[A2k] NYT: Rural Areas Left in Slow Lane of High-Speed Data Highway

[Manon Ress]

from: NY Times
http://www.nytimes.com/2006/09/28/technology/28vermont.html?
hp&ex=3D1159502400
&en=3D5256374abba709e1&ei=3D5094&partner=3Dhomepage

September 28, 2006
Rural Areas Left in Slow Lane of High-Speed Data Highway

By KEN BELSON
CANAAN, Vt. =97 For most businesses, the goal is to attract as many
customers
as possible. But in the fast-changing telephone industry, companies are
increasingly trying to get rid of many of theirs.

Bill and Ursula Johnson are among the unwanted. These dairy farmers in
bucolic northeastern Vermont wake up before dawn not just to milk their
cows, but to log on to the Internet, too.

Their dial-up connection is so pokey that the only time they can
reliably
get onto the Web site of the company that handles their payroll is at
4 in
the morning, when it is less busy. Mr. Johnson doubles as state
representative for the area, and he doesn=92t even bother logging on to
deal
with that. He communicates with colleagues in Montpelier, the
capital, by
phone and post instead.

The Johnsons=92 communication agony could soon get worse. Instead of
upgrading
them to high-speed Internet access, Verizon, their local phone
company, is
looking to sell the 1.6 million local phone lines it controls in
Vermont,
New Hampshire and Maine. The possible sale is part of an internal plan
called Project Nor=92easter, according to a person with knowledge of the
details.

A Verizon spokesman, John Bonomo, would not comment on the plan, but
said
the company =93continually evaluates the assets and properties in our
portfolio for strategic fit and financial performance.=94

Verizon is not alone in its desire to reduce the number of landlines it
owns. Big phone and cable companies are reluctant to upgrade and expand
their networks in sparsely populated places where there are not enough
customers to justify the investment. Instead, they are funneling
billions of
dollars into projects in cities and suburbs where the prospects for a
decent
return are higher.

But those projects are unlikely to reach rural areas of Vermont and
other
states, leaving millions of people in the Internet=92s slow lane, just as
high-speed access is becoming more of a necessity than a luxury. The
United
States already lags behind much of the industrialized world in broadband
access.

The lack of broadband has preserved places like Bessie=92s Diner as
Canaan=92s
de facto meeting hall. Over burgers and turkey club sandwiches, local
residents swap tidbits that, in a more wired world, might end up in e-
mail
and instant messages.

Helen Masson, who lost her job at an Ethan Allen furniture factory a few
years ago, grumbles that the lack of broadband has made it harder for
her to
find work, despite taking computer classes. Mr. Johnson, sitting nearby,
nods in agreement. =93The staff at the statehouse shudder when I=92m on a
committee because they have to lick a stamp instead of pressing a send
button,=94 he said.

Verizon has sold phone lines before. In 2005, the Carlyle Group
bought its
business in Hawaii. Verizon also sold 1.3 million lines in Alabama,
Kentucky
and Missouri in 2002.

Others have followed. In May, Sprint Nextel spun off its local phone
division with 7.1 million lines and renamed it Embarq. In July,
Alltel spun
off its local phone group and merged it with Valor Communications.

If Verizon does sell the New England lines, it would most likely be to a
smaller company or private equity group that could be even less
capable of
offering fast Internet access. That prospect has Vermonters fearful
that the
exodus of jobs and employers from the state could accelerate.

=93We have companies that lose money because they don=92t have
broadband,=94 said
Maureen Connolly, a director at the Economic Development Council of
Northern
Vermont. =93We=92re not a third world country. We shouldn=92t have to beg f=
or
service.=94

While selling off slow-growing landlines in New England may please
Verizon=92s
shareholders seeking higher returns, the company=92s plan has reignited
long-simmering political and economic debates about whether the
region is
being left behind as wealthier states nearby pull further ahead.

The proceeds from any sale of New England lines would help Verizon
pay for
the potentially more lucrative fiber optic network it is building in and
around cities like New York and Boston.

The network is part of Verizon=92s push to transform itself into a
fast-growing technology company and shed its image as a stodgy utility.

The possibility that Verizon would sell local lines is another sign
of how
much the phone business has changed in the last half decade. Verizon and
other former local phone monopolies argue that since the cellphone,
cable
and Internet companies that are luring away millions of their
customers are
not compelled to serve remote and rural places, then they should not
have to
bear that burden either.

In Vermont, Verizon has broadband available on just 56 percent of its
330,000 lines, compared with 95 percent for most local phone companies,
which receive substantial federal subsidies. Without the same aid,
Verizon
must bear more of the financial burden to upgrade its network.

=93Vermont =97 like all rural states =97 has higher fixed costs of providin=
g
service,=94 said Polly Brown, president of Verizon Vermont, where the
number
of landlines has declined 9.1 percent since 2002. =93You=92re spreading
those
costs over fewer customers, who are located far and wide, and you=92re
dealing
with topographical challenges such as mountains and a rock base.=94

Residents, unions and politicians in Vermont do not dispute that the
phone
business is a challenging one, but they say that residents will have a
harder time telecommuting or home-schooling their children. Towns like
Canaan will not have access to the growing number of government
records kept
online, they say, and hotels and other tourist attractions will have a
harder time attracting outsiders.

Take Michael and Louise Kingston, who have had a summer home in nearby
Averill for the last 35 years. Owners of a grape-growing company with
vineyards in Chile and California, they often cut their vacations
short and
return home to New Jersey because they cannot run their business on the
26-kilobit dial-up line =97 a speed considered fast in 1993 =97 in Averill.

=93It means we can spend less time here, which means you spend less
money here
at a time when the local economy needs it,=94 Mr. Kingston said.

Connections are so slow that their son drives 25 miles south to
Island Pond
to find a broadband line. There is no cellphone service either, so when
locals go to areas where there is reception, they take along other
peoples=92
phones to retrieve their voice mail for them. In places where Verizon
does
not sell high-speed Internet, some people have the option of getting
broadband from their cable provider. But in Vermont, cable companies
have
focused on more populous towns like Montpelier and Burlington, the
state=92s
largest city. Cable coverage in the northeast part of the state is
spotty.

Several rural phone carriers have spoken to Verizon about its lines
in New
England, including Fairpoint Communications, CenturyTel and Citizens
Communications, according to people with knowledge of the discussions.
Buyout firms may also be considering the business.

Rural phone lines can be profitable because the basic infrastructure was
paid for years ago, there are often few competitors and subsidies
from the
Universal Service Fund, which helps carriers provide service to
hard-to-reach consumers, can be substantial.

But the subsidies do not benefit all carriers equally. For example,
Vermont
Telecom, which has 21,000 phone lines in the state, will receive
$24.34 a
month per line in the fourth quarter from the fund, money that is
credited
to customers on their bills.

But as a larger carrier, Verizon will receive one-tenth the subsidy, or
$2.42 per phone line. Any company that buys Verizon=92s lines will
inherit the
same subsidies, making such a deal a less attractive investment. Verizon
could compensate by lowering its sale price, at the risk of
disappointing
shareholders.

The economics of providing broadband in rural areas are discouraging,
too.
The cost of upgrading an existing copper line that runs from switching
stations to remote homes can be as much as $5,000, according to the
National
Exchange Carrier Association. Such costs are prohibitive for phone
companies, which typically want to make back their money within three
years,
said Victor Glass, the director of demand forecasting at the carrier
association.

Though frustrations with Verizon run high in places like Canaan, the
alternatives are more alarming. Since it took over Verizon=92s lines in
Hawaii, the Carlyle Group has had billing problems that caused a
fourfold
spike in consumer complaints.

Carlyle=92s experience could presage what rural areas like northern
Vermont
might face if Verizon departs, particularly if the buyer sharply cuts
costs
and jobs.

=93We would rather deal with Verizon because there=92s a process in place
and
people up and down the food chain that we know,=94 said Darlene Stone, an
operator at a Verizon call center in South Burlington and chief
steward in
the Communications Workers of America, which represents 135 Verizon
employees in Vermont. =93Private equity funds are not people who are
going to
be interested in our opinions.=94

The possibility that a sale could lead to worse service has put
regulators
in the uneasy position of trying to pressure Verizon to do more while
not
alienating the company, which invested 37 percent less in its network in
Vermont last year than in 2001.

In 2005, the Public Service Board fined Verizon $8.1 million for
providing
inadequate customer service in Vermont. This year, regulators also got
Verizon to agree to expand its broadband coverage to 80 percent of
its phone
lines by 2010.

That holds out some hope for isolated areas, but there is no
guarantee that
any particular customer, like the Johnsons, will be among the 80
percent and
there is no guarantee that Verizon will still be in Vermont by then.

Alternative broadband providers who could fill that gap face
problems, too.
Jake Marsh, who runs Island Pond Wireless, a company that beams high-
speed
Internet signals over strings of antennas, has signed up 250
customers and
has a waiting list just as long. But to expand, he is counting on towns
getting state funds to help defray the installation costs.

Yet officials in Norton, 15 miles west of Canaan, could not download the
20-page grant application because their dial-up line was so slow.


************************************************
Manon Anne Ress
manon.ress@cptech.org,
www.cptech.org

Consumer Project on Technology
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Tel: +41 22 791 6727

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