Bad Business Case Keeping Broadband Out of Rural Areas
Raising the initial cash to build out broadband is the biggest barrier to rural deployment, said industry executives and others at an FCC broadband workshop on wireline deployment. Spurring more adoption is also key to making a business case for broadband, they said. “You have to think about the return on investment of capital for the players, because at the end of the day, unless they are earning an acceptable return on capital, then what we're doing as a country is not viable,” said Sanford Bernstein analyst Craig Moffett.
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Broadband providers consider three cost components when deploying new service, said Cox Chief Strategy and Product Officer Dallas Clement: the initial buildout cost, ongoing maintenance costs and average revenue per user. Raising the initial capital is the biggest hurdle for providers, while operating expenses are a “secondary issue,” he said. “Right now, with the less dense homes, we just can’t earn our cost per capital,” he said. A government subsidy could help, he said. Maintenance costs aren’t much different in rural versus urban areas, noted Moffett. Drive times of repair trucks “tend not to be much longer even though the distances are much greater” because there’s less traffic, he said.
ARPU may actually be greater in rural areas than other parts of the country, simply because they're so remote, said Verizon Vice President Anthony DiMasa. But that still doesn’t necessarily make a business case for building out to a population of two in rural South Dakota, said Allied Fiber CEO Hunter Newby.
Deploying fiber isn’t cheap, panelists said. It costs Verizon about $2,500 per home to deploy fiber, four times what the market values each connection, Moffett said. A fiber to the node strategy, in which about 20-30 homes share the same connection, could reduce the capital cost to a third of that, said Marcus Weldon, chief technology officer of Alcatel-Lucent’s wireline division. But fiber to the node isn’t always a viable strategy, particularly in rural areas where homes are far apart, said Moffett.
Wireless may not be a viable substitute for fiber, panelists said. Wireless has a lower throughput than wireline, and therefore can’t support all the same bandwidth- intensive apps, Moffett said. Getting more spectrum out can partially help, but it has to be the right spectrum, he said. One can’t expect to “throw spectrum at the problem” and solve it, he said. More spectrum isn’t the answer, agreed Weldon, since it’s shared among many users. Then again, not every user demands high-bandwidth apps, noted Clement. On Cox’s network, about 3 percent of customers use most of the bandwidth, he said. Many people may value the mobility advantages of wireless more than running heavier apps, he said.
Regardless, high-speed wireless still relies on fiber connections at towers, panelists said. With LTE, old T1 connections “are out,” said David Armentrout, president of competitive local exchange carrier FiberNet. Microwaves can help expand a company’s footprint into harder-to-reach areas, but “you're still talking about how many homes are going to be served by a fiber connection,” said Moffett.
Spurring broadband adoption may be an even bigger challenge, panelists said. The number of people without access to broadband is “much smaller” than the number who have access but don’t use it, Moffett said. Adoption is a “three or four times” larger problem, he said. Owning a computer is “the biggest driver” of broadband adoption, Clement said. But many people can’t afford computers, or are afraid of the technology, said DiMaso.
There also several “social impediments” to adoption, Moffett said. For example, illiteracy rates in the U.S. are “much higher” than other countries in the Organisation for Economic Co-operation and Development, he said. Also, many people have heard negative things about the Internet and aren’t aware of the “practical benefits,” like reading the news and searching for jobs, Armentrout said.