TMCnews Featured Article

July 27, 2009

Rural Broadband Initiative Will "Fail"

By Gary Kim, Contributing Editor

We might as well say it now: when all is said and done, many people will be unhappy with the results of broadband spending mandated as part of the American Recovery and Reinvestment Act.
That isn't to say the marginal benefit will be unimportant. For some rural providers and users, the funding will be quite helpful indeed. But if the assumption is that the most-isolated and un-served areas need to get priority, the sheer costs of building broadband facilities to really-isolated locations will limit the number of new connections that can be added.
For example, the Rural Utilities Service portion of the program, featuring $2.5 billion in grants and loans, will be available to create new connections to locations without any terrestrial service at all.
There might be 600,000 such locations. Assume a cost per new location cost of about $9,000 for construction and equipment.
It would take $5.4 billion to wire up just those 600,000 locations, if the $9,000 cost per home numbers can be maintained. But since RUS only has $2.5 billion to spend, even if every single cent went directly to construction and facilities, one could connect something less than 278,000 new locations.
Again, the marginal impact on national broadband availability would be nil, though highly important for the service providers able to extend their networks to these locations.
Beyond that, there might eight million or so rural locations that already have gotten some RUS support in the past, and which might be upgraded for as little as $500 per location, using wired facilities. That implies additional investment of $4 billion.
There also might be another one million locations more than 18,000 feet from a central office or repeater and which might be upgraded for broadband, using wired facilities, for about $4,000 a location. That would imply an extra $4 billion in investment.
Those projected costs are one reason some say wireless is really the logical way to upgrade isolated locations. Still, political realities being what they are, nobody is going to suggest that wired networks should not be extended, and that investment should emphasize wireless exclusively. So much RUS money will indeed be funneled to wired network operators.
But people should be realistic. It will be hugely important to the couple hundred thousand new isolated locations RUS might add. But it is not likely RUS funding under ARRA is going to nudge national statistics very much.
And keep in mind the difference between "availability" and "adoption." Some households simply do not see value in broadband, and won't buy it, even when it is available. That is likely to be the case for three out of 10 isolated rural households. So in this possible scenario, about 194,600 new broadband subscribers might be added in isolated rural locations.
It's worth doing, but it isn't going to change the national picture. There simply aren't enough potential isolated, non-served locations to affect the national numbers.

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Stefania Viscusi