ADDISON COUNTY — Will Stevens — a state representative and co-proprietor, with his wife Judy, of Golden Russet Farm — stands in the kitchen of his Shoreham farmhouse, talking to a customer on his landline wall phone. He confirms the produce pick-up schedule, then stops mid-sentence, frowning.
“Hello?” he says, then hangs up with a resigned shrug.
“Phone calls here get cut off,” he says. “Or they don’t go through at all. So many times I’ve called elsewhere and you just don’t know if the call is going through, it goes dead. It rings then goes dead. You can’t tell how many times it’s rung on the other end if at all.”
There’s nothing wrong with the phones at Stevens’ house, or with any of the other landline phones or wires in Shoreham, yet the problem is pervasive. When Stevens campaigned two years ago, knocking on nearly every door in his district of Benson, Orwell, Shoreham and Whiting, “I heard more about the phone problems than about any other issue,” he says. “Constituents were complaining about Shoreham Tel, but it wasn’t them. It’s the issue of rural phone service and least-cost routing.”
The problem is not unique to Shoreham, although Shoreham Telephone customers seem to have an inordinate share of call failures. Other rural phone service providers across Vermont and from Maine to Nebraska to Washington State are also experiencing connectivity issues.
In spring 2012, a coalition of leading telecommunications industry associations — the National Exchange Carrier Association, the National Telecommunications Cooperative Association, the Organization for the Promotion and Advancement of Small Telecommunications Companies, and the Western Telecommunications Alliance — conducted an extensive call completion test project. Volunteers in rural and non-rural locations made more than 7,400 test calls using a wide variety of wireless, landline and voice-over-internet-protocol providers, logging the completion and quality rates. They determined that call failure rates were 13 times higher in calls to rural areas than in non-rural areas. Nearly one-third of the rural phone lines were experiencing failures on more than 20 percent of incoming calls.
“I pick up the phone and assume that Shoreham Tel has the equipment in place to connect with long distance services. But the reality is it’s much more complicated. It’s a national problem, particularly in rural areas,” Stevens says.
Rural phone companies like Shoreham Tel and Waitsfield and Champlain Valley Telecom, which both serve residents in Addison County, face challenges providing service that carriers in more densely populated regions don’t. For this reason, the rural carriers have been able to collect higher fees from out-of-state phone companies looking to complete calls into the rural companies’ service areas.
But as a group of low-cost phone service providers play a bigger role in the market a regulators are also phasing out the higher fees received by rural phone companies. That is putting residents dependent on these small phone companies in a bind with deteriorating service and potentially higher costs.
FairPoint Communications, the dominant landline provider in Addison County, has not faced the least-cost routing problems that the Shoreham and Waitsfield telephone companies have faced.
PUBLIC SAFETY
Close family ties are often maintained through regular phone contact with loved ones — especially those who may be elderly or have vulnerabilities. “My dad has a camp outside Ti,” Will Stevens says. “It’s a remote camp, and he’s in his 80s. This summer I couldn’t get through, I tried numerous times. It’s very troubling.”
The elder Stevens’ camp is in an area served by the Crown Point Telephone Corporation, a rural service provider with 735 access lines, across Lake Champlain from Shoreham Tel’s service region. Shana Macey, president of Crown Point Tel, is on the receiving end of the customer complaints about call completion issues.
“We’re local and people look to us for explanations,” she says. “As well they should.”
Given the number of summer homes in the area, people like Will Stevens often call to check up on relatives, particularly retirees.
“When they can’t get through they’ll call us and ask us to check the lines, and we do and they are working properly, so then they’ll ask us if we can go out and see if the person is OK because they aren’t answering their phone,” she says. “And we’ll do that because we’re concerned, too.”
Public safety is one of two primary issues Macey has raised before the New York State Public Service Commission while seeking their assistance in resolving the rural call completion problem. Other telecommunications professionals raise concerns about the potential larger-scale public safety problems. Although 9-1-1 is a direct connection and not subject to the rural connectivity problems, many first responders, search and rescue personnel, and medical professional rely on ordinary phone channels for communication.
“I’m concerned we’ll have a major event where perhaps a first responder doesn’t know that they were called out,” says Steve Head, engineer at HEADSolutions, consultant to the telecommunications industry. Head is working with Waitsfield Telecom, and has been instrumental in recognizing and revealing the extent of the rural connectivity problem nationwide.
“We had at least one incident of a hospital trying to get ahold of a patient to schedule surgery and could not get through, and if they had not been able to get ahold of him for this surgery opening it was not going to be able to be done for some time,” he said. “That was major.”
The consortium of telecommunications companies that conducted the rural call completion study this spring also submitted to the FCC (Federal Communications Commission) documented phone-service complaints implicating serious public safety issues across the country. A Colorado search and rescue coordinator was unable to connect with a dog team to find a person trapped in an avalanche, despite hours of repeated, persistent phoning, and the Washington State Police report significant issues with calls to and from the cell phones the officers carry, creating a major safety issue.
“Are we going to wait until an event occurs and then react to it afterwards, which is the way it seems we often do things?” Head asks, expressing obvious frustration.
ECONOMIC IMPACTS
The other looming issue concerning Shana Macey and others in the telecommunications business is the impact of phone connectivity failures on the rural economy.
“We’re in areas where revenue needs to stay strong,” she said. “This problem has been going on for a while, but instances are becoming more frequent. When it would first happen people thought it was just a quirk. Now it happens all the time. You can’t even begin to calculate the economic losses to businesses in rural areas that need to maintain that revenue.”
One of those rural businesses is the Falkenbury Farm Guest House in Benson, where Shoreham Tel customer Jackie Ambrozaitis offers visitors a sample of small-farm life. Guests typically find the business website then try to telephone, but if the calls are not completed to the Falkenbury Farm phone, Ambrozaitis has no idea whether anyone was trying to reach her.
“I would definitely say this has affected my business,” she says. “How many phone calls am I missing?”
Molly Worden, Jackie’s daughter who lives in Connecticut, reports that she has problems every month reaching both her mother and a sister who also lives in Benson.
“I call Shoreham Tel and they test the line and they say it’s my phone; they tell me my phone looks for the cheapest way to send the call,” Worden says. “I’ve had people over to the house and called from several different carriers with their cell phones, I’ve tried Verizon, Sprint, Nextel, and I still can’t get through. It will ring 20 times without answer or it goes to busy. Sometimes five, six days in a row I can’t get through.”
Worden’s young children get frustrated when they can’t talk to their grandparents in Vermont, and Ambrozaitis’s 90-year-old father-in-law in Connecticut gets distressed when he can’t reach the family in Benson.
“It’s my family and I know they are losing out business when people can’t get through,” Worden says.
Shoreham Tel has advised Ambrozaitis to have the people trying to place calls to her call their own phone carriers and open a complaint ticket, but she says that solution is highly impractical.
“How do I tell people who I don’t know who are calling to open a claim ticket?” she asks. “You pay your bill every month, and it’s ridiculous. I do have two friends from Connecticut who have AT&T who call me on their cell phones and they get through with no trouble at all. But other relatives don’t even call anymore.”
Steve Head says the impact on the rural economy is being felt across Vermont.
“A whole list of companies in rural areas are affected by this, small businesses. Places like Dakin Farms ramping up for Christmas taking phone orders. We’ve had call centers in Canada calling saying they can’t place calls through to Vermont businesses,” Head says.
LEAST-COST ROUTING
The reason the calls don’t come through is that many long-distance carriers favor cost factors over service speed and quality, Macey says.
Rob Souza, senior vice president of Otelco, the Maine-based communication company that bought Shoreham Tel 13 months ago, agrees that least-cost routing is the primary driver of the rural phone connectivity problem.
“The customers in Shoreham are not having problems with dial tone and their outbound calls usually complete,” he says. “Customers are saying that a relative or someone is trying to call someone in Shoreham, and those calls coming in don’t complete. You get a fast busy signal or silence.”
Long distance phone carriers pay Shoreham Tel, or any other local phone service provider, to use the Shoreham Tel switching system to complete the incoming calls on the local phone line equipment. Those carriers pay what are called “access rates” to complete or, in industry terms, “terminate” the call over the locally owned copper wires.
“Certain states have higher access rates than others,” Souza says. “Those rates are set by your state Public Service Board or Commission, and the companies, at a reasonable cost to retain the dialtone prices. Instead of $30 to $40 a month just to get dialtone, they keep that price down by charging the other companies that access that system. In Vermont, those rates are higher than the interstate rates set by the FCC.”
Least-cost routing can lead to dropped calls. What happens essentially is when one dials into Shoreham the call may be routed through, for instance, an ATT router, and is then handed off to one of the hundreds of discount long-distance carriers. When this carrier’s computers quickly calculate that the call is a money loser because Shoreham Tel is allowed to charge a fraction more to access its lines, the secondary carrier simply drops the call.
“It’s as if FedEx hands off a package to a cheaper local delivery company in a remote area, but then that company says, ‘Well, I’ll get to it when I get to it,’” Macey says.
It can also lead to the absurd conundrum of calls stuck in perpetual circles.
“They farm out delivery to another carrier, and down the line, sometimes A routes to B routes to C, and C determines that A could carry the call cheaper and it goes back to A. Chasing your tail, the call goes in a circular route and the call does not complete,” Souza says.
Dropping calls violates FCC regulations, which is another reason carriers may engage in circular routing.
There’s an inordinately high number of call failures happening in calls to Shoreham, especially from wireless carriers, Souza says.
“Customers in Shoreham think we are doing something wrong, and of course sometimes we do, we do sometimes have local problems and we track those down and fix them, I’m not going to say it’s never our problem,” he said. “But most of the issues customers are seeing there are with the call providers out of the area.”
Access rates are particularly high in rural areas because of the sparse customer base. The reason that rural phone service providers like Shoreham Tel even exist is that from the beginning, Ma Bell — AT&T — decided it couldn’t make any money in the rural areas that require miles of lines serving very few customers.
“Farmhouses surrounded with many acres of fields, houses that may be miles apart. It’s the geography and demographics of the area,” Souza says. “It’s the same reason that there’s limited cell service in these areas. You might put up one cell tower, but the six it would take to provide complete coverage in the terrain are just not cost-justified.”
A rural phone service provider like Shoreham Tel maintains a small network of its own copper wires, then connects with the rest of the world via “trunking” or switching centers connecting with a larger carrier. Shoreham Tel’s lines have trunking with the network maintained by FairPoint.
“People in Sprint or Verizon don’t have direct switching with us, but they do have direct with FairPoint’s tandem switching. So FairPoint turns the call over to us and we terminate the call. The system has worked flawlessly for years,” Souza says.
“Then the least-cost routing issue emerged in the last three years. Entities started doing this, shaving every last penny out of it. Our customers aren’t happy, and we understand that. But we can’t control the other side of the system with calls coming at us.”
“Rural phone companies are the victim here,” Steve Head says. “They charge a higher rate to terminate calls as it costs more for them. Shoreham Tel gets beat up because everyone calls them and says something is wrong with your system, but it’s not. We’ve been through all of their lines and equipment and there is nothing wrong with it; it’s the least-cost routing carriers.”
BREAK UP OF MA BELL
Least-cost routing problems originate in the break-up of Ma Bell in 1984. “At the time we thought this would be a great thing to put pricing challenges to AT&T, and it did,” Steve Head says. “But it created companies that are not necessarily as dedicated as ATT was to setting up networks.”
The 1996 Telecommunications Act, adopted in an era when the Clinton administration was deregulating a number of industries including banking and insurance, further deregulating the telecommunications industry, setting the stage for an explosion of small competitive telecommunications carriers. The race to the bottom of the cheapest rates, along with technology advances making it easier for small carriers to get into the business, eventually created the least-cost routing phenomenon.
“Regulation worked for a long time but customers didn’t have a choice. Now they have a choice, but the quality of calls may have declined,” Rob Souza says. “I’ve been in this business 40 years, and the modernization of the telecommunications system has been extraordinary. It’s a good, solid reliable system. But when people don’t play by the rules, you get more service problems. That’s not an indictment of the system, but on some people who are trying to shave every penny out of it.”
The original players that evolved before the heyday of the laissez-faire regulatory environment — including the former Baby Bell Verizon that absorbed MCI — continue to emphasize quality network service rather than prioritizing call routing by least cost, in Souza’s estimation.
“AT&T and Verizon have invested heavily in their networks; it’s rare that one of these problem calls ever foots back to AT&T or Verizon, it’s mostly the smaller entities who are trying to do it cheaper. To some extent, you get what you pay for.”
The sheer volume of carriers that now exist creates headaches for telecommunications engineers and an increasing archive of call-routing stories that don’t end in a happy connection.
“One provider located a call from Cleveland to Cincinnati that was routed to Japan and back,” Steve Head recounts from his long list of least-cost call sagas. “A customer in Waitsfield was about to get fired as his boss in Nashua, N.H., couldn’t get ahold of him and thought he was dodging out.”
But determining which cheap carrier is responsible for the dropped and circular calls is maddening.
“It’s like Whack-A-Mole,” Head says. “The problems pop up then they disappear for a little while. Then they pop up again.”
REGULATORY RESPONSE
Last December, the FCC issued an order instituting a slow-glide reduction of access rates charged by phone companies for other carriers to use their lines and equipment, winding down to eliminating those charges in seven to nine years depending on the specific service — though lawsuits to block the order have been filed, and may make the transition even longer.
“Once that goes to zero, there’s no incentive to shop these calls to less-expensive carriers. Last July they started with the wireless side of it,” Rob Souza explains.
The FCC asserts that by dropping the access-rate incentive to route calls by the lowest-rate carrier, call failures due to least-cost routing will abate. To address concerns over lack of improvement in the short-term, the FCC also issued a Declaratory Ruling in February 2012 detailing the prohibitions against and fines for blocking, degrading or choking off calls for any reason. Failing to terminate a phone call to its target number is unlawful under FCC rules, and carriers are legally responsible for the actions of the contractors they hire to deliver calls. Despite the bluster, the FCC media office confirms that zero fines have been issued to date.
However, the same access rates that create incentives for least-cost routing also provide a significant income stream to rural phone service providers, helping to subsidize the high cost of dispersed rural networks and keep the basic phone service rate down. While “in theory the problem will be gone at the end of seven years as they phase out access rates,” the end of payments from other service providers “will tend to put upward pressure on local phone rates,” Rob Souza says, meaning that you can expect your phone bills to go up.
This means that customer of one of these small rural phone service providers that have higher system costs can expect their phone bills to go up because their higher costs will no long be offset by Universal Service Funds.
Roger Nishi of Waitsfield and Champlain Valley Telecom said this scheme should really be called the “Rural Phone Service Efficiency Plan” since it will mean companies like Waitsfield Tel will have to get very, very lean to avoid untenable rate hikes to customers.
This newest economic squeeze on rural phone service providers in the guise of making service better comes at the same time that the other primary means of offsetting rural phone service network costs, the Universal Service Fund, is disappearing. The federal Universal Service Fund was initially funded by proceeds of AT&T’s expensive monopoly long distance rates, and since the 1996 Telecommunication Act has been funded by surcharges on phone bills. Starting in October 2011, the FCC is transitioning the Universal Service Fund to the Connect America Fund to subsidize broadband services rather than land-line phone services.
Reporter Michael Strand of the Salinas (Kan.)Journal is one of few commentators who has pointed out that this transition of the Universal Service Fund to broadband support will cost local jobs and create significant economic harm to small rural phone service providers. As early as the summer of 2011, Strand reported, based on an economic study conducted by the Center for Economic Development and Business Research at Wichita State University, that the proposal to spend billions of dollars on broadband Internet access to rural areas by diverting money from existing rural phone subsidies was likely to lead to extensive bankruptcies amongst rural phone service providers.
While most rural phone service companies also sell broadband services to their customers, the conversion of the Universal Service Fund to a broadband subsidy source will dilute and ultimately diminish the money coming to small rural phone companies, because the funds will now be available to a larger pool of service providers, including the telecommunications industry giants. A Nov. 6 press release by AT&T announcing its plan for a large-scale expansion of its LTE network in rural areas bolsters the analysis by Strand and the Wichita State University.
The transition of the Universal Service Fund to broadband support along with the reduction of access rates purportedly to reduce the least-cost routing problem has already had a demonstrable impact on local service providers. At its Nov. 7 press conference, Otelco CEO Michael Weaver noted that the company’s third quarter earnings were up due to reductions in work force — lost jobs — that reduced the impact of FCC ordered rate reductions and the absence of Connect America Funds to offset expenses. The company also discussed its ongoing negotiations with Time Warner to transition Otelco customers to Time Warner’s network.
Once those access rates work down to zero and the Universal Service Fund support vanishes, how will small rural phone companies stay in business?
“There are several schools of thought,” says Crown Point Telephone’s Macey. “Although we are all small rural phone service providers, our territories are really diverse. We have to each look at how can we stay in business.”
Change — both regulatory and technological — has created significant uncertainty in Vermont regarding the future of telecommunications businesses like small rural phone service providers.
“One of the things not well appreciated by the general public is that the provision of telephone service, and later broadband, has been supported by public policy,” says Chris Campbell, head of the Vermont Telecommunications Authority and former telecommunications director of the Vermont Public Service Commission. “But the world has changed. Mechanism that were in place, like charges based on minutes of use, are a poor match to the world now. Even in the old system Vermont was a bit of a round peg in a square hole.”
Doing away with the local landline networks is just not feasible at present, as the copper wires remain necessary infrastructure underpinning the nation’s new wireless networks.
“Even cell towers require a landline to them,” Macey explains. “A cell tower may take away customers, but it also brings revenue. We can continue to run broadband-speed Internet over our copper twisted-pair cable. So if someone shifts to using Skype, if they purchase broadband service from us, that’s the kind of product that generates revenue, it winds up being somewhat of a wash.”
If industry-giant competitors take those broadband clients with Connect America Fund support, however, that wash will become a significant net loss.
“Everybody recognizes that we have to get to a world where we are directing support to the technology of today,” Chris Campbell says. “This transition will produce some hard conversations.”
As a practical matter, Campbell says, state dollars are most effectively spent where they can serve multiple technological functions, rather than subsidizing telephone-only services. Moreover, the solution to the least-cost routing problem lies primarily out of state, and so is in the FCC’s hands.
“It’s not as if there aren’t regulations in place to prohibit this,” he says. “It’s an enforcement issue.”
Roger Nishi of Waitsfield Tel is sure where the money will come from, but he sees rural phone services as too critical to be lost.
“My take is — we’ll go through some rough times, but our networks are vital to the communities we serve,” he said.
Rural telecommunications providers like Shana Macey do not have high confidence that the FCC regulatory responses will bring about an appropriate, timely resolution for rural phone customers faced with least-cost routing problems. “We can’t really wait on this,” she says. “The FCC is trying to deal with the nation as a whole, and it’s an overwhelmingly large volume. But it’s such a multi-year plan, it’s like peeling back the layers of an onion, things can happen along the way.”
Editor’s note: Journalist Cindy Ellen Hill lives in Middlebury and can be reached at [email protected].