USF changes hindering growth in rural Minnesota: A view from Hubbard County

Yesterday Minnesota Public Radio featured a story on Paul Bunyan Communications, located in Bemidji. Paul Bunyan has been working on expanding fiber in their area – and have received recognition for the efforts, especially as a cooperative. Co-ops and independent telecommunications companies have been instrumental in helping reach the far corners of the state with broadband. They are one of several providers that feel as if they will be hurt by the changes in federal funding – the shift from Universal Service Reform (USF) to Connect America Fund (CAF).

As MPR reports…

Bemidji-based Paul Bunyan Communications, which provides service to some 28,000 phone customers, is slowing down an aggressive expansion of fiber optic cable because the Federal Communications Commission is shifting how it allocates money in what is known as the Universal Service Fund.

The company could receive from $3 million to $5 million less from that fund each year as more money flows instead to such large carriers as AT&T and Verizon, a company spokesman said.

I’ve heard the same sentiment from other folks, such as at the CLE Day on Broadband last week. The Local Exchange Carriers (LECs) feel as if they are paying into a system from which they can’t make a withdrawal. At that meeting Joseph Cavender from the FCC explained that the recent changes are the first of several phases, indicating that the next round of changes may help LECs. I think that feels like cold comfort right now – first because it doesn’t help today. Second, because that just leads to more uncertainty and it’s difficult to build (or sustain) a business plan or make investments based on uncertainty – as seems to be the case with Paul Bunyan.

It’s hard on the companies; it’s hard on the communities as well. A recent report from the University of Minnesota Extension (Economic Contribution of Telecommunications Companies Serving Greater Minnesota) indicates that the total economic contribution of the telecommunications industry serving Greater Minnesota in 2011 was an estimated $1.3 billion. So anything that hampers growth will hamper the economic impact. Also with the negative impact and uncertainty communities are not getting broadband.

David W. Collins, Executive Director of Hubbard County Regional Economic Development Commission has sent a email to several folks outlining the potential problems with these changes on his community and asking policymakers and community leaders to consider the impact…

We need your help!

The Hubbard County Regional Economic Development Commission (HCREDC) for several years has been trying to bring high speed broadband services to ALL of our rural areas. Approximately 4,000 homes and businesses within the Park Rapids (MN) phone exchange currently are not served, and have to rely on satellite or dial up service. These options are unacceptable. Bringing state of the art, underground fiber optic cable to these areas is vital to our future economic growth for numerous reasons, a few of which are:

1) the ability for consultants and others to operate / manage their business from home;
2) students / parents / teachers / schools being able to communicate and student being able to complete assignments (they are currently at a disadvantage compared to other students);
3) resorts being able to take reservations and market themselves, plus the ability of guests to communicate while visiting;
4) people want to live in this area, but are choosing to purchase real estate only where broadband is available;
5) medical care / monitoring plus emergencies;
6) the list goes on and on.

After communicating with several industry providers in our area, the HCREDC partnered with Paul Bunyan Communications (cooperative, based in Bemidji) and supported efforts to obtain a Rural Utility Service loan (RUS loan) thru the United States Department of Agriculture (USDA). This effort was successful and Paul Bunyan Communications was awarded a $17 million loan in September 2011 to build out fiber to each home in the Park Rapids area. It was expected that work would begin immediately with fiber going into the ground beginning Spring of 2012, with project completion estimated to be early 2014.

HOWEVER, in late October and again in November, the Federal Communications Commission issued an order to “reform” universal service fund (USF) and intercarrier access compensation. This “reform” would cost local telecoms millions of dollars annually in lost revenue. It would dramatically change the business model for these telecoms from a system that has worked and been in place for years. The “reform” would significantly reduce their annual revenues and in almost all cases eliminate their ability to invest in rural broadband / phone infrastructure. It is my understanding that one of our local area telecoms stands to lose over $3 million annually due to this “reform”, which would be implemented over the next 9 years. This “reform” will make it extremely difficult for these businesses to repay existing loans, let alone invest in further developing a broadband infrastructure in rural areas.

This is not just a Hubbard County problem. It is not just a Minnesota problem. It is a problem for rural areas nationwide!! This “reform” will negatively impact the development of rural broadband infrastructure nationwide. Imagine if rural areas did not have land phone lines or electricity? We are basically talking about the same issue for our times! And this is much more important than keeping rural post offices open!!!

But back to Hubbard County. The build out of fiber in our area has been for the most part “put on hold” because of the “reform” and its impact locally. Tough for Paul Bunyan Communication (or anyone else in our area) to build out a $17 million broadband infrastructure when the revenue model is being so drastically changed.

So, we are asking that:

1) our congressional delegation (Senator Klobuchar, Senator Franken, Congressman Colin Peterson & Congressman Chip Cravaack) make this issue a top priority; [See note from Klobuchar/Franken]
2) we need our congressional delegation work to have the FCC order nullified or reversed or amended in a way that our project could proceed;
3) and we may need our congressional delegation to extend the deadline for using the $17 million dollar RUS loan authorization. Time is ticking away on us as this issue is being “discussed” in Washington. The “reform” issue needs to be resolved, but when that happens we still need to be able to access the $17 million RUS loan;
4) the Association of Minnesota Counties to actively become involved in this issue. Perhaps by asking each county to pass a resolution of support, and by actively engaging their Minnesota and Washington lobbyists and political action network;
5) Bill Richards, Richards Policy Group, representing Governor Dayton & Minnesota, become actively involved in resolving this issue;
6) Impact 20 / 20 (Northwest Minnesota Foundation) to become involved and mobilize their network;
7) Blandin Foundation Broadband Initiative become involved and mobilize their network;
8) Governor Dayton and his staff to make this a priority and communicate the same to the Richards Policy Group and entire MN Congressional delegation;
9) that the Rural Broadband Alliance (based in Washington, D. C.) continue to work with us towards a satisfactory solution.

Apparently challenges to the “reform” have been, or will shortly be, filed in the 10th Circuit Courts (Denver). However, this route to remedy the situation could take years at best. Congressional action is needed and needed now. The intent of the USDA’s RUS program is solid, the FCC needs to keep its USF and inter-carrier access fees in line with and supportive of that intent.

I offer the content of his email almost in its entirety as a roadmap for anyone who has similar concerns.

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