Country Cablevision, a small cable operator providing service in the heart of the Blue Ridge Mountains in rural northwestern North Carolina, will deploy fiber to the home service to Mitchell and Yancey counties, home to more than 33,000 people, thanks to $25.3 million (75% grant/25% loan) from the U.S. Department of Agriculture’s Rural Utilities Service.

The money is intended to fund broadband expansion in areas currently not served by the cable operator. When the project is complete in 2013, 97% of all homes in both counties will have access to the fiber network. Faster Internet speeds and competitive phone service will also be available to area businesses, and medical facilities in both counties will enjoy improved high speed connectivity.

Country Cablevision is one of the first cable operators in the country choosing to upgrade to an all-fiber network instead of extending its current, traditional cable infrastructure into currently unwired areas.

Modern utilities came to rural America through some of the most successful government initiatives in American history, carried out through the United States Department of Agriculture (USDA) working with rural cooperatives, nonprofit associations, public bodies, and for-profit utilities. Today, USDA Rural Development Utilities Programs carries on this tradition helping rural utilities expand and keep their technology up to date, helping establish new and vital services such as distance learning and telemedicine.

Lost more customers than it gained for the first time.

Phone companies depending on DSL to keep them in the broadband business are in growing trouble, unless they lack a nearby cable competitor. Subscriber numbers from nine different major phone and cable companies over the summer of 2012 show cable broadband continues to grow as customers cancel DSL service from their local phone company. But for rural customers, DSL often remains the only option. That leaves rural providers like Frontier, Windstream, and CenturyLink in better standing than larger companies like AT&T and Verizon.

Phone Companies

• AT&T‘s U-verse service is the only thing keeping AT&T broadband numbers on the rise. AT&T added 553,000 new U-verse customers during the summer and now serves 6.5 million customers on its fiber-to-the-neighborhood network. AT&T continues to lose DSL customers, primarily to local cable competitors.
• CenturyLink, Inc. has been upgrading its DSL service in several areas to better compete with cable broadband, and is also deploying a fiber-to-the-neighborhood service in select cities. The network upgrades are helping, bringing the company 18,000 new broadband customers. CenturyLink currently serves 5.76 million Internet customers nationwide.
• Frontier Communications has lost broadband customers in its larger service areas, mostly to cable, but those losses have been offset by its DSL expansion in rural areas that have never had broadband before. But the company only managed to add just under 6,000 new broadband customers during the last quarter, serving 1.78 million customers across the country.
• Verizon Communications: Verizon was willing to turn away potential DSL customers for the first time, as it discontinued selling DSL to those who don’t want Verizon landline service. That, and pervasive cable competition, meant Verizon only picked up 2,000 new DSL customers this quarter — the worst showing in four years. Verizon FiOS’ recent price hikes also cost the company some growth for its fiber to the home service,  but still earning a respectable 134,000 new customers (5.1 million total). Time Warner Cable, Cablevision, and Comcast have all managed to win back FiOS customers with attractive discount offers.
• Windstream Corp. faces cable competition in a number of its semi-rural service areas, and its DSL service has not been able to keep up with the growing speeds available to cable broadband subscribers. For the first time, Windstream reported it lost more customers than it added, losing 2,200 DSL subscribers. Windstream still has 1.36 million customers signed up for its broadband service.

Cablevision has won back some of its former customers who went with Verizon FiOS but do not like the recent rate hikes.

Cable Companies

• Cablevision, which serves mostly suburban New York City, New Jersey, and Connecticut added 25,000 new high speed customers, many coming back to the cable company from Verizon. Cablevision serves a relatively small geographic area, but a densely populated one. Nearly 3 million broadband customers have remained loyal to the cable company.
• Charter Cable picked up 37,000 new broadband customers, a number fleeing phone company DSL for Charter’s higher speed broadband services. Charter serves 3.8 million broadband customers.
• Comcast added 156,000 new customers to its roster of 18.7 million Internet customers, again mostly from former DSL customers.
• Time Warner Cable expanded with 59,000 new high speed customers, primarily from DSL disconnects. Time Warner provides service for 10.8 million broadband customers.

One of the rural groups fighting to keep funding for rural broadband networks.

The Republican platform on telecommunications and its criticism of the Obama Administration’s handling of broadband inspired a blogger at the Washington Post to ponder the question, “Whatever happened to Obama’s goal of universal broadband access?”

Brad Plumer sees the Republican criticism as valid, at least on the surface:

Does anyone remember when the Obama administration promised to bring “true broadband [to] every community in America”? The Republican Party definitely does, and its 2012 platform criticizes the president for not making any progress on this pledge:

“The current Administration has been frozen in the past…. It inherited from the previous Republican Administration 95 percent coverage of the nation with broadband. It will leave office with no progress toward the goal of universal coverage—after spending $7.2 billion more. That hurts rural America, where farmers, ranchers, and small business manufacturers need connectivity to expand their customer base and operate in real time with the world’s producers.

So whatever happened to the Obama administration’s plan to expand broadband access, anyway? In one sense, the Republican critics are right. Universal broadband is still far from a reality. According to the Federal Communications Commission’s annual broadband report, released in August, there are still 19 million Americans who lack access to wired broadband. Only about 94 percent of households have broadband access. Obama hasn’t achieved his goal.

Stop the Cap! has been watching the rural broadband debate since the summer of 2008, and believes the failure to do better isn’t primarily the fault of Republicans or Democrats — it lies with the nation’s phone companies — particularly AT&T and Verizon. But both political parties, to different degrees, have helped and hindered along the way.

Plumer slightly misstates the commitment of the Obama Administration at the outset. The Obama-Biden Plan never promised to successfully complete universal broadband access in the United States. Here is their actual pledge (emphasis ours):

Deploy Next-Generation Broadband: Work towards true broadband in every community in America through a combination of reform of the Universal Service Fund, better use of the nation’s wireless spectrum, promotion of next-generation facilities, technologies and applications, and new tax and loan incentives. America should lead the world in broadband penetration and Internet access.

Big Phone Companies Struggle to Abandon Landlines in Rural America

The Obama-Biden Plan for broadband never promised you a rose garden. It simply promised the administration would get to work planting one.

By far, AT&T and Verizon Communications are the most culpable for leaving rural Americans without broadband service. Over the last four years, both companies have diverted investment away from their landline networks into wireless. AT&T has also spent millions lobbying state governments to free itself from the requirement of serving as “the carrier of last resort,” a critical matter for rural landline customers, particularly because rural wireless coverage remains lacking.

In most states, the dominant phone company is still mandated to provide basic telephone service to every customer who wants it. Universal electric and telephone service goes all the way back to the Roosevelt Administration, who saw both as essential to the rural economy.

The Communications Act of 1934 that the Republicans today dismiss as outdated established the concept of universal telephone service: “making available, so far as possible, to all the people of the United States a rapid, efficient, nationwide and worldwide wire and radio communication service with adequate facilities at reasonable charges.”

The concept of universal service was reaffirmed, with the blessing of the telephone companies, under the sweeping deregulation of the landmark Telecommunications Act of 1996. Republicans call that law outdated as well.

Rural America Can’t Win Better Broadband If Their Providers Don’t Play

Decided not to participate in rural broadband funding programs.

The American Recovery and Reinvestment Act provided the Department of Commerce’s National Telecommunications and Information Administration (NTIA) and the U.S. Department of Agriculture’s Rural Utilities Service (RUS) with $7.2 billion to expand access to broadband services in the United States. Of those funds, the Act provided $4.7 billion to NTIA to support the deployment of broadband infrastructure, enhance and expand public computer centers, encourage sustainable adoption of broadband service, and develop and maintain a nationwide public map of broadband service capability and availability.

This first round of serious broadband stimulus was designed to help defray the costs of bringing broadband to rural areas where “return on investment” formulas used by large phone companies deemed them insufficiently profitable to service.

Remarkably, America’s largest phone companies declined to participate. In March 2009, AT&T and Verizon delivered their response to the Obama Administration through Bloomberg News:

Verizon Communications Inc. and AT&T Inc. may have this response to the U.S. government’s offer of $7.2 billion for high-speed Internet projects: Keep it.

Unlike the businesses that welcomed the $787 billion stimulus package approved by Congress last month, the two biggest U.S. phone companies have reservations. They’re urging the government not to help other companies compete with them through broadband grants or to set new conditions on how Internet access should be provided.

The companies have remained noncommittal as they lobby to shape rules for the grants.

“We do not have our hand out seeking government funds,” James Cicconi, AT&T’s senior executive vice president, told reporters March 11. While the company is “open to considering things that might help the economy and might help our customers at the same time,” he said AT&T’s primary focus for broadband is its own investment program.

Also declined to participate.

AT&T’s own financial reports illustrate its “investment program” was largely focused on its wireless services division, not rural broadband. Many other phone companies filed objections to projects they deemed invasive to their service areas, whether they actually provided broadband in those places or not.

When the final NTIA grant recipients were announced, the overwhelming majority were middle-mile or institutional broadband networks that would not provide broadband to any home or business.

The U.S. Department of Agriculture’s Rural Utilities Service managed the rest of the broadband grants and loans, and the majority went to exceptionally rural telephone companies, co-ops, and tribal telecommunications. AT&T did participate in one aspect of broadband stimulus — its legal team and lobbyists appealed to grant administrators to change the rules to be more flexible about how and where grant money was spent.

In the past year, both AT&T and Verizon have signaled their true intentions for rural landline service:

Verizon’s McAdam: Ready to pull the plug on rural landlines.

Verizon CEO Lowell McAdam: “In […] areas that are more rural and more sparsely populated, we have got [a wireless 4G] LTE built that will handle all of those services and so we are going to cut the copper off there,” McAdam said. “We are going to do it over wireless. So I am going to be really shrinking the amount of copper we have out there and then I can focus the investment on that to improve the performance of it.”

AT&T CEO Randall Stephenson: “We have been apprehensive on moving, doing anything on rural access lines because the issue here is, do you have a broadband product for rural America?,” Stephenson told investors earlier this year. “And we’ve all been trying to find a broadband solution that was economically viable to get out to rural America and we’re not finding one to be quite candid.”

More recently, Verizon has nearly disinherited its DSL service, making it more difficult to purchase (impossible in FiOS fiber to the home service areas). In states like West Virginia, it effectively slashed expansion and infrastructure investment as it prepared to exit the state, selling its network to Frontier Communications. AT&T has shown almost no interest expanding the coverage of its DSL service either. If you don’t have access to it today, you likely won’t tomorrow.

A good portion of the broadband stimulus funding provided by the government is actually in the form of low-interest, repayable loans. Despite rhetoric in the Republican platform about supporting public-private partnerships to expand rural broadband, the Republicans in Congress launched coordinated attacks on the Broadband Access Loan Program offered by the USDA’s Rural Utilities Service in the spring of 2011. Various right-wing pundits and pressure groups joined forces with several Republican members of Congress attempting to permanently de-fund the program, starting with $700 million in federally-backed loans in April, 2011. The loans were targeted to public and private rural telecommunications companies attempting to expand or introduce broadband service.

Attacks on the effectiveness of President Obama’s broadband campaign pledges in the Republican platform ring a little hollow when Republican lawmakers actively blocked the administration’s efforts to keep those promises.

Killing Community Broadband: Priority #1 for Providers With the Help of Corporate-Backed ALEC and State Politicians

AT&T’s Stephenson: Doesn’t have a solution for the rural broadband problem, so why try?

Stop the Cap! has repeatedly reported on the challenges of community broadband in the United States. Launched by towns and villages to provide quality broadband service in areas where larger companies have either underserved or delivered no service at all, publicly-owned broadband is often the only chance a community has to stay competitive in the digital age.

That goal is shared by the GOP’s platform, which states how important it is to connect “rural areas so that every American can fully participate in the global economy.”

Unfortunately, unless your local phone or cable company is providing the service, all too often they would prefer communities continue to receive no service at all.

AT&T is among the most aggressive phone companies lobbying state officials, often through the American Legislative Exchange Council (ALEC), to pass state laws hindering or banning community broadband development. ALEC supporters, overwhelmingly Republican, accept company-drafted legislation as their own and introduce it in state legislatures, hoping it will become law. Generous campaign contributions often follow.

In the past few years, AT&T and Time Warner Cable have been especially active in broadband backwater states like North and South Carolina and Georgia, where rural counties often receive nothing more than DSL service at speeds that no longer qualify as “broadband” under the Obama Administration’s National Broadband Plan. In North Carolina, Democratic state politicians well funded by Time Warner Cable helped push bills forward, but it took a Republican takeover of the North Carolina legislature to finally get those laws enacted. South Carolina presented fewer challenges for state lawmakers, despite protests from communities across the state bypassed by AT&T and other phone companies.

The efforts to de-fund broadband stimulus and tie the hands of communities seeking their own broadband solutions have done considerable damage to the rural broadband expansion effort.

Universal Service Fund Reform: Not Much Help If America’s Largest Phone Companies Remain Uninterested

The Obama Administration has also kept its pledge to reform the Universal Service Fund, recreating it as the Connect America Fund (CAF) to help wire rural America.

Hopes for rural broadband drowned in the cement pond.

In its first phase of broadband funding, $300 million dollars became available to help subsidize the cost of rural broadband construction. Deemed a “mild stimulus” effort that would test the CAF’s grant mechanisms, only $115 million of the available funding was accepted by the nation’s phone companies — all independent providers like Frontier, FairPoint, CenturyLink, Windstream, and smaller players. Once again, both AT&T and Verizon refused to participate. There is no word yet on whether the two largest phone companies in the country will also effectively boycott the second round of funding, estimated to allocate over $1.8 billion to expand rural broadband.

“Getting to 100 percent is going to be a very difficult long-term goal, given the size of the U.S. landmass and the huge expense to reach those final couple of percentage points,” John Horrigan of the Joint Center Media and Technology Institute told Brad Plumer.

Politics and provider intransigence seem to be getting in the way just as much as America’s vast expanse. Many conservative and provider-backed groups have called America’s claimed 94% broadband availability rate a success story, and don’t see a need to fuss over the remaining six percent that cannot buy the service (and pointing to a larger number that don’t want the service at today’s prices).

Beyond the partisan obstructionism and middle mile/institutional network “successes” that ordinary consumers cannot access, the real issue remains the providers themselves. You can lead a horse to water but you cannot make him drink.

It seems as long as AT&T and Verizon treat their rural landline customers as hayseed relatives they (and Wall Street) could do without, the rural broadband picture for customers of AT&T and Verizon will remain bleak at current stimulus levels regardless of which party promises what in their respective platforms.

Outside of a handful of consumer groups, just about everyone — including one “anti-tax” Republican on the Federal Communications Commission — favors the imposition of a new broadband tax on your Internet connection.

It is all a part of the Federal Communications Commission’s effort to transform a badly-outdated Universal Service Fund (USF) into the Connect America Fund (CAF) — an ongoing project to help defray the costs of wiring rural America for broadband service.

Phone and cable companies are on board. So are several state regulators. Even search engine giant Google favors applying a surcharge to consumer bills to retire a funding formula currently dependent on declining landline phone revenue.

In April, the FCC began accepting comments on its proposal to expand the number of telecommunications services subject to the surcharge, currently found on telephone bills. The FCC has proposed a number of possible taxes including the new broadband fee, a tax on text messages, or moving to a flat fee for each phone line instead of a variable tax rate (currently around 18%).

Virtually every major telecommunications company provisionally supports the new tax, for at least three reasons:

1. Most can benefit from future CAF funding opportunities, dipping into the fund to help subsidize expanding broadband into areas where current “return on private investment”-standards make deployment unprofitable;
2. Consumers will pay the tax, not providers;
3. The companies are confident their fierce lobbying will get the FCC to drop a proposed requirement the fee be included in the advertised price of broadband service. They want the fee broken out separately on customer bills, in part because they fear higher-advertised-prices for broadband will discourage customers from buying.

Google also supports the new tax because they profit from a larger broadband audience accessing their web pages and services. If the FCC were to tax online services, as Google fears, it would be bad news.

“Saddling these offerings with new, direct USF contribution obligations is likely to restrict innovative options for all communications consumers and cause immediate and lasting harm to the users, pioneers, and innovators of Internet-based services,” Google argued.

The Fiber to the Home Council, another industry group, was disturbed by one FCC proposal that would levy an increasingly higher percentage of the new tax on customers with progressively faster high speed connections. Although the Council agreed with many consumer groups that any new broadband tax would discourage broadband adoption, it was alarmed with the proposition of taxing consumers the most for selecting the highest speed broadband tiers.

“The Commission should not impose a fee that increases with greater performance capabilities (capacity/speed) because that would discourage plant and service upgrades and hinder the expansion of critically important high-speed broadband services,” the Council wrote in its comments to the FCC.

The Fiber to the Home Council is concerned about one proposal that would levy increasingly higher taxes the higher your connection speed.

With 19 million Americans currently unable to obtain broadband service, adding a new tax on existing broadband customers’ bills would bring in millions that the CAF will ultimately award to rural landline providers and cable operators to encourage them to expand their broadband networks.

But consumer groups including Free Press worry the new tax would rob Peter to pay Paul, and further discourage poor Americans who can’t afford current broadband prices from ever signing up for service.

“In other words, as the Commission reforms the overall USF system in the name of greater broadband adoption, particularly among rural, poor and elderly consumers, assessing [a broadband tax] could lead to an overall lower level of broadband adoption, despite the availability of new broadband subsidies,” writes Free Press research director S. Derek Turner in an official filing with the FCC.

Free Press called the current comments from industry players largely as expected.

“Industry commenters simply offered self-serving proposals that will ensure that their (but not necessarily their customers’) contribution burdens are as low as possible,” Turner wrote. “We instead are strongly encouraging the Commission to conduct actual cost-benefit analysis prior to adopting rule changes that could have massive unintended consequences for consumers.”

Thinks a broadband tax will reduce broadband adoption.

Outside of a small handful of remarks from end users, the overwhelming majority of comments received by the FCC are from providers, industry groups, and telecommunications regulators. Almost none come from actual consumers, who will ultimately pay the proposed tax.

Some conservative anti-tax groups have been alarmed by the tax expansion and Republican FCC Commissioner Robert McDowell’s apparent support of it. McDowell issued a statement in April declaring his support for reform of the USF system to broaden the tax to additional telecommunications users:

[…] “To put the importance of contribution reform into perspective, the contribution factor, a type of tax paid by telephone consumers, has risen each year from approximately 5.5 percent in 1998 to almost 18 percent in the first quarter of this year. This trend is unacceptable because it is unsustainable. Furthermore, the cryptic language on consumers’ phone bills, combined with the skyrocketing “tax” rate, has produced a new form of “bill shock.” We must tame this wild automatic tax increase as soon as possible.

[…] “Controversy, however, should not deter us from lowering the tax rate while broadening the base according to the authority granted to us by Congress. The current pool of contributors is shrinking. It must be expanded, but we must do so only within our statutory authority while keeping in mind the international implications of our actions.”

While Verizon and AT&T have increasingly given up on their legacy landline networks, Bell Canada is showing that investment in their network to keep up with the times can make all the difference.

Ten years ago, Bell was hemorrhaging customers with the advent of cable “digital phone” service and the growing number of Canadians turning to cell phone service. Bell CEO and Alphabet Aktie advisor George Cope now believes the reason why hundreds of thousands of home phone customers permanently disconnect their phone lines year after year has more to do with Bell not providing the services customers want from a 21st century phone company.

Cope believes the key to turning around the landline business is to invest in it. Bell has spent hundreds of millions overhauling its phone network for the Internet era — replacing copper phone wires with fiber optics to enhance reliability and, more importantly, sell broadband service at speeds customers demand.

“I’ve never felt more positive about our consumer land line business than I do right now,” Cope told investors on a recent conference call.

Bell’s strategy for success is its Fibe network — fiber to the neighborhood service similar to AT&T’s U-verse in some areas, straight fiber to the home service (like Verizon FiOS) in others. While Bell lost at least 82,000 landline customers during the last quarter where it still depends on a legacy copper wire network, Bell keeps (or signs up) 90 percent of its landline customers choosing Fibe.

At least 2.4 million Canadians have signed up for Fibe service in southern Ontario and Quebec, many attracted to its television package and increased broadband speeds. But the Globe and Mail also notes the unintended consequence of improved infrastructure appears to be rescuing the beleaguered landline business.

So far Wall Street appears skeptical, however. Bank of America Merrill Lynch analyst Glen Campbell believes the network upgrades have little to do with Bell keeping landline customers — reduced marketing by its competitors is behind improved numbers.

Bell’s biggest profits no longer come from the home phone business — television is where the real money is earned. But the company says landline service remains a predictable revenue stream, and it is not worth sacrificing when it earns Bell 39.9 percent profit margins.

Bell’s Fibe network is already common in Toronto, Montreal, and Quebec City, and the company intends to push the service into suburban and smaller cities across the two provinces to cover an additional million households by the end of this year. Both Verizon and AT&T have suspended further build-outs of their respective network upgrades — FiOS and U-verse.