Policy issues key to small telco financial, competitive health

The Telergee Alliance Benchmarking Study finds that 2009 was a challenging one for small U.S. telcos. The report's data underscores the importance of a number of policy issues that are critical to small telcos.

1. Rate of Return regulation: The report challenges the notion that rate of return regulation gives small rural telcos some sort of cushy existence. One of the most eye-opening findings of the report was that on average, small telco operating margins comprised just 10.3% of their average revenues for 2009. This was driven by a decrease in operating margins of 17.3% on the regulated side of the business, where 2009 operating margins averaged 10.2%. The idea behind the ROR system is to help ensure that small rural carriers earn a specific profit margin, with interstate access revenues distributed to carriers on that basis. The target number is higher than 10.2%.
2. The National Broadband Plan: The plan proposes to revamp access charge system to more accurately reflect the costs of terminating calls and eliminating ROR regulation. Small telcos oppose eliminating the ROR system, arguing essentially that the current system is not broken, so there's no need to fix it. Considering that the regulated part of telcos' business is declining as voice subscribership declines, and considering that's the part of the business where ROR comes into play, the possibility that ROR might be eliminated might not seem to be such a big deal. But some of the costs of building and maintaining broadband networks are shared with the regulated side of the business, helping to enable carriers to earn a reasonable return on those expenses. The majority of small telcos have been able to deploy broadband thanks, in no small part, to the ROR system. Small telcos are open to the idea of revamping the access charge program, but they'd like to see that happen without eliminating ROR regulation.