TVA Rural Studies

Telecommunications Technology and American Rural Development in the 21st Century

Edward J. Malecki
Department of Geography
University of Florida
Gainesville, FL 32611-7315
July 1996

8. Telecommunications and Rural Regions

The research reviewed thus far suggests that there are both positive and negative effects of telecommunications technology for rural areas. However, it still is an issue that often fails to be raised in rural development circles (Sears and Reid 1995). The positive view is that greater access is provided by mobile technologies to rural areas, thereby reducing the relative concentration of communication capability in large cities. The negative view focuses on the "rural penalty" of continuing concentration of the newest and most advanced technology in large cities, combined with the presence of large corporations whose demand for telecommunications technology ensures that they will not be deprived in the near future. This section briefly examines these two positions.

The "rural penalty" stems from three factors: (1) lower population densities, (2) the distance of rural communities from urban centers, and (3) economic specialization in sectors other than information- or knowledge-intensive ones (Parker et al. 1989: 24-27). Many dismiss the distance factor, citing the fact that telecommunications has effectively eliminated distance and remoteness (Cairncross 1995; O'Brien 1992; Parker et al. 1989: 34-35). Indeed, the least dense and most remote areas may benefit most from telecommunications (Parker et al. 1989: 35). But Internet access does not favor the remote user: urban users can obtain network services and Internet access with a local phone call, whereas rural users typically must pay a long-distance charge for the same access (James 1996; E. Parker 1995).

The third penalty factor is more difficult to dismiss. In general, rural areas have disproportionately low shares of producer services compared to their population (Glasmeier and Howland 1995; Grimes and Lyons 1994). A significant exception to this is emerging in many countries: high-amenity locations, where a significant number of producer service firms have been founded by amenity-seeking entrepreneurs. However, even this exception illustrates the critical nature of face-to-face contact along with the growing use of telecommunications. Face-to-face is the most frequent mode of service delivery, followed by telephone and mail/courier, and fax; computer file transfer was cited by only 14% of the firms studied (Beyers 1994).

It is clear that all rural areas are not alike. The three key characteristics of rural areas that put them at a disadvantage in economic development are: small scale and low density, economic specialization in low-wage, low-skill jobs, and remoteness (Deavers 1991, 1992). Nonmetropolitan counties tend to be dependent on one of five economic activities: farming, mining, manufacturing, government, services; a minority are nonspecialized (Cook and Mizer 1994; ERS 1995). Remoteness affects the competitiveness of rural firms, which are distant from information and technical resources (Rosenfeld 1992). In addition to remoteness, topology and terrain constrain telecommunications deployment, adding significantly to costs (Egan 1996).

There are reasons for continued caution about the prospects of small communities. In general, entrepreneurs who are technologically sophisticated are relatively rare in most rural areas. Rural areas also differ significantly in the degree to which small businesses are integrated into global communication networks (Gillespie, Coombes, and Raybould 1994; Sawhney 1993). How small firms do business determines the type of communications interfaces they use in their day-to-day operations. Sawhney (1993) suggests that there are three types of small businesses: (1) those with a dispersed clientele; (2) those interfacing with large firms; and (3) those with local markets. Each of these has distinct telecommunications needs. Indeed, to those firms which had international as opposed to national, regional, or local markets, telecommunications facilities were considered most important (Hessels 1992: 207).

Rural businesses also frequently are less skilled in management and technological issues concerning telecommunications (Parker et al. 1989: 138-139). Small firms, the economic foundation of rural non-farm economies, are not able to command the infrastructure improvements that have been provided to large firms. Even where farmers are significant users of telecommunications, they represent little aggregate demand, which often is not matched in small-town communities, especially as the best-educated migrate to cities (Allen and Dillman 1994; Deavers 1991). Upgrading skills in rural areas, particularly in innovative ways to use telecommunications, is a key recommendation of experts (Freshwater 1996: 12). However, the issue of skills and technical expertise is growing as technological advances mushroom the array of choices available. Perhaps most important is the observation made by the OTA (1991: 13):

In an information-based economy, communication needs are relative. In evaluating a rural community's technological requirements, one must not only consider a community's own economic activities, but also and increasingly the activities of its competitors, whether they be businesses in urban areas or in other countries.

This is difficult to do, especially for businesses, such as rural manufacturers, that already lack information about competitors, suppliers, and technology (Rosenfeld 1992). In addition to "high supply costs relative to slow payback time, compared to richer and more populated" areas, rural and peripheral areas tend "lack awareness and understanding of advanced telematics services, products, and applications, and experience a slower introduction of them" (Millard 1995: 4).

The cost of achieving broadband capability in rural areas a necessity for multimedia applications such as the Internet is "a very costly proposition" (Egan 1996: 5), yet it is essential for many business opportunities related to the Internet. Coaxial cable is available in some areas, but satellite and microwave radio technology have limited bandwidth and delay times.

Deploying broadband facilities in rural areas would more than double the cost per line (from $54 per month to $129-142 per month, depending on a 10-year or 20-year deployment schedule, including loop and non-loop costs). The shortfall of revenues to costs for current voice service are already $19 per month. There is potential for generating additional revenues from broadband services, but there is little research basis for estimates beyond cable TV (Weinhaus et al. 1994: 12).

This demand-based contrast between urban and rural areas has enormous implications for public policy. Many rural schools would be unable to access the Internet and other computer and video-based services. Even a second-best case, that of upgrades to digital service to permit Internet access, would still be slower and therefore provide less opportunity compared to schools with fiber-optic connections.

Rural incomes are generally well below urban incomes. In addition to the increased cost for telecommunications service, a customer would also have to have computer and other capabilities to make use of them. As Weinhaus et al. (1994: 15) note, there are conflicting signals in national policy. For example, "the REA's legislative mandate appears to be premised on the belief that competition (and new technologies) won't come to rural areas." Subsidies for rural service conflict with the competitive environment created by the National Communications Competition and Information Infrastructure Act of 1994.

In states and areas with flat terrain, telecommunications upgrades to fiber-optic quality has been relatively easy and inexpensive. Iowa, Nebraska and other states in the Great Plains have been widely-cited as pioneers in rural broadband service. In the Southeast and the TVA service area, mountainous terrain makes the cost of installing fiber-optic service much higher.

Telecottages, proposed as a solution for rural regions, provide useful services of training and of building awareness and confidence of telematics potential (Qvortrup 1989). Telecottages, regional center telecommuting, or "neighborhood offices" equipped with appropriate technology and technical support, are a collective solution for a dispersed population, but they also require travel and support (European Commission 1995). However, to comprise an effective infrastructure for rural firms, they "face considerable difficulties in winning and retaining telework from remote clients" largely because links to clients must be formed and maintained, the work must meet standards set elsewhere, and any place must keep pace with competition and technological change (Gillespie, Richardson, and Cornford 1995: viii). Teleworking in remote areas can take several forms, ranging from remote back-office tasks, in which the only electronic link is to the firm's mainframe computer, to fully interactive connections to any and all Internet sites. Qvortrup (1992) listed 111 ongoing telework schemes within the OECD countries, 34 of them in the USA and nearly all of them home-based for urban and suburban workers of large organizations. Urban teleworking arrangements are very diverse, and is giving way to portable work that can take place in several locations throughout the day, week, and year (Storgaard 1993). Rural telework arrangements are less common and, where tried, are less successful (European Commission 1995). However, the notion of portable work seems most applicable to "lone eagles" such as consultants and other knowledge workers taking up (at least part-time) residence in rural areas (Atchison 1993). Only these firms tended to be major users of the Internet in rural areas (Allen et al. 1996).

The contribution that telecommunications can make to rural economic development varies considerably from one area to another, depending on the presence or absence of other features of the rural economy. Regions dominated by branch plants tend to rely on intra-firm communication, whereas those with home-grown firms communicate with customers, most of which are outside the region. Thus, the latter regions have developed greater local control over their telecommunications when compared with the branch-plant regions, where links are with parent firms and with a few suppliers (Gillespie, Coombes, and Raybould 1994; Bernal, Stuller, and Sung 1991).

Although we see greater mobility and the potential for teleworking from remote locations, this demand for rural lifestyles "is rural in location and amenities, but urban in its communication patterns. Significant development of infrastructure is necessary to support high-tech or information-intensive activities and the variety of services their employees may demand. . . Remote locations, even if the most advanced telecommunications systems are available, will always be disadvantaged relative to central locations, at the very least, with regard to those activities which do require physical travel" (Salomon 1988: 325).

The conclusion, then, is that some rural areas in industrial countries are able to serve as locations for consultants and other high-mobility professionals. These "lone eagles" demand locations high in amenities and with relatively good access to air connections (Atchison 1993). Other locations, where low-wage labor is coupled with a high level of literacy and numeracy, will attract back-office operations. Generally, however, services are not expected to decentralize in as widespread a manner as manufacturing did. Satellite technology allows many firms to be even more footloose and to seek out lower-wage sites with appropriate skill levels, wherever in the world they may be located. Rural areas are advised not to rely on a service-sector base for their economies (Glasmeier and Howland 1994: 219; Howland 1993).

In rural as well as urban areas, telematics users tend to have higher incomes and higher levels of education than nonusers (Leistritz et al. 1996). Even in places which have attracted knowledge workers, it is not clear that mobile technologies (portable computers with fax modems and Internet capability, linked by satellite to global networks) will be affordable by many people other than those who are part of, or linked closely with, large organizations. The non-nodality of mobile technologies reduces the significance of physical infrastructure (Eskelinen 1993). However, to paraphrase the biblical advice, "man cannot live by telematics alone." It was emphasized earlier that tele- communications has increased rather than decreased travel. This suggests that, although a larger number of activities can be profitably conducted in remote locations, the remoteness of many rural areas will continue to be a problem.

This may be overly pessimistic. Labor-cost concerns must be balanced against other skills and traits, such as "sales ability" for telemarketing, knowledge of medical terminology for processing medical claims (Leistritz 1992). Howland (1993) calls such a market niche "contextual" work, and cites library bibliographies as a data processing task that was difficult for a firm's contract workers in the Philippines to perform accurately. A second rural niche Howland identifies is that for quick- turnaround tasks and some sensitive government work. Offshore data entry takes at least 48 hours from the Caribbean, and at least five days from Asia, whereas rural sites are able to return data in 12-24 hours (Howland 1993: 189-190). Despite these niches, Howland is not optimistic about the prospects for the rural telecommunications-based service sector. Several technological changes suggest that rural areas in the USA have perhaps ten years of competitiveness in their current market niches. These include a trend toward specialized, custom services (which rely on face-to-face contact), improvements in optical scanners (which eliminate many data entry jobs), and point-of-transaction data entry. Data entry jobs will be locate either in the major urban centers where knowledge-based businesses are based, or in offshore locations with high-skill, low-cost labor (Howland 1993).

Despite some separate fiber-optic networks, "there has been no concerted strategy for bringing fiber-optics to rural America" (Reich 1988: 6). The reasons for delayed investment in rural areas include the cost of greater "loop length" in rural areas, the need for fiber-optic facilities as opposed to ISDN on existing copper wires and the existence of several subnetworks (those of small telephone companies, public networks, as well as private networks) that remain not fully interconnected (Egan 1992).

In order to overcome the shortcomings of rural areas, demand aggregation strategies have allowed 125 small-town telephone companies in Iowa to combine into a single point of presence for long-distance facilities. Other strategies include small firms "piggybacking" onto larger firms' nodes (Sawhney 1992: 169). Such Rural Area Networks (RANs) are among several schemes for sharing or pooling demand in rural regions (Office of Technology Assessment 1991). Weinhaus et al. (1993) estimate the cost of telecommunications service to rural customers if the full cost of service must be paid i.e. if subsidies and cross-subsidies were ended. Based on 1991 data, rural customers paid slightly less than urban customers ($601 vs. $622), in part because lower rural population densities mean that a rural customer has access to fewer other people, and therefore to less "value" from telephone service. Under competitive conditions, ending the averaging of prices across many markets, would increase rural customer bills by 36% (REA customers) to 39% (all rural customers nationwide). This amounts to an estimated $300-316 per year, or $25-29 per month. Weinhaus et al. (1993: 18) estimate that this increase would result in 7.3% of rural households no longer being able or willing to pay the additional cost. A revised analysis based on 1992 data (Weinhaus et al. 1994) provides similar but slightly different numbers: a 35% increase in rural customer bills and an increase in average monthly bills of $19 per month.

However, rural rates already vary tremendously. Weinhaus et al. (1993) draw on NARUC (National Association of Regulatory Utility Commissioners) data, which show that telephone rates range in the Southeast from $8.50 for a residential line and $30.50 for a business line in rural Tennessee to $36.15 (residential line) and $60.00 (business line) in West Virginia. (The national range is from $6.75 and $14.70 in New Jersey to the West Virginia rates.) If rural rates were to be subsidized directly to replace urban-rural rate averaging, the total cost of providing nationwide rural service is $30.9 billion (in 1991 dollars).

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