Rural Broadband Projects Vary Widely in ROI

by James A. Bacon

Last week Governor Ralph Northam announced $18.3 million in Virginia Telecommunication Initiative grants to support 12 projects across the state. Leveraging $35 million in local and private matching funds, the projects will connect about 36,000 households, including thousands of businesses and “community anchor” institutions — an average state subsidy of roughly $500 per household on average.

Promoting rural broadband is a rare example of widespread bipartisan agreement in Virginia. Rural areas and small towns need high-bandwidth Internet access to compete for talent and corporate investment. That said, low-density human settlement patterns are expensive to serve with broadband, and the state has limited funds, about $35 million a year, to devote to this purpose.

Not all government-funded projects are created equal. Among the 39 applications submitted, some offer a better Return on Investment (ROI) than others. What’s the story behind these 12 winners? The governor’s press release doesn’t provide information beyond the size of the awards. But a number of local news stories provide additional details.

Articles about four projects (three successful, one unsuccessful) were published today:

Halifax County. The Mecklenburg Electric Cooperative’s EMPOWER subsidiary won a $710,514 grant to expand the fiber optic network in Halifax County. In November MEC completed the first part of its county network, a 5.5-mile section running through the Clays Mill and Crystal Hill areas. The grant will pay for a second phase, extending high-speed broadband to five rural communities. “Once complete,” reports, “the network will offer high-speed internet access to 2,215 potential customers in the five areas of the county” — a net gain of about 1,715. That works out to a state subsidy of about $414 per potential subscriber, assuming every potential subscriber signs up for the service.

Internet speeds will range from 50 megabytes per second (Mbps) up to 300 gigabytes for large industrial and business users. The monthly rate for a base package is $69.95.

Surry County. Surry County will receive a $2,225,000 grant, to be matched by $2.2 million in local funds, according to the Smithfield Times, will help provide broadband to more than 1,200 homes. County officials put up an equal $2.2 million in local funds. That amounts to an average subsidy of more than $1,875 per home — assuming, again, that every household signs up for the service. If the locality’s subsidy is including, the cost is about $3,750 per household.

Bath County. Bath County will get $2.2 million to run fiber installation past more than 400 residences and more than 100 businesses in Bath County, according to The Recorder. (This project was not noted in the list of projects in the governor’s announcement.) That works out to approximately $4,400 per customer (households + businesses).

Orange County. Orange County submitted a fiber-installation project that did not get funded. Broadband Authority Chairman and county Supervisor Jim White updated Orange Town Council: “This project is a major initiative for the county because reliable, affordable broadband is not a viable option for many of our citizens,” he said. “We’ve been waiting 20 years, but the major players just aren’t interested in meeting our need. There are huge sections of the county that don’t have high-speed internet.”

Reports the Orange County Review: “This is a very expensive project and we don’t have a  huge pile of money.” The $2.6 million proposed project would have connected more than 900 homes in five parts of the county. The implied subsidy would have been nearly $2,900 per household.

Bacon’s bottom line: From this limited set of data, it looks like the cost-per-household bounces all over the place — from $414 per subscriber in Halifax County to ten times that amount, $4,400 per customer in Bath County. (That assumes that the data I have scraped from small-town newspapers is accurate, and that I’m not comparing apples to oranges — or in the case of Orange County, apples to pears.) Bath County ($4,400 per customer) got funding while Orange County ($2,900 per household) did not. Why would that be? Are business connections weighed more heavily than households?

One more item to think about. It’s one thing to run fiber past a house. It’s another for the resident to pay — as much as $70 per month in Halifax County — to get it. Does anyone track the sign-up rate? I’m pretty sure that Verizon, ATT and Comcast do. Do local telephone cooperatives, electric cooperatives and broadband authorities do the same?

I’m sure there is a rational process behind the dispensing of state dollars, but it’s hard to discern from these data points what that might be.

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14 responses to “Rural Broadband Projects Vary Widely in ROI”

  1. “Are business connections weighed more heavily than households?”

    That may very well be. It’s only speculation since I haven’t seen any specifics from each proposal on who exactly would be served, but I would think projects that provided service to hospitals and schools might also receive more favorable consideration.

  2. LarrytheG Avatar

    Broadband has advanced to the level of being like other utilities like electricity, phone, water/sewer.

    There are two costs associated for each. Infrastructure and O&M.

    To give an idea of infrastructure costs – a water/sewer hookup in Stafford county costs more than $12000. This is not an extreme number. Check around – even for gated communities that build and operate their own systems, this is a nominal number.

    I’d not be surprised if we could ever see the number for say bring electricity to a new subdivision that we’d see similar costs.

    So many folks could not afford that money up front – so it’s either incorporated into the price of the house and becomes part of the mortgage payment or often the utility will allow the cost to be spread over a number of years on the monthly bill for O&M.

    Water/sewer numbers are also all over the map. It depends a lot on the terrain – the source of the water and what kind of wastewater treatment plant is built.

    But the relevant point here is that these grants should be revolving funds that get paid back and not “freebies” that subsidize SOME folks and not others.

    Broadband now days is morphing into hybrid systems where physical cable is brought to a given location then it is transmitted via WiFi to a service area – not unlike the cell phone system but with more broadband capacity.

    Finally, if we are going to subsidize at all – why not put it out for bid and let the existing providers have a shot at it? They already subsidize low income folks in their service areas so why not a PPP model?

    Failing that – consider incubating small business startups…

    1. idiocracy Avatar

      Larry–NOVEC charged me $8000 to install about 300 feet of 7.2KV primary, a 36KVA transformer, and 150 feet of secondary.

      Comcast charged me $0 (yes, zero) to install 300 feet of hardline, a tap, and 150 feet of RG6 drop.

  3. “But the relevant point here is that these grants should be revolving funds that get paid back and not “freebies” that subsidize SOME folks and not others.”

    I agree with you 100% on that.

    1. LarrytheG Avatar

      We do have things like school infrastructure funds that work that way.

      I’d much rather see a revolving fund even if subsidized so that it incentivizes more cost-effective proposals.

      The christmas tree grants for all idea is dumb.

      1. Dick Hall-Sizemore Avatar
        Dick Hall-Sizemore

        I agree with you in theory, but it seems to me there is a difference with cable. For water/sewer, the entity providing the infrastructure is the same one providing the ongoing service. That makes it easy to spread out the infrastructure cost in monthly bills over the years.

        However, with cable, it is different. The private provider of service is not willing to provide the infrastructure because there are not enough houses (customers) per mile to make it cost effective. If these government grants were going to be a revolving loan fund, unless the entity receiving the loan to establish the infrastructure (in the case of Halifax, for example, the electric coop) is also going to provide the internet service, it is hard to see how it could recoup the cost of laying the cable from customers and repaying the loan into the revolving fund.

        1. LarrytheG Avatar

          Well SOMEONE will be charging a monthly bill and on that bill should be a line item for the infrastructure payback!

          The private provider can essentially be the “collector” of that fee just like cable companies collect taxes for the state!

          I’m just opposed to selective subsidies for some folks but not others and worse if they are open-ended no matter the cost.

          Someone has to be incentivized to keep the costs down. Open-ended grants tend to just get gobbled up without regard to fiscal discipline.

  4. Re: “It’s one thing to run fiber past a house. It’s another for the resident to pay — as much as $70 per month in Halifax County — to get it.” I doubt the sign-up rate will be very high initially at that price; satellite internet service is already available to most residents for less $. But that would be the immediate sign-up rate; in the long run satellite service is not a dependable or satisfactory alternative, especially for streaming and other high-speed uses which continue to grow in importance. The total monthly cost for high-speed internet plus unbundled ‘a la cart’ content is already competitive with many if not most cable-TV company bundled products. And there will be a positive effect from high-speed broadband availability on real estate prices and development of the local economy even at a price many residents today won’t sign up for.

    I agree with Dick, “the private provider of service is not willing to provide the infrastructure because there are not enough houses (customers) per mile to make it cost effective.” Today, that is. This kind of utility infrastructure is the sort of investment that a government ought to undertake to prod the private sector, it seems to me. Then get out of the way, even sell it, when the service takes off. Remember all those “community antenna TV systems” in rural areas, many of them government supported, back in the past century? They’ve all been gobbled up by the modern cable companies.

    1. LarrytheG Avatar

      re: ” And there will be a positive effect from high-speed broadband availability on real estate prices and development of the local economy even at a price many residents today won’t sign up for.”

      If the value of the house increases then shouldn’t the owner share some of that increase with the state?

      I give another example. We have subdivisions in our county that were built by private developers, often not at VDOT standards.

      VDOT has a program where they’ll do 1/2 if the owners do the other 1/2.

      by the way, not talking about satellite here but a hybrid cable/wi-fi system where the cable goes down a main road but side-road houses are served by Wi-Fi from towers on the main road.

      opposed to 100% subsidies. Those who benefit should pay some share of it and it can be spread out over time to make it more affordable.

      If we do not do this , and some places get these grants – there is going to be an avalanche of hands out at the next GA – it will snowball; EVERYONE will want their “grant”.

      We have to incentivize keeping the cost down and sharing of the costs.

  5. What about Elon Musk’s and other’s low-earth-orbit multi-thousand satellite grid for high-speed internet access? Has anyone seen prices for that? It is still a ways off, but it is supposed to be a cheap cost for a close satellite (that overcomes the latency delay) for high-speed service for a broad area without the expensive wiring charges.

    1. LarrytheG Avatar

      I think Musk is a modern day P.T. Barnum. He’s quite a visionary, but he’s terrible at getting something to viable production.

      His Tesla cars are going to be modern day DeLoreans!

      Tesla and Elon Musk are creating a credibility problem

      Most recent data is further proof that investors need to be cautious about Musk’s projections

      SEC attorney Sheryl Crumpton said during Thursday’s hearing that there is a “huge gap” between Tesla’s delivery guidance and Musk’s statement that Tesla will produce 500,000 cars in 2019. Crumpton told the court that the Feb. 19 tweet was a “material statement,” with the difference between vehicles produced and delivered worth “billions of dollars,” and was clearly in violation of Tesla’s settlement agreement with the SEC, according to Bloomberg’s live blog of the hearing. Musk and his attorneys have argued the tweet was not material to the company.

      But some worry Musk’s tweets muddied the company’s forecast.

      “The now clear incongruence of CEO outlook statements with official company guidance may hurt the perception of management commentary, eroding investor confidence and potentially placing pressure on the shares,” said Ryan Brinkman, a J.P. Morgan analyst, in a note to clients.

  6. vaconsumeradvocate Avatar

    We got telephone service everywhere by spreading the costs over the whole service area of the providers. Today we are unwilling to use that system to provide broadband. We have allowed the providers to cherry pick who they serve and jettison the less and currently unprofitable. Thus, those in the cherry picked areas have competitive and affordable rates – others have close to nothing.

    We failed to learn the lesson of electricity – which required creating cooperatives to serve everyone. I’m a member of the most expensive service in Virginia – because we are very small and serve very mountainous area that is expensive. When AEP selected areas to serve it selected very carefully, allowing for its future development. The house I live in has been there since 1797 and it is in the coop territory. However, the rest of the farm on my side of the road is in AEP territory and AEP has a right of way across my property. The area that is Craig Botetourt Electric Cooperative will never draw business because it’s so easy to locate in AEP territory and get the lower rates.

    Areas currently without fiber pay a premium to get minimal service. We can’t even try the Netflix and related services because we can’t afford enough high speed service (even with unlimited service, after a minimal level, our service is slowed considerably for the remainder of the month – to so slow it’s almost impossible to use the internet even for email) for the remainder of the month. You can buy additional gigabites one at a time but I’ve found they only last a few hours. After grading at home via internet early in December, I spent the last 2 weeks of December and the first week of January with safe speed. I bought 1G extra at a time for $15 each – spending an extra $90 for the month, but effectively not having any service for the last 2 weeks.

    Areas without fiber broadband cannot support businesses, working from home, or any economic development. They won’t support extensive medical care/monitoring. Children can’t do internet homework. Things people in the cherry picked areas have no idea how little we can get.

    My biggest fear is that this is what the rural areas of the state can expect from here on now that the state’s leadership does not include rural representation. Folks in the urban areas have the agenda of not paying for rural areas any more. Their first step was getting broadband done like this. Their areas grew with the support of the rural areas but now that the shoe is on the other foot, they do not want to support rural areas.

    I’m very concerned about the future of rural Virginia. We’re the dumping ground for things folks don’t want to live with and not worth their investment for safety, pollution control, broadband, etc.

    1. Consider something apparently unrelated: as you may already know, the fight over net neutrality hinges on how regulators interpret the Federal Telecommunications Act. If wireless communications services are regulated by the FCC as common carriers, forbidding content discrimination, the FCC also can regulate rates, within limits; this potentially takes it out of the hands of the State. The current Republican majority of the FCC has declined to regulate wireless in this manner but the law has not been changed and “Part II” utility-style regulation of these entities can be restored by the next round of Democrats. But, you say, you want reasonably-priced broadband cable not broadband wireless? Pricing of these is related through competition and, perhaps the FCC will determine, also through definitions of what they are used for, as fiber optic broadband is not exactly a “cable” service. Bottom line: more aggressive future regulation by the FCC under existing law may directly affect your broadband service options.

  7. Posted on behalf of Hamilton Lombard:

    I subscribe to the Recorder and they had an article this weekend that had some more details on the BARC broadband grant:

    The total cost of the project, called “BARC Connects Rockbridge and Bath Counties,” will be $17,835,969. BARC will pay $15,633,969; Bath and Rockbridge will each pay $4,000; and the grant will pay for the rest. The Bath-Highland Network Authority spearheaded the application effort.

    In Bath County, there will be 203 miles of fiber installed that will pass 466 residences and 126 businesses. In Rockbridge, 111 miles of fiber will pass 462 residences and 31 businesses.

    So the project actually costs far more per customer but BARC and ultimately its members are paying for the large bulk of the cost.

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