TVA Rural Studies

Improving Rural Telecommunications Infrastructure

Bruce L. Egan
Columbia University

2. What is Rural?

There is no standard definition of rural telecommunication subscribers; however, some general observations should be made. Government data indicates that about a third of all residence subscribers (some 30 million households) are in non urban areas of the U.S. (called Metropolitan Statistical Areas or MSAs). Non-metropolitan counties are those with no urban areas greater than 50,000 population, but there are many possibilities for classification errors. For example, there could be metropolitan areas close to the border of adjacent non-MSA counties, or there could be many towns of less than 50,000 people each. It is potentially misleading for policy makers to use such data for policy purposes without adjusting it for classification problems¹⁵.

It is very important to distinguish "rural" from "remote" subscribers; The latter refers to those whose access to the telephone network is difficult due to physical "remoteness" caused by either extreme distance or terrain. While remote subscribers with no telephone service might represent a socially deserving segment of the general population, for public policy purposes they should be separated from the general body of rural subscribers. Public policy must be able to focus on upgrading communication infrastructures for those customers already hooked up to the network regardless of policies for reaching customers who are not only rural, but physically remote. Otherwise, policy debates over the subsidies required to provide service to remote non-subscribers can derail progress in technology adoption for the vast majority of rural subscribers. Furthermore, the available evidence is that remoteness is neither a particularly common problem nor one which requires much total subsidy to solve. Pockets of truly remote subscribers will be most economically served by new digital satellite communication networks.

There are few truly "remote" subscribers relative to the base of all rural subscribers. One estimate puts the number of remote customers at 183,000, or only about 1% of all rural subscribers¹⁶. Fortunately, a wealth of information exists for small independent telephone companies from industry trade groups such as United States Telephone Association (USTA), the National Telephone Cooperative Association (NTCA), and an agency of the United States Department of Agriculture which for many years was called the Rural Electrification Administration (REA). The REA’s areas of responsibilities were recently combined with other areas and the new agency is called the Rural Utilities Service (RUS). RUS provides investment and financial data for almost 900 small telephone companies serving about 6M subscribers in very thin markets. Thus, for purposes herein, the RUS data will be representative of "rural" subscribers. While many other data sources will be used in this analysis, the basis for most statistics will be the RUS data¹⁷. Depending upon one’s view as to the absolute number of rural telephone subscribers in the US, for broad policy analysis the per subscriber results based on RUS data may be increased by an appropriate factor to arrive at universal results.

Beyond the distinction of rural vs. remote, there is also an important distinction between existing and new customers. Costs of technology adoption may be very sensitive to the fact that the necessity of starting from scratch in some areas renders moot the issue of whether or not to use some of the existing facilities in a network upgrade. For most subscribers, a network upgrade must consider the embedded base of technology to ensure a cost effective construction decision. Keeping in mind the distinctions between rural vs. remote and existing vs. new subscribers, this analysis concentrates on the cost of network upgrades for existing subscribers—the vast majority. Remote and new subscribers will be considered separately.

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