Funding may shift from phone to Internet service in rural areas

What’s at stake is $8 billion in the Universal Service Fund, an account maintained largely from a small fee on every residential and business phone bill.
What’s at stake is $8 billion in the Universal Service Fund, an account maintained largely from a small fee on every residential and business phone bill.

WASHINGTON — To some of Iowa’s telecommunications companies, an Obama administration plan to help rural America connect to the Internet will do more harm than good.

To others, it’s a sorely needed reform that will bring rural areas in Iowa and across the nation into the 21st Century.

What’s at stake is $8 billion in the Universal Service Fund, an account maintained largely from a small fee on every residential and business phone bill.

That fund is used to subsidize telephone companies that serve underserved areas — more than half of its money goes to bring phone service to rural America. In Iowa, dozens of carriers receive a total of about $155 million each year from that fund.

The Obama administration wants to divert some of the money to bridge what’s known as the “rural divide.” The diverted funds would help establish a new “Connect America Fund” that would subsidize efforts to expand broadband into rural areas.

More than 11 percent of Iowans, or about 300,000 people, can’t access the Internet. In 12 out of Iowa’s 99 counties, half the residents are not served.

Joe Hrdlicka, a lobbyist for the Iowa Telecommunication Association, said he supports the administration’s goal. But he’s watching the Federal Communications Commission’s plans very closely.

“We simply don’t want rural telephone companies to be forgotten,” he said.

For Don Jennings, the general manager of Partner Communications Cooperative, a small telecommunications company based in Gilman, it’s a matter of fairness.

Jennings’ company has about 3,000 subscribers, averaging out to about 5.3 customers per square mile. The company earned $4.8 million in revenues last year. About $1.2 million came from the Universal Service Fund.

That subsidy is helping the company with a five-year plan to expand service. But if his subsidy is frozen or reduced, plans for expansion are threatened, Jennings said.

“For rural telephone companies, we need this money to continue to grow,” he said.

Justyn Miller, CEO of South Slope Cooperative Communications, said his company is in the midst of a $50 million expansion plan. South Slope, which serves 15,000 customers in southeastern Iowa, spent $10 million on the project last year and plans to spend $10 million this year.

Miller said his company’s ambitious plan to extend fiber-optic broadband service in the area is based on projected income from customers — and the Universal Service Fund.

“If (the FCC) pulls the funding, we won’t be able to continue with our plan,” Miller said.

He also said companies like his are already working to connect rural residents to the Internet.

“There’s just a real disconnect,” Miller said of the FCC’s plan.

Zac Katz of the FCC said reform of the Universal Service Fund doesn’t have to jeopardize rural phone service.

“There is enough waste and inefficiency in the program that we have a way to transition the program to expand broadband without losing voice service,” he said.

Katz said the goal of universal phone service has been achieved.

“But the program is still operating in the 20th century, still optimized for telephone service and doesn’t account for the realities of the 21st century,” he said.

Katz said many telecommunications companies who receive subsidies are eager for the FCC to “modernize, streamline and reform” the Universal Service Fund.

“A lot of people feel like the fund is broken ... and they want it changed so they can invest,” Katz said.

But rural advocates like Sen. Tom Harkin, D-Iowa., are lobbying the FCC to back down on any plan to cut subsidies to companies like Partner Communications and Southslope.

“I have long supported efforts to expand broadband Internet access as it has become an essential utility for residents and businesses alike,” Harkins said. “I do, however, have concerns with the National Broadband Plan under consideration by the FCC. Specifically, that it does not undercut companies that have already invested in expanding broadband to rural areas in Iowa and across the country.”

The FCC is also considering changes to the way small telephone companies get reimbursed for their roles in connecting long-distance calls to steer some of that money to the Connect America Fund.

Sen. Chuck Grassley, R-Iowa, said “anytime a federal government agency starts reforming programs, it can be unsettling.”

“In this particular area, the FCC could have a major impact on rural Iowa and the telecommunications providers that serve the people in the rural areas of the state. So, it’s important that rural America have a seat at the table and be fairly represented as the FCC considers any changes to the Universal Service Fund and the inter-carrier compensation system,” Grassley said.

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