Unlocking the Value of Broadband for Electric Cooperative Consumer-Members

Author(s): 
Russell Tucker, Ph.D.
Joseph Goodenbery
Katherine Loving
Publication Date: 
Monday, 2018, September 3

When privately owned utilities refused to electrify rural areas, communities established electric cooperatives to light up their homes and farms. A recently released report, Unlocking the Value of Broadband for Electric Cooperative Consumer-Members, describes how electric co-ops now have an opportunity revisit that role as they bring Internet access to their rural members nationwide.

The report, published in September by the National Rural Electric Cooperative Association (NRECA), finds that millions of people in electric cooperative service territories lack access to broadband. As the report explains, rural electric cooperatives are uniquely poised to meet their members’ needs for better connectivity. However, public investment may still be necessary to connect many rural communities.

Download the report.

Co-ops Could Meet Rural Broadband Needs

Like many rural Americans, members of electric cooperatives often find themselves unserved or underserved by the existing Internet service providers. The report’s authors estimate that more than 6 million electric co-op households — a total of 13.4 million people — don’t have access to broadband, defined by the Federal Communications Commission (FCC) as 25 Megabits per second (Mbps) download and 3 Mbps upload. Even more co-op members are likely struggling with poor connectivity because of how the FCC data overstates broadband availability and access.

There are several reasons why rural electric cooperatives are in a good position to bring modern-day connectivity to their unserved members, the report notes. Perhaps the most important advantage is that many co-ops are already investing in broadband networks to support smart grid technologies, such as advanced metering infrastructure (“smart meters”). The report points out that a broadband backbone ”not only enables the co-op’s smart grid operations, it also enables connectivity to the broader Internet backbone.” By expanding off their existing broadband networks, electric cooperatives could deliver affordable, reliable, high-speed Internet access to their rural members.

Public Investment Needed to Fix Market Failure

The benefits of rural broadband significantly outweigh the cost of deployment. The report’s authors calculate that over 20 years:

“the estimated loss in consumer-member value due to lack of broadband deployment to electric cooperative areas is more than $68 billion. In contrast, the projected deployment cost of expanding broadband to these areas is approximately $40 billion.”

That figure doesn’t even include the many community and economic development benefits of high-quality connectivity, which further increase the value of broadband in rural areas served by electric cooperatives

Even though the benefits of rural connectivity clearly exceed expenses, the higher costs per household and lower returns that deter profit-driven providers from serving sparsely populated areas can also make it difficult for electric cooperatives to finance rural broadband networks. “Although electric co-ops may have favorable cost characteristics associated with expanding broadband relative to other providers,” the report explains, “building-out a retail network may not be financially viable in many cases.”

The report’s authors assert that this constitutes a market failure, where “market forces fail to arrive at a socially and economically optimal level of broadband investment,” and that public investment in the form of government financing is necessary to fix it. The report notes:

“[W]ithout a combination of grants and low-interest loans to buy down the cost of deployment, retail broadband and its commensurate benefits will continue to be out of reach for much of rural America.”

paper published by Purdue University’s Center for Regional Development similarly finds that government funding may be necessary to improve connectivity in cooperative territories. The paper estimates that deploying broadband to rural co-op members across Indiana would generate nearly $24,000 in net benefit per member, but “the anticipated revenue from customers would not be adequate to cover the total system costs, so some form of external assistance would be needed to incentivize the investments.”

Putting it in Perspective

The stakes are high for rural areas served by electric co-ops. As the report warns, “Without adequate, high-speed broadband, co-op communities will be left behind, or worse, will not survive.”

Download the report.