Spend enough time in eastern Oregon and eventually you'll hear the term
''Two Oregons.'' Those are fighting words -- shorthand for the profound
political and economic divide that separates the state's rural counties
from the Willamette Valley and metropolitan Portland.
Oregon's 10 easternmost counties contain nearly half of the state's land
mass, yet they have just 170,000 residents. That 5 percent of the state's
population has plenty to be ticked off about.
While Portland enjoys robust growth and rising wages, sometimes it can seem
as if everything east of the Cascade Range languishes in some separate,
If eastern Oregon was a separate state, La Grande, a handsome city of
13,000 that lies on the edge of the lush Grande Ronde Valley 250 miles east
of Portland, would be its natural capital. It was here that a handful of
civic leaders came face-to-face with the new ''Two Oregons'' challenge: The
Cascades as digital divide.
While much of the west side of the state is wired to compete in the Internet
economy, most of the east lacks advanced telecommunications infrastructure.
La Grande understood what was at stake: Access to the fiber-optic pipes
that carry Internet traffic and other data will eventually be an economic
The city's long campaign to secure a fiber-optic connection point became
a fight for self-determination. It was a fight that ultimately led all the
way to the Oregon statehouse. And when it was over, the balance of power
between the ''Two Oregons'' would never be quite the same.
and low wages
La Grande isn't anyone's idea of a digital oasis, but it is home to an
economy that's more diverse and information-intensive than those of
neighboring communities. The traditional base of timber and grain is
supplemented by a lot of regional government offices and a state college,
Eastern Oregon University, that's about as big as a good-sized suburban
high school. This is not a college town as much as a farming-and-timber
town that happens to have a college. When school's out the only way a
visitor would guess there's a college here is the presence of a killer
alternative-rock radio station, KEOL 91.7.
The fact that government is the largest employer in town means La Grande
is relatively stable compared with those towns wholly dependent on
agriculture or logging. Still, La Grande and its neighbors share a
perennial problem with low wages. Union County's median household income in
1995 was $30,487 -- 27th out of Oregon's 36 counties.
the job opportunities
It was the promise of jobs that sparked La Grande's telecom prairie fire
five years ago. A representative for a global company that runs
tech-support and help-desk operations for large corporations, Sykes
Enterprises, rolled into town, scouting potential locations for a call
center. (As the labor markets in metropolitan areas have tightened over the
past few years, it has become increasingly common for corporations to place
their call centers in smaller towns where the pool of available workers is
A half-dozen local leaders from the city, the county and the college
were assembled in the board room at Grande Ronde Hospital when the man from
Sykes asked the question: ''Do you have a fiber-optic POP?''
No, the city did not have a fiber-optic point-of-presence -- a
telecommunications junction point that would allow the local phone system
to jack into a national network of high-speed lines. Worse yet, no one in
the local delegation knew what a POP was and why Sykes would want one.
''That was the start -- realizing how little we knew about it,'' recalls
Steve McClure, chairman of the Union County Board of Commissioners. ''Here
we were, the leaders of the community, looking at each other and we didn't
know what this guy was talking about. I remember walking out of there and
talking to the university president, Dave Gilbert. He scolded me. 'You
don't walk into a meeting like that and not have the answer to the
question.' That really brought it home, that we had to engage with this.''
As La Grande's city manager, Wes Hare, remembers, ''You have a company
that's looking to relocate in your area. They're in a growth industry. And
they won't do it without this thing. You didn't have to be a genius to sort
Actually, sorting it out would take four years.
the railroad to stop
The railroad has always been good to La Grande. Thanks in large part to
the rails, the town flourished while onetime rivals such as Alicel, Medical
Springs and Starkey faded away. Today, La Grande is still a railroad town,
a crew-transfer point for Union Pacific, which employs 350 area residents.
Now, this need for a fiber-optic POP was the modern equivalent of getting
the train to stop in La Grande. Without a connection point for local
business, La Grande was in danger of being locked out of participation in
the digital economy.
The county formed an ad hoc telecom committee made up of more than two
dozen representatives from the business, education and government sectors.
The leaders were Hare, McClure, Gilbert (now retired), Terry Edvalson, a
university administrator who'd overseen some of the school's institutional
connections to the rest of eastern Oregon, and Cathy Britain, the head of a
regional mental-health services network.
At the time, GTE (now Verizon) was the monopoly local phone carrier, and
the only route for data moving in and out of town was via a digital
microwave signal from GTE to a receiver owned by U S West (now Qwest) on a
nearby hill. GTE's end of the tin-can-and-string system was fine. U S
West's end was reportedly packed to capacity.
Several months after the Sykes debacle, Hare learned almost by accident
from the Forest Service that the long-distance carrier WorldCom was about
to run a new fiber-optic cable adjacent to the interstate that cuts through
town. ''I thought well, gee, if they're gonna be coming through our town
and we need a POP, maybe it's a simple trade. You get to use our land, we
get access to your POP. It couldn't hurt to ask.''
Hare sat down with Edvalson, McClure and Gilbert and together they
hammered out a modestly radical plan: The county would have to issue a
conditional-use permit before WorldCom would be allowed to lay any pipe in
La Grande. No POP, no permit.
''We were simple rural folk,'' says Hare, grinning broadly. ''This
seemed plausible to us. It was a civilized form of blackmail.''
Yes, says McClure, it was a bluff. The federal government reserves the
right to regulate most aspects of telecom and the county had only the very
slightest of grounds to impede the company's work. ''But we had some
leverage in that we could delay them significantly in the process,'' says
McClure. ''These companies when they come through here are in a hurry. We
could tie them up for many months.''
Predictably, the permit idea brought an immediate visit to La Grande by
a WorldCom vice president and a small riding party composed of the most
powerful telecom lawyers in the state. Legally speaking, they said, the
town had no right to pull what it was pulling.
The La Grande leaders traveled to Seattle for a sit-down with WorldCom
representatives. And again they were told: You're the only little town in
the West who's trying to do this to us. Sure, the company could make a
small return on its investment by putting a POP in La Grande -- or it could
make a much bigger return putting that equipment somewhere else. The men
from La Grande sensed the game was almost over. In the end, WorldCom got
its permit by agreeing to install a POP if and when it became economically
favorable to do so. The window of opportunity with WorldCom had effectively
The home-schooled telecom crusaders saw a brief ray of hope in '97 when
a local entrepreneur with deep pockets formed Union-Wallowa Telephone
Company, a competitive local exchange carrier that could take advantage of
new competitive rules laid out in the Telecommunications Act of 1996. For a
brief moment, it looked as if Union-Wallowa, which would offer service over
GTE's local lines, might build the fiber-optic connection. Again, it was
not to be.
'It'll be on the front page
of the Oregonian'
In late '98, a new suitor arrived in La Grande. ODS Health Plans, a
Portland insurance company with more than 800,000 members, was scouting
potential locations for a combination call center and claims-processing
facility. The promise of 50 jobs sounded good to La Grande. And in early
'99 the city learned it was on the company's short list of eight
For ODS to use the La Grande facility as a virtual extension of its
claims-processing center in Portland, it had to have a big digital pipe for
voice and data traffic -- a T-3 line in telecom parlance. GTE told them
such a line was available and quoted a price of $13,000 per month. Hare was
suspicious that GTE could pull it off with the existing microwave phone
link. He called GTE and expressed his doubts. It would be done, they
By mid-'99, La Grande had won the ODS project and the company had
dispatched a telecom consultant to the city to look over the details of the
network plumbing. On the night before the consultant was to meet with city
officials and GTE, Hare got the one piece of news he'd feared all along.
''The GTE guy comes into my office and says, 'Wes, I've got some bad
news. We can't provide this. We don't have that much capacity,' '' Hare
recalls. ''Needless to say, this was not a happy moment. Fifty-plus jobs
are on the line here.'' For Hare, after four years of concerted effort, it
was the Sykes nightmare all over again. He envisioned the entire deal going
down the tubes.
Hare went ballistic, telling the local GTE rep, ''You're not going to
tell this guy 'no.' You find a way to make this work -- or else.'' Hare had
one big stick to back up the threat. Edvalson and Britain, his fellow
telecom committee members, were on the brink of winning the legislative
battle for Senate Bill 622, legislation they'd crafted that would allow
phone companies regulated by the state to make more profit in exchange for
increased investment in rural areas. (See story, below).
Television and radio around the state had been carrying the SB 622
debate for months and it was very widely known as a made-in-La Grande
initiative. With that as a backdrop, the very last thing GTE wanted on the
airwaves was news that its inability to provide a connection had cost La
Grande 50 jobs.
''I promised them: If you can't make this work and if these jobs go
away, it'll be on the front page of the Oregonian,'' says Hare. Through a
little piece of 11th-hour alchemy, the ODS consultant realized the company
didn't really need a full T-3 after all, and GTE cobbled together just
enough bandwidth to constitute an interim solution.
The permanent solution would be a point-of-presence for GTE on an
AT&T fiber-optic cable that had been in the ground, largely forgotten,
out by the airport south of town since 1988. (GTE had already been working
on a deal for access to the cable, based on ODS's original demand for
bandwidth.) The city and county paid TouchAmerica, an upstart telecom
provider that was using part of the AT&T cable, $165,000 to offset the
expense of a new interconnection point. GTE did some creative financing and
quickly found $200,000 for its end of the connection. And, without
speeches, fanfare or so much as a bottle of champagne, La Grande's on-ramp
to the digital world lit up in September of 1999.
Staying in La Grande
Today, most of La Grande's residents would probably be hard-pressed to
identify one way that the fiber-optic POP has directly impacted their
lives. The exceptions are the 50 workers at ODS. Jeanine Rachau, who
supervises six customer-service workers and six claims processors, is a
former veterinary technician who more than doubled her income by signing on
The benefits the health plan offers to its own workers were a key to deciding
to join the ranks of the cubicle-bound. ''As a veterinary tech, you don't
make a lot of money and by the time you get done paying for your own health
insurance -- I was paying $160 a month -- you're working for less than
minimum wage,'' she explains.
Rachau counts herself among the lucky few -- the thirtysomething La
Grande natives who have been able to stay in town and still secure a decent
standard of living. She estimates that less than 20 percent of her
classmates in the Class of 1980 stayed. And of those who did, a disturbing
number are stuck in dead-end service jobs. ''I love it here and I really
wouldn't want to move anywhere else, but finding good jobs, quality jobs,
is a struggle for anybody in this community,'' she says.
Why 50 jobs were
worth 'going to war'
Today, ODS pumps $1 million in payroll into the La Grande economy each
year. The workers make an hourly wage ranging from $9.67 to $19.90, the
vast majority at the low end of the scale. This is roughly on par to what a
skilled manufacturing worker might make in one of the region's
travel-trailer factories and slightly less than the prevailing wage at the
local lumber mill.
Is it sufficient to support a family in La Grande? ODS executives say it
does constitute a living wage. Others, including Hare, are not so sure.
''For the most part, most of ODS's jobs are not what I consider family wage
jobs,'' he says. ''Where these jobs work -- and what makes them so
important to our community -- is they give great benefits. If one parent
chooses to work at ODS, the other parent has a whole range of options and
the family can survive.''
The symbolic value of ODS isn't lost on Hare. ''That building sat vacant
for 18 or 19 years and now I can point to that and say, 'There's 50 of your
neighbors going to work every day.' To me that's what it's all about.
That's why I was ready to go to war,'' he says. ''There are not too many
issues that I get involved with as a city manager that are life and
La Grande's POP
helps entire region
While ODS is the most visible and direct beneficiary of the fiber-optic
connection, other businesses are already making use of the POP. The two
local phone companies and the two ISPs that serve the region now have
access to a virtually unlimited amount of network capacity. This means
ample availability and competitive pricing for business-grade data lines
and high-speed consumer services such as DSL. (See story, below.)
Within four years, the rural infrastructure fund created by SB 622 will
be used to complete a fiber-optic ring that connects La Grande to most of
the other cities in eastern Oregon.
With that ring in place, La Grande's POP (and another on the way) will
benefit the entire region. The college and the health-service agencies and
other social-service providers that had once relied on the state's defunct
satellite network to deliver data across the east side of the state will
now have fast connections for everything from paramedic training to virtual
psychiatrist's visits. La Grande's leaders have organized a regional
telecom consortium for eastern Oregon to get the word out on the impact of
the fiber ring.
The news of La Grande's telecommunications odyssey continues to spread
to other small communities well beyond Oregon, thanks in large part to a pair
of papers Hare authored encouraging rural leaders to take charge of their
own digital destiny.
It's important to understand that what happened in La Grande was not a
technical struggle, but a political one. In this day and age, the
word''politics'' has a sour, pejorative taint. But this campaign for
self-determination was politics in the very best sense of the word -- a
handful of very committed, very connected people leveraging every ounce of
social capital the little city could muster.
''You can call it the old-boy network or whatever,'' says Hare. ''I call
it New Age, cutting-edge management theory. When people know each other
well enough, trust each other enough to sit down and break bread together,
you find those common interests and pursue them.''
Steve McClure says that others from around Oregon who've watched La
Grande's efforts have told him that the city was lucky. ''We worked real
hard for five years to be lucky,'' he says. ''It's an attitude this
community has had for a long time. When someone tells us no, we just think
that's an introduction to a discussion.''
REWRITING THE RULES OF PROFIT AND LOSS
Changes spur Qwest to invest
While the leaders of La Grande struggled to win a high-speed connection for
the city, two of their own were at the Oregon statehouse fighting a broader
battle to bring advanced telecom to all of eastern Oregon.
Phone companies tend to build out their advanced networks where it's
most economical to do so -- in densely populated cities and suburbs. La
Grande telecom activists Terry Edvalson and Cathy Britain decided that the
way to coerce the phone companies to make similar infrastructure
investments in under-served areas of eastern Oregon was to rewrite the
rules of profit and loss.
Edvalson and Britain wrote state Senate Bill 622 to give the phone
companies an incentive for investing in rural areas by changing the way the
companies are regulated by the state. The legislation did away with a cap
on profits (the ''rate-of-return'' regulatory model that's been scrapped by
many states) and substituted a cap on rates for basic services. In return
for the chance to make more profits, each phone company that opted for the
new scheme would agree to invest a certain percentage of its gross revenue
in rural telecom infrastructure and public-interest access.
After two years of intense negotiations and multiple revisions, SB 622
was maneuvered through the statehouse by La Grande's state senator, David
Nelson, and became law in July 1999. To date, only Qwest has elected to
sign on. As the provider for 70 percent of Oregon's local phone market,
Qwest was the biggest and most important potential participant. The company
(formerly U S West) will invest $70 million over four years in advanced
equipment for rural areas and $50 million to assist schools, libraries and
rural health care providers.
As a direct result of SB 622 funding, Qwest is building a fiber-optic
ring that will link most major population centers in eastern Oregon. This
high-speed data pipeline will eventually enable businesses, non-profits and
government agencies to serve some of their most geographically isolated
customers via the Net.
From Qwest's point of view, SB 622 was an innovative alternative to a
universal service system that had been ailing since competition entered
local phone markets in 1996. As Larry Huss, former Qwest vice president for
Oregon, explains, under the old universal service system of hidden
subsidies the company's profitable urban and suburban operations had been
carrying the rural areas, ''but that's not a sustainable model when you've
got a dozen new competitors in the downtown Portland area.'' (Huss recently
left Oregon to take another executive position within Qwest.)
To look at it another way, SB 622 made a compelling business case for
rural investments that never would have been made in an unregulated market.
The big question: Did Qwest guess correctly on the amount of profit it
could pick up in exchange for its $120 million investment? The company will
know in 2004, when the deal expires.
TELECOM REFORM BROUGHT FEW NET GAINS
TO RURAL WEST
Fast connections still slow to reach remote areas
Securing local access to big fiber-optic pipelines is only one piece of the
telecom puzzle that rural communities must solve.
Regardless of how big the line is ''upstream'' from town, fast broadband
access lines must extend out into a community if the Internet and other
digital resources are to evolve into economic channels.
Small businesses, Internet entrepreneurs running Web servers, ''lone
eagle'' professionals telecommuting to far-off cities, schools with
distance-learning programs and other rural customers all need consumer
broadband connections such as digital subscriber lines (DSL) and cable
La Grande is one of the fortunate few rural communities to have DSL
service. Overall, rural areas are much less likely than cities and suburbs
to have access to broadband connections. Instead, their Internet access is
constrained by the limitations of basic phone wiring.
Bill Peter to serve Paul
In much of rural America, basic phone service depends on a
bill-Peter-to-serve-Paul system called ''universal service.'' If you've
ever wondered who's paying for that phone in the middle of the Nevada
desert, chances are it's you.
For more than 60 years, the universal service system has relied on
telephone service in profitable, densely populated areas to underwrite the
relatively high cost of service in sparsely populated areas through a
complex set of subsidies.
With the exception of a few anomalous pockets (such as Indian
reservations), the system has been overwhelmingly successful in getting
basic service to the most remote areas. Ninety-four percent of all rural
residents, and 92.7 percent of rural Western households, have a phone,
compared with 94.7 percent of homes nationwide.
The basis for the current system was set in place by the Federal
Communications Commission at the time of the AT&T breakup in 1983.
While long-distance carriers used to be the sole source of universal
service funds, since 1998 the FCC has required all telecom companies
providing interstate service (including local phone companies and wireless
firms) to pay for universal service.
Under the supervision of the FCC, a neutral body acts as a clearinghouse
for a program of ''explicit'' subsidies, collecting about $2 billion to
$2.5 billion each year and disbursing that back to carriers serving
high-cost areas. Most of the money goes to small rural telephone companies.
If this federal system were not Byzantine enough, some states also have
their own universal service programs.
There's also a second, hidden layer of universal service subsidies
buried within the budgets of the large telcos. The companies, under the
regulatory supervision of the states and the FCC, use rate-averaging
formulas and other means to even out the varying cost of delivering
services across broad geographic areas. Because these hidden subsidies are
all within a corporation's own accounting structure, it's impossible to say
how large the universal service system is, although estimates have run as
high as $20 billion a year.
New rivals cut into profits
The landmark Telecommunications Act of 1996 changed the mechanics of
rural funding in a number of significant ways. The act ordered the FCC to
replace hidden subsidies with explicit ones. It also opened local phone
markets to competition.
With very few exceptions, the new players ignored costly rural markets
and went straight for the most lucrative sectors -- high-speed services in
the cities and suburbs. These new competitors cut into the pool of urban
profits the large phone companies had previously used to offset the cost of
their rural operations. The big phone companies, no longer able to count on
those profits, were much less inclined to invest in costly rural
infrastructure. Oregon's Senate Bill 622 is one attempt to create other
incentives for rural investment.
Perhaps the most forward-looking rural reform in the 1996 act was the
mandate that all Americans should have access to advanced telecom services
and that customers in rural and high-cost areas should get these services
at rates that are ''reasonably comparable'' to those of urban areas.
But the act stopped short of adding consumer broadband to the services
covered by the universal service system. The only federal universal-service
subsidy for broadband today is the ''E-rate'' system that assists schools,
libraries and rural health clinics. (Much of the La Grande school
district's telecom bill, for example, is underwritten by E-rate funding.)
In September, after years of fact-finding, a rural task force organized
by the FCC board that oversees universal service finally recommended that
advanced services be added to the universal service system.
Who's going to pay?
Unless the FCC acts on that recommendation, the 1996 Telecommunications
Act's rural provisions amount to great intentions and no real-world
results. ''Oh yeah, the words are beautiful. It gets ugly when you have to
start raising that money and somebody's got to pay,'' says Glenn Brown, a
telecommunications consultant and a senior fellow for the Center for the
New West, a Denver think tank. When it comes to rural broadband, ''there's
no magic cure to this, there's no one silver bullet. In the final analysis,
if you really want to get it everywhere, some government entity has to pony
up money -- which means they have to tax somebody.''
UNWIRED IN THE COUNTRY
The consumer broadband market is in its infancy. While cable modems and DSL
service are widely available in cities and suburbs, few customers have
chosen to sign on so far:
¬… 9 percent of all online households have cable-modem
connections or DSL.
¬… In the most densely populated fifth of the country --
where 52 percent of the population lives -- 99 percent of residents have
access to some type of high-speed service.
¬… More than 65 percent of cities with populations over
250,000 have cable-modem service.
¬… About 87 percent of all cities with populations over
250,000 have DSL provided by a Baby Bell.
¬… Among towns with 10,000 or fewer residents, less than 5
percent have high-speed services.
Source: Jupiter Communications, FCC, National Telecommunications and
Information Administration .