The Ownership Society (Part 3): Broadband

By Lori Swanson

December 5th, 2017

Our goal as a nation should be to create an Opportunity Society in which everyone has the opportunity to climb the economic ladder of upward mobility. This paper—the third in a series—discusses broadband and its potential for job creation in rural Minnesota.

Broadband. The definition of “broadband” changes with the advancement of technology and the needs of the economy. “Broadband” refers to high speed transmission technologies used to access the internet. It can include transmission systems such as cable, fiber optic, digital subscriber lines (DSL), T-Lines, Wi-Fi, wireless, and satellite.

For instance, three years ago, the standard was 10 mbps download and 1 mbps upload. For purposes of this paper, “broadband” is any technology which maintains a minimum transmission speed of 25 mbps download and 3 mbps upload. This is the standard speed established by both the FCC and the Minnesota Legislature. About 85 percent of wireline connections can meet this threshold. Unfortunately, only 14 percent of wireless connections do so.[1] Satellite connections generally top off at 15 mbps.[2] (With regard to the footnotes in this paper, please note that technology is rapidly-changing and becomes out of date almost as fast as ink can dry.)

Broadband is an Important Economic Development Tool. “The number one threat to community and economic development in the 21^st century is the digital divide.”[3] This is the first sentence in a news release issued on October 31, 2017 by the Blandin Foundation, a Minnesota Foundation that concentrates its work in rural Minnesota.

The “digital divide” describes the difference in access to broadband by connectivity, affordability, and familiarity. About 20% of households in rural Minnesota lack access to fixed, non-mobile broadband service.[4] Nearly one-half of rural residents without a home broadband connection say they are not familiar with its advantages.[5] And rural broadband is expensive: 22 percent of rural residents say they do not subscribe to broadband because it is too expensive.[6] Telecommunications companies often deem infrastructure investment in less populated rural areas unsustainable.[7]

The digital divide hurts our students, our health care delivery systems, and our businesses. Students have fewer options for learning, especially when 70 percent of assigned homework and research projects require a broadband connection.[8] Medical technology is also limited, because medical providers require high-speed connections for telemedicine, which can immensely improve health care in rural areas.[9] Broadband access also makes it easier to start and run businesses, expands the options available for job seekers in rural markets, and can improve agricultural applications.

Broadband accessibility has benefits for both urban and rural economic development. The benefits to urban businesses are through practical applications such as e-commerce. With technology, these businesses can reach out to rural communities, areas with more modest infrastructure costs, joining an international trend described as “rural sourcing.” The rural communities see benefits with income growth.

Broadband access also enhances the market reach of rural businesses which were previously restricted to local markets. With the right technology, a small business can reach across the world to market its services or products. A graphic designer or website developer can maintain a productive business serving an urban area while living in Greater Minnesota. A health care provider can eliminate unnecessary windshield time by telecommuting. There are hundreds of reports which document that broadband creates more businesses, increases median household income, and lowers unemployment.[10]

In short, broadband matters. It can improve the rural economy, rural health care, rural education, and rural employment opportunities.[11] Former Speaker of the House Margaret Anderson Kelliher, the Chair of the Minnesota Broadband Task Force, noted that areas with small numbers of broadband providers or low levels of broadband availability have significantly lower median household income.[12] A 2015 report by the Internet Innovation Alliance (IIA) claims that access to the internet is associated with an American household saving, on average, $10,000 per year.[13]

The Minnesota Goals. Minnesota ranks about 27^th in broadband connectivity.[14] About 20% of rural Minnesotans do not have access to broadband on an economically-feasible basis.

Laudably, Governor Dayton and Lt. Governor Smith have set a goal that Minnesota be one of the top five states for broadband access and speed.

The state legislature also set a goal that, by 2022, all businesses and homes in Minnesota have access to high speed broadband at a level of 25 megabits per second on downloads and 3 megabits per second on uploads. The legislature also established a goal that, by 2026, all Minnesota businesses and homes will have access to at least one broadband provider that can deliver 100 megabits on download and 20 megabits on upload.[15]

The Current State of Broadband in Minnesota. For these goals to be met, state government must significantly intervene in the development of rural broadband.

The Governor’s Broadband Task Force determined in 2016 that it would cost $900 million to $3.12 billion to fully expand highspeed broadband statewide.[16] The Obama Administration, through the “Connect America Fund,” initially offered $10 billion in subsidies to the largest telecommunications companies to provide service in rural areas. Unfortunately, many of the companies declined to participate. The recent change in the national administration offers little hope for improvement.

Other issues before the FCC can significantly impact rural broadband development. For instance, the FCC currently uses the same standard to define broadband as Minnesota, namely 25 mbps download and 3 mbps upload. Verizon and AT&T, however, have intensely lobbied the FCC against these standards, in large part because smartphone technology can’t meet these requirements. The newly-appointed FCC Chair Ajit Pai, a former attorney for Verizon, has concluded that rural America only needs slower speeds of 10 mbps download and 1 mbps upload,[17] speeds attainable by wireless technology. If the FCC Chair succeeds in lowering broadband standards, rural economic development is hurt because the federal government will not support standards that allow seamless access to video and large packet data.

Moreover, the newly-constituted FCC in April voted to eliminate price caps in much of the business broadband market by imposing a new standard that deems certain local markets competitive even when there's only one broadband provider.[18]

Prior to this vote, the FCC limited the prices of Business Data Services (BDS) provided by incumbent phone companies. These services are used for public entities like hospitals, schools, libraries, and police departments. They also connect bank ATM networks, retail credit card readers and provide enterprise business networks with access to branch offices, the internet, or the cloud.

Because of the April vote, the price caps will be eliminated in a county if 50 percent of potential customers "are within a half mile of a location served by a competitive provider." A county would also be considered competitive if 75 percent of Census blocks have a cable provider. Fewer than 10 percent of potential customers will be protected from price gouging under the new rule. The impact? AT&T immediately announced a price hike of 15% on business previously protected by the rule.[19]

Another issue is “net neutrality,” which assured equal quality access to the internet by users.

There is also concern that the new federal administration will not provide the necessary financial support to the “Connect America Fund.” While the President says he supports rural broadband, the budget he proposed in April slashed rural development. It should be noted, however, that the President now states that he will include broadband in his infrastructure program.[20]

In addition to the cost of installing broadband in rural communities, broadband suppliers must anticipate the nature of future competition. For instance, there is substantial discussion surrounding technology of utilizing “TV white space,” which arguably could reach a sizable portion of the underserved rural population.[21] Microsoft recently announced that it will begin the implementation of “Airband” technology, connectivity utilized in Africa.[22] Microsoft claims that using TV white space to deliver broadband internet in rural areas is 80 percent cheaper than fiber optic cable and 50 percent cheaper than LTE wireless technology.

And there is the potential to deliver broadband over or adjacent to power lines, known as “BPL” technology.[23]

With this as background, a broadband provider must weigh the cost of installing long lengths of fiber optic (or copper or T lines) to households or communities where the monthly payments may not be able support the necessary investment in the infrastructure. Simply put, providers argue that they can’t get a return on investment when: 1) there is lower population density with fewer customers to generate revenue, 2) greater distance between customers means a greater expense in broadband, and 3) the cost of the “last mile” may be high.[24]

This is no different than the issue facing Franklin Roosevelt with rural electrification, rural telephones, and rural roads.[25]

The more things change, the more things stay the same.

How Do We Achieve These Goals? Many broadband programs have been launched which embrace the economic compact of opportunity, participation, and prosperity.

Governor Dayton’s Task Force on Broadband Technology has supported programs modeled on the success of rural electrification, including:

“Dig Once” programs that invest in infrastructure.
Grants and loans through the Border-to-Border Development Grant Program.
Aligning low income subsidies for telephone use with the National Lifeline program.
Discounted connection rates to community anchor institutions, including libraries and schools.
Training programs.
Subsidies provided for acquisition of end-user equipment.
Subsidies to municipalities that develop broadband connectivity.
Favorable treatment for cooperatives comprised of multiple government units.[26]

The Minnesota Office of Broadband Development was launched in 2014. In 2016, it managed a $35 million investment called the “Border to Border Broadband Development Program.” The $35 million was used as a matching inducement with private investment to leverage over $65 million in broadband development in approximately 72 projects.[27] Eight public-private partnerships were highlighted at a recent broadband conference sponsored by the Blandin Foundation.[28] The cooperative relationships vary from the Mille Lacs Energy Cooperative to the RS Fiber Cooperative serving Renville and Sibley Counties.[29]

The Governor’s Broadband Development Task Force, chaired by Former Speaker Anderson, recommended last year that the state legislature appropriate $200 million for an infrastructure grant program and use the funds on a dollar-for-dollar matching basis to wring out $400 million in broadband development. As noted above, the Task Force noted that it will probably take at least $900 million to build out a broadband cable network for the entire state, and probably $3 billion to build out a complete fiber optic program for the entire state.[30]

In 2016, Governor Dayton recommended funding of $100 million to develop rural broadband.[31] Following the leveraged approach utilized with the first disbursement of the “Border to Border” Development programs, it was hoped that $200 million in broadband development could be achieved.

Unfortunately, at the end of the 2016 legislative session, only $35 million was appropriated for the “Border to Border Broadband Development Program.”[32] In 2017, only $20 was appropriated by the state legislature. This was horribly deficient. Ironically, many rural legislators (who should be concerned with rural economic development and education) seemed more focused on tax revenue cuts that disproportionately benefit the metropolitan area.[33]

Simply put, economic development in rural Minnesota is greatly dependent on broadband technology. But it does take investments to do this. It costs money, and to get the job done we need to explore more avenues of revenue:

We need to use (as we currently do) general revenue money in part to finance the Border to Border program.
Minnesota should explore whether, as with the Rural Electrification Administration, loans to broadband cooperative ventures can help finance subsidized revenue bonds.

If Minnesota is to achieve the goals the legislature set forth in statute, it cannot simply pass aspirational laws. The legislature must put its money where its mouth is and finance the activities that will bring these goals to fruition.

Why is rural development important?

Public investment in rural Minnesota serves the whole state:

A vital rural Minnesota means that residents may enjoy technology development and participate in the world economy.
A vital rural Minnesota enables its agricultural sector to continue the production and export of high quality food.
A vital rural Minnesota helps to restore the environmental quality of the state.
A strong economy in rural Minnesota benefits the economy of all of Minnesota.

The development of broadband, in the face of regulatory changes and modern technology, presents substantial challenges to state government. We should not hesitate to embrace this challenge and bring success to the entire state. Rural Minnesota deserves no less.

[1] https://phys.org/news/2016-06-technology-rural-broadband-access-problem.html - nRlv

[2] https://speedmatters.org/rural_communities

[3] https://blandinonbroadband.org/2017/10/

[4] http://www.startribune.com/in-aitkin-county-other-rural-areas-need-for-better-broadband-outstrips-resources-available-to-provide-it/426169931/

[5] https://speedmatters.org/rural_communities

[6] https://www.msn.com/en-us/money/markets/rural-america-is-stranded-in-the-dial-up-age/ar-BBCIsKZ

[7] https://www.usnews.com/news/articles/2016-06-09/technology-is-improving-so-why-is-rural-broadband-access-still-a-problem

[8] http://neatoday.org/2016/04/20/the-homework-gap/

[9] http://www.usac.org/rhcp/about/participants.aspx

[10] Search “broadband economic development” on Google, Yahoo, Bing, or any other search engine.

[11] Kuttner, H. 2012. “Broadband for Rural America: Economic Impacts and Economic Opportunities.”

[12] http://www.nardep.info/uploads/BroadbandWhitePaper.pdf