Fighting for the Last Mile

Federal stimulus funds targeted at rural America may help, but some telecommunications companies question whether it’s the best use of tax dollars.

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Editor’s Note: This story comes from our friends at Today’s Farmer Magazine.

Will the federal stimulus package bring affordable broadband service to unserved and underserved areas of rural America? Dan Strode thinks it will—at least for 5,000 homes and businesses served by Ralls County Electric Cooperative in northeastern Missouri.

“We took the bull by the horns, and I can’t tell you how excited we are,” said Strode, CEO and general manager of Ralls County Electric in New London.

The $20 million project assures all the electric co-op’s customers access to what the telecommunications industry calls the triple play—high-speed Internet, TV/video and voice/phone service. Over the next three years, the co-op’s technology subsidiary will construct fiber lines to each customer’s home, with the first receiving service as early as June. In addition, it hopes to bring distance learning to schools, tele-medicine to health systems, and better communications to public safety officials. Stimulus rules require that outside wholesale vendors can jump on board the network to offer competing service.

Ralls County Electric surveyed almost 500 of its members and learned that 96 percent would sign up at planned rates of $39.95 per month for 10 megabytes (MBs). A lower fee of $19.95 for 1 MB will also be offered. That’s a good deal when you consider the up-front cost—divide $20 million by 5,000 customers, and it comes to $4,000 per customer. Until now, rural networks might cost $10,000 per customer. The bargain comes through new architecture invented by Strode’s vendor, Pulse Broadband of Chesterfield, Mo.

 “We tried wireless broadband for years,” Strode says, “but we have a hardwood forest and all of the hills and valleys that come from the bluff side of the Mississippi River. We could only serve one in every four members who asked us for broadband.” 

Strode had been looking for a way to deliver more reliable broadband, but with a density of just four customers per mile of line, he couldn’t justify the expense. Even Pulse’s new architecture would take eight customers per mile to pay off. When the federal broadband stimulus came along, the chance to obtain half the up-front costs through a grant made the plan work.
Consumers in cities like Kansas City and St. Louis can choose from a variety of broadband providers, but you won’t find so many in rural areas like that around New London where challenging terrain can make it more expensive to bury fiber or string cable. A lower population also means fewer customers to pay off the investment.

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Digital cable was the only reliable option for rural customers in Ralls County who wanted broadband. The cost of delivering the service averaged $4,000 per customer.

The American Recovery and Reinvestment Act of 2009 provided $7.2 billion to assure that all Americans can access affordable broadband. Of that amount, $2.5 billion will focus on providing broadband to unserved or underserved areas through the federal Rural Utilities Service. By early Spring, Ralls County Electric was one of just nine applicants of this type in the nation that had obtained funding, and it was the only Missouri winner. RUS provided Ralls County Electric with a $9.5 million grant and a loan for the same amount. The state pledged $950,000.


Paying for Competition?

The town of New London, population 1,001, stands at the center of a continuing broadband stimulus controversy. While Ralls County Electric’s project would serve five counties, it will also reach residents of New London, where TDS Telecommunications Corp. already provides 1.5 MB to 10 MB broadband starting at $29.95 per a month. TDS isn’t thrilled about Ralls County Electric’s receiving stimulus funds.

Andrew Petersen, director of external affairs and corporate communication for the Madison, Wisconsin-based company, says that, overall, TDS welcomes the broadband stimulus as the best way to link up rural America with much-needed broadband services. Of all “last-mile” applications—those delivering broadband to the home—nine had been funded in the early spring. TDS won two of the nine—one in Michigan and another in Alabama. TDS, which owns 121 local companies in 30 states, originally planned to apply for funding in the New London area and another project in Stoutland, MO. But TDS didn’t apply for New London in March since a network that duplicates Ralls County Electric’s plan won’t be eligible.

At TDS, a team of 30-plus people worked full time on filing stimulus applications. The team also filed challenges to applications that would compete in TDS territories. In fact, TDS filed an informational objection to the Ralls County Electric plan, highlighting that TDS already provides broadband services in greater New London.

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Bill Rohde manages the Mark Twain Rural Telephone Co. in Hurdland, Missouri. He worries that tax money will be used to support a competitor.

“We filed the most challenges of any telecommunications company in the U.S.—over 130,” Petersen says. “Funding duplicative networks is not a good use of federal dollars and not what Congress intended. Anytime you build a government program overnight, however, there’s tremendous pressure on appointed officials to release funds quickly.” He’d like to see the program focus on people who can’t already access broadband, but added that TDS may be able to work with Ralls County Electric in the future for transport-related services.

Rural telcos cry foul


About 1,300 small telecommunications companies, both member- and family-owned, serve rural America, including 35 in Missouri. The vast majority of them are smaller than TDS and tiny compared to giants that serve cities. 
Bill Rohde manages one such small company, Mark Twain Rural Telephone Co. in Hurdland, Missouri. The co-op serves 3,900 telephone customers in seven counties, along with 1,675 broadband customers who pay monthly fees starting at $29.95 for speeds of 768 KB and up. Rohde worries the stimulus may hurt companies like his that have already invested millions of dollars in broadband.

“We’re all for bringing broadband to rural America,” Rohde says. “But we don’t think our government should provide tax dollars to companies that would compete with us. Costs here are too high, and subscribers too few to justify it.” Even in northeastern Missouri, with few customers per mile and rough terrain, Mark Twain Rural Telephone already faces competition from Internet providers that offer access through cell phones and satellite.

While Mark Twain offers high-speed Internet to all customers,  just 59 percent pay for Internet. — 46 percent opt for broadband and 13 percent stick with slower dial-up. While broadband demand nationally grows at about 19 percent a year, “Our customers always lag about two years behind other areas,” Rohde said. 
Mark Twain Rural Telephone spends about $2 million annually on overall system upgrades. It delivers broadband via DSL through copper wire and fiber optic cable, including connections to schools. It serves 1,000 wireless broadband customers, including many outside its landline telephone service footprint.

Existing small telcos complained about first-round RUS rules for stimulus funds, and Rohde doesn’t think they improved for round two. He decided not to apply for either. “It’s difficult to get applications together in a short timeframe, and it’s not inexpensive to apply. We want to do things at our own pace, without federal strings attached.”

Rohde’s company borrowed from RUS and its predecessor, the Rural Electrification Administration, for many years, and Rohde argues that the stimulus plan isn’t much different from previous programs. From his point of view, RUS brought service to rural areas where for-profit companies would not go, and now RUS is undercutting the successful telecoms it helped create.

Like Rohde, Tom Young, general manager of Kingdom Telephone Company of Auxvasse, Missouri, didn’t apply for stimulus funding. He says his company invested considerable time and money to challenge eight applicants that would have overbuilt the network that they invested millions to build. Kingdom Telephone offers broadband ranging from 512 KB to 6 MB starting at $29.95 a month.

“Since 2002, we have offered broadband service to 100 percent of our 4,200 customers, even those down the steepest hill and across the rockiest creek,” Young said. “Small companies like ours have always been way ahead in adopting new technology. We meet our customers on the street every day. Now that the government’s offering free money, everyone wants to come in here. Many applicants didn’t exist before—they started up to get some of this free money.”

 

 

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