TVA Rural Studies

Improving Rural Telecommunications Infrastructure

Bruce L. Egan
Columbia University

Footnotes

  1. For background reading on the relationship between rural development and telecommunications infrastructure see: E. B. Parker et al, Electronic Byways: State Policies For Rural Development Through Telecommunications, and Parker et al, Rural America in the Information Age: Telecommunications Policy for Rural Development, University Press, 1989. See also: Rural America at the Crossroads: Networking for the Future, and the many references therein, US Congress Office of Technology Assessment (OTA-TCT-471), April 1991.

  2. For a dose of healthy skepticism (or even cynicism) on the prospects for deployment of information superhighways in a competitive market place see: B. L. Egan, “Building Value Through Telecommunications: Regulatory Roadblocks on the Information Superhighway”, Telecommunications Policy, 1994.

  3. "Economics of Wireless Communications Systems in the National Information Infrastructure," U.S. Congress Office of Technology Assessment, draft, November 1994 and the subcontractor report by B. L. Egan, "Economics of Wireless Communications Systems in the National Information Infrastructure," U.S. Congress Office of Technology Assessment, draft, November 1994.

  4. For a recent discussion of the goals and public policy concerns about continued subsidies of rural telephone companies see the testimony of Margot Smiley Humphrey on behalf of the National Rural Telecom Association before the U.S. Senate Commerce Science and Transportation Committee, May 19, 1994. See also: National Association of Development Organization (NADO) Research Foundation, “Telecommunications and its Impact on Rural America”, April 1994.

  5. As part of its on-going investigation of Universal Service funding in CC Docket 80-286, on July 13, 1995 the FCC issued a Notice of Proposed Rulemaking (NPRM) which, by all accounts, is an attempt to reduce the broad subsidies flowing to high cost areas by "targeting" them to a smaller group of rural companies and subscribers.

  6. This is not to say that fundamental network planning should not pay very close attention to life-cycle costs of network equipment including all of its software dimensions. Planned and unanticipated network software upgrades for network switching, monitoring, control and service functions often represent a large share of total network costs and the cost savings associated with compatible or single-supplier purchases of software right-to-use fees must be considered.

  7. Of course, while non-proprietary flexible network software and interface devices may lower the costs for telephone companies which purchase from competing vendors, such standardization can reduce profits of vendors which make money on sales of proprietary hardware and software systems. When rural telcos are faced with purchasing in an environment of competing proprietary network systems, more often than not a least cost strategy is to select a single vendor of choice so that life cycle costs are minimized.

  8. This is contrary to the conclusions reached in my prior study of this issue nearly five years ago when the industry's regulatory regime was still based on monopoly supply and the threat to cross subsidies to rural areas was much smaller. See: B. L. Egan, "Bringing Advanced Telecommunications to Rural America: The Cost of Technology Adoption," Telecommunications Policy, February, 1992.

  9. This estimate is a broad average and depends heavily on embedded subscriber loop plant characteristics. For example, where digital switching is already available and the subscriber line is relatively short (< 18kft.) with no signal repeaters or amplifiers, the average cost of a digital upgrade is about one third this amount or $300. In older plant (about half of the embedded base), the per subscriber costs are much higher (about $2,500) due to digital switch replacement and rehabilitation of "non-filled" cable plant which generally will not support digital service.

  10. For a recent survey and discussion of the costs of residential broadband networks, see: B. L. Egan, supra at note 2.

  11. The round-trip transmission delay for two-way satellite service is 250 milliseconds which usually results in poor quality voice conversations, though some researchers believe this problem could be mitigated somewhat using advanced electronics. In cases like rural Alaska, where customers never had a high-quality wireline option for voice service, satellite is more readily acceptable. However the costs for voice satellite service in thin rural markets can be very high even when transponder capacity is leased from others (thereby removing up-front manufacturing and launch costs from the calculation). The delay does not present a serious problem for data transmissions.

  12. For more information on new digital satellite systems see: G. Gilder, “Ethersphere,” Forbes ASAP TELECOSM, October 10, 1994. The entire Gilder series of articles featured in Forbes ASAP sections over the last three years provides a thought provoking discussion of future telecommunications technology trends, especially regarding new digital wireless systems.

  13. For example, in a recent investigation of rural radio service, the Oregon Public Utility Commission concluded: “BETRS is not now a viable system. There are too few BETRS systems in operation. No additional BETRS systems are planned for Oregon. BETRS appears to have significant drawbacks in terms of relatively high maintenance and investment costs. These drawbacks have resulted in low use of BETRS in Oregon.”, Oregon PUC Staff Discussion Paper, “The Economics of Wireless and Wireline Telephone, draft, April 20, 1995.

  14. See: A. Paulraj, “Wireless Local Loop for Developing Countries - A Technology Perspective”, 1994-95 Annual Review of Telecommunications, International Engineering Consortium, Chicago, 1995. Two North American manufacturers, Motorola and SR Telecom, are each deploying (or plan to deploy) many such systems, see: J. Gifford, “Wireline Local Loop Applications in the Global Environment”, Telecommunications, July 1995; and, “Rural Network Possibilities”, Interlink 2000, August 1992.

  15. For a more detailed discussion of the problem see: US Congress OTA (1991), supra at note 1, p. 36-38.

  16. See Parker et al, p. 67, supra note 1. This book classifies about 20M households as "rural" on a base of about 92M households in the U.S. Other estimates of remote subscribers appears in FCC Report No. DC-1066, CC Docket 86-495 "New Radio Service (BETRS) Established to Improve Rural Phone Service," December 10, 1987.

  17. The source of 1993 financial and investment data for small telephone companies is: REA "1994 Statistical Report, Rural Telephone Borrowers," US Department of Agriculture.

  18. Statistical data for non-RUS companies is based on the Federal Communications Commission (FCC) “Statistics of Communications Common Carriers”, 1993-1994 Edition, US Government Printing Office. LECs with annual revenues exceeding $100M are included in the report.

  19. Caution must be exercised when reporting trends in RUS data because annual data only applies to the companies which borrow money from the RUS, and this mix of companies changes from year to year. For example, from 1989 to 1993, the time period covered by this study, RUS borrower companies numbered 803, 897, 902, 899, and 883 respectively. Thus total and average per subscriber financial results are not directly comparable from year to year.

  20. C. Weinhaus, et al, “Redefining Universal Service: The Cost of Mandating the Deployment of New Technology in Rural Areas”, 1994-95 Annual Review of Communications, International Engineering Consortium, Chicago, 1995.

  21. Detailed data for subscriber loop characteristics for both Bell and REA companies are available in Egan, “Bringing Advanced Telecommunications to Rural America: The Cost of Technology Adoption," Columbia Institute for Tele-Information, Research Working Paper #393, Columbia Business School, October, 1990, Table 4.

  22. "Statistics of the Local Exchange Carriers 1994 - for the year 1993", USTA July 1994.

  23. It should be kept in mind that all of reported per line cost results make no assumptions about the demand side of the equation, if they did the costs would be higher. For example, the cost numbers presented do not include any costs associated with either customer premises equipment and terminals, so-called set top boxes, or network service software and programming services provided by the LEC or another vendor.

  24. Weinhaus et al, supra note 20

  25. For a discussion of such systems and what types of services they might be used for see: R. V. Henry, "Video and Broadband Services in Rural America", 1994-95 Annual Review of Communications, International Engineering Consortium, Chicago, 1995.

  26. D. W. J. Deutscher, "Rural Fiber Network in Service", 1994-95 Annual Review of Communications International Engineering Consortium, Chicago, 1995.

  27. Many case studies of alternative loop technologies are provided in Egan, supra note 21, Section 5.

  28. See B. L. Egan supra note 3

  29. See Oregon PUC (1995) supra note 13 and Egan supra note 3

  30. See: Hatfield associates, "The Cost of Basic Universal Service", draft, Boulder, July 1994; and Paulraj, supra note 14; and "Wireless Technologies and the National Information Infrastructure," US Congress Office of Technology Assessment, August 1995, p. 45-46, 95-98 and ch. 9

  31. For a detailed discussion and some rather piercing commentary on this problem see: G. Calhoun, Digital Cellular Radio, Artech House, Norwood MA, 1988; and, Wireless Access and the Local Telephone Network, Artech House, Norwood MA, 1992.

  32. See the discussion of the governments role in the OTA report supra, note 30 and the FCC's most recent decisions on rural radio service (BETRS)

  33. See Egan, supra note 3

  34. B. Murphy, "Rural Americans Want Their DirecTV", Satellite Communications, March 1995

  35. See draft legislation supra note 5.

  36. 7 CFR Part 1751, RUS Telecommunications System and Design Criteria, and Procedures.

  37. After the RUS released its proposed interim rules on December 20, 1993, there was an overwhelming response with concerns regarding the new requirements for State modernization plans. Over 39 parties commented and a good summary of these appears in the Federal Register Vol. 60 No. 29, 7 CFR Part 1751, February 13, 1995.

  38. This is also the conclusion reached in a recent Congressional Study, see US Congress OTA Report (1995) supra note 3, p. 45-46.

  39. Many rural electric utility cooperatives are very successful operations, thus publically owned and operated arrangements are not necessarily worse than strictly private ones.

  40. For a more detailed discussion of the existing Kentucky infrastructure for power, transportation, and telecommunications, see Egan supra note 21, Section 6 and the Appendix.

  41. Weinhaus et al. supra at note 20.

  42. Such a model was recently used by US West to calculate costs by US Census block groups, "Targeting High Cost Funding to High Cost Areas Using US Census Block Groups", draft US West, October 28, 1994.

  43. Such Mechanism vary in detail but all follow the general mechanism described in: B. L. Egan, and S. S. Wildman, "Funding the Public Telecommunications Infrastructure", Telematics and Informatics, Vol. 11, No. 3 1994 (with Steven S. Wildman), also see the references therein.

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