Broadband Internet's Value for Rural America USDA Economic Research Service Released August 2009

8/14/2019 Broadband Internet's Value for Rural America USDA Economic Research Service Released August 2009

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United StatesDepartment ofAgriculture

EconomicResearch

Service

EconomicResearchReportNumber 78

August 2009

Peter Stenberg, Mitchell Morehart, Stephen Vogel,

John Cromartie, Vince Breneman, and Dennis Brown

Broadband Internets

Value for Rural America


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Broadband Internets value for rural America.

(Economic research report (United States. Dept. of Agriculture.Economic Research Service); no. 78)

1. InternetEconomic aspectsUnited States.2. Rural developmentUnited States.

I. Stenberg, Peter.

II. United States. Dept. of Agriculture. Economic Research Service.III. Title.

HF54.56

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United States

Department

of Agriculture

www.ers.usda.gov

A Report from the Economic Research Service

Abstract

As broadbandor high-speedInternet use has spread, Internet applications requiringhigh transmission speeds have become an integral part o the Inormation Economy,raising concerns about those who lack broadband access. This report analyzes (1) ruralbroadband use by consumers, the community-at-large, and businesses; (2) rural broad-band availability; and (3) broadbands social and economic eects on rural areas. It alsosummarizes results rom an ERS-sponsored workshop on rural broadband use, and otherERS-commissioned studies. In general, rural communities have less broadband Internetuse than metro communities, with diering degrees o broadband availability across rural

communities. Rural communities that had greater broadband Internet access had greatereconomic growth, which conorms to supplemental research on the benets that ruralbusinesses, consumers, and communities ascribe to broadband Internet use.

Keywords: Internet, broadband, high-speed Internet, rural economies, rural economicgrowth, digital economy, telemedicine, rural, urban, Census data, June AgriculturalSurvey, Agricultural Resource Management Survey (ARMS), ERS, USDA

Acknowledgments

The authors thank the many outstanding and practical comments rom Mary Bohman,Patrick Sullivan, Jim Johnson, Robert Gibbs, Erik Dohlman, and the Peer Review

Coordinating Council (USDA-Economic Research Service); John Allen ( Utah StateUniversity); Mary Campanola (USDA-Rural Development); William Chambers(USDA-Farm Service Agency); and an anonymous university reviewer. Thank you tothe workshop participants (listed in the appendix) whose research helped our researchimmeasurably. Thanks to USDA-National Agricultural Statistics Service and the FederalCommunications Commission whose data were critical in our research. Special thanksto Chris Dicken, Ryan Williams, and David Nulph or their excellent GIS support. Alsospecial thanks to Dale Simms and Cynthia A. Ray or their superlative editorial anddesign assistance.

Peter Stenberg, Mitch Morehart, Stephen Vogel,

John Cromartie, Vince Breneman, and

Dennis Brown

Broadband Internets Value

for Rural AmericaEconomic

Research

Report

Number 78

August 2009


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iiBroadband Internets Value for Rural America / ERR-78

Economic Research Service/USDA

Contents

Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

The Internet Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Broadband Internet Adoption and Use . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Dial-Up Versus Broadband Internet Use . . . . . . . . . . . . . . . . . . . . . . . . . 5

Rural Internet Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Further Factors in Rural Broadband Use . . . . . . . . . . . . . . . . . . . . . . . . 10

Geography of Rural Broadband Providers . . . . . . . . . . . . . . . . . . . . . . . 14

Broadbands Effect on the Rural Economy. . . . . . . . . . . . . . . . . . . . . . . 20

Rural Communities and Broadband Internet Use . . . . . . . . . . . . . . . . . 23

Community Interactions and the Internet . . . . . . . . . . . . . . . . . . . . . . . . 23

Telemedicine and Telehealth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Distance Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

The Service Sector in the Internet Economy . . . . . . . . . . . . . . . . . . . . . 25

Telework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Broadband Availability Leads to Use . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Broadband Adoption on the Farm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Rural Broadband Availability and Adoption . . . . . . . . . . . . . . . . . . . . . 29

Broadband Internet Use and Rural Businesses. . . . . . . . . . . . . . . . . . . . 31

Rural Businesses and Broadband . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Rural Retailers and Broadband . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Farm Businesses and Broadband . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Farm-Rural Linkages in the Internet Economy. . . . . . . . . . . . . . . . . . . . 36

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Appendix A: Bureau of the Census Regions . . . . . . . . . . . . . . . . . . . . . . 47

Appendix B: Data Used in the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Appendix C: Using the FCC Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Appendix D: Modeling Broadband Use on the Farm . . . . . . . . . . . . . . . 59

Appendix E: Quasi-Experimental Design . . . . . . . . . . . . . . . . . . . . . . . . 60

Appendix F: Economic Research Services Broadband Workshop,

September 29-30, 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61


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iiiBroadband Internets Value for Rural America / ERR-78


Summary

The Internet has become widely, but not universally, available. Two-thirds

of U.S. adults had in-home Internet access by 2008. Rural businesses and

consumers have become almost as likely as their urban counterparts to use

the Internet, though broadbandor high-speedaccess is less prevalent in

rural areas than in more densely populated areas. The 2008 Farm Act reau-

thorized USDAs telemedicine, distance learning, and rural broadband access

grant and loan programs.

What Is the Issue?

Broadband access is viewed as necessary to fully utilize the Internets poten-

tial. As the Internet economy has matured, more applications now require

higher data transmission rates, even in the case of simple shopping websites.

In a recessionary economy a number of Internet activitiesincluding job

searches and home businessesmay become more critical for households.

Whereas an estimated 55 percent of U.S. adults had broadband access at

home in 2008, only 41 percent of adults in rural households had broadband

access. Evidence suggests that some of this shortfall in broadband use isinvoluntary, and may be due to the higher cost of broadband provision or

lower returns to broadband investment in sparsely populated areas.

What Did the Study Find?

Analysis suggests that rural economies benefit generally from broadband

availability. In comparing counties that had broadband access relatively early

(by 2000) with similarly situated counties that had little or no broadband

access as of 2000, employment growth was higher and nonfarm private earn-

ings greater in counties with a longer history of broadband availability.

By 2007, most households (82 percent) with in-home Internet access had abroadband connection. A marked difference exists, however, between urban

and rural broadband useonly 70 percent of rural households with in-home

Internet access had a broadband connection in 2007, compared with 84

percent of urban households. The rural-urban difference in in-home broad-

band adoption among households with similar income levels reflects the

more limited availability of broadband in rural settings.

Areas with low population size, locations that have experienced persistent

population loss and an aging population, or places where population is

widely dispersed over demanding terrain generally have difficulty attracting

broadband service providers. These characteristics can make the fixed cost

of providing broadband access too high, or limit potential demand, thusdepressing the profitability of providing service. Clusters of lower service

exist in sparsely populated areas, such as the Dakotas, eastern Montana,

northern Minnesota, and eastern Oregon. Other low-service areas, such as

the Missouri-Iowa border and Appalachia, have aging and declining numbers

of residents. Nonetheless, rural areas in some States (such as Nebraska,

Kansas, and Vermont) have higher-than-expected broadband service given

their population characteristics, suggesting that policy, economic, and social

factors can overcome common barriers to broadband expansion.


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In general, rural America has shared in the growth o the Internet economy.Online course oerings or students in primary, secondary, post-secondary,and continuing education programs have improved educational opportuni-ties, especially in small, isolated rural areas. And interaction among students,parents, teachers, and school administrators has been enhanced via onlineorums, which is especially signicant given the importance o ongoingparental involvement in childrens education.

Telemedicine and telehealth have been hailed as vital to health care provi-sion in rural communities, whether simply improving the perception olocally provided health care quality or expanding the menu o medicalservices. More accessible health inormation, products, and services conerreal economic benets on rural communities: reducing transportation timeand expenses, treating emergencies more eectively, reducing time missedat work, increasing local lab and pharmacy work, and generating savings orhealth acilities rom outsourcing specialized medical procedures. One studyo 24 rural hospitals placed the annual cost o not having telemedicine at$370,000 per hospital.

Most employment growth in the U.S. over the last several decades has beenin the service sector, a sector especially conducive or broadband applica-tions. Broadband allows rural areas to compete or low- and high-end servicejobs, rom call centers to sotware development, but does not guarantee thatrural communities will get them.

Rural businesses have been adopting more e-commerce and Internet prac-tices, improving eciency and expanding market reach. Some rural retailersuse the Internet to satisy supplier requirements. The arm sector, a pioneer inrural Internet use, is increasingly comprised o arm businesses that purchaseinputs and make sales online. Farm household characteristics such as age,education, presence o children, and household income are signicant actors

in adopting broadband Internet use, whereas distance rom urban centerswas not a actor. Larger arm businesses are more apt to use broadband inmanaging their operation; the more multiaceted the arm business, the morethe arm used the Internet.


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Broadband Internets Value or Rural America / ERR-78Economic Research Service/USDA

Introduction

The Internet in its inancy was simply an alternative, and quite straightor-ward, communication device. Electronic mail was sent rom one person toanother. Intrinsically the Internet remains a communications device, but as ithas grown more universally available, it has become more integrated into therest o the economy. The simple e-mail system o sending a note has evolvedto incorporate blogs, instant messaging (IM), text messaging, Facebook, andTwitter. Business, household, and government activities have moved andare moving onto Internet platorms (Greenstein and Prince, 2006; Leamerand Storper, 2001). Many Internet activities are sel-sustaining as personalcomputers download upgrades and patches to their systems and automaticordering, billing, and payment unctions are conducted or households andbusinesses. The Internet is integral to the development and unctioning o thedigital or inormation economy.

Rural communities have not been let out, though rom the outset equalaccess to the Internet has been a contentious issue. The arm sector o therural economy helped to pioneer rural Internet use (Stenberg and Morehart,

2007), and rural businesses and households have become almost as likely astheir urban counterparts to use the Internet (Stenberg and Morehart, 2008).Access to the Internet through broadband (i.e., high-speed) technologies,however, has been less prevalent in rural areas than in much more denselypopulated areas o the country (see box, What Is Broadband?). BroadbandInternet access has become the crux o todays policy debate on equal accessamong urban and rural communities.

Broadband access is viewed as necessary to ully utilize the Internets poten-tial (Greenstein and Prince, 2006; Parker, 2000). As the Internet economy hasmatured, more applications now require higher data transmission rates, evenin the case o simple shopping websites.

The broad scope o the research presented here complements earlier studieson rural telecommunication policy by Parker and Hudson (1992), Internetaccess in the Appalachian region by Oden and Strover (2002), and businessesin the digital economy by Malecki (2008).

This report examines (1) what role the Internet plays in the nationaleconomy; (2) how much, and or what purposes, consumers use the Internet,especially what dierences might exist between broadband and non-broadband Internet use by rural and urban consumers, including such usesas telemedicine, distance learning, and community involvement; (3) whatdetermines whether and how rural businesses use broadband Internet; and

(4) how broadband Internet aects the broader rural economy. Specically,we address a question posed to ERS by Congress on December 26, 2007,concerning broadbands impact on rural communities and their growth,community acilities, access to healthcare, and overall well-being.

While we attempt to measure the observable economic eects o broadbandInternet access and use, this study makes no attempt to comprehensivelyexamine all the issues surrounding the growth o the Internet. For one, thereare inherent limitations in measuring the economic impact, or value, o arapidly evolving technology. The telegraph age, or example, ushered in a


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number o unpredicted developments like the emergence o such compa-nies as Sears Roebuck. This report neither orecasts new developments noraddresses social issues pertaining to Internet uses like privacy, chat rooms, orparental supervision.

What Is Broadband?

The transmission capacity, or bandwidth, o Internet access has been a major impediment limiting

the economic returns rom online activity. The slower the Internet access speed, the less useul the

Internet is. Dial-up, which was the primary access method beore broadband access became more

widely available, is the slowest way to connect to the Internet. The highest speed by which data can

be transerred using dial-up is 56 kilobytes per second (kbps). In rural areas the speed oten has been

much less, with connection speeds o 14 kbps common. Eectively, this consigns rural dial-up usersto using the Internet or text e-mail messages only. Anything requiring large graphics is simply not

practical. High-speed Internet access is necessary to make use o much o what is now oered on the

Internet.

Broadband is the term used to denote high-speed access to the Internet. Although the term has been

used to reer to other services, such as digital television, the matter o most interest to consumers,

providers, and policymakers is broadband Internet connectivity (Eisenberg, 2002). With the conver-

gence o video, audio, text, graphics, and other analogous enduring and transient products and ser-

vices into digital streams that can be transported across the Internet, broadband Internet connections

have become a necessity or common Internet usages and applications.

The Federal Communications Commission (FCC), though altering the broadband denition recently,

historically dened 200 kilobits per second in one transmission direction as the minimum speed or

Internet service to be classied as broadband. Unortunately, the denition includes a wide array o

technologies ranging rom the old ISDN and T-1 lines to satellite service. Lumping very slow trans-

mission and sometimes unreliable service in with superast ber-optic home service makes economic

impact analysis and discussion o broadband Internet service rom historical data challenging.

Most broadband Internet access in U.S. households is through DSL or cable modem technologies

and is aster than the FCC standard. As o 2007, 55 percent o all households had broadband Internet

access: 46 percent o these had DSL, 39 percent had cable modem, and 12 percent had wireless con-nections (PEW). DSL was the rst technology to become widely deployed; cable and, more recently,

ber-optic lines are becoming the technologies o choice.


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3


The Internet Economy

In 1995, there were roughly 16 million Internet users across the globe; by2008 there were nearly 1.5 billion, about 22 percent o the worlds popula-tion. Two-thirds o U.S. adults had in-home Internet access by 2008 (PEW).Domain names have grown rom 30,000 in 1994 to 168 million in 2008(Verisign). Hosts, also known as end-user computers, grew rom 1,000 in1984 to 570 million in 2008 (Internet Systems Consortium). The Bureauo Census reports online retail sales went rom $31 billion in 2001 to $107billion in 2007. Also according to U.S. census statistics, online wholesaletrade in 2006 was an estimated $613 billion, or approximately 16 percent osales. Online wholesale trade in arm products was an estimated $5 billion, or4 percent o all wholesale arm product sales in 2006.

Online economic activities may be grouped into three broad categories:inormation sharing, purchase channels, and sales channels. Inormationsharing can range rom the trivial to critical lie or business issuesromchat rooms to medical or nancial storehousesand is the most commonapplication or businesses and consumers (Hopkins and Morehart, 2001;

Stenberg, 1999; Varian, 2003). Even when purchases are not consum-mated online, purchase decisions are acilitated through price discovery orconsumer inormation gathering. Real estate and automobiles are just two othe markets that have been transormed by price discovery online (Borensteinand Saloner, 2001).

The Internet has led to new sources o supplemental income or somehouseholds. Crats, or example, that used to be pitched only at annual Stateand county airs are now marketed year-round to wider audiences, and theInternet has led to the rise o auction sites such as E-Bay where anyone canbe a buyer and seller o new and used goods and services.

For businesses, the Internet has reduced geographic isolation, with inorma-tion rom collaborating businesses or customers instantly available. Theeective market area or producers has increased, though many businesseshave not taken advantage o this potential (Brynjolsson and Smith, 2000;Malecki and Moriset, 2007).

The increased speed and quantity o inormation, however, cannot reducethe physical distance that passengers and goods must travel (Malecki andMoriset, 2007). It is not clear whether the number o business trips has less-ened due to the Internet (i.e., substituting Internet communication or travel).Anecdotal evidence suggests that as the price o transportation soared inearly 2008, businesses cut back on travel (Odlyzko, 2008). Although the

moving o arm, agricultural, and other physical goods rom point A to pointB involves the same distances as always, the Internet has enhanced the abilityto track shipments and increased the eciency o shipping companies.

As the Internet expands the eective market area or businesses, it alsoincreases competition. The nancial system is a prime example. Banks weretraditionally local in nature. Historically, each arm community had its ownbank. The bank held deposits rom local residents and, in turn, loaned undsout to local armers and the business community. This has changed, however,over the last several decades. First, the regulatory limitations on the markets


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that banks could serve were relaxed or eliminated. With the new regulatoryenvironment and the revolution in telecommunications, the number o locallyowned banks has declined (DeYoung and Duy, 2002; Keeton, 2001).

Depositors have increasingly turned to online banks or investment concernsthat oer higher rates o return or their capital (DeYoung and Duy). Thishas increased the nancial returns o bank depositors, but has reduced theprot that local banks accrued rom deposits. Many loan applicants have

gone online to nd the best rates and terms or home mortgages, homeequity, and other loan instruments. This has reduced the cost or the loanapplicant, but also eroded the prot rom individual loans in the banks loanportolio. To address this shortall, many banks have increased their volumeo transactions, oten by increasing their eective market area. This mayhave hastened the consolidation o the nancial market over the last 10 years.

E-government is another major development in the digital economy aectingrural America. Four kinds o activities all within this area: inormationdissemination, citizen/customer services, government business transac-tions, and governance (Gallegos, 2002; Lanvin, 2008). Inormation typicallydisseminated includes public holidays and events, regulatory actions, issuebries, public schedules, and school lessons and lunch menus. Twelve percento all arms and 22 percent o all arms with Internet access, or example,retrieved inormation rom Federal websites, according to analysis o 2007June Agricultural Survey (JAS) data.

Citizen or customer services include paying taxes and ees, lodgingcomplaints, requesting additional inormation, scheduling o public acilities,and submitting applications or various programs. Four percent o all armsand 7 percent o all arms with Internet access conducted business with theU.S. Department o Agriculture over the Internet according to analysis o2007 JAS data.

Government business transaction costs have allen or governments able toconduct much o their own back-oce operations online, including supplypurchases, bill payments, travel arrangements, and grant/loan operationswith other agencies (Lanvin, 2002; Crescia, 2006). Governance changes areevident in the virtual town hall meetings, online polling, campaigning, andvoting that characterized the 2008 election cycle.

Both government and the citizenry have beneted rom the development oe-government via decreased costs to deliver or obtain services, increasedor enhanced provision o inormation and services, and improved eedbackbetween the citizenry and government (Lanvin).


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5


Broadband Internet Adoption and Use

Dial-Up Versus Broadband Internet Use

That households and individuals greatly value the Internet, and espe-cially broadband access to the Internet, is readily apparent rom the data.Two major data sources directly address individual and household onlineproclivity and activity: the U.S. Bureau o the Census and PEW (PEWInternet & American Lie Project). The Census Bureau has not collectedthorough data on online activity since 2003, so we rely on the PEW surveysor our understanding o Internet users (see Appendix B or a description othis and other data used in this report). Aggregate e-retail, peer-to-peer, web-page access counts, and other such inormation are not used here becausesuch measurements o volume give no inormation on individual behavior.

The PEW survey data suggest that rural and urban online behavior is alike ione controls or type o Internet access. In other words, rural and urban userswith broadband Internet access have similar online behavior patterns vis--vis each other; rural and urban users with dial-up Internet access have similar

online behavior patterns as well. Users with broadband Internet access,however, exhibit dierent online behavior than users with dial-up access.

Among the conclusions drawn rom 2008 PEW survey data:

Three-quartersofalladultsusedtheInternet,with69percenthaving

access at home.

Fifty-vepercentofalladultshadbroadbandaccessathome.

Only41percentofadultsinruralhouseholdshadbroadbandaccessat

home in 2008.

Broadband access at home has increased dramatically or both urban and

rural adults since 2001 (g. 1).

Figure 1

Trends in home broadband adoption by region

2001 02 03 04 05 06 07 08

0

10

20

30

40

50

60

70

Rural

Urban

Suburban

Percent of households

Source: Horrigan, 2008


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Broadband Internets Value for Rural America / ERR-78Economic Research Service/USDA

The number of online activities varies between dial-up users and broadband

users, but not between rural and urban broadband users (Horrigan, 2008).1

Most Internet users go online everyday and most of these send e-mail or get

information off the Internet (table 1). Getting information, including visiting

State and local government websites, is the most common activity. Many of

the activities, such as hobbies and web-surfing, are of a personal nature. Still,

23 percent of adults used the Internet daily to conduct research for their job.

Broadband Internet users were more likely than dial-up users to take part in

any specific online activity, such as getting news online. The more data inten-

sive the activity, the greater the difference is between dial-up and broadband

user participation.

The Internet has reduced the economic involvement of the broker and other

business middlemen in the economy. More bank transactions, for example,

are taking place through ATMs or online instead of via tellers. According to

a PEW survey in 2005, a quarter of all U.S. adults, or 44 percent of all adult

Internet users, used the Internet for online banking. On any given day, 14

percent of all U.S. adults perform some online banking activity. Broadband

users are especially heavy users of online banking servicesover 60 percent

of urban and nearly 50 percent of rural broadband users conducted someonline banking activity in 2007.

As online data intensiveness increases, broadband access becomes more of

a necessity. Nearly all online activities are becoming more sophisticated,

using more data intensive processes; e-mail, for example, is becoming more

data intensive as people are more inclined to attach photo and video files.

1John Horrigan and a number of other

researchers whose works are discussed

at length in this report presented their

research at the Economic Research Ser-

vices broadband workshop, September

2008. For a complete listing of par-

ticipants and papers, see the workshop

agenda in appendix F.

Table 1

Online activities, 2008

Activity that has ever been done by a userAll Internet

usersDial-up at home

Broadband athome

Percent

Use an online search engine 89 80 94

Check weather reports and forecasts 80 75 84

Get news online 73 61 80

Visit a State or local government website 66 55 72

Look online for information about the 2008 election 55 37 62

Watch a video on a videosharing site like YouTube or GoogleVideo 52 29 60

Look online for information about a job 47 36 50

Send instant messages 40 38 44

Read someone elses blog 33 15 40

Use a social networking site like MySpace, Facebook, or LinkedIn 29 21 33

Make a donation to charity online 20 9 23

Download a podcast 19 8 22

Download or share files using peer-to-peer networks

such as BiTorrent or LiveWire

15 15 17

Create or work on your own blog 12 8 15

Source: Pew Internet & American Life Project Survey, April 2008.


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Broadband access is not uniorm across rural and urban America, nor is thebroadband access transmission rate identical across the country. Any shortallin rural broadband availability is an implicit loss in economic opportunity orbusinesses, consumers, and governments.

Rural Internet Use

While the surveys conducted by PEW indicate popular online activities

among adults, we turn to the Current Population Survey (CPS) to betterunderstand who uses the Internet and where. The most recent CPS dataare rom a survey administered in October 2007. This large sample surveydoes not include any questions on what the Internet is used or or where itis accessed outside the home, but it provides a better understanding o whouses the Internet and rural-urban regional dierences in household onlineproclivity.

Table 2 shows the share o households in which at least one person wentonlineno matter the technologyat home, school, work, or elsewhere in2007. Over 71 percent o all households included one or more members thatwent online during the year. The CPS data suggest a variation across thecountry in the occurrence o going online (table 2). Households in the Southwere the least likely o the our Census regions to go online (see Appendix Aor a description o the regions).

Nonmetro areas, in aggregate, had a lower percentage o individuals goingonline in 2007. While the variation in overall online use was insignicantbetween regions outside o the South, the same did not hold or nonmetroareas. Only in the Northeast was there not a signicant dropo in onlineactivity going rom metro to nonmetro areas.

Income dierences have oten been oered as a key explanation or the

disparity in Internet use by households (Choudrie and Dwivedi, 2006; Flammand Chaudhuri, 2007; Stenberg and Morehart, 2006). Lower income house-holds clearly access the Internet less than higher income households (g. 2).Income, o course, is not the whole story as income is highly correlated withor determined by education, age, and other actors, but household incomeby itsel does raise an intriguing question: to what extent does use o theInternet lead to higher household income, and to what extent does higherhousehold income lead to higher levels o Internet use?

Table 2

Households with at least one person going online at home

or elsewhere, 2007

Metro Nonmetro TotalPercent

Northeast 71.0 69.5 70.9

Midwest 74.0 65.7** 72.1

South 70.7 58.3** 68.3

West 75.5 68.6** 74.9

Total 72.6 63.3** 71.1

** Metro/nonmetro dierence signifcant at 0.01.

Source: ERS using Bureau o the Census CPS data.


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Over 80 percent o households with annual incomes above $40,000 used theInternet during 2007. The rural-urban gap in accessing the Interneteitherin-home or elsewhereis not evident between rural and urban households othe same income (g. 2).

Sixty-two percent o all U.S. households had in-home Internet access in 2007(table 3). The West had the highest share o households with in-home access,partially refecting the more urbanized population distribution there. A signi-

icant dropo in in-home Internet access is apparent between urban and ruralhouseholds, especially outside the Northeast; ewer than hal o rural house-holds in the South had Internet access at home in 2007.

Income is a major actor in whether a household has in-home Internet access(g. 3). Over 70 percent o all households with incomes above $40,000had in-home Internet access, and again rural-urban dierences are largelynonexistent between households o the same income level. The steeper slope

Figure 2

Households accessing the Internet using any technology

anywhere, 2007

Source: ERS using Bureau of the Census CPS data.

Household income ($)

Less than

5,000

7,500 to

9,999

Total

Metro

Nonmetro


12,500 to

14,999

20,000 to

24,999

30,000 to

34,999

40,000 to

49,999

60,000 to

74,999

100,000 to

149,999

0

10

20

30

40

50

60

70

80

90

100

Table 3

Households with at least one person going online at home

using any technology, 2007

Metro Nonmetro Total

Percent

Northeast 64.1 61.0 63.7

Midwest 63.1 53.7** 60.9

South 61.7 46.4** 58.7

West 67.0 56.9** 66.1

Total 63.7 51.9** 61.8




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9


or in-home access rates versus going online anywhere suggests that aord-ability may be a actor in Internet access at home.

Most households with in-home Internet access have broadband connections(table 4). This rate varies little across regions or urban households. Thesame cannot be said or rural households. A marked dierence in broadbandaccess exists between urban and rural residents, even in the Northeast. Only70 percent o rural households with in-home Internet access had broadband

access in 2007, versus 84 percent o urban households. The data suggest thatbroadband availability is an issue or rural areas across the country.

The rural-urban dichotomy in broadband access becomes even more apparentwhen household income is taken into account (g. 4). Income appearsto be a minor actor in opting or broadband over dial-up or an in-houseInternet connection. Generally, over 70 percent o Internet users, regard-less o income, choose to pay or broadband (g. 4). Thus, the gap betweenrural and urban household use o broadband suggests that the availability obroadband services is more o a challenge or rural than urban households(unless there is some systemic dierence between rural and urban house-

Figure 3Home internet access by income, 2007

Percent of all households

Source: ERS analysis of Bureau of the Census CPS data.


Less than

5,000

7,500 to

9,999

12,500 to

14,999

20,000 to

24,999

30,000 to

34,999

40,000 to

49,999

60,000 to

74,999

100,000 to

149,999

Total

Metro

Nonmetro

0

10

2030

40

50

60

70

80

90

100

Table 4

Share of online households with broadband access, 2007

Metro Nonmetro TotalPercent of online households

Northeast 87.3 68.8** 85.4

Midwest 82.9 70.6** 80.4

South 83.0 67.3** 80.5

West 85.3 75.2** 84.4

Total 84.4 69.7** 82.3




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holds that otherwise could explain the gap). Systemic household dierences,i they exist, would have to explain why rural households are as likely asurban households to use the Internet but do not opt or broadband when theyalready use the Internet at home.

Further Factors in Rural Broadband Use

The presence o children in the household is a contributing actor in ahouseholds having in-home Internet access (Stenberg and Morehart, 2006;Choudrie and Dwivedi, 2006). One way in which in-home Internet access may

improve household well-being is through educational programs. The Internethas increased course oerings or students in primary, secondary, post-secondary, and continuing education programs, especially those attendingsmall, isolated rural primary and secondary schools. The Internet has alsoimproved interaction among students, parents, teachers, and school adminis-trators in primary and secondary education. This is especially signicant asstudies have shown the importance o parental involvement in their childrenseducation (Moore, 2007; Poley, 2008). As a result, education programs drivehousehold demand or in-home Internet access. Analysis o the CPS datashows households with children have higher rates o in-home Internet accessand households with teenage children are the most likely to have it (table 5).

Rural households, however, have uniormly less access to in-home Internetthan urban households across all household composition types. Inasmuch asdistance education is benecial to economic well-being, continuation o thisrural-urban dichotomy could put rural households at a disadvantage.

Once a household has in-home Internet access, the upgrade to broadband isseemingly not aected by household composition (table 6). The rural-urbangap, however, is more extreme and broadbands role in distance educationwould seem to put rural households at a urther disadvantage.

Figure 4

Households with broadband access by income, 2007

Percent of online households

Source: ERS analysis of Bureau of the Census CPS data.


Less than

5,000

7,500 to

9,999

12,500 to

14,999

20,000 to

24,999

30,000 to

34,999

40,000 to

49,999

60,000 to

74,999

100,000 to

149,999

Total

Metro

Nonmetro

0

10

20

30

40

50

60

70

80

90

100


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11


In a recessionary economy a number o Internet activitiesincluding jobsearches and home businessesmay become more critical or households.The 2007 CPS data give some inormation on both activities.

Unemployed adults, while less requent users o the Internet than employedpersons, still had high anywhere access rates (table 7). People not inthe labor orce due to retirement or disability had the lowest rate o onlineactivity. Unemployed individuals looking or work were more likely to usethe Internet than other people not employed. Rural people in the labor orcehad a lower access rate than urban people.

The picture changes or home Internet access, where aordability likelybecomes an issue or unemployed or disabled/retired persons (table 8). The

dropo in use or these groups holds or both rural and urban residents.These individuals likely go online at such locations as libraries and schoolswhen in-home access becomes unaordable.

A broadband connection is again the choice or most homes with in-homeInternet access across all labor orce categories (table 9). Regardless olabor orce status, whether the household is in an urban or rural location, i ahousehold has in-home Internet access, the household will most likely have abroadband connection.

Table 5

All types of Internet access at home by household composition, 2007



Not a parent 65.0 53.4** 63.3

No children under 18 years o age 69.7 59.4** 67.7

Only children less than 6 70.8 55.1** 68.7

At least one child 6-13 and none older than 13 72.8 65.4* 71.7

At least one child older than 13 81.4 76.5** 80.6

Total 68.5 58.1** 66.8

** Metro/nonmetro dierence signifcant at 0.01; * dierence signifcant at 0.05.


Table 6

Broadband in homes with Internet accessby household composition, 2007


Percent of online households

Not a parent 85.7 71.4** 83.9

No children under 18 years o age 82.3 66.9** 79.7

Only children less than 6 90.5 78.4** 89.1

At least one child 6-13 and none older than 13 87.3 71.8** 85.2

At least one child older than 13 85.4 71.8** 83.3

Total 85.2 70.3** 83.1




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Table 7

Online activity using any access technology

by labor force status, 2007


Percent within labor

force category

EmployedAt work 83.7 78.6** 82.9

EmployedAbsent (on day o survey) 85.9 79.4** 84.8

UnemployedOn layo 72.8 62.3** 70.6

UnemployedLooking 77.7 72.8* 76.9

RetiredNot in labor orce 52.6 43.7** 50.9

DisabledNot in labor orce 47.1 43.2* 46.1

Total of all adults 77.2 70.6** 76.1



Table 8

Home Internet access using any technology

by labor force status, 2007



force category




UnemployedLooking 63.8 51.4** 62.0

RetiredNot in labor orce 48.8 41.3* 47.4

DisabledNot in labor orce 39.6 34.9* 38.4




Table 9

Broadband in homes with Internet access by labor force status, 2007



force category




UnemployedLooking 83.7 72.0** 82.1

RetiredNot in labor orce 75.0 59.0** 72.3

DisabledNot in labor orce 75.0 63.2** 72.4





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13


A small but signicant number o households have home businessescovering a wide range o proessions such as armers, doctors, and artisans(table 10). Such households may become more commonplace in the currenteconomic downturn as more households try to compensate or loss o jobs orreduced work hours by starting home businesses. Home businesses are morecommonplace in rural areas than urban areas (table 10). In-home Internetaccess is much more common in households with home businesses (81percent) than among all households in the aggregate (62 percent). This is true

or both urban (83 versus 64 percent) and rural home businesses (70 versus52 percent).

In summary, a broadband connection is almost the deault or a greatmajority o online households. Analysis o the CPS data suggests that morerural households would have broadband connections i these connectionswere as readily available as in urban areas, implying lost economic opportu-nity or some rural households.

The data, however, also suggest that some o the shortall in rural Internetactivity may be due to other actors that precede the decision to get a broad-band connection. These actors include the lower average income or ruralhouseholds, higher average age o the rural population, and lesser educationalattainment o rural residents as compared to their urban counterparts.

Table 10

Internet users by home business status, 2007


Percent

Households with home businesses 11.7 14.8* 12.2

Home businesses with any kind o home Internetaccess

83.3 70.1** 80.7

Proportion o home Internet access with broadband 87.6 71.3** 84.6Note: Dierence between metro/nonmetro ( *--signifcant at 0.05, ** -- signifcant at 0.01).



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Geography of Rural Broadband Providers

Broadband provision ollows a geographical pattern tied to population sizeand the urban-rural hierarchy. Limited provision is most strongly associatedwith low population size in a given area, but also exhibits regional patternsthat refect dierences in urban concentration and challenges associated withmountainous terrain. The Federal Communications Commission (FCC) dataon the number o broadband providers by ZIP Code area (see Appendix B)are the only source o geographically detailed inormation with nationalcoverage. More robust ndings would come rom data measuring the actualnumber o broadband customers and variation in the price o service, ratherthan just the number o companies providing access. The FCC data, however,serve as the best available proxy o broadband accessibility.

Metro ZIP Code areas average 88 square miles apiece and include justover 16,700 people on average.2 Nonmetro ZIP Code areas are gener-ally much larger (131 square miles) with ar ewer people (3,000) onaverage. Such population diversity drives geographic variation in the costo broadband provision. While U.S. metro areas averaged close to nine

providers per ZIP Code area in 2006, nonmetro ZIP Code areas averagedhal that number (g. 5).

Despite signicant expansion, the metro-nonmetro gap in number obroadband providers remains and has even widened by some measuressince 2000, when broadband provision was much more limited in scope.It is not surprising that, as broadband access has expanded to encompassa large majority o Americans, the remaining areas o limited coverageincreasingly refect the higher costs associated with providing service tosmaller populations.

2Metro and nonmetro categories used

here are based on the ERS Rural-Urban

Commuting Areas and are dened us-

ing criteria similar to OMBs county-

based metro and nonmetro areas.

Nonmetro ZIP Code areas are denedas those outside urban centers o

50,000 or more and their surrounding

commuting zones

Figure 5

Average number of broadband providers per ZIP Code by metroversus nonmetro area, 2000-2006

Number of providers

Source: USDA, Economic Research Service, using data from the FCC.

2000 01 02 03 04 05 06

0

1

2

3

4

5

6

7

8

9

Nonmetro

Metro


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15


Clusters o lower service provision in 2006 highlight clearly discernableregional patterns (g. 6). The northern Great Plains, eastern Oregon, andnortheastern New Mexico are sparsely populated. The Missouri-Iowa border

area has experienced persistent population loss and an aging population.An extensive area o low service is evident in West Virginia and easternKentucky, but extends rom Tennessee through upstate New York. Thismountainous terrain, divided by innumerable ridges and narrow valleys,impedes broadband service provision to its widely dispersed, rural andsmall-town population. Though topography creates similar challenges in theWest, people living there tend to concentrate more in towns and small cities,making broadband service less expensive to provide to each household.

The Economics of Broadband Delivery

The main economic principles underlying the diusion and adoption o communication services

across rural-urban space are twoold: companies invest where they earn the highest returns and

households adopt i they can aord these services and either need or desire them (Davies, 1979;

Rogers, 1995). The adoption and use o communication and inormation services, thereore, are not

uniorm across the country or among income groups.

Here we are interested in dierences between rural and urban areas or, in Federal policy terminol-

ogy, between high-cost and low-cost areas. Residents in rural areas have always aced higher costs

or telecommunication services than those in urban areas and, at least or the oreseeable uture, will

continue to do so. Economies o scale or the current technology set are at the core o why they ace

higher costs (Stenberg, 2004).

Rural areas are characterized by low population density. With ewer people in any geographic space,

the per capita costs o providing telecommunication services rise. Fewer customers share in the cost

o the central oce switches, loop maintenance, and other common components o the local telecom-

munication system.

Rural areas also have ew large businesses or government operations. In the United States, private

business and government use o telecommunication services has indirectly subsidized household use.

In practice, this has meant that urban telecommunications service providers oten charge higher rates

to their business customers and lower rates to household customers than they would in a perectly

competitive market or telecommunication services (Egan, 1996). Rural telecommunications compa-

nies oten do not have this luxury.

Rural telecommunications service providers must spend more per customer or maintenance and

repair crews than urban providers. Rural maintenance and repair crews, especially those providingservices in very remote regions, cover a larger territory than urban crews, resulting in more overtime,

more travel expenditures, and all the other resultant expenditures that crews ace when they are not

near their home base (National Telephone Cooperative Association, 2000). Rural providers also need

more resources per customer than urban telecommunications service providers, including duplicate

acilities and backup equipment, to ensure network reliability (Egan, 1996).


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Access to services o any kindhospitals, grocery stores, public transpor-tation, Internetis strongly related to overall population size, the degreeto which population is concentrated in urban centers, and the populationo neighboring areas. In the case o broadband service, as measured by theFCC data, population size is the predominant explanatory eature. For allZIP Code areas nationally, the very strong (0.6, or 60 percent) correlationbetween population size and service provision in 2000 increased to 0.75 by2006 (g. 7). Thus, low-service areas that remain, though ar ewer, are morelikely to be in sparsely settled territory throughout nonmetro America.

Within nonmetro areas, population size is the strongest predictor o wherebroadband access is likely to be available. Other dimensions o nonmetropopulation distribution, however, strongly correlate as well, especiallythe degree o population concentration as measured by percent urban(g. 8). Correlation between broadband provision and the relative size oneighboring ZIP Code areas weakened rom 2000 to 2006, as broadbandprovision increased.


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17


Results o a regression analysis conorm to expectations regarding thegeography o broadband provision driven by relative costs per capita (or adescription o the ordinary least squares model, see Appendix C). In combi-nation, the three population-based measures explained 63 percent o variationin broadband availability. Population size contributed the largest eect, butpercent urban and size o nearby populations also were signicantly relatedto broadband provision in 2006.

Figure 7

Strength of relationship between number of broadband providersand population size, 2000-2006

Correlation coefficient


2000 01 02 03 04 05 06

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8All ZIP Code areas Nonmetro ZIP Code areas

Figure 8

Strength of relationship between number of broadband providers in

nonmetro ZIP Code areas and three population measures, 2000-2006

Correlation coefficient


2000 01 02 03 04 05 06

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Population size Percent urban Nearby population


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Additional insights may be gained by examining where the number o broad-band providers is higher or lower than expected, once these very strong anduniversal population eects are taken into account. This is accomplished bymapping the residuals rom our regression model or 2006 (see AppendixC or an explanation o the model and the variables used). Residuals aremeasured or each ZIP Code area as the dierence between the actualnumber o providers in that area and the number o providers predicted bythe model, based on the areas population size, urban concentration, and

proximity to nearby population centers. In the West, higher-than-expectedservice occurs in the most sparsely populated sections (g. 9). In Nebraskaand Kansas, including the more densely settled eastern parts, broadbandprovision is higher than expected, compared with most neighboring States.Vermont similarly stands out among New England States.


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19


In Appalachia, broadband service provision is consistently lower thanexpected. The Ozarks in northeastern Arkansas show values similar toAppalachia, pointing to the role o topography in infuencing broadbandprovision in the eastern hal o the United States.

Higher-than-expected service in Vermont, however, suggests that economicand social actors may infuence the level o broadband service in nonmetroZIP Code areas. Higher levels o income and education may increase demand

or broadband. Vermonts economy depends more heavily on tourismand recreation, and its population has high levels o college and technicaltraining, especially in engineering, nance, and health. Both these eatureshelp explain dierences in service levels compared with more southernAppalachian areas.

The geography o broadband service provision in 2006in particular, thecontrast between higher- and lower-than-expected service areassuggestsseveral actors contributing to service gaps beyond basic population barriers.First, the variation in broadband coverage is less pronounced in the West,especially in the Intermountain West, compared with the Midwest andAppalachia. This may be due to a more concentrated population pattern(though this analysis accounts or some o this eect by including percenturban); a recreation-based economy, attracting tourists who increasinglydemand broadband availability; or a rapidly growing population made upo younger, more educated individuals, including tech-savvy entrepreneurswhose businesses depend on being connected to urban-based clients.

Second, Appalachias prominence as an underserved area suggests thattopography signicantly increases the cost o providing broadband servicein this region. Education levels are below the national average, but no morethan in many Coastal Plain States areas that are better served. The higherdependence on mining and other resource-based industries may play a role,

but lower levels o broadband service exist even in areas o Appalachiawhere retirement and tourism have become important. And i a higher depen-dence on mining lowers Internet demand, the same is not true or agriculture.When population is taken into account, places with higher employment inagriculture exhibit higher levels o broadband support.

Finally, higher-than-expected service in States such as Nebraska, Kansas, andVermont indicate that State-level policies and programs may be behind thewidespread availability o broadband. Here, we ace limitations o data thatsimply show the number o providers in a ZIP Code area and may not alwaysrefect dierences in costs or level o service. Still, conditions at the Statelevel seemingly can transcend economic and social dierences that tend to

handicap some rural areas.


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Broadbands Effect on the Rural Economy

Measuring the rural economic eects resulting rom investment in broad-band is challenging. Separating out the broadband eect rom other causalactors in economic growth is dicult, especially given that broadband hasnot been available or long and its use has grown rapidly. The methodolog-ical approach that we take is called quasi-experimental design, and whatis undertaken here may be considered an initial step toward erreting out acausal relationship.

Quasi-experimental design (QED) is a statistical approach that simulates anex-post laboratory experiment (Cook and Campbell, 1979). Like a laboratoryor medical experiment, QED eatures both a treatment and control group.The treatment group is the group undergoing the cure, which in this caseincludes areas with some minimum level o broadband availability.

The control group, or the untreated group, serves as the counteractual to thetreatment group. In theory, the counteractual is what would have happenedto the treatment group i they had not undergone the cure. The control

group provides the baseline orecast. Divergence in the post-treatment periodis attributed to the eect resulting rom the treatment.

Selection o control and treatment in QED (unlike a true laboratory experi-ment) is not perectly random, hence the term quasi. Treatment groups aresel-selected. Control groups are selected based on their characteristic simi-larity with the initial, or pre-treatment, characteristics o the treatment group.

QED has been utilized in a large body o regional science research. It hasbeen used in airport impact studies such as Farnsworth (1972) and Wheat(1970), scal policies such as Bender and Shwi (1982), highway inrastruc-ture studies such as Blum (1982) and Isserman (1987), and military base

closure research such as Isserman and Stenberg (1994).

We use the year 2000 broadband density surace developed rom the FCCbroadband access data (see appendix C, specically the section on enhancingthe FCC data). In 2000, broadband was only starting to become widelyavailable and it is the rst year a broadband likelihood database could beconstructed. Broadband access is based on the earliest reliable set o datarom the FCC (according to our discussions with the FCC). Our 2000 likeli-hood data allow some eect resulting rom broadband investment to start toappear in rural communities. Inormation technology takes time to be ullyutilized ater the technologys introduction (Greenstein, 2000; Bresnahan etal., 1999; Greenstein and Prince, 2006).

We selected 228 rural counties or our treatment group that had relativelyhigh broadband availability in 2000. For each o these counties, we ounda rural twin, a county that most closely resembles the treatment county(outside o broadband availability) based on economic structure (arming,manuacturing, retail trade, Federal Government, and State/local governmentincome as a percent o total income); spatial structure (population density,distance rom various city sizes, and presence o interstate highway); andincome (per capita, unearned, and transer income) in 2000; as well as thegrowth in population and income rom 1990 to 2000. Duplicate counties


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21


were not allowed in the control group (see appendix E or urther discussiono the methodology used).

Our post-treatment period is 2002 through 2006. Year 2006 is the last yearor which broadband data are available, and the 5-year period provides timeor an economic eect rom broadband service to maniest itsel. Due to therapid spread o broadband Internet access, the initial short period may be theonly period when we are able to detect dierences in economic outcomes

resulting rom the availability o broadband access.

We investigate changes in county employment and income in our QED anal-ysis, and nd that total employment grew aster in counties that had greaterbroadband Internet access sooner than in similarly situated rural countieswithout broadband access (table 11). Previous studies (Crandall et al., 2007)suggest that employment is not expected to be greatly infuenced by broad-band access. Simply put, the issue becomes whether the use o broadbandInternet in business increases productivity, which subsequently either reducesactual employment (due to the productivity gain) or increases employment(as market share increases). At the county level, however, broadband avail-ability may mean that the countys employers are more competitive withemployers in other counties. This would attract both new jobs and potentiallynew employers.

Wage and salary jobs, as well as number o proprietors, grew aster in coun-ties with early broadband Internet access. The arm sector seems largelyto have been unaected by broadband Internet access. The arm sector,however, seems more likely to embed broadband Internet access into produc-tivity as its basic inputs are more xed than other sectors o the economy.Subsectors o the counties economies (not shown here), like wholesale trade,generally showed no signicant eect rom broadband access, though urtheranalysis is warranted. The dierence in nonarm jobs starts to disappear as

other counties get increased broadband access.

Income showed a mixed picture (table 12), though population showedgreater growth in treatment counties than control counties. The normal year-to-year volatility o arm earnings due to weather and other causal actorsnot accounted or in the QED approach taken here may have been a actorin this outcome. Nonarm earnings showed greater growth corresponding to

Table 11

Difference in employment growth rates between early broadband and control counties

2002 2003 2004 2005 2006

Total number o jobs 0.003 0.0079* 0.0104* 0.0114* 0.0113

Total number o proprietors -0.0068 0.0072* 0.0199* 0.0280* 0.0363*

Farm proprietors -0.0001 0.0001 0.0009 0.00197 0.0058

Nonarm proprietors -0.0075 0.0048 0.0152* 0.0195* 0.0224*

Wage and salary jobs 0.0062* 0.0092* 0.0088* 0.0075* 0.0053*

Farm jobs -0.0052 -0.0028 -0.004 -0.0050 -0.0010

Nonarm jobs 0.00343 0.0076* 0.0096 0.0101 0.0087

Note: * signifcant at 10%.

Source: ERS using selected data rom Bureau o the Census and Bureau o Economic Analysis data.


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broadband availability. The dierence between control and treatment coun-ties lessens over time as other counties get better broadband access.

Private earningsall earnings, excluding arm earnings and Federal, Stateand local government earningswere greater or the treatment counties

than or the control counties. The results we obtained are consistent withthe argument that broadband Internet access has a positive eect on ruralcommunities.

Our analysis supports the hypothesis that investment in broadband Internetaccess leads to a more competitive economy. Further analysis, however,is needed to address the issue o causality more completely. Why and howbroadband may lead to the results o the QED analysis was the subject oother ERS research at the ERS Broadband Workshop. It is the subject o therest o the report.

Table 12

Difference in income and population growth rates between early broadband and control counties

2002 2003 2004 2005 2006

Population (number o persons) 0.0041* 0.0063* 0.0065* 0.0076* 0.0093*

Personal income 0.0141* 0.0064 0.0028 0.0037 -0.0012

Per capita personal income (dollars) 0.0100* -0.0002 -0.0047 -0.0049 -0.012

Private earnings 0.0163* 0.0234* 0.0274* 0.0206* 0.0192

Farm earnings 0.7545 0.0568 0.2863 0.4327 0.5483

Nonarm earnings 0.0114* 0.0114 0.0126 0.0068 0.0009

Note: * signifcant at 10%.

Source: ERS using selected data rom Bureau o the Census and Bureau o Economic Analysis data.


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23


Rural Communities and Broadband Internet Use

Broadband Internet availability has direct implications or the well-being ocommunities. Limited or nonexistent broadband restricts Internet use in ruralcommunities and subsequently the benets derived rom its use. Researchsuggests that broadband use osters community involvement, enhances theprovision o services such as health and education, and expands householdincome prospects through such activities as telework.

Community Interactions and the Internet

In the Internets inancy some researchers warned that its use would weakencommunity ties, splinter common interests, and erode levels o voluntary orcommunity participation, according to Stern et al. (2008). Local communi-ties would be destroyed as people went online and ound their own virtualcommunities o shared interest.

Sociological research over the past decade, however, has ound thisconcern largely unjustied. In act, Internet use has been shown to bolster

community vitality through civic engagement and community participation(Stern and Dillman, 2006; Stern et al., 2008; Wellman et al., 1996). Theconcern has now evolved into ear that those with antiquated or no connec-tions to the Internet are systematically being let out o community activi-ties (Stern et al., 2008).

By use o a logistic regression model, Stern et al. showed that the use othe Internet is associated with higher degrees o community participationacross a variety o groups and organizations. People use the Internet toreceive inormation via e-mail rom organizations or to search out inor-mation groups. Using broadband technologies corresponds positively withhigher levels o passive and active community participation. Stern et al.

concluded that the quality o Internet access is also important to a commu-nitys sociological well-being, regardless o actors such as income, age,education, and race.

Stern and others data suggest that rural communities that rely most onvolunteerism to unction might be at a disadvantage as a consequence oeither a lack o Internet access or an unwillingness to adopt broadbandtechnologies. Furthermore, the lack o broadband service may in itseldiscourage the development o prociencies in using the Internet. In otherwords, sluggish dial-up service may preclude individuals rom growingecient in daily Internet use, and thereby attenuate their contribution totheir local communities.

Broadband Internet services, however, oer more denitive, or at leasteconomically measurable, benets to rural communities. These benetscovered during the 2008 ERS broadband workshop span medical, educa-tional, and job services. One particular benet is telemedicine.


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Telemedicine and Telehealth

Rural communities have long aced challenges in getting adequate localhealth care. Telemedicine and telehealth have been hailed as vital tohealth care provision in rural communities, whether simply improving theperception o locally provided health care quality or expanding the menuo medical services (Goetz and Debertin, 1996). More accessible healthinormation, products, and services coner real economic benets on ruralcommunities and their residents: reducing transportation time and expenses,treating emergencies more eectively, reducing time missed at work,increasing local lab and pharmacy work, and providing savings to healthacilities rom outsourcing specialized medical procedures (Capalbo andHeggem, 1999; Whitacre, 2008).

These benets have been recognized by Federal policy. The USDA adminis-ters a number o programs aimed at improving in-clinic medical technologyand broadband Internet access to ully utilize medical technologies in ruralclinics. The 2008 Farm Act (the Food, Conservation, and Energy Act o2008) expands these programs.

Telemedicine studies have primarily been case studies on how hospitalshave adapted to telemedicine or cost-benet studies or hospitals adaptingparticular telemedicine applications. Whitacre (2008) examined the economicbenets rom a community perspective. Rural hospital services aect acommunity directly in the health o its citizenry and nancially since ruralhospitals in the States studied are most oten partially unded by localsales taxes. As a consequence, understanding the ull economic potentialo telemedicine is important in understanding the economic benet o suchprograms or rural communities.

Whitacre visited hospitals in 24 rural communities across Arkansas, Kansas,

Oklahoma, and Texas. Four telemedicine benets were catalogued: (1)hospital savings resulting rom outsourcing specic procedures, (2) transpor-tation savings accruing to patients, (3) income savings resulting rom reduc-tion in missed work, and (4) increases in local lab and pharmacy work.

Whitacre ound wide variation in the way rural hospitals use teleradiology,teleoncology, and telepsychiatry, the specic telemedicine services analyzedin the study. The biggest benet noted by hospital sta was in improvedturnaround or patients. Cost savings or the hospital were typically not great,though annual cost savings varied signicantly. Transportation savings topatients also varied considerably. The estimated transportation cost savingsor patients not having to go to a more distant hospital ater the initial visit

was estimated to range rom $2,000 to $110,000 per year per hospital acrossthe 24 hospitals.

Estimated savings to patients who would have missed additional worktime had they gone beyond their local hospital ranged rom $3,000 to$70,000 or the 24 rural hospitals. Additional pharmacy and lab workthat was gained by rural hospitals or their local aliates was estimatedto range rom $31,000 to $1.5 million per annum. The cost o not havingtelemedicine thus was estimated to average $370,000 per annum or the 24rural hospitals. Communities with larger hospitals (2,000 or more patient


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25


encounters per month) would be orgoing over $500,000 per year i tele-medicine were not oered.

Distance Education

Education has long been shown to contribute positively to individualseconomic well-being as well as to national economic growth (through laborproductivity gains). Education, also a major actor in the well-being o

rural America, has been undergoing a transormation because o broadbandInternet, with promising economic consequences. The institutional changestaking place between students, parents, aculty, and education administratorsare already evident.

School-to-school distance education systems have opened to other providergroups that reach beyond schools or learning centers (Poley, 2008). Learnersinclude students in K-12 and higher education as well as new immigrants,continuing education students, and individuals taking courses or personaldevelopment. Providers o distance education include universities, commu-nity colleges, private companies, communities, proessional organizations,primary and secondary schools, and individuals.

Learners attend anytime during the 24-hour day, at work sites, learningcenters, and in the home (Poley). Elementary school learners can visiteducational sites that were introduced in the classroom, complete researchprojects (oten with the assistance o parents), and check up on assignmentswhile home sick. Their parents also can interact with teachers more reely.Secondary school students can enroll in online Advance Placement coursesand other college-prep and college-level courses.

Distance education or post-secondary institutions also saves resourcesorschools by reducing overhead and or rural households by reducing travel

costs. It enables motivated learners to complete a course o study that mightotherwise be incompatible with their work schedules and parental responsi-bilities (Poley). The promise or rural residents is increased access to educa-tional resources, at lower costs than without distance learning.

The Service Sector in the Internet Economy

Most employment growth in the United States over the last several decadeshas been in the service sector, a sector especially conducive or broadbandapplications. Analysis o Bureau o Economic Analysis data shows servicesmaking up 50 percent o real private gross domestic product (GDP), 60percent o personal consumption expenditures, 16 percent o private invest-

ment, and 25 percent o total trade in 2007.

As the sector has grown, inormation technology has increased the sectorsproductivity and globalized its marketplace. Inormation technology and theservice sector are primary drivers o economic growth (Mann, 2008). As theglobal economy has grown, so have markets or inormation technology andservices that process or trade through the Internet (Mann, 2006). Inormationtechnologies have allowed services to be ragmented between nontraded andtradable segments, such as back-oce operations o nancial rms, airlinereservation oces, and sotware development or private business.


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During the ERS-sponsored workshop on rural broadband in 2008, Mannidentied our overarching eects o the Internet on the service sector:

Greaterinternationaldivisionoflaborinservicesorstandardizationof

services,

Greatersupplyofintermediateservicesorfragmentationofservices,

Greaterdemandforintermediateservicesorfragmentingofservices,and

Globalizationofboththesupplyanddemandforservices.

This has led to increasing private service sector exports and imports (table13), with the United States exporting more services than it imports.

Not all service sector trade is uniormly distributed. Mann (2008) concludedthat the trade in services has harmed low-wage service work like call centersand may continue to do so. Codication o work processes, such as in thesotware industry, also puts some high-wage work at risk o going overseas.Broadband allows rural areas to compete or low- and high-end service jobs,such as sotware development, but does not guarantee that rural communities

will get them.

Telework

Telework is one part o the service sector that could be greatly enhanced bybroadband Internet. Might rural communities benet? Do rural communitieshave people that would be interested in and able to work online? Are thererms that would be interested in rural sourcing rather than global sourcingsome o their services? Morris and Goodridge (2008) addressed this duringthe ERS workshop. They surveyed businesses across the country and oundthat approximately 12 percent were engaged in global oshoring o someservice support activity, mostly (52 percent) to India.

The major advantages with oshoring cited by businesses were reducingcosts, reeing up management time, and oering 24/7 customer access.Disadvantages were increased incidences o customer dissatisaction andmorale problems among domestic employees. The businesses indicated that

Table 13

Trade in private services, 1997-2006

Exports Imports

1997 2002 2006 1997 2002 2006

Private services ($ million) 83,929 122,207 187,771 43,154 72,604 116,524Percent of private services

Education services 10 10 8 3 4 4

Financial services 15 18 23 14 13 12

Insurance services 3 4 5 14 30 29

Telecommunications 5 3 3 19 6 4

Source: Mann, 2008.


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57 percent o customers were dissatised with outsourced services and only15 percent were satised. Around three-ourths o these businesses wouldbe interested in bringing back some o the jobs i rural employees could berecruited. The most common reasons cited or bringing back service jobswere increased customer satisaction (63 percent), avorable government taxincentives (53 percent), and ease o identiying skilled labor in rural America(51 percent).

Morris and Goodridge conducted three surveys in 2006 and 2007, withone drawing on individuals across the entire country. O rural residents,37 percent were very interested in working rom home to earn additionalincome, 39 percent were moderately or somewhat interested, and 21percent were not interested. Homemakers were least likely to be interestedin working at home (40 percent), though 30 percent would be interested inworking anywhere rom 11 to 20 hours a week at home.

Fity percent o retirees, however, were interested in returning to the work-orce, citing fexible schedule, supplemental income, social interaction,and intellectual stimulation as inducements. Fity-our percent o retireesnationwide stated that they had broadband Internet access; the rate or ruralretirees is uncertain, but is likely much lower given our analysis o CurrentPopulation Survey data. The relative lack o broadband access in ruralcommunities may inhibit rural telework opportunities or retirees and others.


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Broadband Availability Leads to Use

Several questions arise regarding policy intervention in broadband markets.Is there pent-up demand or broadband in areas that are unserved or under-served? Does greater availability beget correspondingly greater use o broad-band Internet? When terrestrial broadband (DSL or cable) rst becomesavailable, pent-up demand would be evident i conversion rates to broadbandaccess are higher than in communities that have had terrestrial broadband orsome time or are served only by satellite broadband. I the adoption rate isnot higher, then broadband may be oversupplied or satellite is sucient. Ahigher adoption rate would be another indicator that households do indeedvalue the Internet and broadbands advantages over the dial-up alternative.

Broadband Adoption on the Farm

The paucity o national geographically specic data presents a challengein trying to analyze whether availability leads to broadband adoption. Datarom USDAs June Agricultural Surveys provide a unique opportunity toexamine geographically specic rural changes in Internet access methods

(see Appendix B or a discussion o the June Agricultural Surveys). Figure10 shows the conversion to broadband Internet access by arms across the


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country between 2005 and 2007. Unortunately, a change in area identiersdid not allow us to match data or Illinois and Arkansas; hence, these Statesare omitted rom the map and our analysis. By conversion we mean armsthat did not already have broadband Internet access converted to broadbandInternet access; arms may or may not have had dial-up Internet access.

The data presented in gure 10 show sharp dierences in conversion ratesacross the country. When cross-reerenced with the FCC broadband avail-

ability data (as estimated or likelihood or specic arm locations inDecember 2004 and December 2006, see Appendix C), our analysis o armuse o broadband supports the hypothesis that people embrace terrestrialbroadband when given the option. Roughly 24 percent o all arms using theInternet in 2005 already had broadband Internet access o some type, andso could not convert. Conversions were nearly nonexistent in areas wherebroadband was available mostly via satellite.

Farms were unlikely to make the direct jump rom no Internet use to broad-band Internet access; arms that already had dial-up Internet access weremore likely to acquire broadband Internet access. DSL service was the mostcommon broadband Internet access option among arms, whereas cable andber optics have shown the largest gains in highly urbanized areas over thelast ew years. The preponderance o DSL service or arms indicates boththe rural location o most arms and Internet users nding satellite a lessdesirable option.

Rural Broadband Availability and Adoption

Some States collect data on broadband availability, enabling a more renedanalysis o broadband deployment and adoption. Renkow (2008) examinedbroadband availability and adoption in two such StatesKentucky and NorthCarolina. Kentucky had both broadband availability and adoption data. North

Carolina had broadband adoption data only. Broadband availability andadoption increased substantially during the last several years, with the largestproportional gains occurring in counties that had been the least well-servedat the beginning o the period, typically rural counties. North Carolina hadhigher rates o adoption by all households than Kentucky (g. 11).

Renkow ound that population density was more important than income indriving broadband deployment. The relative insensitivity o local income topatterns o broadband deployment may indicate that broadband providersperceive demand as being highly income inelastic. I so, cost o physicalinrastructure would be the primary consideration in extending capacity intounserved or underserved areas.

The growth o broadband availability even in the most sp

Broadband Internet's Value for Rural America USDA Economic Research Service Released August 2009

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