Reducing the Broadband Gap in West Virginia

Reducing the Broadband Gap in West Virginia Introduction West Virginia ranks 45 th among all states with the lowest the number of broadband internet providers and 48 th lowest in internet subscription even when access to the Internet is available i. These two facts represent an economic supply and demand challenge to extend broadband in rural areas; they are interrelated which require solutions to address both sides of this economic dilemma in order to improve its ranking in the quantity and quality of internet access afforded to its residences and businesses. West Virginia is a rural and sparsely populated state and is part of the Central Appalachian Regional Network, ii a state with a high percent of rural communities iii. Rural communities lag behind non rural communities in the availability and quality of high speed internet access iv ; the problem is further compounded by the low subscribership or take up rates of internet service among rural residences and businesses even when access to the Internet is available. The lack of demand is partly due to the poor upload and downstream transmission speeds that are based on the profitability of internet service providers customers receive more bandwidth resulting in faster speeds if companies can afford to provide it. Smaller profits lead to smaller available bandwidths which ultimately results in higher monthly internet subscription rates. Smaller bandwidths and higher monthly service charges ultimately suppress demand because businesses and consumers expect more value. The challenged posed by the problems of supply and demand of broadband economics results in diminished opportunities for rural residents and businesses to participate in the rapidly unfolding digital revolution v compared to their non rural neighbors. The private market alone cannot overcome the lack of a customer base and the physical terrain that increases the transport costs of delivering broadband to rural communities. Government support of universal, high speed, and affordable internet in rural communities can address the supply and demand dilemma of broadband economics in rural areas. State governments can support this effort through a variety of strategic tax credits for smaller telecommunication companies to help offset their capital expenditure costs; devise a digital literacy and outreach campaign which provide information about the benefits of broadband to residences and businesses; and invest state funding in support of a narrowly defined public subsidy support program to help moderate and low income families offset a portion of their internet service costs and to provide computers to households which currently do not own them. Without government subsidies the digital divide will continue to widen with an increasing corresponding loss of economic, political, and social opportunities for rural populations. Communities without access to high speed internet will be considered economically deficient and similar to communities which do not have basic road, water, and sewer infrastructure, or public utilities such as gas, electric, cable, and telephone required for economic development and a higher standard of living.

$7 Billion ARRA US Commitment to Improve Broadband Access From 2001 to 2009, broadband subscribership among all 31 OECD countries increased 88 percent. Currently, the US is ranked 15 th among the 31 OECD countries in broadband subscribership despite the fact that the internet was invented in the US. vi Today, an estimated 100 million Americans are without access to broadband vii. In response to this national broadband deficit, in 2008, President Obama and the Congress included $7 billion in ARRA Recovery Act Funds with the goal to promote broadband usage in chronic underserved areas where existing market forces impedes its growth viii. ARRA supports broadband access by connecting schools, libraries, healthcare providers, public safety, and government buildings. Today, 100 percent of the ARRA broadband funding has been awarded to more than 300 broadband projects across the country. America has a long history of subsidizing private sector capital investments as part of its strategy to increase the standard of living of its more rural areas equal to that of its larger and more urban cities and towns. The Communications Act ix of 1934 forced telephone providers to extend telephone service to all parts of the United States with the goal of rapid, efficient, nation wide, and world wide wire and radio communication service with adequate facilities at reasonable charges to all the people of the United States. x A similar state and national effort is now being contemplated for broadband deployment to rural populations with similar increases in the standard of living of rural America expected. Since 1936, the Rural Electrification Act, xi a major provision in the New Deal s Tennessee Valley Authority legislation, subsidized the provision of affordable electricity to rural and remote parts of the South. The benefit of this government initiated, public private investment cooperative over the last three quarters of a century helped reduce poverty in rural areas that were commonplace during the Great Depression in the traditional rural South. It also helped increase total national wealth as the mechanization of farm implements, through electricity, increased the productive output of the American farm worker. As recent as 1996, Congress recognized the importance of broadband when it directed the FCC under the Telecommunications Act to extend broadband deployment in a reasonable and timely manner to as many Americans as possible xii. West Virginia s $126.3 Million Dollar Broadband Grant Opportunity West Virginia faces an unprecedented opportunity to increase the percent of broadband coverage from about 63 percent of households to 88 percent as it implements its recent award of $126.3 million dollars from the National Telecommunications and Information Administration (NTIA) xiii. West Virginia received a Broadband Technology Opportunity Partnership (BTOP) grant, the only such NTIA grant awarded on a statewide basis, and one of only two states which received the highest amount of ARRA broadband grants xiv in the country.

The $126.3 xv million dollar grant award will connect 1,064 critical community facilities, or anchors, across the state as part of its middle mile solution. The construction of a middle mile broadband infrastructure is widely regarded as necessary to extend broadband out to the various remote and rural communities. A middle mile solution is in contrast to a last mile solution, which provides internet service to end node users only such as individual households and businesses. 1,064 anchor sites will receive new or upgraded broadband access including 471 K 12 schools, 55 9 1 1 centers, 176 libraries, 77 State Police detachments, 34 jails, 184 community health centers, 11 regional economic and planning development councils, 55 county courthouses, and the Green Bank Observatory. The state NTIA grant specifies that it will construct 2,400 miles of new fiber, install 12 additional microwave antenna sites, and add 4 more DS 3s to the state s existing microwave backbone, the primary communications infrastructure used by the state s public safety agencies. Figure 1 below identifies the locations of the anchor sites as proposed in the NTIA grant application. The $126.3 million dollar federal investment in West Virginia s broadband deployment is also expected to leverage the state s already five million dollar investment in the Broadband Deployment Council, created by statute in 2008 to help deploy broadband in the state s remaining un served areas xvi. The goal of these government investments is to improve West Virginia s current standing in broadband access from the bottom fifth in the country and raise it to the top five xvii. Figure 1: BTOP 1,064 Anchor Site Locations

West Virginia is currently positioned to benefit from a total of $218 million dollars in public broadband investments in the state. Table 1 below outlines the various public investments in broadband that will occur in the next several years. In addition to this public sector investment in broadband, Frontier, a private sector telecommunication company has pledged an additional $300 million in broadband infrastructure to the Mountain state. The combined effect of over a half a billion dollars in broadband investment would be to dramatically improve the quantity and quality of broadband access in West Virginia. Part of this investment is intended to increase broadband access and adoption through better information from data collection and planning. The data collection will assist states in gathering and verifying state specific data on the availability, speed, location, and technology type of broadband services. The end result will be a searchable, on line, comprehensive database made available to the public by February 17, 2011. Table 1: West Virginia Public and Private Investments in Broadband Type Amount Grantee and (Private Investment) Infrastructure $126,323,296 Executive Office of State Infrastructure $ 3,201,760 Hardy Telecommunications, Inc. Public computer Centers $ 1,901,600 Work Force West Virginia Sustainable Adoption $ 4,461,874 Future Generations Graduate School Infrastructure $ 62,540,162 University Corp. for Advanced Internet Development Sustainable Adoption $ 14,988,657 Communication Service for the Deaf, Inc. Broadband Data & Development $ 4,749,181 WV Geological and Economic Survey Infrastructure $310,000,000 (Frontier Communications) Total Public/Private Investments: $528,166,530 Rural and Non Rural Digital Divide In many ways, it is helpful to think of a broadband infrastructure similar to traditional infrastructure or other public goods such as roads, highways, and bridges because they both afford rural and distant communities the opportunity to reach the outside world. The estimated yearly cost of the digital divide is $55 billion dollars. xviii The lack of broadband access for rural communities results in unequal opportunities to share in the rising standard of living which our neighbors in non rural parts of the country have long enjoyed. Nonrural residents often take for granted the opportunities afforded to them because they can easily search for a job on the internet, to purchase goods and services from the convenience of their home, to take online education and training courses in order to improve their chances of getting a job, and to receive medical care in a timely and cost efficient manner while sitting at their home computer. This is known as the digital divide. xix

Technological advances in the way we access the internet have further widened the divide that has always existed between rural and non rural communities. Initially, the preferred entry to the internet was through the use of the telephone and a dial up modem. Since both rural and non rural communities had comparable access to telephone service equal opportunities in price and service in internet access existed. Today, technological advancements have resulted in measurable differences in price and service levels between rural and non rural communities. Broadband is now the preferred choice among American businesses and consumers in how they access the Internet. Since 2000, the percent of American adults who access the internet via dial up have declined 29 percent while those who access the internet using broadband have increased 63 percent xx. Figure 1 below shows the reversing usage trends between dial up and broadband between 2000 and 2010. Figure 1: Trends in Internet Access, 2000 2010 The digital divide extends beyond West Virginia s boundaries and extends to all rural areas of the country. Like rural electrification efforts three quarters of a century ago, broadband now serves as an economic development catalyst that helps businesses compete in a global, technologically advanced marketplace and allows residents to enjoy the benefits of online shopping, research and education, telemedicine, and access to a wider marketplace in which to participate. A recent survey conducted by the American Farm Bureau and Connected Nation of 2,400 households in Ohio and Tennessee identified gaps in access to broadband and as well as lack of computer access in rural households. Non rural households have an advantage of 9% to 17% when asked if they have access to a computer or to broadband compared to rural households. In addition, businesses located in non rural areas also have an advantage in measured download speeds; in rural areas, the average download speed is 4.15 whereas, businesses in non rural areas experience average download speeds of 4.58, or.43 Mbps faster. The qualitative and quantitative advantages enjoyed by non rural residents and businesses affect the future demand for broadband and further widen the digital divide between rural Appalachian and non rural areas of the country.

Survey Results xxi Rural Non Rural Non Rural Advantage Household with Computer 69% 81% 12% Household with Broadband 47% 64% 17% Household Take Up Rates 67% 76% 9% Business Average Speeds 4.15 4.58.43 Business Take Up Rates 79% 83% 4% These differences in the quality of internet access and the quantity of internet providers are related to the take up rates which are themselves influenced by the speed and the cost of internet access. For example, the take up rates of businesses in rural areas are 4 percent lower than in non rural areas. In West Virginia, the business take up rate is 14.8 percent compared to the national average of 16.9 percent. There are significant gaps in take up rates even based on density and income of communities; the average subscription ratio of households in the top 10th income decile was.69 percent whereas, the subscription ratio of households in the bottom 10 th income decile was only.28 percent xxii. Further, the subscription ratio of households in communities in the top 10 th density decile was.58 percent and.43 percent for the lowest 10 th percent density decile xxiii. A recent study of three states, Ohio, Kentucky, and Tennessee revealed differences in internet access between blacks and whites. In this study, a digital divide was found in that blacks lag behind whites in both computer ownership and broadband adoption. The significance of this study is that it included states that are associated within the CARN network. It is estimated that 65 percent of blacks own computers compared with 76 percent of whites. The rate of broadband adoption for blacks is 46 percent compared with 52 percent of whites. However, when you combine the effects of both income and density the gap between blacks and whites becomes even greater. The percent of rural low income blacks who own computers drops to 46 percent and the home broadband adoption rates drops to 20 percent. The digital divide widens to 30 percent and 32 percent. xxiv Survey Results xxv Black (Low Income) White The Digital Divide (Low Income) Computer Ownership 65% (46%) 76% 11% (30%) Broadband Adoption 46% (20%) 52% 6% (32%) In a recent report, Home Broadband 2010, the Pew Internet & American Life Project found similar results in a survey of over two thousand adults. Pew estimated that 67 percent of whites and 56 percent of blacks were broadband users, indicating an 11 point gap between blacks and whites. xxvi

The language of civil rights is being amended today to also include access to broadband. Advocates of rural populations are envisioning the deployment of broadband on similar terms that we currently think about public utilities such as telephone, electric, water, and gas. While some may argue against government funding of broadband deployment in communities where businesses are unable to make a profit using a pure private sector model xxvii, the benefits of broadband to rural communities and their implications for economic development are staggering. Businesses located in communities where broadband exists are estimated to be 14 to 17 percent more productive than firms in communities without access to high speed internet xxviii. For every 1 percent increase in broadband deployment state employment increases an estimated 0.2 to 0.3 percent xxix. Furthermore, the Communication Workers of America (CWA) estimates an employment multiplier effect of 19.5 jobs in the telecommunications and information technology sector for every $1 million invested xxx. Therefore, the traditional view of infrastructure necessary for community and economic development such as roads, bridges, and sewer facilities is now being redefined by advocates of rural populations, such as the CARN network, to include access to broadband. Advocates of rural populations and widespread broadband deployment also seek to expand our conceptual understanding that broadband, like telephone, water, gas, and electric, should also be thought of as a utility to be regulated by the Public Service Commission. West Virginia Lags Nation and Central Appalachian Region in Broadband Access West Virginia ranks 45 th in the nation and the lowest among the seven state CARN network with the fewest number of internet service providers, regardless of the mode of internet connection xxxi. The data also reveals that West Virginia is the only state in the country that doesn t have an internet provider with symmetric DSL (sdsl) xxxii technology today s businesses demand sdsl as it provides them with faster and more reliable download and upstream capacity with less performance failure than asymmetric bandwidth (adsl) xxxiii. The future economic development of West Virginia s rural population depends on the construction and development of sdsl broadband infrastructure. West Virginia, in particular, faces significant terrain barriers to attract and retain businesses necessary and sufficient for community and economic development increasing the distance between businesses and their markets. West Virginia s mountainous landscape and the lack of widespread highway and road access also create significant physical and financial barriers for broadband deployment. The state must adopt a strategic and localized business model focus centered on competing in an online marketplace. In terms of economic development opportunities, access to broadband can help level the economic playing field in rural areas and especially in hilly mountainous areas such as West Virginia without resorting to the need to level the natural landscape in order to compete with urban and non rural communities. Rural businesses and residents must also demand affordable, universal high speed internet access. Consumers must think of access to broadband as a basic civil right and work to improve their participation in the digital revolution. Government investment in broadband access increases opportunities for residents to enrich their lives more fully as they engage in online activities such as

taking classes to earn more money, enjoy the efficiency and convenience of online banking, participate more actively in civic duties and research for political, investment, and social activities, as well as just playing games online. The table below identifies West Virginia s current broadband deployment status. West Virginia ranks among the lowest number of internet providers in the country as well as having one of the lowest take up rates or subscribership rates even in areas where broadband is available. The cause of the low subscribership rates are due to price and the lack of the benefits of broadband. Among the Central Appalachian Regional Network (CARN), West Virginia ranks the lowest for both the number of internet providers and the lowest percent of subscribers. The table below compares the ranking among these Appalachian states based on subscribership ratios, number of internet providers and the type of access to the internet including sdsl, fiber, and cable modem. CARN States Number of Internet Providers SDSL Fiber Cable Modem Subscribership Ratios Kentucky 23 29 27 7 43 Maryland 32 25 40 31 6 Ohio 7 5 8 5 26 Pennsylvania 14 11 13 6 12 Tennessee 25 22 25 18 46 Virginia 19 12 14 20 17 West Virginia 45 51 44 32 48 Access to broadband also varies significantly by county in West Virginia. 100 percent of Brooke and Ohio counties are reported to have access to high speed internet whereas, only 25 percent of Doddridge and Pendleton counties can gain access. Appendix 3 provides a list of each county in West Virginia and the percent of available internet access. Broadband Economics: Supply and Demand in Rural Areas Basic economics of supply and demand limit broadband deployment in rural areas xxxiv. The economics of supply and demand limits widespread deployment because of the lack of a huge customer base combined with less than full participation within the existing customer base ultimately serves to limit the entry of private capital telecommunication firms to these underserved markets. This fact further limits the number of internet providers who seek to do business in rural West Virginia thus, limiting competition and preventing prices from becoming affordable. As such, rural communities face multiple barriers to broadband deployment. The geographical terrain xxxv and sparse population centers make it more expensive for internet firms to build out a profitable middle mile broadband network. Rural areas must overcome fundamental economic challenges such as the lack of an adequate supply of competing telecommunication companies that could help extend broadband coverage while keeping costs affordable enough for families to want the

service, and simultaneously, increasing the demand among rural business and resident populations for high speed broadband access. According to NTIA guidelines, the entire state of West Virginia is categorized as underserved xxxvi. Supply Despite the rapid growth of broadband as the preferred mode to access the internet, the availability and quality of bandwidth are associated with capital transport costs of extending broadband to the various communities known as Tier 1, Tier 2, Tier 3, and Tier 4 markets, or markets with declining populations. There are significant differences in broadband bandwidth, or megabits of service, available from market to market. Tier 1 markets get an estimated thirty times more bandwidth than Tier 3 and Tier 4 markets. xxxvii Tier 3 and Tier 4 transport costs is 20 times more expensive than in Tier 1 and Tier 2 markets. Higher transport costs creates significantly higher capital investment burdens for telecommunication companies and higher monthly service fees for residences and businesses thus, reducing the service and price advantages enjoyed by Tier 1 and Tier 2 markets. xxxviii Figure 1: Broadband Transport Costs Higher in Rural Areas xxxix Figure 1 above estimates the supply costs of delivering broadband to rural Tier 3 and Tier 4 markets. Rural and sparse population centers makes it more difficult for businesses to make a profit given the huge capital investments required to service these areas. Transport costs in rural areas, or Tier 3 and Tier 4 markets, associated with bringing broadband into these smaller communities cost upwards of $10,000 dollars per month which smaller telecommunication companies must pay in order to tap into the larger middle mile network. In Tier 1 and Tier 2 markets, however, transport costs average around $1,000 dollars. The higher transport costs undermine the incentives for telecommunications to make huge capital investments in rural and sparse population areas. Lower transport costs combined with a larger population provides opportunities for smaller telecommunication companies to compete in the broadband business. There is a role for government to subsidize the capital investments needed to improve broadband deployment in rural and under served markets where private sector solutions alone have proved

inadequate. The monthly charges which smaller telecommunication companies must charge in order to tie in to the existing internet backbone are passed on to rural residents in the form of higher monthly access fees in order to earn a profit. Without government help to reduce the capital expenditure costs in rural, less dense population areas, there will be a lack of supply of Internet firms able to earn a profit. The purpose of West Virginia s NTIA grant application will correct this problem, Our proposed solution will also allow for broadband service to be built out into rural areas of the state with low population density where a sustainable business case cannot be made without substantial subsidies. xl Figure 2 below describes the economic barriers to profitability that each telecommunication company must face in order to deploy internet service in rural areas. There are three basic factors which determine the bottom line of an internet service provider. First, how many paying customers will utilize the service if it was available; Second, identify the price structure sufficient to earn a profit while encouraging enough people to want the service; and Third, what is the monthly transport cost associated with accessing the middle mile broadband network. Given that most of West Virginia is in Tier 3 and Tier 4 markets and West Virginia s low take up rates, the price level of broadband must be enough to cross over the economic barrier to profitability. Figure 2 below shows that a rural market must have 800 internet subscribers paying an average of $40 per month before smaller telecommunications can earn a profit without government support, indicated by the dotted red line. The solid red line indicates the profit line where public support will be necessary in order for private sector firms to earn a profit. Smaller telecommunication companies, if they choose to enter the rural and underserved markets, must therefore, pass on to rural businesses and consumers, the higher transport costs in order to earn a profit. Governments must find a way to help smaller telecommunication companies develop a sustainable and profitable business model in Appalachian areas. Without the governments help to reduce the capital expenditure costs in rural, less dense population areas, internet firms will either refuse to enter the market or, charge too much for their service which ultimately reduces the subscribership rates. Figure 2: Profit Margin to Provide Broadband in Rural Areas xli

West Virginia s NTIA grant application identified this problem and said, Our proposed solution will also allow for broadband service to be built out into rural areas of the state with low population density where a sustainable business case cannot be made without substantial subsidies. xlii Demand The lack of demand for internet must be recognized as the flip side of the economics of broadband. Appendix 2 identifies the fixed connections subscribership take up ratios by state. Central Appalachian Regional states are highlighted. West Virginia s take up rate is 49 percent meaning that less than half of all households who currently have access to high speed internet actually subscribe for the service. According to a 2010 tracking survey by the Pew Research Center s Internet & American Life Project, a survey of 2,252 adults, aged 18 and older, 21 percent indicated that they did not use the internet xliii. The table below identifies the factors cited as main reasons for not using the internet including, relevance (either not interested, waste of time, too busy, and don t need or want) was cited by almost half of the respondents, or 48 percent. 22 percent said that they didn t have access to a computer at home or indicated that their internet service was too expensive. Table 4: Summary of Reasons for Not Using the Internet Summary Percent Relevance (not interested + waste of time+ too 48% busy + don t need/want) Price (too expensive + don t have a computer) 22% Usability (difficulty/frustrating + too old + don t 18% know how + physically unable + worried about virus/spam/spyware) Availability/Access 6% The demand for internet services is also affected by the ability of non internet users to go online. The Pew Research Center indicates that 61 percent of non internet users would need someone to help them gain access to the internet. In order to improve the take up rates of broadband usage there clearly needs to be a digital literacy campaign to help struggling users get online xliv. Public Policy Solutions to Address Supply and Demand of Broadband Economics In his 2007 State of the State Address, former West Virginia Governor Joe Manchin set a goal to make high speed broadband access available to 100 percent of West Virginia s population by the end of 2010 xlv. While the administration did not achieve this goal, as only 63 percent of West Virginia s residences and businesses currently have access to broadband, significant broadband penetration has occurred and is expected to continue in the near future. Representing the largest telecommunication company in West Virginia Frontier s CEO, Dana Waldo promised, Our broadband capability is going to be light years ahead of where it is today. xlvi

1.) Broadband Deployment Council Adopt NTIA Broadband Plan Transport costs remain the largest obstacle to the goal of 100 percent penetration of universal, highspeed, and affordable broadband throughout West Virginia s rural and geographically challenged areas. Eventually, everyone will benefit from the state s implementation of the NTIA grant because it can help reduce the transport costs through the creation of a middle mile network. However, additional public and private investments will still be necessary to fully complete the states middle mile network. The NTIA grant improves broadband deployment because a viable middle backbone will be available supporting open architecture [and] multiple vendors may chose [sic] to develop a last mile solution. This competition will drive cost per end node down. xlvii West Virginia s NTIA grant application also expects to provide broadband infrastructure within reach of other commercial institutions that will benefit when requesting broadband services. Once in place, this infrastructure will reduce/eliminate their special construction charges making Broadband capabilities economically feasible in areas where it was previously cost prohibitive. xlviii The recent objection which had been raised against West Virginia s implementation of its $126 million dollar NTIA grant has now been officially dismissed. xlix The West Virginia s Broadband Deployment Council can now move forward and officially adopt the plan to implement the NTIA grant. Tax Incentive Programs There are other state policy options, which, if adopted, could help reduce the broadband gap in rural West Virginia. The economic reality of broadband investments leads us to conclude that additional state government support is necessary in order to further extend broadband to rural and underserved areas of the state. The state should leverage the investments already committed from the federal government and the private sector through the creation of targeted tax incentive programs for capital investments in underserved areas. Smaller telecommunication companies, such as Citynet, would also benefit because it would reduce their transport costs thus, expanding their business footprint into these less profitable areas. Targeted tax incentive programs can lead to increased competition among broadband service providers and through lower price structures increase subscribership rates. At the federal level, the Communication Workers of America (CWA) devised a plan for these types of federal tax credits l. For example, a 10 percent tax credit could be taken in the year the additional investment was made in networks with minimum download speeds of 3 mbps and upload speeds of 1 mpbs. The CWA recommended a 20 percent tax incentive structure if the investments were made in networks capable of 50 mbps down and 20 mbps up. The state could adopt a similar tax incentive strategy.

Expensing of Investments An additional strategy outlined by the CWA was to allow private sector firms the ability to accelerate their depreciation or expensing of their investments in the earlier years of their capital investments. This would allow smaller telecommunication companies the ability to recoup their initial investments quickly and thus, creating an incentive for firms to make such investments. Direct Grants West Virginia could also address the supply side of the broadband problem by directly funding direct grant programs to benefit smaller telecommunication companies which can provide universal, highspeed, and affordable internet serve to underserved markets. At the end of November 2011, the fifth month of the 2011 fiscal year, general revenues now exceed estimated revenues by $121 million dollars. li The state could use a small portion of these general revenue surpluses to fund a one time grant program to help offset capital investment expenses. In addition, a portion of the grant program monies could also be used to help fund a digital literacy campaign to help increase subscribership rates. As noted above, nearly half of non internet users feel that they don t need the internet or understand what value it can bring to their lives. A state funded broadband grant program could also be structured to help pay a portion of a moderate and low income household s subscription service on a sliding fee scale. Grant monies could also be used to help buy computers for families that currently do not have one. A voucher program could be developed for families to receive surplus computers from the Department of Administrations surplus warehouse facility in Dunbar, West Virginia. Moderate and low income families could easily qualify through existing direct service agencies such as DHHR and Workforce One Stop facilities around the state. Public Broadband Development Authority If after all of the federal and state efforts to support private sector broadband investments have failed to increase the supply and demand of high speed internet in rural and underserved markets,, including grants, loans, and tax incentive programs, then the creation of a quasi public broadband development authority is warranted. There is precedence in West Virginia for quasi government agencies to simulate private sector activities that support public goals such as home ownership and economic development in cases where private market solutions are insufficient. lii Broadband Regulatory Reform West Virginia should also consider the regulation of broadband by the Public Service Commission and treat broadband as a public utility. Because the state s interest in broadband deployment is similar to its interest in providing universal and affordable access to all parts of its rural residents and businesses such as telephone, cable, water, gas, electricity, and sewer facilities then, the Public Service Commission

should be given the authority to monitor both the quantity and quality of broadband access throughout West Virginia. i Broadband is defined as an advanced communications system that transmits data, voice, and video over the Internet. Transmissions can occur across a variety of technologies including digital subscriber line (DSL), fiber optic cable, coaxial cable, wireless technology, and satellite. http://www.fcc.gov/broadband/. The West Virginia NTIA grant application expects its broadband network to consist of a network of fiber and microwave antennas using Multiprotocol Label Switching (MPLS) technologies that can leverage the state s existing telecommunication infrastructure. WV Department of Commerce, NTIA Grant, page 3. ii Among the seven states which make up the Central Appalachian Regional Network (CARN), West Virginia is the only state where all 55 of its counties are considered to be Appalachian. The percent of counties considered Appalachian vary among the remaining CARN states: Ohio, Pennsylvania, Kentucky, Maryland, Virginia, and Tennessee. See Appendix 1 for a complete list of counties considered Appalachian within each of the seven CARN states. http://www.arc.gov/appalachian_region/westvirginia.asp iii West Virginia is considered 98 percent rural and 2 percent urban. An urban area is defined as having a central city and the surrounding densely settled territory which has a population of 50,000 or more and a population density which generally exceeds 1,000 per square mile. http://www.nal.usda.gov/ric/ricpubs/what_is_rural.shtml#define iv Closing the Digital Divide, Southern West Virginia Broadband Summit v Citing the Pew Research Center, the US Internet Industry Association noted that, Broadband took 10 years to break 50% adoption, followed by the CD Player at 10.5 years, the VCR at 14 years, cell phones took 15 years, color TVs took 18 years, as did the personal computer. Page 4, http://usiiamedia.com/deployment_of_broadband_to_rural_america.pdf vi http://www.oecd.org/document/54/0,3343,en_2649_34225_38690102_1_1_1_37441,00.html vii Since 2000, the number of Americans with access to broadband increased from eight million to over 200 million in 2008. http://www.broadband.gov/plan/executive summary/ viii http://www.recovery.gov/news/featured/pages/broadband.aspx ix http://www.fcc.gov/reports/1934new.pdf x Telecommunications Act of 1934 Title I, Sec. 1 [47 U.S.C. 151] xi http://www.usda.gov/rus/regs/info/100 1/title_i.htm xii http://www.fcc.gov/telecom.html xiii According to the 2009 US Census Bureau, ACS 1 year estimates, there are 748,517 households in West Virginia. Currently only 469,500 households have access to high speed internet resulting in a ratio of 63 percent. Frontier, the primary telecommunication provider in West Virginia estimates that it will increase the number of households with access to the internet to 658,000, or 88 percent. xiv It is largely due to Senator Rockefellers efforts that broadband funding was inserted in the ARRA stimulus funding. See, Rockefeller adds broadband incentives to stimulus, Martinsburg Journal, January 29, 2009, http://www.wvconnectivity.net/news_detail/2204.htm xv The budget for the $126.3 million dollar grant will be spent in the following manner: $27.4 million for network & access equipment, $75.2 million for outside plant and equipment such as cables, poles, towers, and repeaters), and $23.6 million for engineering & professional services. WV Commerce Department Broadband Infrastructure Application grant, page 30. xvi http://www.legis.state.wv.us/bill_status/bills_text.cfm?billdoc=hb4637 enr.htm&yr=2008&sesstype=rs&i=4637 xvii Dana Waldo, Let s bring broadband to all West Virginians, Charleston Daily Mail, August 26, 2010, http://www.dailymail.com/opinion/commentary/201008251142 xviii Source: Econsult Corporation (2010), Digital Impact Group (2010) http://www.digitalimpactgroup.org/costofexclusion.pdf xix US Internet Industry Association, Deployment of Broadband to Rural America, March 4, 2008, page 8, The term digital divide refers to the gap between those people with effective access to digital and information technology, and those with access to it. (sic) Often discussed in the context of a digital divide include socioeconomic (rich/poor), racial (white/minority), or geographical (urban/rural). These digital divides, then, are identified as having two facets the unequal access to digital technologies (deployment) and unequal ability or desire to make use of these digital technologies (adoption). http://usiiamedia.com/deployment_of_broadband_to_rural_america.pdf xx Pew Internet & American Life Project survey. xxi A Call to Connect Rural America, American Farm Bureau and Connected Nation, December 2009, http://www.connectednation.org/_documents/afbfcnresponsenbp18economicoppfinal12_2009.pdf xxii US Federal Communications Commission, Internet Access Services: Status as of June 30, 2009, Chart 19, page 51, http://hraunfoss.fcc.gov/edocs_public/attachmatch/doc 301294A1.pdf xxiii Ibid, page 53. xxiv The Call to Connect Minority Americans: A Connected Nation Policy Brief, March 2009, page 1, http://connectednation.com/_documents/cn_minority_policybrief_final_031609.pdf xxv A Call to Connect Rural America, American Farm Bureau and Connected Nation, December 2009, http://www.connectednation.org/_documents/afbfcnresponsenbp18economicoppfinal12_2009.pdf xxvi Home Broadband 2010, April 2011, Pew Internet & American Life Project, page 2. http://www.pewinternet.org/~/media//files/reports/2010/home%20broadband%202010.pdf xxvii John Dove, Let s Take a Closer Look at the Cost, Benefits of Broadband Access, State Journal, September 23, 2010, http://www.statejournal.com/story.cfm?func=viewstory&storyid=86503 xxviii Mark L. Burton and Michael J. Hicks, Marshall, The Residential and Commercial Benefits of Rural Broadband: Evidence from Central Appalachia, University, Center for Business and Economic Research, June 2005 xxix Robert Crandall, William Lehr and Robert Litan, The Effects of Broadband Deployment on Output and Employment: A Cross Sectional Analysis of US Data, No. 6, July 2007, http://www.brookings.edu/views/papers/crandall/200706litan.pdf

xxx http://files.cwa union.org/speedmatters/cwa_proposals_broadband_investment_20081209.pdf. This estimate is based on RIMS II Model, Bureau of Economic Analysis, U.S. Department of Commerce. xxxi Appendix 1 is a list of all providers of internet service by connection type as of June 30, 2009. xxxii Comparison of ADSL versus SDSL Technologies, www.sdsl.ca/adsl.html, The principal difference between adsl and sdsl is that the upstream and downstream pipeline have difference capacities. While sdsl supports the same data transfer rate for sending and receiving data, the adsl pipeline for sending data is much smaller than the pipeline for receiving data. xxxiii Discover the difference between our sdsl service and our adsl service. www.online isp.com/pages/sdsl vs adsl.html xxxiv The economics of broadband are fundamentally outlined in an article by a major internet provider in West Virginia who described the profit margins of delivering broadband service to rural communities. He estimated that his company could charge internet service at $30 dollars per month times the number of homes in a small town (say 40) which results in $14,400 a year in revenue. The telecommunication executive went on to say that attaching the line to the pole costs $14 a year times the number of poles between towns. He estimated that there were 40 poles per mile and there are eight miles on average between towns. He concludes that there are 320 poles between any two rural towns costing $4,480 dollars per year. xxxv One linear mile of distance could equate to 2 4 miles up and over rugged terrain, so rugged at times that Utility Companies could not provide the mounting pole installation or trenches to run the optical fiber or copper. WV Commerce Department, Broadband Infrastructure Application, page 21. xxxvi WV Department of Commerce Broadband Infrastructure Application, page 11. xxxvii Michael Friloux, SVP Business Development, Citynet, LLC, West Virginia Broadband Infrastructure Powerpoint presentation to the WV Legislature Select Committee on Infrastructure, August 2010. xxxviii Ibid. xxxix Ibid. xl WV Commerce Department, Broadband Infrastructure Application, page 33. xli Michael Friloux, SVP Business Development, Citynet, LLC, West Virginia Broadband Infrastructure Powerpoint presentation to the WV Legislature Select Committee on Infrastructure, August 2010. xlii WV Commerce Department, Broadband Infrastructure Application, page 33. xliii Pew Research Center s Internet & American Life Project, April 29, 2010, Tracking Survey. N= 2,252 adults 18 and older. xliv Pew Internet Research xlv Governor Joe Manchin s 2007 West Virginia State of the State Address, page 6. http://www.budget.wv.gov/executivebudget/archives/documents/wvbudgetreportfy%202008.pdf xlvi Frontier plans to complete broadband expansion next year, Eric Eyre, November 23, 2010, WV Gazette, http://wvgazette.com/news/201011231168?page=1&build=cache xlvii WV Commerce Department, Broadband Infrastructure Application, page 20. xlviii WV Commerce Department, Broadband Infrastructure Application, page 24. xlix Feds reject Citynet allegations on state s use of $126M broadband grant, Dec 1, 2010, WV Gazette, http://www.wvgazette.com/news/201012011440 l Communications Workers of America Proposals to Stimulate Broadband Investment, December 8, 2008, http://files.cwaunion.org/speedmatters/cwa_proposals_broadband_investment_20081209.pdf li WV State Budget Office, November 2010 Revenue Report, http://www.budget.wv.gov/reportsandcharts/revenuereports/documents/rgrnov10.pdf lii WV Code, (Chapter 31, Article 18), West Virginia Housing Development Authority and (Chapter 31, Article 15), WV Economic Development Authority.