Saturday, December 8, 2018

Without Subsidies, Tough or No Business Model for Internet Access in Rural Areas

It often is easy to forget the low density of most places in the United States, defined as places where there are fewer than 15 locations (business and residential) per road mile, according to Steve Parsons, Parsons Applied Economics president and James Stegeman, CostQuest Associates president.

Such places cover nearly 86 percent of the area of the lower 48 U.S. states and most of Alaska. Those 86 percent of areas contain 12 percent of U.S. locations.

The implications for building any sort of cabled communications network are stark. In such areas it can cost $17,400 per location to build a cabled communications network using standard telecom industry platforms.

If half the locations actually buy service, the network cost per customer is as much as $34,800.

Beyond the capital investment are the ongoing costs to operate the business. The bottom line is that, in rural areas, there is no sustainable business case without subsidies.

Capital investment per customer location, for conduit and poles, is approximately 5.6 times higher in rural areas as in suburban areas, the consultants say. For fiber optic cable, the capital investment is approximately 4.2 times higher in rural areas as in suburban areas.                                 

The other issue is that across the U.S. west, there are many areas that are not populated (shown in grey). Areas shown in green (metro areas) are where terrestrial cabled networks have the lowest costs. Areas in yellow are medium cost, while areas shown in orange have high costs. Areas in red have very high cost.


Such realities are why TV white spaces, unlicensed and shared spectrum, low earth orbit satellite constellations and 5G are viewed as possible solutions for rural internet access and other services.   


There are, of course, possible business implications for existing service providers (cable, telco, satellite, fixed wireless) in rural areas.

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