Rural Telcos Go Toe-to-Toe With DC

Blair Levin, author of the National Broadband Plan, got little Valentine's Day love at the NTCA's annual gathering

February 15, 2011

5 Min Read
Rural Telcos Go Toe-to-Toe With DC

DALLAS -- It wasn't billed as a re-working of the Valentine's Day Massacre, but when National Broadband Plan (NBP) author Blair Levin took the stage Monday at the NTCA - The Rural Broadband Association 's annual meeting, he faced a firing squad of rural telcos unhappy with many of his proposals.

Before the hour-long session was over, however, it might have been Levin who left NTCA members shell-shocked. In his debate with NTCA members -- Delbert Wilson, general manager of Hill Country Telephone Cooperative , and Randy Houdek, general manager of Venture Communications Cooperative Inc. -- Levin repeatedly reminded the crowd that his opinions matter less than the political realities of today's Washington, where government spending is under fire, especially when it goes into the pockets of privately owned companies.

The current methods of funding rural telcos are economically inefficient and must be changed, says Levin, now a Communications and Society Fellow at The Aspen Institute. The Universal Service Fund, the subject of Federal Communications Commission (FCC) reform, is an inefficient system that pays some companies "enough money to build a Maserati, while requiring them to only build a Mercedes, and only charge for a Corolla," he says.

Wilson, in particular, attacked Levin and his idea, as expressed in the NBP, that delivering Internet access at 4Mbit/s downstream and 1Mbit/s upstream met requirements for comparable service in rural areas to what exists in urban and suburban communities. Calling the NBP "disastrous and dangerous," Wilson said it will eliminate thousands of jobs in rural communities.

Levin responded by warning Wilson and NTCA members that they are "living in a bubble" and that the same NTCA members who had, earlier in the program, applauded Rep. Pete Sessions' (R-Texas) call for government to get out of the way and to spend less, have to accept the reality of less funding for their companies as well.

The dramatic growth of the USF in recent years -- Levin says the contribution rate of consumers (the tax added to phone bills) has jumped 500 percent (to 15 percent) and the fund has increased 300 percent -- has made change certain. The longer rural telcos put off agreeing to change, the weaker their position becomes, he warns.

Emotions aside, there were clear divisions that remain between Levin's views of Washington reality and the NTCA members' idea of how the USF should continue to fund construction of rural broadband networks. The key points of disagreement include:

How much broadband do rural areas need?
Houdek pointed out that most Americans have access to 6Mbit/s service and that without that, rural areas are destined to fail. Levin responded by saying most Americans only use 4 Mbit/s and that is what could cost-effectively be delivered to all Americans, including the 7 million U.S. homes currently unserved by broadband.

Is the current system really broken?
Levin says yes, that current rate-of-return rules encourage gold-plating networks, which wastes money. According to the NTCA, the real waste in USF funding is not happening in rural wireline networks. Michael Romano, SVP of policy for the NTCA, says the US$2 billion of the $9 billion USF funds that goes into the high-cost fund for wireline isn't growing as fast as other parts of the USF, such as the growth of wireless lifeline costs. NTCA members are seeing only a 3 percent increase in their costs.

Should reform address who contributes to the USF?
Levin says creating a wider base of contributors to the fund is a separate issue, and could be dealt with but probably only after changes are made in distribution. Houdek maintains this is a core problem and Romano concurs. Since consumers using broadband Internet services and texting don't contribute to the USF, Romano explains, consumers who pay for voice services are seeing increases in their USF tax rates as a result of substitution. Smartphones are making the problem worse, since many consumers use them mostly for data services, Romano points out, so wireless contributions to USF are falling off dramatically.

Do rural wireline companies spend too much per household?
Levin brought up the oft-quoted $20,000 per access line cited by the FCC as part of its USF reform proposal, but Houdek sought to debunk that figure. There's only one company in the U.S. spending anywhere near that much and it's a rural Washington state provider forced to serve 17 access lines no one else would serve, he says. Most rural companies are like his firm, which spends $220 per access line.

Can wireless broadband be a less costly substitute?
Levin says yes, but Houdek and Wilson say no. For one thing, only a small percentage of networks are all wireless, using microwave for backhaul purposes, Houdek says. Most cell towers use copper or fiber backhaul facilities, so wireless requires wireline.

Can rural telcos use other types of funding to fund networks reliably?
Levin encourages NTCA members to look at what he called "the second half" of the NBP, which proposes building more fiber networks for community anchor institutions, such as hospitals, schools and libraries. That's where rural telcos can deliver value and those projects will help fund further broadband deployment, he says. All well and good, Romano comments, but many rural telcos serve areas outside the towns in which such institutions exist, making this type of funding unreliable for those firms.

The debate made it clear that, despite what Romano admits is progress on many fronts in the USF debate, there is still much about which rural telcos remain concerned, and that may well determine whether or not they survive.

— Carol Wilson, Chief Editor, Events, Light Reading

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