Introduction

The History of Universal Service Provides Lessons for the Future

Government Should Ensure Availability of Robust Broadband for the Vast Majority of Citizens

Existing And Past Programs Have Failed To Connect Rural America

A Roadmap to Connect Rural America Once and For All

Conclusion

Endnotes

Introduction

Despite years of effort and tens of billions of dollars in subsidies, the United States still faces a stubborn rural-urban broadband gap. It is time for something new. As part of either an overall infrastructure investment package or dedicated rural broadband legislation, Congress should seize the opportunity to make a large, one-time investment in upgrading rural broadband infrastructure. A big injection of capital, if carefully targeted and allocated through reverse auctions, could help expand the footprint of existing networks and fund new deployments in areas previously uneconomical to serve, thereby bridging the rural-urban digital divide.

A large one-time appropriation would also help to transition away from the Federal Communications Commission’s (FCC’s) outdated Universal Service Fund (USF) for high-cost areas. The USF, which is paid for through an ever-rising, regressive fee on telecommunications services, is unsustainable in its current form. Path dependencies in the system have channeled billions of dollars of USF money into small, inefficient firms that make only meager upgrades in exchange for those large subsidies and a guaranteed return—nearly 10 percent—on their investment.[1] While no one should begrudge a small company trying to provide broadband to its surrounding community, this is a wildly inefficient way to connect high-cost portions of the country.

A revamped high-cost support program would go a long way toward eliminating the broadband access gap and ensuring virtually everyone has robust broadband sufficient to participate in the digital economy for the foreseeable future.

Subsidies should instead be awarded through auctions, designed to encourage broad participation by companies of all size, particularly companies with large economies of scale (and lower production costs) that can efficiently broaden their reach into previously uneconomical areas. The move should be away from the USF’s model of continual, ongoing support and the arcane red tape of its Eligible Telecommunications Carrier (ETC) system. At the very least, an infrastructure subsidy program should have a strong preference for projects that would not require ongoing support after the initial subsidized cost of network infrastructure deployment. A revamped high-cost support program would go a long way toward eliminating the broadband access gap and ensuring virtually everyone has robust broadband sufficient to participate in the digital economy for the foreseeable future.

In summary, to set the new broadband program up for long-term success, high-cost support should leverage existing FCC efforts to improve mapping in critical areas, provide a large one-time infusion of capital expenditure funds allocated through reverse auctions, apply reasonable standards for allocating funding (rather than gold plating in the name of “future-proofing”), and make other infrastructure and pole access reforms that will help subsidized investment go further. The Information Technology and Innovation Foundation (ITIF) believes that any broadband infrastructure package should be guided by the following key principles:

• It should rely on procurement-style auctions to determine which entities receive subsidies, and base potential received support on revenue in order to avoid small companies with little experience receiving outsized awards.
• To connect the most locations with a limited amount of funding, subsidies should first be focused on genuinely unserved locations before being used to upgrade speeds beyond 25/3 Mbps. To reach universal coverage with robust service, the last remaining locations will be the most-costly to serve, with broadband satellite service almost surely proving to be the most cost effective.
• Support should be made available for both fixed and mobile broadband. Fixed support should be technologically neutral and designed to achieve specific, reasonable performance goals, allowing for different access technologies, including fixed wireless (but not satellite).
• Policymakers must recognize the cost trade-offs of brand-new, ultra-fast networks. The goal should not be “future-proofing,” but the broadest possible coverage of networks capable of supporting reasonable expectations of future application demand, which is lower than some advocates claim.[2]
• Ideally, subsidies would target areas that only require up-front capital support, rather than fund ongoing support for operating expenses. Carefully structured one-time subsidies would be more effective at reaching a targeted improvement in rural network performance than piecemeal advances over a longer period. They also serve as a market-based mechanism for identifying which areas should rely on upgraded satellite broadband services rather than fixed terrestrial service.
• Policymakers should combine subsidies with other efforts to remove barriers to deployment, including making fees to access rights of way cost-based and competitively neutral. Efforts to streamline pole attachments and ensure pole replacement fees are shared fairly between all beneficiaries could considerably lower deployment costs.
• Targeted subsidies should also be paired with tax incentives in the form of first-year expensing of broadband capital expenditures.

By embodying these principals and applying the knowledge gained from previous programs, policymakers have an opportunity to build a robust program to meaningfully and expeditiously close the rural-urban divide. It is time to get this done.

The History of Universal Service Provides Lessons for the Future

Universal service has been a touchstone of communications policy for over a century. Historically, the wide deployment of telephone service was facilitated by the formation of the old AT&T monopoly.[3] Early competition between independent, non-interconnected telephone networks saw different networks scramble for broad regional coverage. The famous 1913 “Kingsbury Commitment” allowed the Bell system to operate free from antitrust enforcement as long as it interconnected with independent firms, agreed to regulatory oversight, and worked to achieve universal service. Theodore Vail, AT&T’s president for over 15 years near the beginning of the 20th century, coined what would become the mantra of the Bell system for decades: “One System—One Policy—Universal Service.” The 1921 Willis-Graham Act effectively established AT&T as a natural monopoly, stating that “there is nothing to be gained by local competition in the telephone industry.”[4]

Efforts continued through the 20th century to drive broad coverage of the telephone network. As a monopoly service, the Bell system was able to cross-subsidize, using revenues from high-return services in urban areas (including business service and long-distance) to support high-cost deployment and low-margin services. This system started to break down after the 1996 Telecommunications Act, which supported the creation of a more-competitive environment, something that was ultimately achieved through technological innovation. To achieve universal broadband, we cannot rely on the old, implicit cross-subsidies of the Bell system. Instead, explicit subsidies must be used to solve this market failure.

Network Access Technologies

There are a variety of existing network access technologies, each with its own advantages and disadvantages. A rough understanding of existing deployments, the performance capabilities of different technologies, and the possible build-out of new technology is useful for navigating rural broadband policy.

Digital Subscriber Line (DSL)

DSL offerings rely on the network built for telephone services. One of the main advantages of this access technology is its large existing footprint of available infrastructure. Over a century of efforts to achieve universal telephone availability means the underlying infrastructure DSL uses is the most broadly deployed. However, the network was originally designed for voice conversations and has a difficult time transmitting a large amount of data, particularly over longer distances. A host of different standards, such as asymmetric DSL (ADSL), vectored DSL (VDSL), and G.fast—which is able to achieve gigabit speeds, at least over a short distance—are able to leverage the legacy copper network. These flavors of DSL are broadly available and provide high performance in more-densely populated areas. But in rural America, where loop lengths are particularly long, its performance drops off and becomes quite slow.[5] Today, fiber is incrementally built deeper into the network in order to achieve faster speeds, with the legacy copper telephone network providing service to the last distance to the home.

Hybrid Fiber-Coaxial (HFC)

HFC is the technology of the cable industry. Originally built out to provide video service, the development of Data Over Cable Service Interface Specifications (DOCSIS) allowed for broadband. Municipal and state-level franchise agreements gave video providers access to city rights of way in exchange for broad build-outs (and additional regulations), meaning cable networks were already broadly deployed in this TV-loving country by the time broadband came along. Cable networks generally offer higher performance with faster speeds than DSL, and can be upgraded at relatively little cost. Like DSL, cable today is a mix of fiber and coaxial cable—with fiber pushed out ever closer to homes in order to increase performance. Industry estimates claim that about 90 percent of U.S. households have access to a cable network.

Fiber Optic Cable

Fiber optic cables rely on lasers reflecting through thin tubes of glass and are used for the highest throughput parts of the Internet. The long-distance transit lines that carry large amounts of information are all fiber. Fiber was developed relatively recently and does not have a widespread last-mile deployment such as DSL or HFC. However, for new builds, it offers the highest performance over long distance, is highly upgradeable, and has relatively low operating costs. Choosing from among the various flavors of fiber network—fiber-to-the-node, fiber-to-the-cabinet, fiber-to-the-basement, and fiber-to-the-home—depends on how close it runs to the subscriber’s home, with each exhibiting different top-end performance and cost levels to deploy. Fiber-to-the-home gets a lot of attention from broadband advocates, as it is the latest and greatest technology with more throughput than will likely ever be needed. But it is also generally the most expensive to deploy.

Fixed Wireless

Wireless Internet Service Providers (WISPs) offer Internet service with a fixed wireless link for the last several hundred or thousand feet to the end user. Wireless can offer a very cost-effective means to extend a network and be particularly useful in rural areas with challenging terrain.

Satellite

Satellite networks have historically offered a backstop broadband service, available virtually everywhere, but with some performance and cost limitations. Traditional satellite services rely on large satellites in geosynchronous orbit. At an orbit of around 22,000 miles from earth’s surface, satellites orbit at the same speed the Earth rotates, making the service much easier to manage. This is a long distance for an Internet signal to travel over the air, however, and the service struggles with high latency or delay as information has to travel up to space and back down as users browse the web. Recent efforts to use Low Earth Orbit (LEO) satellites are generating considerable excitement, as positioning them closer to the ground offers higher performance with significantly less delay. Importantly, the broad coverage area of satellites makes for a completely different architecture than terrestrial service, meaning the geographic-specific subsidy system may not be the most effective way to support rural satellite access. Subsidies directly to end users to purchase service, up-front customer-premises equipment, or both would likely be more effective than providing capital to satellite providers to cover specific geographies.

Mobile

While mobile technology such as 4G LTE and upcoming 5G provide access to the Internet, capacity limitations restrict its use as a home broadband replacement. This is changing, however, with many wireless carriers beginning to offer home broadband, similar to the fixed service offered by WISPs. As the wide coverage of mobile networks also offers important economic benefits outside of the home, an effort to seriously extend and upgrade networks in rural America should include support for mobile technologies alongside connectivity to the home.

Today, unconnected areas lacking high-speed broadband infrastructure skew heavily toward rural and tribal lands. According to the FCC’s Broadband Deployment Report, “22.3% of Americans in rural areas and 27.7% of Americans in Tribal lands lack coverage from fixed terrestrial 25/3 Mbps broadband, as compared to only 1.5% of Americans in urban areas.”[6] While the divide between rural and urban areas continues to shrink, government support is needed to help providers close the gap. The positive spillover effects associated with ensuring everyone is online are innumerable, and it is evident that a government intervention is warranted in order to better connect society.

When considering future plans to better bridge the divide, U.S. Congress, the FCC, and the National Telecommunications and Information Administration (NTIA) should leverage lessons learned from historical and existing programs to build a roadmap for connecting rural America. History paints a clear picture of what works and what does not, such as the successes and challenges associated with the USF, the newest Rural Digital Opportunity Fund (RDOF), the Rural Utilities Service (RUS) Programs, and even the Broadband Technology Opportunities Program (BTOP). Each of these programs presents an opportunity to learn from the past in order to build a stronger, more resilient, and efficient broadband program aimed at connecting rural America.

Figure 1: 1912 Bell System advertisement promoting universal service[7]