No Title 1141

The worldwide computer-based network known as the Internet is dramatically changing the way many people in the world do business and live their lives. Others are left out; some because they can’t afford it, some because they just aren’t interested.

Another reason for this “digital divide” is that in many rural areas it’s too difficult and expensive to extend high-speed Internet connections known as broadband. That means that as the importance of the Internet increases, people who don’t live near large cities could be cut off from the social and economic progress of the rest of the world.

Local electric co-ops are paying special attention to these trends because their member-owners could end up being disadvantaged. In Kentucky, some government and political leaders responding to questions from constituents have asked the co-ops if they could help bring broadband to rural areas. After all, isn’t this the same problem that co-ops solved 75 years ago when they brought electricity to neglected rural areas?

The answer to that question is yes. And no.

Unsatisfying as that response is, it has to be used to make business decisions that could affect the livelihood and lifestyle of co-op members, and the financial stability of the co-op and its ability to provide reliable, affordable electricity.

To help sort out these issues we talked with three experts on broadband access in rural areas.

The panel was made up of:

Brian Mefford, president and chief executive officer of ConnectKentucky in Bowling Green, an alliance of business, government, and universities supporting increased use of technology in Kentucky.

Steve Collier, vice president for emerging technologies at the National Rural Telecommunications Cooperative in Arlington, Virginia, formed in 1986 to help its now more than 1,200-member rural electric and telephone utilities with telecommunications projects.

Curtis Anderson, acting administrator of the Rural Utilities Service, formerly the Rural Electrification Administration, in Washington, D.C. RUS is the utilities part of the rural development mission area of the U. S. Department of Agriculture. It is the federal agency that provides financing and other assistance for rural electric, telephone, water, and telecommunications utilities.

I began the discussion by asking the panel to comment on an informal survey taken this summer at several local electric co-op annual meetings in Kentucky. It showed that about 30 percent of the people have access to the Internet through dial-up phone lines, about 20 percent through some kind of high-speed broadband access, and about half don’t connect to the Internet at all.

Anderson: Many areas have access to the Internet today, at least through a dial-up connection. The issue is whether people want to pay for broadband. Maybe 85 percent of the population could have access to broadband if they wanted to pay for it, but they don’t see the reason to spend the extra money to have it at this point.

Mefford: We show that 24 percent of Kentuckians subscribe to broadband at home. That number goes up to about 55 percent with any type of access—dial-up or broadband. We estimate that 75 percent of Kentuckians have the ability to subscribe to broadband. Of the 25 percent who couldn’t subscribe to broadband even if they wanted to, that digital divide represents the more rural areas.

Q: So some people can’t get broadband at all, but others don’t think the Internet has much to offer them?

Mefford: Governor Fletcher has laid out five A’s to accelerate technology: availability, awareness, applications that make the technology relevant, affordability, and then adoption. Adoption is crucial, because if broadband is available to everyone but only 10 percent are using it, it’s tough to convince a business it should offer services that only reach one in 10 people.

Anderson: Kentucky has one of the most aggressive state programs to identify where the broadband is, and to increase that adoption rate. But that can take time and effort.

Q: Why is broadband important?

Anderson: Broadband is an essential part of economic development. You can compare it to the development of railroads. If the railroad came through your community, you had the chance to survive. If you have broadband, you give a reason for people to move into the community, for businesses to grow. If you do not have broadband, they are likely to go to a community that does. It opens new doors to the most rural community.

Mefford: When you plug broadband into your computer, you have created a home office with phone, fax, a personal library with every book in the world, a retail superstore, a movie theater, personal weather forecaster, crop planner, a community college, and a health information center all in one box.

Collier: This is the new electricity. It makes that much of a difference. If I am a rural student and I do not have access to broadband, I am disadvantaged. For a while, people over 55 were the fastest growing segment adopting the Internet because it gave them mobility without having to leave the house. And with broadband, you can’t just look at today’s usefulness. Applications are rapidly advancing as electronics get better, cheaper, and smaller. Every day there are more reasons to connect to the Internet, and most of them need broadband. If there is no broadband Internet availability, these folks are not going to be able to take advantage of applications as they come into being.

Anderson: You are going to see a whole new business model. People who want the lifestyle of living in rural America won’t have to drive into the office. Businesses in remote communities can have businesses that market all over the world.

Collier: The Internet enables a whole range of folks who might not otherwise be able to participate in the workforce. On the Internet, nobody knows whether you are unattractive, old, or bedridden. We can’t conceive of everything the Internet is going to make possible any more than we had any idea how much electricity was going to improve health and emotional welfare in rural communities.

Q: What will make broadband something everyone feels they need?

Anderson: Everyone is looking for a killer application that will make everyone say, “I must have broadband and I will pay whatever it takes.” I don’t think a killer application exists. Instead, you have to do a little education. It took decades to get rural America electrified. Seventy years ago, REA put together a traveling tent show and they actually went around the country showing people why electricity was a good thing. We are in that stage with this utility. That is why we decided in our Broadband Community Connect Grant Program that we would require demonstrations to get people to use the Internet so they could see the value. As a part of the Rural Development Program at USDA, broadband will make a difference in rural businesses, housing, and community services.

Collier: The Internet itself is the killer application, just like electricity was the killer application. It wasn’t light bulbs that created the rural electric distribution system. Instead, the rural electric distribution system made it possible to have light bulbs and iceboxes. What makes the Internet valuable is that it will create a huge variety of opportunities. One house might be downloading video while another might have an emergency response monitor.

Q: What are the technological solutions to rural broadband access?

Anderson: You are going to see a patchwork that varies by community. We see it with some of our telephone telecommunications providers now, where they provide DSL as a base, but in some areas provide the satellite service Wild Blue, or they may be providing wireless high-speed access. Technology is changing too fast to say there is going to be one solution.

Collier: Rural telephone companies have extended DSL capability to a majority of their systems, but they represent a fairly small segment of rural America. Most of the geographic area served by rural electric cooperatives is not and will not soon be reached by DSL, cable, or fiber. In the most remote rural areas, satellite and wireless will predominate. If we’re talking about 100 percent availability throughout rural America, it is going to be a patchwork of technologies. It is going to be based partly on economics and partly on the speed of broadband people want. Is broadband going to be hundreds of kilobytes per second in the long run, or is it going to be 5 megabytes per second? If you believe it is going to be at the higher end, that is going to dictate some things about technology.

Mefford: I am looking at a map we’ve done of existing service availability in Kentucky, and in fact it looks like a patchwork quilt. You see a different scenario for every community.

Q: What organizational and financial solutions will bring broadband to rural areas?

Anderson: From our rural development perspective, we have found in the last 70 years of the REA and the RUS programs that it’s difficult to make a viable business model to get someone to lay out lines or set up towers in extremely rural areas. We have a lot of money in a broadband loan program and we are making loans. But in most rural areas, we are not getting loan applications. There needs to be more assistance to make projects happen. We also have a very small broadband grant program, which, like any grant program in any government agency, is oversubscribed. If there is a way of combining that grant with the loan, whether it is private or other government entities coming in to supplement our loan program, that could make it more likely that there could be a business model to connect that last 5 to 10 percent of the people who would otherwise never get broadband service.

Collier: The electric co-op model had a couple of characteristics that made it work with loans that will not work with broadband. Electric co-ops had power line and power plant assets good for 30 to 50 years. They could borrow money, pay it off over a long period of time, and the assets were still usable. That is not the case with broadband. These systems have a life of five years or fewer. The second advantage of electric systems was the cost-plus pricing that was made acceptable by economies of scale. The more power sold, the cheaper it was to produce a kilowatt-hour. Broadband does not have either advantage. It must be priced according to market competition and without those economies of scale. Over time, the electronics become cheaper and more powerful, but it is going to be 10 years before that will allow us to economically serve that last 10 to 20 percent of rural Americans. There is going to have to be something like the telephone industry’s universal service fund for them to be served soon.

Mefford: We are evaluating that possibility in Kentucky. Additionally, the legislature has allowed the Kentucky Infrastructure Authority to use some traditional infrastructure dollars to help with community-level technology projects, and I think you will see more of that philosophy in the future. We can use that money to build the best roads and water systems in the world, but we’re finding out that without a good technology infrastructure, there will be no new jobs, and no people who stay to drive on the roads and drink the water.

Q: Is providing broadband access the kind of non-electric service that would make sense for electric co-ops to provide for their members?

Collier: I think it does make sense. But that does not necessarily mean it is a good match to every electric co-op. There have been places where co-ops invested quite a bit of cash in large telecommunications ventures that didn’t work out very well, and some of them have drawn the conclusion that they should never try that again. They’re saying, “Let’s just stick to selling electricity.”

Mefford: Getting involved in broadband is a very tough business decision. There are so many different technologies and investment requirements, and you’re throwing all this at a board of directors that may feel like these kinds of ventures have not paid off in the past. On the other hand, we have some boards in Kentucky saying, “Why aren’t we there yet? Why aren’t we offering broadband?”

Anderson: We’ve seen electric co-ops get involved in propane, telecommunications, Internet, home security, and other businesses. Some of those did well and some didn’t do well. An advantage of electric and telephone co-ops is they are already known in their communities. It really depends on the condition of the cooperative, depends upon the competition in the area. If there is already a strong provider of DSL or cable, it probably does not make sense for an electric co-op to compete. However, it might make sense if there is no provider or the provider has no intention of growing for the benefit of the co-op’s members. It is not one size fits all. Just as it’s going to be a patchwork quilt for technologies, it’s going to be a patchwork quilt for ownership.

Q: So getting involved in this non-electric service needs to be an extremely local decision?

Collier: And not simply based on market characteristics. You could have two co-ops with the same number of members, the same financial statements, the same market for broadband, but the culture of one co-op might make it proper for them to go after this business, and the culture of another would not.

Q: Steve, you said there would have to be some infusion of money to get broadband to everyone in rural areas.

Collier: George Bush’s goal was to get broadband to everybody by the end of next year. If that is going to include the 15 to 20 percent of rural Americans that are not going to see DSL or fiber or cable any time soon, it will take public funding. If you said, “It’s okay if they get it over the next 10 years,” maybe it would not require public funding. But I do not think that is acceptable. I think rural Americans are going to be disadvantaged if it takes 10 years before they see a broadband option.

Q: Isn’t NRTC’s new Wild Blue satellite broadband service a solution?

Collier: Wild Blue is a good solution. It is far better than dial-up, and far better than the prior generations of satellite broadband. It does not require building out an infrastructure, so it can be offered to a few consumers spread out over great distances. It is a limited speed solution, and so it won’t offer the “triple play” of voice, video, and data. It has a one or two megabyte-per-second upper limit, and I think in the longer run broadband will require more than that. When we were first setting up Wild Blue, we said to our members, “Your business model should work with just a few percent of your members, and you need to get your money back in less than 10 years. If you cannot make those two things work, this is probably not a good solution for you because it might be overtaken by other technologies.”

Q: Are you optimistic or pessimistic about the future of access to broadband in rural America?

Mefford: Governor Fletcher has laid out his plan for full broadband deployment in Kentucky by 2007, and we are optimistic that we will be there. Just as important, we are working to ensure that citizens, businesses, and local governments are using the technology once it’s available. There is strong bipartisan leadership on telecommunications in the General Assembly, and the private sector is well-aligned and fully supportive. With all of these stars aligned, Kentucky is now recognized as one of the most aggressive states in the country on developing technology, and we will continue to work to ensure that all Kentuckians realize the benefits and opportunities of that growth.

Collier: I am optimistic that we will make substantial progress. In our Wild Blue initiative we have 290 members signed up, and each of those is projecting to serve hundreds if not thousands of subscribers. We have members extending DSL, wireless, and even fiber into rural areas. I am a bit pessimistic about the uniformity of that progress. Some areas are going to do well while other areas are not going to be reached, either because their local technology partner is not willing or because the economics really are unworkable.

Anderson: I am optimistic. With the president’s announcement of his broadband initiative in March last year, and with the governor’s initiative in Kentucky and ConnectKentucky, which seems to be one of the leaders, we are seeing a lot more state governments saying they need to be doing the same thing. Technologies like Wild Blue are a piece of the quilt. It is getting to that last 5 to 10 percent that is going to be the challenge, and we are focused on that.

Mefford: When you have policy makers and educators saying this is a top priority, we’ve turned that corner. Two years ago, ConnectKentucky had to sell its way into communities. We now find open arms wherever we go.

KEYWORD EXCLUSIVE: BROADBAND DEFINITIONS, AND MORE
For descriptions of broadband access terms like dial-up, cable, DSL, and Wild Blue, as well as additional excerpts of this interview covering innovations of the Internet, click here: rural broadband