Government agencies are investigating broadband technologies and the true cost of bringing high-speed Internet to the rural U.S.
Reaching the most remote rural customers with high-speed Internet access can be prohibitively expensive. Consider the case of Hill Country Telephone Cooperative in Ingram, Tex. The small provider is undertaking a $57 million effort to install fiber and bring broadband service to a substantial part of its market, which covers 2,900 square miles, roughly twice the size of Rhode Island. Yet even with this effort, the provider will not be able to serve 543 remote households, about 5% of its market area, because it's simply too expensive. To do so would involve laying 522 miles of fiber optic cable at a cost of $20 million—an average cost of $37,000 per subscriber, according to Delbert Wilson, general manager of the provider, who testified in July before the House Agriculture Committee.
Government agencies are now considering the costs of providing high-speed Internet access to rural areas and which technologies might be the most cost-effective. The economic stimulus legislation has set aside $7.2 billion in grants and loans to encourage the installation of broadband networks, especially in rural regions that currently lack access. The applications for the first round of funding are due on Aug. 14. The Agriculture Dept.'s Rural Utilities Service and the Commerce Dept.'s National Telecommunications Information Administration will be vetting those submissions.
Service providers are expected to propose a range of schemes to deliver high-speed Internet through both existing infrastructure—such as telephone lines, cable-TV networks, or electric power lines—and through the installation of new fiber-optic cables going directly to residences, new wireless networks, or by using satellites. While the Federal Communications Commission has remained neutral on which technology is best for rural markets, it did say in a May report on rural broadband that it needed to be cost-effective to install, provide consistent performance at an affordable price, and be able to upgrade to higher speeds over time.
Going the Wireless Route
RidgeviewTel, a broadband service provider based in Longmont, Colo., has chosen wireless technologies, including so-called Wi-Fi and WiMax, to serve 54 rural markets in three states including Colorado, Illinois, and New York. One of the problems in rural markets is that existing broadband services are too expensive for the consumers there, says RidgeviewTel CEO Vince Jordan. RidgeviewTel offers service starting at $29.95 per month for 512 kilobits per second and $59.95 for 1 megabit per second. An antenna is installed on the roof of the house, directed at one of RidgeviewTel's towers, which receives the service and transmits that through a wire to the resident's computer or router. Jordan says his company has received an enthusiastic response to the offering.
Yet wireless technologies do pose limitations. Some wireless technologies can be easily blocked by mountains or forests and may not work well in some parts of the country, the FCC notes. And while wireless is often well suited for Internet access, it is not a great match for certain applications such as video services, says Teresa Mastrangelo, principal analyst at the Windsor Oaks Group, a market research and consulting firm specializing in telecommunications. "The bandwidth and the quality of the service can't be guaranteed," she says.
Mastrangelo says the agencies are giving applicants higher scores for technologies with faster speeds, but they also want services that can be installed relatively quickly. A good guide for the future, she says, is to look at the past loans the Rural Utilities Service has issued to service providers to build broadband networks. About 37% of those loans have gone to providers who run fiber optic cables directly to homes, 23% has gone to wireless services, another 22% to so-called digital subscriber line (DSL) technology, 17% to services running over cable networks, and 1% to broadband services that run over electric lines. Yet other analysts say that wireless has a much better chance in areas that aren't served by any type of broadband service because wireless technologies can be installed much more quickly. "My gut feeling is that there will be more wireless than anticipated," says Vince Vittore, principal analyst for broadband at research and consulting firm Yankee Group. Vittore doesn't include satellite services in that prediction because he says the cost of satellite equipment and service is currently too high for rural markets.
The Fiber Network Option
With speeds up to 100 Mbps, running fiber directly to homes is one of the fastest ways to deliver broadband service. The speed can easily be increased by changing the equipment attached to the network, which means it's unlikely to be made obsolete in the near future. Still, fiber networks are one of the most expensive options since installation is labor-intensive with construction crews often ripping up roads. To serve many rural residents in Vermont, for example, a 2007 report by the Vermont Public Service Dept. estimated it would cost about $4,000 per subscriber. Between 2004 and 2010, Verizon (VZ) plans to spend about $23 billion to build its broadband fiber network. This service is mainly deployed in non-rural areas, and consumers can get 15 Mbps download speeds for $49.99 per month and up to 50 Mbps for $144.95 per month.
Hill Country Telephone Cooperative in Texas says it costs about $9,250 per subscriber to serve 95% of its customer base with broadband Internet service using digital subscriber line technology. Subscribers can get up to 512 kbps for a monthly fee of $39.95 and up to 3 Mbps for $69.95. Hill Country is one of about 580 small and rural telephone cooperatives that are part of the National Telecommunications Cooperative Assn. Those members say the time has come to take a hard look at the costs of providing high-speed Internet access to rural America, says Tom Wacker, vice-president of government affairs at the association. "For years we've heard policymakers talk about the need for ubiquitous broadband deployment, but until now not a lot of attention was paid to the cost of it."
Want to be part of our newsroom? Pitch a story to BusinessWeek writers and editors at www.businessweek.com/blogs/whatsyourstoryidea/