TVA Rural Studies

Telecommunications and Rural Development:
Threats and Opportunities

Edwin B. Parker
Parker Telecommunications
May 1996

6. Rural Telecommunications Needs

Most rural communities already have significant telecommunications assets to exploit for rural development. Telephones generally work well for voice communications. Line quality is usually satisfactory for facsimile transmission an essential for business communication. Computer data modems work over the telephone lines, at least for relatively low speed data transmission, even if the new 28,800 bit per second modems now shipping with personal computers do not run at full speed on some rural lines. A number of the advanced telephone services available to urban residents, including call waiting, call forwarding, three-way calling, caller identification and voice mail, are also available to many rural residents.

Many rural communities could use cable television networks for distance learning. Rural communities without cable television have near-equivalent video services available through antennas that receive signals from communication satellites located in outer space. Many of the services available via telephone in urban areas are also available in rural areas, through a long distance toll call that adds a substantial rural cost penalty. Cellular telephone services may provide additional communication links for rural people, who, because of rural distances, often have more drive time than urban folks. The wider local calling areas of cellular providers sometimes provide some relief from the high cost of short haul long distance charges from the wireline telephone carriers.

One important step in a development plan for any rural community is to prepare an inventory of the telecommunications infrastructure and services already available. Rural communities can often better utilize for rural development what is already available.

For some rural communities the first and most urgent telecommunications need is to bring their basic local telephone service up to current minimum acceptable standards, with single-party, touch-tone service provided with digital switching, and line quality sufficient for voice, facsimile and data transmission at the 28,800 bits per second speed supported by the modems in current personal computers. For a tiny number of small settlements and remote agricultural or resource extraction businesses, mostly located in western states, getting any kind of telephone service is the first priority.

Rural communities and rural residents pay in several ways the rural penalty that results from the greater distances and lower population densities that are the defining characteristic of rural. One of prices they pay that is harmful to rural economic development is long distance telephone toll charges. For the past 50 years telephone regulators have kept long distance telephone rates artificially high (substantially above costs) in order to provide subsidies for local service. FCC studies have shown that rural residents pay a higher proportion of their income for telephone service than do urban residents. Most of that difference results from the higher long distance charges rural residents pay because needed services that would be a local call in an urban area require long distance calls in rural areas.

This artificial distortion of prices harms rural businesses because they pay above cost rates for necessary services that urban businesses have included with their basic rates. It harms rural businesses because customers are reluctant to pay the high telephone toll charges to reach them. It is a perverse subsidy that harms rural residents by having their greater use of long distances services at artificially high rates subsidize lower basic phone rates for urban residents. This is a case where public policy has created a situation in which the poor (rural people) subsidize the rich (urban people). Rural people, businesses and communities need the lower long distance rates that they could have if long distance services prices were closer to the costs of providing such services instead of kept artificially high to provide subsidies for people who may not need them. A rebalancing of the telephone rate structure to bring prices more in line with costs, combined with explicit subsidies for low income people, both rural and urban, would cost much less than the present system of keeping local rates artificially low for people who can easily afford the cost. The economic benefit to rural communities would be considerable.

Rural people need local access to the Internet and other on-line services. Urban residents can reach the Internet, or CompuServe or America Online with a local call. They use it for electronic mail, information access, electronic shopping, computer games and a wide variety of business and entertainment purposes. Many rural people also use these services, but pay long distance toll calls to reach them. The most urgent rural data networking need at the moment is local access to the Internet. In some rural communities, independent local telephone carriers are providing local Internet access through modems located in their local telephone central offices. The long distance data communications link back to the Internet is shared by many users instead of being paid for separately by each. Other communities are working to recruit Internet providers to provide services in their communities or are developing their own home-grown Internet access businesses. In still other communities local schools or public libraries may be the place to turn when a commercial Internet provider is not available locally. The Salem, Oregon, public library, admittedly an urban library, could be a model for rural libraries to follow. They have begun offering Internet access to everyone with a Salem public library card who wishes it. Service is available free on public terminals in the library. For a fee of $60 per year they provide software, training and dial-in Internet access for library patrons wishing to access the net from their own computers at home.

Merely providing local Internet access for consumers to be entertained by surfing the net will not be sufficient for rural economic development. Providing ways for rural consumers to have better electronic access to vendors outside their local community many improve their quality of life, but will not necessarily improve the local economy. The real economic advantage for rural businesses will be for them to be able to provide information about their goods and services to the rest of the world through the Internet. For this they need a knowledgeable local Internet provider that can provide the database server and the technical support needed to help novice users put their information onto the net. Rural examples include NewportNet in Oregon, PalouseNet in Washington and CivicNet (a project that makes a small town in Ohio an Internet neighbor to a small town in Hawaii). In many rural communities it may not be easy to recruit experienced professionals from outside the community to provide such services. That may be a blessing, because there are more local economic development advantages when a local learns the necessary skills. In some cases it may not be necessary to look further than the local school. For an example of a world wide web page prepared by middle school students in a rural community, see the work of Lincoln City, Oregon’s Taft Middle School on the world wide web.

Not everyone in rural communities needs high speed, broadband data communications services. Many schools, medical facilities, government offices and businesses do need these advanced services to interconnect their local area networks into wide area networks and for a variety of other specialized applications. Urban areas have access to higher data rate digital services, such as switched 56 kilobit data circuits, frame relay (fast packet switching), higher data rate leased line services and ISDN services. In many rural areas, such services are not available at any price. Rural areas need to have such services available on demand to their local institutions and businesses. It is not yet time to include high data rate services for every household as a universal service goal because the costs would currently be prohibitive. (Technology promised for the near future, such as cable modems, may change that.) What is economically feasible now is to have broadband services accessible from every telephone exchange and optionally available for any businesses or residences that can afford them.

Telephone companies sometimes use the excuse that the local telephone switch cannot handle the higher data rate digital services. For example, many rural telephone companies use the Nortel Model DMS-10 digital telephone switch, but Nortel has not yet released the software needed for that switch to provide ISDN service. However, the local switch may not be a real barrier. For some rural communities the real bottleneck may be the lack of sufficient broadband network capacity linking their community to the rest of the national and international telephone network. When there is sufficient capacity on the trunk lines linking rural telephone exchanges with urban locations, carriers can provide services from a larger, more distant telephone switch. Rural areas need not wait until carriers upgrade every rural telephone switch. Carriers could price services as if they were provided locally, while they postpone the cost of upgrading the local switch until the level of demand rises to point where it is cheaper to provide the services locally. Expanding the network capacity that interconnects telephone switches (exchanges) to permit higher data rate long distance services, including meeting the rising tide of demand for Internet access, is a particularly important rural economic development need.

In urban locations, telephone companies routinely offer a wide variety of optional services, including voicemail and caller identification. Voicemail is important to small businesses because, unlike answering machines, voicemail can record messages from incoming callers when the phone line is busy. Caller identification is an important business productivity tool for many computerized businesses. The caller ID feature permits the business to have the computer records of the calling customer or vendor retrieved from the computer database and available on the computer screen of the person answering the phone almost as fast as they can pick up the phone. This improves quality of service and saves costs. Rural businesses could take advantage of these and other advanced optional services if they were available locally. Many telephone companies are reluctant to make the investment needed to provide advanced optional services on their rural telephone switches. Like broadband data services, however, carriers could provide most such optional services from a distant telephone switch, provided only that there is sufficient interexchange trunk capacity. Rural communities wanting advanced services might have more success if they can persuade their telephone carrier, or the state regulatory authority, to establish pricing based on what services would cost if installed locally, independently of what switch provides them.

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