S.D. phone companies want to block newcomer from getting subsidy for under-served areas

Capitol News Bureau
KELO Phone

PIERRE, S.D. (KELO) — South Dakota state-government regulators opened a hearing Wednesday on whether a Minnesota-based broadband and telephone business qualifies for a possible subsidy from the federal government that the company says it needs to deliver services to some underserved parts of South Dakota.

LTD Broadband has requested designation as an eligible telecommunications carrier from the South Dakota Public Utilities Commission. That status is necessary before the Federal Communications Commission can release money from its Rural Digital Opportunity Fund that has been provisionally awarded to the company.

LTD Broadband doesn’t yet have a certificate to operate in South Dakota, although it is serving 259 customers. The company wants to use the federal subsidy, estimated at a total $46.6 million over 10 years, to serve more than 7,000 households and businesses in rural parts of Brookings, Butte, Clay, Codington, Corson, Custer, Deuel, Dewey, Hamlin, Hand, Jones, Lake, Lawrence, Lincoln, Lyman, Meade, Minnehaha, Pennington, Stanley, Todd, Union and Yankton counties.

State rule requires that an applicant for the eligibility designation must provide service on a timely basis, remain functional in emergencies, satisfy consumer=protection and service-quality standards, and show service is in the public interest.

A $4,658,845.38 letter of credit commitment for the company to the FCC is pending for the South Dakota work. However, LTD Broadband has met stiff resistance from the South Dakota Telecommunication Association, which represents 18 rural carriers.

That opposition came through in a sometimes-testy back-and-forth Wednesday between the association’s executive director and general counsel, Kara Semmler, and LTD’s owner and chief executive officer, Corey Hauer.

Hauer acknowledged he doesn’t plan to have any daily-staffed offices in South Dakota. He already has customer-service staff in South Dakota who work from home, and he plans to bring on more.

Semmler, through a series of questions, showed Hauer didn’t understand how South Dakota’s subsidized broadband expansion was working, and that Hauer didn’t know how many South Dakota telecommunications providers were owned by cooperatives, tribal governments or businesses. LTD Broadband is based in Minnesota, where Hauer formerly lived, but he now resides in Las Vegas, Nevada.

Semmler said LTD was out of compliance in Iowa for failing to file a 2019 report, but Hauer said LTD served its first Iowa customer in 2020. Hauer said the Iowa Utility Board’s website wasn’t configured to accept a payment for 18 cents that LTD owed and agreed that the Iowa board decided against expanding the company’s status for more census blocks. He said the Iowa decision will be appealed.

Semmler, who previously was an attorney for the South Dakota commission and later served on the staff of Governor Kristi Noem, asked the commissioners to take judicial notice of what happened in Iowa. “It’s a public record, and it’s fair for me to ask questions about it,” she argued. Commissioners Gary Hanson and Chris Nelson said they wanted to hear Hauer’s answers.

“Iowa did not give us a hearing,” Hauer told them. He said one of the Iowa board members previously managed an Iowa rural carrier and recused himself, leaving the two others to find against LTD. Hauer called their decision petty. “They have never done what they did to LTD,” he said. “I think they are very far out of norm in their actions.”

Commissioner Nelson showed Hauer a map where South Dakota telecoms are committed to building “fiber to the premise” in 2021 or 2022. Nelson said one-third to one-half of the census blocks that LTD plans to serve would be built out by those current telecoms in the next year and a half.

“Does that make you reconsider how much of the state you really want to serve?” Nelson asked. Hauer agreed LTD would have to pay a federal penalty to back out. “Perfect is the enemy of good in this case,” Hauer said. He added that it “gives me pause” why South Dakota would make commitments independent of the federal RDOF subsidy. “We’ve not seen this in any other state,” Hauer said.

Nelson said the reputation of LTD in other states hasn’t been positive. Nelson said he called LTD a year ago, spent 40 minutes on the phone before getting someone to take his information, and he’s still waiting for a call back. Hauer said that’s not the current situation.

“When I look at the administrative rule, it doesn’t say anything about reputation. But –” Nelson said. Hauer said Iowa’s decision reflected rural telephone providers wanting the money for themselves. “They’re painting us literally as the devil,” Hauer said, adding that LTD is gaining business in other states: “Customers have voted with their wallets.”

Nelson asked whether LTD would be interested in gaining eligibility for the RDOF subsidy only for those areas of South Dakota where existing providers don’t have service-expansion plans for the next few years. Hauer said LTD is committed to fulfilling the RDOF obligation. “It’s kind of the elephant in my mind,” Nelson said. 

As the SDTC witness, Semmler called Larry Thompson, chief executive officer for Vantage Point Solutions, a broadband services company based in Mitchell. Thompson said Vantage Point had been involved in broadband plans for roughly half of South Dakota and has done work for clients in about 45 states.

Thompson estimated LTD’s construction costs for South Dakota at $91 million and predicted the company would lose $65 million in the first six years and possibly as much as $130 million. LTD has declined to reveal its plan for South Dakota, arguing that finances aren’t criteria for the commission’s decision. “It doesn’t make any sense,” Thompson said about LTD’s approach.

The attorney representing LTD, Jason Sutton of Sioux Falls, showed Thompson a document in a related docket where LTD and the telecoms association agreed that LTD had the legally required capabilities to provide services in South Dakota. Semmler objected, arguing that Sutton was asking Thompson for a legal conclusion, and Sutton withdrew the question.

Thompson acknowledged that Vantage Point has been hired by some of the telecoms that would be competing in areas where LTD plans to build and that Vantage Point was an associate member of the association. Thompson said LTD would lose $6 billion in the 15 states where it has received FCC’s provisional approval. Thompson said it was correct that he had “no knowledge” of LTD’s overall model.

Thompson stood on his statement that LTD would fail. “If they move forward with their RDOF winnings, that is correct,” Thompson said. He guessed it would happen sometime in the first six years. As to Hauer’s claim that he has five sources of financing lined up, Thompson said he “could not find anybody that would fund what I see.”

“Nothing I’ve heard today has changed my mind,” Thompson said.

Commissioner Nelson asked Thompson whether the FCC was responsible for the decision. Thompson said the FCC members likely had other factors in mind beyond what was best for South Dakota.

“What other factors?” Nelson asked.

“Political,” Thompson replied.

On rebuttal, Hauer said he believed the FCC was able to make a decision that was best for South Dakota. Hauer said he’d like to be the contractor for a Vantage Point project. He said it was “no surprise” that hiring an outside contractor would generate costs exceeding $20,000 per mile for laying fiber. He said LTD planned to hire its own labor.

Thompson said laying fiber in the Black Hills cost $90,000 to $130,000 per mile. Nelson asked Thompson if there was a scenario that would be only $10,000 per mile. Thompson said there were too many variables, calling it “a complicated process.”

The attorneys will file post-hearing briefs. The sides will present closing arguments after that. “I would like to hear it argued,” commissioner Nelson said.

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