America is plagued by a stubborn and growing rural-urban digital divide: Thirty-nine percent of rural areas lack access to broadband of 25 megabits per second upload/3 Mbps download, the federal definition of “broadband,” compared to only four percent for urban areas lacking Internet speeds at this basic level. iii
This opportunity gap is a significant barrier for people who live, work and learn in rural communities. iv
Making the necessary investments to close these rural-urban gaps in their service areas can be a challenge for large, price cap local exchange telephone companies. Publicly traded companies weigh capital investment choices carefully; the return on investments in rural exchanges rarely are competitive with more densely populated areas, as high costs for network infrastructure often outweigh possible short-term economic returns from a small and dispersed customer base.
CenturyLink’s Executive Vice President and Chief Financial Officer Sunit Patel outlined this investment challenge at the Citi 2018 Global TMT West Conference:
“Instead of focusing capital on getting broadband speeds up to 10-20 Mbps, you would focus your money more surgically on areas that have higher population densities and better socioeconomic demographics that are in coexistence with businesses and where wireless infrastructure might be needed to get a better return on capital,” Patel said.
Patel made clear CenturyLink’s reliance on the CAF II funding for rural areas. At the same event, he said, “The other area of broadband expansion would be in rural markets where federal funding is available for you to be able to utilize and offer more speeds.” vii
The Federal Communications Commissions’ Connect America Fund (CAF II) program is designed to close the financial gap so that these large carriers, regulated as price cap carriers, can improve broadband services in areas they otherwise would deem too expensive to serve. viii The question is whether the program is, in fact, helping to close the rural-urban digital divide. Is CAF II funding adequate to encourage providers to deploy networks in less densely populated exchanges that deliver services comparable to the networks they build in more densely populated areas?
By documenting new CAF II-funded networks in the field, this paper attempts to clarify the impact of these investments on connectivity available to the served populations.