Putting Skin in the Game for Broadband

Recently, Anne Hazlett, the Assistant to the Secretary for Rural Development at the USDA was quoted in an interview with Telecompetitor saying, “We believe the federal government has a role (in rural broadband), but we also need to see skin in the game from states and local communities because this is an issue that really touches the quality of life in rural America”.

This is a message that I have been telling rural communities for at least five years. Some communities are lucky enough to be served by an independent telco or an electric cooperative that is interested in expanding into fiber broadband. However, for most of rural America there is nobody that will bring the broadband they need to survive as a community.

Five years ago this message was generally not received well because local communities didn’t feel enough pressure from citizens to push hard for a broadband solution. But the world has changed and now I often hear that lack of broadband is the number one concern of rural counties and towns with poor broadband. We now live in a society where broadband has grown to become a basic necessity for households similar to water and electricity. Homes without broadband are being left behind.

When I’m approached today by a rural county, one of the first questions I ask them is if they have considered putting money into broadband. More and more rural areas are willing to have that conversation. In Minnesota I can think of a dozen counties that have decided they will pledge $1 million to $6 million to get broadband to the unserved parts of their county – these are pledges to make outright grants to help pay for the cost of a fiber network.

States are also starting to step up. Just a few year ago there were only a few states with grant programs to help jump start rural broadband projects. I need to start a list to get a better count, but there are now at least a dozen states that either have or are in the process of creating a state broadband grant program.

I don’t want to belittle any of the state broadband grant programs, because any state funding for broadband will helps to bring broadband to places that would otherwise not get it. But all of the state broadband grant programs are far too small. Most of the existing state grant programs allocate between $10 – $40 million annually towards solving a broadband problem that I’ve seen estimated at $40 – $60 billion nationwide. The grants are nice and massively appreciated by the handful of customers who benefit with each grant – but this doesn’t really fit into the category of putting skin in the game at the state level.

The federal programs are the same way. The current e-Connectivity program at $600 million sounds like a lot of assistance for broadband. But this money is not all grants and a significant amount of it will be loans that have to be repaid. Even if this was 100% grant money, if the national cost to bring rural fiber is $60 billion, then this year’s program would help to fund 1% of the national broadband shortfall – all we need to do is to duplicate the program for a century to solve the broadband deficit. If this program was to be spread evenly across the country, it’s only $12 million per state.

For many years we’ve been debating if government ought to help in funding rural broadband. In some ways it’s hard to understand why we are having this debate since in the past the country quickly got behind the idea of the government helping to fund rural electricity, rural telephony and rural roads. It seemed obvious that the whole country benefits when these essential services are brought to everybody. I’ve never seen any criticism that those past programs weren’t successful – because the results of these efforts were instantly obvious.

There is nobody anywhere asking governments to outright pay for broadband networks – although some local governments are desperate enough to consider this when there is no other solution. Building rural fiber – which is what everybody wants – is expensive and putting skin in the game means helping to offset enough of the cost in order to enable a commercial provider to make a viable business plan for fiber.

I wrote a blog in December that references a study done by economists at Purdue who estimate that the benefit of rural fiber is around $25,000 per household. I look at the results of the study and think it’s conservative – but even if the results are a little high this ought to be all of the evidence we need to justify governments at all levels putting more skin in the same.

When I see a rural county with a small population talking about pledging millions of dollars towards getting broadband I see a community that is really putting skin in the game, because that is a major financial commitment. For many counties this will be the largest amount of money they have ever spent for anything other than roads. By contrast, a state grant program of $20 million per year when the state budget might be $20 billion is barely acknowledging that broadband is a problem in their state.

I’m sure I’m going to hear back from those who say I’m being harsh on the state and federal grant program, and that any amount of funding is helpful. I agree, but if we are going to solve the broadband problem it means putting skin into the game – and by definition that means finding enough money to put a meaningful dent in the problem. To me that’s what skin in the game means.

Quantifying the Benefits of Broadband

Economic development staff in almost every community I’ve ever worked with want to be able to quantify the benefits of broadband. It’s not hard to list the many benefits such as providing the ability for rural students to do homework, or the ability to start a home-based business after getting broadband. However, there has never been any way to put a dollar value to the community for these benefits.

Three economists from Purdue University have tackled the problem and took a stab at quantifying the benefits of bringing broadband to all of the areas served by Rural Electric Member Cooperatives (REMCs) in the state of Indiana. The work was done by looking in detail at the public benefits that would be generated at the Tipmont Cooperative and then extrapolating those results to the six other REMCs in the state.

The results are eye-catching and the study calculates a net present value of $24,293 to every cooperative household. I think most people’s first reaction is that amount seem too large, but when you look at the assumptions behind each component of that number, each assumption seems to be conservative.

Here are a few of the benefits measured by the study:

Medical. The study relied on recent studies that quantified the benefits of telemedicine. Several studies have shown that there is a significant decrease in Medicare costs once a region begins using telemedicine. The biggest savings comes from significantly reduced hospital stays and emergency room costs that come as a result of using telemedicine for preventive medicine – by checking up on patients regularly, resulting in small problems not escalating to severe ones.

Education. Numerous recent studies have shown that students without access to broadband don’t perform as well as students with broadband. Adults also benefit from online education through the ability to pursue college degrees online or to get training for new careers. It’s challenging to quantify the benefit of more education at the macro level, but it’s really easy to understand at the microlevel. We know that those who complete high school degree earn more over a lifetime than those who don’t. There have been numerous studies that quantify the increased lifetime earnings from various levels of post-high school education.

Economic Development. Recent studies have shown that there is a direct positive correlation between broadband adoption and economic development. The old economic model of communities thriving by attracting large employers is crumbling as the US continues to lose factories and factory jobs. But broadband helps existing businesses do better and can help keep an existing business to flee a market due to lack of broadband.

At the local level, better home broadband allows people to work at home, many of them finding higher-paying jobs than are available in the local economy. Good broadband also let’s some households bolster full-time earnings by engaging in ecommerce such as opening Etsy web stores. Numerous studies over the years have shown that anything that increases local wages benefits the local community with a multiplier effect as those extra earnings are spent on local goods and services.

Shopping. If you read my blog from last Monday, I discussed surveys we’ve done at CCG that listed the ability to shop online as one of the things most wanted in areas that have no broadband.

A recent Price Waterhouse Cooper study in England calculated the advantages of online shopping at US $754 per household annually – a combination of being able to buy goods at lower prices and the savings from not having to drive to buy things. That number has to be conservative when compared to rural areas in the US where households have longer drive times to reach retail shopping.

Farming Benefits. Much of the area covered by the study are agricultural and several studies have shown that good broadband can bolster farm incomes by as much as 6% annually – a number that is bound to increase as the benefits or smart-farming and outdoor IoT sensors improve crops and herd management.

Why the Study is Conservative. There are some obvious economic benefits that aren’t even included in the study. For example, there are several studies that show that lack of broadband depresses housing value. Anecdotally, I’ve been told in the last few years by rural real estate agents that they are starting to have trouble selling houses with no broadband – and it’s hard to put a value on the inability to sell a house.

The study pulls together studies done by others paint an overall picture of broadband benefits. looking at specific benefits of broadband – anybody that wants to understand this more should read the links to other studies. They step that made this study relevant to me was layering these impacts onto the specific area served by the Tipton Cooperative. One only has to travel to rural America these days to be able to see the differences between areas with and without broadband. Areas without broadband are unable to take part in things the rest of us take for granted like online shopping, easy access to do homework or pursue advanced degrees and the ability work from home and start new businesses. This is the first study I’ve seen that has tried to quantify all of these benefits for rural America, and the results are startling.