The County Dilemma

eyeballSomebody made a comment to me last week that we need more municipal broadband. I certainly agree with the sentiment, but I’ve recently been working with a lot of rural counties and what I’ve found is that bringing broadband to rural places is a lot harder than it sounds.

In the last year I have analyzed in detail a number of different rural counties. Engineers took a hard look at the cost of bringing broadband to each of these counties and I also created extensive financial models trying to find a way to pay for the broadband solution.

One unsurprising result of these studies is that it’s exceedingly hard to find and fund permanent broadband solution in rural places. A few of the counties I studied were in the Midwest where the soil is deep and soft and where buried fiber is as cheap as, or sometimes even cheaper than getting onto poles. But even with the lowest possible construction costs it can be hard to justify building rural fiber. And most of the country has higher construction costs than in rural Iowa or Minnesota.

I’ve also looked at places where the soil is rocky and hard and expensive to bury fiber. But some of these places also have a big mess on poles, making it a challenge to hang fiber. There are many rural pole networks that consist of short poles that need a lot of work or even replacement to add fiber. And as I have covered in several blogs, there are often major practical issues with getting access to poles even where it makes sense to do so.

But the number one issue with building rural fiber is getting financing. As it turns out, many rural counties have an exceedingly hard time contributing much financing towards a broadband network.

Citizens who want fiber often say that local governments ought to just suck it up and borrow the bonds needed to build fiber. But that sentiment is naïve. Rural counties generally don’t have the borrowing capacity to fully fund a fiber network. I’ve looked at counties recently where the cost of building just the fiber and electronics (which ignores operating losses and the cost of financing) ranged from $20 million to over $100 million. Numbers that large are beyond the ability of most rural counties to finance, even if they have the political will.

Rural counties as a whole don’t have a lot of discretionary money. By that, I mean that the revenues they are able to collect are generally almost entirely needed for the services they are required to provide by law. Counties have a long list of responsibilities. They generally have to maintain extensive road systems and bridges. They generally have to fund a police and jail system. They have to provide a healthcare systems of some sort. Many of them have to provide water and sewer systems to at least some of their constituents. And they have to take care of the daily issues of removing snow, repairing potholes, and all of those things that local governments do for citizens.

Counties everywhere have similar sources of funding. For instance, they collect property taxes, but some significant portion of those taxes is usually earmarked for specific purposes like the school systems. Counties also generally share in the sales taxes collected anywhere in the county, but in rural counties this is a much smaller revenue source than for more urban places. Counties also typically get a significant amount of their funding from the state or federal government, but these funds are usually earmarked for specific purposes as well. And most rural counties don’t collect a lot of taxes from businesses, which are a significant funding source for cities and towns.

I’ve talked to the bond advisors in many rural counties about the possibility of financing fiber. What I’ve generally found is that even if most counties borrow up their credit limit they can’t raise nearly enough to pay for a broadband network. And so many county governments, as much as they might want to find a broadband solution, are not themselves able to contribute much towards paying for the solution. So in many counties, municipal funding is not ever going to be possible, meaning that broadband networks need to funded in some other way.

2 thoughts on “The County Dilemma

  1. Mr. Dawson,

    I very much look forward to your daily blogs, this one leads me to the question below.

    I’ve have believed for quite some time that unless the systems for funding federal and/or state universal service funding are set up to tap into some of the very profitable “Edge Provider” companies, high cost operations and infrastructure will continue to be inadequately funded. It seems that the money for ubiquitous fiber infrastructure is there, all is needed is the courage to extend the burden of financing or funding it to all who rely on it, including those who build their software/application based businesses on it (companies like Google, Netflix, etc.)

    I understand that these companies contribute to some degree through their purchase of network services that are subject to USF surcharges, but unlike providers of telecommunications services they are not subject to direct USF assessment. The result, today, is an imbalanced funding mechanism, one which relies too heavily on assessments on telecommunications infrastructure providers and the retail end user customers of those providers. Why should business entities which would not even exist without the network be disconnected from policies and government mechanisms aimed at making it universal?

    Isn’t expanding the base of services subject to contribution and the base of companies that must contribute to universal service the best answer to bringing high speed broadband everywhere?

    Rich Coit

    SDTA Executive Director

    • It’s the most logical answer, but in the current political environment it’s hard to see this having much chance of getting funded. I find it unlikely that Congress will let the current Universal Service Fund grow to the point that would fund this. After looking at the lack of accomplishments of the last two Congresses it’s hard to see them funding much of anything we need – fiber, basic infrastructure like roads and bridges, you name it.

      And sadly, the FCC diverted billions of the existing USF towards CAF II instead of aiming it at fiber. That would have provided a huge downpayment towards expanded fiber deployment. I’m sure you’ve seen the good that has come out of the state fiber grants in Minnesota and it’s not hard to envision what billions in matching fiber grants would enable.

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