TVA Rural Studies

Telecommunications and Rural Development:
Threats and Opportunities

Edwin B. Parker
Parker Telecommunications
May 1996

9. Constructing Rural Information Highways

Private businesses or rural cooperatives will construct rural information highways. In many communities, the present telephone service provider will make the investment needed to provide advanced “information highway” infrastructure and services. In others, new competitors will enter the arena. In still others, local leaders may need to coordinate actions of local governments and businesses to ensure that at least one provider meets the local needs. Currently, potential builders of rural information highways are delaying the start of construction because of uncertainties about the economic returns they can obtain from such construction. Even through the new legislation is now in effect, FCC regulations to implement the new law have not been completed. Changes in state laws and regulations to comply with new Federal requirements are still pending. Changes in the subsidy mechanisms supporting rural telephone service are pending at the FCC and state regulatory commissions. Many of the needed services are new and the size of the total demand is unknown, making market demand projections risky. Uncertainty is the major enemy of investment. Market uncertainties will remain, but removal of legislative and regulatory uncertainties should spur investment, provided, of course, that the new regulations for a competitive telecommunications industry provide appropriate incentives for rural investment.

In metropolitan areas, vigorous competition, including the proliferation of dedicated private networks, is the engine for major service improvements. In rural areas, it is difficult to bring together enough demand to establish even one network of new telecommunications services. The best solution, as recommended in the 1991 OTA study, is to combine the requirements of multiple entities into a single network. Communities could combine the multiple needs of education, health, government, business and consumers and serve them through a single network. Innovative organizational arrangements and regulatory flexibility will help achieve such a rural network. Innovative rural cooperation is worth pursuing because it could help bring modern telecommunications services to rural America, thereby creating new economic development opportunities. The new Federal legislation supports such rural cooperation by removing prior legal impediments to innovative rural arrangements.

In pursuit of the largest markets, large telecommunications carriers tend to focus on the needs of large companies and urban markets. Small businesses and rural communities that are captive to a single carrier, individually do not have the clout to obtain better telecommunications infrastructure—so their needs may go unfilled. To remedy this problem, communities should bring together the demand of rural users, so that collectively they will get the attention of the carriers.

Some communities and small businesses may need outside help to bring together enough demand to get the attention of their telephone carrier. Development agencies can fill the void by working with rural communities and small businesses to help them identify needs and pool their requirements. They can then serve as advocates with the telecommunications carriers and the state regulatory commission.

In some states, rural telephone carriers themselves have aggregated demand from their rural customers. A group of small Iowa rural telephone carriers organized Iowa Network Services to share a centralized advanced digital switch linked by optical fiber to each rural telephone carrier. This approach gave rural communities equal access to competitive long distance carriers and the advanced features available through the shared central switch. A group of independent rural telephone carriers in Minnesota organized a similar shared network in their state.

In many states, the largest single user of rural telecommunications may be the state government. State and local government requirements, including distance education applications, may be the most promising nucleus for a shared rural network. The state government's telecommunications procurement process will be central to bringing together rural demand.

Most states could benefit from a state authority that focuses on telecommunications, information technology and information services—just as many large corporations have combined these functions under the leadership of a Chief Information Officer. Combining the strategic planning responsibility for these functions at a senior level in the executive branch of government can yield valuable benefits. States can deploy telecommunications and information technologies more effectively and efficiently, and make state government information and services more accessible to the state's citizens.

All citizens, rural and urban, could interact more effectively with state government if state agencies had voice mail systems, toll-free 800 numbers, electronic mail access, and audio information access services. (Audio information services provide recorded answers to frequently asked questions, with citizens selecting which to hear by pressing buttons on their touch-tone phones.) All state residents also could benefit from computer network access to non-confidential state government databases. Both voice and data systems would allow governments to provide information about services more efficiently and make them more widely accessible. State government video networks, including those designed for distance education applications, could allow citizens living in rural locations to gain teleconferencing access to government hearings.

Unfortunately, state governments have two compelling reasons to establish dedicated networks separate from the public switched network offered by the telephone companies. The first is price; a dedicated network, which may use lines leased from the telephone company, costs a lot less. The second is technical features; the capabilities needed for most government data and image networks are not universally available on the public switched telephone network.

In urban areas, the resulting bypass of the public switched network has not created serious problems for other users. There are competitive alternatives for specialized services and a large enough volume of general business to stimulate telephone carrier investment in the public network. In rural areas, however, a dedicated government network may hinder development. If the major state government applications bypass the public switched network, the remaining rural business may not be sufficient for carriers to make the investments needed to offer advanced telecommunications services.

There is an alternative, but it requires close cooperation among the state agency responsible for telecommunications procurement, telecommunications carriers, and the state regulatory commission. The challenge is to obtain the advanced features needed by state government through the public switched network at a reasonable cost—and in so doing, make similar features available to other users. For such a plan to make economic sense to government agencies trying to be frugal with taxpayer funds, telecommunications carriers would have to offer special high-volume government discount rates to match the costs of a dedicated network. Carriers also would have to add to the public switched network the kinds of features needed for government applications. Before volume discount prices could go into effect, the state regulatory commission may have to approve the special prices and, perhaps, the necessary network investments. The contracts between state government and the carriers should provide a virtual network or networks for state applications, conditioned on carriers making those services publicly available for all customers, not just the state government. In this way, small business and residential users in rural America could have access to advanced network services as well as improved access to state government.

Rural communities should not wait for Federal or state actions to aid the construction of the “information superhighway” to and within their communities. Local community leaders should work directly with their local telecommunications providers to ensure that the telecommunications needs of all segments of the local community—government, schools, businesses and consumers—are met. For rural communities served by a telephone cooperative or locally managed independent telephone company, the process may be easy. The local provider may already be in a position of community leadership and understand the importance of modernizing local rural facilities. They will have access to low cost capital and continuing operational subsidies to finance such investment. For rural communities served by one of the Bell operating companies or GTE, it may be harder to find a sympathetic ear in some distant urban headquarters, especially if lack of access to the subsidy mechanisms open to smaller independents and cooperatives make the necessary investments harder to justify. In such cases local leaders should pressure the telephone company, both directly and through intervention at the state public utility commission, to either make the necessary investments or sell the rural community portion of their business to a local cooperative or independent that will make the investments. Over the past several years, many rural telephone exchanges were sold by regional bell telephone companies or GTE to smaller independents. In most cases the result was improved facilities and services and an improved local economy. In some cases, community leaders may need to coordinate their activities with a potential buyer for the telephone exchanges in order to have a credible alternative.

In some cases, organizing and combining the demands and needs of public and private sector users in the rural community may be sufficient to demonstrate that there is indeed sufficient business to justify the necessary investment. One individual business or consumer may not have sufficient clout to persuade the local provider to invest in modernized facilities. A combination of local government, school district and multiple business and residential demands may be persuasive, just as a single large order from a very large business can be persuasive to the telecommunications provider.

In other cases it may be necessary to develop a credible alternative in order to get leverage on the local provider. If the telephone company is not responsive, start talks with the local cable operator, a local wireless communications provider or the local electric utility. Of course, the potential competitive threat will have to be credible, or the current provider may not feel a need to respond. If the current local provider is not responsive, then development of an alternative, whether through a cable television operator, a wireless communications provider or an electric utility may be the only recourse. The good news is that there are alternatives and. Determined local leadership concerned with the well-being of their rural economy no longer have to take no for an answer. A recent special report of ICMA (International City/County Management Association) provides guidance for municipal governments attempting to improve local telecommunications and provides examples of what other communities have done.

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