By Morgan Smith

 Summary

Increasingly, Georgia residents and businesses rely on the Internet as a tool for communication, information, commerce and entertainment.  Internet usage has become a common feature of everyday life, and the growing demand for higher speed access – “broadband” service – is one visible indicator of the Internet’s enormous popularity.

Recognizing these trends, both state and local officials frequently emphasize the importance of making broadband available to all areas and populations within the state.  In the abstract, public sector initiatives to expand broadband service seem well-intentioned.  Gaps in access can create explicit and implicit costs for individual consumers and communities as a whole. But such programs should accurately assess the true magnitude of current service shortfalls, particularly given the high cost of public interventions.

According to data collected by the Federal Communications Commission (FCC), the availability of broadband service across Georgia is already quite good.  Approximately 98% of Georgia’s residents live in zip codes that report some level of broadband service.  Of the remaining 118,000 residents who live in “unserved” zip codes, almost all are located in counties in which most other zip codes do have access to broadband.

Admittedly, the FCC data is less than ideal, because it indicates only the presence of broadband service within a zip code, and not the extent of penetration within that area.  The presence of service within a particular zip code does not mean that all residents within that zip code have access to broadband.  Despite this limitation, however, it is still reasonable to conclude that a large majority of Georgia residents currently have access to broadband service.

In addition, customers in many areas of Georgia are apparently able to choose among different service providers and technologies (such as cable, DSL, fixed wireless, etc.).  Competition between access providers helps to improve efficiency, increase consumer choice and encourage higher quality service.  Thus, the presence of multiple providers in some areas is an important feature of the state’s broadband market. According to the FCC, roughly 40% of the Georgia zip codes in which broadband is available report service by four or more different providers.  These zip codes – which seem to enjoy a relatively high level of competition – cover 70% of the state’s residents. 

Despite the encouraging results of the FCC survey, there are certainly some areas of the state that still suffer from limited access to broadband and little or no competition among providers.  Where such service gaps are widespread, these shortfalls can mean restricted choices and reduced productivity for affected residents.  In addition, broadband availability is often viewed as a key component of a community’s economic development prospects, similar to the importance of high-quality schools or roads.  In underserved areas, communities face critical decisions about whether and how to respond to broadband service shortfalls.

A range of policy options exist for communities to address broadband service issues. Some common initiatives include local governments providing service for their own communities, via existing or new networks, or the use of grants or subsidies.  Regional programs may also be used to aggregate demand and attract private investment.  Examples of these approaches have already been enacted in Georgia and other states, with a wide range of results. 

Each of these initiatives has advantages as well as risks that demand critical examination.  Given the magnitude of the public revenues that may be at stake in such projects, it is important for policymakers to identify the conditions under which such efforts are truly justified.  Where there is consensus that significant gaps in service exist and merit public action, there should be a well-informed dialogue about what form public-sector initiatives should take, and what objectives should be pursued.

To encourage such dialogue, the Foundation urges policymakers to review the data and policy considerations presented in this memo.  There is a clear need, however, for further work on several related topics, such as better measures for quantifying demand and the effect of regulatory factors. Towards this end, the Foundation plans to undertake further research on these and other issues, and to contribute additional analysis on key aspects of Georgia’s broadband marketplace.

II.        What is “Broadband”?

In Georgia, as in the rest of the United States, the emergence of the Internet and related technologies has created explosive demand for new telecommunication services and the infrastructure required to support them.  The use of such services – Internet access in particular – has spread through every layer of the economy and across all types of communities. Increasingly, Georgia’s businesses, public agencies and individual consumers look to the Internet to facilitate communications, entertainment, business transactions and other activities. 

Everyday use of the Internet has become almost ubiquitous, and the pace of adoption has been breathtaking.  In Georgia, for example, almost every household with a computer uses the Internet.[1]  Local “dial-up” Internet access – using an analog modem and a regular telephone line – is a service that is available to virtually every phone customer in the state.[2]

Not only are a growing number of businesses and households using the Internet, but customers are also seeking better, faster access via greater bandwidth.  Through the use of enhanced technologies, customers can purchase greater capacity and faster transmission speeds, which is generically referred to as “broadband” service.[3]  Compared with dial-up service, broadband represents a significant upgrade in transmission speed.  Depending on the technology being used, broadband service can be 10 to 30 times faster than dial-up.[4] 

Not surprisingly, broadband service is also more expensive to purchase than dial-up, sometimes considerably so.[5]  However, broadband provides a level of access which businesses and government agencies often consider necessary, and which many individuals prefer to use.  The best evidence of the appeal of broadband service is the high level of demand from consumers.  At the end of 2002, there were more than 15 million broadband subscribers nationwide,[6] representing roughly 20% of all households with Internet service.[7]  Industry analysts predict that broadband’s share of the online market will continue to expand, albeit at a slower pace than seen in previous years.[8]

The usefulness and importance of broadband access is widely accepted.  Today’s broadband users enjoy faster downloads, the ability to run larger applications and “always-on” capability. Yet the broadband industry is largely oriented towards the possibility that even better uses for broadband’s enhanced capacity will emerge in the future, via new, “must-have” applications. Experts predict that broadband service will become a necessary and integral part of many evolving technologies, and will be commonly used in a wide variety of residential and business applications:

“[H]igh-capacity networks and the services they support promise to improve the quality of life for all Americans. They can expand educational opportunities, improve health care, increase governments’ responsiveness to its citizens, and enhance our global competitiveness.”[9] 

III.       The Supply Side of Broadband

In order for businesses, governments and individuals to access broadband services, enhanced infrastructure is first required.  Fortunately, a range of competing technologies can be used to achieve the necessary transmission capacity.  For example, broadband is currently delivered via phone lines (using DSL or T1, etc.), cable lines, satellite signals and fixed wireless systems.  Future broadband services may be provided using electrical lines or enhancements to wireless technologies, such as third generation wireless (“3G”) or 802.11/wireless fidelity (“wi-fi”) systems.  The growing set of viable technologies means that broadband access is provided by a diverse mix of companies, including regulated utilities as well as public and private firms that own fiber-optic, wireless or satellite networks.

From a consumer’s perspective, each type of broadband technology has a different profile in terms of capacity, installation parameters and operating costs.  Technical limitations are also imposed by externalities such as topography, density of users and even weather.  These factors combine to make some technologies better suited for some markets or individuals, and some options more expensive to either the provider or the customer.

In response to emerging market demand, access providers have worked to expand and upgrade their respective infrastructure in order to reach growing numbers of broadband customers. To date, the pace of infrastructure roll-out has been rapid: some estimates predict that 90% of U.S. households will soon have access to either DSL or cable service.[10]  As recently as 2000, fewer than 60% of all households had access to broadband service of any kind.[11]

IV.       Gaps in Broadband Access

Despite the rapid expansion of broadband availability, there are still service gaps that affect communities and individual customers.  These gaps in access create barriers between potential broadband users and the applications and level of service they would otherwise select.  Gaps in broadband availability can result from a variety of conditions, such as spotty infrastructure upgrades or slower roll-out to rural or less-populated areas.

Where such service gaps are widespread, inferior broadband access can limit local communities in several ways.  First, many businesses have a genuine need for broadband service and thus, the quality of available infrastructure can affect relocation and expansion decisions.  Second, a significant portion of residential and business customers prefer to use broadband Internet connections when available.[12]  The inability to receive broadband means restricted choices and reduced productivity for these consumers.  Finally, the widespread absence of broadband within a community – being on the wrong side of the “digital divide” – can create a perception that has its own negative impact, apart from the actual effect of technology limitations.  For these reasons, broadband availability is increasingly viewed as a key component of a community’s economic development prospects, similar to the importance of high-quality schools or upgraded roads.

Beyond the basic availability of broadband access, another important consideration is the degree to which customers are able to choose from more than one provider or technology format. In this sense, the quality of a community’s broadband access is critical.  In parts of Georgia, customers are limited to a single provider without the ability to choose among competing firms or technologies.  As in other industries, dependence on one provider can create anti-competitive effects such as higher pricing and poor service.  It may also result in fewer incentives for providers to upgrade their network infrastructure, and thereby slow the roll-out of broadband service to outlying customers.

On the other hand, communities in which genuine competition exists can benefit on several levels.  First, competition among providers can result in lower prices, and more uniform levels of service.  Second, the presence of multiple providers increases the likelihood that a greater share of residents will have access to some kind of service option, even if all providers are not available to all residents.  Finally, the availability of different formats allows customers to choose more efficiently based on their individual needs.  This flexibility is a critical feature of the broadband marketplace, since some technologies will necessarily be better suited for some customers once factors such as capacity, cost and installation issues are considered.

Access to advanced telecommunications services can be an important component of a community’s economic development prospects and quality of life more generally.  However, efforts to expand access and improve competition can carry significant costs.  In addition, the push for greater access is at least partially driven by visions of broadband’s future, and unproven assumptions about the level of demand that new applications will generate. 

Given these uncertainties, policymakers face important decisions about how best to balance the potential benefits broadband networks may deliver against the real limitations of the current marketplace.   As a starting point, it is important to identify those areas and populations within the state that face limited or inferior access to broadband.  By accurately quantifying the magnitude of Georgia’s current service gaps, policymakers can best determine the appropriate remedies – if any – that public initiatives should undertake.

V.        The Current State of Broadband Access in Georgia

It is notoriously difficult to collect detailed information about the availability of broadband services.  One problem is that, with so many different providers competing in the market, companies can be reluctant to share customer data.  Also, infrastructure upgrades can be geographically spotty, making it hard to estimate which customers actually have broadband access.  In many areas, for example, broadband is available to some neighborhoods or streets, but not all.  Finally, the rapid pace of roll-out means that survey data becomes quickly outdated, and conveys only an approximation of the actual availability of service.

Acknowledging these difficulties, the Federal Communications Commission (FCC) has worked cooperatively with broadband service providers to collect a periodic set of data that attempts to capture trends in broadband availability.[13]  Essentially, participating providers agree to self-report the zip codes in which they have at least one customer for broadband services.[14] Based on this data, the FCC issues a semi-annual summary that provides aggregated information about which zip codes have access to broadband, and how many providers are serving the area.  The latest FCC survey was released in December, 2002 and included data effective as of June, 2002.[15]

Admittedly, this data is not comprehensive, and does not measure the extent of access within individual zip codes.  But by comparing the FCC’s data on Georgia zip codes with selected statistics from the U. S. Census,[16] it is possible to gain some sense of the current availability of broadband services, and how the quality of broadband access varies within the state.  It is important to reiterate, however, that the data from the FCC survey is more than six months old, and accessibility may have improved in some areas since then.  In addition, the quality of access within a zip code can differ dramatically, particular in more rural or less populated areas.

Availability of Access

Despite the above caveats, the FCC data provides some important information about broadband availability in Georgia.  Perhaps surprisingly, the report indicates that there are very few areas in Georgia in which no broadband customers are reported (Figure 1).  Out of a total of 707 “standard” zip codes,[17] only 106 of these failed to report any broadband customers.  What is even more relevant is exactly how few people live in these “unserved” areas.  Fewer than 118,000 of Georgia’s  8.1 million residents live in the 106 “unserved” zip codes.  This means, conversely, that more than 98% of Georgia’s population lives in zip codes in which some level of broadband service is currently available.

Indeed, a sizable number of Georgia’s counties appear to have fairly comprehensive access to at least some form of broadband service.  At least eighty-eight counties report some level of broadband service in every populated zip code (Figure 2).  These counties together represent more than 70% of the state’s total population.  While this does not necessarily mean that every resident of these counties has access, it does imply that service coverage in these areas is relatively widespread, and that the roll-out of upgraded infrastructure in many counties is well underway.

In addition, almost all of Georgia’s “unserved” zip codes are located very near to areas that do report broadband availability.  With few exceptions (only 4 out of 106), zip codes with no service are located in counties in which other zip codes do report broadband access, i.e. “partially served” counties.  Roughly 30% of Georgia’s population lives in the 69 partially served counties.

The data from these partially served counties suggests that broadband infrastructure is relatively close to those customers who are now without access.  In most cases (62 out of 69), the majority of the county’s zip codes report broadband service (see Appendix).  Across all 69 counties, more than 67% of all zip codes report some availability of broadband service.[18]

In addition, broadband access appears to be concentrated in areas that have the potential to reach the most customers.  Across the 69 partially served counties, the zip codes that do report some level of broadband service account for more than 90% of these counties’ residents.  In each of these counties except one (Atkinson County), residents of broadband zip codes account for more than 50% of all county residents (Figure 3).  Overall, only a small portion of partially served county residents – less than 115,000 individuals across the state – live in the unserved zip codes within these counties.

Also significant is the finding that very few Georgia counties are unserved in their entirety.  In fact, only two counties failed to report any broadband customers to the FCC: Taliaferro[19]and Webster[20].  These counties together represent roughly 4,500 residents, or less than one-tenth of one percent of the state’s total population.

Level of Broadband Service Coverage	Number of Counties	County Population	Percent of Total Population
None	2	4,467	0.06%
Partial	69	2,390,760	70.74%
Full	88	5,791,226	29.20%
Total:	159	8,186,453	100%

Quality of Competition

Beyond the basic availability of broadband access, another important consideration is the degree to which customers are able to choose from more than one provider or technology format. Using the data from the FCC survey, it is possible to gauge which areas of the state are already covered by multiple providers.  Unfortunately, the FCC data gives only a partial indication of which zip codes are being served by more than one provider.  Zip codes with some broadband service, but fewer than four providers, are coded without revealing the exact number of responses, in order to protect the confidentiality of the provider companies.  For zip codes in which four or more providers report service, the exact number of providers is released.

The FCC data indicates that, in roughly 40% of the zip codes in Georgia in which broadband service is available, four or more providers report serving the same zip code.[21]  More than 5.8 million residents live in these zip codes, suggesting that roughly 70% of the state’s population is covered by a relatively robust level of service.  In these areas, it is unclear whether the customer base for the different providers overlaps, and if so, to what degree.  However, the prevalence of so many zip codes with multiple providers is a promising indicator that these areas of the state feature some measure of competition among different firms and technology formats.

It is difficult to determine the level of competition being provided to the remaining 2.2 million residents.  While the FCC indicates that these remaining areas do report some level of access, the report intentionally obscures whether one, two or three providers are available.  One clue is that many of the zip codes that report “one-to-three” providers are located in counties in which other zip codes report “four or more” providers.  It seems reasonable to assume that these areas, being in close proximity to even higher levels of service, are also likely to be relatively well served in terms of both access and competition.  Such cases include 160 zip codes in 57 counties, and roughly 965,000 residents.

Even given these assumptions, there may be as many as 1.2 million Georgian’s who live in zip codes that report some level of broadband service, but who may not enjoy the ability to choose among different service providers or technologies.  For some of these customers, satellite or fixed wireless options may offer a competitive alternative, although the costs for such services are typically higher than for DSL or cable service.  Even so, increased competition between both providers and platforms will be an important next step in the evolution of Georgia’s broadband market.

Number of Broadband Service Providers	Number of Zip Codes	Zip Code Population	Percent of Total Population
None	106	117,653	1.44%
1 to 3 Providers	355	2,240,663	27.37%
4 or More Providers	246	5,827,187	71.19%
Total:	707	8,185,503[22]	100%

VI.       Is There A “Digital Divide”?  How to Evaluate Unmet Demand

The data discussed above indicates that the large majority of Georgia’s residents have access to some form of broadband service.  Many areas of the state are being served by four or more different providers, which implies the potential for genuine competition across both providers and technology formats.  Despite these promising conditions, it is also true that there are some communities in which potential customers do not have sufficient access to broadband services.  The fact this unmet demand exists is not in dispute.  It is important, however, to critically evaluate the extent of current service gaps and their relative significance.

When viewed from a statewide perspective, access gaps appear to be a marginal issue for Georgia as a whole: only a small portion of the state’s population faces service limitations.  From the local perspective, however, the presence of even limited gaps in the availability and quality of broadband service can be critical.  In some cases, access gaps may affect a large share of residents or even entire communities.  Thus, it is appropriate for local policymakers to be particularly interested in how best to address these conditions.

As a starting point, such local initiatives must be placed in the correct context.  Broadband advocates frequently compare the effort to improve broadband access with earlier programs to extend electric or telephone service to rural areas.  Such analogies are not accurate for two reasons.[23]  First, unlike these other utilities, broadband service represents an upgrade from a more basic service – dial-up access – which is almost universally available to all Georgia residents.  Customers might prefer to have access to a higher grade of service, but a basic and less expensive form of the same product already exists.  Second, rural customers are generally able to purchase satellite broadband service in areas where cable and DSL are not available.  While satellite service is more expensive than other broadband alternatives, it does succeed in giving rural customers a viable high-speed option when other technologies are not available.[24]

If both dial-up and satellite are available to cover service gaps, why does the perception of a “digital divide” persist?  In fact, what many “unserved” customers are actually missing is not access, per se, but something more specific: the ability to get high-speed bandwidth at a “cheap” price.  While this may be a valid goal , it is important for policymakers to be clear that perceptions about unmet demand are not entirely about real gaps in access, but instead often reflect consumers’ desire to receive less expensive broadband.

The truth is that some unserved customers are simply too remote to be efficiently connected by the “budget broadband” technologies – DSL and cable – that work well for almost everyone else.  New options, however, are already emerging to fill these gaps in the market.  Both satellite and fixed wireless providers are increasingly reaching out to serve stranded pockets of rural customers.  And in some cases, new wireless services can already provide high-speed access at prices that are comparable to DSL and cable.[25]

These ongoing improvements in the broadband market underscore the need for policymakers to be mindful of how rapidly the telecommunications industry can shift.  Consumers’ demand for broadband has emerged quickly, and service providers have been challenged to keep up.  Indeed, the rate of broadband penetration has been as fast or faster than the adoption of many other innovations such as cell phones, CD players or color TV’s.[26]  In this context, the expansion of service availability has been relatively rapid.  Thus, it seems reasonable to assume that access will continue to spread to many of the locations currently labeled as “unserved”.

Another important issue to consider is what level of access should consumers and policymakers realistically try to achieve?  Even if it were universally available, not every household or business would elect to purchase broadband services, given the cost and individual preferences.  For many households, broadband service is a luxury, not a necessity, particularly since only 52% of  Georgia’s households currently own a personal computer.  In this respect, Georgia ranks 40^th compared with other states.[27]  Thus, there may be more elemental issues facing policymakers who hope to encourage modernization across the state’s populations.

There is already growing evidence that the availability of broadband services may be outpacing current consumer demand.  In a recent survey, a large majority of dial-up customers indicated they had not chosen broadband service because they either had no need (42%) or felt it was too expensive (35%).[28]  Closer to home, a well-publicized program in LaGrange, Georgia – which provides free cable broadband service to every household – has had mixed results.  After two years of operation, only about half of the town’s residents had signed up for the program.[29]

Some of the slowing of broadband demand can be attributed to the absence of “must-have” applications, which demonstrates the chicken-and-egg dilemma facing the industry.   Since more useful broadband applications will likely emerge in the future, it is certainly appropriate for policymakers to anticipate increased usage when evaluating the need for infrastructure improvements.  But because such initiatives are expensive, it is also important to balance the constraints of the current market against predictions about the needs of the future.  For now, the reality is that current consumer demand for broadband service is limited – not universal – and even in the longer term, it may not be appropriate to assume that universal use will prevail.

VII.     Policy Considerations

Public officials concerned with underserved communities face critical decisions about whether and how to respond to broadband service shortfalls.  A range of initiatives have already been enacted in Georgia and other states, with programs focused variously at both the state and local level.  Some of these programs include:

• ·          Municipal Networks

In a growing number of communities, local governments are considering the merits of self-provisioning broadband service.  Municipalities can build their own broadband networks through a number of mechanisms, such as leveraging municipal-owned cable or phone systems, or through the construction of new fiber-optic, wireless or other networks. 

• ·          Direct Incentives

Local communities can offer direct incentives, such as grants or subsidies, to encourage service providers to accelerate roll-out into their market.  Such programs may include partnerships between municipalities and service providers, through which infrastructure needs are cooperatively identified then partially subsidized by the local government.

• ·          Demand Aggregation

Underserved regions can also take steps to group potential customers in a way that makes their local market more attractive to private sector service providers. By using a “demand aggregation” approach, groups of potential users can cooperatively try to attract new providers or expanded levels of service.

In Georgia, a number of communities have undertaken municipal self-provision, and several others are considering similar programs.  There are also examples of local municipalities working cooperatively with service providers to identify infrastructure needs and subsidize network expansion.

The potential for a state-level initiative was raised via the Georgia Technology Authority’s “CCOP” contract (recently cancelled) and through Governor Perdue’s telecommuting proposals. Using demand aggregation at the state level – by first connecting public sector offices, schools and libraries – these programs proposed to “anchor” broadband service into new areas, and to improve availability in communities that still face shortfalls.  Other local-level examples of demand aggregation can also be found, such as Mercer University’s effort to assemble a pool of regional broadband customers.[30] 

Each of these approaches has advantages as well as risks that are worth critical examination.  Given the magnitude of the public revenues that may be at stake in such projects, it is important for policymakers to investigate whether such efforts are truly necessary.  Where there is consensus that significant gaps in service exist and merit public action, a robust dialogue is needed to determine what form public-sector initiatives should take.

To encourage such dialogue, the Foundation urges policymakers to review the data presented in this memo and the issues discussed above.  In addition, the Foundation plans to undertake further research on this topic, and to contribute analysis on several additional aspects of Georgia’s broadband marketplace, including some of the following issues:

Quantifying Demand:

—         More comprehensive data is needed, in order to both update the information provided by the FCC and to evaluate the state of access at a more precise and detailed level (i.e. within zip codes).

—         What regions or communities have a convincing case for unmet demand?  Are these shortfalls widespread or linked to targeted groups?  How can communities determine when access availability is sufficient to their needs?

—         What are the prospects for increased demand in the short and long term? For what purpose are underserved consumers likely to use additional bandwidth?  What leading applications are likely to emerge?  Should the public sector help to encourage the development of new applications, and if so how? 

Infrastructure and Supply:

—         Has the private sector been sufficiently responsive in rolling out broadband services? 

—         How has the regulatory environment influenced the speed and shape of infrastructure upgrades?  How will impending regulatory changes impact the market, and how quickly? 

—         What effect will emerging technologies (fixed wireless, satellite, etc.) have on residual access gaps and consumer demand?

Public Sector Provision:

—         Should public sector agencies compete in this arena?  Under what conditions? 

—         What are the risks involved in municipal provision of telecommunications services? 

—         What models exist for successful municipal projects and what types of communities are good candidates for these initiatives?

New Initiatives:

—         Are there “third approach” alternatives, such as subsidies, grants, government-funded vouchers, etc. through which public agencies can influence private sector roll-out? 

—         Should communities enable/subsidize satellite or other forms of access as a short-term solution until technology becomes cheaper or private sector providers arrive? 

—         What other methods exist to help to create economies of scale – i.e. “demand aggregation – to entice providers to underserved markets?

The issues related to broadband access are both important and complex.  The intersection of various public and private interests, and the technical nature of the subject, serve to further complicate the dialogue.  But this is also an area in which much clarity may be gained from cooperation and the sharing of information.  In this regard, the effort to evaluate and improve Georgia’s broadband prospects offers a valuable opportunity for interested parties across the state to work together to construct a sound, well-informed public policy debate.

---

 

By Morgan Smith

 Summary

Increasingly, Georgia residents and businesses rely on the Internet as a tool for communication, information, commerce and entertainment.  Internet usage has become a common feature of everyday life, and the growing demand for higher speed access – “broadband” service – is one visible indicator of the Internet’s enormous popularity.

Recognizing these trends, both state and local officials frequently emphasize the importance of making broadband available to all areas and populations within the state.  In the abstract, public sector initiatives to expand broadband service seem well-intentioned.  Gaps in access can create explicit and implicit costs for individual consumers and communities as a whole. But such programs should accurately assess the true magnitude of current service shortfalls, particularly given the high cost of public interventions.

According to data collected by the Federal Communications Commission (FCC), the availability of broadband service across Georgia is already quite good.  Approximately 98% of Georgia’s residents live in zip codes that report some level of broadband service.  Of the remaining 118,000 residents who live in “unserved” zip codes, almost all are located in counties in which most other zip codes do have access to broadband.

Admittedly, the FCC data is less than ideal, because it indicates only the presence of broadband service within a zip code, and not the extent of penetration within that area.  The presence of service within a particular zip code does not mean that all residents within that zip code have access to broadband.  Despite this limitation, however, it is still reasonable to conclude that a large majority of Georgia residents currently have access to broadband service.

In addition, customers in many areas of Georgia are apparently able to choose among different service providers and technologies (such as cable, DSL, fixed wireless, etc.).  Competition between access providers helps to improve efficiency, increase consumer choice and encourage higher quality service.  Thus, the presence of multiple providers in some areas is an important feature of the state’s broadband market. According to the FCC, roughly 40% of the Georgia zip codes in which broadband is available report service by four or more different providers.  These zip codes – which seem to enjoy a relatively high level of competition – cover 70% of the state’s residents. 

Despite the encouraging results of the FCC survey, there are certainly some areas of the state that still suffer from limited access to broadband and little or no competition among providers.  Where such service gaps are widespread, these shortfalls can mean restricted choices and reduced productivity for affected residents.  In addition, broadband availability is often viewed as a key component of a community’s economic development prospects, similar to the importance of high-quality schools or roads.  In underserved areas, communities face critical decisions about whether and how to respond to broadband service shortfalls.

A range of policy options exist for communities to address broadband service issues. Some common initiatives include local governments providing service for their own communities, via existing or new networks, or the use of grants or subsidies.  Regional programs may also be used to aggregate demand and attract private investment.  Examples of these approaches have already been enacted in Georgia and other states, with a wide range of results. 

Each of these initiatives has advantages as well as risks that demand critical examination.  Given the magnitude of the public revenues that may be at stake in such projects, it is important for policymakers to identify the conditions under which such efforts are truly justified.  Where there is consensus that significant gaps in service exist and merit public action, there should be a well-informed dialogue about what form public-sector initiatives should take, and what objectives should be pursued.

To encourage such dialogue, the Foundation urges policymakers to review the data and policy considerations presented in this memo.  There is a clear need, however, for further work on several related topics, such as better measures for quantifying demand and the effect of regulatory factors. Towards this end, the Foundation plans to undertake further research on these and other issues, and to contribute additional analysis on key aspects of Georgia’s broadband marketplace.

II.        What is “Broadband”?

In Georgia, as in the rest of the United States, the emergence of the Internet and related technologies has created explosive demand for new telecommunication services and the infrastructure required to support them.  The use of such services – Internet access in particular – has spread through every layer of the economy and across all types of communities. Increasingly, Georgia’s businesses, public agencies and individual consumers look to the Internet to facilitate communications, entertainment, business transactions and other activities. 

Everyday use of the Internet has become almost ubiquitous, and the pace of adoption has been breathtaking.  In Georgia, for example, almost every household with a computer uses the Internet.[1]  Local “dial-up” Internet access – using an analog modem and a regular telephone line – is a service that is available to virtually every phone customer in the state.[2]

Not only are a growing number of businesses and households using the Internet, but customers are also seeking better, faster access via greater bandwidth.  Through the use of enhanced technologies, customers can purchase greater capacity and faster transmission speeds, which is generically referred to as “broadband” service.[3]  Compared with dial-up service, broadband represents a significant upgrade in transmission speed.  Depending on the technology being used, broadband service can be 10 to 30 times faster than dial-up.[4] 

Not surprisingly, broadband service is also more expensive to purchase than dial-up, sometimes considerably so.[5]  However, broadband provides a level of access which businesses and government agencies often consider necessary, and which many individuals prefer to use.  The best evidence of the appeal of broadband service is the high level of demand from consumers.  At the end of 2002, there were more than 15 million broadband subscribers nationwide,[6] representing roughly 20% of all households with Internet service.[7]  Industry analysts predict that broadband’s share of the online market will continue to expand, albeit at a slower pace than seen in previous years.[8]

The usefulness and importance of broadband access is widely accepted.  Today’s broadband users enjoy faster downloads, the ability to run larger applications and “always-on” capability. Yet the broadband industry is largely oriented towards the possibility that even better uses for broadband’s enhanced capacity will emerge in the future, via new, “must-have” applications. Experts predict that broadband service will become a necessary and integral part of many evolving technologies, and will be commonly used in a wide variety of residential and business applications:

“[H]igh-capacity networks and the services they support promise to improve the quality of life for all Americans. They can expand educational opportunities, improve health care, increase governments’ responsiveness to its citizens, and enhance our global competitiveness.”[9] 

III.       The Supply Side of Broadband

In order for businesses, governments and individuals to access broadband services, enhanced infrastructure is first required.  Fortunately, a range of competing technologies can be used to achieve the necessary transmission capacity.  For example, broadband is currently delivered via phone lines (using DSL or T1, etc.), cable lines, satellite signals and fixed wireless systems.  Future broadband services may be provided using electrical lines or enhancements to wireless technologies, such as third generation wireless (“3G”) or 802.11/wireless fidelity (“wi-fi”) systems.  The growing set of viable technologies means that broadband access is provided by a diverse mix of companies, including regulated utilities as well as public and private firms that own fiber-optic, wireless or satellite networks.

From a consumer’s perspective, each type of broadband technology has a different profile in terms of capacity, installation parameters and operating costs.  Technical limitations are also imposed by externalities such as topography, density of users and even weather.  These factors combine to make some technologies better suited for some markets or individuals, and some options more expensive to either the provider or the customer.

In response to emerging market demand, access providers have worked to expand and upgrade their respective infrastructure in order to reach growing numbers of broadband customers. To date, the pace of infrastructure roll-out has been rapid: some estimates predict that 90% of U.S. households will soon have access to either DSL or cable service.[10]  As recently as 2000, fewer than 60% of all households had access to broadband service of any kind.[11]

IV.       Gaps in Broadband Access

Despite the rapid expansion of broadband availability, there are still service gaps that affect communities and individual customers.  These gaps in access create barriers between potential broadband users and the applications and level of service they would otherwise select.  Gaps in broadband availability can result from a variety of conditions, such as spotty infrastructure upgrades or slower roll-out to rural or less-populated areas.

Where such service gaps are widespread, inferior broadband access can limit local communities in several ways.  First, many businesses have a genuine need for broadband service and thus, the quality of available infrastructure can affect relocation and expansion decisions.  Second, a significant portion of residential and business customers prefer to use broadband Internet connections when available.[12]  The inability to receive broadband means restricted choices and reduced productivity for these consumers.  Finally, the widespread absence of broadband within a community – being on the wrong side of the “digital divide” – can create a perception that has its own negative impact, apart from the actual effect of technology limitations.  For these reasons, broadband availability is increasingly viewed as a key component of a community’s economic development prospects, similar to the importance of high-quality schools or upgraded roads.

Beyond the basic availability of broadband access, another important consideration is the degree to which customers are able to choose from more than one provider or technology format. In this sense, the quality of a community’s broadband access is critical.  In parts of Georgia, customers are limited to a single provider without the ability to choose among competing firms or technologies.  As in other industries, dependence on one provider can create anti-competitive effects such as higher pricing and poor service.  It may also result in fewer incentives for providers to upgrade their network infrastructure, and thereby slow the roll-out of broadband service to outlying customers.

On the other hand, communities in which genuine competition exists can benefit on several levels.  First, competition among providers can result in lower prices, and more uniform levels of service.  Second, the presence of multiple providers increases the likelihood that a greater share of residents will have access to some kind of service option, even if all providers are not available to all residents.  Finally, the availability of different formats allows customers to choose more efficiently based on their individual needs.  This flexibility is a critical feature of the broadband marketplace, since some technologies will necessarily be better suited for some customers once factors such as capacity, cost and installation issues are considered.

Access to advanced telecommunications services can be an important component of a community’s economic development prospects and quality of life more generally.  However, efforts to expand access and improve competition can carry significant costs.  In addition, the push for greater access is at least partially driven by visions of broadband’s future, and unproven assumptions about the level of demand that new applications will generate. 

Given these uncertainties, policymakers face important decisions about how best to balance the potential benefits broadband networks may deliver against the real limitations of the current marketplace.   As a starting point, it is important to identify those areas and populations within the state that face limited or inferior access to broadband.  By accurately quantifying the magnitude of Georgia’s current service gaps, policymakers can best determine the appropriate remedies – if any – that public initiatives should undertake.

V.        The Current State of Broadband Access in Georgia

It is notoriously difficult to collect detailed information about the availability of broadband services.  One problem is that, with so many different providers competing in the market, companies can be reluctant to share customer data.  Also, infrastructure upgrades can be geographically spotty, making it hard to estimate which customers actually have broadband access.  In many areas, for example, broadband is available to some neighborhoods or streets, but not all.  Finally, the rapid pace of roll-out means that survey data becomes quickly outdated, and conveys only an approximation of the actual availability of service.

Acknowledging these difficulties, the Federal Communications Commission (FCC) has worked cooperatively with broadband service providers to collect a periodic set of data that attempts to capture trends in broadband availability.[13]  Essentially, participating providers agree to self-report the zip codes in which they have at least one customer for broadband services.[14] Based on this data, the FCC issues a semi-annual summary that provides aggregated information about which zip codes have access to broadband, and how many providers are serving the area.  The latest FCC survey was released in December, 2002 and included data effective as of June, 2002.[15]

Admittedly, this data is not comprehensive, and does not measure the extent of access within individual zip codes.  But by comparing the FCC’s data on Georgia zip codes with selected statistics from the U. S. Census,[16] it is possible to gain some sense of the current availability of broadband services, and how the quality of broadband access varies within the state.  It is important to reiterate, however, that the data from the FCC survey is more than six months old, and accessibility may have improved in some areas since then.  In addition, the quality of access within a zip code can differ dramatically, particular in more rural or less populated areas.

Availability of Access

Despite the above caveats, the FCC data provides some important information about broadband availability in Georgia.  Perhaps surprisingly, the report indicates that there are very few areas in Georgia in which no broadband customers are reported (Figure 1).  Out of a total of 707 “standard” zip codes,[17] only 106 of these failed to report any broadband customers.  What is even more relevant is exactly how few people live in these “unserved” areas.  Fewer than 118,000 of Georgia’s  8.1 million residents live in the 106 “unserved” zip codes.  This means, conversely, that more than 98% of Georgia’s population lives in zip codes in which some level of broadband service is currently available.

Indeed, a sizable number of Georgia’s counties appear to have fairly comprehensive access to at least some form of broadband service.  At least eighty-eight counties report some level of broadband service in every populated zip code (Figure 2).  These counties together represent more than 70% of the state’s total population.  While this does not necessarily mean that every resident of these counties has access, it does imply that service coverage in these areas is relatively widespread, and that the roll-out of upgraded infrastructure in many counties is well underway.

In addition, almost all of Georgia’s “unserved” zip codes are located very near to areas that do report broadband availability.  With few exceptions (only 4 out of 106), zip codes with no service are located in counties in which other zip codes do report broadband access, i.e. “partially served” counties.  Roughly 30% of Georgia’s population lives in the 69 partially served counties.

The data from these partially served counties suggests that broadband infrastructure is relatively close to those customers who are now without access.  In most cases (62 out of 69), the majority of the county’s zip codes report broadband service (see Appendix).  Across all 69 counties, more than 67% of all zip codes report some availability of broadband service.[18]

In addition, broadband access appears to be concentrated in areas that have the potential to reach the most customers.  Across the 69 partially served counties, the zip codes that do report some level of broadband service account for more than 90% of these counties’ residents.  In each of these counties except one (Atkinson County), residents of broadband zip codes account for more than 50% of all county residents (Figure 3).  Overall, only a small portion of partially served county residents – less than 115,000 individuals across the state – live in the unserved zip codes within these counties.

Also significant is the finding that very few Georgia counties are unserved in their entirety.  In fact, only two counties failed to report any broadband customers to the FCC: Taliaferro[19]and Webster[20].  These counties together represent roughly 4,500 residents, or less than one-tenth of one percent of the state’s total population.

Level of Broadband Service Coverage	Number of Counties	County Population	Percent of Total Population
None	2	4,467	0.06%
Partial	69	2,390,760	70.74%
Full	88	5,791,226	29.20%
Total:	159	8,186,453	100%

Quality of Competition

Beyond the basic availability of broadband access, another important consideration is the degree to which customers are able to choose from more than one provider or technology format. Using the data from the FCC survey, it is possible to gauge which areas of the state are already covered by multiple providers.  Unfortunately, the FCC data gives only a partial indication of which zip codes are being served by more than one provider.  Zip codes with some broadband service, but fewer than four providers, are coded without revealing the exact number of responses, in order to protect the confidentiality of the provider companies.  For zip codes in which four or more providers report service, the exact number of providers is released.

The FCC data indicates that, in roughly 40% of the zip codes in Georgia in which broadband service is available, four or more providers report serving the same zip code.[21]  More than 5.8 million residents live in these zip codes, suggesting that roughly 70% of the state’s population is covered by a relatively robust level of service.  In these areas, it is unclear whether the customer base for the different providers overlaps, and if so, to what degree.  However, the prevalence of so many zip codes with multiple providers is a promising indicator that these areas of the state feature some measure of competition among different firms and technology formats.

It is difficult to determine the level of competition being provided to the remaining 2.2 million residents.  While the FCC indicates that these remaining areas do report some level of access, the report intentionally obscures whether one, two or three providers are available.  One clue is that many of the zip codes that report “one-to-three” providers are located in counties in which other zip codes report “four or more” providers.  It seems reasonable to assume that these areas, being in close proximity to even higher levels of service, are also likely to be relatively well served in terms of both access and competition.  Such cases include 160 zip codes in 57 counties, and roughly 965,000 residents.

Even given these assumptions, there may be as many as 1.2 million Georgian’s who live in zip codes that report some level of broadband service, but who may not enjoy the ability to choose among different service providers or technologies.  For some of these customers, satellite or fixed wireless options may offer a competitive alternative, although the costs for such services are typically higher than for DSL or cable service.  Even so, increased competition between both providers and platforms will be an important next step in the evolution of Georgia’s broadband market.

Number of Broadband Service Providers	Number of Zip Codes	Zip Code Population	Percent of Total Population
None	106	117,653	1.44%
1 to 3 Providers	355	2,240,663	27.37%
4 or More Providers	246	5,827,187	71.19%
Total:	707	8,185,503[22]	100%

VI.       Is There A “Digital Divide”?  How to Evaluate Unmet Demand

The data discussed above indicates that the large majority of Georgia’s residents have access to some form of broadband service.  Many areas of the state are being served by four or more different providers, which implies the potential for genuine competition across both providers and technology formats.  Despite these promising conditions, it is also true that there are some communities in which potential customers do not have sufficient access to broadband services.  The fact this unmet demand exists is not in dispute.  It is important, however, to critically evaluate the extent of current service gaps and their relative significance.

When viewed from a statewide perspective, access gaps appear to be a marginal issue for Georgia as a whole: only a small portion of the state’s population faces service limitations.  From the local perspective, however, the presence of even limited gaps in the availability and quality of broadband service can be critical.  In some cases, access gaps may affect a large share of residents or even entire communities.  Thus, it is appropriate for local policymakers to be particularly interested in how best to address these conditions.

As a starting point, such local initiatives must be placed in the correct context.  Broadband advocates frequently compare the effort to improve broadband access with earlier programs to extend electric or telephone service to rural areas.  Such analogies are not accurate for two reasons.[23]  First, unlike these other utilities, broadband service represents an upgrade from a more basic service – dial-up access – which is almost universally available to all Georgia residents.  Customers might prefer to have access to a higher grade of service, but a basic and less expensive form of the same product already exists.  Second, rural customers are generally able to purchase satellite broadband service in areas where cable and DSL are not available.  While satellite service is more expensive than other broadband alternatives, it does succeed in giving rural customers a viable high-speed option when other technologies are not available.[24]

If both dial-up and satellite are available to cover service gaps, why does the perception of a “digital divide” persist?  In fact, what many “unserved” customers are actually missing is not access, per se, but something more specific: the ability to get high-speed bandwidth at a “cheap” price.  While this may be a valid goal , it is important for policymakers to be clear that perceptions about unmet demand are not entirely about real gaps in access, but instead often reflect consumers’ desire to receive less expensive broadband.

The truth is that some unserved customers are simply too remote to be efficiently connected by the “budget broadband” technologies – DSL and cable – that work well for almost everyone else.  New options, however, are already emerging to fill these gaps in the market.  Both satellite and fixed wireless providers are increasingly reaching out to serve stranded pockets of rural customers.  And in some cases, new wireless services can already provide high-speed access at prices that are comparable to DSL and cable.[25]

These ongoing improvements in the broadband market underscore the need for policymakers to be mindful of how rapidly the telecommunications industry can shift.  Consumers’ demand for broadband has emerged quickly, and service providers have been challenged to keep up.  Indeed, the rate of broadband penetration has been as fast or faster than the adoption of many other innovations such as cell phones, CD players or color TV’s.[26]  In this context, the expansion of service availability has been relatively rapid.  Thus, it seems reasonable to assume that access will continue to spread to many of the locations currently labeled as “unserved”.

Another important issue to consider is what level of access should consumers and policymakers realistically try to achieve?  Even if it were universally available, not every household or business would elect to purchase broadband services, given the cost and individual preferences.  For many households, broadband service is a luxury, not a necessity, particularly since only 52% of  Georgia’s households currently own a personal computer.  In this respect, Georgia ranks 40^th compared with other states.[27]  Thus, there may be more elemental issues facing policymakers who hope to encourage modernization across the state’s populations.

There is already growing evidence that the availability of broadband services may be outpacing current consumer demand.  In a recent survey, a large majority of dial-up customers indicated they had not chosen broadband service because they either had no need (42%) or felt it was too expensive (35%).[28]  Closer to home, a well-publicized program in LaGrange, Georgia – which provides free cable broadband service to every household – has had mixed results.  After two years of operation, only about half of the town’s residents had signed up for the program.[29]

Some of the slowing of broadband demand can be attributed to the absence of “must-have” applications, which demonstrates the chicken-and-egg dilemma facing the industry.   Since more useful broadband applications will likely emerge in the future, it is certainly appropriate for policymakers to anticipate increased usage when evaluating the need for infrastructure improvements.  But because such initiatives are expensive, it is also important to balance the constraints of the current market against predictions about the needs of the future.  For now, the reality is that current consumer demand for broadband service is limited – not universal – and even in the longer term, it may not be appropriate to assume that universal use will prevail.

VII.     Policy Considerations

Public officials concerned with underserved communities face critical decisions about whether and how to respond to broadband service shortfalls.  A range of initiatives have already been enacted in Georgia and other states, with programs focused variously at both the state and local level.  Some of these programs include:

• ·          Municipal Networks

In a growing number of communities, local governments are considering the merits of self-provisioning broadband service.  Municipalities can build their own broadband networks through a number of mechanisms, such as leveraging municipal-owned cable or phone systems, or through the construction of new fiber-optic, wireless or other networks. 

• ·          Direct Incentives

Local communities can offer direct incentives, such as grants or subsidies, to encourage service providers to accelerate roll-out into their market.  Such programs may include partnerships between municipalities and service providers, through which infrastructure needs are cooperatively identified then partially subsidized by the local government.

• ·          Demand Aggregation

Underserved regions can also take steps to group potential customers in a way that makes their local market more attractive to private sector service providers. By using a “demand aggregation” approach, groups of potential users can cooperatively try to attract new providers or expanded levels of service.

In Georgia, a number of communities have undertaken municipal self-provision, and several others are considering similar programs.  There are also examples of local municipalities working cooperatively with service providers to identify infrastructure needs and subsidize network expansion.

The potential for a state-level initiative was raised via the Georgia Technology Authority’s “CCOP” contract (recently cancelled) and through Governor Perdue’s telecommuting proposals. Using demand aggregation at the state level – by first connecting public sector offices, schools and libraries – these programs proposed to “anchor” broadband service into new areas, and to improve availability in communities that still face shortfalls.  Other local-level examples of demand aggregation can also be found, such as Mercer University’s effort to assemble a pool of regional broadband customers.[30] 

Each of these approaches has advantages as well as risks that are worth critical examination.  Given the magnitude of the public revenues that may be at stake in such projects, it is important for policymakers to investigate whether such efforts are truly necessary.  Where there is consensus that significant gaps in service exist and merit public action, a robust dialogue is needed to determine what form public-sector initiatives should take.

To encourage such dialogue, the Foundation urges policymakers to review the data presented in this memo and the issues discussed above.  In addition, the Foundation plans to undertake further research on this topic, and to contribute analysis on several additional aspects of Georgia’s broadband marketplace, including some of the following issues:

Quantifying Demand:

—         More comprehensive data is needed, in order to both update the information provided by the FCC and to evaluate the state of access at a more precise and detailed level (i.e. within zip codes).

—         What regions or communities have a convincing case for unmet demand?  Are these shortfalls widespread or linked to targeted groups?  How can communities determine when access availability is sufficient to their needs?

—         What are the prospects for increased demand in the short and long term? For what purpose are underserved consumers likely to use additional bandwidth?  What leading applications are likely to emerge?  Should the public sector help to encourage the development of new applications, and if so how? 

Infrastructure and Supply:

—         Has the private sector been sufficiently responsive in rolling out broadband services? 

—         How has the regulatory environment influenced the speed and shape of infrastructure upgrades?  How will impending regulatory changes impact the market, and how quickly? 

—         What effect will emerging technologies (fixed wireless, satellite, etc.) have on residual access gaps and consumer demand?

Public Sector Provision:

—         Should public sector agencies compete in this arena?  Under what conditions? 

—         What are the risks involved in municipal provision of telecommunications services? 

—         What models exist for successful municipal projects and what types of communities are good candidates for these initiatives?

New Initiatives:

—         Are there “third approach” alternatives, such as subsidies, grants, government-funded vouchers, etc. through which public agencies can influence private sector roll-out? 

—         Should communities enable/subsidize satellite or other forms of access as a short-term solution until technology becomes cheaper or private sector providers arrive? 

—         What other methods exist to help to create economies of scale – i.e. “demand aggregation – to entice providers to underserved markets?

The issues related to broadband access are both important and complex.  The intersection of various public and private interests, and the technical nature of the subject, serve to further complicate the dialogue.  But this is also an area in which much clarity may be gained from cooperation and the sharing of information.  In this regard, the effort to evaluate and improve Georgia’s broadband prospects offers a valuable opportunity for interested parties across the state to work together to construct a sound, well-informed public policy debate.