State Laws Slow Down High-Speed Internet for Rural America

This story was originally published by Stateline, an initiative of The Pew Charitable Trusts.

Electric cooperatives want to help bridge the digital divide between rural and urban America as more federal funding becomes available for rural broadband.

But a 77-year-old law may prevent one of the nation’s poorest states from fully tapping into millions of new federal dollars to expand high-speed internet service to needy rural communities.

Mississippi is among the states that rely most heavily on rural electric cooperatives, nonprofits that deliver power to their members in rural areas. Mississippi’s electric cooperatives’ service area covers 85 percent of the state's land mass.

Yet since 1942, Mississippi state law has restricted its cooperatives to working in electric services. Its legislature is expected to take up bills that challenge the state law and the role of electric cooperatives early in its session that began on Jan. 8.

Should the Magnolia State change its law, its electric cooperatives could compete for $350 million in loans and grants set aside to improve broadband access under the federal farm bill Congress passed last month. They also could go for a separate pilot program the U.S. Department of Agriculture (USDA) announced days later that offers up to $600 million in loans and grants to connect rural areas that have poor broadband service. The latter portion was included in the fiscal 2018 spending bill that President Donald Trump signed in March.

Neither pot of money would meet all the broadband needs of rural America, but as more cooperatives across the country provide internet services to their members, or consider expanding their roles, the ability to compete for federal funding becomes more important. Mississippi’s hurdle might be cleared quickly with new state legislation, but its conundrum illustrates the challenges rural states often face in keeping up with economy-boosting technology and the ability to pay for it.

Rural electric cooperatives will compete alongside rural utilities, telecommunications companies, internet service providers and municipalities for the USDA pilot program funding.

Beyond Mississippi, electric cooperatives in other states also face barriers: Georgia’s electric cooperatives are considering expanding into broadband, but state law does not address whether they can.

Tennessee’s electric cooperatives had been barred from offering internet services to their members until the Tennessee Broadband Accessibility Act passed in 2017. But they’re unable to invest assets from electricity services into broadband expansion or offer broadband outside their coverage area without local permission.

And in North Carolina, a state law prohibits electric cooperatives from using USDA funds to provide telecommunications services.

“At this point, it hasn’t been a significant barrier,” said Nelle Hotchkiss, chief operating officer of North Carolina’s Electric Cooperatives, in a phone interview with Stateline. “However, with the additional dollars and focus U.S. Congress is putting on USDA for deployment dollars, it’s going to become a problem, and so that’s why we’re talking to legislative leaders about relief.”

Answers to addressing rural broadband challenges should stem from the local level, according to the National Rural Electric Cooperative Association. Solutions may require public-private partnerships, partnerships between electric and telephone cooperatives—or electric cooperatives not getting involved because participation is too costly. The association says it wants broadband to be available in rural America and doesn’t care how it gets done.

Some proponents for electric cooperatives argue that as member-owned nonprofits, they are more cost-effective than commercial telecommunications providers, which lack a market incentive to serve rural areas. But leaders of telecommunications companies argue that cooperatives will face the same cost barriers to serving rural areas when they enter the market, and that the telecom providers bring expertise in broadband.

Broadband, according to the Federal Communications Commission, means offering access speeds of 25 megabits per second (known as Mbps) download and 3 Mbps upload, known in shorthand as 25-3. By that definition, 39 percent of rural areas lack broadband access compared with only 4 percent of urban areas, the FCC reports.

In an era of instant communication, those slow speeds can hinder business.

“How do we communicate with our board? By email,” said John Stuhlmiller, CEO of the Washington Farm Bureau. “But even the cellular service is bad. We literally have to call and say, ‘I sent you an email.’”

The digital divide affects the long-term economic health and vitality of rural America, while also creating quality-of-life issues. Rural areas, defined by the USDA as counties outside cities and their suburbs, have weathered six consecutive years of population losses. Meanwhile, cities have grown. (A Stateline analysis of census estimates show rural areas gained population between 2016 and 2017 for the first time since 2010, likely due to improved housing and job markets.)  

Northwest Alabama has been exporting its best asset: its children, said Steve Foshee, president and CEO of Tombigbee Electric Cooperative in northwest Alabama. “They’re all leaving to go to these cities to have a better way of life,” Foshee said. “Would [broadband] change their opinion?”

Tombigbee’s subsidiary, Tombigbee Communications, is undertaking a $38 million project to deliver high-speed internet, which Foshee expects will attract new industries and build the capacity of local hospitals to adopt e-medicine tools and become more efficient. Alabama’s electric cooperatives are not inhibited by state laws on access to federal funding or providing internet services.

“If they can make this happen in Alabama through their electric cooperative, there’s absolutely no reason except this arcane law that we can’t do it in Mississippi,” said Mississippi Public Service Commissioner Brandon Presley.

Proponents such as Foshee say that if co-ops don’t take the lead on rural broadband, no one will, since small population densities could mean expensive projects reach only a handful of people. They point to co-ops’ early leadership in powering the country during the Great Depression as an example cooperatives could now follow.

New Deal Roots

Electric cooperatives began in the 1930s, when roughly 90 percent of urban America had electricity, and 90 percent of rural America did not. Congress passed the Rural Electrification Act in 1936, and within three years, 417 rural electric cooperatives served 288,000 households. Today, more than 900 cooperatives in 47 states provide electric service to people living across 56 percent of the nation’s landmass, according to the National Rural Electric Cooperative Association.

Rural electric co-ops began building fiber networks to homes about 10 years ago, said Christopher Mitchell, director of the Community Broadband Networks Initiative for the Institute for Local Self-Reliance, a Minneapolis-based nonprofit advocacy group focused on local solutions for sustainable community development. About 68 rural electric co-ops in 22 states are engaged in fiber optic projects, up from two prior to 2010, according to the group. Another 18 in 11 states have announced or begun building fiber projects that they have not yet turned on, Mitchell said.

“Electric cooperatives are simply the single greatest hope for most of rural America to have really good internet access,” Mitchell said.

But the projects are expensive and would require federal support, which cooperatives appear to have from top USDA leaders. Last summer, 13 cooperatives and a 22-member Rural Electric Cooperative Consortium were winners of the FCC Connect America II reverse auction and will collectively receive $225 million over a decade to deploy broadband to unserved areas. The auction marked the first time that the FCC allowed electric cooperatives to bid for funding as broadband service providers.

Rural electric cooperative and telecommunications leaders describe the $600 million in loans and grants available through USDA’s new pilot program, ReConnect, as a down payment. “Of course, it’s going to take more resources than this,” said Jim Matheson, CEO of the National Rural Electric Cooperative Association. “This is just a step in the right direction.”

Still, Matheson and others criticize the design of federal programs like ReConnect because of the inaccuracies in rural broadband coverage data. Projects funded through ReConnect, for example, must serve communities where service speeds are slower than 10 Mbps download and 1 Mbps upload, or 10-1.

However, service is determined by census block, so while just one home in a block may be receiving 10-1 service, federal programs treat the entire block the same.

“That would be like us getting electricity to one house and declaring the whole neighborhood as served,” Foshee said.

Mississippi Debate

Mississippi often lands near the bottom of state average internet speed.

Last June, the Public Service’s Presley hosted 46 members of the Mississippi legislature for a rural internet summit in neighboring Hamilton, Alabama, to learn about Tombigbee’s work. In addition to receiving a $2.9 million USDA Community Connect Grant for a fiber project to connect nearly 500 area households and businesses, the Alabama cooperative is in the midst of a project to provide high-speed internet to more than 70,000 residents with more than 1,300 miles of fiber line over a thousand square miles.

“We’ve got to fix our problem here within the state of Mississippi to ever have access to federal dollars,” said Presley, who oversees 33 northern Mississippi counties. “That’s why it’s imperative we pass this bill in January.”

Presley said the law change is supported by nearly 60 municipalities and several local and state associations, including the Farm Bureau, Association of Realtors and AARP.

Seventy-seven percent of respondents to a statewide survey of voters in mid-September supported allowing electric power associations to provide high-speed internet to their customers. The survey was conducted by left-leaning research and advocacy firm Chism Strategies at its own expense.

Sixteen co-ops conducted feasibility studies and determined it would cost $1.5 billion to provide fiber to the home of every member, according to Michael Callahan, CEO of Electric Cooperatives of Mississippi. Even if the state law is changed, any decision to go into broadband would be made by local boards of directors.

Mississippi business and political leaders agree on expanding rural broadband access, but not all are convinced the electric cooperatives should lead. Republican state Rep. Jim Beckett, chairman of the House Public Utilities Committee, said his primary concern is assuring the cooperatives’ financial viability.

“They didn’t form this cooperative to provide broadband,” Beckett said. “I think everybody’s model, even the electric power associations, realize that a majority of the people are not going to subscribe. As we’re going forward, we need to make sure that those customers are not burdened by their subsidizing the people who do want broadband.”

Lisa Shoemaker, executive director of the Mississippi Cable Telecommunications Association, said electric cooperatives would face the same high cost of serving rural areas as her members do if they were to enter the market, and that the solution will require the involvement of cable and telecom companies, wireless providers, rural telephone companies and electric cooperatives.

Regardless of what happens in Mississippi, the federal 1996 Telecommunications Act says states cannot prevent any entity from providing service.

Hence, Mississippi co-ops could challenge the state, said Mitchell of the Institute for Local Self-Reliance. “There is a path forward even in Mississippi if the state doesn’t change the law.”