

I will leave you with this final point by Kalona Cooperative Telephone Company as I feel it really brings together all of the issues I have summarized so far, and it drives in the point that these USF reform proposals are a nightmare for the rural telecom industry. It is very important to hear from these small companies to get the full effect of how these proposals will damage rural communities:

"The effects of this proposed plan would leave KCTC no better than bankrupt. In this day and age with the changing technology, KCTC has strived to meet and beat our customers needs for broadband and telephone usage. If the proposed plan is implemented, it would not only be detrimental to KCTC, but the whole Kalona, IA community. No business would be able to thrive in this area without the efforts we put forth each day to keep broadband and communications thriving. KCTC would no doubt have to close its doors leaving a small community without a large employer in town, losing many active leaders in the area, and literally decimating the community" (KCTC, 2011, pg. 13-14).

Later this week (hopefully, depending on how much of my Energy Communications Networks paper I get done in the next few days) I will be taking a look at the "Dark Side" perspective as well-the large price-cap carriers. My work on this proceeding will be an ongoing effort, as I hope USF support for rural carriers will be as well.

My Final Thoughts (For Now):

• This is the single most important, game-changing telecommunications policy initiative in my lifetime. Coming from a small rural family-owned telecom service provider, the ultimate results of this rulemaking will have a significant impact on my future, one way or the other.
• Everyone wants the money, and not everyone will get it. 
• Many of the initiatives in the NPRM are insensitive to, and ignorant of, the contributions that rural carriers have made towards making broadband what it is today--this is very unfortunate, and I'm not sure if there is enough time left to educate the FCC about our contributions. 
• I love that so many rural telecom providers are vocalizing their objections to the NPRM, I feel strongly that our companies will have an impact--I may be overly optimistic given the political climate of the FCC and the dire warnings indicated in many comments, but we need a dose of optimism right now! These dire warnings may be just the thing we need to get the FCC's attention.
• Overall, the RLECs are unprecedentedly united on most issues in the NPRM. Small rural wireless carriers diverge on some key issues, but that is to be expected. I know there are often differences in rural telecom regulatory perspectives from state to state and even within states, but this is the one time that differences must be set aside for a untied front against the detrimental proposals in the NPRM.