The Big Telco Problem

A few weeks ago I made the observation in a blog that we don’t really have a rural broadband problem – we instead have a rural big telco problem. As I work around the country helping communities that are looking for broadband solutions it finally struck me that the telcos in almost all of these areas are the big companies – AT&T, CenturyLink, Verizon, Frontier, Windstream, etc.

I don’t see these same problems in areas served by smaller telephone companies. These smaller telcos have either upgraded networks to deliver faster broadband or have plans to do so over the next few years. I know of numerous rural telcos that are currently building fiber to rural areas, and those networks are going to serve those areas for many decades to come. There are undoubtably a few small telcos that are not making the needed upgrades, but for the most part the smaller telcos are doing the right thing – they are reinvesting into the rural areas and making the upgrades needed for the future.

The large telcos have done just the opposite. Most of them have been ignoring rural America for decades. They yanked customer service centers from smaller communities many years ago. They drastically cut back on rural technical staffs and it often takes weeks for customers to get repairs. They stopped investing in rural networks and have not upgraded electronics or networks for decades.

There is currently a burst of activity in these rural areas for those big telcos that accepted the billions of dollars of CAF II funding. This funding requires them to upgrade rural broadband to a measly and inadequate broadband speed of at least 10/1 Mbps. However, the rules in the CAF program are weak and there are no repercussions for not meeting the goals and I’ve always expected they will spend the FCC’s money until it’s gone, and then stop the upgrades. This means while some rural customers will get speeds even a little faster than 10 Mbps that there are likely to be many customers who will so no upgrades. I don’t expect the big telcos to spend a dime of their own in rural America once the CAF II upgrades are finished.

While I call this a big telco problem I might just as easily have called it a regulator problem. The FCC and the various state commissions largely deregulated telephone service, and the FCC recently washed their hands of broadband regulation. The big telcos have been milking big profits out of the rural copper networks for decades and have not reinvested any of those profits back into the networks. That’s how big companies act if regulators don’t require them to spend some of their profits on service and upgrades.

By contrast the smaller telcos were not required to upgrade networks, but they have done so anyway. The small companies got a big boost recently from the ACAM program – a different FCC plan that encourages building forward-looking broadband networks. Many of these companies had already upgraded to fiber before the FCC money was available. These smaller telcos are part of the rural community and feel an obligation to do the right thing – and the right thing is to find a way to bring broadband that rural customers need.

Regulators have let us down by not forcing the big telcos to act responsibly. The big telcos now want to walk away from rural copper that they claim is obsolete and in bad shape. But that copper would be in much better shape had these telcos done routine maintenance for the last thirty years. We built a great nationwide copper network due to the simple regulatory principle of universal service. Regulators at both the state and local level believed that the role of government was to ensure that everybody got access to the communications networks that ties us together as a nation. They know that universal service was good for people, but also good for the economy and good for the country as a whole. It’s something that very few other countries did and set America apart from the rest of the world.

I worked at Southwestern Bell pre-divestiture and it was a source of company pride that the company served every customer to the best of our ability. But along came competition and any sense of obligation to the public went out the door and the big telcos instead concentrated on satisfying Wall Street’s demand for ever-higher profits. There have been big benefits from this competition that are hard to deny, but what was missed in the transition to a competitive telecom world was that competition was never going to benefit rural America in the same way it benefits urban areas. We should have foreseen this and kept the universal service policy in place for rural America.

I get angry when I hear politicians and regulators say that municipalities shouldn’t be in the broadband business because the commercial sector will take care of our broadband needs. That is obviously not true and one only has to look at the big telco networks ten miles outside any urban area to see how the big telcos have abandoned customers in higher cost areas.

The big telcos are still milking big profits out of rural America and are still not reinvesting any of their own capital there. I don’t know if there is a way to put the genie back into the bottle and reintroduce regulation for rural America. If we don’t then we are only a few years away from having third-world telecom networks in rural America that will be a major drag on our society and economy.

5 thoughts on “The Big Telco Problem

  1. I really appreciate your insights Doug. I recently visited my family up in rural northern Wisconsin (farm country) and CenturyLink has obviously been busy spending the CAF II money up there – lots of freshly plowed fiber routes and new DSLAM cabinets are popping up. My mom had even asked one of the outside plant crew what speeds she was going to get when they were near her house and they said “10Mbps” which she replied that seemed pretty low, to which he replied “better than nothing.”

    All the farmers up there are excited about finally getting broadband, and I am excited for it too (when I was a farm kid I always dreamed of seeing a cable plow going down our road), yet I share your concern about this weak vampiric hold that these big telcos have on the rural communities. As you said they never maintained the copper and did the bare minimum to meet regulatory standards. I guess I can’t blame them because it wouldn’t make financial sense given the low population density.

    But on the same hand my dream was to always start an ISP up there, starting out as a fixed wireless ISP but hopefully branching out into a cooperative FTTH if I can swing it later on (heck I’d be satisfied to lobby the local municipality or power company to do it – I just want people to have broadband). But this free CAF money – this subsidy – raises the barriers to entry for me. Some farmers might be satisfied with 10Mbps and won’t want to pay a little more for a local guy’s 100+ Mbps service (nevermind the future and how their kids are silently going to flee the area because of it). Or what if I do get a good subscriber base built up, but CenturyLink takes notice and decide to compete with me – they already have gov’t-subsidized fiber 90% of the way there, they can either cheaply build out a few more DSLAMs to provide or plow fiber to the last mile for FTTH.

    Meanwhile, even though my tax dollars paid for CenturyLink’s fiber, I have no access to it (by the way it’s a 144-strand fiber cable out to the very rural farmland – I checked a parked plow). It boggles my mind that this is how we subsidize telecom networks – we pay them to build out private networks that we (the public) have no direct access to. Can you imagine if we built roads this way? If the road construction crew owned the roads they built with taxpayer money and the public had to pay tolls to drive around? The public would be outraged. But this telecom stuff is invisible.

    CenturyLink is also who I will have to buy my backbone transit from for my ISP, unless I build a multi-hop microwave backhaul out of the area. For me it would be huge if I could even just use the taxpayer-subsidized fiber to reach out of the area, to buy transit from a cheaper provider from the nearest urban area (e.g. Hurricane Electric in Minneapolis’ Midwest Internet Cooperative Exchange).

    I guess this kind of turned into a rant but anyway I really enjoy your blog, please keep writing!

    • I wish you a lot of luck if you decide to tackle being an ISP there. I firmly believe that is the only way that many rural communities are going to get broadband – by somebody there tackling it themselves. Interestingly, this is exactly how rural telephony and rural electric power was tacked a century ago. A group of farmers often got together and decided to string the wires and somehow cobble together a business. Those little businesses often lost money, but they were vital to the community. If you are going to tackle this let me know.

  2. Doug,

    Why not force the big telcos to divest the unwanted copper turning those assets over to smaller CLECs?

    • It’s an idea that’s bounced around for years. When the big telcos ask to tear down copper it ought to instead be available to somebody else who’s willing to operate it. But in this regulatory environment that would never happen.

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