July 11, 2018
Report examines underlying economics and need for subsidies to support rural networks
Arlington, Va. (July 11, 2018)—Delivering broadband to sparsely populated rural areas is a costly and challenging endeavor that requires significant upfront investment. Subsidies in the telecommunications industry and other infrastructure contexts have been, and remain, essential for network providers to meet deployment challenges in high cost areas.
Those findings are presented in a new report, “Rural Broadband Economics: A Review of Rural Subsidies,” released today by the network economic consultancy CostQuest Associates in collaboration with Parsons Applied Economics. The report, commissioned by NTCA–The Rural Broadband Association and USTelecom–The Broadband Association, examines the economics of deploying and operating rural infrastructure and, against a backdrop of today’s broadband challenges, highlights the need for subsidies to support critical infrastructures such as roads, electric power and communications in rural America.
Major findings of the report include:
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- Like any infrastructure investment, delivering broadband to rural area presents significant financial burdens.
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- Like other networks, broadband communications networks exhibit economies of linear density, which create an economic barrier to deployment across vast regions of the United States.
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- Because no substitutes exist for roads, electric power and communications, there is a particular need for some form of support or subsidy to promote the availability and affordability of such infrastructure in rural areas.
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- Competitive communications markets have made implicit cross-subsidies unsustainable; explicit government-based support is necessary to promote and sustain broadband (and other) infrastructure investments in rural America.
“The economics of linear density tell us it is commercially unviable to deploy network infrastructure at affordable consumer rates in a rural environment without some form of subsidy, whether internal or external,” said CostQuest President and CEO James Stegeman. “This economic hurdle can be true for roads, electric, communication, water, natural gas, and sewage. When a positive business case for deployment is not achievable, substitute service, sometimes inferior, may arise or consumers learn to live without. However, we, as a country, have identified those services whose national deployment benefits exceed the subsidy requirements. This was true for roads, electric and voice phone service. If we believe that access to robust broadband service, even in rural areas, is a vital part of our national infrastructure, we must continue to seek the methods to support the deployment of this service affordably to all Americans”
“If building broadband in rural communities was easy, we would not have a digital divide in our country,” said NTCA Chief Executive Officer Shirley Bloomfield. “This reports highlights that the business case for bringing broadband to rural America is difficult because of the steep cost of deploying robust technologies in huge swaths of low-density countryside. As our nation considers how best to rebuild America’s infrastructure for the 21st century, we must recognize the challenging economics of serving these sparsely populated areas. And without support or subsidy of some kind, whether explicit or implicit, these areas are at serious risk of being left behind.”
“Broadband providers are among the leading investors in American infrastructure, with over $1.6 trillion invested since 1996,” said USTelecom President & CEO Jonathan Spalter. “While USTelecom members have made tremendous investments in the deployment, growth and innovation of our digital economy, this report demonstrates that connecting the hardest-to-reach communities will also require a dedicated federal investment so every American, in urban and rural communities, can benefit from broadband.”
The full report is available online.
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NTCA–The Rural Broadband Association is the premier association representing nearly 850 independent, community-based telecommunications companies that are leading innovation in rural and small-town America. NTCA advocates on behalf of its members in the legislative and regulatory arenas, and it provides training and development; publications and industry events; and an array of employee benefit programs. In an era of transformative technological advancements, regulatory challenges and marketplace competition, NTCA members are leading the technological evolution for rural consumers, delivering robust and high-quality services over future-proof networks that make rural communities vibrant places in which to live and do business. Because of their efforts, rural America is fertile ground for innovation in economic development, e-commerce, health care, agriculture and education, and it contributes billions of dollars to the U.S. economy each year. Visit us at www.ntca.org.
USTelecom represents service providers and suppliers for the broadband industry. Its diverse members range from large publicly traded communications corporations to small companies and cooperatives – all providing advanced communications services to urban and rural communities. Visit us at www.ustelecom.org.