Evslin: FairPoint or Vermont?

Editor’s note: This op-ed is by Tom Evslin, an author, entrepreneur and former Douglas administration official.

Unfortunately FairPoint, the successor to Verizon for landlines in Northern New England, wants Vermont to choose between protecting a badly flawed FairPoint business plan or improving the economic future of Vermont’s rural areas. The choice is stark: use the federal “middle mile” stimulus grant already awarded to the Vermont Telecommunication Authority (VTA) to bring fiber closer to rural Vermonters and make wholesale backhaul and institutional broadband affordable in rural areas of the state or forfeit the grant and leave these areas without adequate business, residential and cellular service.

It didn’t have to be this way. FairPoint could have participated in the VTA’s application for middle mile stimulus – but decided not to, at least in part (as they told me at the time) because they didn’t like the open access requirements for a network built with state and federal money. FairPoint applied for stimulus money in the first round and was turned down (as was almost everyone in Vermont); FairPoint could have applied on their own for second round stimulus money as their competitor Vermont Telephone (VTEL) did with great success. FairPoint didn’t apply.

You can make a market-based argument that no government money should be going into providing broadband services; that’s an intellectually defensible argument. If we wait long enough, even rural areas of Vermont will get broadband and cellular service. Vermont explicitly rejected waiting when the Legislature passed Act 79 of 2007 and created the VTA. The argument made then – and one which still applies today – was the parallel with rural electrification. The state as a whole benefits by not leaving pockets of substandard infrastructure (substandard being relative to everything else). We also build paved state highways to lightly populated areas; we don’t leave them connected town-to-town on gravel.

I was very involved in framing and advocating for the legislation which set up the VTA. Ironically, the lead for Governor Douglas was then Administration Secretary Mike Smith, who is now Vermont President for FairPoint. Mike, who was not then familiar with telecom issues, asked me what the obstacles were to the 100% broadband and cellular coverage that the Governor wanted to have in place by 2010 as part of the e-state initiative the Governor planned to describe to the legislature in his 2007 inaugural speech. I explained to Mike that rural areas in Vermont lacked the infrastructure on which retail broadband and cellular service depend – namely backhaul at affordable prices and cell towers. The VTA would have to use what capital it could raise to build cellular towers and fiber networks for resale to and use by private telecommunications service providers.

Verizon, which was already planning to leave the state, was the only wholesale or commercial provider in most rural areas. It sold T-1s (1.5 megabit backbone – very small) for hundreds of dollars per month each and without meaningful volume discounts. These T-1s were the only option that most retail Internet Service Providers (ISPs) had for backhaul (connection to the broad Internet). Small and medium business could not afford the connectivity they needed. So Internet-dependent businesses couldn’t afford to be in rural areas and ISPs couldn’t afford to provide customers with good retail service in these areas. In order to obtain rural retail service (including cellular) which was comparable to that available in urban areas, wholesale backhaul would have to be available at near-urban prices – which were at least a 90% reduction from what Verizon was then charging here. I was clear – and I’m sure Mike understood – that Verizon would not like to have its monopoly rents threatened and that any successor would have to be able to sell in much greater quantities because margins would be lower.

Now President of FairPoint in Vermont, Mike Smith said yesterday in an interview broadcast on WCAX that he never meant that the VTA should build fiber networks and provide middle-mile (backhaul) service. He thought it would be directing its efforts to cellular and to retail service. However, Act 79 which Mike was instrumental in getting through the legislature authorizes the VTA “to own, acquire, sell, trade, and lease equipment, facilities, and other infrastructure that could be accessed and used by multiple service providers, the state and local governments, including fiber optic cables, towers, shelters, easements, rights of way, and wireless spectrum of frequencies; provided that any agreement by the authority to sell infrastructure that is capable of use by more than one service provider shall contain conditions that will ensure continued shared use or colocation at reasonable rates [NB. All emphasis mine]“.

Moreover, the Act also says “Nothing in this chapter shall be construed to grant power to the authority to offer the sale of telecommunications services to the public.” In other words, the legislature specifically authorized VTA to be a wholesale provider and specifically forbad it to be a retail provider. The Legislature and the Governor meant the VTA to enable retail service by providing wholesale infrastructure.

Mike wants the VTA to use the $33 million stimulus grant it received from the feds to provide retail service instead of using it to build the open access middle mile network the money was awarded for. Even if this were desirable, it would not be possible. The Commerce Department, which awarded the money under the stimulus bill, was only allowed by law to give money for middle mile service. (The Agriculture Department, however, which had only money for retail service, did award a much larger sum to VTel for a retail fiber/wireless buildout.)

When the VTA together with sub-applicant Sovernet builds out its middle mile network and VTEL, which also got a middle-mile grant, does its build, fiber will be much closer to rural Vermont residences and businesses. That means high speed access at a reasonable price whether retail providers bridge the last mile with fiber, radio, copper, or coaxial cable.

If the VTA does not quickly use the money it was awarded for the intended purpose, it will be forfeit. The underserved areas of Vermont – the only places money was awarded for – will still have no backhaul alternative except overpriced, low capacity connections from FairPoint. It will not be practical to build more cell towers or even upgrade the radios in existing cell towers now that mobile phones are data hungry.

It didn’t have to be FairPoint or Vermont. It still doesn’t have to be a zero sum game. Although it is shrinking daily as customers abandon landlines for cellular and VoIP service, FairPoint still has a big customer base in Vermont and an excellent workforce. FairPoint can use low cost backhaul from the VTA, VTel, and others along with its own fiber to provide these customers better service at a lower cost BEFORE they leave for another carrier. Reasonably priced Internet access in Vermont will vastly expand the market for connectivity services – as will communication-fueled economic growth. This is the opportunity the VTA was formed to enable. This is an opportunity that FairPoint can benefit from. This is an opportunity that Vermont will benefit from.

Note: Although I am a Board member of the VTA, this post is purely my own opinion. I am writing it to set the record straight on the founding of the VTA and the applications for stimulus grants, which I was heavily involved in first as Chief Recovery Officer for Vermont and then as Chief Technical Officer. Most important I am writing this to help assure that we do use stimulus money to achieve the universal cell coverage and affordable broadband which Vermont needs and deserves.

Comments

  1. A FairPoint spokesperson, in our article published yesterday, states that the company has no current plans to file a formal complaint with the feds or the state about the $33 million broadband stimulus award.

    We asked the question given 2 factors: The current move by Republican members of the U.S. House to go after President Obama’s broadband stimulus program, and FairPoint’s history in Maine of attempting to stop another stimulus financed middle mile project.

    Our story is here: http://www.stimulatingbroadband.com/2011/03/vermont-dust-up-fairpoint-says-no.html

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