Rural Telecom Business Model Explained
Rural Telecom Explained:
Believe it or not, Eagle Mountain is in fact famous, in the rural telecommunications industry. People from Florida to Oregon, and throughout the heartland of America have been watching and learning from the fiber miracle that has occurred in Eagle Mountain, and want to know how to make the modern communications model work like it is working here.
An important piece of the regulatory and funding puzzle is to understand that end consumers themselves in Eagle Mountain could never pay for the real cost of bringing fiber to their homes under pure market forces in a community this size. Clear evidence to demonstrate this claim is that there no other wireline provider in Eagle Mountain. So here is a little explanation of how the rural Internet business works:
Direct Communications makes their investment in fiber construction back over several decades. We borrow to build the network, and then during those decades of cost recovery, an FCC program pays a specified rate of return, which provides the incentive to invest in remote areas, and allows us to pay back the debt. Without this program, Eagle Mountain would not have a fiber network at all, and we would not have a viable business model. (Also worth noting is that there is a several year gap between when we put fiber into the ground and when it is allowed to start being recovered on under the FCC program.) Of course, along with this federal cost recovery program, comes federal regulation. In spite of the very real and genuine challenges resulting from cash constraints, government regulations, and ever increasing network demands, we are excited about the deployment of fiber to the homes that we’re pursuing in order to continue providing premier internet experiences for our customers now, and to prepare for the way people will use the internet in the future. It is often trendy in our conservative state to speak ill government regulation or any federal funding, but in rural communities where there is no viable business model for the deployment of fiber networks the model of a regulated monopoly makes the most economic and social sense. It ensures a provider of a business model that incents investment and then a statewide regulatory authority regulates the monopoly to protect the consumers who have no other choice where to go for wireline services.
Direct Communications bought the former Eagle Mountain Telecom in 2006, after the city had tried for many years to sell off its telephone network. The cost of building and maintaining a telephone network was driving the city slowly towards bankruptcy, and Direct Communications, a private telecom provider with a business model that works for remote areas, stepped up and offered a solution for residents of Eagle Mountain, and Directcom paid off the Municipal Bonds which had financed the City’s network. Direct Communications originally bought the network from the City for $6.3 million, and every year since then we have invested significant resources into upgrading the network plant to fiber optic lines, and upgrading switches, electronics and equipment to power the fiber.
Since 2006, we have invested about $30 million into network assets. (This is public information that can be can be sought from the State Tax Commission.) This should give some perspective into the cost of building a modern fiber network. Where does all that money come from? Not from your internet bill, but keep reading, and we will answer that later.
Direct Communications is your local, independent broadband provider. We are a small, family-owned business. The only way Direct Communications is able to afford to roll out fiber optic cable to everyone in Eagle Mountain is through our classification as a Rural Independent Local Exchange Carrier. Our network in Eagle Mountain is financed through federal cost recovery programs—primarily money collected by the Universal Service Fund. The residents of Eagle Mountain could never pay for the cost to build or maintain a state-of-the-art fiber optic network by simply subscribing to broadband service. Firstly, because not everyone is on our network. We only have a partial market share. Try a simple calculation- let’s say there are 5000 homes in Eagle Mountain, and for illustration assume that half subscribe to our internet service, paying $30 a month, which is by far the most popular price point in Eagle Mountain. That would result in annual gross revenues from internet sales of $900,000. If anybody has ever tried to run any kind of business, you would know that you could barely run a lemonade stand on those revenues, let alone a modern communications network that requires a whole lot of employees, heavy construction equipment, plowing up roads and laying utilities, not to mention the latest fiber electronics that must be upgraded every year. We in Utah are historically adverse to any kind of federal involvement in our affairs, but at least in this case, I for one am grateful that we have some deeper pockets to draw on to keep us in fiber optic cable.
Every year, Direct Communications spends millions of dollars in Eagle Mountain upgrading the network plant and assets, replacing old copper lines with new fiber optic lines, upgrading switches, electronics and equipment. Eagle Mountain is a special place with a unique demographic. Utah is the youngest state in America, and Eagle Mountain is the youngest city in Utah. Keeping up with the insatiable demand for bandwidth for all the families in Eagle Mountain is our full time job. Internet technology is changing and improving constantly. People are using more and more bandwidth, and we are upgrading the network constantly, sometimes defying the very laws of physics. We are constantly upgrading the electronics and equipment, which of course takes a lot of money and time, but our number one priority is improving our network and keeping it absolutely the premiere fiber optic network in Utah.
We provide the rare kind of customer service you can only expect from a local hometown company. We are your neighbors. Our kids go to school with your kids. Most of our techs and office staff live right here in Eagle Mountain. We are not perfect—we make mistakes, but if you have a problem, you can visit our office in Eagle Mountain, walk in and give us a piece of your mind face-to-face. (We will sometimes delete those kind of rants from our corporate Facebook page though if they have bad language or get into personal attacks on our staff.) Our local techs can visit you anytime to solve problems, and we can get your internet installed faster than anyone can coming from outside of Eagle Mountain.
We are builders, with a vision to improve the communications infrastructure by connecting Eagle Mountain to the world via our state-of -the-art fiber optic network. We were the first telephone company along the Wasatch Front to offer a fiber-to-the-home connection, and it happened right here in Eagle Mountain. We are constantly working to bring better long-term value to the folks in Eagle Mountain. Thank you for your loyalty. We ask for your support in our continued efforts to improve the communications future in our town.
You should have seen the prices before Direct Communications bought the network from Eagle Mountain Telecom—in 2005, people who wanted any kind of DSL had to pay a $250 install fee and 1.5 Meg DSL was $100 a month. Now, luxury Fiber optic service is as low as $50 a month with no upfront broadband installation costs.
The only way the rural telephone business actually works is through federal government cost recovery programs to a certain classification of independent telephone company. Direct Communications is classified as such a rural, independent, federally-regulated company. Every person in the USA who has phone service is helping pay for your internet service in Eagle Mountain. On your phone bill, you will see a federal tax called USF, which stands for Universal Service Fund. The government established this early in the last century to provide a way to subsidize rural utilities. Everybody pays towards this fund, people in large cities served by AT&T or Centurylink for example, where phone service is a viable business, are paying $6 or $7 in taxes a month, and the federal government, through their agencies such as USAC (Universal Service Administrative Company) and NECA, (National Exchange Carrier Association) redistribute these revenues to rural phone companies to help pay for the cost of building and maintaining networks in remote areas, where the customer base cannot support the cost of the network.
So, this is a good thing if you live in a remote or rural area.
Various government agencies, like NECA, The FCC, and the Utah Public Service Commission, regulate what we charge for phone and Internet service, what the installation fees must be, what we can and can’t charge for—the list is extensive, the state and federal audits are frequent. We do know what people are paying in most larger cities in Utah, and we know what people here in Eagle Mountain would like to pay, which is probably to get free Internet from Google like their relatives in Provo. But, we feel our prices are pretty competitive, and our value unbeatable for the high quality product we offer.
Remember, when you support a local company, you are investing your money back into your hometown—your revenue goes directly back into building up the local communications network here in Eagle Mountain and improving the infrastructure here. If you are sending your money out of town to a large corporation, nothing improves in Eagle Mountain. They will spend your hard-earned money elsewhere. (Perhaps even give it to sponsor political causes you definitely oppose.)
We provide employment to folks in your local community and help improve the local economy. Would you like your home value to go up? Have more thriving local businesses in the area? Have our youth find gainful local employment? Part of our mission as a company is to ensure the future of small towns, but we need the support of the folks if our investments are going to be fruitful.
Is Direct Communications a Monopoly?
There are no restrictions on competitive companies building their own networks or offering internet service in Eagle Mountain. However, it is true that we are currently the only wired broadband provider here in Eagle Mountain. Sometimes people will complain that Comcast is not in Eagle Mountain, and will point the finger at us or the city, as if we were somehow keeping them from coming into the city. Comcast is huge, the largest internet provider in the USA, with literally armies of lawyers and lobbyists. We are a small local company, with no lawyer on staff, and neither us, nor the City of Eagle Mountain could ever control Comcast even if we wanted to. If they wanted to build out their network in Eagle Mountain, they could, and nothing is stopping them except their own legitimate business reasons. Perhaps they have not found a business model where they spend several million dollars to build out a buried cable network throughout Eagle Mountain, and make that money back within their required payback time. Also note that even Comcast has their own detractors and critics. Their Facebook page has angry customers just like every other service provider. They also have data caps and limit how much you can download each month. They also charge a lot more for their internet service than we do. There are plenty of places to live where you can get Comcast service. Eagle Mountain is special, and you probably chose to live here because you recognize that.
We hope you will continue to support your local broadband company. Now that you have a basic understanding of how rural phone and Internet service is funded, you will hopefully reflect on the miracle of being able to enjoy reliable high-speed Fiber Internet out in Eagle Mountain. Most urban areas in the USA don’t yet even have fiber yet—all they have is old copper lines. But thanks to Direct Communications and the FCC, you now have fiber-optic cable to your home, which even most of the biggest, hippest and hottest cities in America don’t yet have.
What is our relationship with the City of Eagle Mountain? Direct Communications purchased the former Eagle Mountain Telecom in February 2006, after the city had tried for many years to sell off its telephone network. The cost of maintaining a copper telephone network was driving the city slowly towards bankruptcy, and Direct Communications, as a private telecom provider, stepped up and offered a solution for residents of Eagle Mountain. Remember the recent uprising about high utility costs here in Eagle Mountain? If the City had not sold off its telephone network, your utility costs would be a whole lot higher. They made a wise decision, very beneficial to their residents, when they sold their network to a private telecom. At a signing ceremony with the city council and mayor present, Direct Communications presented the City of Eagle Mountain a check for $6.3 million for the purchase of the former Eagle Mountain Telecom network. For pictures of that event, see http://www.directcom.com/eaglemtn/images/community/telecom-sale/index.htm
Since then, we have maintained a good relationship with the City administration. We are now the largest private employer in Eagle Mountain and we want to help improve the local economy. We donate to local causes, especially all the schools in Eagle Mountain. http://blog.directcom.com/2012/12/03/direct-communications-contributes-to-local-eagle-mountain-schools-in-2012/
We, like you, would you like to have more thriving local businesses in the area, because that will help grow our customer base. We thus try to support economic development initiatives in Eagle Mountain. We worked with the City to start the Eagle Mountain Small Business Incubator Program, and still house many of those start-ups in our own building. http://www.heraldextra.com/news/local/north/eagle-mountain/article_1492b0b8-0d57-52cd-8bf1-5b3ff055ad11.html
We are trying to bring new doctors and medical facilities to Eagle Mountain. See http://blog.directcom.com/2012/10/11/new-medical-office-building-coming-to-eagle-mountain/
We are trying to put Eagle Mountain on the map by deploying a city-wide WiFi network. http://www.sltrib.com/sltrib/money/54498849-79/network-direct-eagle-mountain.html.csp
When you support your local broadband company, you are investing your money back into your hometown—your revenue goes directly back into building up your local communications network and improving the infrastructure here in Eagle Mountain. If you are sending your money out of town to the other side of the lake, or out of state, nothing improves in Eagle Mountain.
Thank you for your business and support. We need you.