Friday, October 24, 2014

Rural Broadband: Let's Talk About Cost

11/03/2009

Lester Beall produced a series of posters promoting the Rural Electrification Agency (REA) during the 1930s and '40s. The REA promoted electricity not as a way to make money, but as a way to make life easier.

The story of how the federal government helped bring electricity to rural America teaches an important lesson to those who are now deciding how to spend $7 billion on extending broadband to the countryside. It’s this:

Cost is just as important as build-out. In fact, affordability of broadband is probably more important than its availability.

The comparison of electric service and broadband isn’t exact, of course. But it is worth pausing for a moment to reflect on the lessons we can learn from the last government-sponsored effort to bring massive infrastructural improvements to rural areas — that of the rural electrification movement of the 1920s and '30s.

With so much of the present discourse focused on questions of build-out, it is important to realize that one of the gravest issues facing rural electrification was not simply the extension of electric lines to every nook and cranny of rural America but the affordability of electrical services for the end user.  Given the present financial situation of many rural residents, this issue must be addressed in any appropriations bill for rural broadband development. Lester Beall

Created in 1935 at the height of the Great Depression, the Rural Electrification Agency (REA) was originally created as a relief agency. It was a public program intended to bring electrical power to rural areas which had been ignored by private utilities and to do so by hiring laborers from the nation's growing ranks of unemployed workers.

There were few skilled electricians among those out of work, however, which required the REA to transform itself from an agency that provided relief to one that issued loans. The REA eventually found its role not in the direct construction of lines but in issuing subsidized loans to electrical utilities, municipal power districts, and public power cooperatives.

Before the REA, private utilities required rural residents to pay the cost of constructing power lines to their homes, which frequently cost upwards of $2,000 per mile.  Private utilities, eager to make their money back as soon as possible on these investments, would require that the farmer repay the costs over a period of no more than three years. That repayment schedule made the cost of electrification prohibitive for all but the most prosperous farmers.

Most farmers who could afford electricity had already received service from private utilities by 1935.  In the eyes of the private utilities, the project of rural electrification was "finished" despite the fact that less than ten percent of rural residences were connected to the power grid.

For the other ninety percent, electrification remained a desirable yet elusive promise, as the economics of their situation did not support private build-out of the electric grid.  While electrification could bring increased productivity to certain energy-intensive pursuits, such as dairy farming, it provided almost no gains in efficiency for more common farm products, such as cotton or most food crops. There simply wasn’t an immediate commercial need for electricity on most farms. For the vast majority of farmers the real effects of electrification were to be felt in saving domestic labor time, the introduction of electric lighting, and the health benefits associated with modern plumbing. Lester Beall

For the typical farmer, the most promising benefits of electrification were precisely those things that could not "pay" for themselves.

Realizing that the project of build-out would be for naught if no one could afford the electricity the lines delivered (or the electrical gadgets the lines would power), the REA worked to reduce the cost of both power and machinery to rural users. The REA created a program to subsidize the cost not only of wiring homes for electricity (bringing the cost for wiring a typical family home down from over $100 to only $10) but of clothing irons ($3) and radios ($7) as well.

By making a commitment to reducing costs through the funding of non-profit electrical cooperatives, the REA was able to drive down rates across the board for all rural subscribers, regardless of whether they were receiving service from a private or public power provider.  Private utilities had been content to remain complacent before the creation of the REA. But when they saw rural users (the utilities’ last potential segment for market growth) being siphoned away by the new non-profit cooperatives, the private utilities grew anxious.

By 1936, in the face of this new competition, it became common practice for private power companies to provide services to farmers without requiring them to pay the cost of constructing the lines.  Private utility rates fell dramatically and became roughly equal to those charged by the cooperatives.

While these changes in rate schedules and line construction policies certainly benefited rural residents, it was only in conjunction with the REA's subsidization of home wiring and electrical appliances that the dream of electrification became a reality for millions of rural Americans.

The mantra "if you build it, they will come" is not always and forever true. Many people simply cannot afford the cost of admission. In thinking about the future of rural broadband development, it is imperative that we remember the lessons of the past and consider the ways in which consumers can be empowered to take actual advantage of these new technologies being delivered to their doorsteps.

Nick Muntean is a PhD student in the Radio-Television-Film Department at the University of Texas at Austin.

Comments

Low entry costs for broadband.

Many people I know in Georgia who do NOT have broadband internet access already own computers and WiFi networks at the home they own. They use cellular mobile telephones when they travel for work. They are ready to pay reasonable monthly rates, $60 inclusive of all taxes and fees, for say 3Mbs down/1Mbs up internet access.   These people have low middle income to upper middle income take home pay.  yet they cannot get DSL or Cable internet service.  I am helping some of them get some high speed internet access by using EVDO cards from the wireless providers and high gain parabolic antennas.  These accounts all have the 5GB monthly cap that is everywhere in the wireless industry.  The total monthly cost is about $90 when all equipment and fees are factored in.   These people are definitely able to afford reasonable access fees and rates, but we have little to no buildout in Georgia.  We need fiber optic buildouts, LTE, or WiMax all over the state here in Georgia. The REA is an example I often use when some people complain about having the US Government provide stimulus for these broadband access projects.  Thanks for giving me more information to work with.

An apt comparison

Nick, thanks for your well-written comparison.  It's right on.

Incidentally, today I had lunch with a college student who interviewed me for his MIS class's discussion of technology "flattening" the world.  I'm an Info Tech employee of a global corporation, and we employ about 100 rural residents here in Montana through the use of technology.  

What strikes me the most about the new "flat" world is the pace of change.  Fast Internet access is becoming more and more a staple of modern business and culture.  Adaptability and flexibility become essential, and are greatly enabled by use of contemporary technology (which is completely dependent on high-speed Internet).

If government/telcos are willing to invest, rural communities have a whole new sustainable future via technology.  My major concern would be the lack of adoption of new technology.  We need to invest in it too - by using it and making a profit on it.