The Digital Divide: Development Issues for Rural Areas

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The Digital DivideDevelopment Issuesfor Rural
Areas

• Edward J. Malecki
• The Ohio State University
• Prepared for the conference, E-COMMERCE
  Impacting the Way We Do Business, Nashville, TN,
  October 1-2, 2001

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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

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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

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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

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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)

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Rural America is Digital Source NTIA (2000),
Figure I-3
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What we do on the Internet
Source E. Duncan (2000) Thrills and Spills A
Survey of E-Entertainment, The Economist, October
7.
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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

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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

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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

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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)

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

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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

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Points of Presence of 4 Major Telecom Firms, 2000
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Rural Locations with 3 or More POPs

• Helena MT
• Harrisonburg VA
• Winchester VA
• Bluefield WV
• Clarksburg WV
• Mason City IA
• Couer dAlene 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

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Rural Locations of Digital Infrastructure and
POPs, 2000
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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

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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

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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

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Is Wireless the Answer?

• Not yet
• And thats all we know

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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

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A Rural Success StoryLaGrange, 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

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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

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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

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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

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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

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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