The Digital Divide:
Development Issues
for 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
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
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
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
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)
Rural America is Digital
[Source: NTIA (2000), Figure I-3]
Percent of U.S. Households
Percent of U.S. Households with Internet Access, by
U.S., Rural, Urban, and Central Cities, 1998 and 2000
50
45
40
35
30
25
20
15
10
5
0
42.3
41.5
38.9
37.7
26.2
US
27.5
Urban
24.5
Central City
22.2
Rural
1998
2000
What we
do on the
Internet
Source: E. Duncan (2000)
Thrills and Spills: A Survey
of E-Entertainment, The
Economist, October 7.
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
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
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
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”)
Rural America: Digital, but not
Broadband
Pe r ce nt of U.S. Hous e holds
w ith Inte r ne t Acce s s
[Source: NTIA (2000), Figure I-16]
High Speed Internet Access by U.S., Rural, Urban, and Central Cities, 2000, as
Percent of U.S. Households with Internet Access
16
14
12
10
8
6
4
2
0
10.7
11.8
12.2
7.3
US
Urban
Central City
Rural
Universal Service: What Is It?
What Should It Be?

Internet access




Not just access devices, but applications and
services


Personal computer?
Personal digital assistant?
Wireless telephone?
Not the same ones for everyone
Only schools, hospitals, and libraries “should,
generally, have access” – FCC
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
Points of Presence of 4 Major
Telecom Firms, 2000
Urban
Rural
1395
316
POPs/million population
6.4
5.8
Communities with more
than 1 POP
% of communities with all
3 major inter-exchange
carriers
264
224
65.3%
7.6%
Total POPs
Rural Locations with 3 or More
POPs










Helena MT
Harrisonburg VA
Winchester VA
Bluefield WV
Clarksburg WV
Mason City IA
Couer d’Alene 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
Rural Locations of Digital
Infrastructure and POPs, 2000
US
Total
Rural
Total
%
Rural
2598
321
12.4
Wire centers with packet 784
gateway switches
86
11.0
Wire centers with POPs
224
13.9
Wire centers with digital
switches
1610
States with 10 or More Rural
Locations Served by Digital Switches









Tennessee
Ohio
Michigan
Wisconsin
Virginia
Pennsylvania
Oklahoma
Texas
Kentucky
61
50
34
21
17
15
13
11
10
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
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
Is Wireless the Answer?

Not yet

And that’s all we know
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
A Rural Success Story:
LaGrange, 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 municipallyowned utilities
Lessons from LaGrange and
Elsewhere

Systematic strategic planning



Aggregate demand


Learn local telecommunications inventory
Talk to local firms, large and small, to learn their
needs
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
Doing Business Digitally

The issues:


Migration can enhance both




Entrepreneurs and human capital
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
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
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
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