Wireless in Rural AmericaB R I D G I N G T H E D I G I T A L D I V I D E

Wireless in

B R I D G I N G T H E D I G I T A L D I V I D E

From Portland, Maine to Portland, Oregon… over the vast

expanses of Alaska to the incomparable surf of Hawaii…

wireless companies of all sizes are offering personalized,

innovative and affordable wireless communications services

and devices to more than 220 million Americans. Wireless

is providing unparalleled communication opportunities,

and is uniquely bridging the so-called “digital divide” in

rural America. The accessibility and affordability of those

services continues to grow, as 99% of Americans are now

living in counties where next generation wireless services

are available. That means cutting-edge technology and the

tremendous benefits that come with it—greater productivity,

efficiency, mobility, and security—are within reach of

nearly every American.

Rural America

Once considered a luxury item exclusively for urban business exec-utives, wireless is proving to be broadly popular with consumersthroughout the country. These days more than 220 million U.S. sub-scribers are using their mobile devices to email, text message, web-browse, take pictures and video, listen to music, play games…and yes,perhaps to talk a little, too. And consumers have carriers lining up fortheir business. In September 2006, the Federal CommunicationsCommission (FCC) reported that 98% of Americans live in countiesserved by three or more wireless carriers, while 94% live in countieswith four or more providers. This level of robust competition is a hall-mark of the wireless industry.

The Commission has also repeatedly found that wireless carriersare competing effectively in rural as well as urban markets, and con-sumers in rural areas apparently like the benefits wireless providesthem. The most recent federal government statistics on wireless useindicated more than 51% of rural American households had wirelessphones, compared to 54% of all American households.

Wireless Provides Freedom, Choice and Mobility

Mobile Telephone Operators Estimated by County

■ 3 or more Operators

■ 2 Operators

■ 1 Operator

SOURCE: FCC 11th Competition Report, American Roamer

Choice means more than just which company you select for service.Consumers may also choose from a vast array of wireless service plansto best fit their needs. In many markets, they can choose from among100 service plans offering a host of features and different pricingoptions, from prepaid plans to “big bucket” plans. Carriers of all sizesare offering innovative regional and nationwide calling plans extendingwell beyond their license areas. For example, in the past year, bothAlaska Communications Systems and Dobson CommunicationsCorporation, which markets under its Cellular One brand name,launched in-state wireless calling plans, with no roaming or toll charges.

Wireless service providers are also spending billions of dollars toimprove network coverage, capacity and quality across the U.S.Wireless providers have invested more than $130 billion over the lastsix years alone, and once again, carriers of all sizes are focusing theirefforts on providing the best networks they can for their consumers.

Smaller carriers such as Unicel and Cellular South are two examplesof companies working hard to better serve rural communities. Unicel, aservice of Rural Cellular Corporation, is investing $20 million to builda high-speed wireless network in Alabama, serving largely rural areas inthe state. Cellular South, which serves customers in Mississippi,Alabama, Florida, and Tennessee, invested $78 million in Mississippialone, adding 200 new cell sites to its network across the state by theend of 2006.

The substantial investments of service providers allow them to offer the vast majority of Americans the latest wireless products andfeatures, ranging from mobile email and mobile internet access, to textmessaging and video games.

Rescued fromAlaskan Waters

On a cold December day in

Southeast Alaska, 19-year-old

Thomas Josephson, 20-year-

old Nick Orsi, and 18-year-old

Carl Lundquist fell into frigid

waters after two waves sud-

denly swamped their boat. All

three were wearing life jackets;

Orsi was carrying his Alaska

Communications Systems cell

phone in a zipper-type plastic

food bag inside his hunting

jacket. Orsi’s hands were too

numb to work the device, so

Josephson managed to secure

the phone and dial for help.

While remaining on the line

with the Coast Guard and bat-

tling the effects of hypothermia,

Josephson successfully guided

the rescue boat to their position.

It’s estimated the young men

were in the water for 30 min-

utes and probably would not

have survived without the

wireless device.

Challenges of ImprovingService in Rural Areas

Despite the remarkable advances wireless carriers have made inbringing the latest wireless services to rural Americans, there are stillchallenges. Regulatory obstacles often make deploying services inrural areas particularly difficult and can prevent consumers from fullybenefiting from the variety of advantages wireless provides them.Regulations with a disproportionate impact on consumers in ruralareas include:

● Outdated universal service and intercarrier compensation systems

● Costly unfunded or underfunded government mandates

● Discriminatory taxation of wireless consumers

● Conflicting state laws and regulations

● Antenna and tower siting restrictions

Outdated Universal Service and Intercarrier Compensation Systems

The Universal Service Fund (USF) provides financial support to makecommunications available to high-cost areas, low income users, ruralhealthcare providers, and schools and libraries across the United States.There’s little doubt the USF has played a major role in improving accessto wireless service, particularly in rural areas of the country. For instance,Alltel was able to apply universal service funds for the provision of serv-ice on the Pine Ridge Indian Reservation in South Dakota. With the assis-tance of universal service funds, Alltel was able to more than quadruplethe number of subscribers receiving telecom services on the reservation.

Consumers in rural areas are increasingly turning to wireless for their communication needs. They recognize the convenience, mobility,efficiency and security wireless provides them. As more rural consumers

choose wireless, an equitable share of USF monies is essential for carri-ers to meet the increasing demands and preferences of these consumers.

Many industry experts and regulators agree the current USF fundingand distribution mechanisms are broken. The same can be said of theintercarrier compensation system, which dictates the financial and tech-nical terms under which carriers exchange telecommunications traffic.

Current universal service and intercarrier compensation regulationsare based on outdated classifications, and encourage and reward ineffi-cient investment and performance by traditional local telephone compa-nies often referred to as incumbent local exchange carriers (ILECs). Tothe detriment of providers utilizing different technologies, ILECs are sig-nificantly subsidized by USF monies. This system keeps the cost ofILECs’ service artificially low so consumers have an incentive to use itmore than they would under normal, free-market conditions. The systemalso discourages potentially more affordable competitors, such as wire-less companies, from entering the market, and it imposes unreasonablecosts and constraints on rural consumers.

The bottom line? The current universal service and intercarrier com-pensation systems lead to less value, fewer choices, and increased costsfor consumers, which is certainly not in their long-term best interests.

Disproportionate Contribution and Withdrawal

There’s also a problem with who is contributing into the universalservice pot, and who is benefiting from taking out of it. Unfortunately,this disproportionate contribution and withdrawal is not a recent phe-nomenon. It has been that way for years. Let’s take a look at the num-bers. From 2001 to 2005, wireless companies received a little morethan $1 billion of USF monies, while ILECs received more than $20billion over the same period of time. All this money went to ILECs,even as they lost customers and consumers increasingly subscribed to

Universal Service Funding: An Unequal System 2001 through 2005

SOURCE: 2001-2005 Data Sources: USAC, FCC, CBO

Wireless Companies have taken out $1 for every $5 they’ve contributed

ILEC Companies have taken out $3 for every $1 they’ve contributed

Billions

Wireless Contribution

Wireless Draw

ILEC Contribution

ILEC Draw

$0 $5 $10 $15 $20 $25

mobile wireless services. This trend continues today. In 2006, wirelessconsumers were contributing about 33% of the federal UniversalService Fund, while wireless service providers withdrew only about16% of funds available.

Universal Service and Intercarrier Compensation Solutions

Even with limited USF support, wireless service providers are doing an outstanding job of meeting the needs of their many rural customers.However, if wireless carriers have the same access as ILECs to the USFmonies, a broadly competitive marketplace will exist. Universal serviceand intercarrier compensation reform should be guided by certain keyprinciples relating to consumer choice, efficiency, non-discrimination, and administrative simplicity. This will set the stage for maximum consumer benefit, and ensure customers can choose the communicationmode that most truly meets their needs. An artificially supported, government-directed system should not be making that choice for them.

Costly Unfunded or Underfunded Government Mandates

Unfunded or underfunded government mandates, such as local numberportability, E911, and outage and revenue reporting obligations, pose a dis-proportionate threat to customers and providers in rural markets.

Sometimes, the expense of these unfunded mandates makes it diffi-cult for smaller, local carriers to offer both high-quality service andupgrades. As Terry Addington, then-CEO of First Cellular of SouthernIllinois, remarked, “new government obligations that must be paid for,but are not funded, burden us all, especially small carriers like me.Mandates forced me to sacrifice projects that improve customer quality–delaying new cell sites and slowing the upgrades I planned for the deliv-ery of higher-speed data solutions.”

A Snapshot of Inequitable USF Contributions First Quarter 2006

Wireless Providers’ 32.3%

CLECs’ 4.4%

ILECs’ 23.6%

Toll Providers’39.6%

SOURCE: FCC Telecommunications Industry Revenues Report, March 2006

Discriminatory Taxation of Wireless ConsumersAnother significant concern for wireless customers is the high rate

of taxation. Currently, more than one third of U.S. states require wire-less consumers to pay double-digit taxes and fees on their wirelessproducts and services. Such high rates are usually reserved for old-fashioned “sin” taxes—exceptionally high additional government-imposed charges intended to discourage consumption or use of a par-ticular item or service. Wireless communication is an increasinglypowerful driver of our nation’s economy, and excessive taxes and feesshould not discourage consumers from using such a valuable resource.When taxed at such unreasonable levels, consumers are not able to utilize fully the potential wireless provides them.

One reason for the high taxation rates is the ingrained thinking ofmany state regulators and legislators. These perceptions were shaped bythe monopolistic telecommunications era prior to the 1990s. This modelis wholly unreflective of the current, highly competitive, wireless indus-try. As a result, wireless consumers are forced to pay on average morethan 11% in taxes and fees, compared to about 7% general sales tax.

The most harshly taxed areas include highly populated states such asCalifornia, Texas, and Florida, as well as less densely populated statessuch as South Dakota, Kansas Missouri, and Utah. In fact, Nebraskansare the most heavily taxed wireless consumers in the country, whileNorth Dakota, Arkansas, and Tennessee are also among the top 20 mosttaxed states.

The high wireless tax rates are particularly hard on the poor and elderlyliving on fixed incomes. These groups pay a larger percentage of theirincome in wireless taxes than do individuals with higher incomes. Thearbitrary and regressive nature of wireless taxes discourages use of mobileservices among those Americans who might benefit most from them.

Rate of Wireless Taxation and Fees Combined State, Local and Federal Taxes and Fees–2006

■ 20% and Higher

■ 15% to 19.9%

■ 10% to 14.9%

■ Less than 10%

SOURCES: Scott Mackey, Kimbell Sherman & Ellis, and Council on State Taxation

Conflicting State Laws and Regulations A patchwork of state-by-state regulations harms consumers by

effectively destroying the cost-savings benefits available because ofnational and multi-state plans and services.

Policies that vary across state lines create consumer confusion, andnumerous problems and complexities for carrier support systems andpersonnel. This, in turn, drives up costs for wireless carriers, whichare then forced to increase their prices.

Some state legislators and commissioners argue that they must reg-ulate the wireless marketplace in the name of consumer protection. Itmust be remembered, however, that consumer protection is a priorityof both the wireless industry and the FCC. In fact, the FCC protectsconsumers under provisions of the Telecommunications Act, and thewireless industry also abides by its voluntary Consumer Code forWireless Service. Moreover, the wireless industry fully supports stateAttorneys General enforcement of “general laws of applicability” andprosecution of any company found violating those laws.

Antenna and Tower Siting RestrictionsThe ability to quickly and efficiently site antennas and towers

directly impacts the ability of carriers to bring the highest quality andmost advanced wireless services to rural America. New cell sites canexpand the available coverage area for consumers, and increase a net-work’s ability to provide the kinds of services American consumerswant and expect.

In order for carriers to support public safety and bring their cus-tomers the technology they require, an efficient and timely process ofsiting and zoning wireless infrastructure must be a priority for local,state, and federal governments.

Wireless carriersoften use cell towersdisguised as trees,flagpoles, boulders,and even water towers such as thisone in California, to preserve the environmental or historical integrityof landscapes or buildings near cell sites.

SOURCE: Chameleon Engineering

Wireless SavesTime and Money in Rural America

“Cell phones have saved us

so much gas! My husband owns

a welding service and is often

out in farmers’ fields mending

broken plows or other machin-

ery. When another customer

calls for help, he can find out

the necessary details without

driving home in between jobs.

If a part is needed, he can call

the supplier or me to order the

part instead of running home

to do it. If someone is hurt in

the field, assistance can be

called before too much time

is lost.”

Joan MauserP E N N S Y LVA N I AN o r t h J a c k s o n G r a n g e # 1 7 4 0

Bridging the Digital Divide In Rural America Overcoming the Challenges

The wireless industry is committed to continuing and expanding its excep-tional service in rural America.

The industry understands that wireless service is an integral part of everydaylife for millions of rural Americans. Whether for business, personal, or emer-gency use, Americans living in rural areas are increasingly relying on wirelessfor their communications needs.

As Congress revamps the nation’s communications laws, it already has ablueprint for wireless success: a single, national policy that for more than adecade has used market forces, rather than bureaucratic regulations, to guidethe growth of the wireless marketplace. As a result, consumers across the coun-try are enjoying the benefits of competitive, innovative, and affordable wirelessservice. Policymakers can best serve their constituents by maintaining thisapproach and continuing to work with the wireless industry to remove barriersto the expansion of service.

C O N S U M E R S W I L L M O S T B E N E F I T F R O M W I R E L E S S I F P O L I C Y M A K E R S :

● Create equitable universal service and intercarriercompensation systems.

● Ensure mandates are adequately funded.

● Establish wireless taxes at the same rate as general business taxes.

● Provide a consistent regulatory approach that recognizeswireless is not a traditional monopoly service, but insteadprovides consumers with innovative service and offeringsthrough intense competition.

AdvancedTechnology SavesWest Virginia Boy

On Halloween, 2005, 17-year-

old Alex Doty was riding his

four-wheeler near the family

home when a storm knocked

down a tree, throwing him 30

feet down a ravine. The ATV

landed on Alex and his leg was

badly injured. Remembering he

had his wireless phone, Alex

dialed 911. Clear reception

was difficult in the deep

ravine, but authorities were

able to locate Alex through his

phone’s GPS feature. Officers

say Alex would have bled to

death from his injuries if not

for his Cellular One phone.

“Cellular One’s network saved

my son’s life,” said Alex’s

mother, Caprice Doty. “When

the paramedics showed up at

the scene of his accident, Alex

didn’t know how they had

found him. At the time, we

didn’t know either, but it was

his cellular phone that saved

him, and thank God it did!”

Wireless System Increases WaterProductivity in California

For more than 100 years,

Turlock Irrigation District

(TID) has provided water to

nearly 6,000 farms in the

fertile Central Valley of

California. In the past, farmers

faxed daily water orders to

remote offices to schedule

water delivery, and field

employees traveled the entire

length of the canal to measure

the water flow at specific

locations and then manually

recorded results. With help

from Cingular Wireless, TID

utilizes a new wireless system

that improves accuracy of

water amounts delivered by

automatically reporting flow

levels every 30 seconds. Field

employees can now respond

to emergencies more quickly

and water loss has been

greatly reduced.

www.ctia.org