Rural Internet Access Will Always be Tough

Reality generally is more complicated than many would prefer, and supplying internet access to highly-isolated locations provides a clear example, even if some casually misunderstand the enormity of the problem. 

The big problem is that, at least for traditional fixed networks (fixed wireless is the exception), there literally is no business case for a communications network. Without subsidies, such networks cannot be sustained.

Assuming a standard fixed network investment cost, no positive business case can be produced over a 20-year period, the Federal Communications Commission has suggested. 

source: FCC 

That is why satellite access traditionally has been the only feasible option for highly-isolated locations, with subsidized access the only way most networks can survive in rural areas. 

There is a direct relationship between housing density and network cost. Most of the coverage problem lies in the last two percent of housing locations. 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, where population density can easily range in the low single digits per square mile.

source: FCC

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. 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, 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 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.

The business case does not exist, without subsidies. 

It remains unclear whether new low earth orbit satellite constellations can attack the cost problem aggressively. What does not seem unrealistic is that revenue expectations remain in the $100 per month range, for internet access.