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The Online Problem That Isn’t Being Solved

If you live in rural America, your Internet access can still be hard to come by. States can change the situation.

O’Neal Young, broadband installation technician, carries a ladder as he works on installing broadband Internet for a new costumer in Mont Belvieu, Texas. Major Internet service providers don't see enough potential return on investment to make their service available in rural areas. The town of Mont Belvieu decided to spend millions of dollars to build and maintain a municipal Internet network.
(Shaban Athuman/Dallas Morning News/TNS)
For one working mother in McClellanville, S.C., the federal ReConnect Program that brought high-speed Internet to her little town (population 601) was a “game-changer.”

Before the program, she explained that “when the kids came home from school, and I was still working, I would have to be like, ‘nobody get on a tablet, nobody stream videos’ … Even the kids had to wait to do their homework on their computers, because if there was one other device besides my computer using the Internet, it would bring me down.” ReConnect not only made homework easier but made it possible for the family to settle down in the evening to enjoy streaming services.

But not all the country’s rural areas have been so lucky. In many rural areas and tribal lands, there is no high-speed Internet service at all. Across the country, 6 percent of the population lacks access to basic wired Internet service (defined by 25 mbps — million bits per second — downloading and 3 mbps uploading). That’s enough for streaming movies and using Zoom. In rural America, however, those without it comprise 22.3 percent of the population. For tribal lands, it’s 27.7 percent.

In 2021, President Biden and Congress agreed on a $65 billion program to bring to all Americans Internet with a speed of at least 100 mbps uploading and downloading. That’s the speed that Lindsay, the mother from McClellanville, was so happy about.

But the pace of rolling out the expansion has been slow, to the frustration of many rural residents. Of the $65 billion allocated to the program three years ago, the U.S. Department of Agriculture (USDA), which manages it, has spent just $3.86 billion.

Why has it been so hard to bring high-speed Internet to the rural reaches of the country?

Texas provides some clues. The rural Internet effort there has received $3.3 billion from the USDA program and another $1.5 billion from the state government, with the goal of closing the broadband gap for the 7 million Texans — 21 percent of the total population — without high-speed service.

Grants can go to local community governments, but most of the money is flowing to small, local telecommunications companies, which can apply directly to USDA. To be eligible for this program, companies must put up a letter of credit from a major bank for at least one-fourth of the project’s cost.

There are two problems here. One is that these projects are expensive investments, and most smaller telecoms don’t have that much reserve cash to put aside. The other is that the letter of credit has to come from a “qualified bank” — a major institution certified by the federal government, not a local mom-and-pop bank. Most small telecoms don’t have existing financial arrangements with these larger banks. To get the letter of credit, the company has to round up the cash, deposit it with the qualified bank long enough to satisfy the bank’s underwriters that the business is a going concern, and then get the letter of credit, which might or might not be approved.

The head of Totelcom, a small Internet service provider based in rural central Texas, said she hadn’t decided if she wanted to gamble with that process. “This is harder for us to overcome than those large providers who have already chosen not to serve those areas,” explained Jennifer Prather, the CEO. “This is something a large national provider doesn’t have a problem with. But they’re not the ones out here doing this.”

The large service providers who can negotiate this process have largely decided to bypass rural communities, because the cost of covering so much ground is high and the population density is so low. So rural residents find themselves limping along with slow Internet connections from phone lines or expensive satellite Internet systems.

This certainly isn’t a case of the federal government trying to sabotage its own effort. Another program, the Rural Digital Opportunity Fund, administered by the Federal Communications Commission, has launched a $20 billion campaign to bring fast Internet to rural areas. But in its first phase, worth $9.2 billion, $2.8 billion in defaults piled up from companies that failed to make good on the projects they promised. So, rather than put the taxpayers’ dollars at risk in the USDA program, the federal government set tough standards for new projects.

What’s the way out of this three-sided dilemma involving the federal government, rural communities and small local telecom companies? It might well be making the triangle into a square: State governments could play a bridging role, verifying the financial integrity of the smaller telecoms and helping to arrange the financing to serve rural residents.

For Lindsay, the South Carolina mother, that wasn’t necessary. Her Internet service provider, Home Telephone Company, was able to pull in the funding on its own. But for many other rural Americans, it’s going to take extra help.

State governments often are the financial intermediaries in the intergovernmental system. To make rural broadband work — and to avoid another round of bankruptcies that would make the feds even more nervous about future programs — state assistance in bringing movie night to rural homes is essential.

Governing’s opinion columns reflect the views of their authors and not necessarily those of Governing’s editors or management.
Donald F. Kettl is professor emeritus and former dean of the University of Maryland School of Public Policy. He is the co-author with William D. Eggers of Bridgebuilders: How Government Can Transcend Boundaries to Solve Big Problems.
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