Rural Broadband Programs are Not 'Rational' Economically, Just 'Politically'

By Gary Kim November 12, 2012

There is a difference between "economic rationality" and "political rationality." In other words, it sometimes is entirely politically rational to do something that might be deemed economically irrational. 

And it almost always is the case that national communications policy has some elements of economic or financial rationality, and a heavy, perhaps controlling dose of political rationality.

That necessarily applies to programs intended to bring broadband access to under-served areas of the United States.

For example, George L. Fendler, owner of Central Coast Internet in Hollister, Calif., has a problem. He wants to illustrate the “cost differences between fixed wireless and fiber installations in a rural environment.”

In large part, the reason for his question is that wireless Internet service providers, such as Central Coast Internet, believe they can deliver Internet access in rural and isolated areas at far lower prices than telcos or cable companies can accomplish. 

But most funding goes to local telcos that operate higher-cost networks. Not logical? Yes and no. 

Politically, it makes sense. In many rural areas, telcos are significant employers. Beyond that, what legislator wants to be on the wrong side of the "communications for rural America" argument?

Historically, the telcos have been the providers of such service, and there is clear logic to arguing that such firms would not be viable if federal government subsidies were to be reduced dramatically. That doesn't help Fendler or his company, of course.

“I don't really know what the cost per mile is for a fiber installation,” says Fendler. Lots of people would say that’s a very good question.

How much does it really cost a local telco to build fiber to home plant in rural areas? The answer, of course, is “it depends.” But a 2011 study of rural telco costs for fiber to home build shows that cost is directly related to potential customer density, measured as “locations per plant mile.”

Broadly speaking, when a telco can pass five to 65 locations for every mile of outside plant, the cost per home  ranges between $4,000 and $5,000 per location. When the number of locations drops below five passings per plant mile, costs escalate quickly, up to $19,000 a location.

But others say the cost of fiber plant, even in rural areas, is about $1,100 per location.

Analysis by the International Telecommunications Union has looked at overall fiber to home costs (not just U.S. or North American cases) and come up with cost per home passed  ranging from $3,000 to $4,000.

Such analyses are potentially politically significant given a change in federal government understanding of “what” is to be subsidized as part of a commitment to “universal service.” Traditionally, fixed network voice services have been that stated objective.

These days, as nearly everybody uses mobile phones for voice and messaging, that seems a less relevant problem. So the Federal Communications Commission now says it is “broadband access” that is to be guaranteed as part of universal service.

But the FCC has not created or applied such rules in a way that truly wrings the most value out of every subsidy dollar, some would argue.  

Eligibility to receive funds under the Connect America Fund, intended to support “broadband access” in underserved areas, still requires provision of voice service.

The practical import is that the same firms that were getting money to provide “voice” are the same companies (largely fixed network telcos) now charged with getting broadband services to underserved locations. Some might argue that is illogical.

FairPoint Communications wants a waiver of “Connect America” rules that would allow Fairpoint to get a subsidy of $4,062 per location, nearly six times more than the $775 subsidy level the Commission established and affirmed, WISPA says.

FairPoint seeks to conditionally accept $2.8 million to provide broadband service to 697 unserved locations in Maine.

“What FairPoint is really saying is that the  wireline business model it chose does not support the deployment of cost-effective broadband to  unserved areas,” WISPA says. Nor does the Fairpoint request appear to be unusual. ACS appears to have asked for similar waivers.

In some cases, the waivers amount to as much as $7,000 at each supported location.

Fendler wants to make the argument that a wireless approach costs far less, the implication being that taxpayer funds would be better spent using networks that are far more efficient.


Edited by Brooke Neuman

Contributing Editor

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