Broadband providers brace for new rules

Tuesday, August 14, 2012
Evertek Information Technology Network Administrator Tyler Tessum demonstrates how the fiber optic wires behind him provide service to wireless devices such as tablets and smart phones. Rural broadband providers say new rules being implemented by the Federal Communications Commission are affecting the predictability of funding for such equipment. (Photo by Gabe Licht)

When Evertek invested in a fiber network to provide broadband Internet to 520 rural subscribers, the Everly-based company was counting on a "three legged stool" of funding.

That stool consists of payments from customers, a national surcharge known as the Universal Service Fund and InterCarrier Compensation from large carriers that utilize smaller, local networks.

Evertek, along with other members of the Iowa Telecommunications Association, is concerned about how new rules being implemented by the Federal Communications Commission will affect that funding structure, specifically the USF and ICC components.

"The USF is being cut and pieces of it taken away, transferred to the Connect America Fund," Evertek CEO Roxanne White said. "That money will be dispersed differently to where they (the FCC) feel the need is for broadband. They don't have a plan in place that really sustains in the rural areas how we're going to keep going in the future and keep those networks up to date."

"The formulas that will be used in the Connect America Fund, our companies are struggling to interpret how to project future revenues based on these formulas," ITA Director of Government Relations Joe Hrdlicka added. "We also fear they're going to benefit more urban, higher populated areas at the expense of rural areas."

Hrdlicka, White and others in the industry are concerned that they will not be able to predict what the funding will be from year to year.

In the past, telecommunication providers received USF dollars based on each provider's costs. The Connect America Fund will be dispersed using a different formula.

"They're not necessarily looking at your company's costs, but the geographic area that you serve and saying, 'Here's what we think you should spend,'" said Ryan Boone of Premier Communications. "The capital improvement investments you have in the ground, if it's over 90 percent of what the FCC said or thinks you should have spent, your funding is going to get capped at that 90 percent level."

Boone and other ITA members believe that, over several years, the cap will create "a race to the middle so our infrastructure in rural America will deteriorate."

At the same time, ICC is being cut, according to Hrdlicka.

"What they're doing (to replace that) is shifting it to business and residential customers," Hrdlicka said. "People are now seeing charges in their bills, called an access recovery charge, of 50 cents for single-line residential customers and $1 for multi-line business customers."

That fee is set to increase by 50 cents and $1, respectively, in 2013 and by the same rate in 2014.

The new rules have created uncertainty for many rural broadband providers.

Of the 81 ITA members that responded to a survey, 64 said they were delaying or canceling fiber deployments because of uncertainty created by the new rules.

Spencer Municipal Utilities General Manager Steve Pick said his company does not receive USF dollars, but does benefit from ICC funds.

"The proposal is for lesser rates on that side of the house, which means the retail consumer will have to make up the difference," Pick said.

Evertek has already invested in a fiber network with the help of a Rural Utility Services loan, but White is concerned about the long-term upkeep of the network without predictable funding. Her company will spend the next 20 years repaying the RUS loan, while also having to replace electronic components of the system within seven to 10 years.

Rural broadband providers are afraid the FCC is moving too fast with the implementation of rules over the next several years.

"They need to slow down and realize what this impact could be if we aren't able to keep our networks up," White said. "What is the effect going to be on us in five years? We're not going to be able to invest that back into our networks."

For Evertek, the network includes several cellular towers and a Federal Aviation Administration marker, in addition to other commercial customers and residential customers.

The ITA believes the FCC changes could have unintended, negative consequences on economic development.

"It's going to keep economic development from coming in because a lot of manufacturing companies and even people working out of their homes need bigger pipe," White said. "Fiber has proven to be the most robust and able way to deliver that pipe to the customer and carry those speeds that are being required. If we're not able to continue that, we won't see the economic development we need to see in rural Iowa. Who's going to invest in rural Iowa if we don't have the infrastructure there?"

Hrdlicka agrees that uncertainty with broadband funding could affect economic development. The ITA has expressed such concerns to the FCC and has received clarifications, but the rules are still being implemented, he said.

Hrdlicka encouraged those interested to visit for more information and ways to get involved.

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