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Broadband hits a hurdle

A battle is brewing over rural broadband. Few disagree that rural areas are underserved or would gain from broadband access in education, telemedicine, economic development, and civic involvement.

“It's clear that broadband availability is an essential prerequisite for sustaining rural Iowa and America,” says Tom Conry, Farmers Mutual Cooperative Telephone Company, Harlan, Iowa.

Yet, according to a U.S. Department of Commerce report released in 2011, only 60% of rural households accessed broadband Internet service in 2010.

Role of rural telecoms

The controversy involves how to accelerate broadband expansion. In the 1930s, large national companies backed away from bringing electricity to low-profit rural areas, so Rural Electric Cooperatives (RECs) backstopped the need for electricity and telephone service. Many of these companies built the rural infrastructure for today's Internet.

To spur growth, a surcharge called the Universal Service Fund was added to U.S. phone bills in 1997 to provide funds to improve telecommunications services.

Locally owned and operated telecoms used the Fund to maintain land lines and to provide Internet upgrades to residents. It was a reliable funding mechanism to repay these 10- to 20-year investments.

In 2009, the Obama administration allocated more than $7 billion in stimulus funds toward a National Broadband Plan. Many local stakeholders, rural electrics, and telephone cooperatives applied and received these USDA grants.

Under this national plan, the Federal Communications Commission (FCC), was charged with expanding broadband to underserved areas. It plans to shift up to $15.5 billion over the next decade from the Universal Service Fund.

Independent rural telephone companies say they need these funds.

“A typical wireless call can't be completed without using land line phone networks to transport the call between cell towers,” says Chris Schroeder, TCA a consulting firm in Colorado Springs, Colorado. Smart phone Web surfing also relies on a back-haul land line network connected via land line to the Internet.

However, the FCC says that in some areas five or six companies are using the Universal Service Fund to provide overlapping telephone service. The current program may contain a financial disincentive that discourages companies from moving from analog to digital IP networks.

Earlier this year, a new coalition of independent rural telecoms called Save Rural Broadband was formed after FCC proposed to make changes in the Universal Service Fund.

“A large number of unserved and under served areas are served by large companies,” Schroeder says. “These companies have tremendous economies of scale but many haven't made the same level of investment in their rural areas as smaller, local companies.”

The FCC will issue rules

After Save Rural Broadband proposed an alternative to the FCC, the FCC asked the coalition to meet with its larger counterparts and develop an industry-wide proposal. Together, the groups filed a new proposal with FCC. FCC is expected to include a response on its October agenda.

“We'll see what happens,” Schroeder says. “The final rules are not likely to make everybody happy, either. The FCC says there won't be any rubber stamp.”

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