Telecom: Growing at the Speed of Sound

The telecommunications industry is expected to go right on zipping past the lethargic national economy at the speed of sound.

Evidence, if any is needed, can be found in the rise in stock prices for the first nine months of this year for firms like Verizon Communications Inc. (19.1%), AT&T Inc. (29.3%) and Sprint Nextel Corp. (135.9%). As NASDAQ points out, the benchmark S&P 500 index for the same nine months rose by only 12.8%.

The breakneck expansion of high-speed internet traffic, especially for wireless data and video, has jumpstarted the telecommunications business’s evolution. Advances in mobile broadband technology have led to the growth of new service areas — internet protocol television (IPTV), collaboration and cloud computing, video-conferencing, mobile payment and more – that promise tremendous growth in the years to come. Indeed, information technology research and advisory firm Gartner Inc. projected that global revenue among telecommunication service providers will top $1.6 trillion this year, and that revenue for telecom equipment makers worldwide will rise nearly 11%, to $377 billion.

Keeping Pace

In North Dakota, where the economy is humming along nicely, telecom is racing to keep pace with new equipment, installations, technologies, services — and opportunities.

“It’s an important business,” says Stanley Vangness, Vice Chairman of the Board of SRT Communications and Chairman of the North Dakota Association of Telephone Cooperatives. “The main changes are in trying to provide broadband along with telephone service. People are trying to put fiber optic out to the country and get people more bandwidth.”

Indeed, Vangness adds, the copper system that has been laying in the ground for the past 30 or 40 years “is getting old. It has to be replaced, so the logical thing to replace it with would be fiber because the price of fiber is similar; in fact, fiber is even cheaper, probably.”

“It goes without saying that the industry is very much in transition,” notes Vern Dosch, CEO of National Information Solutions Cooperative (NISC) in Mandan. “They’re going from a place where they were providing telephone service – plain, old telephone service — to today, when it is really telecommunications. It’s yes, the land line, but it’s also data and it’s entertainment via community access television (CATV) or IPTV. So their product line has really expanded; the efforts they are making to make certain that North Dakota isn’t on the wrong end of a digital divide are pretty remarkable.”

NISC is an information technology company that develops and supports software and hardware solutions for its member-owners, primarily utility cooperatives and telecommunications companies across the nation. It provides advanced, integrated IT solutions for consumer and subscriber billing, accounting, engineering and operations, as well as many other leading-edge IT solutions.

Dosch says that what sets North Dakota apart from other states is “the aggressiveness of the telephone companies, particularly the rural telephone companies. We have a lot of situations around the state where a farm or a ranch 20 miles from nowhere has better internet capability – a bigger pipe, more broadband – than some of our metro areas.” He confesses that he has been “amazed when I see progress that these rural telecos are making in delivering quality product to all corners of North Dakota.”

“I think you’ll find a lot of the local telephone companies are going to great extents to provide fiber optic connections to virtually all of their customers,” notes Evan Hass, General Manager of DCN, LLC, which does business as Dakota Carrier Network. “The need for bandwidth has really driven them to upgrade their networks and provide the kinds of things that those customers want – everything from your local service and toll service, but also internet connectivity and video services. Customers in many rural locations are probably getting better service than some of the metro locations.”

DCN was created in 1996 by 15 independent rural telecommunications companies representing 85% of all the telephone exchanges in North Dakota and over 90% of the state’s total surface area. Member companies, the group says, serve over 164,000 customers in 244 communities and more than 10,000 miles of fiber optic cable installed across North Dakota.

In July, the Federal Communications Commission announced that nearly 400,000 residents and small business owners in 37 states will gain access to high-speed internet within three years, as a result of the first phase of the Connect America Fund. About $115 million of public funding will be coupled with tens of millions more in private investment to quickly expand broadband infrastructure to rural communities in every region of the nation. Many projects will begin immediately, the agency reported, and all projects must be completed within three years. Nationally, nearly 19 million residents currently lack access to broadband. The announcement marked the beginning of the most significant public-private effort in history to ensure that every American has access to broadband by the end of the decade.


What Dosch sees as the greatest challenge facing telecom is the fact that compensation for local companies to invest in the facilities and latest technologies is being driven down. “Other organizations like AT&T and Sprint would use those facilities, and it makes all the sense in the world that you wouldn’t have redundant facilities. Who can imagine each one of these companies burying cable to your house? Instead there has been one incumbent doing that, and these other businesses that want access to that customer pay for access, for the right to use that facility.”

Today, he continues, “the industry is seeing increasing pressure from wireless carriers and the likes of AT&T and such to push down those access rates. The concerning part is it could get to the place where these rural telecos can say, ‘If I can’t develop a reasonable revenue stream for building these facilities why would I build them? No reason to do it.’”

The FCC is working now on establishing what those access rates should be. Dosch believes players throughout the industry are fully prepared for them to go down, which is causing a scramble among the telephone companies to be more than just telephone companies.

“Some of them are involved in wireless,” he explains. “Just about all of them are involved in delivering broadband. The majority of them are delivering some type of CATV or IPTV. So their product has gone from this single land line to this bundle of products, and of course that’s very competitive. When you’re out there delivering TV content you’re competing with people like DISH and DirecTV, and so the competition is really fierce for these products.”

“I think your biggest challenge in many locations is the density of customers,” Hass suggests, “how much you have to invest and in how many miles you need to place fiber optics or whatever facilities you’re doing. That’s a challenge because it gets to be a very high cost.”

DCN’s goal at present, Hass insists, is “to get some more stuff in the ground before the snow covers it. We’ve got a lot of activity up in the northeast corner of the state, and the snow gets pretty deep. It’s kind of a rush at this point, trying to get things done before freeze-up,” which is generally somewhere around Thanksgiving. DCN has a large number of projects in which it is placing fiber connections to customers and finishing up some of its infrastructure “and, in the larger towns, trying to get everything in the ground.”

Hass underscores the fact that DCN is locally owned and focused on providing state-of-the-art services. We’re putting in a lot of Ethernet capacity, which is the next stage of services that people want to connect Point A to Point B.” The bar has been raised, and small circuits are no longer acceptable. “Everything has to be very large capacity, and we’re very busy connecting to cell towers and completing circuits to cellular companies. Everybody is using cell phones; they need connections to the world.”

There is, he says, “always competition, and competition comes from many directions,” says Hass. “It might be from anything from cable to cellular to you name it. Competition makes you work a little harder.” The good news for him, he adds, is the often prohibitive price of entry. “In telecommunications the competition needs to make large investment to provide services.”

DCN serves every community in North Dakota, providing services that include Carrier Ethernet, Private Line, ATM, Frame Relay and high speed Internet access. The company has eight Points of Presence (POP’s) in North Dakota, enabling interconnections with local exchange carriers and national service providers. Its Network Operations Center is located in Bismarck, and its corporate headquarters in Fargo.

Replacement in SRT’s part of the state is proceeding apace, Vangness reports, but the cost factor remains an area of concern. “It costs a lot of money to plow fiber from farm to farm, but it’s going good. I suppose we may be as much as 25% done with the area around Minot.” There is some high-speed internet over copper, he adds, which doesn’t have the speed that fiber can offer. “It can actually bring TV and video, so there is a big difference.” SRT’s primary goal for the foreseeable future is a pretty basic one: getting fiber put in the ground.

The year ahead shapes up as a good one, Vangness suggests, largely because of the state’s own growth. “We’ve got people migrating; lots of people coming into my area with oil — and lots of people moving in here is good. We’ve got more people to serve.” The flood in Minot in June 2011, of course, was “devastating,” Vangness recalls. “The lines in the valley and Minot got all flooded out; 4,000 houses got flooded. That was tough on our phone system, so we’re rebuilding that.”

Along with more people, of course, comes more homes. Vangness sees a lot of new housing construction taking place. “People coming in with the energy industry need places to live around here, so that’s been busy. New construction and building is going up, putting fiber in the ground to different exchanges.”

The Future Is Now

“What really is happening,” says Dosch, is that telecom companies are transitioning into full-fledged broadband providers. “Your phone line is going to go over the internet, over IT, VOIP; your entertainment is going to come via Apple TV (a digital media receiver designed to play digital content from the iTunes Store, Netflix, Hulu Plus, YouTube, Flickr, iCloud,, NBA League Pass, NHL GameCenter or any Mac OS X or Windows computer running iTunes on an enhanced- or high-definition widescreen television) or a service like that, which is broadband. So more and more, the service is providing very reliable, robust, big broadband pipes to the house, and over that broadband pipe you’re going to be doing your phone, transmitting your data, getting your entertainment services.”

What Dosch calls “the cool thing that’s happening” is that more of his firm’s employees are virtual, and in fact live in some of the most remote parts of North Dakota. “But they are very connected. You don’t have to live where your job is anymore.” The result of these additional telecommunication services and more robust broadband is that people can live where they want, and distance needn’t deny companies the best employees or North Dakota productive people who want to live there. “That is huge.”

Dosch points to author Rich Karlgaard’s bestseller Life 2.0 : How People Across America Are Transforming Their Lives by Finding the Where of Their Happiness and notes that the technology offered by today’s telecom companies “is causing people to say, ‘Do I really want to live in the big city? Or do I want to live in North Dakota and still be able to do the work?’” He cites his own company as an example.

“You could look at our organization and say, ‘What in the world is a software company doing in the middle of North Dakota? Don’t you have to be in Boston, or Silicon Valley?’ And the answer is no. We have here in our facility in Mandan all the broadband we need. We have Dakota Carrier Network coming down the ditch out here. We are tied, microwave, to Bismarck. We are not hampered at all by our lack of access. And so we have people who love technology, want to work in technology, have a career in technology, and the telecommunications infrastructure that has been built allows them to stay here in North Dakota.”

Indeed, Dosch adds that he finds “amazing” the number of applicants and recruits NISC is getting who grew up in North Dakota, moved to Minneapolis, now are married and building families “and want to come back home, and can, because there are no disadvantages from a technology standpoint.”

Telecom in North Dakota “is thriving,” Hass concludes, “and it’s just as doggone good as any place else in the United States.” He remains, however, characteristically cautious. “This being North Dakota we don’t say things like ‘the bad times are in the past.’ We’re always a little cautious, and we say, ‘It’s okay.’ But it’s damn good service.”


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