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December 7, 2009 1:17 PM

Rural Broadband Won't Be Solved By Profit-Maximizing Means

The foundation of American broadband policy to date has been that the best way to stimulate deployment is to leave it up to the market, to let private, profit-maximizing companies compete to lower prices, improve service, and expand networks.

While this model may be working in some areas--like those with the choice of Verizon FiOS, Comcast DOCSIS 3.0, and a handful of wireless providers--it isn't working in all areas.

In particular, we must come to accept the fact that rural broadband can't and won't be solved through profit-maximizing means. The economics just don't work out.

If I'm a carrier with $X dollars to spend, then I have an obligation to my shareholders to invest that money where it has the greatest chance of making the best return, and that's almost always going to mean picking a city over a remote town or even more rural area.

This becomes especially acute when we're talking about getting our most rural Americans online as it may be impossible to profitably deliver to them high quality service at a price they can afford.

But that doesn't mean rural broadband can't be profitable. A company like Hiawatha Broadband has proven that as it's been profitably delivering fiber to rural towns as a private company for years.

What makes them different, though, is that while profitable they're first commitment is to serving their communities not maximizing profits for their shareholders. This is in part because 40% of their shareholders are local non-profits.

And that's the common thread running through pretty much all of the rural broadband success stories in the US: they've all been projects that grew out of community interests first.

Whether the network ended up private like Hiawatha, or as a public project like in Bristol, VA or Pulaski, TN, achieving sustainable, high quality, reliable, and affordable success in getting rural America wired requires deployers that put people over profit.

It means supporting projects that make the decision to connect people in less dense and therefore less economically attractive areas because it's the right thing to do, even if it may not be the most profitable thing to do.

And yet to date, all of our government efforts have been implemented with a profit-maximizing mentality in mind.

RUS primarily gives out money to private and largely profit-maximizing entities. In fact, during the first round of the BIP, I heard many complaints from my fiber friends who were leading public projects that the information RUS was requesting on past revenue and profit weren't even relevant to their non-profit models.

We've also allowed the massive amount of money the government does spend on telecommunications every year to go largely to propping up outdated, private, and profit-maximizing networks, rather than investing in the build out of new public network infrastructure.

Yet I am more optimistic than ever that we are on the verge of a new age in American broadband policy. Where public dollars will be spent on public projects that can truly strengthen our broadband ecosystem for the 21st century.

The stimulus, for example, has attracted dozens of innovative but proven, sustainable yet dynamic models for how rural broadband can be solved.

The key is to remember that rural broadband can't and won't be solved by profit-maximizing means alone.

There is some gold in them thar hills, but more importantly there are a whole lot of people. So let's focus on people-centric projects first, and recognize that rural markets need solutions that prioritize building communities over maximizing profits.

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Comments (3)

I've done a lot of work in developing nations, and Chile had an interesting approach to rural telephony. They held an auction in which companies bid for the subsidy they would require to serve an unprofitable rural area. The company which bid the lowest subsidy won.

Check this description of the program:

Björn Wellenius, "Extending Telecommunications Service to Rural Areas—The Chilean Experience," World Bank Note 105, February 1997.



Posted by Larry Press on December 8, 2009 9:05 AM

I have a difficult time understanding why this issue has become an unproductive, wasteful circular debate. It goes like this:

"We need more advanced telecom infrastructure."

"But it's not profitable for telcos and cable companies to build it."

"But we really do need it and needed it years ago."

"Yes, but it's not profitable."

* * *

OK, so if it's not profitable, clearly NON PROFIT business models are needed. This should be at the top of the list of policy options to expand broadband.

Posted by Fred Pilot on December 8, 2009 3:55 PM

Community broadband projects like Utopia, nDanville, Palm Coast FiberNET, and The Wired Road are becoming more common and are slowly proving that they work.

Utopia reports take rates in excess of 50% in some rural service areas, and they have eight providers on their community-owned open access, open services network. The Wired Road now has two wholesale and two retail providers on their fully integrated open access, open services fiber/wireless network and local businesses are seeing 40% to 70% price reductions for Internet access.

nDanville fiber just helped close a deal that will bring a large data center and 400 jobs to an abandoned textile mill building in downtown Danville.

Community-owned broadband infrastructure works.

Posted by Andrew on December 8, 2009 4:58 PM

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