Will Technology Trickle Down to Rural America?

Introduction

Today, the concept of a "globally networked village" is euphemistic, as the information super highway primarily connects cities, excluding towns and villages from its network. Much of the hype surrounding the Internet has been diminished by evidence that information and communication technologies (ICTs) tend to be implemented in ways that reinforce prevailing power hierarchies.

This trend is not indicative of the ineffectiveness of the Internet as a medium with the potential to knock down traditional social and economic barriers. It is however, indicative of the fact that forces behind the deployment of ICTs are avoiding regions that are sparsely populated. Access to the Internet is turning into a powerful criterion for growth and development. So much so that communication networks are divvying up the country into parcels of haves and have-nots, with the latter living in the leeward side of the digital divide.

The National Telecommunications and Information Administration, the U.S. Department of Commerce and the Economics and Statistics Administration released a report in October 2000 on the state of the "digital divide." According to the report, in August 2000, 58.5 percent of American households did not have Internet access.[1] A previous report by the NTIA (1999) found that Americans living in rural areas were less likely to have Internet access, irrespective of their income level. At the lowest income levels, those in urban areas are more than twice as likely to have Internet access than those earning the same income in rural areas.[2] As the titles suggest, the October 2000 report is more optimistic than the 1999 NTIA report. Yet both emphasize that there is a digital divide: "A digital divide remains or has expanded slightly in some cases, even while Internet access and computer ownership are rising rapidly for almost all groups."[3] As far as broadband technology goes, only 7.3 % of households are connected compared to central cities and urban areas which have penetration rates of 12.2% and 11.8% respectively.[4]

A report released last year by the Consumer Federation of America and Consumers Union[5] corroborates the NTIA's conclusions. The report concludes that the lack of access to ICTs has created a rift that separates those Americans connected to the Internet from those who are not. This "digital divide" persists and is not likely to disappear any time soon; and as the title of the report indicates, the disconnected are disadvantaged and disenfranchised.

On Election Day 2000, 49% of U.S. households were still not online and 57% of those not online said that they do not plan to go online any time soon.[6] Is it that people do not value the importance of ICTs, or is access not a matter of choice for a large portion of Americans? The Consumer Federation of America and Consumers Union Report (October 2000) found that the digital divide is not the result of a failure of those without access to appreciate the importance of technology. It states that approximately 93% of those without access believe that computer skills are vital, 83% believe that understanding technology is critical to success, and 84% believe that children learn more when they have access to technology.

There is a will to learn. Is there then a way to bridge a divide that threatens to create a schism in society? This paper examines alternative communication technologies that are economically viable -- yet increase Internet access for those on the other side of the digital divide.

The Network Economy

A good starting point for this research was to first examine the reasons why vast swathes of potential users do not have access to ICTs. What is it about the network economy that discourages potential investors from setting up a strong network infrastructure in areas which have a relatively low user base?

High sunk costs: Traditional broadband networks that use fiber optic or DSL technology incur high infrastructure costs. Consequently in the early period of such networks, costs are higher relative to the utility of the network, but as more users get onto the network, costs start

going down. Once a network is built, marginal cost approaches zero. Due to high initial costs, network providers try to offer as many services to as many users as possible, leading to a large amount of market concentration. Market concentration in turn makes it difficult for competition.[7] Marketing an innovative new technology is therefore challenging in the face of high barriers to entry.

S-Shaped Curve in the diffusion of ICTs: Attaining critical mass is essential to ensure the economic viability of ICTs. The rate of adoption can be diagrammatically represented as an S-shaped curve, with time plotted on the x-axis and the number of users on the y-axis. Early in the introduction of a service, few people will try it, but with the onset of network externalities and reinvention, the rate of adoption takes off.[8] This is when the technology attains critical mass. This critical mass is difficult to attain in sparsely populated areas that have a narrow user base.

Tendency toward vertical Integration: Complexity of the network industry coupled with it's need to offer as many services to as many users as possible has led to a trend toward vertically integrated firms and high market concentration. Companies operating at different layers of the network architecture inter-operate with each other so as to take advantage of economies of scale and scope.

Network Externalities: The various components of a network are interrelated. Consequently an innovation at one point of the network is bound to affect usage of other parts of the network.[9] For example a new access device such as dumbed-down cheap personal computers is bound to lower the price of connectivity to the Internet thereby increasing network congestion. This could in turn lead to the phenomenon of "network tipping," where people drop off the network due to network congestion.

Limited time and resources required that this author select technologies for the purpose of this study in a judicious manner. Both the access device as well as the transport technology were considered when examining the potential of a particular ICT. The focus of this paper is on alternative wireless access technologies. Since convergence is creating hybrid solutions, alternative access technologies using cable modems and digital set top boxes have been included in the appendix.

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