Internet Access Universal Service is Always an Issue for the Last 2% of Locations

Universal funding of “essential” telecom services always is difficult and expensive, since, by definition, there often is no private sector business model for rural areas. In large part, that is because there are too few potential customers, in relation to the cost of assets to serve those potential customers. In the continent-sized U.S. market, for example, the universal service problem largely is a matter of rural areas.  

Assuming a standard fixed network investment cost, that might not produce a positive business case over a 20-year period, the U.S. Federal Communications Commission has suggested.  And almost nobody makes investments with a 20-year payback in telecom, anymore. That is tantamount to “no investment return.”

In the United States, the cost of serving the last one percent of locations is astronomical, for example.

High infrastructure costs  are among the reasons wireless access is likely to play a bigger role in such universal service plans. Fixed networks cost too much in rural areas, in other words.

Consider many U.S. states where rural population density ranges between 50 and 60 locations per square mile, and ignore the vast western regions east of the Pacific coast range and west of the Mississippi River or 100th meridian,  where population density can easily range in the low single digits per square mile.

Assume 55 locations per square mile, and two fixed network suppliers in each area. That means a theoretical maximum of 27 customers per square mile, if buying is at 100 percent. Assume for the moment that buying rates really are at 100 percent. Two equally skilled competitors might expect to split the market, so each provider, theoretically, gets 27 accounts per square mile.

At average revenue of perhaps $75 a month (perhaps a generous assumption), that means total revenue of about $2025 a month, per square mile, or $24,300 per year, for all the customers in a square mile.

The network reaching all homes in that square mile might cost an average of $23,500 per home, or about $1.3 million.

At 50 percent adoption, that works out to network costs of roughly $47,000 per account in a square mile, against revenue of $900 per account, per year. Over 10 years, revenue per account amounts to $9,000. Over 20 years, revenue might be a bit more than $18,000.

The business case does not exist, without subsidies.

In the United Kingdom, Ofcom, the U.K. communications regulator, is planning a minimum 10 Mbps internet access floor for all locations in the United Kingdom. That probably is an issue for the last one to two percent or so of U.K. locations.

Ofcom estimates a per-location cost of £3,400, enabling coverage to around 99.8 percent of premises. Consumers outside this threshold will be able to get a satellite connection. That figure is a blend of higher-cost (and relatively speaking) lower-cost locations.
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