Few policy initiatives are held in such wide regard in rural areas
as universal service. Created back in 1934 and still in force today,
it subsidizes rural telecom providers so people in rural and other
high-cost areas can afford telephone service.
During negotiations over the landmark Telecommunications Act of
1996, many lawmakers argued that similar provider-based subsidies
were needed to bring broadband and other advanced telecom services
to rural America. But a funny thing happened on the way to the Internet.
The law encouraged the deployment of broadband and other advanced
telecommunications "on a reasonable and timely basis."
While the intent might be fairly clear, it is squishy enough to
mandate virtually nothing. The law did not explicitly extend existing
telephone universal service subsidies to broadband deployment. It
did create one large, institution-based deployment program, but
otherwise provided telecom companies with no direct incentives to
bring broadband to the rural masses.
So federal and state lawmakers have filled that policy hole with
a gaggle of programs, grants, loans and other initiatives designed
to assist broadband deployment to areas that lawmakers thought it
would not otherwise reach. Last year, 18 such bills were proposed,
according to the Congressional Research Service. One came from Sen.
Byron Dorgan of North Dakota, who proposed a five-year, $3 billion
revolving loan fund for companies to invest in and deploy advanced
telecom in rural areas; other bills of a similar nature (though
of more modest financial means) have been proposed by U.S. Rep.
Bart Stupak (representing Michigan's Upper Peninsula), Sen. Conrad
Burns of Montana and Senate Majority leader Tom Daschle of South
Within the first month of this year, three more bills were proposed
in Congress; one Washington source estimated that as of September
there were 10 bills currently floating in Congress. One bill in
both houses of Congress would offer tax credits of 10 percent to
20 percent to companies for deploying broadband to rural and underserved
States are getting involved as well. Minnesota Gov. Jesse Ventura
proposed a $100 million revolving loan fund for advanced telecom
deployment in his so-called Big Plan, but it was not funded by the
In some ways, new broadband subsidies were not needed as long as
broadband deployment could capitalize on universal service payments
that rural telecom providers already receive for providing voice
service to high-cost areas.
In 2001, rural telephone companies in the Ninth District (excluding
Michigan) are expected to receive $205 million for providing telephone
service to high-cost areas, according to projections by the Universal
Service Administrative Co. (USAC), which oversees various service
Although providers aren't directly reimbursed for broadband deployment,
representatives from several rural telephone companies acknowledged
that universal service payments help underwrite all infrastructure
and service improvements, which today include broadband.
This year, Paul Bunyan Telephone Cooperative in northern Minnesota
will receive almost $2 million in high-cost support, according to
USAC figures. The company has been methodically upgrading much of
its rural territory, and today offers digital subscriber lines (DSL)
in eight communities. "We wouldn't have been able to do it
without universal service funds," said Brian Bissonette, the
company's marketing supervisor. "None of the rural upgrade
would have been even approachable."
According to a USAC database, 86 telephone companies in Minnesota
receive universal service funding, and 12 are expecting $1 million
or more this year; in Montana, only one of the state's 18 telephone
companiesQwestdoes not receive universal service support,
and 10 of the remaining 17 will receive between $2 million and $7
million; half the telephone companies in North Dakota will see at
least $1 million in payments; 7 of 30 in South Dakota; 13 of 86
Parade of programs
Aside from such side-door assistance and a legislative agenda crammed
with new proposals, federal and state lawmakers have already managed
to push through dozens of programs to boost broadband deployment
in rural areas. At the federal level alone, there are 16 different
broadband-deployment assistance programs, according to the Congressional
Many programs are modest. The Telecommunications Opportunities
Program, run by the US Department of Commerce, has awarded $8 million
since 1994 for 21 projects in the district bringing greater telecommunications
capacity or access, according to a TOP database.
Other programs are more ambitious. The largest and most expensive
subsidy program for rural broadband deployment is called "education
rate," or "e-rate," which was created in the 1996
E-rate reimburses schools and libraries in rural and low-income
urban areas for the cost of bringing high-speed capacity on-site.
As of July 2001, more than $6.6 billion had been committed nationwide,
and somewhere between 60 percent and 70 percent has gone to schools
and libraries in rural areas, according to USAC.
In 1998, the first year of e-rate funding, 355 schools and libraries
in Montana alone filed for reimbursement, according to a Montana
Public Services Commission report. In four years of funding, including
July 2001 commitments, a total of $225 million has been approved
for thousands of rural schools and libraries in district states
(excluding Michigan). Wisconsin received the lion's share with $106
million, while Minnesota received almost $90 million, according
to USAC figures.
A similar, but financially much smaller, USAC program exists for
rural hospitals. From 1998 to 2000, hospitals in the Ninth District
received more than $1.5 million in reimbursement for upgraded telecom
wiring and Internet hookups. Last year, for example, 146 separate
facilities received a total of $700,000, ranging from $20,280 by
the Holy Rosary Health Center in Miles City, Mont., to $38 by the
Westbrook (Minn.) Health Center. In 1999, 227 district health facilities
received almost $800,000.
The federal Rural Utilities Service has been a major player in
assisting rural broadband deployment. RUS is a branch of the US
Department of Agriculture, tracing its roots to the Rural Electrification
Act of 1936. Its mission is to help bring power, telecommunications
and water to rural homes.
The 2000 annual report of the Rural Telephone Bank, a financing
arm of the RUS, said the agency "has been instituting significant
policy and regulatory reforms to ensure that the Bank is an engine
of broadband deployment."
Foremost among the RUS's several broadband efforts is a new $100
million loan program to furnish or improve broadband service to
rural communities under 20,000, according to a notice published
in the Federal Register. One contact said the program received
requests for three times the available funding.
RUS has also funded a distance learning and telemedicine program
since 1993 that mirrors the e-rate program in many ways. Nationwide,
the program has distributed more than $100 million in loans and
grants during this period, with about $18 million for 69 projects
in district states, including Michigan's Upper Peninsula, according
to an RUS database on the program.
We'll help too
Many additional programs of varying scale can also be found at
the state level. South Dakota spent around $15 million on a statewide
initiative to bring high-speed capacity to every public school,
using prison labor to keep project costs to a fraction of what they
otherwise would have been.
In Wisconsin, the Technology for Educational Achievement in Wisconsin
(TEACH) program helped 170 libraries get T-1 lines for direct high-speed
Internet access. The state Public Service Commission also administers
a $500,000 program promoting telecom to nonprofit medical clinics
and public health agencies. As of November 2000, the PSC reported
that it had granted five awards totaling $160,000. In 1995, the
Wisconsin Legislature authorized $500,000 to help kick-start the
Wisconsin Advanced Telecommunications Foundation. The organization
made its first awards last year, totaling about $1 million, but
never came close to its original goal of raising $40 million by
the end of 2001, and its board voted to dissolve the foundation
earlier this year.
North Dakota is in the midst of a two-phase program to bring high-speed
Internet to more than 550 locationsmostly local government
and K-12 school buildingsin 194 geographically dispersed communities.
Last year, the state Legislature approved $3 million for the project,
and as much as $20 million more will be needed for completion.
In 1997, Minnesota approved a proposal for a 2,200-mile fiber backbone
along state highway rights-of-way in an effort to bring high-speed
Internet to within 10 miles of 90 percent of the population. The
network would have been privately built and owned, and 20 percent
of the capacity would have been given back to the state in exchange
for free access to public rights-of-way. But earlier this year,
repeated delays and private financing difficulties convinced the
state to terminate its contract with the Colorado firm hired to
build the network, which had spent $30 million on a 250-mile loop
from the Twin Cities to Moorhead along Interstate 94.
On a smaller scale, the state Department of Trade and Economic
Development awarded $1 million in "technology catalyst" grants this
year to nine communities for high-speed wireless projects.
In October 2000, the state of Montana gave more than $200,000
in tax credits to eight independent telephone companies that invested
in high-speed infrastructure. The largest award gave $82,000 in
state tax write-offs for a $1 million project that provided DSL
to Thompson Falls, Superior and Philipsburg. Four years ago, the
Montana Legislature approved a total of $750,000 for the Montana
Universal Access Program to assist rural telecom companies with
advanced services deployment.
All those in favor ...
One might expect that the billions of public dollars being spent
on programs large and small would raise some dust within policy
circles. Other than free-market think tanks, however, very few appear
to question the idea of universal service, or tag-along financial
support for deploying broadband.
"The federal government decided it was within the public interest
to subsidize telephone infrastructure to remote parts of the nation,"
said Kathryn Lovik of Onvoy. With low population densities, "how
[else] are you going to pay for investment in very rural areas?"
If there are pockets of unrest regarding broadband and telecommunications
in general, one area might be the fact that virtually all subsidies
flow to hard-line local telephone providers, to the exclusion of
high-speed wireless, cable or satellite providers. Two wireless
phone companies providing service to the district have gone on recordone
with the North Dakota Public Services Commission, the other in testimony
before the House of Representatives Committee on Small Businessobjecting
to the stiff-arm wireless providers receive when it comes to universal
Yet there appears to be little collective outrage from such would-be
competitors. A representative of the cable industry said his industry
did not object to phone company subsidies given their requirement
to provide services to all residents in a territory. The president
of a high-speed wireless company acknowledged that subsidizing hard-line
phone companies "is having an impact, but I don't know how
drastic it is. ... You won't get me to stand on a soapbox."