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The Broadband Way To The Heartland
by Teri Rucker
Providing residents in rural America access to high-speed Internet service is a priority of many members of Congress, but telecommunications companies have traditionally overlooked rural areas because the rate of return on investments there make them a bad business proposition.
While lawmakers often tout economic benefits like increased productivity that could result from widespread deployment of broadband services, the poignant examples of the benefits small communities could derive from having a high-speed pipe that brings access to the world really grab the attention of lawmakers. But if the rate of return is not sufficient, companies will not install the technology no matter how often lawmakers tout the potential advantages of telemedicine, distance learning and e-commerce to their constituents.
"The trick of public policy is to line up the right incentives," said Christopher McLean, former administrator of the Rural Utility Service and the current vice president of National Strategies.
Which Way Do We Go?
Lawmakers regularly debate ways to inspire rural broadband investment, including tax credits and mandatory deployment requirements in exchange for broadband deregulation.
When the Senate Finance Committee approved an economic stimulus package, for instance, it included tax credits for companies that deploy broadband infrastructure in rural and underserved areas, and late last week the Information Technology Industry Council began pushing the Senate to include a similar provision in the energy bill now being debated.
Even the Tauzin-Dingell bill -- named for the authors, House Energy and Commerce Committee Chairman W.J. (Billy) Tauzin, R-La., and ranking Democrat John Dingell of Michigan -- was amended to include build-out requirements for the regional Bell telecommunications companies. The bill would require the Bells to equip 20 percent of their central offices with high-speed data capability within one year of enactment of the bill and 100 percent within five years.
As recently as last week, Rep. Lee Terry, R-Neb., called upon the FCC to make rural areas a priority and said legislation to create an FCC division on rural issues may be in order. He made his pitch at a meeting of the National Telecommunications Cooperative Association.
The Senate version of the farm bill also contains a provision for $100 million of subsidies per year for the "construction, improvement and acquisition" of high-speed Internet networks in rural areas. The House and Senate currently are reconciling different versions of the legislation, and McLean remains optimistic that tidbit will remain in a final version of the bill.
"We are witnessing a cooperative spirit, and hopefully it carries through to the end," McLean said.
Show Me The Money
Traditionally, rural America has been the last to be wired because, as Montana Republican Sen. Conrad Burns is fond of saying, "there is a lot of dirt between light bulbs" in those areas. If the economic incentives do not exist, observers say, all the policy incentives in the world will not work.
"Sometimes we focus on legislation and think that will make a big difference," said David Gabel, associate professor at Queens College, "but my sense is it won't because after it is passed, it will still be the case that the return on [broadband] investment for large companies will be higher in urban than rural areas."
"There are no good guys or bad guys," McLean noted, but cooperatives must be accountable to their members and firms accountable to their shareholders.
That is Verizon's point in seeking legislative and regulatory changes that would free their new investments from regulation. Whether Verizon can offer high-speed services in rural areas "really comes down to something that is technically feasible at rates that are reasonable," company spokeswoman Susan Cavender Butta said.
The problem is installing expensive wiring over vast spans of land that offers few customers to allow a company to recoup the investment. Cable companies do not offer services in many rural areas, leaving the market to bring entertainment options to farmland via satellite companies. Likewise, the broadband market is left to rural companies and cooperatives or the Baby Bells.
Testing The High-Speed Waters
The Bells have the ability to reach rural markets with digital subscriber lines (DSL) that provide high-speed service. But DSL customers must live within three miles of a central office or other major wiring center, such as a remote terminal, and taking the fiber closer and closer to homes in remote areas gets expensive, the companies say.
If the Tauzin-Dingell bill, H.R. 1542, became law, "we would comply with it and get the technology out there," Cavender Butta said about the buildout requirements in the measure. But if the FCC makes deregulatory changes in the broadband market with no build-out requirements, then deployment to rural areas becomes a business and marketing decision, she said. The FCC is considering various broadband issues, including the rates, terms and conditions governing how competitors access the Bell networks.
Yet many large companies have been selling their rural lines. An industry study by Legg Mason Wood Walker found that the Bells could sell anywhere from 10 million to 30 million rural telephone lines over the next five to 10 years.
Qwest Communications' dedication to its rural customers often has been questioned because Joe Nacchio, CEO of the firm, has said he wants to sell about 6 million rural lines. Nacchio has joked that he lives in an apartment building in New York that has more lines than Montana, according to a November 2000 article in the Rocky Mountain Press.
But just because Qwest has sold some rural lines does not mean the company will neglect its remaining rural customers, spokesman Art Brodsky said. "That is not to say everybody gets it [broadband] tomorrow, but I think you can safely say we don't want to abandon anybody."
He added that "when it makes technological and economic sense, we will."
Are You My Broadband Provider?
With some Bells selling their rural lines, industry observers are betting on investments by smaller local companies similar to those that came to the rescue of rural and residential customers in the 1880s when American Telephone and Telegraph, neglected those customers in favor of urban business customers.
"Large Bell companies will focus on markets with high concentrations of data-enterprise customers," according to the Legg Mason report, "while non-urban customers will receive a broader range of high-quality services from dedicated rural telephone companies."
McLean agrees. He is heartened by the prospect of $100 million in low-cost loans to rural firms "to launch the next stage of telecommunications services," an idea he thinks that, "if well administered, will succeed."
Wireless broadband services also have potential, Gabel said. The degree to which the satellite industry figures out how to bring high-speed services to rural areas will affect the Bells' incentives to invest as well.
"What forces firms to rush forward with new products is the threat that a new firm will take away some of their market," Gabel said.
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