WASHINGTON-Sen. Conrad Burns (R-Mont.) often describes his state as having a lot of land between light poles.
In other words, rural America by its very definition has fewer people and more land. This combination has traditionally been harder and more expensive to serve by telecom carriers because each new customer requires much more of an investment.
“The name of the game is really how do we get the services to rural America that we offer in the urban areas at an affordable price. Everything is possible technically but the question is whether they can be offered at an affordable price,” said Michelle Pampin, global director for strategic planning for the Microwave Communications Division of Harris Corp.
To get over the disparity in economic potential between rural and urban America, the universal-service fund was created to allow rural Americans to have comparable services at comparable rates to those paid by people living in cities.
With passage of the Telecommunications Act of 1996, wireless carriers were allowed access to universal-service subsidies. This has increased the cost of the fund and worried many rural wireline carriers that believe wireless carriers were granted eligible telecommunications carrier status-a necessary step-because regulators wanted to spur competition in areas where competition is not viable. Recently, The Federal Communications Commission adopted additional criteria for ETC designation, even for carriers that have already been granted ETC status. States are also encouraged to use the new standards.
The battle over ETC status is but one piece of the universal-service fight that is expected to move to Congress this year as the FCC continues to struggle with the contribution factor, the amount carriers must pay into the fund.
“The whole focus on the Hill and at the FCC is on universal service. As the industry continues to metamorphoses, universal service is a top priority in the Senate and for the industry. It is fair to expect FCC Chairman Kevin Martin to make it his legacy,” said Jessica Zufolo, an analyst with Medley Global Equity Advisers.
One of the areas expected to be included in universal-service reform is whether broadband access-including wireless broadband-can be subsidized by universal service.
Wireless broadband has been touted by the FCC as the way to close the gap between rural and urban America.
“Broadband is a catalyst for economic development. It can bring the resources of the world into areas that are more remote,” said Lauren Van Wazer, co-chair of the FCC’s Wireless Broadband Access Task Force.
John Branscome, the other co-chair of the task force, said people think wireless could help broadband competition in rural America where often there is only one, if any, broadband provider.
“Folks are very optimistic about wireless broadband because of the propagation characteristics,” said Branscome, noting the FCC recently put the task force report out for comment. “We certainly hope the rural issues will get a lot of play.”
While there are several anecdotal incidents of wireless broadband popping up, there is still skepticism that it really can be the third pipe into the home.
“As always it depends on whether the companies are able to develop a service that actually works at a price that is truly affordable,” said Rebecca Arbogast, analyst with Legg Mason Equity Research.
FCC Commissioner Jonathan Adelstein acknowledged as much, noting solutions for each place may be different.
“We need to look at all of these solutions in context. We are going to have to tailor the solution. There is no one-size-fits-all. There need to be applications and pipes for them to ride on. That includes wireless, which I hope can be the third pipe,” said Adelstein.
Another difference between rural and urban carriers is the way they view the amount of spectrum necessary for service to be viable.
Urban carriers contend that large geographic licenses are necessary for scope and scale. “Coverage is a major problem for the national carriers. They have a business model that says they need to focus on the urban core. One of the issues being faced by rural America is when will it be more economically attractive for the national carriers to build out to rural America,” said Scott Stone, chief executive officer at Padcom Inc.
On the other hand, rural carriers think more precise spectrum chunks with appropriate buildout requirements would make wireless services more readily available to rural America.
“We have pursued specific policies of buildout requirements. The lack of buildout requirements for rural areas has left those areas neglected. The outlying areas are not served,” said Jessica Bridges, CEO of the Rural Telecommunications Group, which represents rural wireless carriers.
RTG also joined with T-Mobile USA Inc. earlier this month to ask the FCC to revise the third-generation band plan.
The RTG/T-Mobile proposal would create six license blocks: three based on rural economic area groupings; two based on economic areas; and one based on metropolitan/rural service areas.
“This approach would promote more efficient use of the spectrum for several reasons. First, both by splitting the 30-megahertz block into smaller spectrum blocks and by licensing some of this spectrum in the smaller RSA/MSA geographic areas, the FCC would ensure that national, regional and local licensees would not be forced to acquire more spectrum (either spectrally or geographically) than they need for their business operations,” said RTG and T-Mobile. “Bidders desiring blocks larger than 20 megahertz would be able to aggregate two or more smaller blocks at auction or in the secondary market.”
Even though the proposal seems to indicate a nod toward secondary markets, where carriers with unused spectrum could lease or sell it to others, Bridges said that the FCC’s efforts at creating a secondary market for spectrum have been largely ineffective. “The large nationwide carriers don’t have a lot of incentives to do that,” she said.
Adelstein still believes in secondary markets, and said he met with the CTIA board of directors in New Orleans to begin exploring various options for rural America to get access to spectrum.
“I have been supportive of secondary markets and finding a balance in license sizes, and I want to explore those options with the industry,” said Adelstein.
The merger of the bigger wireless carriers is also a challenge for small rural carriers. Rural carriers tried but failed to stop the acquisition of AT&T Wireless Services Inc. by Cingular Wireless L.L.C. This fight is heating up again as Alltel Corp. tries to buy Western Wireless Corp.
RTG has taken the lead in opposing the mergers.
Recently, RTG filed an opposition to the Alltel/Western merger. RTG said that Alltel and Western Wireless did not provide enough detail about possible spectrum overlap of their combined operations, specifically regarding the ownership of both cellular licenses in a given market. RTG explained that while the FCC recently eliminated the cellular cross-interest rule in favor of a market-by-market evaluation of spectrum ownership, the omission makes it harder to challenge the deal. In a number of markets, Alltel would hold 70 megahertz of spectrum, which would be more than one-third of the 170 megahertz of spectrum available in those markets, said RTG.
