TVA Rural Studies

Telecommunications and Rural Development:
Threats and Opportunities

Edwin B. Parker
Parker Telecommunications
May 1996

7. Federal and State Telecommunications Policy Issues

Federal and State telecommunications policy makers have been struggling with rural telecommunications policy issues for years. Universal service has been a policy goal since the Communications Act of 1934 established the Federal Communications Commission, "to make available, so far as possible, to all the people of the United States a rapid, efficient, Nation-wide, and world-wide wire and radio communications service with adequate facilities at reasonable charge ..." This 1934 language has remained, even through Congress has amended the act many times over the years.

The current version of that universal service policy issue is how to protect and expand rural services at a time when the telecommunications industry is in transition from monopoly to competition. The traditional methods of subsidizing rural service are at risk in the transition, and the likelihood of competitive providers offering service in small rural communities is slim. Rural residents may be doubly harmed. First, current monopoly providers may ignore rural markets while they focus their competitive attention and their investments on the urban locations where they face competition. Secondly, new providers may fail to enter rural markets.

The Organization for the Protection and Advancement of Small Telephone Companies (OPASTCO), along with its partners in the Rural Telecommunications Coalition, the National Telephone Cooperative Association (NTCA) and the National Rural Telecom Association (NRTA), has been an effective lobbyist for the interests of rural telephone carriers and their subscribers in the legislative and regulatory policy debates. To provide a factual background for the debates, OPASTCO in 1994 issued a detailed report on the current methods of providing subsidies for rural telephony, quantifying state by state how much the removal of each of the current subsidies would increase rural telephone rates.

The Telecommunications Act of 1996 has language providing some rural safeguards and encouraging universal service in rural locations. The bill mandates competition in both urban and rural areas and preempts any state laws or regulations that protect monopoly services. The Federal Communications Commission is currently working with state regulatory authorities in a “Joint Board” proceeding to revise their universal service regulations to comply with the new law.

The Office of Technology Assessment (OTA) of the US Congress anticipated many of the current policy issues in 1991 in a major report, Rural America at the Crossroads: Networking for the Future. That report reviewed the potential for telecommunications technology and telecommunications policy to aid the development of communities throughout rural America. The report identified telecommunications as a major opportunity for rural economic development, and identified the relatively small size of rural markets as the main barrier to getting the necessary telecommunications infrastructure in place. The requirements in rural locations were the same as those in urban locations network capability suitable for a variety of voice and data (and, in some cases, video) applications.

The OTA report recommended development of Rural Area Networks (RANs) that combined public sector and private sector networking in rural areas to ensure that at least one advanced network was available in rural locations. In urban locations a variety of private networks for large businesses and governments emerged, and a variety of competitive providers offered networking services to large and small businesses and to the general public. The problem in many rural communities was that if government or large businesses in the community established a private network, then there was insufficient remaining demand for a commercial provider to offer advanced network services to small businesses and residential users. Rural areas could avoid this blockage of their basic public access infrastructure needs if they pool together their public sector, large business, small business and public access requirements in a shared Rural Area Network that permitted access by all.

Many rural areas have data network connections for local access to government applications, including, in some states, state lottery networks. At the same time, many schools, small businesses and consumers do not have access to the Internet or on-line information providers without paying prohibitively expensive long distance toll calls. Oregon is one state that is working to solve this problem by encouraging the combination of public and private services on shared networks. The state government is replacing the dedicated leased-line networks connecting lottery terminals and government offices throughout the state with the procurement of data networking services from providers to encourage them to offer comparable services to others in rural communities using the same facilities. (The state procurement is for so-called frame relay or fast packet data networking services.) The Rural Area Network recommendation of the OTA study is still excellent advice for other states and rural regions that, unlike Oregon, have not yet followed the OTA advice.

A recent book sponsored by the Aspen Institute summarizes state and local policy issues related to telecommunications and rural development. Much of the following discussion parallels or expands upon the discussion in that book.

For those concerned with rural development in the United States there are three key telecommunications issues. The first is how to protect rural users during the transition from monopoly to competition. The second is how stimulate investment in the rural information highways needed for economic development. The third is how to make the needed applications, services and training available, affordable and usable in rural communities.

Rural economies are different from urban economies. The lower population density and greater distances that are the defining characteristics of rural lead to higher costs and fewer economies of scale in most businesses. Of course, some costs may be lower, particularly for land and building rental and some labor costs. The lack of congestion and rural quality of life are often positive attractions for businesses to relocate to rural areas, provided other costs are competitive with urban rivals. Telecommunications offers the promise and potential to help rural businesses overcome problems of distance and lack of economies of scale. Through advanced telecommunications technology and services, many rural businesses, especially information-intensive businesses, can bridge wide distances to serve an enlarged customer base, including urban customers.

This is why many catalog sales and other telemarketing businesses have grown in rural areas in the past decade and why many software developers and lone eagle entrepreneurs have moved to rural communities. (Lone eagle is the term given to independent consultants or entrepreneurs with small businesses that can readily move to desirable rural locations.) As the US economy continues the global trend to businesses more dependent on computers and telecommunications, these rural opportunities will increase.

An information superhighway, unlike the interstate highway system, could benefit all communities, not just those in corridors of highest population density. The challenge will be to get past all the information superhighway hype and on to implementation of policies and practices that together provide the incentives for the necessary investments and service development.

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