Revisiting Cost and Affordability Assumptions for High Speed Data Services in Low Population Density Locations

The Telecommunications Act of 1996 expanded the notion of Universal Service to encompass increased access to advanced telecommunications services to all sections of the United States including rural, insular, and high cost areas.The 1996 Act, as well as many state policies, assume that residents in low density, i.e., high cost, areas should have available telecommunications at prices comparable to those charged in lower cost areas. That is, unlike other items such as housing and transportation, which vary from place to place based on costs and market considerations, telecommunications services are assumed to have to be priced equally across the country, regardless of costs or ability to pay. The two most common services for providing high broadband Internet services to residences have been via the cable systems that already provide video service and the Digital Subscriber Line (DSL) service of telephone providers. However, the technology and economics of both services are such that the enterprises that implement these services have made it clear they are unlikely to offer them in the least dense population areas. Several providers of direct broadcast satellite service are available to nearly any location in the continental U.S. The economics of existing multipoint microwave services are more favorable to rural deployment. The possible freeing up of 700 MHz spectrum would further support rural deployment at costs that would suggest pricing slightly higher than current cable and DSL. While the technologies are well known, there is far less fine grained research and data on the living costs and income of rural residents. Although some items, like market priced broadband would be higher priced than in high density areas, there is some data suggesting that other substantial household expenses, such as housing and transportation, are considerably lower in rural areas. Incomes are also lower, although on average the disparities between rural and urban incomes have diminished considerably over many decades. This paper raises questions that need be asked not so much about the technology as the expectations policy makers should have about the prices of broadband data services in rural areas as well as the ability of residents of rural areas to pay market prices for high speed Internet service