Wednesday, October 28, 2015

Tennessee cooperative official compares 1930s electrification to today's telecom infrastructure challenge

Officials Urged To Let Local Utilities Cooperate On Providing Broadband - Chattanoogan.com: Mike Knotts, director of government affairs, Tennessee Electric Cooperative Association, brought a somewhat different perspective to the conversation when he said, “Advanced telecommunications will be as important to the next 100 years of electric system operation as steam power was to the first 100 years.”

He said the number one barrier to providing adequate Internet access is “purely customer density” and suggested looking at the model of rural electrification in the 1930s. “What cured the problem of rural electrification was the ability to create nonprofit entities that were able to amortize those expenses over much, much longer periods (than private companies). That was the very simple magic that took, in 10 years, less than 10 percent of American farms being electrified to 100 percent — not much more in the secret sauce other than that.”

Actually, Mr. Knotts, there is a another ingredient that's missing today: capital. Unlike today, in the 1930s the federal government stepped up with significant funding and not just talk, window dressing and "funding leads."

1 comment:

Doug Dawson said...

And funding is everything. There was a time in this country when banks were the major investor in infrastructure. Infrastructure generally has the kind of returns that ought to attract bank financing. But for a fairly long number of reasons bank stopped investing in infrastructure starting in the 1920s and today it's rare to find bank financing except for those cases where the federal government will provide a hedge against the interest rates and against default (such as with USDA guaranteed loans).

The problem is that non-government entity has ever stepped into that funding gap and so we have gone through a long number of years where municipal bonds or federal budgets paid for most infrastructure. But we have reached a time when a lot of local government entities have run into their bond caps, meaning they can't easily borrow more money, and so the predominant way we've funded new infrastructure for the last forty years is drying up.

There are some ways that other sources of money can be brought to bear on the issue and private money is starting to consider funding these kinds of projects. There is a lot of money sitting in pension funds, college endowments, insurance companies and other large pools of cash that ought to be interested in the 10% returns that can come from infrastructure investing. But for the most part this is a nut that has not been cracked and so there are now literally trillions of dollars of needed investments that are not being made, or are not even being considered since there is no easy path to funding them.

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