Rural telcos in the U.S. are headed for a year of certain change -- and that may be about all that is certain in 2013.
For example, in January and February, the Federal Communications Commission (FCC) will be gathering industry comments on how it will handle the transition from TDM technology to an all-IP network, and whether that transition will free larger carriers from having to compensate smaller carriers for terminating voice calls.
The National Telecommunications Cooperative Association (NTCA), a loud voice for rural telcos in Washington, is one of two entities that have asked the FCC to act in this area. AT&T Inc. is the other one, and has very different interests.
The NTCA wants the FCC to include intercarrier compensation -- that's the sharing of revenues for completing voice calls -- in the IP transition so that VoIP calls are treated differently.
But this is just one of many issues in front of the FCC (others are still in the court system) that will determine whether rural telephony even exists in a few years. If, for example, AT&T is allowed to walk away from its rural carrier obligations, or if the FCC agrees with the United States Telecom Association (USTelecom) to lift dominant carrier status from all local telcos (not likely, says USTelecom itself), then the smaller companies will be affected, and disproportionately.
All that regulatory uncertainty is one reason some industry watchers believe 2013 will see the beginnings of widespread consolidation in the rural sector -- assuming someone is willing to do the buying or merging.
Kent Larsen, senior VP of financial services for CHR Solutions Inc., believes at least 30 percent of rural telcos will disappear through consolidation during the next five years.
"Mid to late next year, you are going to see an uptick in consolidation," Larsen says. "I don't think it will be a [single company] rollup, but there will be people looking for fire sales."
Family-owned and commercial companies are likely to go first, he notes, as profits disappear in the wake of changes to Universal Service Funding. Lacking the economies of scale to survive, these companies may also look to merge with their neighboring firms to create bigger entities, but Larsen isn't expecting any major acquisition binge by companies that bought rural telcos in the past, such as TDS Telecom or FairPoint Communications Inc.
Some of the changes that lie ahead are mere continuations of past trends. More rural telcos are likely to turn to OTT video offerings over their broadband pipes, either in lieu of deploying IPTV or as an addition to, or replacement for, their IPTV efforts. As content costs continue to make profits in video elusive, having your own video offering is less attractive to cash-strapped telcos.
But not all the news is bad. There is a major initiative at the NTCA that highlights a positive trend -- use of telecom networks to enable crucial rural services including telemedicine, distance learning, telework and more. And as NTCA President Shirley Bloomfield noted in a recent blog, there is some enthusiasm in the Obama administration for these efforts.
The NTCA will be undergoing its own potential major change -- a proposed merger with Organization for the Promotion and Advancement of Small Telecommunications Companies (Opastco) will be decided this year by a vote of the members of both groups, and could create an even stronger voice for rural broadband where it's needed most – in Washington.
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— Carol Wilson, Chief Editor, Events, Light Reading
