Connecting rural Iowans to broadband Internet service popular campaign idea, but at what cost

Responding to calls by politicians and rural telecom lobbyists to give rural customers in Iowa and the nation equal access to high-speed Internet service, the U.S. Department of Agriculture rolled out its Broadband Initiatives Program (BIP) in 2010 and funded it with more than $3 billion in federal stimulus money.

More than $118 million was awarded in grants and loans to create jobs and to extend broadband* service to rural Iowans.

One of those grants was a $12.2-million award to Windstream (formerly Iowa Telecom) to install nearly 500 miles of fiber optic cable that would upgrade company services to customers in Dallas County, west of Des Moines. In its grant application, Windstream said the project would enable the company to boost broadband speeds from 3 megabytes per second (MBps) to 15 MBps and benefit "approximately 9,293 people" and "roughly 14,291 businesses." The company said the improvements would "provide a foundation for economic growth and job creation for decades to come."

Company official last month said the project is nearly complete and to date 500 new broadband customers have been added.

That's an investment of more than $32,000 per customer based on the $12.2 million to be spent by the USDA program, plus $4.1 million in matching funds from Windstream.

As a job creator, the project employed seven people in the fourth quarter of 2011, then grew to a peak of 82 jobs in the fourth quarter of 2012. As of the most recent reporting period ending September 30, the project employment had dropped to 18 people.

While the Windstream project may eventually add many more rural broadband users and enhance broadband speeds for existing customers, the BIP program and a related USDA effort call BTOP (Broadband Technologies Opportunities Program) have faced criticism from both competitors – the National Cable & Telecommunications Association (NCTA) – and the federal watchdog agency, the U.S. Government Accounting Office (GAO).

An analysis by a firm hired by the NCTA contends the USDA's broadband programs were wasteful "because a large proportion of project funds are being used to provide duplicative service," and that "the cost per incremental (unserved) household passed is extremely high."

That study by Navigant Economics (funded by the NCTA) said "based on the expected cost to taxpayers of the program (i.e., the cost of the grants, plus the net cost of the subsidized loans), we estimate the cost per incremental home passed at $30,104 if existing coverage by mobile broadband providers is ignored. . ." The Navigant report said if mobile broadband providers (the cellphone companies) are considered, the incremental cost per home passed soars to more than $300,000.

"Funding duplicative service (as RUS has done under BIP) increases the cost of a nationwide buildout by $63.7 billion, to $87.2 billion," the cable company research claims.

The same report concludes the USDA's BIP effort "is not a cost-effective means of extending broadband coverage to unserved households."

Likewise, the Government Accounting Office issued a report in September 2012 with a harsh assessment of the effectiveness of the USDA's broadband effort saying "data limitations make it difficult to fully measure the effect of BTOP and BIP on expanding access to and adoption of broadband."

"The Rural Utilities Service (the USDA division responsible for administering BIP) initially did not collect comparable non-financial data for BIP projects, and the data it has are not reliable; therefore, it is not possible to fully assess the effect of BIP on expanding access to broadband," according to the GAO.

RUS officials, after getting the critical review from the GAO, disagreed "with GAO's characterization that it does not collect adequate data" and said it has taken steps to improve its data quality.

In its reply to the RUS denial, the GAO reiterated that RUS officials "told us that its subscriber data are inaccurate. Therefore, at an aggregate, program level, RUS does not have accurate non-financial data to measure the progress of BIP."

RURAL BROADBAND SERVICE ALREADY AN ISSUE IN IOWA GOVERNOR RACE

As the election season for governor begins, technology and the issue of high-speed Internet service to rural residents and businesses, appears to be front and center.

When Democrat Tyler Olson announced his intention to run for governor, expansion of broadband in rural areas was mentioned as a key part of his campaign platform. Only weeks later, Iowa Gov. Terry Branstad redeployed a dormant state panel and renamed it "Connect Every Iowan" to push for broadband service to the remaining under, or unserved, rural Iowans.

Branstad and Olson cite statistics that point to nearly a third of rural Iowans not being connected to broadband service.

But what the governor and Olson fail to mention is why those primarily rural residents aren't connected to high-speed Internet service. Part of the issue is availability, although even there, federal studies have found lack of availability to broadband service is cited by only 10 percent of rural residents. For businesses in Iowa, only about 3 percent say they don't have broadband service because it is not available.

A 2009 Federal Communications Commission study on broadband adoption in America found the primary reason cited by rural residents for not having broadband Internet service was cost (31 percent), followed by lack of digital literacy (23 percent), the service wasn't relevant to them (19 percent) and then lack of availability (10 percent).

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• Broadband is the general term used for evolving digital technologies that provide consumers with integrated access to voice, high‐speed data service, video‐demand services, and interactive delivery services (e.g. DSL, cable Internet). Broadband Internet access is always on and faster than the traditional dial-up access greater than the primary rate, which ranged from about 1.5 to 2 megbits per second (MBps).