Exploring the feasibility of rural broadband cooperatives in the United States: The new New Deal?. (May 2021)

• Record Type: Journal Article
• Authors: Schmit, Todd M.; Severson, Roberta M.
• Is Part Of: Telecommunications policy. Volume 45:Number 4(2021)
• Publication Date: 2021-05
• Subjects: Rural broadband -- Cooperatives -- Financial feasibility -- Cumulative cash flow analysis; Q010 -- R110 -- R580; Telecommunication -- Periodicals; Télécommunications -- Périodiques; 384
• DOI: 10.1016/j.telpol.2021.102114
• Languages: English
• ISSNs: 0308-5961

Abstract

Abstract: Sufficient access to and utilization of broadband is an ongoing concern for rural economic development. Using a rural region in Northern New York (USA), we consider the investment and operational costs of a broadband cooperative and determine service prices for which it is financially viable. Service prices need to increase 75%–131%, depending on grant restrictions, relative to existing market prices for a new broadband cooperative to become financially feasible. Put differently, the cooperative would not cash flow at market prices unless there was at least 14 potential subscribers per mile at a 62% take rate. For a cooperative, the grant restriction that providers offer a minimum level of speed at a maximum price results in a high level of subsidization by high-speed to low-speed members to support the business. Given grant funding and member equity investments, financial infeasibility has little to do with construction costs, than with annual operational and maintenance costs required to sustain the system long term. More reasonable feasibility scenarios occur for existing utility cooperatives expanding services into broadband, particularly areas with a high proportion of high-speed, year-round users and strong take rates. Consideration of public benefits of broadband arguably needs to be added to the equation, particularly surrounding access to healthcare and educational purposes, and as a prerequisite to supporting taxpayer-funded public-private partnerships to expand broadband services. Policy levers to eliminate or subsidize property taxes and pole rental costs reduce cash flow prices considerably; however, feasibility is highly sensitive to assumed take rates. Highlights: Broadband cooperatives subordinate returns on investment to serving member needs. High operations costs for new rural broadband cooperatives restricts feasibility. Existing utility cooperatives extending into broadband offer a better opportunity. Take rates and higher speed service demands are critical parameters to feasibility. Public benefits of broadband access need to be considered to support public funding.