Study Quantifies Rural Broadband's Economic Impact, Most of It in Urban Areas
Rural carrier broadband contributed $24.2 billion to the U.S. economy in 2015, about two-thirds of which benefited urban areas, said a Hudson Institute study released Wednesday on the economic impact of rural telcos, as defined by the 1996 Telecom Act. Rural carriers were responsible for 69,600 jobs -- through direct employment and employment generated by the goods and services they bought -- and rural broadband supported more than $100 billion in e-commerce, said the study authored by Hudson Institute Senior Fellow Hanns Kuttner and commissioned by the Foundation for Rural Service, a nonprofit created by NTCA.
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NTCA CEO Shirley Bloomfield and other rural advocates said they hope the study will help policymakers see the upside of promoting rural broadband development. "This is a good blueprint," said Dusty Johnson, Vantage Point Solutions vice president-consulting, one of several panelists at a Hudson Institute event on the study. Johnson said policymakers respond to good data, good stories and good politics, and he believes the study highlights all three. "We've got to bring data; we've got to bring stories; and we've got to bring politics to bear because I think the future is going to be a lot sunnier than the past if we do it right," he said.
Broadband is "the great enabler" because it allows companies "to serve anybody anywhere," across all boundary lines, as long as they have high-speed connections, said Leo Staurulakis, executive vice president of JSI Capital Advisors. "It encourages people to go to where it makes sense to find reasonable housing, reasonable resources for staffing, low costs, highly enriched education. It's the enabler. It allows us to take barriers down and still survive," he said.
The study attempted to track the spending of rural broadband carriers and employees, and found that $16 billion of their purchases accrued to the benefit of urban areas and $8.2 billion to the benefit of rural areas. Rural carriers often must look beyond their communities to obtain inputs for their services, the study said: "Broadband networks are capital intensive. A look at recent projects suggests rural carriers increasingly turn to urban-based suppliers for goods and services necessary to complete their home-area capital investment programs." Similarly, rural telco employees buy many goods and services from outside their communities, it said. Texas was the biggest state beneficiary of rural broadband purchases, with $3.4 billion in economic impact and 6,388 jobs, followed by Florida, with $3 billion and 5,955 jobs, and North Carolina, with $2.9 billion and 5,240 jobs.
North Central Telephone Cooperative in Tennessee used $50 million in stimulus grants and loans from the 2009 American Recovery and Reinvestment Act to extend fiber to 75 percent of its service area, and has taken out new loans to make further builds in response to demand, CEO Nancy White said. The stimulus project required 20 Mbps download speed but the cooperative is now offering 100 Mbps both up and down, she said.
Fiber remains the "gold standard" and key to "future proofing" broadband networks, Johnson said. But Staurulakis said a rigid fixation on fiber can jeopardize an enterprise if the economics don't work. "Technology always seems to find a way," he said, citing unlicensed wireless capabilities as an example of innovation. Johnson said mobile and satellite broadband can fill some short-term needs where fiber is too costly, and terrestrial fixed wireless can provide intermediate-term answers, but for long-term solutions, it's "fiber, fiber, fiber."
Staurulakis said the problem is that banks and other lenders have become more demanding of parties seeking financing. "Thank God for the RUS," he said, referring to the Rural Utilities Service of the Department of Agriculture, which provides rural broadband loans at low rates. White said even the RUS is asking rural telcos, before they submit a loan application, to explain how the FCC's recent rate-of-return USF order will impact their finances, but she said most carriers don't really know yet. Staurulakis said the order is a challenge because it not only phases down the authorized rate of return over six years, from 11.25 percent to 9.75 percent, it also contains new caps on capital and operating expenditures. "Theoretically" the FCC plan will provide some degree of certainty for 10 years, but he doubts it will last that long.
Bloomfield again questioned why the rural telco USF budget hasn't increased much beyond $2 billion when the Lifeline and E-rate USF programs have effectively received sizable hikes and been indexed for inflation. She said the FCC can push Lifeline and E-rate support "until the cows come home" but it won't matter much in rural areas if the broadband infrastructure isn't there to support those programs. She acknowledged the FCC has focused on targeting its high-cost support to provide broadband to unserved areas. She also said rural telcos are interested in participating in the upcoming Connect America Fund Phase II reverse auction for areas where price-cap carriers declined funding. They didn't have to be contiguous to their home areas, she said.
Staurulakis said the USF contribution system needs to be reformed to facilitate a significant increase to the rural telco USF budget, as a practical matter. Johnson said Internet edge companies such as Google could be required to help pay for more broadband network deployment, but there seems to be little political appetite for that. Staurulakis said some rural telcos would have to consolidate in order to survive by aggregating their resources.