Rural Carriers Circle the Wagons

SAN ANTONIO -- The independent telecom carrier market is a shaky place. For decades, the mostly rural carriers here at the NTCA Annual Meeting and Expo have been in high cotton, living with virtually no competition and having a revenue base padded with government subsidies such as the Universal Service Fund.

Now their world is a different place.

Competition abounds from VOIP, wireless phones, cable providers, satellite carriers, and, someday, broadband wireless. And, thanks to a gradual political shift favoring big carriers, these independents now fear changes in the way Intercarrier Compensation is handled and how Universal Service support is paid.

But shouldn't we prop up these carriers that serve America's heartland?

While that question is ground through that sausage factory known as the Federal Communications Commission, the rural carriers can see their bottom lines shrinking and need to find new sources of revenues.

There's a lot of money at risk, by the way. The Universal Service Administration Company paid out more than $4.3 billion in support to local exchange carriers in 2003, according to the agency's latest annual report. "All the motherhood and apple pie and flag-waving arguments don’t work anymore," says Robert W. Orent, president and CEO of Hiawatha Communications, Inc. "There's an attitude that if you're not able to provide a service, someone else will."

Orent adds: "Our challenge is to see if we can unify the rural wireline industry behind a single approach. If we remain fragmented… it could be dreadful."

Table 1: Who Are These Guys?
Some fast facts on rural carriers
The more than 560 small and rural telephone cooperatives and commercial companies represented by the NTCA:
* Serve about 3.2 million homes and businesses
* Employ more than 18,000 people
On average, rural telecom carriers:
* Have 4,710 subscribers
* Have gross annual revenues totaling $6.4 million
Source: The NTCA

So far, the NTCA's members have had mixed success. Their crusade to get VOIP -- and other IP communications -- tagged as "telecommunications services," which would make them subject to Universal Service fees, has failed so far.

And if you think the FCC might step in to regulate and apply tariffs to a new IP service such as the free peer-to-peer voice service from Skype Technologies SA, for instance, "you're wrong," says Jeffrey Carlisle, chief of the FCC's Wireless Competition Bureau, who spoke here on Monday.

"Their servers are in Estonia. I don't have an enforcement staff in Estonia," says Carlisle.

And, of course, there's no love lost between regulators and the rural carriers.

"I think [FCC Chairman Michael Powell] has been terrible for the industry," said New Edge Networks CEO Daniel G. Moffat, during a presentation to carrier CEOs and general managers. "He has this neo-conservative approach where the market solves all problems."

In his slides, Moffat accuses Powell of presiding over four years of "benign neglect" in the name of "competition."

All political gripes aside, Moffat and others were even more fired up on the subject of what rural carriers should do next. And that's where the equipment makers at the NTCA event stepped up, "selling" carriers on the concept of whole networks and turnkey services, not just single-purpose gear (see Partners Package Instant IPTV).

Calix Networks Inc., which already has a large partner program, was highly visible (see Vendors Team Up for IPTV, VOD). One of its demonstrations showed 132 simultaneous video channels being transported over DSL, with the Calix C7 serving as the DSLAM, the Interphase Corp. iNAV 9200 as the Ethernet to ATM bridge, and the Minerva Networks Inc. VC8000 converting the video to IP streams. (The copper reach was only about 2 feet, but still…)

Others were making the hard sell for fiber access networks. "If carriers are still straddling the fence between copper and fiber, that's not helping their opex [operational expenses]," says John Griffin, executive VP of marketing for Optical Solutions Inc..

Optical Solutions, by the way, kicked off its GPON partner program here and sponsored a series of demos with Cisco Systems Inc. (Nasdaq: CSCO), Corning Inc. (NYSE: GLW), Tut Systems Inc. (Nasdaq: TUTS), and TelStrat International (see Optical Solutions Intros GPON Program).

There's no panacea for rural carriers, but, over and over again, presenters here said that owning a network will be key to their survival.

"Replicating a voice service is easy… building and maintaining networks is difficult," says the FCC's Carlisle.

"Folks, you own networks," said Scott Reiter, senior telecom specialist for the NTCA. "You own infrastructure. In the midst of all that's going on, you have an ace."

— Phil Harvey, News Editor, Light Reading

palaeozoic 12/5/2012 | 3:26:17 AM
re: Rural Carriers Circle the Wagons The lead-in to Dan Moffat's tirade implies New Edge is a rural carrier. They're not. New Edge is a CLEC. Dan is obviously miffed that the knuckleheaded regulatory regime on which New Edge was founded--basically take the damn lines from the ILECs and give them to CLECs at artificially low prices so they could compete with the ILECs--came to an effective end under Powell.

If you want to compete, build a network. Don't ask Washington to give you one. Just look at the angst MSO are causing among RBOCs if you want a lesson on the nature of real competition.
minnecool 12/5/2012 | 3:26:14 AM
re: Rural Carriers Circle the Wagons Rural telco subsidies are a national scandal. It is time to end the gravy train. Innovate or die.
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