Economic Development Digest, A Publication of the NADO Research Foundation

Bridging The Digital Divide

Phone workers in
mountainous rural America

The concept of universal service has been an integral part of US telecommunications policy since the 1930s, operating under the principle that all Americans should have affordable telephone service, no matter where they live. This concept was made explicit in the Telecommunications Act of 1996, which required that the goals of competition be balanced with the need to preserve and increase universal service. Provisions include support for affordable local phone rates to help rural, underserved communities, and assistance to schools, libraries and hospitals.
In the past, connecting rural America has been synonymous with universal telephone service, which has been fairly successful. According to the 1990 Census, only five percent of American households lacked a phone. However, this is not truly representative of rural America. In some states, the rate jumps to 10 percent. And some types of households are even less likely to have phones. For example, one-quarter of female-headed households below the poverty line have no phone. According to the US Department of Commerce Economic Development Administration’s June 1999 report, Assessment of Technology Infrastructure in Native Communities, only 39 percent of rural Native America households have phones compared to 94 percent of other households. More than one-half of American Indian households on reservations had no telephone, according to the 1990 Census.
Because rural America is becoming increasingly connected with phone service, there is a new focus of the universal service discussion. With the advent of the Internet, there are other ways of connecting rural areas, including a variety of broadband technologies., which allow for faster transmission rates.
Obstacles to Advanced Telecommunications in Rural Areas
According to an August 2000 Federal Communications Commission report about the digital divide, Native American tribal areas and sparsely populated rural areas often are among the least served areas. Less than 20 percent of rural zip codes, those occupied by fewer than six people per square mile, are home to any broadband subscribers, while subscribers could be found in more than 90 percent of dense zip codes with more than 3,000 people per square mile. Those outside of population centers, including rural customers, are particularly vulnerable to not being served by market forces alone.

Less demand. Fewer people, lower densities and longer distances from large cities, along with fewer industries and institutions, create decreased demand that leads to a lack of competition. The 900 telephone companies that obtain financing for the improvement and expansion of telecommunications service in rural areas from the US Department of Agriculture’s Rural Utilities Service (RUS) average only four subscriber lines per square mile of area served and only six lines per route mile of telephone transmission plants. Large telephone companies serving urban areas average 10 times as many phone lines per mile.

Absence of large users. Communications-intensive industries tend to locate in more urban areas, due to the easy access to advanced telecommunications — another “Catch-22” of rural living.

The nature of rural people, including a resistance to adoption of technology and a tendency toward economic conservatism.

Less familiarity, because there are fewer providers of technological training and less demand for advanced services.

Cost. Rural areas cost more to serve than urban areas, discouraging suppliers, making it less likely that rural areas will have the competition and lower prices promised by the Telecommunications Act of 1996. Where long distance boundaries are drawn also affects rural users, who often face long distance calls that are local and free in urban areas.

Service deterioration. The distances faced in small metropolitan and rural areas lead to not only higher costs but also service deterioration. The longer the telephone lines are stretched, the weaker the signal. Anyone further than 18,000 feet from a central office switch is basically unable to obtain many advanced services typically available today. Broadband technologies (allowing more data at faster speeds) reduce the maximum length of the local loop even more to between 6,000 and 12,000 feet. This does not bode well for rural areas. About 40 percent of RUS telephone companies have loop lengths of 18,000 feet or more. The average is 20,330 feet. And 90 percent of urban loops are less than 18,000 feet.

Difficult terrain. In addition to long distances, rural areas can face difficult terrain, increasing the costs and length of time for installation. Truly rural and remote subscribers (183,000 in the US or one percent of all rural subscribers) are better suited to wireless technologies, such as microwave, which can be more cost-effective when wireline is not practical.

Switches. The type and quality of switches can affect telecommunications as well. Digital switches permit clear transmissions of data and enable it to be sent faster, which is not possible with analog switches. However, digital switches are expensive, making them slow to come to rural areas. And many rural areas only upgraded to analog switches in the 1980s. Less than 10 percent of the US network was digital in 1990, with larger urban markets served first.

Distribution of points of presence (POPs). Publications such as Boardwatch and The List estimate there are over 5,000 Internet Service Provider (ISP) companies in the US, and the vast majority are local. However, ISP service is dependent on reaching telephone company points of presence (POPs), the large switches that connect long distance carriers to local traffic. The distribution of these POPs around the country is a determinant of where ISPs focus their business.

There are pockets of areas, predominantly rural, where there are no POPs. Nine states have either no POPs (Montana, North Dakota, South Dakota, West Virginia) or only one POP (Arkansas, Idaho, Kansas, Minnesota, New Mexico). And there is an overabundance of POPs in urban areas.

Connecting Rural America
A network becomes more valuable to all users proportionate to the number of people connected to it. Therefore, all Americans benefit when rural Americans are assured of having modern, ubiquitous connections. The US Department of Commerce predicts that the US economy will generate demand for 1.3 million new information technology workers over the next 10 years. This means nearly 140,000 new jobs in this sector each year for the next decade.
In 1994, there were three million Internet users. In 1999, there were over 171 million. Internet traffic is doubling every 100 days. Between 1995 and 1998, information technology companies, while accounting for only eight percent of the US Gross Domestic Product, accounted for 35 percent of the nation’s real economic growth. By 2006, almost half of the workforce will be employed by industries that are major producers or intensive users of information technology products and services.
E-commerce and broadband capabilities can help rural areas overcome traditional geographic disadvantages. Small businesses in rural areas can market and sell products around the world. Rural residents can shop the world from the comfort of their homes. With information technologies, rural areas can compete more effectively with urban and suburban areas for information technology businesses, which are often trying to relocate for quality of life factors.
According to Gloria Tristani, FCC Commissioner, “While broadband deployment is occurring in some small cities and rural areas, I am concerned that it may not be happening as quickly or ubiquitously as it should. No single top-down solution is going to work in all rural locations. The solutions need to emerge from local communities themselves with supporting help from state and federal governments.”
By Aliceann Wohlbruck, Executive Director, and Melissa Levy, Digest Managing Editor

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