RLECs' Extended Family Calls on FCC to Promote Rural Economic Growth

On April 24, 2012, a group of professional service and vendor firms wrote a letter to FCC Chairman Julius Genachowski, explaining that the USF/ICC Transformation Order conflicts with the goals of the American Recovery and Reinvestment Act of 2009 (ARRA), and “will ultimately undermine job creation and retention gains envisioned by ARRA.” The signatories of the letter include representatives from the following firms that support the rural telecom industry: CHR Solutions, Consortia Consulting, HunTel Engineering, Kadrmas Lee & Jackson, Ladd Engineering, Mapcom Systems, Monte R. Lee Engineering, National Information Solutions Cooperative, Palmetto Engineering & Consulting, RVW, Inc., and TCA.

These parties have a vested interest in USF/ICC Reform, just as we do at JSI Capital Advisors. According to the letter, “Collectively, we employ more than 2,000 people and generate annual revenues exceeding $265m in both rural and urban areas. Our firms provide network construction and maintenance, engineering and environmental services, software and systems development, and accounting and financial services.” They continue, “We are precisely the type of firms that create and retain jobs as intended by the ARRA.”

Despite their success in serving the rural telecom industry, the signatories of the letter now face significant challenges along with the companies they serve—that’s because RLECs don’t operate in a vacuum, regardless of what the FCC may or may not believe. If regulatory uncertainty causes RLECs to scale back investment, it is likely that professional services and equipment vendors will take a direct hit, too. The letter explains, “We are seeing economic activity in this sector slow, and in many cases stall altogether, largely as a result of changes and lingering regulatory uncertainty arising out of recent Commission action…The already-adopted reductions, combined with proposed future cutback, are undermining market confidence in continued rural broadband investment.”

The letter further explains how the funding cuts imposed by USF/ICC reform run contrary to the White House Administration’s goals in ARRA: “the cuts…are causing our clients and their investors to either scale downward or eliminate entirely new deployment initiatives, and consequently, the material inputs they require from us. In sum, the Commission measures are discouraging economic growth, limiting broadband investment, and stalling job creation.” The parties call these impacts of USF/ICC reform “anti-stimulus” and then they call on the FCC to “temper swiftly those adverse measures already adopted, and defer action on pending items until the impact of new requirements is evaluated and absorbed.”

From the perspective of vendors and professional service firms who primarily serve the RLEC industry, it may be easy to see the glass as half-empty with a giant crack in the bottom. However, new opportunities may arise from the USF/ICC debacle if patience perseveres. There is certainly an impending need for professional service firms to help navigate their clients through the new regulations, prepare filings at the federal and state level, guide strategic planning efforts, and ensure compliance with the new requirements.

Equipment vendors—software, hardware, fiber, etc.—may find opportunities where RLECs are looking to upgrade to more efficient operations—after all, this is one of the primary intentions of the Order. The FCC encourages RLECs to consolidate softswitching operations and look for other scale efficiencies (hint: the FCC wants RLECs to consolidate in general)—but this is an opportunity for equipment vendors. I may be teetering on a shaky limb here, but if quantile regression analysis is modified based on input from the rural industry and ulitmately works the way the FCC intends (without the accompanying “parade of horribles” anticipated by RLECs), companies may look for new ways to operate more efficiently, which could mean new investment in various categories of central office equipment and network infrastructure. Other RLECs will seek opportunities for new revenue streams through edging out their networks, participating in CAF and Mobility Fund auctions, offering new broadband-enabled video services, and expanding into other unregulated markets like data storage and home security. The FCC is also pushing the transition from PSTN to IP, which presents myriad opportunities for engineers, consultants, and equipment vendors. In all of these scenarious, there are bountiful opportunities for vendors and professional service firms who are willing to be patient while their RLEC customers and clients modify strategic plans in light of the regulatory changes.

If USF/ICC reform works as it is intended, boosts the goals of the ARRA, and promotes investment across the rural telecom sector, then rural Americans will benefit from universal broadband and economic growth. The professional service firms and vendors who signed the letter described above comment that they “trust the Commission did not intend” for the results that the RLEC industry is currently bracing for—vast cutbacks in investment, abandoned broadband projects, possible financial insolvency in the most severe cases. Several other commenters in waiver and ex parte filings have also said that they trust that the FCC did not outright intend to cause great harm to the rural telecom industry.

So—do you trust that the FCC did not intend to bring down mass destruction on the RLEC industry and its extended family of vendors and professional service firms, or do you just not trust the FCC at all? Share your thoughts on JSICA’s LinkedIn USF Forum.