States Considering Range of Options to Bring Broadband to Rural America

State policymakers have increasingly sought new solutions to improve the availability of broadband, particularly in rural and unserved communities that often lack the business case to entice traditional commercial internet service providers (ISPs). Among the strategies now being deployed to ensure widespread access to high-speed internet are allowing electric cooperatives to offer service, the formation of regional utility districts to provide broadband, and the use of investor-owned utilities to improve the availability of critical infrastructure.

Nationwide, state leaders are now planning to disburse billions of dollars from the federal American Rescue Plan Act (ARPA) and the Infrastructure Investment and Jobs Act. Provisions in both laws underscore an important point: There is no single solution that will connect all communities to high-speed, affordable internet. For example, ARPA program rules for the Coronavirus State and Local Fiscal Recovery Funds and the Capital Projects Fund encourage state governments to prioritize projects from cooperatives, nonprofits, and networks affiliated with local governments when they are deciding how to allocate broadband funding.

The infrastructure law provides $42 billion to states for broadband grants and specifically prohibits the exclusion of cooperatives, local governments, and public utility districts from eligibility. The law also includes $1 billion for infrastructure building out the middle mile, the part of a broadband network that connects the backbone to the last mile. The last mile is the segment that connects a local internet service provider to a customer, such as via a cable line to the home.

Electric cooperatives, regional utility districts, and investor-owned utilities each could be used, depending on the specific circumstances, to help address the market failure that has contributed to some 42 million Americans lacking access to broadband. The advantages and potential challenges of these models will be explored in a series of three articles, the first looking at the potential role of electric cooperatives.

Broadband expansion parallels rural electrification

Millions of Americans—many of them in rural areas—lack access to broadband service. To address this challenge, some electric cooperatives are offering customers high-speed internet in addition to their electric services. Electrical cooperatives are private, nonprofit organizations that provide electricity to customers in their service areas. They are customer-owned and operate on a cost-of-service basis, returning extra profits as dividends to members or to be invested in infrastructure.

Electric cooperatives’ expansion into today’s broadband market mirrors their entrance into the initial utilities market in the 1930s. At that time, only about 10% of rural America was electrified because deploying the needed infrastructure to rural areas was expensive and population densities were low. For utility companies, typically privately or municipally owned at the time, rural areas were less profitable to serve than urban ones.

Electric cooperatives were formed to address this challenge and bring electricity to rural America. In 1935, President Franklin Roosevelt created the Rural Electrification Administration (REA), and in 1936 the Rural Electrification Act, which provided loans for rural electrification projects, was enacted. The next year, the REA drafted the Electric Cooperative Corporation Act, which many states then used as a model for enabling legislation to form electric cooperatives. By 1953, less than 20 years after Congress approved the Rural Electrification Act, more than 90% of farms had access to electric service. Today, electric cooperatives serve 56% of the nation’s landmass, but only about 13% of its population.

As with electricity in the 1930s, access to broadband in rural America continues to trail availability in cities and suburbs. Traditional internet service providers have not found it profitable to build out expensive infrastructure in areas where few residents are scattered across large swaths of land. Electric cooperatives therefore offer a potential path to expand rural broadband access. Currently, more than 200 electric cooperatives nationwide are working on plans to bring broadband services to their members.

Cooperatives well positioned to provide needed infrastructure

Many electric cooperatives are well positioned to bring broadband to rural areas because they already provide many of these communities with electric service. They also have many of the resources, equipment, and personnel needed through their electric operations. The cooperatives have built out infrastructure such as utility poles that can be upgraded to incorporate fiber as part of smart-grid modernization projects. And they can leverage existing resources—such as trucks, administrative personnel, customer support, and billing systems—to serve broadband customers.

In recent years, more states have expanded the authority of electric cooperatives to provide broadband, both explicitly though legislation and through government practices. Many of the policies authorizing cooperatives to provide broadband service require them to form a separate subsidiary and prohibit cross-subsidization of operations.

Tennessee’s statute, for example, explicitly prohibits cooperatives from funding service operations using profits generated by another service. Similarly, in its authorizing statute, Georgia allows electric cooperatives to provide broadband service as long as there is no cross-subsidization between their various lines of business. Still, studies show that deploying existing infrastructure to provide broadband service could reduce the estimated total cost of bringing fiber to every unserved household in the United States by $8 billion to $15 billion.

States also allow electric cooperatives to repurpose resources in other ways, including using existing electric easements to deploy fiber because the process for obtaining such easements can sometimes prove cumbersome. For example, unless state policy specifies that existing easements can be used for broadband easements, cooperatives must first obtain agreement from every landowner whose property their broadband infrastructure will pass through, a process that can be time-consuming and expensive. Still, electric cooperatives have been bringing broadband services to rural customers for more than a decade, and the number that are providing high-speed internet is increasing.

In 2016, Delta-Montrose Electric Association, an electric cooperative in Colorado, launched a broadband division to offer members gigabit service through the installation of 4,000 miles of fiber. More recently, Oregon electric cooperative Coos-Curry Electric Cooperative started to provide fiber optic broadband service to members. Leaders plan to construct more than 1,400 miles of fiber across the southern Oregon coast, where internet technology has been limited to cable and DSL.

Partnerships between telecommunications cooperatives and electric cooperatives, which often share customer bases, have also emerged to provide broadband service. These entities combine resources to deploy fiber infrastructure, but they can take different approaches to funding such projects: Some share construction costs, while others have one partner pay all upfront costs. An early example of such a cooperative approach is the 2016 collaboration between Arkansas-based Ouachita Electric Cooperative and South Arkansas Telephone Co. to build out an 1,800-mile fiber network to rural Arkansas. Several telco-electric cooperative broadband collaborations were announced in 2021, including Smithville, a local telecom provider, and Utilities District of Western Indiana working together in Indiana and Palmetto Electric Cooperative and Palmetto Rural Telephone Cooperative in rural South Carolina.

Public funding can help cooperatives expand broadband into rural areas

A key challenge for electric cooperatives seeking to provide broadband services is securing funding or financing for deployment. Because they do not have as much capital as traditional internet service providers, cooperatives often turn to state and federal programs for additional funding for these projects.

The U.S. Department of Agriculture’s ReConnect Loan and Grant program is a $1.5 billion federal broadband fund for rural internet providers. Electric cooperatives have experience borrowing from USDA, including through ReConnect. Cooperatives are among the entities awarded an additional 15 points in ReConnect’s application scoring process, which can give those from cooperatives priority over others.

Electric cooperatives, meanwhile, have received broadband funding from state broadband grant programs and continue to win substantial amounts of state broadband funding. In 2021, five electric cooperatives in Tennessee received a total of $5.3 million in state grant funding to expand broadband into rural parts of the state. Virginia awarded four cooperatives $162 million in funding from its grant program and ARPA funding in late 2021. And Iowa recently announced the winners of its broadband grant program, Empower Rural Iowa; electric cooperatives were among recipients of more than $210 million awarded.

The experience of recent years shows that electric cooperatives can be used to expand broadband infrastructure into rural areas, so that more Americans are connected to this essential service.

Anna Read is a senior officer and Lily Gong is an associate with The Pew Charitable Trusts’ broadband access initiative.