I’m delighted to share today’s guest post and thank David Fisher for sending it.
By David Fisher
Larkin Hoffman Daly & Lindgren, Ltd.
Star Tribune business pages recently reviewed old debates over rural broadband access in Minnesota, among other issues. The debates question reports that 94% of rural residents now have affordable high-speed internet, and challenge fees telephone companies charge each other for handling calls. It’s of crucial importance – universal access to the world’s information and online superhighways is a pre-condition for broader statewide prosperity and rural economic health.
The articles reminded me of the 19th Century French writer who coined, “the more things change, the more they stay the same.” The debates today are the debates of ten years ago, when as Minnesota Commissioner of Administration I worked on strategies to expand state broadband access. In fact, these debates go back 30 or more years.
We now may be approaching consensus to find ways to resolve this historic sclerosis, and there at least five policy changes that could help Minnesota get at it. Let’s review some facts.
Today throughout the U.S., and Minnesota, we rely on outdated policies based on plain old telephone service, the most significant being fees local telephone companies charge for use of their local networks by other telephone companies. These fees were born in the wake of the 1983 AT&T breakup, when local carriers were ordered out of the lucrative long-distance market and long-distance players were barred from local telephone service. The long-distance revenue lost by local carriers was replaced by fees – “access charges”, or “reciprocal compensation” – they now charge other carriers for using local networks to originate or terminate calls. These fees generally are used by the local carrier to hold down prices for its local telephone service.
At the same time, internet use of local networks is free of access charges under Federal rules, a move to keep this new and growing technology relatively burden-free. All of this means the cost to customers for using their phone can vary widely depending on whether they are rural or non-rural, whether their call is local or long-distance, in-state or out-of-state, internet or not, and even whether it’s wireless or wireline.
This compensation scheme keeps customers guessing the cost of communications, and discourages local competition since local carriers generally can beat pricing of others by charging them access fees which then subsidize their local service. The growing consensus is the compensation scheme is obsolete, and ridiculously complex.
It gets more complex. Local telephone companies now rely on access charges for significant portions of their revenue – in some cases 20% to 40% of total income. This is important particularly in rural areas, where the cost of maintaining the local network is high due to distances between exchanges and lower population densities.
Given this history, few may blame local carriers for lobbying to keep access charges alive, or long-distance carriers for trying to roll them back.
This is a decades-old debate, and yet to be effectively addressed.
There are reasons to reach a solution. Access charges may be outdated, but let’s not slap local carriers with a 40% revenue loss. We have willing companies wanting to sell services to local customers, and local customers wanting those services. Willing seller/willing buyer is a formula for solutions.
We need leadership – on the State level – to address this debate, and bring together otherwise warring factions. Nobody is doing this today. I postulate the State of Minnesota has a role as catalyst to make five things happen.
- First, a point person or department must be assigned the task of bringing together the parties with stakes in the access charge debate. It is a matter of leadership, and a matter of critical and timely importance to our State and our citizens. Let’s explore – and find – some solutions!
- Second, consider a fund – a universal service fund – to subsidize costs of telecommunications in rural Minnesota. Start with fines levied by the Public Utilities Commission for service or certificate violations, in some years amounting to $2 million. Not much. A start.
- Third, add to the fund by allowing local network customers to “vote”, by a check-off on their monthly telecommunications bills, to add a $1.00 surcharge to enhance service in their community. If successful statewide, this could raise millions annually.
- Fourth, use low-cost state bonding authority, rather than a shrinking general fund, for infrastructure development in areas underserved by broadband access, where costs are high and populations low.
- Fifth, maximize use of existing state law allowing the lease of public rights-of-way for commercial telecommunications towers and equipment. This gives carriers access to strategically placed rights-of-way, and lease revenue to the state for the universal service fund.
- Sixth, have state agencies serve as “anchor tenants” of telecommunications services in all communities, aggregating service demand with private sector customers to encourage the build-out of sophisticated telecommunications networks.
With technologies changing literally every day, the time is right for Minnesota to stake its broadband claim in the world’s economy and social network. We must assure the entire state gets connected, informed, and united behind a great strategy. We can get there, but it requires focus and hard work. Our new state government may be up to the task, but we will see.
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