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Rural Broadband In America

Guest post by: John Clark

Article Overview: Rural Americans spend most of the first thirty years of the 20th century in the dark. By the early 1930’s only ten percent of the rural population enjoyed the benefits of electricity compared to over 70% of their urban counterparts. Most of the electricity available to farmers was provided by cooperatives – groups of residents who laid the line, set up and maintained the systems as public utilities had little desire to spend what was necessary to serve so few. With the Rural Electrification Act of 1936 (7 U.S.C. 901-950b) rural electric development took off. Most of the loans the Act made available were given to these local cooperatives. Today, electric cooperatives own and maintain almost half of all distribution lines in the country.

Rural Broadband In America

Rural Americans spend most of the first thirty years of the 20th century in the dark. By the early 1930’s only ten percent of the rural population enjoyed the benefits of electricity compared to over 70% of their urban counterparts. Most of the electricity available to farmers was provided by cooperatives – groups of residents who laid the line, set up and maintained the systems as public utilities had little desire to spend what was necessary to serve so few. With the Rural Electrification Act of 1936 (7 U.S.C. 901-950b) rural electric development took off. Most of the loans the Act made available were given to these local cooperatives. Today, electric cooperatives own and maintain almost half of all distribution lines in the country.

The scenario was similar for telephone service. Rural communities and small companies built “farmer lines” across much of the countryside after the Bell Company’s patents expired. Much of this development was stymied after the Kingsbury Commitment in 1913 led to the Bell Company monopoly. In agreeing to the Bell monopoly, the government believed that in the case of the telephone industry, one company could best provide universal access – telephone service to all. But most of the small rural companies went out of business and rural lines languished in disrepair.

The Communications Act of 1934 (47 U.S.C. 5; P.L. 73-416), which established the Federal Communications Commission (FCC), again addressed the issue of universal access for phone service, but there was little interest in servicing rural America. Eventually the Rural Electrification Act was amended in 1949 (63 Stat. 948; 7 U.S.C. 901-914; 922-924) to include loan assistance for telephone service. Still, rural telephone developed at a much slower pace.

Over the years, government came to believe that essential services like telephone could best be delivered through free market competition. Unraveling the monopolies to achieve this has not been an easy task. In the case of telephone services, the divestiture of AT&T was reasonably successful in providing competitive long distance services and consumer choice, but undoing the local telephone monopoly, as required by the Telecommunications Act of 1996 (P.L. 104-104, 110 Stat. 56) has been a harder task.

The Telecommunications Act also put broadband internet access on the list of essential services for which there should be universal access. Its universal service fund continues the government policy of subsidizing underserved, high cost areas along with schools, libraries and the poor.

Proponents of free market competition argue that any regulations and subsidies are barriers to universal access. The argument goes that in the absence of monopolies and subsidies the telephone market would have eventually responded to the demand in remote areas, time and innovation eventually brining costs down. Proponents of government involvement point out that rural markets have rarely been equally served. They believe that the United States is in a race to keep a global competitive edge and doesn’t have the time to wait for markets to act. Subsidies and regulation are the jumpstart needed to win the race.

This paper takes the view that some degree of government intervention is required to provide universal access to remote areas. It is my belief that the profit motives of business will always be at odds with government’s purpose to serve the public good. That is not to say that either business or government is intrinsically bad or good, but that each plays an important role in providing essential services for all Americans.

What technological solutions are likely to be most cost-efficient for making broadband access pervasive?

“The economics of [rural] geography practically beg entrepreneurs to look for alternatives to the usual way of doing things: providing TV and Internet service by satellite instead of cable, for instance. And providing cell service with a few towers, rather than landline service with miles and miles of poles and wires.”

–Rich Smith, The Motley Fool Wireline broadband is considered the most reliable delivery method for broadband access, to which alternate technologies are always compared. Costs for wireline are high in rural areas due to longer lengths and problematic terrain but wireline broadband deployment can be cost effective for all but the most remote areas. Older types of wire in poor condition and long distances from distribution points are the main impediments to offering broadband services but many smaller towns have wireline in place that is broadband capable with minimal additional equipment necessary.

Fiber solutions are considered ideal because of fiber’s long life, reach and bandwidth capacity. It is still an expensive alternative in any location, but prices are expected to drop and many see “fiber to the home” as the ultimate solution for broadband. However, the most remote and the many rural areas that do not have useable wireline in place need to look to other technologies to gain access to broadband.

Wireless Broadband Internet There are two types of wireless communications; mobile cellular and fixed wireless. Both operate essentially in the same way, a tower or series of towers outfitted with receivers and transmitters send signals to either mobile devices like cell phones or to fixed points such as another tower or a user’s home. Mobile cellular operates in the licensed radio spectrum. Fixed wireless can operate in the same bands as mobile wireless, but generally operates in several radio and visible light (microwave) spectrum bands, mostly unlicensed. Fixed wireless not using mobile wireless spectrum uses its own standards called WiFi.

Depending on the area and system chosen, deployment costs can be low or very high but several studies have shown that fixed wireless systems are much less expensive to implement in rural areas compared to other areas and hard line technologies.

Reliability and Speed: Unobstructed sight lines from the transmitter to the receiver are crucial for best service and when properly designed, wireless systems offer excellent reliability impervious to weather conditions. Speed varies and depends on the standards used and optimal conditions with WiFi able to reach 54Mbps and 64-144kps for standard wireless. Range for some fixed wireless systems can reach up to a 30 mile radius but shorter distances (1 – 2 miles) are more realistic. Traditional wireless has a range of 3-10 miles. Advances in boosting signals, line of sight technology and new standards are expected to increase range and speed for both.

Obstacles: o Both WiFi and traditional wireless can be highly insecure.

o Licensed and unlicensed spectrum bandwidth is overcrowded in many locations.

o WiFi

o Some independent operators entering the market are seen as unreliable, mainly hobbyists who may not provide consistent reliability and service in the long haul.

o Mobile Wireless

o Overbuilding and lack of demand have left many wireless carriers unable to invest in new technology or expand.

o Speed of the newest wireless standard, 3G, can reach up to 2Mbps in homes but in “pedestrian” use or where there are multiple users, speed is more likely in the 144-384Kbps range. This is not suitable for certain applications such as telemedicine programs to rural areas where minimum bandwidth requirements are 1.54Mbps. 3G is also15 times more expensive to deploy than the previous standard. 4G and 5G standards are expected to address both speed and deployment costs.

Opportunities o The FCC issued a Notice of Proposed Rulemaking (FCC-03-222) to clarify rules, minimize regulatory costs, provide incentives and address spectrum allotments for wireless development in rural markets.

o Various bills introduced in Congress propose investment credits, grants, loans, tax credits and new bandwidth allocation for development of wireless broadband services particularly in rural areas. Though these have not passed to date, there is Congressional support for broader wireless development.

o The FCC has set up a Spectrum Policy Task Force to revise current spectrum rules and allotments to, among other things, meet the demands of existing and emerging wireless technologies. New allotments in all ranges of the spectrum (low power, former UHF radio frequencies, light wave spectrum for example) will provide a range of frequencies whose specific properties can be applied to best use in a wide variety of situations.

Broadband Power Line Communications (BPL) In1996, the FCC (FCC 96-376) allowed unities with interstate lines to enter the communications market. Power line communications has been around for quite a while, but advances in technology have provided the means to make broadband service over electric wiring a real possibility. Deployment costs are much lower than either wireless or other hard line services since most infrastructure is in place including the “last mile” connection.

Voice and data signal are filtered by “conditioning units” at the user’s location sent over electrical wires from base stations connected to the internet. Distances between base stations and end users can be much longer than other alternatives since signals can travel 3 times further without repeaters.

Reliability and Speed: o Hard line installations are always considered more reliable than wireless or satellite technologies that require proper siting and/or optimal weather conditions for best performance.

o Speeds have been clocked at 45 Mbps but depend on equipment and network design. Most easily approach 3Mbps with some bandwidth fall-off at points further from the base station (1- 1.5 miles).

Obstacles: o Only one data/voice stream can travel on a line at one time which opens up issues with competing carriers who want to operate in the same area.

o While recent advances have reduced problems with interference, in trials, BPL was affected by light poles and still “leaked” into other spectrums, causing disruption of radio broadcasting services. Some argue that sections of the spectrum in which parts of BPL operate (1-80 MHz) is specifically suited to audio and that data and voice transmissions within this spectrum can never be made inference free.

o Signals cannot pass through a transformer which in the U.S. each serves only 5-10 customers. By contrast, in Europe where many of the BPL trials have taken place, 150 customers are typically served per transformer. This is not much of a problem in rural areas as it is in denser locations.

o Any current susceptibilities of the power grid will affect BPL as well. Some point out that an over-reliance on this type of delivery is dangerous and that BPL should be used in tandem with other means of access.

Opportunities: o Utility companies, undergoing the process of deregulation, and wholesalers see BPL as a new source of revenue.

o The FCC is actively advancing BPL recently issuing Notice of Proposed Rulemaking (FCC 04-29) to alter Part 15 rules dealing with emission and interference standards in the spectrum where BPL operates.

Satellite Satellite service is uniquely suited to very remote areas and is expected to eventually play an important role in global broadband development and access. In 2002, the FCC by Report and Order and Further Notice of Proposed Rulemaking (FCC 02-123), allowed 7 satellite companies to begin offering broadband internet access. The ruling also offered greater spectrum allowance for more flexibility in sharing frequencies within the given range.

Reliability and Speed: While the download speed of satellite can approach 5Mbps it is typically much slower for consumers, clocking in around 400kps. Upload speeds, still faster than dial-up, are a fraction of the download speed (typically 30 – 60kps). Some satellite companies offer one way (download) service which a user must supplement with a dial-up account. Though inconvenient, this can be much less expensive for consumers since 2-way broadband satellite can cost near $100 per month in rural areas.

Performance can degrade with multiple users in one location and latency (current communications satellites are geostationary, well over 20,000 miles beyond the earth) can be problematic particularly with video transmissions. Also, satellite transmission is effected by “rain fade” and sunspot activity but wider spectrum ranges provide systems with some flexibility in mitigating these effects. A dish owner needs to have a clear path to the south but properly situated, line of sight issues are less of a problem than with other wireless systems.

Obstacles: o Market entry cost is high and existing companies will mostly likely remain the major players in this industry.

o Low earth orbit satellite (1200 miles beyond earth) systems specifically for data delivery like the Teledisc network are expected to address latency issues and provide greater speed but development has stalled.

Opportunities: o The reselling market along with increased television subscribers has breathed new life into the outlook for broadband satellite. Satellite television carrier companies have gained a 22% market share in its 10 year life while cable, in use for over 30 years, commands a stagnating 75%. Rising cost of cable service and sluggish subscriber rates for both cable broadband and television have provided opportunities for satellite to successfully compete.

o The FCC continues to support satellite system development recently sponsoring a Rural Satellite forum and intends to continue working with the industry on licensing and spectrum issues.

Should the FCC and Congress seriously consider wireless broadband as a solution to the rural broadband problem? No single technology should be chosen as the solution to rural broadband and there is no indication that the government is exclusively considering wireless. The FCC’s approach is to offer support for multiple technologies and to maintain awareness of emerging technology solutions. In what may be seen as a preference, however, is that several wireless carriers operating in rural areas have been awarded Eligible Telecommunications Carrier (ETC) status which affords them universal service funding. To be designated an ETC a company has to provide voice grade service as a competitive carrier in an area, which applies to many rural wireless companies.

Wireless can serve as a reliable source of broadband service, in particular for “last mile” installations. But wireless currently has some inherent problems that can make it unsuitable for some rural situations. While technological advances can increase wireless broadband range and security, line of sight problems and the degradation of signals as they pass through obstructions are of particular importance in more remote rural terrain. There is also an inherent preference for wireline systems with several communities opting for wireline deployments over wireless even when it is more costly or takes longer.

Perhaps the most important outcome of wireless deployments in rural areas will be residents’ exposure to broadband services which could stimulate demand. Wireless systems can also act as an interim solution to wireline deployment. In certain rural markets, wireless may provide competition to existing services offering rural customers choices thought impossible.

Can competitive forces ever work in the telecommunications industry to bring broadband services to rural and mobile users? Robust competition has yet to be seen in most broadband markets, the consensus being that deployment has stalled over the past few years. Tier 1 (urban) markets were overbuilt and lower tier markets were ignored or left with one carrier. Demand was abysmal, blamed often on high cost and consumer disinterest. Burned by past mistakes, business spending and venture capital dried up. Deployments slowed but there are recent indications that they are on the rise. Part of the reason is that, based on rising adoption data, there are indications of increasing demand.

There are two types of competition: competition within a market and competition for a market. Obviously, there can be no in market competition without carriers in the market. For entry in rural markets, the assumption is that the cost is too high and current and future demand and income levels are too low to make investment profitable. Technology has provided a means to lower entry costs and with low population density, relatively lower income and no expectations for growth, demand is often considered insufficient to sustain operations. However, data suggests that there is greater demand for broadband in rural areas than thought.

Many of these communities see advanced services as important for future economic viability, improved medical and educational access and a means to keep people from abandoning rural areas. There are numerous examples of small communities marketing themselves to the providers, using their public utility departments to provision services or partnering with private companies to supply broadband services to their communities.

Data also hints that the income discrepancy is not as great as believed and with lower overall living costs, rural Americans have the means to pay for broadband services. Rural customers are also typically used to paying more for many types of services. This is not to say that they should be gouged, but the ability to charge a modestly higher subscription rate can make entry in a rural market more appealing to a carrier.

As for competition within the market, most rural markets are considered too “thin” to expect more than limited competition. Because of this, some have suggested treating rural markets differently. In many ways, they all ready are with low cost loans and grants offered specifically by governments to rural markets. Carriers in rural areas may also benefit as recipients of universal service fund distributions to level the operating costs and the cost to consumers. Tax incentives (accelerated deprecation or tax credits) and regulatory relief have also been suggested both of which would be welcome by rural carriers but they have yet to materialize in legislation. Besides budget constraints, there is a feeling that tax incentives and regulatory relief should be applied to the whole industry and not just be extended to rural markets.

It is too early to tell if the benefits of new technology will effect competition within the rural marketplace. If history is any guide, however, the expectations are low. Using the airline industry as an example, de-regulation has provided choice and lower prices for larger markets, but small and many mid-sized markets have seen rising airfares and decreased service due to lack of competition within the markets. In 1998, a statement on airline competition from the American Association of Airport Executives asked for the industry and government to devise solutions to stimulate competition within these markets citing the universal access approach of telecommunications policy as a model.

What actions should government take to facilitate provision of services to marginal markets? Though rural availability lags behind other areas, data shows that broadband is available to a large majority of Americans (85% at the end of 2002) and investment continues in broadband deployment including in rural communities. Data also shows that the discrepancy between rural/non-rural internet use (broadband or not) is quite small. At the end of 2001, 53% of rural residents used internet access versus 57% or non-rural residents. However, at the end of 2001, only 12% or rural Americans and 21% in other areas actually subscribed to broadband services where available.

With lower entry costs, reasonably sufficient government financial and regulatory support, the problem of demand remains perplexing. The government has an important role to play in stimulating consumer demand while maintaining and augmenting existing policies to meet the pace of technology and provide a reasonable degree of market certainty.

Recommendations o The FCC should continue it’s forward looking approach to new technologies. Minimal regulation is many times the answer to fostering competition mandated by the Telecommunications Act.

o The Notice of Inquiry process sufficiently brings to light concerns of all interested stakeholders that the FCC should consider in rule-making for new technologies.

o In light of the recent court decision (United States Telecom Association, et al., v. the FCC, 2004 U.S. App. LEXIS 3960 (D.C. Cir., March 2, 2004)) and a possible industry wide agreement on local access charges, the FCC should abandon its local loop unbundling requirements. New technology and competition from wireless and voice over IP (VoIP) will possibly make unbundling local network elements moot.

o Removal of forced unbundling rules will be a confusing time for consumers who could be forced to switch local carriers back to an incumbent if an agreement is not reached though rural customers are likely to suffer less since there is little local competition in those markets.

o Some rural carriers feel that the proposed industry agreement to use flat rates for local access is insufficient to cover their costs. There is conjecture that universal service fund collections might need to be increased.

o The FCC has been slow to address universal service fund (USF) problems including solvency issues. The rules for determining eligible telecommunications carriers (ETC), funds collection and allocation need to be revisited to address fairness issues and make adjustments that better reflect the current and future needs. Currently, the FCC is operating the fund under interim rules but the Federal-State Joint Board on Universal Service recently filed its report (FCC 04J-1) and recommendations.

o A contentious issue is the designation of rural wireless carriers as ETCs. Many feel the fund should not be used as a vehicle to promote competition and should remain focused on support for high cost areas, schools, libraries and low income individuals. USF support for only designated primary lines is being floated as a solution.

o Subsidization of high cost areas has been generally accepted policy but subsidization of schools, libraries and low-income citizens through a tax on phone services is relatively new. Certain constituencies are against funding these groups in general or specifically by these means. The courts have upheld the FCC’s right to require the USF program but if necessary, assistance could be provided by other government agencies such as the Departments of Housing and Urban Development, Education and the Rural Utilities Service.

o Access to and use of internet services foster demand for broadband. The USF plays an important role by making internet access available to various groups and in venues that would normally not have these services available. Charges of mismanagement may jeopardize the program. Interested parties in Congress need to insist on program review and oversight.

o The government has successfully used financial incentives for investment in the form of low cost loans, grants and tax credits to spur broadband deployment in rural areas and it should continue to do so.

o There is sufficient political interest and advocates of rural broadband development to ensure that these programs remain in the forefront. However, financial incentives, even with broad backing, are subject to budget constraints. For example, in this congressional term, only funds for a rural broadband loan program have been appropriated and there are no expectations for additional funding or tax credits.

o State and local governments should continue experimenting with public-private partnerships, aggregating demand to attract private sector interest and sharing municipal networks with citizens. There are numerous examples of how localities took the initiative to successfully bring broadband services to their areas.

o Some states have barred municipalities and/or public utility companies from ownership or partnership in consumer targeted broadband projects citing that they are competing with the private sector.

o Many feel that broadband needs a “killer application” to propel demand.

o Entertainment and online gaming are often cited as having this potential. The government can facilitate entertainment applications by sorting out copyright issues and enacting legislation that protects content providers rights and preserves reasonable fair use policies for consumers.

o E-government, rural medical/health programs and distance education opportunities could arguably be considered “killer applications.” Continued funding as possible and increased promotion will expand the programs and show the benefits of these services.

o Privacy, spam and other internet specific issues inhibit many from accessing the internet. Awareness of current laws protecting consumers need to be publicized along with information on internet practices consumers can employ to make the internet use safer and more secure. While laws are helpful in protecting consumers on the internet, individuals need to be aware of their responsibility to protect their own interests.

o Small businesses generally do not see a compelling reason to adopt broadband. Economic development programs at all levels of government can provide the model and leadership to show the benefits of using broadband.

o In certain industries, internet access is a requirement of doing business with customers or suppliers but many small businesses continue to wait for the “killer app” that will compel them to invest the time and money for not only the application, but training and increased subscriber costs.

Selected References Advanced Telecommunications in Rural America: The Challenge of Bringing Broadband Service to All Americans, Joint Report from the National Telecommunications and Information Administration and the Rural Utilities Service, April, 2000.

American Association of Airport Executives, Airline Competition: A Statement of Principles, 1998.

Compaine, Benjamin M., Revisiting Cost and Affordability Assumptions for High Speed Data Services in Low Population Density Locations, Presented at Telecommunications Policy Research Conference, Alexandria, Va., September 20-21, 2003.

Crandall, Robert W. (Editor), Alleman, James H. (Editor ). Broadband: Should We Regulate High-Speed Internet Access? Books and Monographs. December, 2002.

Dodd, Annabel Z., The Essential Guide to Telecommunications, Prentice Hall, Inc., NJ, 2002.

Eisner Gillett, Sharon Berkshire Connect: A Case Study of Demand Aggregation, MIT Program on Internet & Telecoms Convergence, November, 2001.

Florida Public Service Commission Office of Market Monitoring and Strategic Analysis,

Broadband Services in the United States: An Analysis of Availability and Demand, October, 2002.

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Article Tags: broadband, broadband internet, broadband policy, internet policy, policy analyis of broadband, rural broadband, rural broadband in america, wireless broadband, wireless broadband internet, wireless broadband policy, wireless policy
Referred by: http://www.franchisefix.com/



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