Yes, rural America needs broadband. But the best way to do that in many places is through local carriers. Reforms to the Universal Service Fund proposed by the FCC, however, could put these small, rural companies out of business.
Editor’s Note: The Federal Communications Commission is preparing to change the Universal Service Fund (USF), the federal fund used to extend phone service throughout rural America. The goal now is to use the fund to do for broadband what it did for telephone service. Cassandra Heyne is the daughter of a rural telephone company operator and is now a blogger and a student studying telecommunications. Below is her letter to the FCC on its plans to change the USF.
Dear FCC Commissioners and Staff:
With a decision on Universal Service Fund reform drawing near, I want to take a moment to share my feelings on this highly important issue in a public forum, with hopes that my message will be heard.
I have been involved in the rural telecommunications industry my entire life. I come from a family-owned rural telecom business (Walnut Communications) that has been operating in rural Iowa for nearly 100 years.
Against all odds in the early 1900s, my great-great uncle, my great-grandfather, and a group of farmers built the foundation for Walnut Telephone Company. It was truly a community effort. Farmers and volunteers offered assistance, equipment and even their own wagons to help build the phone lines miles outside of town.
Over the years, the company faced great adversity, survived the Great Depression, and even earned the respect of AT&T during a time when AT&T stopped at nothing to squash competition, including destroying farmers’ telephone equipment and ripping out lines. Now, Walnut Telecommunications faces its greatest challenge yet—surviving the directives of the National Broadband Plan.
I care very much for my family’s business and the rural area that I came from, and I cannot ignore four generations of ancestors who have poured their lives into providing telecommunications in a very small community in Iowa—a community that has little growth, an aging demographic, few high-income residents or large businesses. Despite these demographic and geographic challenges, Walnut Communications has historically been a leader in advanced telecom technologies, installing the first digital switch in Iowa, offering the first cellular service in Iowa, upgrading all customers to DSL in the 1990s, and most recently, deploying high-speed fiber-to-the-home.
Walnut Communications and hundreds of other Rural Local Exchange Carriers (RLECs) have been able to make these groundbreaking investments and provide advanced telecommunications services at rates reasonably comparable to urban Americans because of the financial stability that the current rate-of-return and USF facilitate.
USF enables these companies to take risks on technologies and secure private capital for critical investments in broadband infrastructure, despite being located in economically challenged and sparsely populated high-cost regions. Yet, the FCC contends that RLECs are wasteful, inefficient, and apparently not worthy of ongoing USF subsidies.
In my analysis of the USF reform proceeding, I have personally found very little evidence to suggest that RLECs are in any way wasteful and inefficient. Sure, there are likely a few “bad actors” in the industry, but the bad actions of the few should not be used to penalize the RLEC industry as a whole. Large companies like AT&T, Verizon and Windstream echo the FCC’s accusations against RLECs, but these giants provide no evidence to suggest that they are actually willing to provide service in extremely rural high-cost, low-return areas.
If these companies wanted to serve rural areas, they could have done it already. But they haven’t, because in investor-owned public companies low-return investments are scrapped in favor of higher return ventures.
The RLEC industry is not a high profit game. RLECs provide outstanding service to their rural communities because they care about the communities. A hundred years ago, AT&T did not want to provide service in extremely rural areas, and today, they still don’t. RLECs were established to help prevent an urban-rural divide in telephone service, and yet here we are 100 years later facing the same problem with broadband service.
I do believe that USF should be modernized for a broadband era. There are certainly aspects of USF that are in dire need of modernization and simplification. However, there is no need for the FCC to achieve USF reform by causing irreparable harm to thousands of companies, and there is absolutely no excuse for the FCC to create broadband black holes in rural areas by excluding RLECs from future USF support for broadband.
I am also particularly concerned with FCC sentiments that RLECs should consolidate. There is no evidence to support the argument that consolidation would yield positive impacts on rural broadband deployment and adoption. This is simply a blind acceptance that “bigger is better.”
Bigger is not always better, especially in rural areas, where small, locally-owned businesses are actually important. Just because every sector of the information and telecommunications industry is moving towards consolidation—and borderline monopolization—does not mean that it is the best outcome for everyone.
Rural cultures value small local businesses, and forcing consolidation in the industry will result in a devastating loss to many vibrant rural communities. Furthermore, actions that force RLECs to consolidate (or worse, go out of business) will result in thousands of lost jobs and opportunities for rural Americans.
I highly recommend a recent study by Wichita State University Center for Economic Development and Business Research, which describes how the FCC’s USF proposals would impact Kansas RLECs. The outcome is not good. Between 2012 and 2016 Kansas RLECs could lose a total of $143 million in USF funding; 367 direct and indirect jobs would be lost, and the state would lose around $5 million in combined income, property and sales tax revenue.
This study is a perfect example of why the FCC needs to look at the “bigger picture” before hastily implementing USF reforms based on a shaky foundation and unsubstantiated conclusions. It isn’t just the rural telecom industry that will suffer, it is ancillary businesses, equipment vendors, state and local governments; and most of all—rural communities.
FCC, please take seriously the overwhelming amount of evidence that your USF proposals will harm RLECs and rural communities as you move forward with the final rules. There is no reason to change the game so dramatically that companies will actually go out of business as a result of overly aggressive and intrusive government actions, especially when there are very reasonable alternative proposals available.
I fully recognize that every USF stakeholder will have to make some compromises and sacrifices in order to transition USF into the broadband era. However, sacrificing entire companies will not achieve the end goal of deploying broadband to 100% of the country. It will have the exact opposite effect.
RLECs have been leaders in providing broadband to rural Americans since before broadband was even considered an important service, and there is no reason to take funding away from these companies in order to give it to companies that will not serve extremely rural areas simply because their investors won’t profit from it.
Ensuring that all Americans have access to, and utilize, high-speed broadband is an extremely admirable vision, but the path to achieve this lofty goal should not be hastily planned or built upon an unstable foundation. There is simply too much at stake—from the viability of small businesses to the opportunities for extremely rural Americans to participate in the global Internet ecosystem—to implement rules without considering the full spectrum of short and long term outcomes for each stakeholder.
RLECs have a bleak future as a result of the proposed reforms, and I sincerely hope that the FCC can conceptualize and implement an alternative suite of USF reforms where RLECs have a bright and profitable future, and where all rural Americans have access to broadband.
Cassandra Heyne writes the blog Rural Telecommentary, where this letter first appeared. She is also a student, studying telecommunications, at the University of Colorado.