WSU Digital Center Overview

2. WSU Digital Center Overview Goals • Speed deploymentof telecommunications infrastructure to rural and under served urban communities • Increase use of advanced telecommunications technologies to achieve economic, civic and social benefits Services • Applied policy research • Community outreach • Demonstration projects

3. Rural Telecom Challenges • Rumored RBOC farm sale—crisis or opportunity • Affording Nordstrom quality on a lumberjack’s budget • Starbucks, microbrews, CLECS and other essential providers not in rural America

4. The RBOC Farm Sale—the business case for divestment • Strategic need to direct capital to urban markets • Limited access to high cost subsidies • Elimination of implicit subsidies within access • Comparative business advantage of “boutique” rural providers

5. The RBOC Farm Sale-the opportunity • Approximately three-quarters of nation’s rural lines served by RBOCs • Sold properties often in need of rehabilitation • Divestitures typically produce $100 to $200 dollars per line new investment • Will regulatory and public policy infrastructure be prepared for large scale divestiture?

6. The RBOC Farm Sale-the need • Sufficient, explicit and portable subsidies targeted to rehabilitation of rural properties • Consider rate-of-return regulation on a transitional basis • Regulatory capacity to deal with potential large scale divestment

7. Nordstrom Tastes • Section 254 (b) of federal telecommunications act • Preserve and advance universal service • Comparable service mandate • Modern infrastructure for all Americans • Essential Nature of Advanced Service infrastructure • Jobs • Education • Health care • Civic participation

8. Lumberjack’s Budget • High cost of serving rural areas • Low incomes • Expanding line charges • Public resistance to more subsidies

9. Nordstrom on a Lumberjack's Budget—easing the pain • Calculate universal service on the broadest base possible • Careful targeting of subsidies through tax credits, grants and loans • Support business case for investment through demand aggregation • Remove barriers to competitive provision when appropriate • Public/private partnerships

10. Why Starbucks, Microbrews and CLECs are not in Rural America • Specialize product offering • Limited customer base, low relative return, high cost of entry • Difficulty of operating remote facilities • Skepticism of capital market • High legal/administrative cost of accessing subsidies

11. CLEC Success in Rural America—exceptions which demonstrate the rule • Western Wireless; McLeod USA; RLEC on RBOC competition • Successful rural CLECs boutique operators with focused rural business plan • Patience and capacity to deal with high legal and administrative costs • Experience in operating remote facilities • Acquisition still entry strategy of choice for new players in rural markets

12. Improving the CLEC Rural Businesses Case • Recognize state commission responsibility with respect to rural entry • Replace implicit with explicit and portable subsidies • Community education on competitive options • Education of capital markets • Remove barriers to appropriate strategic alliances

13. Summary • Potential RBOC property sales will change rural telecommunications landscape • Continued pressure to expand rural access to advanced services • The universal service goals achievable, but require subsidies • Successful deployment of advanced services can help minimize need for longer term subsidies • Need to be realistic regarding near term CLEC deployment to rural America