The Digital Divide:Development Issues

for Rural Areas

Edward J. MaleckiThe Ohio State University

Prepared for the conference, E-COMMERCE: Impacting the Way We Do Business, Nashville, TN, October 1-2,

2001

The Digital Economy

The digital economy is related to several of the major challenges facing rural America: Tapping digital technology Encouraging entrepreneurs Improving human capital

Technological Changes: Signs of Promise Flexible manufacturing and smaller

plants and firms provide possibilities for rural firms against giant competitors

Telecommunications technologies and the Internet erase the tyranny of space and distance (“the rural penalty”)

Continuing population growth promises a needed upgrade of skills for the new economy

Rural Prosperity Is Not Assured The most recent technology will be

replaced by newer ones in urban areas Deregulation, in favor of the market, has

diminished the likelihood of universal service

The apparent ease of reaching distant markets via the Internet can cause business owners to neglect long-established rules of sound business practice

Necessary and Sufficient Conditions for Rural Development

Necessary conditions: Basic physical infrastructure Human resources with minimal training Sufficient conditions (“intangibles”):

Ability of firms to innovate Quality of management Business culture supportive of entrepreneurs Inter-firm and public-private cooperation Finance for innovation and new economic activity

Source: Landabaso (2000)

Rural America is Digital

[Source: NTIA (2000), Figure I-3]

Percent of U.S. Households with Internet Access, by U.S., Rural, Urban, and Central Cities, 1998 and 2000

26.2 27.524.5

22.2

41.5 42.337.7 38.9

05

101520253035404550

US Urban Central City RuralPer

cen

t of U

.S. H

ou

seh

old

s

1998

2000

What we do on the Internet

Source: E. Duncan (2000) Thrills and Spills: A Survey of E-Entertainment, The Economist, October 7.

Internet: Supply and Demand Internet service providers (ISPs) are found

almost everywhere Access is helped by extended Area Service or

Extended Local Calling in states that permit it “The debate over universal service has

shifted from supply to demand” – Shane Greenstein “Access is available but at an additional cost” –

Sharon Strover “Rural citizens often lack the skills or knowledge

to assure digital infrastructure in their areas” – Sharon Strover

Lone Eagles and High Fliers Not all – and maybe very few –

communities have attracted “freelance teleworkers”

Rural areas can – and must – attract migrants relocating for quality-of-life reasons

New residents bring knowledge, experience, and market contacts

Supply of Digital Infrastructure Telecommunications has changed

from being a homogeneous public utility to a highly variable factor of production for businesses

20 years ago: absent from all lists of business location factors

By the late 1990s: in the top 3, often #1

What is Digital? Little Agreement Technology has exploded the options

available Deregulation has permitted competition There is no publicly available database

of present infrastructure nationwide, or in many communities Firms do not have to disclose their

technology, nor the locations where it is implemented (“trade secrets”)

Rural America: Digital, but not Broadband [Source: NTIA (2000), Figure I-16]

High Speed Internet Access by U.S., Rural, Urban, and Central Cities, 2000, as Percent of U.S. Households with Internet Access

10.711.8 12.2

7.3

02468

10121416

US Urban Central City Rural

Perc

ent o

f U.S

. Hou

seho

lds

with

Inte

rnet

Acc

ess

Universal Service: What Is It? What Should It Be? Internet access

Personal computer? Personal digital assistant? Wireless telephone?

Not just access devices, but applications and services Not the same ones for everyone

Only schools, hospitals, and libraries “should, generally, have access” – FCC

The Status of Rural Telecommunications Infrastructure Points of presence (POPs) are

needed for access to Internet backbone networks

Digital switches are needed for direct transfer of data

Both are found in rural communities, and some places have urban-level infrastructure

Points of Presence of 4 Major Telecom Firms, 2000

Urban Rural

Total POPs 1395 316

POPs/million population 6.4 5.8

Communities with more than 1 POP

264 224

% of communities with all 3 major inter-exchange carriers

65.3% 7.6%

Rural Locations with 3 or More POPs Helena MT Harrisonburg VA Winchester VA Bluefield WV Clarksburg WV Mason City IA Couer d’Alene ID Carbondale IL Galesburg IL Quincy IL

Columbus IN Richmond IN Junction City KS Madisonville KY Jefferson City MO Rolla Mo Grand Island NE Chambersburg PA Staunton VA Wytheville VA

Rural Locations of Digital Infrastructure and POPs, 2000

US Total

Rural Total

% Rural

Wire centers with digital switches

2598 321 12.4

Wire centers with packet gateway switches

784 86 11.0

Wire centers with POPs

1610 224 13.9

States with 10 or More Rural Locations Served by Digital Switches

Tennessee 61 Ohio 50 Michigan 34 Wisconsin 21 Virginia 17 Pennsylvania 15 Oklahoma 13 Texas 11 Kentucky 10

14 States with Rural Locations Not Served by Digital Switches, 2000

Arizona Colorado Georgia Iowa Idaho Minnesota Montana

North Dakota New Mexico Nevada South Dakota Utah Vermont Wyoming

Rural Digital Infrastructure Is Very Uneven

Telecommunications providers differ

State regulatory agencies differ State capitals and college towns

tend to be better served than other rural communities

Is Wireless the Answer? Not yet

And that’s all we know

Rural Demand for a Digital Economy

Demonstrating effective demand in rural areas: Infrastructure investment Appropriate services and applications Awareness of users Adoption and effective use Creating competitive advantage

A Rural Success Story:LaGrange, Georgia 60 miles southwest of Atlanta City-owned fiber-optic network 40 large commercial, institutional, and

industrial customers Large companies said they needed digital

switching and a POP LaGrange now has POPs of 5 interexchange carriers

Most other rural “success stories” have municipally-owned utilities

Lessons from LaGrange and Elsewhere Systematic strategic planning

Learn local telecommunications inventory Talk to local firms, large and small, to learn

their needs Aggregate demand

Especially of users with leased lines Public-private partnerships

Federal, state and local governments should not be on a separate network, but should be part of local demand

Doing Business Digitally The issues:

Entrepreneurs and human capital Migration can enhance both

Return migrants (former residents) Tourists and others “shopping” for amenities Migration and retirement are not one-shot

events Jobs follow people

Skilled and experienced new residents are digital

Niche manufacturing and global markets

Economically Viable Communities Support for those starting new

businesses Community strategic economic

development plan Show openness to new ideas

Newcomers bring contacts and links to distant markets

Public-private collaborations are a critical part of the supportive structures that adapt and change for rural development

Digital Business

All firms need a Web site Without one, many young people will

believe the firm does not exist All firms need more than a Web site

Real people Consumer choice Customized products, information, and

services

No Magic Bullet Telecommunications technology is not the

magic bullet for rural development More fruitful:

to build and the enhance capabilities of local firms To attract a share of experienced migrants

Rural communities need skilled people, both through local training and education and from in-migrants

Networks of businesses will boost rural demand, increase knowledge, and reduce isolation