In a spirited debate at NTCA’s Annual Meeting, taking place this week in Dallas, National Broadband Plan author Blair Levin suggested that the business model of rural broadband is fundamentally flawed and the national broadband plan, while not perfect, is trying to fix it. Needless to say, the audience of rural telcos which make up NTCA’s members were not flattered.

Blair Levin debated rural telco CEO’s Delbert Wilson of Hill Country Telephone (Ingaram, TX) and Randy Houdek of Venture Communications (Highmore, SD) during an NTCA general session. The debate was heated at times and touched on issues that are on the minds of rural broadband providers. Specifically, what’s the best and most efficient way to bring broadband to all of rural America?

Levin argued that the current rate of return system, which NTCA members currently use to build their broadband networks, will not work and needs to be revamped. He stated it is a legacy regulatory scheme developed for a voice world that has long since passed. He urged NTCA members to “cut a deal” now on universal service reform while they still can, because “the longer you wait the worse your options,” he said. His main argument is that rate of return regulation benefits too small of a group, arguing that a select few rural networks get to build a “Maserati style broadband network, offering Ferrari type speeds, at Corolla retail prices,” while other citizens in rural America have broadband options more akin to “walking.” He went on to say that NTCA members are “living in a bubble.” Ouch.

Wilson and Houdek respectfully disagreed, arguing that rate of return works quite well, highlighting that rural Americans served by rate of return companies have excellent access to broadband, while companies that have so called ‘incentive regulation’ offer poor broadband options. Wilson went on to say that “rate of return should be expanded, not ended.” Policymakers should look at what’s currently working and emulate it, not dismantle it, he argued.

Houdek also suggested that Levin and other Washington policy wonks use extreme cases, citing a Washington state rural telco which gets $17K per access line per year support, as ammunition to try to discredit the current system. He said a more accurate representation is his own company, Venture Communications, which gets on average a little over $200 per access line per year, which allows him to bring broadband to his customers and “employ great people.”

The arguments were passionate and the debate quite raucous by NTCA meeting standards. It kind of mirrors the overall debate taking place within the telecom industry regarding the national broadband plan and universal service fund reform. There’s a lot at stake and a lot of fear, justifiably so. Perhaps Levin summed up his and other advocates of the NBP and USF reform best when he stated that government policy’s role in this process cannot be to remove fear and guarantee success for any one. On the contrary, he argued that fear is necessary in a capitalistic system, because lack of it causes companies and industries to get too comfortable. Apparently he and policy wonks like him think that’s where many rural telecom providers are – in a comfortable bubble – one that he thinks needs to pop.

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4 thoughts on “Is the Rural Broadband Business Model Fundamentally Flawed?

  1. Interesting perspectives, to be sure. For what it's worth though, rate of return seems to be the reason that many rural telcos require a landline in order to get DSL. Windstream is the largest example of such behavior…their "greenstreak" service is marketed as naked DSL but includes a phone line with metered outgoing calls and unlimited inbound. Of course the basic landline fee for many rural telcos is tiny (on the order of $15 per month from what I've seen) but it's still something to think about.

    Also, Levin's contention about "gold-plated" networks of yore (and today) neglects the fact that the wireless providers that he's a fan of (Verizon, Verizon and AT&T) have to have some way of getting to the Internet/PSTN from rural areas. Rate of Return, which may hit $500 per line per year in some areas, helps to fund fiber networks (like HCTC's 10G core) that ensure reliable backhaul for these wireless providers.

    Though, just to be clear, what's Levin's alternative to rate of return at this point?

    P.S. WISPs will jump all over me for what I just said because they don't get Rate of Return and routinely have to deal with telcos (e.g. CenturyLink) who do, and who will on the one hand not sell cheap dedicated access to these WISPs and on the other will subsidize DSL rates to $20 per month on the back of such rate of return bonuses. That's not cool, but 20/5 FTTH availability in a rural community thanks to rate of return is.

  2. There are many perspectives, but one always forgotten by the premadonna regulators that have never been outside their cribs, is that incumbent land line carriers must serve EVERYONE in their designated territory. That is what UNIVERSAL SERVICE means. Wireless cannot do that without a tower on every hill, and I expect the government will eventually give them all the money they need to accomplish it. VOIP, cable and CLEC operatiors just pick and choose the easiest and best customers. Yet all but the cable guys get USF money, all the while not providing Universal Service. If the government succeeds in kicking out the rural ILEC landline guys, who have made the system work and have all the investment in place for growth, it won't take long before the favored few come crying back to the government for more money, or rural customers won't have service. I'm not talking about midsize to large ILECS (windstream, Century Link, etc) who abuse their customers, spend their money on other things, and then are the first "to the trough" when government hands out money. I'm talking about the rural companies that have done their job, the ones Levin really wants to run out of business.

  3. Levin reminds me of the guys in the late 50's who were so jealous of the railroads that they pushed the interstate highway system through. With the railroads decimated, trucking companies flourished on the "free" roads, at a much higher cost per pound of transport and a much higher fuel usage. So what we have now is a national highway system broke and broken, with no "free money" left to fix it, and a transportation system dependent on oil, at a much higher cost to consumers. It looks like the FCC is repeating history. Take a mature and stable network, that has taken years to develop, and throw it away because of jealousy and misguided persuasion by the big business powers that are at the FCC every day.

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