Blackfoot Telecommunications Group

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Blackfoot Telecommunications Group

1221 North Russell Street
Missoula, Montana 59808
U.S.A.
Telephone: (406) 514-5350
Toll Free: (800) 649-4108
Fax: (406) 541-5333
Web site: http://www.blackfoot.net

Cooperative
Incorporated: 1954
Employees: 200
Sales: $40 million (2002 est.)
NAIC: 513310 Wired Telecommunications Carriers; 513322 Cellular and Other Wireless Communications; 514191 Internet Service Providers

Blackfoot Telecommunications Group, a customer-owned cooperative, serves over 20,000 consumers in eight counties in Montana and Idaho. A single telephone cooperative for most of its history, Blackfoot now consists of four telecommunications companies. Blackfoot Telephone Cooperative provides local and long-distance telephone service, mostly to rural communities ranging across a 6,580-square-mile territory. Blackfoot Communications, a wholly owned for-profit subsidiary, offers digital PCS and mobile technology. The company's Internet arm, Blackfoot.net, provides both dial-up and DSL Internet connections. Telesphere, a joint project between Blackfoot Telephone Cooperative and GeoEconomics, is a nationally marketed software package that aids utility companies with customer care, billing, and plant management. Like other telecommunications companies, Blackfoot is still adjusting to the monumental changes brought about by the Telecommunications Act of 1996, which introduced both new opportunities and new challenges for the cooperative.

Rural Roots: 1934–54

The original Blackfoot Telecommunications Group company, Blackfoot Telephone Cooperative, was founded by residents of rural communities in western Montana. Like other rural Americans, these Montanans had been left behind by the first communications revolution of the twentieth century, which brought telephones into people's homes. While residents of America's cities and towns could count on having access to a phone in every home (if they could afford one), rural dwellers enjoyed only limited access to the new technology. In the small communities of western Montana, many towns collectively shared a single phone line.

Market forces were largely responsible for this communications gap between rural and urban America. In the early twentieth century, large telephone companies rushed to serve cities, where population density balanced the costs of installing expensive communications infrastructure. However, Ma Bell often ignored rural areas, where low population density and the vast distances between communities made service provision prohibitively expensive.

This unfulfilled need for basic telephone service spurred many small communities to try to take matters into their own hands by banding together into cooperatives in order to finance, develop, and build their own telephone systems. However, the astronomical costs of such enterprises made them unfeasible for the majority of communities.

In the 1930s, Congress moved to address this divide and enacted the Communications Act of 1934. The act was intended to "make available, so far as possible, to all the people of the United States a rapid, efficient nationwide, and worldwide wire and radio communication service with adequate facilities at reasonable charges." To accomplish this goal, the act created a Universal Service Fund (USF), which was financed by assessing charges on interstate long distance carriers and which was used to subsidize telephone service in rural, high cost communities. The USF helped ease the financial burden for telephone companies to bring telephone lines to the backwoods of America. Another significant shift in federal telecommunications policy took place in 1949, when Congress amended the Rural Electrification Act to broaden the scope of the Rural Electrification Administration (REA) so that it could offer loans to finance rural telephone systems.

Buoyed by these changes that brought the possibility of cost-effective telephone service within reach, the residents of Arlee and Dixon, Montana (two small communities in the western part of the state), began to meet and develop plans for phone service in the early 1950s. With the assistance of the local REA agent, the residents formed a cooperative. They collected $50 from each community member, $10 of which was used for membership in the cooperative and the rest for equity to obtain a loan from the REA to establish full-fledged telephone service. By 1954, the cooperative had raised sufficient capital and was incorporated as the Blackfoot Telephone Cooperative.

Expanding Service: 1950s–1970s

The new cooperative began providing phone service in Arlee and Dixon in May of 1957. A month later, residents of Clinton had telephone service as well. By October of that year, service was initiated in Elliston, Avon, Ovando, and Potomac. In 1958, Blackfoot made its first acquisition when it bought the existing system in Charlo, which had been owned by a minicooperative. In 1961, Seeley Lake and Condon joined the Blackfoot family, and in 1973 the cooperative brought service to the Powell, Idaho, ranger station, just on the far side of the western border of Montana. In 1979, the town of Alta was added to the Blackfoot family. This steady expansion of service required a significant addition of capacity. Between 1954 and 1964, the number of Blackfoot's access lines grew from zero to over one thousand. By 1975, that number had doubled again.

Although Blackfoot expanded its service range from the 1950s through the 1970s, the cooperative operated primarily in a survival mode for its early history. It did not make a profit for a number of years. Moreover, like most other telephone companies and cooperatives of that time, Blackfoot functioned as a utility. In other words, the company operated in a highly regulated environment that mandated that its mission primarily was to bring basic telephone service into local communities rather than turn profits or accelerate growth.

Yet despite working from a limited fiscal base, Blackfoot was able to make key service improvements in the 1970s. In 1973, the cooperative began to upgrade all its lines from four-party and multiparty to one-party service. Two years later, Blackfoot began offering direct (rather than operator assisted) long distance dialing. Beginning in 1978, Blackfoot made a significant capital investment to start converting its electromechanical switches to digital ones. (Digital switches had the advantage of providing both faster and higher fidelity call transmission.) The cooperative was only the second company in Montana to install a digital switch, which it accomplished a full ten years ahead of the regional Bell company.

Developments in the 1980s

In 1980, the cooperative purchased the exchange for the St. Ignatius community from Continental Telephone, which was withdrawing from Montana. This acquisition nearly doubled the number of Blackfoot's access lines. Nevertheless, by 1987 Blackfoot had installed digital switches on all its lines. More technological improvements followed. Between 1988 and 1994, Blackfoot invested between $1.6 million and $2.9 million annually in upgrades. Blackfoot began to install a fiber optic network in 1989. Within the next five years, 96 percent of the cooperative's customers came to be served by that improved system.

Even though it had invested heavily in making improvements, Blackfoot maintained the same rates for local service that it had had in place since one-party lines were installed in 1973. The cooperative was able to accomplish this feat because, like other cooperatives in rural areas, Blackfoot derived steady revenue from three sources: regulated rates it charged its customer members, access charges it was entitled to levy on long distance companies for connecting to local networks, and funds from the Universal Service Fund, which continued to subsidize communications in rural areas. Because of this stable funding base, Blackfoot had been able to remain a "small, rural telecommunications company with a parochial view of the world," as Earl Owens, who assumed the helm of the cooperative in 1989, later told Rural Communications. Within the next several years, however, the status quo at Blackfoot would undergo a complete transformation.

New Directions in the 1990s

This shift began in 1994, when Blackfoot acquired nine new exchanges from U.S. West, Inc. (now Qwest Communications International Inc.). U.S. West was pulling out of rural markets in Montana and sold off a total of 60 exchanges to six Montana cooperatives. With the addition of these exchanges in Alberton, Superior, St. Regis, Haugan, Plains, Thompson Falls, Noxon, Drummond, and Philipsburg, Blackfoot doubled in size. The purchase cost Blackfoot about $21 million (the cooperative raised $2 million of its own funds and borrowed the remaining $19 million from the Rural Telephone Finance Corporation). Blackfoot planned to operate its nearly 6,000 new access lines as a wholly owned subsidiary, Clark Fork Telecommunications.

While the switch from U.S. West to Blackfoot was barely noticed by the customers affected, it brought considerable challenges to the cooperative. Not only did Blackfoot have to absorb a business nearly its own size, but the acquisition necessitated major and costly improvements to U.S. West's outdated technology. U.S. West's physical assets, which were necessarily included in Blackfoot's purchase of U.S. West's exchanges, were less than ideal. "The switching machines that are there right now—that technology was developed in the early part of the century," Owens told the Missoulian (February 20, 1994). "You can hear the noise." Within two years, though, Blackfoot fully upgraded the system.

Company Perspectives:

Our mission is to anticipate, understand, and exceed our customers' expectations by offering leading edge communications technologies backed by exceptional service and support.

U.S. West's exit from rural Montana was a product of significant shifts in the telecommunications industry as a whole. The former Baby Bell had already sold off rural exchanges in Utah and was planning a similar exit from Wyoming. Once it had shed its rural exchanges, U.S. West sought to focus on its larger—and more lucrative—urban markets. This change in strategy was driven by the pressure U.S. West was feeling from new competitors—not only phone companies but also providers of cable, cellular, and fiber technologies. By jettisoning its less profitable rural operations, U.S. West could keep what the Missoulian (October 3, 1993) referred to as "the cream—the bigger cities, with their efficiencies and their business customers." Under federal utility regulation, U.S. West was required to charge the same basic rate for telephone services for all its Montana residential customers, whether they lived in Alberton (population 350) or Billings (population nearly 90,000). Because serving its Alberton customers cost so much more, U.S. West subsidized its rural residential business by charging its urban business customers more. This cost-shifting strategy had worked fairly well in the past, but growing competition meant that urban business customers could choose other cheaper telecommunications providers.

These tectonic shifts taking place in the industry escalated into a veritable earthquake of change when Congress passed the Telecommunications Act of 1996. This landmark legislation strove to introduce greater competition and increased consumer access to new technologies in the telecommunications field at all levels—local and long distance telephone service, Internet access, and mobile telephony. The act provided unprecedented opportunities for savvy telecommunications companies, as well as a myriad of pitfalls and new challenges for the unprepared.

Blackfoot was directly impacted in a number of ways by the Telecommunications Act of 1996. The act had a two-fold mission that on its face seemed contradictory: it promised to introduce greater competition at the same time that it renewed its commitment to universal funding. In an effort to implement these two aims, the Federal Communications Commission (FCC) sought to alter aspects of the USF. First, the FCC changed the funding mechanism of universal service by expanding the types of companies contributing to the USF. Starting in 1998, universal service was supported by all telecommunications carriers that provided service between states, including long distance companies, local telephone companies, wireless telephone companies, paging companies, and pay phone providers. Second, in an effort to impose greater competition in local telephone service, the FCC tried to create a system with incentives for new providers to enter USF areas.

The radical overhaul imposed by the Telecommunications Act and the subsequent FCC changes meant that Blackfoot could face new competition—also with the benefits of federal subsidies—in its rural territory. As a Blackfoot executive told the Missoulian (November 6, 1997), "It's a new era for communications. Big, big changes. In the end, who will win? It's going to be the company that provides the most value—the best service, the best price."

Rather than wait passively for the competition to arrive, Blackfoot, under the leadership of Earl Owens, opted to enter the telecommunications fray more forcefully in search of new opportunities. Owens told Rural Telecommunication in 2000 that to be one of the "survivors" in the "competitive landscape," the cooperative had to "evolve" to become a "full service provider [of] voice, highspeed data, long distance, video, Internet access, and related services." In keeping with this strategy, the cooperative decided to compete head to head with U.S. West in 1997 when it began offering local telephone service in Missoula, one of Montana's three largest cities. That same year, Blackfoot started offering long distance service. Blackfoot also recognized that remaining competitive in the brave new world of telecommunications would involve more than offering phone service. The cooperative had already begun to offer dial-up Internet access in 1995. (In fact, it was the first Montana company to offer a local dial up number to Internet users in rural areas). In the late 1990s, Blackfoot continued to expand its Internet service, and in 1999 established a separate subsidiary, Blackfoot.net Internet Services. In 2001, Blackfoot.net first offered DSL (digital subscriber line) to its customers, and by 2003 the cooperative had over 1,000 DSL subscribers.

Blackfoot also maneuvered to enter the lucrative and fast-growing wireless market. Wireless service had the potential to undermine Blackfoot's hold on local telephone markets in western Montana as the expanded reach of wireless networks began to free rural customers from exclusive dependence on land lines. In response, Blackfoot purchased a wireless license when the FCC made new licenses available in 1998 and began providing service, including PCS (personal communications system) later that year. The cooperative launched a subsidiary, Blackfoot Communications, to handle its wireless business.

In 1998, in an effort further to broaden the range of services it provided, Blackfoot formed TeleSphere, a software package that targeted telecommunications and other utility companies, as a joint venture with GeoEconomics, Inc. Blackfoot marketed the software, which it had developed initially for its own customer care, plant management, and billing needs, to other utilities.

By the time Owens retired from Blackfoot in 2003 and was succeeded by Joan Mandeville, the cooperative looked to be well on its way to achieving the goal of diversifying its operations. The new CEO told the Missoulian (July 20, 2003) that "the move from a traditional telephone company to an enterprise meeting the future communications needs of rural customers is paramount to the company's growth." While Black-foot strove to become a more competitive company, though, it also remained in touch with its roots as a rural cooperative. Over the life of the company, it had returned over $10 million in dividends back to the communities it served.