Lessons from the Field, Strategy

Closing the digital divide in rural America: Co-ops, non-profits, and utilities

This month, being a time of extraordinary heat and much-earned vacations, we at Utility LINE are taking a moment to recap some of our favorite monthly series. Last week we reviewed “smart” communities, and this week we’re tackling rural broadband initiatives. In our final entry we’ll make the case for municipal broadband.

A smart city uses information and communications technology (ICT) – whose backbone is usually a fiber broadband network – to improve urban efficiency and sustainability. The benefits are myriad, but among them is economic growth achieved through a combination of savings from efficiency improvements and facilitation of commerce – as, for example, more potential consumers take advantage of smart traffic management to reach retailers.

But a smart national economy requires that some of these benefits be felt in rural areas. After all, as I discussed in the first entry of our May Utility LINE series, the Hudson Institute has found that “if broadband had the same reach in rural areas as it does in urban areas, [e-commerce retail] sales would have been at least $1 billion higher” than they were in 2015. That’s a significant amount, since rural e-commerce retail sales in 2015 totaled $10 billion.

Rural e-commerce retail was only $10 billion because, according to the FCC, while only 17% of Americans overall lack 25Mbps/3Mbps broadband service, “over half of all rural Americans lack access to 25Mbps/3Mbps [Internet] service,” as do 85% of all residents of rural tribal areas.

But both public and private organizations are beginning to close the gap. In May I reviewed rural co-ops, NGOs, and private utilities. I’ll briefly recap these, while also addressing what I learned recently about Washington state’s rural public utility districts.

1. Rural electric cooperatives (co-ops) are private, independent, non-profit utilities that are owned by their customers and have expertise in running networks. So where they exist, they are well-suited to constructing fiber networks. Currently, about 10-15% of the 900 electric co-ops across the country are building out, or planning to build, broadband networks.

In central Missouri, the Co-Mo Electric Cooperative realized in 2009 that 80% of its members relied on dial-up and satellite Internet services, and decided to provide broadband. The co-op’s pilot project launched in 2011, and quickly reached a take rate of 46%. In 2014, Co-Mo raised all of its speed tiers, and that year the co-op broke even three years ahead of schedule.

2. Like rural electric cooperatives, non-profits operate in the interests of their donors and beneficiaries. In contrast to co-ops, the range of projects that non-profits can undertake is broad – but across the country, several non-profits are investing in rural broadband infrastructure and training.

In Minnesota, the Blandin Foundation has made rural broadband a priority since 2003, and in the intervening years “has partnered with leaders in nearly 70 communities and 110 organizations across the state” to enable “everyone in Minnesota [to] be able to use convenient, affordable world-class broadband networks that enable us to survive and thrive in our communities and across the globe.”

Blandin’s Get Broadband has supported 29 rural Minnesota communities, as well as tribal areas, including Fond du Lac.

3. Finally, rural public utilities – which are electric or telecommunications utilities, excluding (for my purposes) co-ops – provide rural broadband. As I profiled on May 19, SandyNet in Sandy, OR, was established specifically to provide broadband to a community that lies about 30 miles from Portland, OR.

While lack of private broadband options and the town’s small size prompt SandyNet to provide broadband retail service directly to business and residential consumers, public utility districts (PUD) in Washington state are prohibited from retailing Internet, and so must sign public-private partnership agreements.

Of Washington’s 28 PUDs, 24 provide electricity, 18 provide water or wastewater services, and 14 provide local access to broadband. Collectively, these 14 PUDs have installed more than 5,800 miles of fiber-optic cable, and provide broadband wholesale to 142 private telecommunications retail providers.

The advantage of rural utilities is that they are public, and so must serve their communities. The disadvantage, however, is that utilities – being public – may be more heavily regulated by cities and states than non-profits or co-ops. Washington’s PUD regulations encourage public-private partnerships (PPP) that are advantageous to consumers in markets large enough to attract private competition – but in smaller, more rural settings, where just one or two private ISPs contract with the utility, consumers face the same challenges relating to geographical monopoly that Comcast or Verizon Xfinity customers face.

Leave a Reply