Rural Broadband Economics: A Review of Rural Subsidies

In a paper commissioned by NTCA – The Rural Broadband Association and USTelecom, the authors examine communications networks, road networks, and electric power networks as three key network infrastructure industries; and the resulting vulnerability in low-density rural areas with the highest need for targeted subsidies. By the very nature of network economics, each industry exhibits economies of density and each reaches a point at which un-subsidized provision of service in low-density areas is not viable. The causes of higher costs in low-density areas are discussed in this paper using communications examples. In addition, the scope of low-density areas in the United States is considered. The importance of subsidies to networks in low-density areas is described for each of the major US network industries. The importance of subsidies depends in large part on whether there are substitute methods of providing similar services (e.g., wells for water, propane tanks instead of natural gas networks, septic systems instead of sewer networks).