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Rural Telcos Bring Fiber-to-the-Boondocks

Raymond McConville
News Analysis
Raymond McConville
5/13/2008
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NEW YORK -- The Future of Broadband -- While funding options exist, smaller service providers in the United States still find it tough to build broadband services to rival the big guys, as carriers and vendors noted during today's The Future of Broadband conference.

Perhaps the best lesson to be learned is: If you’re going to be a small carrier, make sure you’re a really small carrier.

“A lot of it comes back to being a cooperative,” said Kris Ward, business development manager for ATMC , a tiny carrier based in North Carolina. “We can subsidize it with borrowed money from things like RUS [Rural Utilities Service funding]. A lot of it also comes back to not having to sit in front of a group of shareholders on Wall Street. All we have to do is pay the bill.”

ATMC's cable TV business turned a profit for the first time this past quarter as it finally built a large enough customer base. Without RUS funding, the company wouldn't have been able to wait that long.

Tier 2 and 3 carriers like Windstream Communications Inc. (Nasdaq: WIN) and Embarq Corp. (NYSE: EQ) don’t necessarily have that luxury.

“They’re in a bad pinch unless they have areas with high density populations,” said Ward. “Those are the guys that keep getting bought up in M&A because they don’t have the resources of a large carrier and don’t have the financial backing of government funding.”

ATMC delivers cable TV services to about 20,000 customers and DSL services to 15,200. In 22 new-home developments, it's starting to offer fiber-to-the-home (FTTH) using Motorola Inc. (NYSE: MOT) equipment. Ward says all of its new developments will be FTTH, but there are no plans to replace older facilities with fiber.

Without funding from RUS or the Universal Services Fund (USF), small to mid-sized carriers become more exposed to the perils of rolling out next-generation services. John McHugh, the technical director of Organization for the Promotion and Advancement of Small Telecommunications Companies (Opastco) -- an organization representing 600 or so small telcos -- points out that the carriers he represents pay 25 to 35 percent more for content access than Verizon Communications Inc. (NYSE: VZ) does.

In addition, some rural carriers have customer bases located hundreds of miles away from the nearest Internet backbone and have to connect through multiple carriers to reach it. “The transport costs far exceed anything they could get from their customers,” McHugh said.

In a lot of these cases, running fiber all the way to the home is not a feasible option. “We have to resort to doing some tricks with DSL,” said Steve Kemp, senior director of product marketing with Alcatel-Lucent (NYSE: ALU). “The name of the game is getting the home within 3,000 feet and that 30 Mbit/s parameter.”

Kemp says the best solution for rural carriers is putting out remote DSLAMs just like AT&T Inc. (NYSE: T) does with U-verse. But DSLAMs are costly deployments, and small carriers don’t have the scale that AT&T does to make it more worthwhile. Even still, Kemp says it’s a more efficient option than fiber. “Ideally, you use as much of the existing copper as possible. Getting the fiber out deeper compromises 70 percent of the costs, so its still cheaper than FTTH.”

In the end, conference participants here said many small telcos will never be able to deliver the same services to their customers that a Verizon or Comcast Corp. (Nasdaq: CMCSA, CMCSK) can. Programs like RUS and USF are not expansive enough to make the more expensive services like video worthwhile although many small carriers are still trying. (See Rural Telcos Say Video's Worth It .) “I don’t think everyone is going to be a video provider,” says Kemp.

— Raymond McConville, Reporter, Light Reading

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