'Modernizing' rural internet service is costly



Salina Journal

A proposal to spend billions of dollars to bring broadband Internet to rural areas by diverting the money from existing rural telephone subsidies could cost Kansas hundreds of jobs.

As part of implementing its National Broadband Plan, the Federal Communications Commission in March proposed "modernizing" the goals of the Universal Service Fund, collected through monthly phone bills, to help pay to bring high-speed Internet service to "underserved" areas.

Statewide, according to FCC data from July 2010, roughly 8.3 percent of Kansans lack access to broadband Internet at home -- but in rural areas, that number climbs to 28.1 percent.

Numbers differ

But those numbers vary wildly across the state; in Saline County, for example, 19.5 percent of rural residents lack broadband, while the number is more than double that (39.8 percent) in Sedgwick County, and just 3.2 percent in Ottawa County.

The low number in Ottawa County is attributable to the current federal subsidy, says Mike Foster, CEO of Twin Valley Telephone.

His company serves parts of 10 counties, with an average of 1.6 customers per mile -- and it costs $30,000 to bury a mile of fiber, "whether it's serving thousands of customers or three.

"Without that (federal) support, we wouldn't have been able to deploy the broadband that we have," Foster said. "We understand there are haves and have-nots -- and the reason our customers are haves is we spent the money like we were supposed to."

The service territory of Wilson Communications covers about 1,000 square miles and includes about 1,600 customers.

Wilson Communications recently borrowed $14 million from the U.S. Department of Agriculture to add 375 miles of high-speed fiber optic cable to its network. The company has installed 525 miles of fiber optic cable since 2002, said Brian Boisvert, general manager.

"We've invested, and continue to invest, millions and millions of dollars," Boisvert said. "It's been possible only because of that support (from the Universal Service Fund)."

Both Foster and Boisvert say large national telecommunications companies seem to have little interest in providing high-speed internet access in rural areas they serve.

Twin Valley in recent years purchased 13 exchanges from Sprint, Foster said, and out of those 7,000 customers, just 200 had access to broadband before the sale. Since then, his company has put $60 million into hooking those customers up with high-speed service.

"In some areas, sad to say, there's still dial-up -- places just outside of Salina," Boisvert said.

The proposed shift in funds would provide an incentive for large national companies such as AT T to bring broadband service to places such as just outside of Salina, Boisvert said -- but it would do so at the expense of rural communities.

The Center for Economic Development and Business Research at Wichita State University recently completed a report on the FCC's proposal.

That study predicted that rural telephone companies in Kansas would lose $28.7 million a year in subsidies because the money would be spread among a large pool of providers. Currently AT T is the only service provider in Kansas that isn't considered a rural provider and doesn't qualify for the subsidy.

The service fund totals about $8 billion a year nationwide.

By 2016, the study predicted, the state's rural phone companies would have shed 140 jobs; job losses in one industry lead to job losses in other industries, and the total job loss was estimated at 367.

Foster thinks the study is optimistic, and that those jobs will be lost in the first six months.

"Companies will shed jobs and expenses very quickly," he said. "These highly-trained, well-paid people are going to move away -- there aren't going to be any jobs for them. In many communities, the phone company is the largest employer."

"You're going to hear a huge sucking sound in rural Kansas," he said.

Foster also thinks the WSU study was optimistic in that it doesn't mention the likelihood of highly leveraged rural phone companies being unable to meet their debt payments.

"If our funding goes away, we're going to have a tremendous number of bankruptcies," said Foster, acknowledging the WSU study stuck to what could be "quantified and proven."

Nationwide, he said, 80 percent to 90 percent of rural telephone companies have loans.

"Our payment plan was based on that subsidy," Foster said. "This is going to be worse than tough. Many companies won't be able to make their loan payments."

"We made these debt obligations under the rules, counting on that money," Boisvert said.

And if rural phone companies go bankrupt, Foster wonders, "who will buy them for pennies on the dollar? And will a big company continue to provide broadband service?"

Both also say that without the subsidies, they might not be able to maintain their existing networks.

They also agree with the broad goal of reforming the subsidy to focus on Internet access rather than voice telephone service.

"The money should be supporting broadband," Foster said. "Voice shouldn't be the driver of the support. There's fixes to this thing that accomplish that goal."

One idea, Foster said, is to charge fees to large, profitable companies such as Google, Yahoo! and NetFlix, "who make billions off the back of the Internet."

They're also working to persuade members of Congress to kill the proposal and come up with alternatives; Foster said Kansas was the first state to commission a study on the economic effects of the proposed changes, but 18 other states are now doing similar studies.

Rep. Tim Huelskamp, R-Fowler, says Congress had heard them, and is working with the FCC on alternatives.

"The bottom line is that all the parties involved want to expand rural broadband access; the disagreement is about how to achieve this," Huelskamp said in an email Tuesday. "It is very important that we consider these proposals very carefully and not rush to push through a policy which is unnecessarily destructive to existing investments and infrastructure."


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