Born as a Cooperative in February, 1951, Hill Country Telephone Cooperative has grown and evolved into HCTC, the company you see today. On February 13, 1951, a group of five men formed the Cooperative for the purpose of furnishing telephone service in rural areas of the Texas Hill Country. Larger telecom companies had deemed the areas as unprofitable and had passed them by on the way to larger cities.
Operating under the cooperative principles and governed by a Board of Directors, Hill Country Telephone Cooperative grew and expanded by offering state-of-the art technologies to rural subscribers. When changes in regulation permitted the delivery of telephone service in competitive markets, Hill Country Telecommunications was established as a subsidiary of the company to capitalize on those changes and diversify the services offered. Hill Country Telephone Cooperative and Hill Country Telecommunications provided a plethora of telecommunications related products and services, including long distance, Internet, security systems and more to a combined 14 exchanges in 15 counties across the Texas Hill Country (including competitive markets in Mason, Kerrville, Fredericksburg and Junction) spanning almost 3000 square miles.
Recently, both the parent Cooperative and its subsidiary have combined their branding and customer communication efforts under the moniker of HCTC. Realizing the importance of broadband availability for rural economic development, HCTC has embarked on a mission to make broadband available throughout its service area. As the future of communications is unfolding and revealing broadband as the preferred technology, HCTC is strategically positioning itself to meet the ever-changing needs of its members, today and into the future.
2016 CEO Report
Delbert Wilson, CEO
2016 has been another great year for HCTC! Since the Cooperative’s last year annual meeting, we have completed and settled into the Cooperative’s new Headquarters Building. We also built and completed a new 3,750 square foot building next to our Headquarters Building. This building is a new state-of-the-art Data Center and also houses the Ingram CS-1500 soft switch. The new Data Center give HCTC new opportunities with cloud services for both virtual and physical collocation of a enterprise customer to store data in large volumes in a secure location.
Although the Cooperative still provides telephone service to over 12,600 lines, we have seen our business over the last 5-7 years move rapidly toward broadband services. Broadband is an essential element in today’s world. People work over it, watch TV, shop, continue their education, bank, communicate, receive medical attention, and in fact, the list of use is practically endless. Here at HCTC, we believe robust broadband is essential to economic development to help provide jobs and new opportunities to our rural members. Through HCTC broadband services, our customers literally have the world at their fingertips. So yes, telephone is still in our name but is a smaller part of our total business.
Over the last several years with an ever-changing regulatory landscape, the FCC continues implementing further reform measures that essentially seem to ‘cut back’ on rural infrastructure investment. The decision was made to expand out pass the Cooperative’s traditional service area. Our goals are simple, to grow our business, expand our customer base thus creating new revenue streams to help replace what we continue to lose from traditional regulatory cost recovery reform measures and begin to grain control over our own destiny. In expanding our business we are already seeing economies of scale and new opportunities. Thus far, HCTC has expanded service into the Kerrville business district, parts of Fredericksburg and especially out 290 east where all the wineries are springing up, overbuilt Mason and Junction. Many of these areas have little or no access to high-speed broadband and have gladly welcomed HCTC into their communities. The Board and Management believe expanding our business is a prudent decision that is in the best interest for the future of HCTC.
In writing this report to you each year as I have now been here for nine years. I haven’t been able to write a report that didn’t describe either a change, challenge or pending FCC Order. Well, this year is no different because as of May 25, 2016, the FCC has implemented a new 279 page Order introducing a new Alternative Connect America Model (ACAM) which doesn’t work for HCTC and an extensive reform of legacy Rate of Return regulation that does impact our business. To sum the Order up regarding legacy Rate of Return reform, the FCC will begin a 6-year phase down of the authorized rate of return for 11.25% to 9.75%. There will be caps on operating expenses recovery and limits on our capital expenditures. As the FCC talks a lot about expanding broadband services to all parts of rural America, in my opinion Orders such as this one virtually puts a lid on rural infrastructure investment. We also face more limitations on recovery of c3ertain expenses as part of running our business going forward. There is a hard fact about rural telephony that no FCC order will ever change. The fact is rural America is high cost to serve. With low densities and high construction cost there isn’t a business plan that would ever work without a cost recovery mechanism such as the Federal/State Universal Service Fund that enables rural companies to invest and make a return on that investment. Needless to say, Rate of Return regulation has served rural American well and it works! Our management team and consultant have studied diligently the new FCC Order to make the best decision for the Cooperative’s path forward.
In my 38 years of telephony, there has never been a time when we didn’t face chaos, unprecedented changes or challenges in the rural telephone industry. It is just part of our business and we will figure this one out too!
Our Board, Management and employees work hard for you, our members. You are the reason we are here and we want you to know that it is our privilege to serve you. Thank you for coming to HCTC’s 65th Annual Meeting!
Chief Executive Officer
2016 President’s Report
Randy Bass, President
Fellow members, another year has come and gone, and like the last few years, the board and management team have been working under the uncertainties caused by impending changes in regulations from the Federal Communication Commission (FCC). However, unlike the previous years, we now have a new set of regulations from the FCC that has changed the support mechanism for cooperatives and small privately owned telecommunications companies. As anticipated, these changes are not in our favor.
The FCC purportedly wants to encourage the accessibility of broadband services to all consumers, but they have reduced funding for cooperatives and small privately owned companies which are almost exclusively responsible for serving rural America, the highest cost area to serve. The FCC’s approach, simply put, is to base support for propagating broadband services on a national average of what it costs to build telecommunications infrastructure anywhere in America. The FCC’s theory seems to be “what works here will work there as well”. That theory is flawed.
In spite of all the uncertainty caused by the FCC, the HCTC board of directors and management anticipated the effects of the changes from the FCC. After countless days of hard work and analysis, your board of directors and management developed a plan, going forward, to off-set the anticipated decline in support from the state and federal government.
This forward-thinking planning has allowed HCTC to thrive over the last few years. HCTC has completed construction on a new warehouse building and a new headquarters building that is now fully occupied and operational. HCTC has expanded services to Kerrville, Fredericksburg, Mason, and Junction. Also construction has just been completed on a Data Center that which will facilitate high tech offerings such as data storage and “cloud” services.
The board of directors and management of HCTC are proud of the advancements we have made, and plan to make in the future. The board, management, and employees of HCTC are working diligently to enhance voice and broadband services to our members, and to keep HCTC on the cutting edge of telecommunication advancements.