Broadband penetration growth slows: Has the rural rollout run out of gas?

August 14, 2007 11:22 AM EDT
A recent study from the Pew Internet and American Life Project shows the rate of broadband penetration slowing from 40% in 2005/2006 to just 12% in 2006/2007. The reason? This study, and another Pew released this month on the "broadband divide," focus on demographics and who wants broadband. The assumption is that these holdouts can get broadband but don't want it. From a demographic perspective, most of the "low-hanging fruit" has been picked in the market, the authors claim.

But Pew's research focuses less on another trend: From the ISP's standpoint, most of the "low-hanging fruit" has already been picked in terms of providing access to the most profitable, easy-to-reach customers. While demographics may play a role in the slowdown in broadband penetration,  the situation may be that many people in the country simply can't get broadband, whether they want it or not.

"There are clearly both economic/demographic/behavioral as well as access/infrastructure reasons for why people might not have broadband," says Aaron Smith, research specialist at the Pew Internet and American Life Project. He says that his organization tends to focus on demographics because accurate estimtes of broadband deployment are simply not available from the cable and telecommunications companies - and because the center's studies are too small to paint a complete picture with regard to availability. "The FCC collects deployment data but its utility is somewhat limited from a research point of view. For one thing, it is based on subscriber data rather than deployment data and has a very liberal interpretation of what qualifies as a 'served' area," he notes. Nonetheless, the study does rely on Pew's surveys to conclude that just 47% of all adult Americans now have a high-speed internet connection at home.

Why is the market penetration rate slowing so dramatically when just 47% of potential customers have broadband? The sudden slowing of broadband growth certainly doesn't correlate well with the fact that 73% of the market still doesn't have any broadband service. But it may correlate well with the economics of providing broadband access. Could this be a sign that the cost per mile of rolling out broadband instrastructure to new users has reached the point of diminishing returns for providers? That as broadband penetration moves beyond metro areas it's simply becoming too expensive to add those remaining, rural customers? Are rural Americans doomed to second-rate broadband services?

"Our previous research does validate the notion that at least some of the lag in rural broadband usage is due to deployment issues," Smith says. He cites a February, 2004 survey that asked dial-up users whether or not broadband was available in their area. Among rural respondents, 38% said that broadband was available versus 58% for all dial-up users. But an "extremely large" number of respondents simply didn't know. "Ultimately, at this point the precise relationship between deployment and other issues relevant to broadband adoption (such as income, demographics or exposure to broadband at work or school) is one that I don’t think anyone really knows the answer to at the moment. Deployment, however, is clearly one issue among several that influence overall adoption rates," Smith says.