Adak’s Phone Company Calls on Feds to Restore Subsidies

The federal government is cutting subsidies to the telephone company that serves Adak amid concerns about how the money is being spent.

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That leaves the future of Adak’s phone service up in the air.

Fifteen thousand dollars. That’s about how much the Federal Communications Commission used to pay Adak Telephone annually for each phone line in the community. In 2011, the total added up to $4.2 million worth of federal subsidies for less than 400 people.

But those days are over.

“We are highly disappointed,” Adak Telephone COO Andelia Weaver said.

She’s disappointed because the FCC turned down her company’s petition for an exemption from a new rule that caps subsidies at $250 a month or $3,000 a year per phone line.

For most companies, meeting the cap isn’t a problem. No other company in Alaska has applied for a waiver according to the FCC. But Weaver says for Adak Telephone, it’s meant laying off half the staff.

“No matter how much we cut out, we can’t get to the $250 cap – and they know this,” Weaver said.

The FCC disagrees. According to the agency, the problem isn’t that they’re asking for too much – it’s that the company is cutting in the wrong places.

The first expense the FCC takes issue with is compensation of the company’s executives – Weaver, the COO, and CEO Larry Mayes. In a document rejecting the company’s petition, the FCC calls the salaries “disproportionate,” noting that they are, “high by almost any metric.”

The figures are redacted from the document and Weaver declined to provide them, but public records show that in 2011, Mayes was paid $237,445. That puts him about $100,000 above the median executive salary in Alaska. But Weaver defends the compensation, saying it’s commensurate with the amount of work required. She also says if cutting executive salaries is what it takes to get the FCC to restore the subsidies, then that’s what they’ll do.

“We understand that the next go-around we’ll have to consider some kind of reduction in this area just because we want to make sure we’re providing essential service to Adak,” Weaver said.

Taking a pay cut may not be enough though. The FCC has other problems with the company’s $1.2 million annual budget. They call the cost of running Adak Telephone’s retail store “excessive and unreasonable,” and question why the company needs to maintain a 26-foot fishing boat in Adak.

In response, Adak Telephone has shut down the retail store, effective immediately. But Weaver says getting rid of other assets is more complicated:

“We would have to ask RUS, because we were allowed to purchase those items through the Rural Utilities Service program loan,” Weaver said.

That’s a federal loan from the US Department of Agriculture. Weaver says they borrowed $6 million in 2005, and still owe most of that – $4.7 million. If the FCC doesn’t restore their subsidies, Weaver says Adak Telephone will file for bankruptcy by the end of the year, and default on their debt.

“Is that something that the taxpayers want to assume?,” Weaver asks.

According to the FCC, yes. They note that eating the cost of the loan is more than offset by not paying out huge subsidies to Adak Telephone. And as far as continued telephone service goes, the FCC isn’t worried. They write that GCI has promised, “Adak Island will not go dark.” GCI didn’t respond to a request for more details about how they would make that happen within the $250 cap, but Weaver says it’s pretty clear:

“GCI is basically saying that once we file for bankruptcy, they will purchase our assets for pennies on the dollar to provide service,” according to Weaver

But Weaver says that’s a worst-case scenario. Adak Telephone has six more months to cut costs, and put in another petition to exempt them from the new limits on subsidies.

If they can reduce their expenses far enough, the FCC might reconsider. But no matter what the government decides, the days of $15,000 phone lines are over.

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