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The
Rural Telecom Consumer
and Broadband Access
a market research report
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When the 1996 Telecom Act was passed, Congress was explicit that telecom service in rural areas be comparable to what was available in urban areas, including access to advanced telecommunications and information services. At this early stage of broadband deployment, rural customers do not have equal access at reasonable rates despite measures by the FCC to insure universal service.
Yet, this is not the whole story. Rural America still represents a viable market for broadband service for several reasons. Farmers are actually ahead of the general home-user population in PC usage. Forty percent of farms now have a computer, and Internet usage on farms was up to nearly 30 percent in 1999. Also, telecom competition is increasing in rural areas as more businesses, especially e-commerce companies, locate their headquarters and warehouses there to take advantage of the low cost of land and labor.
Moreover, rural telecom consumers have shown higher customer loyalty than metropolitan consumers; a large percentage reported they had not switched carriers over the past two years. And while they are less likely to own enhanced services, our survey reveals significant interest in purchasing phone features like caller ID. Bottom line, there is a great opportunity to sell both Internet services and enhanced features to the underserved rural market.
The Rural Telecom Consumer & Broadband Access examines the changing needs of the rural telecom consumer by using Insight’s primary market research. It presents the changes in service supply and demand in small town America. It also looks at the impact of the Internet on
rural access usage, and the consolidation and divestiture of rural exchanges by traditional local exchange carriers.
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Report Excerpt
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Background
When the 1996 Telecom Act was passed, Congress was
explicit that telecom service in rural areas be
comparable to what was available in urban areas,
including access to advanced telecommunications and
information services. At this early stage of broadband
deployment, rural customers do not have equal access at
reasonable rates despite measures by the FCC to insure
universal service.
Some of the reasons for the discrepancy are
well-known:
- Higher rate of poverty and lower income and
education levels are strong indicators of lower
computer and Internet usage.
- Poorer quality of plant which limits
telcos'
capability of providing high-speed service. Some
of the poorest quality plant in the country is
located in rural areas.
- Lower population density per square mile,
reducing providers' economies of scale.
- Lower proportion of business telecom customers in
rural service areas, resulting in less revenue
for the provider.
Yet, this is not the whole story. Rural America still
represents a viable market for broadband service because:
- Farmers are actually ahead of the general
home-user population in PC usage. Forty percent
of farms now have a computer, and Internet usage
on farms was up to nearly 30 percent in 1999.
- Internet connection rates of schools in rural
areas are higher than in cities, according to the
US Dept. of Education.
- Many rural local exchange carriers (RLECs) have
high-quality plant that is frequently rated by
state commissions as among the best in their
states.
- Telecom competition is increasing in rural areas
as more businesses, especially e-commerce
companies, locate their headquarters and
warehouses there to take advantage of the low
cost of land and labor.
- Rural consumers tend to be aware if their
neighbors have superior phone capabilities and
service. If a rural telco moves into the area and
begins to offer high-quality local service,
customers will leave the urban incumbent local
exchange carrier (ILEC) in droves. These
customers, though, will show great loyalty to
local carriers who provide them with high-quality
service.
Scope of Report
This report includes a discussion of the rural plant
and looks at the challenges faced by telcos covering
rural areas. In addition, the various sources of funding
for infrastructure are described. For decades the US
government has funded the expansion of telephone
companies' plant into rural areas. Recently, they have
extended their focus and funding to include networks
capable of providing Internet and broadband access. The RBOCs, however, are not eligible to obtain low-cost
financing through RUS or any of the cooperatives, and
thus they have often tended not to spend as much money on
upgrading their rural facilities as the smaller rural telcos.
For our study we review those portions of the Telecom
Act with the greatest impact on rural telecom. The impact
of changes in universal service, advanced services, and
high-cost support are discussed. Without the support of
these subsidy programs for rural telephony, local phone
bills would have been on average 72 percent higher per
subscriber than they are today. The deregulation of these
funds brought about by the 1996 Telecom Act makes many of
these subsidies extremely vulnerable to the pressures of
competition yet it is not possible for the FCC to retain
all of the traditional support mechanisms in their
present forms indefinitely. These changes may make it
more likely that rural consumers will not be able to get
advanced telecom services anytime soon. Our primary
research showed that more than ten percent fewer
non-metro households were using the Internet at home than
metro households.
To understand rural America better, a description of
rural consumers is provided in a section on demographics.
Their effect on telecom issues is the topic of Insight's
proprietary study of over 1,000 consumers. The primary
market research study for this report was conducted by
Bruskin Audits & Surveys Worldwide. The study used a
random digit dialing probability sample of all the
telephone households in the continental US, resulting in
an equal probability of selecting each and every
household, even if the number is unlisted. Data from the
study were weighted to ensure that the sample chosen
represented a reliable and accurate representation of the
total US population. The Insight study included
approximately an equal number of male and female adults,
all 18 years of age and over.
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Market Segmentation
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- Primary Market Survey Demographics
- Age
- Gender
- Education
- Race
- Geographic Region
- Metro Status
- Employment Status
- Marital Status
- Household Size
- Presence of Children in the
Household
- Telephone Features Currently Used in the
Home
- Metro
- Non-Metro
- Call Waiting
- Caller ID
- 2nd or Additional Line
- Home Voice Mail
- Call Forwarding
- 800 Toll Free Number
- Phone Features Planning to Buy
- Metro
- Non-Metro
- Call Waiting
- Caller ID
- 2nd or Additional Line
- Home Voice Mail
- Call Forwarding
- 800 Toll Free Number
- Respondents Who Own These Technologies
- Wireless Phone
- Cable TV
- PC
- Standard Phone Line Modem
- Cable TV Modem
- Web TV
- Any of These Items
- Items the Household Currently Owns or
Uses
- CD Rom
- Laptop or Notebook
- Digital Camera
- Satellite Dish
- Amount Spent on Residential Local Calls
in a Typical Month
- Metro
- Non-Metro
- Spend More than $40/Month
- Spend Less than $40/Month
- Spent Nothing
- Don't Know
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Table of Contents
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Chapter I
EXECUTIVE SUMMARY
1.1 Have or Have Not
1.2 Changing Look of Rural America
1.3 Scope of the Report
Chapter II
DEMOGRAPHICS
2.1 Change in Rural America
2.2 Rural Demographics and Changing Structure of Towns
2.2.1 Employment
2.2.1.1 Types of Jobs in Rural Areas
2.2.1.2 Work Off the Farm
2.2.2 Characteristics of Rural Households
2.2.2.1 Ethnicity
2.2.2.2 Housing and Transportation
2.2.2.3 Poverty
2.3 Telecommunications Demographics
2.3.1 Population Density
2.3.2 Revenue from Telco Customers: Economies of Density
2.3.3 Telephone, Computer, and Internet Usage
Chapter III
BROADBAND SERVICES IN RURAL REGIONS
3.1 The Rural Plant
3.1.1 Carrier Switches and Loops
3.1.2 Broadband Infrastructure in Rural America
3.1.2.1 Requirement for Advanced Services
3.1.2.2 Requirement for Comparable Service
3.1.2.3 Problems with Upgrading Rural Plants
3.2 The Challenge of Internet Connectivity
3.2.1 Extended Local Calling and Rural Area Networks
3.3 Broadband Technologies in Rural Regions
3.3.1 DSL
3.3.2 Cable
3.3.3 Fixed Wireless
3.3.4 Broadband Satellite
3.4 Telco Competition in Rural Areas
3.4.1 Urban ILECs versus Rural LECs
3.4.2 Internet Service Providers
3.4.3 Satellite Systems Targeting Rural Customers
3.5 Two Studies of Rural Broadband Services
3.5.1 NECA Survey of Broadband Services
3.5.2 Report on Rural Internet Connectivity
3.5.2.1 Iowa
3.5.2.2 Texas
3.5.2.3 Louisiana and West Virginia
3.5.2.4 Factors Preventing Connectivity
Chapter IV
FUNDING FOR RURAL TELECOM
4.1 Federal Funding of Telecom
4.1.1 Department of Agriculture
4.1.1.1 Cooperative Extension Service
4.1.1.2 Rural Utilities Service
4.1.2 Federal Communications Commission
4.1.2.1 The High-Cost Fund
4.1.2.2 Universal Service Fund
4.1.3 Departments of Commerce, Housing and Urban
Development, and Education
4.1.4 Pending Federal Funding
4.2 State and City Funding
4.3 Alternative Sources of Funding
Chapter V
REGULATORY ISSUES ARISING FROM THE TELECOM ACT
5.1 1996 Telecom Act
5.1.1 Section 251: Exemption of Rural Carriers from
Interconnection
5.1.2 Section 253: Removal of Barriers to Entry
5.1.3 Section 254: Universal Service
5.1.3.1 Sources of Funding for Universal Service
5.1.3.2 Calculating the Cost of Universal Service
5.1.3.3 Rural Task Force
5.1.3.4 Schools, Libraries, and Rural Health Care
5.1.3.5 Rural Health Care
5.1.4 Section 706: Advanced Services
5.1.4.1 Findings of the Second Report
Chapter VI
RURAL BROADBAND APPLICATIONS
6.1 Introduction
6.2 Agriculture
6.2.1 New Source of Knowledge
6.2.2 High-Tech Tools
6.3 E-Commerce
6.3.1 New Distribution Channel
6.3.2 Commodity Trading
6.3.3 Location of E-Commerce Businesses
6.4 Call Centers
6.5 Small Businesses
6.5.1 Broadband Applications Used by Small Businesses
6.6 Manufacturing
6.7 Health Care
6.7.1 Two Telemedicine Programs
Chapter VII
INSIGHT'S CONSUMER STUDY
7.1 Objective of the Consumer Study
7.2 Survey Methodology
7.3 Survey Findings and Analysis
7.3.1 Switching Behaviors and Reasons
7.3.2 Telephone Service Expenditures
7.3.3 Local versus Long Distance Company Preference
7.3.4 Telephone Service Feature Usage
7.3.5 Working at Home Phenomenon
7.3.6 General Interest in Current Technologies
7.3.7 Connected to the Internet at Home
7.3.8 Demographics on Metro versus Non-Metro Respondents
7.4 Summary
Appendix A
DEFINITIONS OF RURAL AND URBAN
A.1 Census Bureau's Definitions
A.1.1 Census Bureau's Definition of “Rural”
A.1.2 Census Bureau's Definition of “Urbanized
Area”
A.1.3 Census Bureau's and OMB's Definition of
“Metropolitan Area”
A.2 Alternative Definitions
A.2.1 Rural/Urban Continuum
A.2.2 Urban Influence Codes
A.2.3 Goldsmith Modification
A.2.4 County Typology Codes
A.2.5 Census Tracts
Appedix B
QUESTIONS ASKED IN MARKET SURVEY
List of Questions
Appendix C
GLOSSARY
List of Terms
Table of Figures
Chapter I
I-1 Switched Long Distance Provider in Past Two Years,
2000
I-2 Metro and Non-Metro Use of Telephone Features
Available from Carrier, 2000
Chapter II
II-1 Sources of Income for Average Farm Operator
Household, 1995
II-2 Percent of US Households with Internet Access, by
Ethnicity and Location, 1998
II-3 US Rural and Urban Households with Telephones, 1998
II-4 Percent of Households with Computers, by Race, 1998
II-5 How E-Mail is Used in Urban and Rural Regions, 1998
II-6 Percentage of Schools with Internet Access, by
Region, 1994-1999
Chapter III
III-1 Average Number of Lines per Switch and Loops per
Sheath Mile in Rural Study Areas, 1993
III-2 Growth of Residential High-Speed Access
Technologies, 1999-2004
III-3 Percentage of Towns of Varying Sizes Which Have
Cable Access or Receive DSL Service from RBOCs (2000)
III-4 Number of Households Passed by High-Speed Cable
Service, 1998-2005 (Millions)
Chapter VI
VI-1 Non-Metro US Counties Dependent on Manufacturing,
1989
VI-2 Number of US Telemedicine Programs, 1993-1998
Chapter VII
VII-1 Switched Long Distance Provider in Past Two Years,
2000
VII-2 Amount Spent on Residential Local Calls in a
Typical Month, 2000
VII-3 Preferred Carrier for Long Distance and Local
Telephone Service, 2000
VII-4 Telephone Features Currently Used in the Home, 2000
VII-5 Percentage Of Respondents Who Own These
Technologies, 2000
VII-6 Demographics of Survey Respondents, 2000
Table of Tables
Chapter II
II-1 Employment and Employment Change by Industry,
1986-2006
II-2 Employment Off the Farm, by Level of Education, 1994
II-3 Other Income Measures in Rural and Non-Rural Telco
Service Areas, 1999
II-4 Racial Composition of Residents Living in Rural and
Non-Rural Telco Service Areas, 1999
II-5 Rural Education by Ethnicity, 1999
II-6 Household Income in Rural and Non-Rural Telco
Service Areas, 1999
II-7 Percent of Population of States Located in Rural and
Non-Rural Telco Service Areas, 1999
II-8 Population Density in Rural and Non-Rural Telco
Service Areas, 1999
II-9 Percent of Population Subscribing to High-Speed
Services by Population Density
Chapter III
III-1 Rural Carrier Loops, 1999
III-2 Cost to Upgrade Rural Study Area Lines, 1999
III-3 Network Capabilities of NECA's Access Survey
Respondents, 1999
Chapter V
V-1 Amount of E-Rate Discounts Available, 1997
Chapter VI
VI-1 Small Business Use of the Internet, 1998 and 2000
Chapter VII
VII-1 Telephone Features Currently Used in the Home, 2000
VII-2 Phone Features Planning To Buy, 2000
VII-3 Percentage Of Respondents Who Own These
Technologies, 2000
VII-4 Items the Household Currently Owns or Uses, 2000
VII-5 Respondents' Ethnicity, 2000
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