By Bronwyn Howell

According to the conventional wisdom of telecommunications
economics, the cost per connection of providing a network
service — whether fixed-line or mobile — is higher in more sparsely populated
areas. And the costs of provision are so high in these areas that without
subsidies such as the Federal Communications Commission’s (FCC) Rural Digital Opportunity Fund, no operator would find it
commercially viable to build a network in the first place. These circumstances
give rise to a classic “natural monopoly.”

Consequently, there are large parts of the US where consumers have
no choice of broadband network provider. Without competitive pressure, monopoly
network operators lack the same incentives that operators have in more densely
populated areas (where infrastructure competition exists) to invest in network maintenance
and service quality improvements. While regulatory constraints can address
matters such as price (static efficiency matters), they are less successful in
addressing the inevitable investment lags (dynamic efficiency lags). Thus,
rural residents have ended up on the worse end of a notorious “digital divide”
compared to their urban counterparts.

However, in a combination of technological innovation and
philanthropic endeavor, the problem of lack of infrastructure competition in
rural broadband markets may soon be consigned to the annals of history. Last
week, it was announced that a limited number of residents in New Zealand’s
sparsely populated South Island would be eligible to sign up for beta trials
of Starlink, SpaceX’s
new low-Earth-orbit satellite broadband service. If these trials are
successful, the service is expected to “expand rapidly across the rest of the country.”

Low-orbit satellite-based broadband is a far cry from previous
generations of satellite services. Historically, these services have been more
expensive and slower than terrestrial services, with their higher latency and
jitter. But many rural citizens have subscribed anyway. Now, Starlink is
promising speeds of 150 megabits per second (Mbps) download and 30 to 50 Mbps
uploads, with only 20 to 40 milliseconds of lag — more than satisfactory for
Netflix streaming, multiplayer online gaming, and Zoom meetings. The initial
costs are not trivial — the do-it-yourself dish kit costs US$572 (plus US$82
shipping) — but the monthly charge of US$114 comes with unlimited data, making
it cost competitive with high-end mobile plans. The DIY dish kits may be a bit
fiddly to install, but self-service is not a foreign concept in rural
communities.

Starlink uses a large number of linked satellites to collect and
process data and then transmit signals to the internet via terrestrial base
stations. Starlink’s constellation will eventually have up to 12,000 satellites
providing fast internet to every corner of the planet. The 60 satellites
serving New Zealand are flying at a speed of around 7.5 kilometers per second
at an altitude of about 325 kilometers and are readily visible in the night sky.

The New Zealand trial of the Starlink system is significant not
just with respect to its technological feasibility. Already it is being
recognized by regulators and policymakers as a challenge to the country’s Rural
Broadband Initiative (RBI), where existing operators have collaborated to deploy
subsidized fixed-line and mobile broadband connectivity in sparsely populated
and mobile black spot areas. Starlink will provide real infrastructure
competition to the RBI operators. True infrastructure competition across the
entire country invalidates the natural monopoly assumption that has underpinned
telecommunications regulation since its inception. A private operator,
unsubsidized by the state, has provided connectivity — and it may not be the
only one. Amazon’s Project Kuiper has received approval in the US from the FCC to deploy a
similar system. So real infrastructure competition between satellite systems in
addition to existing arrangements may be the way of the future.

The reality of infrastructure competition calls into question the
long-established rationale of subsidizing operators to provide rural
connectivity. The boundaries between rural and urban infrastructures will no
longer be determined by the cost structures of terrestrial network operators
alone. The need for operator subsidies to construct networks appears to be
diminishing. As geography ceases to be a defining characteristic of access, the
case for subsidizing select consumers (e.g., due to income) to purchase a
connection of their choice from one of a number of competing rural operators is
seemingly becoming more tenable.

Moreover, Starlink and Project Kuiper also must cause proponents
of hipster antitrust — who propose regulatory and legal intervention to
reallocate wealth between stakeholders of modern multisided technology systems
— to pause for thought. If technology magnates are using their profits from
internet-based technologies to invest in expanded and competitive broadband
worldwide — in spaces where governments have long faced challenges — then such
redistributive actions may prove to be somewhat precipitate.

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