TVA Rural Studies

Telecommunications and Rural Development:
Threats and Opportunities

Edwin B. Parker
Parker Telecommunications
May 1996

5. Telecommunications for Rural Development

Many researchers have studied the effects of telecommunications investment. They have consistently found that investment in telecommunications infrastructure and the resulting improvement in telecommunications services have consistently led to economic growth. Improved telecommunications has helped both urban and rural communities. Recent books have reported or summarized many of the studies on the subject of telecommunications and rural development.

Cronin and others, in a landmark study published in 1991, conducted a detailed economic analysis of the US economy from 1958 to 1988. They found a “cyclical, positive feedback process” in which telecommunications investment in any year led to growth in the US economy in later years, which in turn led to more demand for and investment in telecommunications infrastructure. A related study found that the mechanism by which this telecommunications-induced economic growth took place was productivity gains in other sectors of the economy that were able to operate more efficiently with improved telecommunications. The research team extended the analyses they had done on US national economic statistics by replicating the study in a single state, Pennsylvania, and in rural counties within Pennsylvania. They found that the significant causal relationship between telecommunications investment and economic growth evident in national statistics was also seen in rural counties.

These statistically rigorous new studies are consistent with all of the prior studies on the subject of telecommunications and rural development. Earlier studies had found that both business and residential services contribute to economic growth and that the most rural and remote locations benefited even more than more densely populated areas. Studies have consistently found that economic benefits of telecommunications investment stem from the increased productivity of businesses using telecommunications and the improved education, health and social services the telecommunications made possible. In all cases, telecommunications is a catalyst for or a complement of other development activities. Laying fiber optics across a desert will not make it green, but may well improve the economy of any oasis it reaches.

A disturbing finding in the various studies is that there was consistently less investment than would have been ideal for economic development. This is understandable, because other parts of the economy, not the telecommunications companies making the investment, gained most of the economic benefits of the investment. This result is consistent with standard economic theory which shows that the optimal investment for a profit seeking monopoly is substantially less than the optimal investment for the society as a whole. One of the justifications for the shift in telecommunications policy to encourage competition is to stimulate more investment in telecommunications infrastructure and services.

Several different types of telecommunications applications can help improve the economy and quality of life in rural communities. Networks that electronically link the parts of an organization together, including computer local area networks (LANs) and wide area networks (WANs), improve productivity in the businesses and other organizations so connected. External electronic networks connecting businesses to their suppliers and customers permit cost reductions and service quality improvements. The computer and telecommunications networks of the Wal-Mart chain provided a significant part of the cost advantages permitting them to offer lower prices than independent rural retailers. Independent retailers without electronic connections with their distributors are competitively disadvantaged. For rural manufacturers to be competitive in this age of “just in time” inventory systems, they must have network connections for electronic data interchange (EDI) with their customers. Flexible manufacturing networks in rural areas permit a number of smaller businesses to team together so they can collectively respond to larger orders and bigger projects than any of them could handle alone. Many telephone- and mail-order businesses have located in rural communities because of the quality of life and cost advantages, provided that the most advanced telecommunications network services were available to meet their needs. A variety of telemarketing businesses prefer rural locations when the telecommunications network infrastructure permits. Many business consultants, software developers and other people with information-intensive small businesses would prefer to live and work in rural communities if the data networking capabilities permitted.

Distance learning networks may be an ideal way for rural schools to pool their resources and to draw on outside talents not available locally, in order to provide their students with the best education available anywhere. It is hard to offer advanced placement courses or a wide variety of math, science and foreign language courses in small rural schools. With appropriate distance learning networks, these options are all possible. Distance learning networks may also permit lifelong continuing education for rural residents who cannot afford the relocation or the long drive time required to attend courses in distant locations.

Telemedicine networks can improve the quality of rural health care by permitting medical specialists in distant urban medical centers to consult with rural patients and primary health care providers. Improved remote diagnostic and monitoring capabilities may improve home health care services for rural residents. Improved computer networking may help local governments improve the quality and reduce the costs of their services while making government information more accessible to their citizens. Library networks allow rural libraries to share resources more effectively.

The explosive growth of the Internet and its World Wide Web has made a wealth of information from around the globe available to businesses and consumers everywhere. Rural residents who can access the Internet with a local phone call are privileged. Most pay long distance toll calls to get access, or do not have access at all. The “Net” is an important business opportunity for rural businesses seeking to expand their markets, but that avenue of growth is blocked for them if no local Internet provider can offer a network server on which local businesses could put up their “home pages” or give consulting help to show them how to do it. Currently, the best guide for rural access to the Internet is The Farmer’s Guide to the Internet.

Personal computers have already become exciting multi-media devices for a wide variety of business and consumer applications. Current generation personal computers, when equipped with add-on hardware and software currently priced between one and two thousand dollars, can serve as desktop videoconferencing terminals. The videoconferencing hardware and software permit voice and video communication between distant humans as well as collaborative uses of computer applications on their computers. This capability, like other telecommunications advances, is likely to be even more valuable in rural communities than in urban communities because of greater savings in travel costs. Unfortunately, the telecommunications networks necessary for this application, while becoming common in urban areas, are still rare in rural communities. (Most desktop videoconferencing applications require an Integrated Services Digital Network (ISDN) connection from the telephone company.)

These and other specific telecommunications-intensive applications will be the way rural communities use improved telecommunications to improve their economies and their quality of life. The relationship between telecommunications investment and rural development is not some distant, abstract concept. It is the practical business of installing in rural communities the networking capabilities that will make a difference to the lives and work of rural residents.

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