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Rural phone companies could be losers under new rules

Dave DeWitte, CR Gazette –

A  federal revamp of telecommunications access programs is threatening the status quo of Iowa’s small, independent telecommunications companies.

And the effects could force some of those businesses to consolidate or close down, those in the industry contend.

Iowa has more local telephone companies than any other state — about 155 — according to the Rural Iowa Independent Telephone Association. They provide service to 15 percent of the state’s population and one-third of the state’s territory.

Most small independent phone companies long have relied on the federal Universal Service Fund to augment their revenues from local customers. The fund collects a charge on the bills of all telephone users to help subsidize service in remote and hard-to-reach areas and for the hearing-impaired, among others.

The reforms target the shift in telecommunications needs from voice communication to high-speed data service, which still isn’t available in many parts of rural America even though it’s vital for a growing number of Internet-based services.

Launching its Connect America Fund last month, the Federal Communications Commission said it “transforms the old voice-centric universal service fund for rural areas into an engine for rural broadband deployment.”

Phase I of the program will take $300 million in savings recovered through reforms and use it to reward telecom providers pushing broadband services out into unserved area.

For customers who receive regular voice service, from the independent phone companies, that could mean higher rates.

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“They are pushing a lot more fees onto our bills to help monetize this fund,” said Curtis Eldred, general manager of the Clarence Telephone Co., and a former president of the Rural Iowa Independent Telephone Association.

Eldred said the FCC required the telephone company to put an additional charge on bills by July 1 or lose any revenues it had been receiving from the Universal Service Fund.

Billings initially will increase by 50 cents per line, then another $1 per line next year, Eldred said.

At the same time, Eldred said the new program implements a system of rate benchmarks that could cause many phone companies to raise their rates if they are charging less than calculated industry norms.

The stick is once again the FCC’s ability to take away Universal Service revenues if rates are not kept within the required range.

Dave Duncan, president of the Iowa Telecommunications Association, says it will work something like this: The rate “floor” for local voice service will increase from its current $10 per line to $14 on Jan. 1, 2013, Duncan said.

The system also includes rate caps, which will be in the $30 range, including various surcharges, Duncan said.

One concern unique to small telephone companies is that their customers can’t call nearly as many other lines as customers of larger telephone companies such as CenturyLink.

And a customer who can only call 500 homes without paying long-distance charges tends to be less likely to drop their service in favor of wireless carriers than a customer whose telephone company has a larger calling area, Duncan said.

“If your local service goes up $2, they’re going to scream,” Duncan said. “There’s so much competition out there for the local phone service that people are just going to discontinue service.”

At the same time the FCC is requiring higher rates and fees, Eldred said, it plans to begin phasing out, over a nine-year period, access charges for long-distance calls that phone companies relied on for revenues.

The discomfort is greater among independent telephone companies that rely most heavily on regular voice service, Eldred said, as they don’t have other revenue streams from services such as Internet, wireless or cable TV service to cushion the impact of customer losses.

South Slope Cooperative Communications Co. CEO Justyn Miller said the North Liberty-based company is reviewing its financial projections for the next several years in an effort to manage the effects on services and customers.

The new program was set forth in 759-page order last November and a series of supplemental orders that the industry is still trying to interpret, Duncan said.

Clarence Telephone’s Eldred expects some of the biggest beneficiaries of the reforms to be wireless carriers that could push high-speed broadband services out into unserved areas the most economically.

They could benefit from FCC plans to use a “reverse auction” process to fund projects — essentially awarding funds to the least expensive projects that would meet requirements.

Clarence Telephone, as with many Iowa independent telephone companies, is a partner in I-Wireless and owns wireless spectrum. Eldred said his greatest concern is for independent phone companies that rely almost exclusively on voice landline phone service for revenues.

The revenue declines could force them to consolidate with other companies or to close.

“When they start to fold, people are going to find out how those cellular towers work is often the landline network,” Eldred said. “It all goes underground at some point.”

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