TVA Rural Studies

Improving Rural Telecommunications Infrastructure

Bruce L. Egan
Columbia University

5. Network Modernization

Notwithstanding the differences in individual company costs, at a broad policy level, the average statistics for loop length, transmission electronics and investment are useful for evaluating the average and total cost of rural subscriber loop upgrades. There is a great disparity between the tasks confronting large and small LECs to upgrade their loop plant to ISDN compatibility. Although bridged taps limit the ability of loop plant to support new digital service, this is no longer a serious problem for RUS companies.

In terms of digital network switching and intelligent network (i.e., switches equipped for Signaling System 7 (SS7) facilities, small LECs compare favorably to large LECs. Table 6 provides recent data on digital network facilities for Bell, other large LECs and smaller independent companies.

As the economies of scale derived from digital and fiber optic technology continue to lower the incremental per subscriber costs for advanced telephone services, the total costs associated with converting subscriber lines to narrowband and broadband digital service remains high or even prohibitive. Digital subscriber lines will allow rural subscribers to take advantage of new information age services including on-line computing, database, information and transaction services, remote monitoring, advanced facsimile and data services. These are the primary near-term applications for advanced rural telecommunications that will enable subscribers to "telecommute" or improve their productivity in the office or the home. Eventually, broadband digital service will become possible, ultimately providing for bandwidth on demand for anything from still pictures and high speed graphics to video telephony and full motion entertainment video.

Basic narrowband digital service begins with upgrading rural network functionality. Initial upgrades will support only low speed data and voice service. Expanded network capability will support higher data rates from 56Kbs service up to 144Kbs full ISDN service. This is the same modernization scenario scheduled for urban and suburban network upgrades, except that rural areas face some special challenges due to longer loop lengths. In both urban and rural areas, business customers may require broadband services, while most residential customers will probably be satisfied with narrowband capability for advanced voice and data telephone services. If residential demand for integrated broadband services takes off, narrowband network upgrades could be “leapfrogged” by the provisioning of broadband network connections capable of simultaneously supporting traditional telephone and broadband services. This scenario is very expensive and particularly risky in light of the cost effective alternatives including terrestrial wireless and satellite networks. It is especially risky for rural LECs to deploy broadband subscriber connections due to the very high sunk costs involved in the face of uncertain demand and certain competition from technological alternatives.

Not only is the broadband network infrastructure expensive, but the additional subscriber premises equipment cost must be factored in. New terminal equipment is currently very expensive. Even the basic digital set top converter box which is used to manipulate and control telephone and digital television signals coming into the house is very expensive. Early production units will retail at around $500-$700 apiece.

A second major problem with narrowband digital service network upgrades (as with next generation broadband services) is that there are no significant demand drivers, primarily because network services, almost by definition, require two-way end-to-end connectivity. Yet, physical network upgrades are gradual processes where more and more customers obtain access to the new technology over a period of many years. It takes a long time to implement widely available interconnectivity—the factor that will provide the demand-pull for further technology adoption. What good is it to be able to have advanced telecommunications equipment in your home if the people you want to communicate with do not have similar capability.

Thus, developing and deploying advanced digital telecommunication networks is a difficult and costly proposition, even in dense urban and suburban areas. Narrowband digital service, in the form of ISDN, has been in the implementation stage for almost a decade now; and there is still no residential service and only very limited access to business service. With widely available residential ISDN service not expected until late this decade, it is clear that even more advanced network upgrades will be delayed for both physical and financial reasons.

5.1 Business Subscribers

The rapid development of an advanced communication infrastructure for rural America will depend on how easy it is for businesses to access the technology. Businesses consider telecommunications capability an important factor in their location decisions. To the extent that businesses will have advanced services available to them, rural areas may become more attractive locations. Furthermore, as telecommunications capability improves in rural areas, "demand-pull" will begin to stimulate further technology adoption as businesses and their various suppliers and customers make use of more efficient network facilities. However, exactly what constitutes advanced telecommunication for businesses is an unsettled issue.

Relatively large businesses in rural areas, whether in the service or manufacturing sector, often require broadband communications capability to maximize operating efficiency and compete with their urban and suburban counterparts. Broadband in this case refers to digital transmission speeds of 45 Mb/s and higher. At such speeds, high quality data services and video telephony are possible. These speeds are much greater than the narrowband ISDN service which is gradually being deployed. Broadband service generally requires coaxial or fiber optic cable for subscriber connections, while narrowband service may be provided over more traditional copper facilities. Microwave and fiber optic transmission technologies are nominally capable of supporting both narrowband and broadband services but, as already explained, fiber is expected to be the dominant medium for shared network facilities in the future—even in rural areas.

Since fiber optic and coaxial cable subscriber connections not only allow for future broadband telecommunications but also for simultaneously providing for high quality narrowband services, there is some question as to whether incurring the costs of narrowband ISDN on copper facilities is a good long term prospect. Some anaIysts believe early deployment of broadband facilities is the way to go, bypassing the deployment of narrowband digital service on copper. Rural economic development depends partially on attracting businesses that require efficient telecommunications. Therefore, the focus should be on getting fiber optics deployed in the public network as far downstream as possible, so that business customers have the option of accessing the network for high speed service applications, should the need arise. It will not be necessary to subsidize business access to the fiber optic public network but it is important that they have a cost effective option to build or lease their own access lines to a high speed digital public network, since this option usually exists in urban and suburban settings. The way to accomplish this is through an aggressive statewide plan for a fiber optic network infrastructure.

5.2 Residence Subscribers

The deployment of advanced rural telecommunication facilities for residence subscribers should be addressed/viewed in several stages. Dedicated coaxial and fiber optic access lines are generally not required to support the demands of residential customers for known services. Indeed, most of the copper loops in the “downtown” portion of rural exchanges, like that in the “typical” rural exchange described earlier, are short enough to cost effectively upgrade to narrowband digital service. The larger problem is that subscribers in the rural portion of the same "typical" exchange require that expensive loop rearrangements and improvements occur to reduce or eliminate loop electronics on longer loops.

Furthermore, since the late 1970s many rural LECs pursued a plan to upgrade rural loop transmission quality and achieve economies in loop provisioning by deploying remote terminals which were placed between the central exchange and the subscriber. This upgrade strategy was endorsed and encouraged by the REA's guidelines for borrowing companies. In effect, by investing in the deployment of remote terminals (RTs) at specified locations called serving area interfaces (SAI), the placement of subscriber loop carrier (SLC) systems allowed rural LECs to save on investment in loop transmission facilities dedicated to individual subscribers while improving loop transmission quality by making the subscriber connection shorter. But, as can often happen, saving in one generation of network upgrades may be costly in transitioning to the next generation.

It turns out that the deployment of new ISDN and broadband digital network capability is somewhat easier in an environment of dedicated subscriber connections. The placement of remote electronics makes it difficult to upgrade, on demand, any given subscriber's line to provide ISDN or broadband service. No smooth and cost effective migration from POTS to ISDN is possible in these situations, and ultimately this may result in the early retirement of remote terminals if future subscriber loop upgrades are to occur in a timely fashion. This situation is typical not just in rural areas of small LECs, but for many service areas of large LECs as well (which also deployed a number of remote terminals).

This discussion provides some measure of insight as to how to conduct sound fundamental network planning. Most experts agree that the future of telecommunications demand is that households will no longer be satisfied with POTS, desiring instead their own choices of service and their own choices of service suppliers. This means that networks must be designed flexibly enough to accommodate the mix of demand which will (or might) occur. In other words, not all households will want (or be able) to pay for ISDN or broadband service. At a minimum, not all households will want it all at the same time. Thus, a cash flow oriented fundamental network plan would try to accommodate the structure of future demand, meaning LECs must invest in network facilities which allow for differentiation of service capability to match the differentiation in consumer demand.

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