As Minnesota legislators once again debate the needs and opportunities of broadband, communities large and small across Greater Minnesota wait. It’s not a luxury anymore, one of many options to bring us news and the daily weather. Rural communities understand all too well that today adequate, affordable broadband is crucial when it comes to attracting both businesses and residents.
Many factors go into making broadband work both technically and economically for those who provide it and those who buy it. These factors include population density, provider choice, local choice and control, federal funding, even terrain.
From helping businesses be more profitable to helping residents work from home, from expanded educational opportunities in rural schools to helping solve workforce shortages, broadband will only become more important as people find more uses for it.
The discussion over broadband has grown so complex and is so fast-changing, though, it can be difficult to keep track of the issues. To help with that, we’ll discuss the basics of bringing broadband to Greater Minnesota and some of the points of debate.
What is broadband?
The term “broadband” is something of a moving target, but generally it is shorthand for high-speed Internet service, and speed in this case should really be thought of more like capacity, or how many bits of data can travel through a connection per second. (For more on broadband terms, see Broadband 101: A glossary of terms.) As uses for the Internet get more complex, more data needs to move, but if the capacity stays the same, the data itself jams up and slows down.
The issue is important enough that in 2015 the FCC changed its definition of broadband to mean at least a 25 Mbps download speed and 3 Mbps upload speed, considerably higher than the previous definition of 4 Mbps down and 1 up. (Minnesota’s Broadband Task Force recommended raising the state’s goals to the same 25 down/3 up in December 2015.)
The change means that in the eyes of the federal government, millions of broadband customers are no longer getting “broadband,” vastly expanding the numbers of “unserved” and “underserved” Americans.
Who are the unserved and underserved?
Unserved indicates households or businesses that want Internet service but can’t get it, while underserved indicates those who have some kind of Internet service, but it may not meet the basic speed definition of broadband and/or may not meet the customer’s needs.
The map at right shows the percentage of households receiving 10 Mbps down and 5 Mbps up in February 2015. That was the minimum speed goal set by the state legislature in 2011 to be achieved by the end of 2015. Adequate Internet access is still largely a rural issue. People who live in remote parts of the state, tiny deep-rural communities, and spread-out farming communities are the ones with the greatest odds of not having service that meets this goal.
Oddly enough, though, at a sub-county level there are still cities of decent size that receive slower service compared to similar communities—even smaller ones—not that far away accessing speeds that would be the envy of customers in the Twin Cities.
Roadblocks to service.
There are two pieces that go into the definition of “good” Internet service: adequate speed and affordable price.
• Available adequate speed means having access to Internet service at a capacity that meets or exceeds the individual’s or business’ needs. “Adequate” is a subjective measure based on what a person needs to get done online in a given amount of time, but in business especially, where time is money, Internet speed is crucial.
• Affordable price. Affordability is a significant part of the access problem. A household’s income is a direct factor in whether it subscribes to Internet access or not. According to a Pew Research Center study, Americans – both broadband users and non-users—“are increasingly likely to view home broadband as a key tool for accessing information that is important to their lives,” but at the same time, the answer as to why people don’t subscribe to broadband has shifted from “Because I don’t need it” to “Because I can’t afford it.”
Price and speed are inextricably linked because, to achieve higher speeds, a provider must build more infrastructure and install more sophisticated, more expensive electronics, which increases their costs.
So what is it that makes Internet service so much more expensive to provide in some places than others? Here are some of the primary reasons.
Population density and high costs of entry
The problem with providing Internet service is that, like roads or sewer systems or the electrical grid, the Internet has a physical infrastructure, which is made up of cables, lasers, routers, servers, and towers, and it requires physical labor to build and maintain it. For this reason, the broadband industry has what’s known as high barriers to entry, in this case an unusually large up-front investment in material and labor that has to be made before the first paying customer can even be hooked up. The provider then must be able to make back enough in payments for services (return on investment or ROI) in a reasonable amount of time to cover those initial costs.
In a situation like this, population density is everything. Each foot of infrastructure costs something, from the fiber optic cable to towers and transceivers to the workers who dig the trenches and install the equipment. The more paying customers a provider can count on per mile of infrastructure, the faster it will recover the cost of building the system. That revenue goes toward ongoing operations, profit, and the next project.
The less dense the population, the fewer the number of potential customers per dollar of infrastructure invested. That lowers the amount of potential revenue the provider can use to operate the company while also paying down the initial investment. Since more densely populated areas have more potential customers, a provider would logically concentrate its early investments in its most densely populated territories, namely cities.
Another hurdle to generating a workable ROI is low income. The lower the average income of households in an area, the less likely residents are to spend their disposable income on broadband, restricting the number of potential customers further. The Governor’s Task Force on Broadband’s 2014 Annual Report provides an example:
“Making the situation more challenging for all providers, there is a great discrepancy in the number of potential customers in Hennepin County versus Pennington County; population density in Hennepin County is 2,081.7 [residents per] sq. mi and in Pennington County it is 22.6/sq. mi. Median income (2009-2013) also differs: in Hennepin County it is $64,403 and in Pennington County it’s $45,633. For these reasons and more, the business case for offering broadband in Pennington County Falls [sic] is far more challenging than in Hennepin County” (p. 25).
To help with service in high-cost areas, government throughout the 20th century offered providers funding or supported alternative solutions, like cooperatives and public-private partnerships, to get providers over the cost hurdle. Rural America faced the same issues with electricity and telephone service 50-100 years ago. At that time, the federal government created programs like the Rural Electrification Administration for electric utilities and the Universal Service Fund for telephone service in the 1930s. The REA, in fact, morphed into today’s Rural Utilities Service, a division of the U.S. Department of Agriculture that provides assistance for, among other things, rural broadband development.
Legacy systems: Technology needs to be replaced.
The expenses of providing Internet service are compounded by the legacy of a well-developed phone system.
The Internet in the U.S. was initially built on the existing phone network, which consisted mainly of copper wire. Phone calls require moving very little data compared to today’s data-hungry uses like streaming video and complex 3-D projects, and so the original copper network was good enough—for a while.
The inventiveness of people to find ways to use the Internet, however, quickly overwhelmed the old system. As demand on the Internet increases, the current equipment that sends and processes the signals needs to be replaced with more sophisticated electronics.
Large legacy providers like AT&T, CenturyLink, and Comcast own massive copper networks, so given the potential return on investment in more densely populated areas, it makes business sense to concentrate their efforts there. Smaller companies and rural coops are able to move faster on replacing technology and are able to live with a longer ROI timeframe, but they also may not have access to the kind of capital that the larger companies do.
Updating technology can be a problem not just in rural areas, though, but in inner-city areas, too. These neighborhoods have some of the oldest communications technology in the state, and their residents also tend to have lower-than-average income. The upshot is that large amounts of material need to be replaced with modern technology in neighborhoods with fewer potential customers. This is one case where high population density works against ROI.
Traveling on other people’s highways: Backhaul costs.
After the network is built, moving data traffic back and forth between customers and the Internet, what’s known as backhaul, is another cost to providers.
While the Internet might look like the Wild West where no one is in charge, in reality all Internet infrastructure is owned by someone, whether AT&T, Verizon, small rural providers, local governments, or the state. These networks all cost something to maintain, and therefore all owners charge something to carry other providers’ data.
Network owners make two kinds of agreements to move traffic over each others’ networks: peering agreements and transit agreements. With peering agreements, the network owners allow each others’ traffic to move over their networks at no cost or in some kind of cost-sharing arrangement. With transit agreements, the entity that wants to move the data (whether it’s an ISP or a content provider like Netflix) must pay the network owner to use its network. (Here’s a good explanation and illustration of how peering and transit agreements work.)
If a provider moves its own customers’ data on its own network (e.g., sending an email to someone served by the same provider), there are no fees. If the data has to go out onto another provider’s network and it has a transit agreement, it starts to cost. If the two networks don’t have an agreement, the data may have to travel farther around on less desirable networks they do have agreements with, which can also slow down traffic.
For a global provider like AT&T, transit costs are not as significant because much of its traffic can travel on its own network. Many rural providers are at the end of the line, however. Their traffic must travel over a number of networks to get where it’s going. Again, the Broadband Task Force’s 2014 Annual Report provides an example of this cost difference:
“The difference in cost for that transport based on location varies across the state. A provider in metropolitan Hennepin County currently pays about $.50 per Megabit to connect to the Internet backbone; the average cost [across] three providers in rural Pennington County is $15.33 per Megabit to connect to the Internet backbone” (p. 24).
For Minnesota schools, part of the equation is the cost of leasing fiber:
“School districts purchase commercial-grade service that is dedicated and often need to buy transport (usually leased fiber) to get service to the school since most schools, especially those in rural areas, do not own fiber. The cost of leasing fiber can also vary based on geography, from $2.32/Mbps/month in east central Minnesota to $23.46/Mbps/month in southwest Minnesota” (Broadband Task Force’s 2015 Annual Report, p. 35).
According to Kevin Beyer, CEO of Acira, a telecommunications coop in western Minnesota, one of their biggest headaches is the “high cost of getting our traffic to the Cities,” which involves it traveling across several entities’ networks to get to the state’s only Internet hub in Minneapolis.
“Transit costs money, and as the ISP grows [with more customers], its transit bill will grow, too,” Beyer says.
The 2015 legislative session: Patience.
During and following the 2015 legislative session, there was considerable discussion about why those who are waiting for high-speed Internet access should wait a little longer. Three main arguments came up:
New technology is on the horizon. One of the arguments made is that new technology will be released soon that will “make fiber obsolete.” There are two problems with this argument. One is that technology is constantly changing and upgrading, so waiting for the next big thing is an exercise in futility. Two, because of the economics of providing broadband, the new technology that has been promised won’t be getting to customers in sparsely populated areas anytime soon.
For example, one particular technology that has been mentioned is G.fast, which will allow copper networks to transmit data at speeds of up to 1 gigabit per second. A quick look at it, however, shows that that speed is achievable over only a short distance, 300 feet, before that 1-gigabit speed starts to drop off. By about 800 feet it has fallen to 150 Mbps, still extremely fast. But for rural residents and businesses, where distance is discussed in miles, not feet, it may not prove very useful. In addition, G.fast is set to start deploying sometime this year or next. Where will it deploy first? In the largest cities. When will it get to rural regions? Good question.
Fiber versus wireless. Another argument is that new and improved technology for fixed wireless is just around the corner, and therefore the state should hold back on investing in broadband to wait for it. That delay led to a firestorm of criticism among broadband and rural supporters. It also raised an unexpected but important question: which is better, fiber or wireless?
Fiber optics as a medium provides higher transmission rates, without a doubt, says Dr. David Du, a professor in the University of Minnesota’s Computer Science and Engineering Department, but it takes longer to deploy because it is more expensive to deploy.
Fiber’s higher price tag comes not from the fiber optic cable itself but from the cost of the labor needed to bury it. Once it is in the ground, the fiber needs little to no regular maintenance and can be expected to last 30 to 50 years.
Fixed wireless can be installed faster than fiber and for a lower price, but right now it is definitely slower.
“If you can get fiber, go for it,” says Julie Foote, a customer service, sales, and marketing person with MVTV Wireless, the state’s largest fixed wireless broadband provider, serving western and southwestern Minnesota. In the meantime, “there are people off the fiber line that fiber just can’t get to.” At 5-10 Mbps, it isn’t nearly as fast as fiber to the home or business can be, but it’s a quick solution in the interim, Foote says.
“If you can’t afford to do fiber and have immediate needs, then wireless is a good stop-gap, but it’s only a stop-gap,” says Beyer of Acira, whose coop is gradually installing fiber throughout its territories.
To be clear, both technologies require fiber optic cable. For fiber to the premises (either home or business), the entire network is fiber optic cable, from the provider all the way to the wall of the building being served. For fixed wireless, the fiber optic cable runs from the provider’s network out to the towers that provide the signal to the homes and businesses.
Treating it as an either/or matter is the wrong approach, says Dr. Du. When it comes to serving Greater Minnesota, we’ll need both wireless and fiber technologies. The real question that must be asked is what the community’s needs and goals are.
“A community has to decide what will be adequate bandwidth, then what is the best way to deploy the technology to satisfy that goal, what solution would be the most effective,” says Du. It could be fiber, it could be wireless, but most likely it will be a combination, he says. (For a well thought-out discussion, read this article from an ISP in rural Maine.) What’s possible and feasible for a community is based on many factors.
Federal funding is on its way. Federal funding is indeed on its way to help providers bring service to their unserved customers. It will not solve the issue statewide, however.
The Federal Communications Commission will soon start distributing $9 billion from the Connect America Fund (referred to as CAF II) to the nation’s “price cap” communications companies to build out broadband in unserved parts of their territories.
In Minnesota, four communications companies—CenturyLink, Frontier, Windstream, and Consolidated—will receive around $85 million per year over the next five years, says Danna MacKenzie, executive director of the state Office of Broadband Development. While that’s good news for their unserved communities, their territories don’t come close to covering all of Minnesota. An FCC map of eligible territory shows that large swaths of Greater Minnesota will not benefit from CAF II funding. Also, there is no guarantee as to which unserved communities in these companies’ territories will get funding.
“We have a map of the CAF II eligible census blocks, but [we] do not have the information from the providers as to where they will actually build,” says MacKenzie.
Additionally, the FCC will require providers to build their systems to a minimum speed of only 10 Mbps down and 1 Mbps up, much lower than the FCC’s current definition of broadband for the reason that the CAF money would run out far too soon if providers had to build to the higher 25/3 standard, says Shannon Heim, a telecommunications attorney with Dykema in Minneapolis and a member of the Governor’s Broadband Task Force.
The Universal Service Fund is an ongoing federal funding source that many providers in Minnesota are already using. The USF was created to keep communications service affordable and accessible “to all consumers, including those in low-income, rural, insular, and high-cost areas at rates that are reasonably comparable to those charged in urban areas.” The fund also helps pay for telecommunications services to libraries, schools, and rural health care facilities.
So far, USF funds go to “incumbent local exchange carriers” only (in other words, local phone companies), and “eligible telecommunications carriers.” These are the companies charged with providing phone service to everyone in their territory whether it’s cost-effective or not; the Universal Service Fund helps defray those costs. Any carriers coming into an ILEC provider’s territory hoping to compete would most likely not be eligible for these funds.
So why shouldn’t rural communities wait for broadband?
• It’s good for the bottom line. Although not always visible, a good part of the state’s economy is rural, and some industries need to be rural. Agriculture is one industry that has whole-heartedly embraced the potential of broadband technology. Farmers who can get broadband monitor their production via the Internet. Farmers often have buildings at more than one site. Livestock farmers can monitor herds miles apart for security, environment, and feed levels. Even individual animals are connected to keep track of feeding times, milking times, and body temperature for health and breeding.
Other major rural businesses like food production and manufacturing need broadband to stay productive; not having it available is a “deal-breaker” for business looking for locations to build or expand, says DEED’s Lisa Hughes. Productive companies produce not just goods and jobs but tax revenues for the local government and the state.
• People are interested in moving to Greater Minnesota. This includes not just baby boomers making their lake homes permanent residences, but millennials moving for the small-town way of life for themselves and their children. The crucial factor is that they need to have broadband. Millennials especially, but also baby boomers, are blurring the line between what is considered business broadband and home broadband by starting their own businesses or working as freelancers, independent contractors, and “1099ers,” often out of their homes.
Upload speeds are particularly crucial for businesses, says Kelly Asche of the Center for Small Towns, but they are often far lower than the download speed. Asche himself has 756 kbps upload speed (less than 1 Mbps). Uploading a good-quality photo to the web site he maintains for the microbrewery he’s a part owner in “takes forever,” while he won’t even try to upload a video, he says.
• It helps alleviate problems of workforce shortage. The workforce shortage is becoming more and more apparent statewide. To make it possible to do more with fewer workers, companies are adopting new technology, including broadband. Using new monitoring systems—connected by broadband—one long-term health care worker can check up daily on many elderly clients in their homes instead of a nursing home, checking a person’s pulse, making sure they’re eating, even doing a daily weigh-in, which for a person with congestive heart failure is vital. A sudden increase in weight can signal a dangerous increase in fluid retention.
• It’s being used to improve efficiencies and quality in education and health care. The MacPhail Center for Music in Minneapolis offers music classes to students across the state. It’s a boon for rural schools that can’t find or can’t afford their own music teacher. The same can be said for distance learning classes offered in science, math, and foreign languages. In K-12 education, online content is expanding learning opportunities for schools regardless of where they are located, and more and more homework is being done online. Teachers, though, have to stay mindful of students who may not have Internet access at home.
In health care, almost no image taken in a clinic or hospital in Minnesota is taken on film anymore, says Mark Schoenbaum, director of the Office of Rural Health and Primary Care at the Minnesota Department of Health. They’re all produced digitally, and the expert radiologist examining those images is likely someplace else, even halfway around the world, he says.
• Building onto the infrastructure leads to a stronger infrastructure overall. Strengthening the rural network helps strengthen the state’s and the nation’s overall network. Like a highway, if one route on the Internet gets blocked, all the traffic has to reroute or not go through at all. A strong, reliable, redundant network is far less prone to outages, which is very attractive to businesses that rely highly on dependability and security.
The promise of the death of distance.
When broadband was first unveiled in the 1990s, it was declared the “death of distance” for rural communities. They would be able to use video conferencing, distance learning, telemedicine, and other wonders of the Internet age to cut down on the costs of time and travel. Some communities, however, have been waiting that entire time for this revolution, feeling bypassed and ignored. Today, all those uses have come true. We have Skype and Facetime and elaborate multi-site conferencing that keeps business people, students, and health care professionals communicating across vast distances. But communities without broadband still can’t participate.
How can policy makers help?
• Let solutions be decided at the local level. The best solutions for communities will be based on many factors, including population density, terrain, and what customers can afford. The factors will vary considerably from place to place.
• Don’t try to choose between fiber and wireless. It will probably take a combination of both technologies to meet a community’s needs. Instead, weigh the importance to communities and to the state’s economy as a whole of getting fast Internet speeds versus getting any Internet at all.
• At the same time, make sure that state funds are being used to create upgradeable, future-ready networks and not just good-enough systems.
• Help mitigate those barriers to entry. Free-market solutions won’t work unless there are more viable players on the field. A little competition has done wonders in the past to motivate reluctant broadband providers to provide actual broadband.
• Understand that symmetric-speed networks that have generous upload speeds are crucial for economic activity. In addition to regular businesses, more and more people are setting up home-based businesses or becoming “1099ers,” independent contractors, especially in rural areas. We need to be a state of producers, not just consumers.
• Pay attention to strengthening the overall network. A reliable, robust network will keep speeds high and won’t be as likely to break down, which will be very attractive to businesses and will keep the system running strong into the future.