By Ashley Spinks, Communications Coordinator, NTCA–The Rural Broadband Association
March 7, 2019
In January, CoBank released its report on the year ahead, “Forces That Will Shape the U.S. Rural Economy in 2019.” CoBank is a mission-based cooperative bank that supplies funds to the different businesses that keep rural America functioning, including rural broadband companies like those in NTCA’s membership. According to the report, the market for rural internet service providers is changing, and CoBank customers will have to adjust to ensure stability in the long-term.
CoBank is part of the Farm Credit System, a national network of lending institutions that provides production agriculture with more than 40% of its credit and financial needs. “As a cooperative, we are focused on our membership and what will help them be successful, but more broadly, we are also focused on the success of rural America,” said Brian Cavey, senior vice president of government affairs at CoBank. With such an outsized role in the rural economy, CoBank’s insights into what 2019 may hold are valuable for a variety of rural stakeholders. Certain predictions within the report are especially useful for those in the rural broadband industry, which is likely to face significant change in the next several years.
According to Jeff Johnston, communications industry analyst at CoBank, traditional revenue streams are going to see major adjustments in the near term. “The regulated revenue aspect of these RLECs are under a lot of pressure,” Johnston explained. “Their top line is shrinking.” As regulated services such as voice face diminishing demand, companies must explore new revenue streams including broadband, tech support, home security services and building in CLEC areas. “The ones that stayed away from video are doing backflips right now,” Johnston said, and opportunistic companies are able to carefully deploy other technology, like fixed wireless, unlicensed spectrum and “Wi-Fi-like commodity infrastructure.”
The good news for rural broadband companies is that collectively they have a huge economic impact in rural America, which has led to broad bipartisan support for facilitating deployment and network maintenance. “Rural America isn’t about any one party,” said Cavey. A case-in-point is that the Farm Bill, which was reauthorized late last year with support from both Democrats and Republicans, included funding for the U.S. Department of Agriculture to support rural broadband deployment. Agriculture Secretary Sonny Perdue also recently announced $600 million in funding for USDA’s ReConnect Program.
It’s a promising start, Johnston said, but he added, “In my personal opinion, $600 million is a drop in the bucket. We’ve got a long way to go for what’s really going to be needed to connect rural America.” Given “the passion that the FCC chairman has for connecting rural America and the economic benefits of it … I would think there would be more opportunities for collaboration between broadband companies and the agricultural community” moving forward, Johnston said.
“The ones that stayed away from video are doing backflips right now,”
Another area where Johnston sees potential for growth in the coming year is in new partnerships. NTCA has advocated for and championed successful broadband partnerships in many forms—whether a member company was joining forces with an electric co-op, a water utility or a neighboring RLEC. In Johnston’s view, rural broadband providers should take advantage of partnership opportunities without worrying too much about overbuilding or market disruption. When broadband providers build into CLEC territory, Johnston said, they’re often leveraging “complementary capabilities and assets” with a partner company.
“There’s a lot of synergy there. … Electric co-ops that are building fiber networks are not trying to disrupt the broadband market. Instead, they are looking for situations where markets are either underserved or not served at all and building networks to simply serve the needs of their members. On top of that, there’s a lot of network efficiencies to be gained when they’ve got a broadband connection.”
Johnston said electrics and utilities with access to a robust broadband connection can monitor service anomalies and electricity consumption, and they can access real-time feedback. “It’s those type of motives that are driving the electric-co-ops’ investments in broadband, as opposed to a revenue opportunity to steal market share,” Johnston said.
Overall, Johnston took an optimistic tone when discussing the state of the rural communications industry going into 2019. “Around valuations of fiber networks…it’s just remarkable [to consider] these investments in fiber and what’s happening with existing and emerging applications.” While the hot commodity now, he said, is fiber transport companies, “Fiber-rich RLECs and small regional cable operators are going to be next.”