Even With Subsidies, Rural Telecom is Tough, Telstra Argues

Even when there is a 50-percent subsidy, Telstra now argues many rural cell sites are not sustainable, especially in very-sparse areas where satellite coverage is the logical alternative. 

"The declining numbers of customers per site means the revenues a carrier can earn from each blackspot are low, and we are now at a point where revenues are insufficient to offset the operational costs of the sites, particularly in NBN satellite areas," Telstra says. 

That sustainability challenge illustrates the point that network costs and revenues always are directly dependent on potential customer density. That is why the Australian government has a subsidy program to support cell site construction in rural areas where a strict financial evaluation indicates a cell site should not be built, as there is not sufficient recovery of capital and operating costs. 

Consider this graph of user density in the United Kingdom, which shows that 90 percent of U.K. users live on just 40 percent of the land area, with 60 percent of people living on just 10 percent of the land surface. Since terrestrial cabled network cost is directly proportional to density, networks will cost least where density is highest, most where density is lowest. 

source: Raconteur

Population density is even more skewed in the U.S. market, where about 63 percent of people live on just 3.5 percent of the land area, according to the U.S. Census Bureau. Most of the access network cost problem lies in the last couple of percent of U.S. locations. 

There is a direct relationship between housing density and network cost. Most of the coverage problem lies in the last two percent of housing locations. 

Consider many U.S. states where rural population density ranges between 50 and 60 locations per square mile. 

In the vast western regions east of the Pacific coast range and west of the Mississippi River, population density can easily range in the low single digits per square mile.

The point is that rural communications supply will always be challenging, simply because, at low densities, no cabled network can sustain itself without subsidies. Even wireless last mile alternatives will often struggle in that regard, leaving some satellite or other untethered solution as the only viable candidates for service.