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MINNESOTA TELEPHONE ASSOCIATION Minnesota Telecommunications Guide April 2000 What is the state of Minnesota's telecommunications industry? Newly elected MTA Officers provide insight. As Anthony Mayer, general manager of West Central Telephone Association, and Craig Gunderson, Minnesota state general manager for Frontier Communications, begin their two-year terms as president and vice president, respectively, of the Minnesota Telephone Association, the two commented on the current state of the state's telecommunications industry recently in an interview with the Telecommunications Guide. Mayer, who says he "found himself" managing an Iowa telco at age 25, is a 30-year industry veteran. He has managed his Sebeka-based association for seven years. Gunderson has been in the industry for 10 years, all with Frontier, and is currently based in its Burnsville office. He worked previously at the company's Rochester, NY, headquarters and for its Georgia operations. Q What are the biggest issues facing the state's telecommunications industry? A Mayer: The biggest issue is the perception that outstate Minnesota is neglected by technology - that's a complete falsehood. The other main issue is state government wanting to treat phone companies, cable TV and high-speed data and Internet service providers the same. It's going to be a problem if the state rolls all suppliers into a ball and treats them the same way. This is a very complicated industry where simple rules and regulations just won't work. For example, local phone companies have a tremendous amount of embedded costs in their networks that newer companies typically don't have. That, in and of itself creates an unleveled playing field when there's competition. We're trapped in our service areas, so to speak. We're not a bakery that can move when competition gets too stiff. If it does, in fact, we'll probably have to drop out and consumers would be the first to suffer because there are many areas that can't support two competitors. If we go along with the governor's plan and have two providers everywhere, I don't see how either can survive in some places. That's why there has to be a system where incumbent phone companies can earn something on their embedded costs. Gunderson: I think retail rate de-averaging to reflect the higher costs of serving rural areas is an important issue. There needs to be an adequate universal service mechanism to reimburse telcos for providing high-cost service to customers outside municipalities. CLECs (Competitive Local Exchange Carriers that compete with Incumbent LECs) only want to serve cost-effective areas - how is that going to be addressed? There's also the question of municipalities, who are positioned to provide service at an unfair advantage. How do we keep the playing field level for everyone?
Q What should the telco industry be doing right now? A Gunderson: We need to do much more about the tremendous confusion out there about fiber optics and the level of services available across the state. There are certain rural pockets that aren't as well connected as metro areas, but some outstate areas are better connected. We hear a lot of talk about fiber, what it can and can't do. The real question is not whether the cable is fiber, copper or coaxial. We should be asking 'What services do customers want and are we delivering those services?' The services are available, for the most part. The issue is what they cost for the customer. Mayer: I agree we've got to do a better job of education. There's a lot of confusion about how things like economy-based pricing work, about what services are available and what aren't. People who happen to live in an area that doesn't have every service think the whole state's in the same boat. Well, my association is 200 miles from the Twin Cities and our fiber optic network is within 12,000 feet of every customer in a 600-square mile area. There are very few places in the metro area that can say that. State telcos are doing a tremendous amount of investment in infrastructure. Being connected is not as great an issue as many believe. As we move away from being a rate-of-return regulated industry, the costs for customers to get these services is the issue. We also need to do a better job of inform-ing everyone, especially our customers, about subsidies. Our industry has had subsidies since the '30s so rates were affordable for residential customers. Some rural companies haven't raised rates in 20 years. We had no incentive to let customers know what the real costs to provide their services were because our rates were strictly regulated. But now that the access fees that long distance carriers pay to underwrite high-cost customers are dropping, we have to make up the difference somewhere. Local rate increases are the logical place. After all, rates of $10 to $15 a month don't support the $3,000 to $4,000 we've invested in infrastructure to serve each rural customer. It doesn't take much to figure that out.
Q Competition is a big part of the telecommunications landscape today. What are your thoughts on the subject? A Gunderson: If we're going to have competition at the local level, we need more freedom to respond. That means regulations have to play less of a role, the market more of a role. But the rules have to be the same for municipals, CLECs and incumbents. The problem with competition is that it's always viewed as good. It's seen as so good, in fact, that the governor's proposal (to regulate the telecommunications industry) says incumbents need to be held back to foster competition. Mayer: The political view these days is competition at any cost and I don't think many realize the cost. Many seem to have the idea that if it's good in the metro area, it's got to be good everywhere. The truth is that in some areas, the probability of some services being deployed is better in a regulated environment than in a competitive environment. In some areas, a competitor would only retard the growth of new technology. An incumbent phone company couldn't afford to deploy it because there wouldn't be enough customers to make it economically feasible. Whether the competitor could do it in the long term is doubtful, too, I think. We don't have to look far for examples of the problems caused by de-regulation. The rail and air industries were both subsidized in rural areas. Now a flight that used to cost $150 can cost $1,200. Railroads have pulled spurs out of small towns everywhere. Did we benefit? We have nominal competition in these industries in rural areas but our standard of living has not increased because of it.
Q What challenges does the MTA face in the next two years? A Mayer: The right-of-way issue on interstates with the state is a big issue we need to get behind us. And we need to see that the national and state universal service fund survives because there are areas in the state that will have no service at all without subsidies. As an organization, MTA needs to meet the needs of members in a different environment. It's done a good job but now it's competing with organizations on both the state and federal level, so it will have to continue to adapt to remain useful. Gunderson: I've been in other states and I think MTA has done an outstanding job of balancing the needs of its members and representing small, medium and large companies. But as the industry continues to consolidate, it will be a challenge to meet members' divergent interests. Most of us see it even in our own companies because we're also CLECs and we may also offer long distance, Internet and cable. Depending on which hat we wear, even parts of our company can be on different sides of an issue. That forces us to look at the large picture and ask: 'What's best long term for our customers and our industry?' By working together, we're better off because we're more likely to get a workable solution for the industry. I'm very impressed with how that's come together through the MTA.
Q What do you see as government's role in telecommunications? A Mayer: Government is a good standardizer. It made rural service viable by standardizing technology and engineering practices. Government also should be involved in what it does best - teaching people how to use what's in place. But government is not helpful when it's not fully aware of the complexities of our industry. We're now in a process of de-regulation, but it seems to me that we're more regulated now than we were before. Gunderson: As competition in the industry grows, government has an important role to play - ensuring that no provider has an unfair advantage.
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