At the end of 2019, Congress passed the Revitalizing Underdeveloped Rural Areas and Lands (RURAL) Act, fixing a tax law change that threatened to raise rates and delay the expansion of broadband for rural cooperative members across the country.

Passage of the RURAL Act ensures that cooperatives can accept federal funds for broadband deployment, disaster relief, and other efforts without risking their nonprofit tax exempt status. A change in the 2017 tax law would have labeled these funds as revenue for the first time, potentially causing co-ops to exceed the allowable percentage of non-member income they must maintain to remain tax exempt.

After Senators Tina Smith (D-Minn.) and Rob Portman(R-Ohio) and Representatives Adrian Smith (R-) and Terri Sewell (D-Ala.) introduced the bipartisan bill in April, it attracted 55 additional cosponsors in the Senate and more than 300 in the House. It was eventually incorporated into the consolidated appropriations act and signed into law in December.

“Obstacles From the Federal Government”

We described the possible impact of the 2017 tax law change on rural cooperatives over a year ago, when Senator Smith first brought the issue to our attention.

Failure to remedy it would have forced some co-ops to choose between continuing with desperately needed broadband and disaster recovery projects and increasing their members’ rates. Northwestern Electric Cooperative CEO Tyson Littau described the difficulty of that decision to the National Rural Electric Cooperative Association (NRECA):

Do we rebuild and try to strengthen our distribution system and pay the taxes, or do we delay the mitigation project that would improve 1,200 miles of line throughout our territory? I think we have a responsibility to the membership to improve the system for the future.

As the USDA continues to award federal ReConnect funds for rural connectivity, we're glad to see that communities in West Virginia are not being ignored. Most recently, the Harrison Rural Electrification Association (HREA) announced that they will dedicate ReConnect grant funding of approximately $18.75 million to deploy Fiber-to-the-Home (FTTH) in rural sections of their service area.

Combining Funding and Collaboration

The project will bring more than 6,300 households high-quality connectivity along with five educational facilities and another community facility. The deployment will cover approximately 354 square miles within Harrison, Lewis, Upshur, Barbour, and Doddridge counties. Once completed, the project will provide better connectivity to around 16,000 residents.

In total, the project will cost an estimated $25 million and HREA will use a $6.2 million loan from CoBank to cover the difference. They plan to complete the project within 3 1/2 years and cooperative leadership intend to have the project ready for bids by the end of February.

Rather than offering Internet access directly to members, the cooperative will work with Prodigi Fiber, a private sector ISP that works exclusively in West Virginia and only with FTTH connectivity. The co-op will lease the infrastructure to Prodigi and dedicate the proceeds from the lease toward the CoBank loan payments.

Early Excitement

On the HREA Facebook page, locals have expressed their excitement at the prospect of better connectivity. Some note the need for better reliability while others are looking for better speeds or alternatives to current options. 

Lenny W.: Was excited to get the email. This is great for the rural areas of this county. Are there any maps or projections on what areas are going to start and when? I’ll sign up for whatever is $75-$100 per month.

Ken C.: Whoooohoooo

This month, both Frontier Communications and CenturyLink put the FCC on notice that neither company expected to meet deployment milestones related to Connect America Fund Phase II (CAF II). In total, rural households in 23 states will have to wait for connectivity that the two large companies were tasked with developing using federal subsidies.

Not-So-Great Expectations

When Frontier and CenturyLink accepted the funding in 2015, they agreed to provide deployment of Internet access speed of at least 10 Megabits per second (Mbps) download and 1 Mbps upload. By the end of 2018, they agreed to have at least 60 percent of the premises within each state connected and 80 percent of the premises connected by the end of 2019.

In their letter to the FCC, Frontier claims that of the contracted 774,000+ locations in 29 states waiting for connectivity through the CAF II program, they have deployed to around 596,000 in CAF II census blocks. They calculate that these deployments come to at least 70 percent in each state where they've accepted funding. The company also says that in 13 states they "may not have met" the 80 percent milestone.

The failure was a continuation of last year, when they reported that they had met the 60 percent milestone in 27 states, but had failed to make the grade in New Mexico and Nebraska.

Frontier accepted more than $283 million in CAF II funding soon after the FCC redefined broadband to 25 Mbps / 3 Mbps. The CAF II program had also increased minimum connections from 4 Mbps / 1 Mbps to 10 Mbps / 1 Mbps, which seemed outdated almost from the beginning. 

Iowa has multiple rural communities where large national Internet access companies have not invested in high-quality Internet infrastructure. Iowans have adopted a self-reliant approach, however, and one look at the community networks map shows that publicly owned networks pepper the state. Osage, in the north-central part of Iowa, has offered Internet access to the community since 2001. In a recent announcement from the U.S.D.A, we learned that Osage Municipal Utilities (OMU) will receive almost $400,000 to continue their efforts to connect more premises in rural Mitchell County and connect people with fiber Internet access.

According to the announcement:

Osage Municipal Utilities (OMU) in northern Iowa will use a $397,749 ReConnect Program grant to provide broadband service to underserved households, farms and businesses in Mitchell County. This will be accomplished by directly accessing a fiber trunk line that runs through the heart of Mitchell, Iowa, and up to the border of Minnesota, allowing OMU to increase its service area bandwidth. The funded service area includes 151 households spread over 20 square miles.

We wrote about Osage's broadband and solar projects and interviewed OSU General Manager Josh Byrnes back in 2016. Listen to the interview here:

Over the last few months, the U.S. Department of Agriculture (USDA) has released a steady stream of awardee announcements for the first round of its ReConnect broadband program. Among the recently announced recipients is Valley Telecommunications Cooperative Association in Flandreau, South Dakota. The telephone co-op will receive a grant of about $9.5 million to connect nearly two thousand underserved households, businesses, and farms to it’s existing fiber network.

The first round of ReConnect funding made $600 million available in grants and loans to Internet service providers to expand broadband access across the country. Many of the round one awards have gone to locally-run, community-owned providers, like Valley Telecommunications, to build fiber networks. This includes grants to Forked Deer Electric Cooperative; Orangeburg County, South Carolina; and Star Telephone Membership Corporation, as well as awards to two economic development agencies in Tyler and Wetzel Counties, West Virginia.

Valley Reaches a Peak

Members of Valley Telecommunications Co-op can already subscribe to gigabit speed fiber connectivity. From 2008 to 2016, the co-op replaced all of its old copper lines with a modern fiber optic network. “One hundred percent of our members in north central South Dakota can receive gigabit broadband services via that fiber network,” shared CEO and General Manager Jeff Symens at a press conference announcing the ReConnect grant.

Soon after completing the fiber buildout, the co-op decided to expand into nearby communities such as Volga and De Smet, operating under the name Valley FiberCom. However, this still left some homes and businesses outside of the towns unconnected. Symens explained:

The federal government is about to spend more than $120 million on subsidies that, rather than improving rural connectivity, will make tens of thousands of families worse off.

These funds are part of a 2018 federal program intended to expand rural broadband access called the Connect America Fund phase II (CAF II) reverse auction. The program, in which Internet access providers competed for subsidies, will distribute nearly $1.5 billion over the next 10 years to connect unserved rural residents. But in some communities, the auction may do more to widen the digital divide than diminish it.

While some winning bidders committed to building out high-speed fiber optic networks, satellite company Viasat will rake in more than $120 million in subsidies to continue providing inadequate geostationary satellite connectivity to rural households that are clamoring for something better. Not only does satellite Internet access offer slower speeds, greater latency, and less reliability for a higher cost compared to other technologies, but Viasat’s subsidies are making those areas ineligible for future broadband funds, deterring other providers from building truly high-quality networks. Instead of bridging the digital divide, the process will relegate certain communities to satellite Internet access while others receive ultra-fast fiber and do nothing more than deepen the fissure.

Mo’ Money . . .

The Connect America Fund (CAF) is a multi-phase subsidy program that supports improved connectivity in rural, high-cost areas as part of the Federal Communications Commission's (FCC’s) Universal Service Fund. The most recent phase of the program, the CAF phase II reverse auction, auctioned off regions to providers using a complicated formula that prioritized bids for low subsidy amounts and high-quality service.

Previous rounds of CAF mainly subsidized the large incumbents, such as AT&T and CenturyLink, but for the reverse auction, the FCC opened participation to other entities, including non-traditional providers like electric cooperatives. Eligible areas included rural locations where the incumbents had previously refused subsidies (and the accompanying commitment to expand Internet access).

In recent years, co-ops and municipalities in Colorado have been making fiber optic network investments to provide connectivity so citizens can compete in the digital economy. With all this fiber deployment in Colorado, there are still extremely rural areas that lack access to broadband. With a little help from the U.S. Department of Agriculture (USDA), people living in Dove Creek, near the Utah border, will soon have access to fiber connectivity.

Another Cooperative Receives ReConnect Funding

This fall and winter, we've reported on several electric and telephone rural cooperatives that have won funding through the USDA's ReConnect Program. In Dove Creek, Emery Telecommunications & Video, Inc., a subsidiary of cooperative Emery Telecom will extend service to the small community in Dolores County, Colorado. The co-op will use the $2.73 million grant to deploy Fiber-to-the-Home (FTTH) to more than 500 residences, eight school district facilities, and public safety facilities in Dove Creek and in the nearby community of Monticello, Utah. Among the premises that will receive better connectivity will be farms, ranches, and small businesses.

Emery Telecom will add $1 million to the grant funding and anticipates completing the project within five years, although Emery CEO Brock Johansen believes they can finish deployment sooner. The demand is high, adding extra motivation to finish the project sooner. “We get a lot of requests for service out near the state line,” he said.

"Best Thing Since Pockets on a Shirt"

In recent weeks, several rural electric and communications cooperatives have received federal ReConnect funding grants and loans. In December, Tyler and Wetzel Counties in West Virginia learned that they will also benefit from the program. Approximately $5.6 million has been awarded to the region for two projects that will provide Fiber-to-the-Home (FTTH) connectivity in some of the state's northern rural areas.

Development Is the Goal

In Wetzel County, the Ohio Valley Industrial and Business Development Corporation will lead the project and the Tyler County Development Authority, Inc., takes the reigns in the adjacent county. In addition to projects within each county, more than 74 miles of fiber will connect the two.

The Wetzel County project will include $2.1 million in ReConnect Program grant funding and use a matching amount to fund the total project, estimated at $4.2 million. The Ohio Valley Industrial and Business Development Corp., intends to connect more than 1,900 households, five educational facilities, a healthcare center and nine additional community facilities.

The Tyler County Development Authority, Inc. (TCDA) plans to use their $1.7 million grant and a ReConnect loan of equal amount to deploy fiber infrastructure throughout the county. They will bring FTTH to almost 1,400 residences, three school facilities, a healthcare center, and five community facilities within a 26 square mile area. 

Executive Director Eric Peters of the TCDA discussed the Tyler County project at a recent ceremony, where USDA Rural Utilities Administrator Chad Rupe announced the award:

"The Tyler County Development Authority will own the system's physical infrastructure and will lease it to a private service provider. CityNet was instrumental in providing technical expertise and their background as a successful and experienced service provider was invaluable. We anticipate that CityNet will be our contracted ISP."