Building networks is not enough to expand rural broadband
Public subsidies for building rural broadband networks may not be enough to bridge the digital divide, according to a new study from Cornell.
High operation and maintenance costs and low population density in some rural areas result in prohibitive service charges, even for a subscriber-owned cooperative structured to prioritize member needs over profit, a revealed the analysis.
Decades ago, co-operatives were essential to the expansion of electricity and telephone services in underserved rural areas, spurred by New Deal legislation offering low-interest government grants and loans. Public financing of rural broadband access should also take into account its critical role in supporting economic development, health care and education, said Todd Schmit, MS ’94, Ph.D. ’03, Associate Professor at the Charles H. Dyson School of Applied Economics and Management.
“The Broadband New Deal needs to integrate more than just building systems,” Schmit said. “We need to think more holistically about the importance of getting equal access to these technologies. “
Schmit is the co-author with Roberta severson ’81, MPS ’05, an extension associate at Dyson, from “Exploring the Feasibility of Rural Broadband Co-operatives in the United States: The New New Deal?The research was published Feb. 13 in Telecommunications Policy.
More than 90% of Americans had broadband access in 2015, according to the study, but the total in rural areas was less than 70%. Federal programs have sought to close this gap, including a $ 20.4 billion Federal Communications Commission initiative announced last year to subsidize the construction of networks in underserved areas.
Schmit and Severson investigated the feasibility of creating a rural broadband cooperative to improve access in Franklin County, upstate New York, which received funding for a feasibility study of the Rural Business Development Program of the United States Department of Agriculture.
The researchers partnered with Slic Network Solutions, a local Internet service provider, to develop estimates of market prices, cost of building a fiber-to-the-home network, operating and maintenance costs. and the potential subscriber base – around 1,600 residents – and model a cooperative that would be profitable over a 10-year cycle.
Federal and state grants and member investments would cover almost all of the estimated $ 8 million construction cost, so this was not a significant factor in the analysis, the researchers said.
But even with those subsidies, the study determined that the co-op would need to charge $ 231 per month for its high-speed service option, which is 131% more than market rates. At this price, it’s unlikely that 40% of year-round residents would opt for broadband as the model had assumed, casting further doubt on its feasibility.
The $ 231 fee included a surcharge to subsidize a low-speed service option costing no more than $ 60 – a restriction imposed by construction subsidies to ensure affordability. Without this restriction, the price of high speed would drop to $ 175 and low speed to $ 105.
In short, write the authors, grants alone covering investment and construction of equipment do not solve the problem of rural broadband, at least in our study area.
As an alternative – although not available in Franklin County – Schmit and Severson examined the possibility of a rural electricity or telecommunications cooperative expanding to broadband. They would become more efficient compared to the infrastructures already in operation, such as the poles that would transport the fiber lines. In this scenario, the price of broadband rose to $ 144 per month, still 44% above market rates.
“These systems are very expensive to operate and maintain,” Schmit said, “especially in areas like the ones we looked at that are very low in density”.
Feasibility improves with growth in the density of a coverage area and the “subscription rate,” or the percentage of potential subscribers signing up at different speeds, depending on the analysis. But in Franklin County, researchers determined that a startup co-op would need 14 potential subscribers per mile to break even over 10 years, more than double the actual density of the study area.
To better serve these areas, Schmit and Severson said, policymakers should consider eliminating property taxes on broadband infrastructure and payments to lease space on poles owned by regulated utilities, which respectively accounted for 16 % and 18% of the annual expenses of the proposed cooperative. The measures reduced the high-speed fees of a growing utility co-op to 25% above market rates, a level members might be willing to pay, the authors said.
“Considering the public benefits of broadband access arguably needs to be added to the equation,” they wrote. “The case was made for electric and telephone services in the 1930s and similar arguments seem to hold for this technology today.”