US Rural Telcos Under Attack...Again

It's open season once more on the telephone companies serving the vast expanses of the rural U.S., thanks to a report from two Washington-based experts claiming the FCC is still wasting billions paying these telcos to serve remotely populated areas.

Much of the data from the report, Unrepentant Policy Failure: Universal Service Subsidies in Voice & Broadband, is old, but it's not necessarily outdated, assuming things such as mobile phone coverage and availability of wireless broadband haven't gone backward.

The report's authors certainly have industry credibility: Thomas Hazlett is a George Mason University professor and former chief economist at the Federal Communications Commission (FCC), and Scott J. Wallsten is the former economics director for the FCC's National Broadband Plan who is now VP for research and senior fellow, Technology Policy Institute, and senior fellow, Georgetown University Center for Business and Public Policy.

Some of their basic premises hold water: They argue, as many have, that taxing everyone's use of long-distance service -- an almost meaningless term these days -- to support service in rural areas is an inefficient way to support rural connections, because everyone pays, even the poor, and many of the beneficiaries are well-to-do folks who don't need subsidies. The authors claim this latter group includes local telcos who gold-plate their networks and buy private jets for their CEOs and property owners, whose values increase because of the connections.

To quote Hazlett and Wallsten: "Poor urban consumers pay significant telecommunications fees to subsidize affluent phone customers in Aspen, Colo. and Jackson Hole, Wyo."

This kind of reference is a cheap trick, as is citing a list of 10 worst-case scenarios of USF abuse from three years ago before admitting these companies spending up to $12,000 a year per line are "outliers" and that the average per-line subsidy is only $580 for the same 2010 period.

But even that level of subsidy, Hazlett and Wallsten argue, exceeds the cost of unsubsidized service by an order of magnitude, especially since that total doesn't include the $400 rural subscribers pay for their service, on average.

Where wireless falls short
Here is where this particular report begins to fall apart for me: The unsubsidized service being used for comparison is a cell phone with unlimited voice, data and text, according to the authors. They make the same argument that, in place of the broadband subsidies now offered through the Connect America Fund (which replaced the USF), rural customers should be buying satellite service from newer providers such as ViaSat, which offer 12 Mbit/s downloads and cover much of the U.S.

To bolster their arguments, Hazlett and Wallsten cite a 2010 report that shows 98.5 percent of Americans live in the coverage area of a wireless operator as proof that it is no longer necessary to subsidize. They cite news coverage of ViaSat and its own claims of nationwide coverage on the broadband side.

Nowhere does this report address either how reliable the wireless service is, and what the quality of wireless connections is in the most remote areas, which is where the highest wireline subsidies are paid: And no, I'm not talking about Jackson Hole, which probably has excellent wireless coverage. I'm talking about cornfields in the middle of Nebraska or deserts in New Mexico. The report glosses over any latency issues regarding satellites or the impact of bad weather on their signal reliability and strength.

As someone who has travelled nationally using multiple different wireless broadband services over the past few years, I would call their coverage spotty: Where it works, it's great, but you can walk around a corner and lose the signal, and the deeper you go into a building, the less reliable a service becomes. And as anyone who buys satellite TV knows, thunderstorms are guaranteed to knock out service, at least temporarily.

I, for one, would not want anyone I cared about to be entirely dependent on a cell phone's ability to reach 911 service in an emergency from any rural site.

One of the news sources the authors cite to bolster their arguments for satellite is this Ars Technica review of ViaSat's Excede service. While generally positive, the report concludes with two problem areas: the rain issue; and the fact that ViaSat can effectively serve 1 million customers before it needs to launch a new satellite, which won't happen until 2015. To address congestion, ViaSat offers tiered service programs with data caps.

This report also doesn't address economic development issues plaguing rural America, nor the need for services such as telemedicine or distance learning. The former, in particular, could have serious challenges if the only connections are wireless.

In its response to the report, the NTCA, the Rural Broadband Association, cites a number of what it considers glaring errors by Hazlett and Wallsten, and concludes that while "a thoughtful, data-driven debate about repositioning all aspects of the Universal Service Fund -- high-cost, low-income, schools and libraries, and rural health care -- for a broadband-capable, IP-enabled world is important, this paper unfortunately does little, if anything, to advance that kind of informed discussion." (See Rural BB Association Rebuffs USF Waste Claim.)

I wouldn't say it does nothing -- after all, the report does reopen a debate, and it contains strong arguments against this type of federal subsidy, whether it is for broadband, farmers or urban redevelopment. But as is often the case with Washington-based experts, many of the real-world issues and technology challenges are glibly glossed over.

— Carol Wilson, Editor-at-Large, Light Reading

Steve..363 7/12/2013 | 5:26:45 PM
re: US Rural Telcos Under Attack...Again This is even more extreme for areas like Alaska, where satellite and cell service is none existent for most of the state. Cost for the RLECs to providing service is much higher than those of the rest of the US.
Carol Wilson 7/11/2013 | 9:34:05 PM
re: US Rural Telcos Under Attack...Again I agree with you almost 100%. I think that in the past the subsidies were taken for granted, and there was undoubtedly abuse. I don't think that's been the case lately. Many RLECs are struggling mightily and there aren't clear answers for how their customers are supposed to continue to get service.
spc_isdnip 7/11/2013 | 7:43:19 PM
re: US Rural Telcos Under Attack...Again The truth lies somewhere in between Hazlett's position and the RLECs'. Cell phone wireless is not a full substitute for wireline. It is better than nothing but lacks many important capabilities, like fax, modems, alarms, and, uh, intelligibility. And it certainly doesn't provide much data capacity. Satellite is worse, due to latency. So these might be useful substitutes for the most extreme high-cost locations, but we shouldn't condemn rural America to depend on them.
And nobody is talking about fixed wireless, which can be designed to offer higher quality. The FCC won't give the RLECs spectrum for this -- the bureau that gives out spectrum isn't the one in charge of USF! Unlicensed is sometimes used but has very limited capacity too, especially in the presence of trees.
But some RLECs have been very wasteful. USF has been a blank check, and the new CAF rules aren't the smartest reform, though they at least put a check on the most extreme abuses.
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