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Speaking of the Economy
Speaking of the Economy - Alex Marre
Speaking of the Economy

Dec. 2, 2020

Closing the Digital Divide

Audiences: Community Advocates, Community Investors, General Public, Policymakers
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Alex Marré discusses the ongoing challenges of bringing broadband Internet service to everyone who needs it. Marre is a regional economist based at the Richmond Fed's branch office in Baltimore.

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Alexander Marré

Regional Economist

Transcript


Jessie Romero: I'm Jessie Romero, director of research publications at the Richmond Fed.

Today I'm joined by Alex Marré, a regional economist based at the Richmond Fed's branch office in Baltimore. Alex monitors and briefs the public on regional economic conditions and conducts research on economic issues in the Fifth Federal Reserve District. Previously, he worked at the U.S. Department of Agriculture, tracking economic conditions in rural America.

We'll be talking today about the ongoing challenges of bringing broadband Internet service to everyone who needs it. This was the topic of a recent article in Econ Focus, the Bank's economics magazine. You can find a link to that article, as well as Alex's recent research, on our website, richmondfed.org.

Thanks so much for being here, Alex.

Alex Marré: Happy to be talking with you!

Romero: The COVID-19 pandemic has forced schools across the country to shift to either all virtual or hybrid learning in classrooms. This has uncovered what some people have referred to as a "homework gap." What does that mean?

Marré: The homework gap refers to differences in access to online learning. The Pew Research Center has put together some compelling statistics on this issue. They found that 15 percent of households with school-age children do not have a broadband Internet connection at home, which puts them at a distinct disadvantage when it comes to accessing lessons and other learning materials.

Unfortunately, this has always been an issue. While the Internet has opened up so many possibilities for learning, those opportunities have existed only for those with a reliable connection and equipment to make that connection. Now that bar has been raised. For example, in order to stream video, the Federal Communications Commission says the minimum for broadband service is 25 megabits per second for uploads and 3 megabits per second for downloads.

When the pandemic hit, schools and school districts struggled with keeping students safe while still providing instruction. As you said, they naturally landed at virtual or hybrid solutions, using the Internet to do both. But not every student has access to the tools they need at home.

When you look at the households that have access to the Internet and computer equipment and those that do not, several patterns emerge. Differences in access by race and income jump out, as do differences by geography.

Romero: Can you tell us a little bit more about those patterns?

Marré: The Pew Research Center conducted a survey of teenagers in 2018. They found that 25 percent of black teenagers were often or sometimes unable to do homework assignments because they didn't have access to a computer or Internet at home. For white teenagers, that figure was 13 percent.

The Richmond Fed has also studied households with school-age children within the Fifth District. About 80 percent of households in remote, rural school districts have a broadband Internet subscription compared to 93 percent of households in large suburban school districts. In terms of computer equipment at home, again, 80 percent of households in remote districts had it versus 98 percent of households in suburban districts.

Romero: Those are really significant disparities. What's behind them, especially in the Fifth District?

Marré: I think an important factor is affordability. Computer equipment can be expensive, as can broadband Internet service when it's available. Such expenses could be an unaffordable luxury when budgets are tight. Some households use smartphones or tablets to access the Internet through a mobile connection, but that type of connection is not fast and reliable enough for the kinds of tasks students need to do.

There is some evidence that making broadband more affordable may be an effective solution here. Economists at Stanford University evaluated Comcast's Internet Essentials program, which provides low-cost Internet subscriptions and computer literacy training to households with school-age children who are also eligible for free- or reduced-price lunches. The researchers looked at changes in the adoption rate — in other words, the share of low-income households with an Internet subscription — in places where the program was available compared to places where it wasn't available. They found the program had a significant impact on increasing broadband access.

So whether it's through public subsidies or private incentives, it's clear that tackling affordability can move the needle on broadband adoption.

But having broadband internet service isn't even possible in rural areas throughout the Fifth District and the country. Rural areas are far from existing broadband infrastructure, can have challenging topography for getting a mobile connection, and have fewer potential customers to pay for closing these infrastructure gaps. All those factors combine to create a perfect storm for providers — there simply isn't a good business case to be made in many areas for offering broadband service.

Romero: What is the scale and scope of this gap in infrastructure, in this digital divide?

Marré: The scale of the digital divide is really difficult to know. The Federal Communications Commission estimates about 18 to 20 million Americans lack access to the minimum level of broadband service. We can't really be confident in those numbers, though. They are almost certainly an underestimate.

Here's why. The FCC relies on providers to voluntarily indicate which U.S. Census blocks they cover. Even if only one household has access in a Census block, the provider can mark the entire area as "covered." That approach may work fine in urban areas, but in rural areas these Census blocks can be hundreds of square miles. What it means is that the rest of those households without access are considered "served" and so the area is ineligible for federal subsidies.

An independent research organization called Broadband Now says the real size of the digital divide is double what the FCC says. Regardless of the exact number, the point is that a large number of Americans still do not have access to affordable, high-quality Internet service.

Romero: We've known about this problem for a long time, and we haven't found a way to solve it yet. Is the issue that there isn't enough money out there to solve it, or is it that people can't access or make good use of the money that is available?

Marré: I think it's a combination of both.

The FCC estimates that it would take $80 billion to provide fiber — which is the gold standard for broadband Internet — to every household that doesn't have access to the infrastructure now. If you add up the major sources of federal and state subsidies, you get approximately $30 billion available. So, clearly there's a significant shortfall there.

Increasing subsidies will be only part of the solution, though. You also need a service provider or some other entity that's willing to take advantage of the subsidies and take on the project. Then, that organization will likely need matching funds, and finding financing for those upfront costs can be a real challenge.

Tax dollars are a scarce resource, so policymakers are clearly going to face competing demands, especially when you think about so many of the other issues have arisen during the pandemic. But from an economic development standpoint, rural areas that do not have access to broadband are going to face a challenging future without some help.

It can be difficult to tease out the exact economic effects of broadband infrastructure, since economic growth and broadband expand together. Even so, many studies show broadband access and adoption is associated with business formation, population growth, job growth and lower unemployment rates.

One of the most compelling studies I have seen on the return on investment for broadband expansion was conducted by Purdue University. They estimated that every dollar spent on broadband in Indiana would result in 3 to 4 dollars in economic benefits. That's a really big ROI for an infrastructure project.

Romero: You have been out talking to lots of different groups throughout our district and researching this topic for a long time. What do you see as some promising solutions?

Marré: There's no silver bullet to solving the broadband problem in rural communities. But, as I have learned more about what people are doing to get the job done, I have come across three compelling approaches.

The first is to use alternative technologies to rapidly expand broadband Internet access. What this entails is using fixed wireless in most cases rather than fiber to provide the Internet service. Satellite is another option, although it can be expensive and the data transmission speed is generally slower.

Fixed wireless uses line of sight connections between a central tower and the end user, meaning there is no need to go through the time and expense of laying fiber to every home. The approach is significantly less expensive – at least initially — and can be rapidly deployed. As I mentioned, though, you do need a line of sight, which means that fixed wireless cannot be used in mountainous or hilly areas. Another caveat is that fixed wireless is less reliable than fiber and slower.

A second promising solution is to use electric cooperatives to provide broadband service. Electric co-ops, in many cases, already have a backbone of fiber for their operations [and] they have poles, easements and other cost savers already in place.

However, in many states, laws either outright prohibit electric co-ops from providing broadband service or the regulations are not sufficiently clear. Many states are making it easier for these co-ops to get in the broadband business. Choptank Electric Cooperative on the Eastern Shore of Maryland is embarking on this path this year.

We've used various studies to map out how those two approaches could bring down that $80 billion price tag I mentioned earlier for closing the digital divide. We found that it could lower the bill to the $55 to $67 billion range.

A third area where we see exciting possibilities is the creation of public-private partnerships to build broadband infrastructure. This approach particularly makes sense when there isn't an existing potential provider.

A local entity, say an economic development agency or another government entity, finds a willing partner to help cover the matching funds and provide the technical expertise to get a broadband infrastructure project put together. Once the pieces are in place, the project can then [begin] the process of applying for these subsidies.

As we talked about before, the subsidies are critical for these projects to make economic sense. The Benedum Foundation has been studying this approach closely as a way to get broadband projects started in West Virginia.

Romero: Alex, thanks so much for taking the time to talk with us today and for sharing your thoughts on this important disparity that needs to be addressed.

Marré: Thanks, Jessie. You're most welcome.

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