Econ Focus

Five years ago, Rick Purcell started a company called eWorker Technologies out of his house in rural Brevard, N.C. The firm's niche: providing "intelligence robots" to handle all manner of administrative tasks — job applications, travel bookings, record-keeping, and the like — for users in both the public and private sectors. Success came quickly for Purcell, with revenues doubling on an almost annual basis. In time, his clients came to include Fortune 500 corporations, notably Texas-based EDS, and a number of state governments.

But rapid growth brought challenges, particularly on the technology front. To handle existing clients and attract new ones, Purcell needed high-speed voice, data, and imaging capabilities — broadband access, as it's known. With 1 million automated travel bookings a day, "bandwidth is a big issue," says Purcell. Broadband was available in Brevard, but because the connection ran through several loops — a common problem for rural communities — the kind of comprehensive service eWorker Technologies required was not available. Options were also limited by the fact that there was only one provider. "The service was not as good as we felt it needed to be," says Purcell.

In June 2001, Purcell relocated his company to an office park in Asheville, some 25 miles away. "I told the economic development officials in Brevard that I was sorry, but the infrastructure challenge there just couldn't be solved in time to keep pace with the growth of my business," he says. In Asheville, Purcell spends the same amount of money — around $700 per month — for broadband access that is faster, more extensive, and more dependable (the office park is linked to Sonet Ring, a service that immediately re-routes data in case of a glitch, allowing it to flow without interruption). In Asheville, "We have a better connection and more options," he says.

The difficulties Purcell encountered in Brevard are hardly unique. Though it has become an essential business tool, affordable, efficient high-speed Internet access is in short supply in rural communities across the Fifth District. In many areas, broadband is not even available because the expected return on investment from going the "last mile" and offering the service is too low for the telecom operators and cable television companies responsible for the wiring. For the affected municipalities, many of which are already struggling to keep industry and jobs, the economic cost of inferior or nonexistent broadband links is potentially staggering. As a result, a growing number of them are taking matters into their own hands and doing the connecting themselves.

It is no secret that technology has become one of the chief barometers of economic health and one of the main engines of economic progress. The so-called "digital divide" — the technological gap between affluent neighborhoods and communities and less prosperous ones — has long been a source of concern in the Fifth District. Cities like Baltimore and Washington, D.C., combine fabulous wealth with grinding poverty. Many parts of the Southeast benefited enormously from the boom of the 1990s, but other areas went largely untouched by the good times. The disparities have unquestionably been widened by differences in technological know-how and access to technology.

In its most recent New Economy Index, a survey encompassing all 50 states, the Washington, D.C.-based Progressive Policy Institute offered a rather mixed portrait of the Fifth District. Not surprisingly, Maryland and Virginia led the region in most measures of technological development (information technology jobs, work force education, Internet usage). And not surprisingly, South Carolina, West Virginia, and, to a lesser extent, North Carolina lagged well behind. But the study also revealed at least one rather significant anomaly: Both South Carolina and West Virginia rank relatively high nationally in terms of technology in the classroom and outscored Maryland and Virginia in this category.

While usage varies from state to state, broadband clearly has not made many inroads in parts of the Fifth District. But that may change in coming years, as people become aware of its nearly limitless applications. It is a conduit for medical information. It is a virtual classroom. It is a tool that can help government operate more efficiently and promote greater public awareness. It is also vital to the conduct of business. From video-conferencing to e-commerce, broadband has already become an indispensable feature of the workplace. And as knowledge-based jobs become ever more important to the American economy, broadband's importance will rise commensurately.

And therein lies the problem for rural communities: The majority of them don't have broadband capability and are not likely to get it anytime soon. A report jointly issued two years ago by the U.S. Departments of Commerce and Agriculture laid out the issue starkly. It noted that "the rate of deployment of broadband services will be key to the future economic growth of every region, particularly rural areas that can benefit from high-speed connections to urban and world markets." But the study found most rural towns were being bypassed: Only 5 percent of towns with 10,000 or fewer residents had broadband, whereas 65 percent of the cities with populations in excess of 250,000 enjoyed high-speed access.

The report attributed the disparity to the high cost/low return of deploying broadband in rural areas. High-speed access is generally delivered one of two ways: either via cable television modem (the more popular route) or, using telephone technology, via digital subscriber lines (DSL). For both cable and DSL, the cost of connecting is determined by, among other things, the number of subscribers and the distance between them. In the countryside, there are relatively few potential customers and people don't generally live cheek-by-jowl, which means the cost of the service tends to be exorbitant. With so small a market, cable companies and telecom operators simply have no incentive to offer access.

Yale Braunstein, a professor at the University of California at Berkeley's School of Information Management and Systems, points out that even if businesses in rural communities are clamoring for high-speed Internet service, it is not likely to materialize without strong residential interest. When it comes to this issue, says Braunstein, you can't separate businesses and private users; without lots of households signing up, you are not going to have the densities that these firms require to provide broadband.

Some policy analysts contend that the problem of unequal access is a self-correcting one. In a 2001 paper, Wayne Leighton, now an economist at the Federal Communications Commission, argues that the "digital divide" is largely a myth and that differences in quality and level of Internet service are fast disappearing as technology proliferates and becomes ever cheaper. Leighton points out that when narrowband Internet access (the dial-up service that most Americans still use) first became widely available, it was mainly a toy for the well-to-do.

Within just a few years, however, choices expanded, prices came down, and narrowband penetrated markets across the demographic spectrum. "[W]hen many earlier technologies were being adopted, the less fortunate lagged behind the more fortunate by a generation or more; with access to the Internet, the less fortunate lag behind the more fortunate by a matter of months or, at most, a few years. As goes today's narrowband ... so broadband will go," writes Leighton. Confident that market forces will bridge the high-speed gap, Leighton believes most remedies the government might attempt are unnecessary and could well prove counterproductive.

While access to affordable broadband may be just around the corner — via existing conduits or perhaps through satellite or wireless technology, both of which show considerable promise as vehicles for delivering high-speed service — that is little consolation to rural communities that want the technology today. Some Fifth District communities have more than risen to the challenge through bold initiatives that have made the dream of high-speed Internet access a reality.

In western North Carolina, 23 counties have joined forces to bring affordable, reliable broadband service to this picturesque, economically challenged part of the state. The Appalachian Access Initiative, a true grassroots movement involving community leaders from across the region, was established three years ago to address the issue of inadequate connectivity. To fully understand the problem and come up with some possible solutions, the coalition commissioned a study by the Institute at Biltmore, an Asheville-based nonprofit research firm.

Sherry McCuller, who is managing director at the Institute, says the need for affordable high-speed Internet access in western North Carolina cannot be overstated. According to McCuller, the region has always depended on three things: agriculture, manufacturing, and tourism. The first two are being lost. And that's "like a three-legged stool losing two of its legs," says McCuller. To develop knowledge-based industries — and give a boost to those areas' struggling economies — broadband is critical, she says.

But the area's small, widely scattered population, combined with its forbidding terrain (5,000-foot solid granite peaks, thick woods) have made it a leper colony in the eyes of most telecom operators and cable TV providers. "It's a losing proposition [for them] to make investments in this area," says McCuller. Interestingly, the Institute's study found that the most expensive component is not the "last mile" but the "middle mile" — the connection from a municipality's hub (the so-called "local central office") to the urban "aggregation hub," which for most of western North Carolina is located in Asheville. This single link can tack on upward of $1,600 to the monthly cost of a T1 line (a T1 is considered the gold standard of broadband connectivity).

It quickly became clear to all involved that bold measures would be needed if broadband was going to reach beyond Asheville. It was ultimately decided that the coalition, utilizing a variety of funding sources (federal, state, municipal), would foot the bill for constructing a high-speed network. "Build it and they will come" could well be the motto here; in providing the infrastructure and aggregating demand, the coalition is effectively subsidizing competition. The fiber-optic backbone, which will likely take three years and more than $60 million to fully deploy (work has already started in seven counties), will be owned by an entity called The Education and Research Consortium of the Western Carolinas.

Officials in Bristol, Va., a community of about 18,000 located on the Tennessee line, realized several years ago that the absence of readily available, competitively priced high-speed Internet service was becoming a significant impediment to economic development. No question, "It was an obstacle to attracting new business," says Jim Bowie, the general counsel for Bristol Virginia Utilities, which provides a number of public works, including electric power, to Bristol. It was also forcing some Bristol-based companies to shift their operations elsewhere.

The fact that Bristol lacked broadband capability, even though Virginia boasts nearly 900,000 miles of broadband fiber, was no surprise. For Sprint, which was the incumbent provider, the numbers just didn't add up: There was simply not enough demand to warrant the time and money required to fully connect Bristol. But a sound business decision for Sprint was, of course, a potentially lethal one for Bristol, a rural community desperate to keep existing jobs and create new ones.

So in 1998, the city, taking advantage of some vague wording in the 1996 Telecommunications Act, began wiring itself for broadband. The $21 million project, funded chiefly through a municipal bond offering, will eventually give every home and office in Bristol high-speed access. As Bowie points out, the benefits to the city are manifold. Not only does it get the connectivity it needs, but because the network is owned and operated by the city, there are no shareholders clamoring for a quick return on the investment; in other words, the first priority is comprehensive, top-notch service.

Bristol's road to broadband has not been without potholes. To proceed with its plans, the city was forced to challenge a Virginia statute prohibiting municipalities from serving as telecom providers. The lawsuit pitted Bristol against the state's then-Attorney General, Mark Earley, who had the support of the telecom industry. The case found its way into a federal court, which ultimately decided in Bristol's favor. The issue was then rendered moot in April 2002 when the Virginia legislature overturned the original ban.

Bristol Virginia Utilities is now awaiting formal certification of its status as a CLEC (competitive local exchange carrier) by the State Corporation Commission. Bowie thinks that they're home free. In the meantime, the city has extended its network to Abingdon, a nearby town, and has been peppered with questions from other rural districts that are contemplating similar actions. "A number of communities have come to see what we've done; a number are waiting to see how things turn out," Bowie says.

For some rural communities in the Fifth District, broadband access has been achieved without angst or excessive expense. In nearly every instance, the high-speed wiring is due to the presence of a large corporation, a government agency (the NASA facility in Fairmont, W.Va., for instance), or a major university. A striking case in point: Blacksburg, Va., which is home to Virginia Polytechnic Institute and State University. As befits its name, Virginia Tech has been at the forefront of the telecommunications revolution, and this has had a tremendous spillover effect on Blacksburg.

Indeed, no city in America is more wired — it is estimated that more than 87 percent of Blacksburg's 40,000 residents regularly use the Internet. More impressive still, 60 percent have broadband capability, the world's highest per capita broadband access, and more than 75 percent of the city's businesses use high-speed links to conduct all or part of their commerce. Remarkable, too, is the fact that nearly a dozen ISPs (Internet service providers) now operate in Blacksburg.

All this penetration can be traced to the establishment of the Blacksburg Electronic Village (BEV) in 1991. At the time, Virginia Tech boasted a state-of-the-art campuswide voice and data network. The decision was then made to extend the service beyond the campus — linking it, for instance, to several apartment buildings owned by the university. (The wiring was handled by the local telecom provider, Bell Atlantic, which is now Verizon.) Over the next few years, the process snowballed, bringing the Internet to offices, schools, and homes throughout the city.

The BEV model has become a template for rural communities across Virginia. With the help of a federal grant, Virginia Tech is helping set up similar programs in 29 towns and cities spread over nine counties.

Broadband's biggest selling point is economic development. And according to Mathew Mathai, BEV's director, the benefits for Blacksburg have been enormous. Mathai says Blacksburg's connectivity and the panoply of choices available to end-users has brought a sizeable influx of tech firms to the city. "A lot of small and not-so-small startups have purchased space here," he says. "It has definitely brought in a lot more people who might not have come [to Blacksburg] if the service wasn't available."