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Categories - Shopping - Free Online Business Help - Telecommunications Services Articles: Telecommunications - Telecom Industry Destruction A long time telecommunications industry expert, Ken Pyle, publisher of Viodi View and rural telecom advocate, caught up with another telecommunications industry veteran, Andy Brown, who is now working for communications law firm Bennet and Bennet, and promoting Obama's Broadband Initiative at the MTA (Minnesota Telecommunications Alliance) show. If you watch the video with rose colored glasses, everything sounds well and good, but if you watch with a critical ear, you will hear the reasons why the initiative never should have been initiated. Broadband services are already available in 95% of rural areas, but rural customers are not buying them. There are reasons that areas remain unserved and underserved by broadband and they have nothing to do with the industry not having money. Thinking differently about the situation is not going to change things as much as it's going to get you in trouble. As Ken diplomatically points out, rural telephone companies have already made broadband services available to 95% of the cutomers. The problem is not one of capability, but one of low-take-rates, which means that, after spending billions of dollars on infrastructure capability, the customers are not buying the services made available. They either don't want it or just can't afford it. Economies in rural America are different than they are in urban areas and the people are more pragmatic. A $35 monthly phone bill takes a pretty good chunk out of most yearly budgets. Another $20 to $30 for xDSL access so that you can surf the Internet faster or boosting your bill to $100 per month so that you can take advantage of triple play optiions where you get telephone, xDSL, and TV service piped into your home over your telephone lines can easily be unaffordable or prevent you from making a rainy day deposit in your savings account. It also can prevent you from saving for your children's education or eat into your monthly food bill. Life has taught the rural population what is important and they would much rather spend a few more seconds waiting for websites to come up than not have money to fall back on, send their kids to school, or eat. After the Telecom Deregulation Act created new CLECs, that dissappeared as quickly as they appeared, and media hype promoting their wild promises, pushed these rural TelCos into making the investment to provide advanced services before a market for them existed, people are not buying them and rural TelCos, while servicing the required loans, are seeing longer returns on their investments. While equipment manufacturers developed and pushed business models to showing rural TelCos how much more money that they could make by providing these new services, their models did not include an exit plan if customers didn't buy the services. The customers claimed to want these things, but as usual, they wanted them for free. As a reult, TelCos will be forced to service their debt while it takes much longer for the business models to develop. Business models for rural TelCos fall in line with those of their customers. Their investments are well thought out and their success and continued existence depends on having just enough revenue, manpower, and equipment to reliably provide their existing services to their customers, which normally number less than a thousand. There is no new way of thinking about this. The money coming in must be greater than the money going out and this will not happen by servicing debt that does not create a return. Telecommunications services were only made possible in rural areas, where customers are fewer and farther between, by lower cost and longer term loans largely created by the RUS. Even if the money to upgarde an exisiting network or install a new one comes in the form of a grant, TelCos still have ongoing maintenance, administrative, management, facilities, and equipment costs involving their new netwrok. They must also market the capabilities of their new network to their customers in order to get them to buy advanced services. It can be years before a network breaks even in low-take-rate areas even without a loan payment to make. In the case of rural service areas, this problem is in the process of being magnified as the federal legislature is in the process of passing Senate Bill 425 and HR 875 that will impose more costly regulations on small farmers, who are rural TelCo customers, and put many of them out of business. Rural TelCos have and will continue to encroach on low density service areas where the RBOCs are not providing adequate service. Before they begin to initiate this action, they will do as much planning and budgeting as they do for anything else. The question, in this case, will be whether the RBOC is not providing broadband service in an area because there is no market for it or the busness model in the area does not satisfy RBOCs' expectations for a higher return rate. If the business is not available, rural TelCos won't do it either. This explains why some areas in the country are underserved or not served with broadband services. There are not enough customers, they don't want the services, or they can't afford the services. In some cases, technology does not exist to allow broadband to be provided over the required distance. If TelCos could service these areas economically, they would already be serviced. The rural telephone industry cannot absorb $4.7 billion by September of 2010. In order to do this, not only would the telephone companies have to increase their payrolls and capabilities, but manufacturers would have to ramp up as well. Planning would have to be haphazzard at best. The illusion of prosperity will quickly dissipate if the money does manage to get spent, and the industry will again begin to suffer massive layoffs and company closures after the money is gone. No sustaining economic increase in the industry will be established. The TelCos have not fully recovered from the last government intervention and large swaths of industrial complex floor space still remains empty from when the .com bubble burst. This initiative will only push money on an economy that cannot support it. As Andy points out, the federal agencies tasked with spending this money do not have the ability to do so. The federal government has increased its rolls by 1.2 million people and, just to be able to spend this stimulus money, many more will have to be added. The government's ability to screw things up because of a lack of knowledge and expertise is increasing exponentially. Highly paid bureaucrats often forget that things are not free. As often turns out, the visions of a new administration that are based on imagination as opposed to knowledge will end up being someone elses nightmare.
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