Posted 04/01/2001
Policy Forum
Wake-Up Call
Rural LECs Face Growing Local Competition
By Kim Sunderland
AT&T Corp. (www.att.com) now is approved to offer competitive local service in western Pennsylvania using its broadband cable facilities, a strong regulatory signal to the predominantly rural incumbents that the borders for competitive entry in the local market are expanding beyond BOC territory.
The Pennsylvania Public Utility Commission (PUC, http://puc.paonline.com) ruled that AT&T could compete in segments of the state served by ALLTEL Corp. (www.alltel.com), North Pittsburgh Telephone Co. (www.nptc.com), Yukon Waltz Telephone Co. and several other independent telcos.
Such competition will provide residential and small-business customers with competitive choice for advanced telecommunications services, according to the PUC. It also will help accelerate deployment of a state-of-the-art telecom network in Pennsylvania by making AT&T's broadband network "more readily available," while pushing the incumbents "to advance the modernization of their own networks to compete with AT&T," the PUC said.
AT&T executives said that the company is spending more than $300 million to upgrade its cable infrastructure in and around Pittsburgh to offer packages of local and long-distance telephony services, as well as cable TV and high-speed Internet access.
AT&T now offers packages of local and long-distance services over cable lines in some communities where the company already has PUC permission to do so, primarily in the suburbs of Pittsburgh, a spokesman explained.
"This is a wake-up call for a number of companies," says Lee Rainey, vice president of marketing for VideoTele.com Inc. (www.videotele.com), which provides solutions including all types of DSL (xDSL) strategies for deploying bundled voice, data and video services.
"Cable has always owned entertainment," Rainey explains, "but now, as the AT&T case depicts, it's making inroads to voice," the cornerstone of the traditional local phone companies.
What's emerging is a competitive landscape in which all the players must provide differentiated services, Rainey says, including entertainment. It's a nationwide phenomenon as the rural LECs (RLECs) attempt to jump on the hayride of the future, he says.
And many RLECs appear to be hopping aboard.
The Washington County Rural Telephone Cooperative Inc. (www.wcrtc.com), for instance, is deploying VideoTele.com's headend equipment for leveraging digital broadband as the platform for its success and survival.
Perry-Spencer Rural Telephone Cooperative Inc. (PSRTC, www.psrtc.com) of St. Meinrad, Ind., in the fall of 1995 set up a subsidiary called Perry-Spencer Communications Inc. (PSCI, www.psci.net), with the initial purpose of providing toll-free (local) Internet access to all of Perry, Spencer and Dubois counties. Today PSCI has more than 8,000 dial-up customers and hosts more than 100 business websites. In addition to Internet access, PSCI also provides long-distance service to PSRTC customers.
Then there's Clear Creek Mutual Telephone Co. (www.ccmtc.com), which provides phone and TV services to 3,000 members in the Redland area of Oregon City, Ore. Clear Creek TeleVision offers state-of-the-art digital programming, with about 100 channels of digital programming.
Clear Creek's cable modem package costs $39.95 per month, with a $150 setup fee. Cited as the best package for people who subscribe to Clear Creek's cable TV service, the package offers a connection to the Internet without the need to dedicate a telephone connection.
In Virginia, the Pembroke Telephone Cooperative (www.pemtel.com) also is offering telephone, Internet access and cable television.
"The trend now is the current and immediate movement by the rural telcos to leverage their phone infrastructure to provide more services," Rainey says. "The competition from cable companies and other phone companies is not over-billed. It's not just in the big cities. It's everywhere now, and the smaller incumbents can't ignore this."
A New Day
Rural telephony is dramatically changing, agrees analyst Michael Balhoff of Legg Mason Wood Walker Inc. (www.leggmason.com).
Consolidation, regulatory reform and Bell divestiture of exchanges is making rural companies a key target for investment, Balhoff says. And this is changing the way telephone service is offered in small communities.
One of the biggest drivers will be Bell company divestiture of exchanges. Balhoff predicts that Qwest Communications International Inc. (www.qwest.com), for example, will divest up to 40 percent of its exchanges in the near future.
He also expects other Bell divestitures soon. The Bell companies already have divested 10 million lines, and Balhoff predicts that that number would rise to 40 million in a few years. Such action is seen as a plus for the Bells by freeing them from various regulatory burdens and possibly increasing their stock prices, Balhoff said. Likewise, the smaller players can grow.
And grow they must, says Bill Owens, co-CEO and vice chairman of satellite company Teledesic LLC (www.teledesic.com). The idea of infinite broadband-on-demand is a huge challenge for rural carriers, Owens said in February during the National Telephone Cooperative Association's (NTCA, www.ntca.org) conference.
"We must fix this problem for rural America, but I'm not so optimistic that it can be fixed soon or cheaply," Owens said during the meeting. "America is not moving very fast with broadband."
One solution for rural carriers is satellite technology, which Teledesic provides. In fact, the company is moving forward rapidly with its plans, backed heavily by its two primary founding investors, telecommunications pioneer Craig McCaw and Microsoft Corp. (www.microsoft.com) founder Bill Gates. Strategic investors also include Motorola Inc. (www.motorola.com), Saudi Prince Alwaleed Bin Talal, the Boeing Co. (www.boeing.com), and the Abu Dhabi Investment Co. (ADIC).
Teledesic's licensed satellite communications network is designed to enable affordable, worldwide access to advanced telecom services such as computer networking, broadband Internet access and interactive multimedia. The firm plans to deliver broadband data and value-added services over a global network optimized for IP.
Rural carriers have got to get their arms around such new technologies coming into the market, Owens says, and then get in front of the technology and its applications before someone else does it first.
One way for rural carriers to do this, he suggests, is to find partners to provide the technologies, while they continue to maintain their customer satisfaction edict.
"What about venture capital?" Owens asks. "Wouldn't it be great to develop a venture capital market in rural America?"
During the NTCA conference in Orlando, Fla., Owens urged NTCA members to build their telco systems through satellites and to do it early.
Other Options Exist
In addition to cable and satellite, rural carriers will compete using broadband wireless and DSL technologies.
Each has advantages, several NTCA panelists noted recently, and all will help change the rural telecom landscape.
Rural carriers will be in trouble fast without broadband provisioning, advises Delbert Wilson, CEO and general manager of the Central Texas Telephone Cooperative Inc. (www.centex.net) in Goldthwaite, Texas.
"DSL makes it possible for people to live and work in a rural area," Wilson says.
Bob Phillips, president and CEO of the National Rural Telecommunications Cooperative (NRTC, www.nrtc.org), believes that the issue boils down to content.
Rural carriers, Phillips contends, need to focus on what's coming down the pike in video, for instance. Content will drive broadband, he adds.
AT&T is on to this game, and in western Pennsylvania, where AT&T now plans to roam as a new entrant, the locals are feeling the heat.
But then, so is AT&T.
Armed with its new state PUC approval, the telecom competitor is in the process of negotiating interconnection agreements with the RLECs in the state, according to Dan Garfinkel, executive director of communications for AT&T Broadband (www.broadband.att.com).
There are many issues to sort through in order to come up with viable interconnection agreements, he says, including older incumbent systems, out-of-date technologies and other problems.
Garfinkel muses, "I'm assuming that these meetings are being conducted in a businesslike fashion. We are eager to move forward."
Garfinkel adds that no interconnection agreement has been signed to date, but that hopefully one will be inked this year.
Because the local carriers hold exclusive franchise agreements, which date back to the earliest days of local phone service, AT&T had to get state approval to provide service. The locals fought to keep out the telecom giant, but eventually failed.
"They painted a drastic picture of a world in which we were killing their business," Garfinkel says about the hearings prior to receiving approval. "But the PUC decided that having us in there was good for competition."
