Rural broadband isn’t like rural electrification, it is actually much harder
Many have likened efforts to build out rural broadband today to the accomplishments of rural electrification in the 1930s. But the two couldn’t be further from each other. From the structure of the program and underlying costs, to the impact on productivity, rural electrification is drastically different than current efforts to get broadband in rural regions. My recent piece at ReaclClearPolicy explores some of those differences, but there is one area I wasn’t able to explore, the question of cost. If a government agency, any government agency for that matter, was able to repeat the dramatic reduction in cost for broadband, the US wouldn’t have a deployment problem.
It is helpful to set the stage.
By the 1930s, electricity had become common within cities, but the service was largely unavailable in rural areas where farmers and ranchers worked and lived. So, in 1936, President Franklin Delano Roosevelt worked with Congress to pass the 1936 Rural Electrification Act, which in 4 years helped to expand the number of farms with electricity from 11.6 percent to 25 percent.
Fast forward to today, rural broadband access lags behind urban access. While the gap is narrowing, broadband is available to only only 65 percent of rural regions, compared to 98 percent in urban areas. Moreover, rural areas has fallen behind urban regions in job creation since the recovery. As such, leaders across the country see connections between today and the 1930s.
A couple months back, Washington State Representative Mike Chapman said, “we kind of equate rural broadband with the rural electrification in the 20th century.” In November, Senator Tina Smith said that Internet connectivity should be approached like rural electrification. Federal Communications Commissioner Jessica has also made the connection. As she recently explained “We were able to get electrification to happen in rural, hard-to-reach parts of this nation. We need to be able to do the same with broadband.” But there are some key differences.
Importantly, the Rural Electrification Administration was actively involved in reducing the price of electricity to achieve economies of scale in rural areas. As administrators noted in 1937, “Sometimes a difference of a fraction of a cent per kilowatt hour in the wholesale rate will represent the difference between a sound and unsound project.” By 1939, the Rural Electrification Administration reported that the cost of building rural electricity lines decreased more than a third of the cost, in just a few years.
This price drop isn’t happening in broadband, but it explains why electricity expanded so quickly. Indeed, broadband projects aren’t lost or made on pennies, but on thousands of dollars per household. Getting fiber broadband into the ground or on poles is a fixed cost that can range from $20,000 to $60,000 per mile. As the number of households becomes less dense, the cost to hook up a new household increases. One project in rural Wisconsin was projected to cost roughly $8,000 per household, while in rural Tennessee that number hovers around $5,000 per household. In contrast, Verizon was able to build FiOS at around $900 per household, by deploying in urban cores. If broadband deployment costs were reduced by 1/3, a lot of projects would be viable.
It makes sense, then, that the Rural Electrification Act was strictly a loan program. The Act tasked the Rural Electrification Administration, now known as the Rural Utilities Service, to give out loans, most often with electric coops, typically with 20-year terms at a 2.88 percent interest.
In contrast, most broadband programs today are grant programs that help to offset the high initial costs. The American Recovery and Reinvestment Act of 2009 directed nearly $4 billion to the Broadband Technology Opportunities Program (BTOP), which simply doled out money to needy projects. Minnesota’s Border-to-Border Broadband Development Grant Program, among the most successful state programs, has been useful in defraying project development costs but isn’t in the business of loan repayments. Moreover, the Trump Administration’s proposal for boosting rural broadband would have achieved it through grants.
When leaders and activists call for a national effort to get broadband everyone, we all recognize the reference. The Rural Electrification Act seems to be an unmitigated success. But aspirations need to meet reality. While rural broadband development will be pursued, that doesn’t mean it will be as easy as electrification was in the 1930s.