Why rural Americans are doomed to second-rate broadband

When it comes to ranking broadband services, users rank Verizon's DSL near the bottom of the list for overall satisfaction, upload speed, customer service and e-mail, according to a Computerworld survey released today. But that's exactly the type of broadband service that rural Verizon customers are likely to get in the Northeast once FairPoint Communications takes over Verizon's rural lines business in Maine, New Hampshire and Vermont.

Verizon's move is part of a broad strategy to shed less profitable business in rural areas while retaining business in higher density metropolitan areas, where the return per mile of fiber optic cable is highest. It's a strategy that makes perfect business sense for a publicly held business that must please shareholders with the highest possible return on investment.

Today, most rural New England customers can't even get basic DSL. But even if FairPoint does offer broadband to more rural customers, will it truly be high speed? Or will it be yesterday's technology, while the rest of the world moves to multi-megabit speeds capable of supporting multimedia video and audio streams?

Today FairPoint is supposed to reveal more details on how it will improve broadband connectivity in the Northeast once it acquires Verizon's rural lines in Maine, New Hampshire and Vermont. Don't expect much. Promises aside, the company is woefully under capitalized to be bringing even pokey DSL to rural New England, let alone next generation broadband services (to see why, read Verizon deal rips off rural users, rips open digital divide).

While unions and regulators argue about jobs, few question the economics of how tiny FairPoint will bring rural Americans in the Northeast into the broadband age. That's important because the telephone network is slowly disappearing into the Internet. And while universal access for telephone service is still a reality, there is no such entitlement for rural Americans when it comes to broadband. Unless an investment is made, most of them will remain in maintenance mode on the outdated twisted pair infrastructure while the rest of the world moves from basic broadband to high-speed fiber. Publicly traded communications businesses - whether telcos or the cable companies - will never make that investment.

FairPoint has said that it will spend $13.8 million the next two years in Vermont to upgrade facilities statewide and add 41,000 broadband lines to unserved areas surrounding Vermont's eight largest cities. Even if all of that money was spent on expanding broadband connectivity to more homes and businesses it would amount to an investment of just $336 per customer. That's hardly enough of an incentive to reach rural customers - which is why the expansion focuses only around the largest cities. FairPoint also intends to invest $30.2 million into broadband expansion in Maine and New Hampshire.

But today Verizon services an anemic 180,000 of the 3 million residents in the Northeast. It will take a far bigger investment than that to get even basic broadband services to the majority of New Englanders.

Meanwhile, as rural America struggles to upgrade its aging copper infrastructure, Verizon customers in metro areas will enjoy fiber to the home and the speed and reliability benefits that come with its next generation FiOS service - rated number one in Computerworld's survey for performance and reliability.

America gave away the rate base that protected rural consumers in 1996. Now we're starting to see what the largely unregulated broadband market will deliver. Metro areas where customer density is high will see first-tier services. Surrounding areas will see second-tier services that remain at least a generation behind in capabilities. More remote rural areas will receive promises but will probably remain on dial-up. Because without a subsidy or regulation requiring universal access, it just won't happen.

Copyright © 2007 IDG Communications, Inc.

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