Mapping Broadband in Western North Carolina

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The Rural Broadband Crisis:
How Bad Is It? How Do We Solve It?

Last August, the FCC estimated that 19 million Americans lack broadband access via a wireline (cable, DSL, or fiber) at minimum-recommended speeds of 4 Mb per second download and 1 Mb per second upload. Rural Americans comprise the majority (14.5 million) of this unserved population.

In addition, about 100 million Americans – rural and urban – have access but don't use broadband, often because they can't afford it.

Many rural residents pay premium prices for broadband, but the service is not much better than dial-up. One Kentucky resident says “it's like paying for a car that's settin' on blocks.

Instead of broadband “haves” and “have-nots,” we have a growing problem of “have some, but need more.”

Rural Problem, National Impact

This isn't just a “rural” problem. The broadband deficit is a serious drag on the national economy, say economists like Hans Kuttner of the Hudson Institute.

Inadequate broadband incurs “opportunity costs.” Alarmingly, these costs are accelerating in rural areas due to a growing disparity between urban and rural broadband speeds, says Kuttner.

For example, it's increasingly common for urban companies and institutions to enjoy broadband speeds – via fiber-optic networks – of 100 Mbps or more. These ultrafast networks support innovations that are transforming how Americans do business, advance their education, and manage their personal lives. Broadband innovation is happening so fast, says Kuttner, that rural residents – even those with some broadband – are falling further behind.

The cost to our national economy is steep. Take college graduation rates. Since 1990, the gap between urban and rural college graduation rates grew three full percentage points: from 9.5 to 12.6 percent.

Each percentage point represents $625 billion in lost wages and economic activity – a $2 trillion drag on the US economy, says Kuttner. With higher education opportunities increasingly found online, a growing urban-rural broadband gap will increase the drag on the US economy.

Consider healthcare. Urban elderly average 10.9 visits to the doctor per year; the average the rural elderly is 5.5. As our ability to diagnose and treat disease grows, this service gap will worsen. Telemedicine and in-home patient monitoring can close this gap, but only where sufficient broadband capacity exists.

Broadband is transforming agriculture. Remote-sensing and monitoring, GPS, and access to real-time market data herald the era of “precision agriculture.”

The machine we call a “tractor” is becoming “a mobile geospatial data-collection platform with the capacity to receive, use, sense, store, and transmit data.” Small growers, producers and artisans are developing “locavore” markets for specialty crops, homemade goods, and handmade crafts – but only where robust broadband exists.

Rural America, Emerging Market?

Macon, MO., pop. 5,400, is home to Onshore Outsourcing, a provider of computer programming for US firms which outsource IT work. Onshore's business model is tied to rural Missouri's lower cost-of-living and stable work force. Its American employees don't have the language and cultural barriers which often plague foreign competitors.

With “world-class” broadband, says Kuttner, rural America could become a “middle-shore” alternative for US firms, creating new markets for US goods and services. Ironically, without robust broadband in rural America, foreign competitors are a “closer” option for US companies.

Bringing robust broadband to rural America would be like signing a free trade agreement with a global emerging market, says Kuttner.

The Broadband Policy Disconnect

When commercial electric utilities failed to wire rural America in the early 20th century, Congress acted by passing the 1936 Rural Electrification Act. The law provided subsidies for rural “self-help” networks owned and operated by the communities they served.

The REA drew on a business model well-known in rural America: the nonprofit cooperative. By 1935, according to one estimate, more than 10,000 buying and selling cooperatives existed in rural America.

While for-profit businesses were eligible for REA subsidies, most rural areas opted for the nonprofit model. By 1940, 86 percent of rural electric networks were nonprofits; 9 percent were municipal; 5 percent were commercial.

In the 1940s, Congress expanded REA to speed the deployment of telephony in rural America. The primary vehicle? Local “self-help” networks.

Fast-forward to 2009. That's when Congress ordered the FCC to create a National Broadband Plan to speed deployment in rural America. Given REA's success, one would think that nonprofit co-ops would be prominent in the Plan. One would be wrong.

In fact, the National Broadband Plan cites only two options for wiring rural America: For-profit companies or municipal networks.

National Broadband Plan, or Big Telecom Scam?

The Plan makes one “community broadband” recommendation: “Congress should make clear that state, regional and local governments can build broadband networks.”

The Plan then loads the dice against municipal networks with this conclusion: “Municipal broadband has risks. Municipally financed service may discourage investment by private companies.”

  • Why does the National Broadband Plan ignore the successful history of rural electric and telephone networks?
  • Why does the Plan assume that municipal networks are the only “community broadband” option for rural America?
  • Why does the Plan ignore the obvious fact that most underserved rural Americans live in unincorporated areas beyond the reach of municipal networks?

Follow the Money

The National Broadband Plan, to its credit, calls for spending $4.5 billion a year through 2020 on rural broadband deployment. (Money for this new Connect America Fund comes from the $1-$2 universal service fee each of us pays with our monthly phone bill.)

But there's a catch: only incumbent carriers are eligible for Connect America Fund support.

By omitting nonprofit networks while exaggerating the “risks” of municipal networks, the Plan eliminates any competition the incumbents might have for the annual $4.5 billion subsidy. (If there's one thing that unites cable and telephone companies, it's the threat of competition. That's why cable and phone companies joined forces to pass legislation in 19 states, including North Carolina, restricting or prohibiting municipal broadband networks.)

But cracks in the Connect America Fund have appeared. AT&T and Verizon control more than 60 percent of the US broadband market in 33 states and the District of Columbia. But in 2012, AT&T and Verizon rejected CAF funding while pushing for deregulation – state-by-state – to eliminate “carrier of last resort” obligations to maintain wireline networks in rural America. If this were a newspaper headline, it would read: “Big Telecom to Rural America: Drop Dead.”

An Earthquake in Rural America

On Nov. 7, 2012, AT&T rocked the telecom world by unveiling plans to spend $14 billion to convert 99 percent of its 22-state network to Internet protocols (IP) by 2016. On the same day, it notified the FCC of plans to retire its copper wireline network.

AT&T asked the FCC to eliminate the 99-year-old “universal service” rules underlying the Public Switched Telephone Network (PSTN). Those rules guarantee every American household access to wired telephone service. With FCC approval, AT&T could pull the plug on wired networks it deems unprofitable, leaving many rural residents with only cell phone service.

Though AT&T plans to spend $6 billion upgrading its wired network, that investment will focus on more populated urban and suburban areas. Ominously, industry analysts predict that “FCC approval could usher in a wholesale dumping of traditional wireline networks around the country” by other carriers.

The Nov. 7 bombshell is consistent with AT&T and Verizon's rejection of Connect America Fund subsidies. Why accept money earmarked for rural broadband buildout when your goal is to abandon your wired networks in rural areas?

A Wake-Up Call for Congress and the FCC?

AT&T plans to accelerate its “U-verse” fiber-to-the-node (FTTN) effort to extend fiber lines to select neighborhood-nodes, using existing copper lines for “last-mile” delivery of broadband, cable TV, and IP-enabled phone service (“voice-over-IP”, or VoIP). AT&T is betting that this expansion will seduce politicians and regulators into approving the abandonment of its rural wireline networks.

The strategy is similar to Verizon's 2004 announcement of a $23 billion investment in FiOS, its fiber-to-the-home (FTTH) technology. In return for its investment, regulators awarded Verizon billions of dollars in rate increases and tax breaks.

But in 2010, Verizon prematurely announced the end of its FiOS expansion. In New Jersey, for example, Verizon promised to extend FiOS to 100 percent of its customers by 2010. Instead, Verizon claims to have “passed” 1.9 million homes, or 59 percent of its customers (being “passed” doesn't mean that fiber broadband is actually available).

In New York, Verizon was granted a $1.95 a month rate hike on residential lines as an incentive for its FiOS expansion. “Of course,” says one telecom analyst, “the states weren't told that everyone would be charged extra for a service only some were going to get.”

As of second-quarter 2012, Verizon's FiOS and AT&T's U-verse reached 8.6 million households, about 7 percent of the 120 million households served by the telecom giants. Like AT&T, Verizon is now claiming that its wireless service will reach customers where it failed to extend FiOS.

Kill The Public Utility, Create Private Fiefdoms

Since 1913, the US telephone system, known as the Public Switched Telephone Network (PSTN), has operated under public-interest rules that guarantee telephone service to every American household that wants it. The PSTN is also governed by privacy and “common carrier” rules similar to those for US highways, waterways, and rail lines.

The PSTN's public-interest rules guaranteed non-discriminatory treatment of network content plus the freedom to connect to the network. These “hands-off” regulations prevented the network owner from blocking content or access. The freedoms guaranteed by the PSTN's “open network” were essential to the mainstream emergence of the Internet and its revolutionary decentralized “plug-and-play” architecture.

As Internet innovation boomed, so did demand for bandwidth. The inevitable shift from dial-up to broadband opened the door for incumbent carriers to snag more than $500 billion in rate hikes and tax breaks earmarked for upgrading the PSTN for broadband. But the money went elsewhere, say industry analysts like Bruce Kushnick and David Cay Johnston.

Some subsidies financed fiber upgrades in high-profit segments of the PSTN. But most of the billions were re-directed to executive pay, stock dividends, and expansion of unregulated wireless networks. “With this sleight-of-hand, a once regulated utility becomes a deregulated private service – even though it goes over the same wire that was originally a phone line,” writes Kushnick.

Re-directing public subsidies ensured the PSTN's decline, especially in rural and low-wealth communities. The incumbents further distanced themselves from the PSTN via a loophole in the 1996 Telecommunications Act.

Change a Name, Capture Broadband

For more than 100 years, common-carrier rules imposed “hands-off” restrictions on owners of telegraph and telephone networks. The 1934 Communications Act refined the rules to apply to “telecommunications,” the law's term for the physical networks over which content is transmitted.

But in 1996 Congress amended the 1934 law to create an “information service” category to describe online offerings such as AOL, e-mail, and the emergent World Wide Web. These services ride atop physical networks and are therefore not subject to rules governing the PSTN. No big deal, right?

Not quite. Attorneys for the cable industry saw a big loophole. In 2002, the cable industry petitioned the FCC to re-classify its cable-modem broadband as an “information service.” A corporate-friendly FCC complied in a controversial 3-2 vote. That action was later upheld by a divided Supreme Court. The cows were out of the barn. Broadband and the PSTN were torn asunder.

Immediately, the telephone companies petitioned the FCC to “level the playing field” by reclassifying DSL as an “information service.” In another controversial 3-2 vote, the FCC granted the phone companies' request. The dial-up Internet remained under the PSTN's “hands off” protection. The broadband Internet was now on its own.

With the Internet-via-broadband at-risk, calls for non-discriminatory “net neutrality” – or Open Internet – rules grew louder. Calls came not only from public-interest advocates, but also from technology firms whose existence and growth depend on the Internet's original open-network architecture.

In 2010, the FCC issued Open Internet rules to restore “hands off” restrictions on the owners of broadband networks.

Then, on July 2, 2012, Verizon took a radical and breathtaking step: it filed suit claiming that the Open Internet rules violate its First and Fifth Amendment protections. With the line between physical networks and the content they carry blurred, Verizon claims ownership of both.

“Broadband networks are the modern-day microphone by which their owners (e.g. Verizon) engage in First Amendment speech,” Verizon's suit claims. With the stroke of a pen, Verizon recast itself as a “publisher” rather than a “common carrier.” It's like a railroad operator claiming ownership of the cargo it transports.

Net neutrality advocates call Verizon's claim “absurd.” Tim Wu is the Columbia University law professor who coined the term “net neutrality.” He says that “articles a newspaper runs are understood to be part of, and the responsibility of, the newspaper. If a blogger wrote something outrageous on the Internet, it would be absurd to complain by saying, 'Can you believe the blog Verizon ran yesterday?'”

But Verizon doesn't stop there. It also claims that net neutrality constitutes a “government compulsion to turn over [network owners'] private property for use by others without compensation” in violation of the company's Fifth Amendment rights. The suit was filed with the DC Court of Appeals, which has a history of siding with corporate interests against the FCC.

End Game:  The New Oil, Customer Data

By freeing themselves from “carrier of last resort” and universal service obligations, the incumbents would be free to cherry-pick neighborhoods and communities for network upgrades. By abandoning the PSTN for unregulated wireless networks, the incumbents would be free of non-discrimination and consumer-privacy rules.

Using the First and Fifth Amendments as shields against regulators, the cable and telco cartels would be free to analyze network content and harvest a “mother lode” of consumer data. “There's a $260 billion advertising industry out there just trying to get at this data,” a Sprint/Nextel executive told an industry conference in October. “Data is the new oil,” says Verizon executive Bill Diggins.

With no “hands-off” constraints, the broadband cartels would control gushers of consumer data that rival, if not surpass, the consumer data controlled by Google and Facebook.

What Can Citizens Do?

If recent history is any guide, AT&T, Verizon and the cable companies will have their wishes granted by compliant regulators. But crisis begets opportunity. The incumbent telephone and cable providers' cards are on the table. The abandonment of the Public Switched Telephone Network and 99 years of public-interest telecom policy is a big deal. It's time for Congress and the FCC to implement real broadband policy reform on the scale of the 1936 Rural Electrification Act.

Here's a checklist of what that reform might look like:

  • Reform the Connect America Fund so that its $4.5 billion dollars a year is used to encourage local self-help broadband networks.
  • Congress should pass a Rural Broadband Act similar to the 1936 Rural Electrification Act to help local communities build broadband networks. The RBA should include a provision that nullifies state laws restricting municipal broadband networks.
  • The FCC should expedite the use of the TV “white spaces” and greatly expand additional “unlicensed spectrum” in the lower, broadcast frequencies for the delivery of high-capacity broadband in rural and other underserved communities.
  • Petition President Obama to appoint a new chairman of the Federal Communications Commission who will put the interests of citizens and consumers ahead of Wall Street and incumbent carriers.

When for-profit electric utilities bypassed rural America, the 1936 Rural Electrification Act enabled rural communities to solve the problem themselves. With the reforms outlined above, rural America can solve the broadband problem and provide an Open Internet alternative to the incumbent carriers.

Additional Reading

Rural broadband access still lags cities,” Daily Yonder, June 9, 2013.

"How ‘white spaces’ could change the world," Tech Central, May 19, 2013.

"Utilities want piece of FCC's $4.5 billion rural broadband push." Greentech Media, May 29, 2013.

California gets first commercial 'white space' high-speed Internet,” C-Net, April 22, 20 13.

Obama's new FCC pick could determine the future of the Internet,” by David Corn, Mother Jones, March 26, 2013.

Broadband 101: Guide to the Basics of Broadband Terminology,” Institute for Local Self-Reliance, March 2013.

FCC to probe rural phone problems,” The Hill, Feb. 7, 2013.

Moving from broadband scarcity to broadband abundance,” Christopher Mitchell, Seattle Times, March 11, 2013.

Expand wireless Wi-Fi access to public airwaves,” Sacramento Bee editorial, Feb. 16, 2013.

The Broadband Factor: How connectivity expands economic and community development” by Kristin Peterson, Huffington Post, February 4, 2013.

The broadband-deprived study at McDonald's” by Anton Troianovski, Wall Street Journal, Jan. 30, 2013.

NC at the bottom of the broadband barrel” by Christopher Mitchell and Todd O'Boyle, Raleigh News & Observer, Jan. 28, 2013.

How to get high-speed Internet to all Americans” by Susan Crawford, New York Times, Jan. 24, 2013.

Co-ops make rural broadband possible,” Electric Co-op Today, Dec. 17, 2012.

Book talk by by Susan Crawford, author of “Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age,” at Harvard University's Berkman Center for Internet & Society, Dec. 12, 2012.

Break Up the Telecom Cartels,” New York Times op-ed by David Cay Johnston, Nov. 27, 2012.

Many rural AT&T customers still lack high-speed Internet access despite merger promise,” by Gerry Smith, Huffington Post, Nov. 12, 2012.

Like paying for a car that's sittin' on blocks,” radio story on rural broadband in Appalachia from community radio WMMT, Whitesburg, KY, Nov. 8, 2012.

Broadband for Rural America: Economic Impacts & Economic Opportunities
Hudson Institute policy study by Hanns Kuttner, October 2012.

Rural broadband in serious trouble,” DSL Reports, Oct. 16, 2012.

C-SPAN panel on “Rural Telecommunications” featuring Hanns Kuttner, Oct. 15, 2012.

FCC Report: Thousands in WNC lack broadband access,” MAIN, Sept. 12, 2012.

White space broadband as a white knight for rural America,” GigaOM, July 15, 2012.

Rural broadband via nonprofit networks,” by Wally Bowen, Raleigh News & Observer, Feb. 6, 2012.

Score! for two rural broadband teams,” by Craig Settles, The Daily Yonder, Jan. 26, 2012.

National Broadband Plan

Broadband access