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Study Emphasizes Need for Rural Broadband Subsidies

Randy Sukow Jul 13, 2018

When you talk or write about rural broadband, there are certain things most people understand from the start. Broadband networks are costly to build. Broadband networks are especially costly to build in low-population areas. Some form of subsidy must be in place before anyone will invest in broadband networks serving many low-population areas.

A new study NTCA, The Rural Broadband Association and USTelecom released this week illustrates these realities by comparing rural broadband to other forms of rural infrastructure, including roads, sewers, water and electric services, which face many of the same economic barriers.

“By the very nature of network economics, each industry exhibits economies of density and each reaches a point at which unsubsidized provision of service in low-density areas is not viable,” according to the study, “Rural Broadband Economics: A Review of Rural Subsidies.”

However, while rural electric, water, telecom and other forms of infrastructure receive support through the Agriculture Department’s Rural Utilities Service and broadband receives more support through the FCC’s Connect America Fund, the report argues that broadband faces unique challenges.

For example, “electric power distribution companies generally face no facilities-based competitors, especially in rural areas,” the study finds. “As such, compared to companies in competitive markets, electric power distribution companies have greater certainty to recover the cost incurred in deploying infrastructure, including the repayment of financing vehicles.”

By comparison, telecommunications providers have faced more competition, but in the past have been able to maintain revenue levels through a series of cross subsidies: “cross subsidies from urban areas to rural areas, cross subsidies from business to residential, cross subsidies from long-distance changes to local service.” In the broadband world, many of these cross subsidies no longer exist. “Long-distance revenue [an important historical source of cross-subsidy] has become negligible,” the study finds.

 “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,” said NTCA CEO Shirley Bloomfield in a press release. “And without support or subsidy of some kind, whether explicit or implicit, these areas are at serious risk of being left behind.”

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