a

GAO

United States Government Accountability Office

Report to Congressional Committees

May 2006 TELECOMMUNICATIONS

Broadband 

Deployment Is 

Extensive throughout 

the United States, but 

It Is Difficult to Assess 

the Extent of 

Deployment Gaps in 

Rural Areas

GAO-06-426
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

May 2006

TELECOMMUNICATIONS 

Broadband Deployment Is Extensive 

throughout the United States, but It Is 

Difficult to Assess the Extent of 

Deployment Gaps in Rural Areas 

Highlights of GAO-06-426, a report to 

congressional committees 

Both Congress and the President 

have indicated that access to 

broadband for all Americans is 

critically important. Broadband is 

seen as a critical economic engine, 

a vehicle for enhanced learning and 

medicine, and a central component 

of 21st century news and 

entertainment. As part of our 

response to a mandate included in 

the Internet Tax Nondiscrimination

Act of 2004, this report examines

the factors that affect the 

deployment and the adoption of

broadband services. In particular, 

this report provides information on

(1) the current status of broadband 

deployment and adoption; (2) the

factors that influence the 

deployment of broadband

networks; (3) the factors that 

influence the adoption, or 

purchase, of broadband service by 

households; and (4) the options 

that have been suggested to spur 

greater broadband deployment and 

adoption.

What GAO Recommends

GAO recommends that FCC 

develop information regarding the 

cost and burden that would be 

associated with various options for 

improving the information 

available on broadband

deployment and report this

information to the relevant Senate 

and House committees to help

them determine what actions, if

any, are necessary. FCC provided

technical comments on this report, 

but did not comment on this

recommendation. 

About 30 million American households have adopted broadband service, but 

the Federal Communications Commission’s (FCC) data indicating the 

availability of broadband networks has some weaknesses. FCC conducts an 

extensive data collection effort using its Form 477 to assess the status of 

advanced telecommunications service in the United States. For its zip-code 

level data, FCC collects data based on where subscribers are served, not 

where providers have deployed broadband infrastructure. Although it is 

clear that the deployment of broadband networks is extensive, the data may

not provide a highly accurate depiction of local deployment of broadband 

infrastructures for residential service, especially in rural areas. 

A variety of market and technical factors, government efforts, and access to 

resources at the local level have influenced the deployment of broadband 

infrastructure. Areas with low population density and rugged terrain, as well 

as areas removed from cities, are generally more costly to serve than are 

densely populated areas and areas with flat terrain. As such, deployment 

tends to be less developed in more rural parts of the country. Technical 

factors can also affect deployment. GAO also found that a variety of federal 

and state efforts, and access to resources at the local level, have influenced 

the deployment of broadband infrastructure. 

A variety of characteristics related to households and services influence 

whether consumers adopt broadband service. GAO found that consumers 

with high incomes and college degrees are significantly more likely to adopt 

broadband. The price of broadband service remains a barrier to adoption for 

some consumers, although prices have been declining recently. The 

availability of applications and services that function much more effectively 

with broadband, such as computer gaming and file sharing, also influences 

whether consumers purchase broadband service. 

Stakeholders identified several options to address the lack of broadband in 

certain areas. Although the deployment of broadband is widespread, some 

areas are not served, and it can be costly to serve highly rural areas. 

Targeted assistance might help facilitate broadband deployment in these 

areas. GAO found that stakeholders have some concerns about the structure 

of the Rural Utilities Service’s broadband loan program. GAO was also told 

that modifications to spectrum management might address the lack of 

broadband infrastructure in rural areas. Also, because the cost of building 

land-based infrastructure is so high in some rural areas, satellite industry 

stakeholders noted that satellite broadband technology may be the best for 

addressing a lack of broadband in those regions. While several options such 

as these were suggested to GAO, each has some challenges to 

implementation. Also, a key difficulty for analyzing and targeting federal aid 

for broadband is a lack of reliable data on the deployment of networks. 

www.gao.gov/cgi-bin/getrpt?GAO-06-426.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact JayEtta Z. 

Hecker at (202) 512-2834 or 

heckerj@gao.gov. 
Page i GAO-06-426 Telecommunications

Contents

Letter 1

Results in Brief 3

Background 6

About 30 Million American Households Purchase Broadband 

Service; Despite Evidence of Substantial Broadband Deployment 

throughout the United States, It Is Difficult to Assess Deployment 

Gaps in Some Areas 10

A Variety of Market and Technical Factors, in Addition to 

Government Involvement and Access to Resources at the Local 

Level, Have Influenced the Deployment of Broadband 18

A Variety of Household and Service Characteristics Influence the 

Adoption of Broadband 28

Stakeholders Identified Several Options to Address the Lack of 

Broadband in Certain Areas, but Challenges Exist with 

Implementation 32

Conclusion 37

Recommendation for Executive Action 38

Agency Comments and Our Evaluation 39

Appendixes

Appendix I: Scope and Methodology 41

Appendix II: Data Reliability 43

Appendix III: Broadband Deployment and Adoption Models 46

Design of Our Broadband Deployment and Adoption Models 46

Data Sources 48

Assessing Broadband Deployment 51

Estimation Methodology and Results 52

Appendix IV: Additional Communications Technologies 59

Appendix V: Comments from Industry Participants 62

Appendix VI: GAO Contact and Staff Acknowledgments 64

Tables Table 1: Deployment Model: Definitions and Sources of 

Variables 49

Table 2: Adoption Model: Definitions and Sources of Variables 50

Table 3: Deployment Model: Descriptive Statistics 53

Table 4: Deployment Model: Estimation Results 53

Table 5: Adoption Model: Descriptive Statistics 56

Table 6: Adoption Model: Estimation Results 56
Contents

Page ii GAO-06-426 Telecommunications

Figures Figure 1: Status of Household Computer Ownership and Internet 

Connection 11

Figure 2: Household Online Connection 12

Figure 3: Percentage of Households Subscribing to Broadband, by 

Type of Location 13

Figure 4: Factors Influencing Subscription to Broadband 30

Abbreviations

3G third generation

ADSL asymmetric digital subscriber line

BPL broadband over power lines

CTIA Cellular Telecommunications and Internet Association

DBS direct broadcast satellite

DSL digital subscriber line

FCC Federal Communications Commission

FTTH fiber to the home

HFC hybrid-fiber coaxial

IEEE Institute of Electrical and Electronics Engineers

IG inspector general

ILEC incumbent local exchange carrier

Kbps kilobits per second

Mbps megabits per second

MSA metropolitan statistical area

NARUC National Association of Regulatory Utility Commissioners

NATOA National Association of Telecommunications Officers and 

Advisors

NCTA National Cable and Telecommunications Association

NTCA National Telecommunications Cooperative Association

NTIA National Telecommunications and Information Administration

RUS Rural Utilities Service

SIA Satellite Industry Association

UNE unbundled network element

USF Universal Service Fund

USIIA US Internet Industry Association

USTA United States Telecom Association

VoIP voice over Internet protocol

Wi-Fi wireless fidelity

WiMAX Worldwide Interoperability for Microwave Access
Contents

Page iii GAO-06-426 Telecommunications

WISP wireless Internet service provider

WISPA Wireless Internet Service Providers Association

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately.
Page 1 GAO-06-426 Telecommunications

United States Government Accountability Office

Washington, D.C. 20548

A

May 5, 2006 Letr

The Honorable Ted Stevens

Chairman

The Honorable Daniel K. Inouye

Co-Chairman

Committee on Commerce, Science, and Transportation

United States Senate

The Honorable Joe L. Barton

Chairman

The Honorable John D. Dingell

Ranking Minority Member

Committee on Energy and Commerce

House of Representatives

The universal availability of high speed Internet access over broadband 

technologies—commonly referred to as broadband Internet access—has 

become a national goal.1

 The Telecommunications Act of 1996 directed the 

Federal Communications Commission (FCC) and state commissions to 

encourage the deployment of advanced telecommunications capability. 

Similarly, in 2004, the President stated that there should be a national goal 

for universal, affordable access to broadband technology by 2007. The 

importance placed on access to broadband correlates to its many benefits 

for individuals and society. Broadband is seen as a critical economic 

engine, a vehicle for enhanced learning and medicine, and a central 

component of 21st century news and entertainment. 

As part of our response to a mandate included in the Internet Tax 

Nondiscrimination Act of 2004, this report examines the factors that affect 

the deployment—that is, the building of infrastructure over which 

broadband services can be provided—and the adoption of broadband 

services. We focus particularly on the deployment and adoption of 

broadband to households, as opposed to businesses or institutions. In 

particular, this report provides information on (1) the current status of 

broadband deployment and adoption; (2) the factors that influence the 

deployment of broadband networks; (3) the factors that influence the 

adoption, or purchase, of broadband service by households; and (4) the 

1

Throughout this report, we refer to high speed Internet access over broadband 

technologies as broadband Internet access. 
Page 2 GAO-06-426 Telecommunications

options that have been suggested to spur greater broadband deployment 

and adoption. In January 2006, we released a report that examined the 

impact of the Internet tax moratorium on state and local tax revenues, as 

also mandated by the law.2

To respond to the objectives of this report, we selected eight states and 

conducted case studies on the status of broadband deployment and 

adoption. For each of the states—Alaska, California, Kentucky, 

Massachusetts, North Dakota, Ohio, Texas, and Virginia—we interviewed 

state and local officials, including local franchising authorities, state public 

utility regulators, and representatives from governors’ offices; state 

industry and government associations; private cable and telephone 

providers; wireless Internet service providers; and municipal and 

cooperative telecommunications providers. We also spoke with a variety of 

individuals and organizations knowledgeable about broadband services, 

such as national industry associations and experts. We spoke with 

representatives from FCC, the National Telecommunications and 

Information Administration of the Department of Commerce, and the Rural 

Utilities Service (RUS) of the Department of Agriculture. To assess the 

status of broadband deployment and to understand the factors affecting the 

deployment and adoption of broadband, we used survey data from 

Knowledge Networks/SRI’s The Home Technology MonitorTM: Spring 2005 

Ownership and Trend Report. Knowledge Networks/SRI interviewed 

approximately 1,500 randomly sampled households, asking questions about 

each household’s purchase of Internet services and the availability of cable 

television service. Using these data, we estimated two econometric models: 

One model examined the factors affecting broadband deployment and the 

second examined the factors affecting households’ adoption of broadband 

services. We combined the household survey data with information from 

FCC’s Form 477 filings, which contain information on companies’ provision 

of broadband services by zip codes. This enabled us to develop information 

about what options for broadband a particular household would have. To 

assess the impact of Internet taxes on broadband deployment and 

adoption, we contacted officials in 48 states and the District of Columbia to 

determine whether the state, or local governments in the state, imposed 

taxes on Internet access in 2005; we did not evaluate the level of taxation. 

We concluded that information from Knowledge Networks/SRI and FCC 

(with modifications discussed later in this report) was sufficiently reliable 

2

See GAO, Internet Access Tax Moratorium: Revenue Impacts Will Vary by State, 

GAO-06-273 (Washington, D.C.: Jan. 23, 2006). 
Page 3 GAO-06-426 Telecommunications

for the purpose of this report. All percentage estimates from the 

Knowledge Networks/SRI survey have margins of error of plus or minus 7 

percentage points or less, unless otherwise noted. See appendix I for a 

more detailed discussion of the overall scope and methodology for this 

report, including a discussion of how we selected the case-study states; 

appendix II for an assessment of the data reliability of the Knowledge 

Networks/SRI survey; and appendix III for a more detailed explanation of, 

and results from, our deployment and adoption models. 

We conducted our work from April 2005 through February 2006 in 

accordance with generally accepted government auditing standards. 

Results in Brief About 30 million American households purchase, or have adopted, 

broadband service, but it is difficult to assess the extent of gaps in the 

availability of broadband in local markets. Using a survey of American 

households, we found that 28 percent—or about 30 million—subscribed to 

broadband service in 2005. In addition, 30 percent of surveyed households 

subscribed to a dial-up Internet service, and 41 percent did not access the 

Internet from their home. Among households subscribing to broadband 

service, we found roughly an equal share taking cable modem and digital 

subscriber line (DSL) service, the two primary broadband services at this 

time. Households in rural areas were less likely to subscribe to broadband 

service, compared with households in urban and suburban areas. On a 

semiannual basis, FCC conducts an extensive data collection effort using 

its Form 477 to assess the availability of advanced telecommunications 

service in the United States. As of July 2005, FCC has found that 99 percent 

of Americans live in the 95 percent of zip codes that have at least one 

broadband provider reporting to be serving at least one subscriber. These 

data clearly indicate that deployment of broadband networks has been 

extensive. However, for its zip-code level data, FCC collects data based on 

where subscribers are served, not where providers have deployed 

broadband infrastructure. Based on our analysis is appears that these data 

may not provide a highly accurate depiction of deployment of broadband 

infrastructures for residential service in some areas.3

3

While FCC states that its zip-code information is not meant to be a measure of broadband 

deployment, some parties have used it in this manner because there are no other official 

data on deployment of broadband across the country. 
Page 4 GAO-06-426 Telecommunications

A variety of market and technical factors, as well as federal and state 

government efforts and access to resources at the local level have 

influenced the deployment of broadband infrastructure. Most importantly, 

companies contemplating the deployment of broadband infrastructure 

consider both the cost to deploy and operate a broadband network and the 

expected demand for broadband service. We found it is more costly to 

serve areas with low population density and rugged terrain with terrestrial 

facilities than it is to serve areas that are densely populated and have flat 

terrain. It also may be more costly to serve locations that are a significant 

distance from a major city. As such, these important factors have caused 

deployment to be less developed in more rural parts of the country. Firms 

also consider the extent of existing competition in the broadband market 

when making deployment decisions: New entrants are more likely to enter 

markets with no competitors, but at the same time, we found that 

incumbent cable and telephone companies may respond to entry by new 

companies by rolling out broadband in markets where they had not yet 

provided service. Even when cost and demand factors are favorable, 

technical factors can limit the deployment of broadband service in certain 

contexts. For example, DSL—the primary broadband service provided by 

telephone companies—can generally extend only 3 miles4

 from the central 

office with copper plant, which precludes many households from obtaining 

DSL service.5

 Finally, we found that a variety of federal and state 

government efforts as well as access to resources at the local level have 

influenced the deployment of broadband infrastructure. At the federal 

level, one of the programs of the Universal Service Fund (USF)—known as 

the High Cost Fund—has indirectly facilitated broadband service in more 

rural areas. Similarly, the Department of Agriculture’s Rural Utilities 

Service (RUS) provides grants and loans to promote broadband service in 

rural areas. At the local level, access to rights-of-way, pole attachments, 

wireless-tower sites as well as the video franchising process can influence 

the pace of deployment. We also found that strong leadership within a 

community can help promote broadband deployment by, for example, 

enhancing the likely market success of companies’ entry into rural 

markets. Finally, using our econometric model, we found that the 

imposition of taxes was not a statistically significant factor influencing the 

deployment of broadband. 

4

The 3-mile limit applies to the path taken by the telephone wire, not necessarily a straight 

line between the central office and the customer’s residence. 

5

With fiber feeders, DSL service can be extended beyond three miles from the central office. 
Page 5 GAO-06-426 Telecommunications

A variety of characteristics related to households and services influence 

whether consumers purchase (or adopt) broadband service. Based on our 

econometric model, we found that several characteristics of households 

influence the adoption decision. Our model showed that households with 

high incomes were 39 percentage points more likely to adopt broadband 

than lower-income households, and those with a college-educated head of 

household were 12 percentage points more likely to purchase broadband 

than households headed by someone who did not graduate from college. 

While rural households are less likely to adopt broadband, our findings 

indicate that this difference may be related in part to the lower availability 

of broadband in rural areas. In addition, based on discussions with 

stakeholders, we identified several characteristics of broadband service 

that influence whether a consumer purchases the service. The price of 

broadband service remains a barrier to adoption of broadband service for 

some consumers, although prices have been declining recently. The 

availability of applications and services that either require or function 

much more effectively with broadband—such as computer gaming and file 

sharing—also influences whether a particular consumer purchases 

broadband service. Using our model, we found that the imposition of the 

tax was not a statistically significant factor influencing the adoption of 

broadband service at the 5 percent level. It was statistically significant at 

the 10 percent level, perhaps suggesting that it is a weakly significant 

factor. However, giving the nature of our model, it is unclear whether this 

finding is related to the tax or other characteristics of the states in which 

the households resided. 

Targeted government assistance might help facilitate the deployment of 

broadband service, and stakeholders we spoke with identified several 

options to spur greater deployment of broadband service in rural America. 

However, each of the policy options that stakeholders discussed with us 

had challenges to their implementation. For example, a few of the 

stakeholders we spoke with expressed concerns about the structure of the 

Rural Utilities Service’s broadband loan program. Also, several of the 

stakeholders suggested that modifications to spectrum management might 

address the lack of broadband infrastructure in rural areas. Finally, 

because the cost of building land-based infrastructure is so high in some 

rural areas, satellite industry stakeholders noted that satellite broadband 

technology may be the best option for addressing a lack of broadband in 

those regions. Ultimately, we found that a key difficulty for analyzing and 

targeting any federal aid for broadband is a lack of reliable data on the 

deployment of networks. 
Page 6 GAO-06-426 Telecommunications

We provided a draft of this report to the Department of Agriculture, the 

Department of Commerce, and FCC for their review and comment. The 

Department of Agriculture had no comments on the draft. The Department 

of Commerce and FCC provided technical comments that we incorporated, 

as appropriate. 

In the draft, GAO recommended that FCC identify and evaluate strategies 

for improving the 477 data such that the data provide a more accurate 

depiction of residential broadband deployment throughout the country. In 

oral comments regarding this recommendation, FCC staff noted that the 

commission had recently determined that it would be costly and could 

impose large burdens on filers—particularly small entities—to require any 

more detailed filings on broadband deployment. As such, we recommend 

that FCC develop information regarding the degree of cost and burden that 

would be associated with various options for improving the information 

available on broadband deployment and should provide that information to 

the Senate Committee on Commerce, Science, and Transportation and the 

House Energy and Commerce Committee in order to help them determine 

what actions, if any, are necessary going forward. FCC did not comment on 

our final recommendation. 

We also provided a draft of this report to several associations representing 

industry trade groups and state and local government entities for their 

review and comment. Specifically, the following associations came to GAO 

headquarters to review the draft: Cellular Telecommunications and Internet 

Association (CTIA), National Association of Regulatory Utility 

Commissioners (NARUC), National Association of Telecommunications 

Officers and Advisors (NATOA), National Cable and Telecommunications 

Association (NCTA), National Telecommunications Cooperative 

Association (NTCA), Satellite Industry Association (SIA), US Internet 

Industry Association (USIIA), United States Telecom Association (USTA), 

and Wireless Internet Service Providers Association (WISPA). Officials 

from CTIA, NARUC, and NTCA did not provide comments. Officials from 

NATOA, NCTA, SIA, and USIIA provided technical comments that were 

incorporated, as appropriate. USTA and WISPA provided comments that 

are discussed in appendix V. 

Background Internet access became widely available to residential users by the mid 

1990s. For a few years, the primary mechanism to access the Internet was a 

dial-up connection, in which a standard telephone line is used to make an 

Internet connection. A dial-up connection offers data transmission speeds 
Page 7 GAO-06-426 Telecommunications

up to 56 kilobits per second (Kbps). Broadband, or high-speed, Internet 

access became available by the late 1990s. Broadband differs from a dial-up 

connection in certain important ways. First, broadband connections offer a 

higher-speed Internet connection than dial-up—for example, some 

broadband connections offer speeds exceeding 1 million bits per second 

(Mbps) both upstream (data transferred from the consumer to the Internet 

service provider) and downstream (data transferred from the Internet 

service provider to the consumer).6

 These higher speeds enable consumers 

to receive information much faster and thus enable certain applications to 

be used and content to be accessed that might not be possible with a dialup connection. Second, broadband provides an “always on” connection to 

the Internet, so users do not need to establish a connection to the Internet 

service provider each time they want to go online.

Consumers can receive a broadband connection to the Internet through a 

variety of technologies. These technologies include, but are not limited to, 

the following:

• Cable modem. Cable television companies first began providing 

broadband service in the late 1990s over their hybrid-fiber coaxial 

networks. When provided by a cable company, broadband service is 

referred to as cable modem service. Cable providers were upgrading 

their infrastructure at that time to increase their capacity to provide 

video channels in response to competition from direct broadcast 

satellite (DBS) providers such as DirecTV® and Dish Network. By also 

redesigning their networks to provide for two-way data transmission, 

cable providers were able to use their systems to provide cable modem 

service. Cable modem service is primarily available in residential areas, 

and although the speed of service varies with many factors, download 

speeds of up to 6 Mbps are typical. Cable providers are developing even 

higher speed services. 

• DSL. Local telephone companies provide digital subscriber line (DSL) 

service, another form of broadband service, over their telephone 

networks on capacity unused by traditional voice service. Local 

telephone companies began to deploy DSL service in the late 1990s—

6

FCC defined “advanced service” as exceeding 200 Kbps both upstream and downstream 

and “high-speed” service as exceeding 200 Kbps in at least one direction, in order to 

distinguish these from existing data services based on widely available analog telephony 

and ISDN technology.
Page 8 GAO-06-426 Telecommunications

some believe, in part, as a response to the rollout of cable modem 

service. To provide DSL service, telephone companies must install 

equipment in their facilities and remove devices on phone lines that may 

cause interference. While most residential customers receive 

asymmetric DSL (ADSL) service with download speeds of 1.5 to 3 Mbps, 

ADSL technology can achieve speeds of up to 8 Mbps over short 

distances. Newer DSL technologies can support services with much 

higher download speeds. 

• Satellite. Currently, three providers of satellite service can offer nearly 

ubiquitous broadband service in the United States. These providers use 

geosynchronous satellites that orbit in a fixed position above the 

equator and transmit and receive data directly to and from subscribers. 

Signals from satellites providing broadband service can be accessed as 

long as the user’s reception dish has a clear view of the southern sky. 

Therefore, while the footprint of the providers’ transmission covers 

most of the country, a person living in an apartment with windows only 

facing north, or a person living in house in a heavily wooded area might 

not be able to receive Internet access via satellite. Earlier Internet 

services via satellite could only receive Internet traffic downstream—

that is, from the satellite to the subscriber—and upstream Internet 

traffic was transmitted through a standard telephone line connection. 

Currently, however, satellite companies provide both upstream and 

downstream connections via satellite, eliminating the need for a 

telephone line connection and speeding the overall rate of service. 

Transmission of data via satellite typically adds one-half to three-fourths 

of a second, causing a slight lag in transmission and rendering this 

service less well-suited for certain applications over the Internet. While 

satellite broadband service may be available throughout the country, the 

price for this service is generally higher than most other broadband 

modes; both the equipment necessary for service and recurring monthly 

fees are generally higher for satellite broadband service, compared with 

most other broadband transmission modes. 

• Wireless. Land-based, or terrestrial, wireless networks can offer a 

broadband connection to the Internet from a wide variety of locations 

and in a variety of ways. Some services are provided over unlicensed 

spectrum and others over spectrum that has been licensed to particular
Page 9 GAO-06-426 Telecommunications

companies.7 In licensed bands, some companies are offering fixed 

wireless broadband throughout cities. Also, mobile telephone 

carriers—such as the large companies that provide traditional cell 

phone service—have begun offering broadband mobile wireless 

Internet service over licensed spectrum—a service that allows 

subscribers to access the Internet with their mobile phones or laptops 

as they travel across cities where their provider supports the service. 

Such services are becoming widely deployed and are increasingly able 

to offer high-speed services. A variety of broadband access 

technologies and services are also provided on unlicensed spectrum—

that is, spectrum that is not specifically under license for a particular 

provider’s network. For example, wireless Internet service providers 

generally offer broadband access in particular areas by placing a 

network of antennae that relay signals throughout the network. 

Subscribers place necessary reception equipment outside their homes 

that will transmit and receive signals from the nearest antenna. Also, 

wireless fidelity (Wi-Fi) networks—which provide broadband service in 

so-called “hot spots,” or areas up to 300 feet—can be found in cafes, 

hotels, airports, and offices. Some technologies, such as Worldwide 

Interoperability for Microwave Access (WiMAX), can operate on either 

licensed or unlicensed bands, and can provide broadband service up to 

approximately 30 miles in a line-of-sight environment.

Under section 706 of the Telecommunications Act of 1996, Congress directs 

FCC to encourage deployment of advanced telecommunications capability, 

which includes broadband, to all Americans. In implementing the act, FCC 

has treated the two most widely available broadband services—cable 

modem and DSL service—as information services having a 

telecommunications component. FCC’s approach of not treating such 

services as telecommunications services has important legal implications 

because a service defined as a telecommunications service could be 

subject to regulation under Title II of the Communications Act, which 

imposes substantial common carrier regulations unless the commission 

choose to forebear from their enforcement. As part of its responsibilities, 

FCC periodically issues a report to Congress on the status of advanced 

telecommunication capability in the United States. To prepare this report, 

7

Spectrum is a natural resource used to provide an array of wireless communication 

services. FCC regulates commercial entities’ use of spectrum. With unlicensed spectrum, a 

number of users without licenses share a portion of the spectrum, adhering to certain 

technological specifications. In contrast, with licensed spectrum, FCC provides entities with 

a license to use a specific portion of the spectrum. 
Page 10 GAO-06-426 Telecommunications

FCC developed a periodic reporting requirement using Form 477. In 

November 2004, FCC modified its rules regarding the filing of the 477 form, 

which went into effect for the companies’ second filing in 2005. 

Specifically, FCC removed existing reporting thresholds,8

 and companies 

are now required to report their total state subscribership by technology.9

About 30 Million 

American Households 

Purchase Broadband 

Service; Despite 

Evidence of 

Substantial Broadband 

Deployment 

throughout the United 

States, It Is Difficult to 

Assess Deployment 

Gaps in Some Areas

We found that in 2005, about 30 million American households—or 28 

percent—subscribed to broadband, although households in rural areas 

were less likely to subscribe to broadband service than were households in 

urban and suburban areas. Households appear to subscribe to cable 

modem and DSL services—the two primary broadband services—in 

approximately equal numbers. FCC requires providers of broadband 

service to report on the geographic areas in which they serve subscribers, 

but these data are sometimes used to infer the status of deployment of 

companies’ Internet infrastructure. Some stakeholders find FCC data 

collection efforts useful for comparison of adoption of broadband across 

states, but we found that the data may not be as useful for understanding 

the status of broadband deployment across the country.

About 30 Million American 

Households Purchase 

Broadband Service

Based on survey data from 2005,10 we found that 28 percent of American 

households subscribe to broadband service. Figure 1 illustrates how 

American households access the Internet, by various technologies, and also 

shows the percentage of households that do not own a computer. As 

8

In the past, companies with less than 250 broadband connections were not required to 

submit information to FCC through Form 477. FCC officials told us that many of the 

companies that are now required to report are very small and in rural areas. These officials 

stated that many of these companies are not reporting and that therefore the data may not 

fully represent broadband deployment.

9

FCC requires providers to report on their broadband lines or wireless channels. While this 

may not exactly equate to subscribers, the number of lines and subscribers is related, and 

we use the word subscribers throughout this report as we refer to the 477 filings of 

companies. 

10We used survey data from Knowledge Networks/SRI’s The Home Technology MonitorTM: 

Spring 2005 Ownership and Trend Report.
Page 11 GAO-06-426 Telecommunications

shown, 30 percent of American households subscribe to dial-up access, and 

about 41 percent of American households do not have an Internet 

connection from home. Of those households that do not access the 

Internet, more than 75 percent do not have a computer in the home, while 

the remaining households own a computer but do not have online access.

Figure 1: Status of Household Computer Ownership and Internet Connection

Among online households, we found 50 percent subscribe to dial-up 

service, and 48 percent subscribe to a broadband service.11 Additionally, we 

found that of those households subscribing to a broadband service, roughly 

half purchase DSL service and half purchase cable modem service. (See fig. 

2 for the types of connections purchased by online households.) 

11A very small number of respondents to the survey accessed the Internet over a satellite 

connection, but none of the respondents reported any other means of wireless access.

28%

34%

30%

8%

Not online–own a computer

Dial-up

Not online–no computer

Broadband

Source: GAO analysis of Knowledge Networks/SRI’s The Home Technology MonitorTM: Spring 2005 Ownership and Trend Report.
Page 12 GAO-06-426 Telecommunications

Figure 2: Household Online Connection

Finally, we found that households residing in rural areas were less likely to 

subscribe to broadband service than were households residing in suburban 

and urban areas.12 Seventeen percent of rural households subscribe to 

broadband service, while 28 percent of suburban and 29 percent of urban 

households subscribe to broadband service. (See fig. 3 for the percentage 

of urban, suburban, and rural households purchasing broadband service.)

12We refer to rural areas as areas outside metropolitan statistical areas (MSA); suburban 

areas as areas within an MSA but not a central city; and urban areas as a central city of an 

MSA.

24%

50%

24% Cable modem

1%

Satellite

Dial-up

DSL

Source: GAO analysis of Knowledge Networks/SRI’s The Home Technology MonitorTM: Spring 2005 Ownership and Trend Report.
Page 13 GAO-06-426 Telecommunications

We also found that rural households were slightly less likely to connect to 

the Internet, compared with their counterparts in suburban areas.13

Figure 3: Percentage of Households Subscribing to Broadband, by Type of Location

13Our findings are not substantially different from those of other organizations. Based on 

2003 data, the Census Bureau reported that 62 percent of American households had a 

computer—see U.S. Census Bureau, Computer and Internet Use in the United States: 2003

(Washington, D.C., 2005). Additionally, the Department of Commerce reported that 20 

percent of households—or 37 percent of online households—had broadband service, with 

DSL becoming increasingly popular. This study also found that broadband service was less 

commonly purchased in rural areas—see U.S. Department of Commerce, A Nation Online: 

Entering the Broadband Age (Washington, D.C., September 2004). Similarly, using survey 

data from 2005, the Pew Internet and American Life Project reported that 53 percent of 

Internet users subscribed to broadband service, that much of the growth in broadband 

service in recent years arose from DSL subscriptions, and that broadband service was less 

prevalent in rural areas when compared with broadband subscribership in suburban and 

urban areas.

Source: GAO analysis of Knowledge Networks/SRI’s The Home Technology MonitorTM: Spring 2005 Ownership and Trend Report.

20

28

42

28

17

29

0

5

10

15

20

25

30

Percentage of households

 Urban Suburban Rural

Type of location
Page 14 GAO-06-426 Telecommunications

Deployment of Broadband 

Appears to Be Extensive, 

but FCC’s Form 477 Data 

May Not Provide an 

Accurate Depiction of Gaps 

in Broadband Deployment 

In order to fulfill its responsibility under section 706 of the 

Telecommunications Act, FCC collects data on companies’ broadband 

operations. In early 2004, FCC initiated a proceeding to examine whether it 

should collect more detailed information for its broadband data gathering 

program than had previously been collected. Specifically, FCC asked 

whether it should do several things to enhance the broadband data 

including (1) requiring providers to report the speeds of their broadband 

services, (2) eliminating the reporting threshold such that all providers of 

broadband—no matter how small—must report to FCC on its services, and 

(3) requiring that providers report the number of connections by zip code. 

In late 2004, FCC released an order in which it decided to require all 

providers—no matter how small—of broadband to report in the 477 data 

collection effort on broadband and also required providers to report 

information about their services within speed tier categories. The 

commission decided not to require providers to report the number of 

connections (or subscribers) that they serve within each zip code or the 

number of connections in speed tiers or by technology within each zip 

code, finding that finding that such a requirement would impose a large 

burden on filers (particularly smaller entities), and would require 

significant time to implement. In particular, several providers commented 

in the 2004 proceeding that it would be costly and burdensome to develop 

the software and systems to generate the detailed zip code-level data and 

that the cost and burden of further reporting requirements would likely 

outweigh the benefits of more substantial information on broadband 

deployment in the United States. On the other hand, 3 state utility 

commissions asked FCC to gather more information within zip codes or by 

some other Census boundary because such information is, in their view, 

important for tracking broadband availability.

Based on the modifications to the filing requirements FCC implemented, 

FCC collects, through its Form 477 filings, information on several aspects 

of each company’s provision of broadband at the state level, such as the 

total number of subscribers served, the breakdown of how those 

subscribers are served by technology, and estimates within each 

technology of the percentage of subscribers that are residential. For each 

technology identified in the state reporting, providers also submit a list of 

the zip codes in which they serve at least one customer. As discussed 

above, companies do not report the number of subscribers served or 

whether subscribers are business or residential within each zip code; they 

also do not report information on the locations within the zip code that 

they can serve.
Page 15 GAO-06-426 Telecommunications

In July 2005, FCC found that 99 percent of the country’s population lives in 

the 95 percent of zip codes where at least one provider reported to FCC 

that it serves at least one high-speed subscriber as of December 31, 2004. In 

83 percent of the nation’s zip codes, FCC noted that subscribers are served 

by more than one provider, and the commission noted that for roughly 40 

percent of zip codes in the United States, there are five or more providers 

reporting high-speed lines in service. Although these data indicate that 

broadband availability is extensive, we found that FCC’s 477 data may not 

be useful for assessing broadband deployment at the local level.14 While 

FCC, in general, notes that the 477 zip-code data are not meant to measure 

deployment of broadband, in its July 2005 report,15 the commission states 

that in order to be able to evaluate deployment, the commission “instituted 

a formal data collection program to gather standardized information about 

subscribership to high speed services. . . .” (Emphasis added. ) Based on 

our analysis, we found that collecting data about where companies have 

subscribers may not provide a clear depiction of their deployment, 

particularly in the context of understanding the availability of broadband 

for residential users.16

One quandary in analyzing broadband deployment is how to consider the 

availability of satellite broadband services. Even though broadband over 

satellite may not be seen by some as highly substitutable for other 

broadband technologies because of certain technical characteristics or 

because of its higher cost, satellite broadband service is deployed: Three 

companies have infrastructure in place to provide service to most of the 

country.17 The actual purchase of satellite broadband is scattered 

14In a recent report, we also noted that the 477 data do not provide a full description of 

broadband services for certain segments of the population, such as Native Americans 

residing on tribal lands. See GAO, Telecommunications: Challenges to Assessing and 

Improving Telecommunications for Native Americans on Tribal Lands, GAO-06-189

(Washington, D.C.: Jan. 11, 2006). 

15See FCC, High-Speed Services for Internet Access: Status as of December 31, 2004

(Washington, D.C., July 2005).

16The problems related to tracking data on subscribership versus deployment/availability in 

Form 477 is not an issue with mobile wireless operators. Because mobile wireless 

broadband services are designed to be used while subscribers are mobile, those operators 

are directed to report the zip codes covered by their mobile wireless broadband networks, 

rather than the zip codes of the billing addresses of their subscribers.

17As noted earlier, some households might not be able to actually receive broadband over 

satellite if they do not have a clear view of the southern sky.
Page 16 GAO-06-426 Telecommunications

throughout the country and shows up in FCC’s 477 zip-code data only 

where someone actually purchases the service. It is not clear how satellite 

service should be judged in terms of deployment. Since it is available 

throughout the entire country, one view could be that broadband is near 

fully deployed. Alternatively, it could be viewed that satellite broadband—

while available in most areas—does not reflect localized deployment of 

broadband infrastructure and should therefore not be counted as a 

deployed broadband option at all. In either case, FCC’s zip-code data on 

satellite broadband—which is based on the pattern of scattered 

subscribership to this service—does not seem to be an appropriate 

indicator of its availability.

Aside from the question of how to view satellite deployment, other issues 

arise in using subscribership indicators for wire or wireless land-based 

providers at the zip-code level as an indicator of deployment. These issues 

include the following: 

• Because a company will report service in a zip code if it serves just one 

person or one institution in that zip code, stakeholders told us that this 

method may overstate deployment in the sense that it can be taken to 

imply that there is deployment throughout the zip code even if 

deployment is very localized. We were told this issue might particularly 

occur in rural areas where zip codes generally cover a large geographic 

area. Based on our own analysis, we found, for example, that in some 

zip codes more than one of the large established cable companies 

reported service. Because such providers rarely have overlapping 

service territories, this likely indicates that their deployment was not 

zip-code-wide and that the number of providers reported in the zip code 

overstates the level of competition to individual households. We also 

found that a nontrivial percentage of households lie beyond the 3-mile 

radius of their telephone central office, indicating that DSL service was 

unlikely to be available to these homes.

• Companies report service in a zip code even if they only serve 

businesses. One academic expert we interviewed expressed a concern 

about this issue. Based on our own analysis, we found that many of the 

companies filing 477 data indicating service in particular zip codes only 

served business customers. As such, the number of providers reported 

as serving many zip codes is likely overstated in terms of the availability 

of broadband to residences.
Page 17 GAO-06-426 Telecommunications

• FCC requires that companies providing broadband using unbundled 

network elements (UNE)18 report their broadband service in the zip 

code data. When a provider serves customers using UNEs, they 

purchase or lease underlying telecommunications facilities from other 

providers—usually incumbent telephone companies—to serve their 

customers. Having these providers report their subscribers at the state 

level is important to ensure that correct numbers on the total 

subscribers of broadband service is obtained. However, while UNE 

providers may make investments in infrastructure, such as in 

collocation equipment, they do not generally own or provide last-mile 

connectivity for Internet access. Thus, counting these providers in the 

zip-code-level data may overstate the extent of local infrastructure 

deployment in the sense that several reporting providers could be 

relying on the same infrastructure, owned by the incumbent telephone 

company, to provide broadband access.

Based on our analysis, we believe that the use of subscriber indicators at 

the zip-code level to imply availability, or deployment, may overstate 

terrestrially based deployment. We were able to check these findings for 

one state—Kentucky—where ConnectKentucky, a state alliance on 

broadband, had done an extensive analysis of its broadband deployment. 

ConnectKentucky officials shared data with us indicating that 

approximately 77 percent of households in the state had broadband access 

available as of mid-2005. In contrast, we used population data within all zip 

codes in Kentucky, along with FCC’s 477 zip-code data for that state, and 

determined that, according to FCC’s data, 96 percent of households in 

Kentucky live in zip codes with broadband service at the end of 2004. Thus, 

based on the experience in Kentucky, it appears that FCC’s data may 

overstate the availability and competitive deployment of nonsatellite 

broadband.

Additionally, to prepare our econometric models, we relied on FCC’s 477 

data to assess the number of providers serving the households responding 

to Knowledge Networks/SRI’s survey. Based on FCC’s data, we found that 

the median number of providers reporting that they serve zip codes where 

the households were located was 8; in 30 percent of these zip codes, 10 or 

more providers report that they provide service. Only 1 percent of 

18UNEs are physical and functional elements of the telephone network, such as the 

telephone line, or loop, which, under the Telecommunications Act of 1996, incumbent 

telephone companies must make available to competitors for lease or purchase.

ConnectKentucky

Source: ConnectKentucky.

The purpose of ConnectKentucky’s Geographic 

Information Systems (GIS) mapping project is to 

produce an inventory of existing broadband 

infrastructure and service availability. The tool can 

produce maps at the state and census block level. 

Some of the items mapped include water towers, 

wireless towers, proposed sewer lines, roads, and 

population density. The maps also plot which 

areas are served by municipal, local exchange 

carrier, cable, and wireless broadband 

providers.
Page 18 GAO-06-426 Telecommunications

respondents lived in zip codes for which no broadband providers reported 

serving at least one subscriber, according to FCC’s data. To better reflect 

the actual number of providers that each of the survey respondents had 

available at their residence, we made a number of adjustments to FCC’s 

provider count based on our analysis of the providers, certain geographic 

considerations, and information provided by the survey respondents.19

After making these adjustments, the median number of providers for the 

respondents fell to just 2, and we found that 9 percent of respondents likely 

had no providers of broadband at all.

Despite these concerns about FCC’s 477 data, several stakeholders, 

including a state regulatory office and a state industry association, said 

they found FCC’s data useful. An official at a state governor’s office also 

noted that analysis of FCC data allowed them to make conclusions about 

the extent of deployment in their state. Similarly, an official in another 

governor’s office said that they use FCC’s data to benchmark the 

accessibility of broadband in their state because it is the only data 

available. A few academic experts also told us that they use FCC’s data.

A Variety of Market and 

Technical Factors, in 

Addition to 

Government 

Involvement and 

Access to Resources at 

the Local Level, Have 

Influenced the 

Deployment of 

Broadband

Several market characteristics appear to influence providers’ broadband 

deployment decisions. In particular, factors related to the cost of deploying 

and providing broadband services, as well as factors related to consumer 

demand, were critical to companies’ decisions about whether to deploy 

broadband infrastructure. At the same time, certain technical factors 

related to specific modes of providing broadband service influence how 

and where this service can be provided. Finally, a variety of federal and 

state government activities, as well as access to resources at the local level, 

have influenced the deployment of broadband infrastructure.

19In particular, we removed satellite providers, removed any companies we determined only 

provide service to business customers, removed a cable provider if we found that more than 

1 of the largest 10 cable providers served the zip code, removed a cable provider if the 

respondent said that cable does not pass their residence, and removed telephone-based 

providers if the residence was further than 2.5 miles from the central office that served the 

respondent’s home.
Page 19 GAO-06-426 Telecommunications

Several Key Market Factors 

Related to the Cost of 

Service and Demand 

Influence Deployment 

Decisions

As companies weigh investment decisions, they consider the likely 

profitability of their investments. In particular, because broadband 

deployment requires substantial investment, potential providers evaluate 

the cost to build and operate the infrastructure, as well as the likely 

demand—that is, the expected number of customers who will purchase 

broadband service at a given price—for their service. Based on our 

interviews, we found that several cost and demand factors influence 

providers’ deployment decisions.

Cost Factors The most frequently cited cost factor affecting broadband deployment was 

the population density of a market. Many stakeholders, including 

broadband providers, state regulators, and state legislators, said population 

density—which is the population per square mile—was a critical 

determinant of companies’ deployment decisions. In particular, we were 

told that the cost of building a broadband infrastructure in areas where 

people live farther apart is much higher than building infrastructure to 

serve the same number of people in a more urban setting. As such, some 

stakeholders noted that highly rural areas—which generally have low 

population density—can be costly to serve. Results from our econometric 

model confirm the views of these stakeholders. We found that densely 

populated and more urbanized locations were more likely to receive 

broadband service than were less densely populated and rural locations. 

For example, we found that urban areas were 9 percentage points more 

likely to have broadband service available than were rural areas.

Terrain was also frequently cited as a factor affecting broadband 

deployment decisions. In particular, we were told that infrastructure buildout can be difficult in mountainous and forested areas because these areas 

may be difficult to reach or difficult on which to deploy the required 

equipment. Conversely, we were told that flat terrain constitutes good 

geography for telecommunications deployment. For wireless providers, we 

were told that terrain concerns can present particular challenges because 

some wireless technologies require “line-of-sight,” meaning that radio 

signals transmitted from towers or antennas need an unobstructed 

pathway—with no mountains, trees, or buildings—from the transmission 

site to the reception devices at users’ premises. Terrain can also affect 

satellite broadband availability in rural areas that have rolling hills or many 

trees that can obstruct a satellite’s signal.
Page 20 GAO-06-426 Telecommunications

Some stakeholders also said costs for what is known as “backhaul” are 

higher for rural areas and can affect the deployment of broadband 

networks in these areas. Backhaul refers to the transmission of 

information—or data—from any of a company’s aggregation points to an 

Internet backbone provider that will then transmit that data to any point on 

the Internet. This is also sometimes referred to as the “middle mile.” 

Internet traffic originating from rural areas may need to travel a long 

distance to a larger city to connect to a major Internet backbone provider. 

Because the cost of transmitting over this distance—that is, the backhaul—

can be high, one stakeholder noted that backhaul costs are another barrier 

to deployment in rural areas. However, using our econometric model, we 

did not find that the distance to a metropolitan area with a population of 

250,000 or more—our proxy for backhaul—was associated with a lower 

likelihood of broadband deployment.

Demand Factors Based on our interviews with stakeholders, we found that certain demand 

factors influence providers’ deployment decisions. In particular, because 

stakeholders noted that potential providers seek to deploy in markets 

where demand for their service will be sufficient to yield substantial 

revenues, certain elements of markets were identified as affecting the 

demand for broadband: 

• Ability to aggregate demand. For rural locations, officials we spoke 

with stressed the importance of aggregating sufficient demand. For 

example, officials in one state told us that to justify the cost of 

deployment in rural areas where population density is low, 

telecommunications providers need to be able to aggregate all of the 

possible demand to make a business case. We were also told that 

aggregation is furthered by ensuring that a large “anchor tenant” will 

subscribe to the service. Possible anchor-tenant customers described to 

us included large businesses, government agencies, health-care 

facilities, and schools. Because the revenues from such customers will 

be significant, two stakeholders noted that the anchor tenant alone will 

help to cover a significant portion of the providers’ expenses.

• Degree of competition. We found that the degree of existing 

broadband competition in a local market can inhibit or encourage 

deployment, depending on the circumstances. Some new entrants—

Backhaul

Source: GAO.

In Alaska, backhaul from rural villages requires the 

use of satellites. This type of backhaul is costly 

because of the need for terrestrial infrastructure to 

send and receive signals from satellites as well as

the need to either own or lease satellite transmitters. 

The high cost can affect whether providers deploy 

broadband service in a village. To help defray this

cost, providers often look to serve an “anchor 

tenant” in a village, such as schools or health clinics

that receive federal funding. 
Page 21 GAO-06-426 Telecommunications

companies not already providing a telecommunications service in an 

area—reported that they avoid entering markets with several existing 

providers and seek out markets where incumbent telephone and cable 

companies do not provide broadband service. The lack of existing 

service enables the entrant company to have the potential to capture 

many customers. At the same time, stakeholders told us that 

deployment by a new entrant often spurred incumbent telephone or 

cable providers to upgrade their infrastructures so as to compete with 

the entrant in the broadband market.

• Technological expertise. A few stakeholders noted that demand will 

be greater in areas where potential customers are familiar with 

computers and broadband, as these individuals are more likely to 

purchase broadband service.

Stakeholders we spoke with rarely mentioned the per-capita income of a 

service area as a factor determining deployment. In fact, a few stakeholders 

credited cable franchising requirements with ensuring deployment to lowincome areas; in some cases, cable franchise agreements require cable 

providers to build out to all parts of the service territory. However, a 2004 

study did find that areas with higher median incomes were more likely to 

have competitive broadband systems.20 Similarly, results from our 

econometric analysis indicate that areas with higher per-capita income are 

more likely to receive broadband service than are areas with lower percapita income.

Taxation of Internet Access Using our econometric model, we did not find that taxation of Internet 

access by state governments influenced the deployment of broadband 

service. Taxes can raise consumer prices and reduce revenues and impose 

costs on providers, and thereby possibly reduce the incentive for 

companies to deliver a product or service. To assess the impact of Internet 

taxes on broadband deployment, we contacted officials in 48 states and the 

District of Columbia21 to determine whether the state, or local governments 

in the state, imposed taxes on Internet access. To incorporate this analysis 

into our model, we used a binary variable to indicate the presence of the 

20See Tony H. Grubesic and Alan T. Murray, “Waiting for Broadband: Local Competition and 

the Spatial Distribution of Advanced Telecommunication Services in the United States,” 

Growth and Change (2004), 139-165.

21We did not contact officials in Alaska and Hawaii, since the survey data from Knowledge 

Networks/SRI did not include households from these two states.
Page 22 GAO-06-426 Telecommunications

tax; that is, each state was placed into one of two groups, states with a tax 

and states without a tax. As such, this binary variable could potentially 

capture the influence of other characteristics of the states, in addition to 

the influence of the tax. While the parameter estimate in our model had the 

expected sign—indicating that the imposition of taxes may reduce the 

likelihood of broadband deployment—it was not statistically significant.

Certain Critical Technical 

Factors Affect Broadband 

Deployment

Many stakeholders we spoke with commented on issues related to 

technical characteristics of networks that provide broadband. In particular, 

many noted that certain technical characteristics of methods used to 

deliver broadband influence the extent of its availability. In terms of issues 

discussed for established modes of broadband delivery, we were told the 

following:

• DSL service can generally be provided over telephone companies’ 

copper plant to residences and businesses that are within approximately 

3 miles from the telephone company’s facility, known as a central office. 

However, if the quality of the telephone line is not good, the distance 

limit can be reduced—that is, it may only be possible to provide DSL for 

locations within some lesser distance—perhaps 2 miles—from a central 

office. We were told, for example, that in some rural areas, DSL is more 

limited by distance because the telephone lines may be older. While the 

distance limit of DSL can be addressed by deploying certain additional 

equipment that extends fiber further into the network, this process can 

be expensive and time consuming.

• Across spectrum bands used to provide terrestrial wireless broadband 

service, technical characteristics vary: In some cases, signals may travel 

only a short distance, and in other cases, they may travel across an 

entire city; in some cases there may be a need for line-of-sight from the 

transmission tower to the user, but in other cases, the signals may be 

able to travel through walls and trees. Some stakeholders mentioned 

that wireless methods hold great promise for supporting broadband 

service.

• Satellite technology can provide a high-speed Internet service 

throughout most of the United States. However, the most economical 

package of satellite broadband service generally offers, at this time, 

upstream speeds of less than 200 kilobits per second, and therefore this 

service does not necessarily meet FCC’s definition of advanced 

telecommunications services, while it does meet FCC’s definition of 
Page 23 GAO-06-426 Telecommunications

high-speed service. Despite the near universal coverage of satellite 

service, consumers need a clear view of the southern sky to be able to 

receive transmissions from the satellites. Additionally, transmission via 

satellite introduces a slight delay, which causes certain applications, 

such as VoIP (i.e., telephone service over the Internet), and certain 

computer gaming to be ill-suited for use over satellite broadband.

Some emerging or expanding broadband technologies do not currently 

have significant subscribership, but have the potential to be important 

means of broadband service in the coming years. These technologies 

include deep fiber deployment (e.g., fiber to the home), WiMAX, broadband 

over power lines (BPL), and third-generation (3G) cellular. Each of these 

technologies has technical considerations that are influencing the nature of 

deployment. See appendix IV for a discussion of these technologies.

Federal and State 

Government Efforts, and 

Access to Resources at the 

Local Level, Have Impacted 

the Deployment of 

Broadband 

We found that government involvement in several venues, and access to 

resources at the local level, have affected the deployment of broadband 

networks throughout the nation. In particular, we found that (1) certain 

federal programs have provided funding for broadband networks; (2) some 

state programs have assisted deployment; (3) state and local government 

policies, as well as access to resources at the local level, can influence 

broadband deployment; and (4) broadband deployment—particularly in 

more rural settings—is often influenced by the extent of involvement and 

leadership exercised by local government and community officials.

Federal Programs Have Funded 

Broadband Infrastructure

We found that several federal programs have provided significant financial 

assistance for broadband infrastructure.

• The Universal Service Fund (USF) has programs to support improved 

telecommunications services. The high-cost program of the USF 

provides eligible local telephone companies with funds to serve 

customers in remote or rural areas where the cost of providing service is 

higher than the cost of service in more urbanized areas. The high-cost 

funds are distributed to providers according to formulas based on 

several factors, such as the cost of providing service, with funds 

distributed to small rural incumbent local exchange carriers (ILEC) and 

larger ILECs serving rural areas based on different formulas. 

Competitive local exchange carriers can also qualify to receive high-cost 

funds. While high-cost funds are not specifically targeted to support the 

deployment of broadband infrastructure, these funds do support 

telecommunications infrastructure that is also used to provide 
Page 24 GAO-06-426 Telecommunications

broadband services. We were told by some stakeholders in certain states 

that high-cost support has been very important for the upgrade of 

telecommunications networks and the provision of broadband services. 

In particular, some stakeholders in Alaska, Ohio, and North Dakota told 

us that high-cost support has been critical to small telephone 

companies’ ability to upgrade networks and provide broadband 

services. Additionally, the e-rate program of the USF has provided 

billions of dollars in support of Internet connectivity for schools and 

libraries. Another USF program, the Rural Health Care Program, 

provides assistance for rural health facilities’ telecommunications 

services.

• Some programs of the U.S. Department of Agriculture’s Rural Utilities 

Service (RUS) provide grants to improve rural infrastructures providing 

broadband service. The Community Connect Program provides grants 

to deploy transmission infrastructures to provide broadband service in 

communities where no broadband services exist, and requires grantees 

to wire specific community facilities and provide free access to 

broadband services in those facilities for at least 2 years. Grants can be 

awarded to entities that want to serve a rural area of fewer than 20,000 

residents. Approximately $9 million was appropriated in 2004 as well as 

in 2005 for this purpose.

• RUS’s Rural Broadband Access Loan and Loan Guarantee program 

provides loans22 to eligible applicants to deploy infrastructures that 

provide broadband service in rural communities that meet the program’s 

eligibility requirements. A wide variety of entities are eligible to obtain 

loans to serve small rural communities. To obtain a 4 percent loan, the 

applicant must plan on serving a community with no previously 

available broadband service, but loans at the Treasury interest rate do 

not have such a requirement.

• The Appalachian Regional Commission’s Information Age Appalachia 

program focuses on assisting in the development and use of 

telecommunications infrastructure. The program also provides funding 

to assist in education and training, e-commerce readiness, and 

technology-sector job creation. We were told that in Kentucky, funding 

from the commission assisted the development and operations of 

22This program also can provide loan guarantees, but to date, no loan guarantees have been 

requested.

Universal Service Fund

Source: GAO.

The Universal Service Fund facilitates education 

and health care in rural Alaska by providing 

broadband Internet connections. Access to 

broadband connections provides learning 

opportunities for children, such as higher-level 

curriculum, and teacher certification programs. 

Additionally, it facilitates health care by allowing 

more immediate care in local villages rather than 

requiring long trips to a larger clinic or hospital.
Page 25 GAO-06-426 Telecommunications

ConnectKentucky, a state alliance that focuses on broadband 

deployment and adoption. The Appalachian Regional Commission also 

provided some funding for projects in Ohio and Virginia.

Various State Programs Assist 

the Deployment of Broadband 

Services 

A number of states we visited have had programs to assist the deployment 

of broadband services, including the following: 

• The Texas Telecommunications Infrastructure Fund began in 1996 and 

according to an official of the Texas Public Utility Commission 

committed to spend $1 billion on telecommunications infrastructure in 

Texas. Public libraries, schools, nonprofit medical facilities, and higher 

education institutions received grants for infrastructure and 

connectivity to advanced communications technology. The program is 

no longer operational.

• ConnectKentucky is an alliance of technology-focused businesses, 

government entities, and universities that work together to accelerate 

broadband deployment in the state. ConnectKentucky focuses on three 

goals: (1) raising public awareness of broadband services, (2) creating 

market-driven strategies to increase demand—particularly in rural 

areas, and (3) initiating policy to reduce regulatory barriers to 

broadband deployment.

• The Virginia Tobacco Indemnification and Community Revitalization 

Commission partially funded Virginia’s Regional Backbone Initiative. 

The backbone initiative is designed to stimulate economic development 

opportunities by encouraging the creation of new technology-based 

business and industry in southern Virginia, which has historically relied 

heavily on tobacco production.

Local Issues and Access to 

Resources Impact the 

Deployment of Broadband 

Services

The ability of a company to access local rights-of-way, telephone and 

electric poles, and wireless-tower sites can influence the deployment of 

broadband service. In particular, a few stakeholders we spoke with said 

difficulty in gaining access to these resources can serve as a barrier to the 

rapid deployment of broadband service because accessing these resources 

was a time-consuming and expensive process. Companies often require 

access to rights-of-way—such as areas along public roads—in order to 

install infrastructure for broadband service. In some instances, companies 

can face challenges gaining access to rights-of-way, which can hinder 

broadband deployment. For example, we were told that in one California 

community, providers had difficulty bringing wires across a highway, which 

limited their ability to provide service in all areas of the community. Some 
Page 26 GAO-06-426 Telecommunications

companies also require access to telephone and electric poles to install 

their broadband infrastructure. Depending on the entity owning the pole, 

we were told that acquiring access to poles could be costly and time 

consuming. For example, one BPL provider told us that it encountered 

difficulty accessing poles owned by the telephone company. Finally, 

wireless companies need access to towers or sites on which they can install 

facilities for their broadband infrastructure. A few stakeholders we spoke 

with told us that gaining this access can be a difficult process. For example, 

one company said providers are often challenged by the need to learn each 

town’s tower-siting rules. While some stakeholders identified problems 

gaining access to these resources, other stakeholders did not identify 

access to rights-of-way, poles, and other resources as issues in deploying 

broadband services.

We found that the video-franchising process can also influence the 

deployment of broadband service because companies may be building 

infrastructure to simultaneously provide both video and broadband 

services. To provide video service, such as cable television, companies 

usually must obtain a franchise agreement from a local government. Some 

stakeholders assert that the video-franchising process can delay the 

deployment of broadband service because providers must negotiate with a 

large number of local jurisdictions. Further, these negotiations can be time 

consuming and costly. As a result, these stakeholders believe that local 

franchising can hinder their ability to deploy broadband infrastructures. 

Alternatively, some stakeholders believe that the video-franchising process 

is important because it helps promote deployment of broadband service to 

all areas of a community. For example, some jurisdictions have ubiquity 

requirements mandating deployment to all areas of a community, including 

those that are less affluent. These stakeholders argue that without the local 

ubiquity requirement, service providers could “cherry pick” and exclusively 

provide broadband services to more economically desirable areas.

In some instances, municipal governments provide broadband 

infrastructure and service. For example, we spoke with officials in five 

municipal governments that provide wire-based broadband service, often 

in conjunction with the government’s electric utility. We also spoke with 

one municipal government that provided wireless broadband service. A 

few of these municipal government officials told us that their municipality 

had undertaken this deployment because they believe that their 

communities either do not have, or do not have adequate, private 

broadband service. A significant number of stakeholders we interviewed 

support a municipality’s right to provide broadband services and believe 
Page 27 GAO-06-426 Telecommunications

that broadband service is a public utility, such as water and sewer. Some 

support municipal deployment of broadband, regardless of whether other 

providers are available in that area, while other stakeholders support a 

municipality’s right to deploy broadband service only if there are no other 

broadband providers serving the area. However, other stakeholders we 

spoke with oppose municipal government deployment of broadband 

service. These stakeholders believe that municipal governments are not 

prepared to be in the business of providing broadband and that municipal 

deployment can hinder private-sector deployment.

Community Leadership 

Encourages the Deployment of 

Broadband Services 

We found that the cost of serving rural areas presents a challenge to the 

nationwide goal of universal access to broadband. One of the ways that 

some communities have addressed the lack of market entry into rural areas 

has been through initiatives wherein community leaders have worked to 

enhance the likely market success of private providers’ entry into rural 

broadband markets. For example, some community leaders have worked 

to aggregate demand—that is, to coordinate the Internet needs of various 

users so that a potential entrant would be able to support a business plan. 

We were told that this leadership—sometimes by key government officials, 

sometimes through partnerships—was seen as critical in helping to spur 

the market in some unserved areas.23 The following examples illustrate this 

point: 

• In Massachusetts, several regional coalitions that have been called 

“connect” projects focus on demand aggregation as a tool to encourage 

further deployment of telecommunications backbone and broadband 

networks in more rural parts of the state that were not well served by 

broadband providers. In particular, three such regional groups said their 

demand aggregation model is designed to maximize the purchase of 

broadband services in their region by working with local hospitals, 

schools, home businesses, small business, and residents to demonstrate 

the full extent of the demand for broadband and thus encourage private 

investment in infrastructure. For the one project that was the most 

developed, a few stakeholders told us that the group had been critical in 

helping to spur infrastructure development in the area, and that 

23A recent GAO report, Telecommunications: Challenges to Assessing and Improving 

Telecommunications for Native Americans on Tribal Lands, GAO-06-189 (Washington,

D.C.: Jan. 11, 2006) discusses how leadership in a community can help to improve 

telecommunications services on tribal lands. The report provides several examples of tribes 

addressing the barriers to deployment of telecommunications networks by partnering with 

private entities, providing technical training, and taking initiative to access federal grants.

Berkshire Connect Attracts Deployment to

Western Massachusetts

Source: Berkshire Connect, Inc.

Berkshire Connect, Inc. was founded to respond to 

the lack of reliable and affordable T-1 service for 

businesses in the Berkshire region of 

Massachusetts. The organization aggregates

demand for broadband service among users in the 

region, such as hospitals, schools, large and small 

businesses, and nonprofit organizations. Through 

a request for proposal process, the organization 

selected “preferred providers” that offer members

of Berkshire Connect an array of advanced 

telecommunications services at competitive 

prices. Berkshire Connect’s primary goals are to 

provide and ensure competitive pricing, equal 

pricing throughout Berkshire County, sustained 

competition, and a community focus regarding the 

provision of telecommunications services.
Page 28 GAO-06-426 Telecommunications

leadership by State government was important to the development of 

the initiative.

• ConnectKentucky, as discussed earlier, is an example of a state coalition 

taking a leadership role to develop information on state deployment 

levels, educate citizens about the benefits of broadband service, and 

advocate broadband-friendly policies with the state legislature. 

Throughout our meetings in Kentucky, the work of ConnectKentucky 

was stated to have been instrumental in the development of a common 

understanding of the state of broadband deployment and adoption as 

well as in instigating new initiatives to advance the market. The key 

element of ConnectKentucky that was cited as crucial to its success was 

leadership from state government, in particular from the governor’s 

office.

• In Alaska, we found that in one remote area—Kotzebue, a community 26 

miles above the Arctic Circle—strong local leadership was important to 

the development of a public-private partnership that provides improved 

medical care to the region. The local leadership from the health 

cooperative brought together parties in the community and worked with 

them to develop a plan to provide enhanced health service throughout 

the community’s villages. The Maniilaq Health Center uses a wireless 

“telecart” with a video camera that can send high-quality, real-time 

sound and video between the center and Anchorage. The center’s 

physicians are able to perform procedures under the guidance of 

experts in Anchorage who can “remotely” look over the physicians’ 

shoulders. In addition, there are village clinics staffed by trained village 

health aides. These village clinics are connected to the main health 

center via a broadband link that allows them to share records and 

diagnoses via the telecart. 

A Variety of Household 

and Service 

Characteristics 

Influence the Adoption 

of Broadband

We developed an econometric model to assess the many factors that might 

influence whether a household purchases broadband service. The model 

examined two types of factors: the tax status of states in which 

respondents live, and the characteristics of households. We also discussed 

these issues, as well as the influence of characteristics and uses of 

broadband service, with stakeholders.

Based on our model and interviews with stakeholders, we identified 

several characteristics of households that influence broadband adoption. 
Page 29 GAO-06-426 Telecommunications

First, our model indicated that high-income households are 39 percentage 

points more likely to purchase broadband service than are low-income

households.24 Similarly, some stakeholders we spoke with stated that 

adoption of broadband service is more widespread in communities with 

high income levels. A key underlying factor may be that computer 

ownership is substantially higher among higher-income households, 

according to a survey conducted by the Census Bureau. Second, our model 

results showed that households with a college graduate are 12 percentage 

points more likely to subscribe to broadband services compared with 

households without a college graduate. In fact, when discussing the effects 

of education on the demand for broadband, we were told that some college 

graduates see broadband as a necessity and would be less likely to choose 

to live in a rural area that did not have adequate broadband facilities. Third, 

we found that households headed by young adults are more likely to 

purchase broadband than are households headed by a person 50 or older.25

Similarly, a few stakeholders we spoke with said that older adults are less 

likely to purchase broadband. This may be the case because older 

Americans generally have lower levels of computer ownership and 

computer familiarity. We also were told that households with children in 

school are more likely to have broadband service. Figure 4 provides some 

descriptive statistics to illustrate the relationship between several 

demographic characteristics and the adoption of broadband.

24“High-income households” were defined as those having incomes in top 25 percent of all 

households, while “low-income households” were defined as those having incomes in the 

bottom 25 percent of all households.

25We define “young adults” as people between the ages of 18 and 33.
Page 30 GAO-06-426 Telecommunications

Figure 4: Factors Influencing Subscription to Broadband

We also examined whether households residing in rural areas were less 

likely to purchase broadband service than those living in urban areas. As 

noted earlier, we found that only 17 percent of rural households subscribe 

to broadband service. Our model indicated, however, that when the 

availability of broadband to households, as well as demographic 

characteristics, are taken into account, rural households no longer appear 

less likely than urban households to subscribe to broadband. That is, the 

difference in the subscribership to broadband among urban and rural 

households appears to be related to the difference in availability of the 

service across these areas, and not to a lower disposition of rural 

households to purchase the service.

In addition to household characteristics, we also found that characteristics 

and uses of broadband service available to consumers can also influence 

the extent to which households purchase broadband service.

• Some stakeholders we spoke with mentioned that the price of 

broadband service is an important factor affecting a household’s 

Source: GAO analysis of Knowledge Networks/SRI’s The Home Technology MonitorTM: Spring 2005 Ownership and Trend Report.

11.4

27.9

46.9

0.0

62.0

14.7

44.2

29.7

41.6

23.0

41.4

0

10

20

30

40

50

60

70

Percent of households

50+

 18-34

35-49

College graduate

Some college

High school

graduate

Less than high

s

$100,000 or

chool

 more

$50,000-$99,900

$30,000-$49,900

$29,900 or less

Income Education Age
Page 31 GAO-06-426 Telecommunications

decision to purchase this service. Some stakeholders mentioned, for 

example, that one of the key reasons for the recent surge in DSL 

subscribership is due to recent price declines for the service: Some 

providers are now offering DSL for less than $15 per month. Conversely, 

because satellite broadband service is expensive and also requires the 

upfront purchase of expensive equipment needed to receive the satellite 

signal, several of those we spoke with said that the expense of satellite 

broadband deters its purchase. In fact, a recent study suggests that 

areas served by multiple providers, where prices may tend to be lower, 

may have higher rates of broadband adoption.26 However, because we 

lacked data on the price of broadband service, we were unable to 

include this variable in our econometric model.27 We did not find that the 

number of companies providing broadband service affected the 

likelihood that a household would purchase broadband service.

• Some stakeholders also told us that the availability of applications and 

content not easily accessible through dial-up, as well as the degree to 

which consumers are aware of and value this availability, contribute to a 

household’s decision to adopt broadband. For example, some functions, 

applications, and content—such as gaming, VoIP, and music and video 

downloads—either need or function much more effectively with 

broadband service than with dial-up service and, as such, make 

broadband a major attraction for households that value these types of 

services and content. Alternatively, some applications, such as e-mail, 

function adequately with dial-up service, and for households that 

primarily use the Internet for e-mail, there may be little need to upgrade 

to broadband service. Several of those we spoke with noted that a “killer 

application”—one that nearly everyone would view as essential and 

might entice more American households to adopt broadband—has not 

yet emerged.

• We also examined whether the tax status of the state in which each 

survey respondent lived influenced their likelihood to adopt broadband 

service. As mentioned earlier, we used a binary variable to represent the 

26See Debra J. Aron and David E. Burnstein, “Broadband Adoption in the United States: An 

Empirical Analysis” (paper presented at the 31st Annual Telecommunications Policy 

Research Conference, Arlington, Va., 2003).

27We recognize that our model does not fully include all the variables that would influence 

the adoption decision. As such, the parameter estimates will be biased. We are unable to 

assess the possible extent of this bias.
Page 32 GAO-06-426 Telecommunications

presence of Internet taxation. As such, the variable may capture the 

influence of other characteristics of the states in which the households 

resided, in addition to the influence of the tax. Further, lacking a 

variable for the price of broadband service, we cannot assess how the 

imposition of the tax influenced the price of the service. Using our 

model, we found that the parameter estimate had the expected sign—

indicating that the imposition of the tax may have reduced the 

likelihood that a household would purchase broadband service. While 

the estimate was not statistically significant at the 5 percent level, it was 

statistically significant at the 10 percent level, perhaps suggesting that it 

is a weakly significant factor. However, given the nature of our model, it 

is unclear whether this finding is related to the tax or other 

characteristics of the states in which households resided.

Stakeholders Identified 

Several Options to 

Address the Lack of 

Broadband in Certain 

Areas, but Challenges 

Exist with 

Implementation

Stakeholders we spoke with identified several options to facilitate greater 

broadband service in unserved areas; however, each option poses special 

challenges. RUS broadband programs provide a possible means for 

targeted assistance to unserved areas, but stakeholders raised concerns 

about the effectiveness of the loan program and its eligibility criteria. USF 

programs have indirectly facilitated broadband deployment in rural areas, 

but it is unclear whether the program should be expanded to directly 

support broadband service. Finally, wireless technologies could help 

overcome some of the cost and technological limitations to providing 

service in remote locations, but congestion and the management of the 

spectrum remain possible barriers.

RUS Broadband Programs 

Could Provide a Source of 

Targeted Assistance, but 

Stakeholders Identified 

Several Concerns with the 

Programs

As mentioned earlier, RUS provides support through grants and loans to 

improve rural infrastructures providing broadband service. The 

Community Connect Broadband grant program provides funding for 

communities where no broadband service currently exists. One loan 

program, which provides loans at 4 percent, also requires that no existing 

broadband providers be present in a community, but loans at the Treasury 

interest rate are available to entities that plan to serve communities with 

existing broadband service. Several stakeholders with whom we spoke, as
Page 33 GAO-06-426 Telecommunications

well as the findings of a recent report by the Inspector General (IG) of the 

Department of Agriculture, raised concerns about these programs:28

• Effectiveness of loans. It is not clear whether a loan program—such 

as the RUS loan program—is effective for helping rural areas gain 

access to broadband services. RUS requires applicants to submit an 

economically viable business plan—that is, applicants must show that 

their business will be sufficiently successful such that the applicant will 

be capable of repaying the loan. But developing a viable broadband 

business plan can be difficult in rural areas, which have a limited 

number of potential subscribers. As a result, RUS has rejected many 

applications because the applicant could not show that the business 

plan demonstrated a commercially viable and sustainable business. In 

fact, the agency has been unable to spend all of its loan program funds. 

Since the inception of the program in 2002, the agency has fallen far 

short of obligating the available funding in this program. For example, 

RUS officials told us that in 2004, they estimated that the appropriations 

for the broadband loan program could support approximately $2.1 

billion in loans, but only 28 percent of this amount—or $603 million—

was awarded for broadband projects. RUS officials also told us that its 

2005 appropriations could support just over $2 billion in loans, but only 

5 percent—or $112 million—was awarded to broadband projects. One 

stakeholder we spoke with suggested that a greater portion of RUS 

funds should be shifted from loans to grants in order to provide a more 

significant level of assistance for rural broadband deployment. RUS 

officials noted that they are currently evaluating the program and 

recognize that the program criteria limit the ability of the agency to 

utilize their full loan funding. 

• Competitive environment requirements. During our interviews, 

some stakeholders expressed concerns about how the presence of 

existing broadband deployment was considered in evaluating RUS grant 

and loan applications. In the case of the grant program, RUS approves 

applications only for communities that have no existing broadband 

service. Some local government officials and a company we spoke with 

noted that this “unserved” requirement for RUS grants can disqualify 

certain rural communities that have very limited Internet access—

28U.S. Department of Agriculture, Office of Inspector General, Audit Report: Rural Utilities 

Service Broadband Grant and Loan Programs, Audit Report 09601-4-Te (Washington, D.C., 

Sept. 30, 2005).
Page 34 GAO-06-426 Telecommunications

perhaps in only one small part of a community.29 Alternatively, regarding 

the Treasury rate loan program, a few providers and the IG’s report 

criticized the program for supporting the building of new infrastructure 

where infrastructure already existed. In particular, we learned that loans 

were being let for deployment in areas that already had at least one 

provider and in some cases had several providers. As such, it is not clear 

whether these funds are being provided to communities most in need. 

RUS officials noted, however, that the statute specifically allows such 

loans. Additionally, the issue of how the status of existing service is 

gauged was a concern for one provider we spoke with. RUS obtains 

information about existing providers from applicants, and agency 

officials told us that agency field representatives review the veracity of 

information provided by applicants during field visits. However, RUS 

officials told us that FCC zip-code data is not granular enough for their 

needs in evaluating the extent of broadband deployment in rural areas.

• Community eligibility. A few local officials we spoke with criticized 

the community size and income eligibility requirements for the grant 

and loan programs. In Massachusetts, one stakeholder said that most 

small towns in part of that state exceed RUS’s population requirements 

and thus do not qualify for grants or loans. The grant and loan programs 

also have per-capita personal income requirements. One service 

provider in Alaska said that the grant program income eligibility 

requirements can exclude Alaskan communities, while failing to take 

into account the high cost of living in rural Alaska.

• Technological neutrality. Satellite companies we spoke with said 

RUS’s broadband loan program requirements are not readily compatible 

with their business model or technology. Once a company launches a 

satellite, the equipment that individual consumers must purchase is the 

remaining infrastructure expense. Because the agency requires 

collateral for loans, the program is more suited for situations where the 

providers, rather than individual consumers, own the equipment being 

purchased through the loan. Yet, when consumers purchase satellite 

broadband, it is common for them to purchase the equipment needed to 

receive the satellite signal, such as the reception dish. Additionally, 

broadband service must be provided at a speed of at least 200 kilobits in 

both directions—which is not necessarily the case for satellite 

29According to RUS officials, demand for the grant program exceeds available funding under 

the current program requirements.
Page 35 GAO-06-426 Telecommunications

broadband—for it to qualify for RUS loans. Moreover, RUS officials 

noted that for satellite broadband providers to be able to access RUS 

loans, they would have to demonstrate that each customer lives in a 

community that meets the community size eligibility requirement. As 

such, this program may not be easily utilized by satellite broadband 

providers. Yet for some places, satellite could be a cost-effective 

mechanism to provide broadband infrastructure into rural areas. For 

example, in 2005, the RUS Community Connect program provided 

grants to 19 communities that average 554 residents and 194 

households. The total cost of these grants was roughly $9 million. Thus, 

RUS spent an average of $2,443 per covered household,30 but the cost 

per household that adopted broadband would be even higher since only 

a subset of these households would choose to subscribe to broadband 

service. By contrast, two satellite providers we spoke with estimate that 

their consumer equipment and installation costs are roughly $600 per 

subscribing household. These figures might not fully represent the full 

nature of the services provided through the grant program and those 

available via satellite; for example, grantees of the RUS program are 

required to provide free Internet service to community centers.

USF Programs Indirectly 

Support Broadband Service, 

but Several Stakeholders 

Expressed Concerns

While the USF program does not directly fund broadband service, the 

funding provided to support telecommunications networks indirectly 

supports the development of infrastructure that can provide many 

communications services, including broadband. USF’s high-cost program 

helps maintain and upgrade telecommunications networks in rural areas. 

Three stakeholders we spoke with in Alaska, Ohio, and North Dakota 

attributed the relative success of broadband deployment in rural areas to 

the USF program. Additionally, the Schools and Libraries Program and the 

Rural Health Care Program help facilitate broadband service to specific 

locations; according to two providers in Alaska, these programs have been 

very beneficial in bringing some form of broadband service to rural Alaskan 

villages that might have received no service without these government 

programs.

However, stakeholders we spoke with identified several concerns about 

the USF program: 

30RUS officials noted that many different technologies were used in these 19 communities, 

so that the cost per household varied considerably across the grant recipients.
Page 36 GAO-06-426 Telecommunications

• Large ILECs serving rural areas and rural ILECs receive high-cost fund 

support under different formulas. The two types of ILECs have different 

eligibility criteria under which they can qualify to receive high-cost 

support and more support is provided to rural companies than to 

nonrural companies serving rural areas.31 Two stakeholders we spoke 

with suggested that the eligibility criteria should be modified, such that 

the criteria better reflect the cost to provide service in particular areas, 

rather than the type of company providing the service. Alternatively, two 

stakeholders we spoke with favor the current eligibility criteria and 

funding mechanism. 

• Two stakeholders we spoke with expressed concerns about a lack of 

coordination across USF funding sources, which could lead to 

inefficient use of funds and inadequate leveraging of funds. For 

example, in Alaska, two stakeholders noted that governments and 

providers receive “silos” of funding for schools, libraries, and rural 

health centers. Because the programs are narrowly defined, multiple 

entities might be the recipient of funding for broadband service, which 

could lead to multiple broadband connections in relatively small rural 

communities. One stakeholder noted that since each entity might use 

only a fraction of its available broadband capacity, there can be capacity 

for Internet traffic available for other uses or users, but funding 

recipients are sometimes not allowed to share this capacity, either with 

other entities or with residents in the community. Thus, communities 

may be unable to leverage the available funding for other uses.

• While two stakeholders we spoke with suggested expanding the USF 

program to include broadband service, we found little support for this 

overall. Some stakeholders we spoke with expressed concern about 

funding the USF program at current levels of support. These 

stakeholders fear that expanding the USF program to include 

broadband service, which would increase program expenditures and 

thus require additional funding, could undermine support for the entire 

USF program.

31For rural ILECs, the cost of service is based on “embedded costs”—or the historical costs 

of infrastructure, which is used to provide a variety of communications services. For 

nonrural ILECs, the cost of service is based on the forward-looking costs of providing only 

certain telecommunications services.
Page 37 GAO-06-426 Telecommunications

Resolving Spectrum 

Congestion and 

Management Concerns 

Could Facilitate Greater 

Wireless Broadband Service

As mentioned previously, certain wireless technologies hold the potential 

for supporting broadband service in difficult-to-serve rural areas. In less 

densely populated areas, installing wire-based facilities for cable modem 

and DSL service represents a significant cost factor. Therefore, certain 

wireless technologies may be a lower-cost way to serve rural areas than 

wireline technologies.

While wireless technologies hold the promise of expanding the availability 

of broadband, some stakeholders we spoke with expressed concern about 

the degree of congestion in certain bands as well as the management of 

spectrum. For example, in some geographic areas, we heard that 

congestion in certain unlicensed spectrum bands makes providing wireless 

broadband Internet access more difficult, and a few stakeholders said that 

with more unlicensed spectrum, wireless providers could support greater 

broadband deployment. Additionally, wireless providers we spoke with 

also expressed concern about the management of spectrum, particularly 

the quality of certain bands and quantity of spectrum available for wireless 

broadband service. Two stakeholders mentioned that spectrum allocated to 

wireless broadband service is susceptible to having communications 

obstructed by interference from trees and buildings. In a 2005 report, we 

noted that experts agreed that the government should evaluate its 

allocation of spectrum between licensed and unlicensed uses.32 But we also 

noted that these experts failed to agree on whether FCC should dedicate 

more or less spectrum to unlicensed uses. In June 2006, FCC will conduct 

an auction of spectrum dedicated to advanced wireless services, which will 

make available 90 MHz of spectrum for wireless broadband services. FCC 

staff also noted that the commission has other efforts underway to increase 

available spectrum for wireless broadband services.

Conclusion In the past several years, the importance of broadband for Americans and 

for the American economy has been articulated by interested stakeholders, 

as well as by the President, Congress, and the last several FCC chairmen. 

Universal availability of broadband has been set forth as a policy goal for 

the near term—2007. And progress toward this goal has been substantial. 

The availability of broadband to residential consumers has grown from its 

32See GAO, Telecommunications: Strong Support for Extending FCC’s Auction Authority 

Exists, but Little Agreement on Other Options to Improve Efficient Use of Spectrum,

GAO-06-236 (Washington, D.C.: Dec. 20, 2005).
Page 38 GAO-06-426 Telecommunications

nascent beginnings in the latter part of the 1990s to broad coverage 

throughout the country. In the last 10 years, providers in traditional 

communications industry segments—telephone and cable—have upgraded 

and redesigned miles of their networks in order to offer broadband 

services. The provision of broadband through various wireless means, as 

well as over the existing electricity infrastructure, have also been 

developed, and for many, if not most Americans, the burgeoning broadband 

marketplace is characterized by competitive choice in broadband access 

and creative and ever-expanding applications and content. Many would 

consider the rollout of broadband infrastructure as a success story of 

entrepreneurial initiative.

But not all places or people have experienced the full benefits of this rapid 

rollout of broadband services. As with many other technologies, the costs 

of bringing broadband infrastructure to rural America can be high. For 

private providers who must weigh the costs and returns of their 

investments, the feasibility of serving the most rural parts of our country 

may not work within a reasonable business model. While there are federal 

support mechanisms for rural broadband, it is not clear how much impact 

these programs are having or whether their design suggests a broad 

consideration of the most effective means of addressing the problem. And 

one of the difficulties of assessing the gaps in deployment and where to 

target any federal support is that it is hard to know exactly where 

broadband infrastructure has not been deployed. FCC does collect data on 

the geographic extent of providers’ service, but these data are not 

structured in a way that accurately illustrates the extent of deployment to 

residential users. Without accurate, reliable data to aid in analysis of the 

existing deployment gaps, it will be difficult to develop policy responses 

toward gaps in broadband availability. This could hinder our country’s 

attainment of universally available broadband. And as the industry moves 

quickly to even higher bandwidth broadband technologies, we risk leaving 

some of the most rural places in America behind.

Recommendation for 

Executive Action 

In a draft of this report provided to FCC for review and comment, GAO 

recommended that FCC identify and evaluate strategies for improving the 

477 data such that the data provide a more accurate depiction of residential 

broadband deployment throughout the country. In oral comments 

regarding this recommendation, FCC staff acknowledged that the 477 data 

have some limitations in detailing broadband deployment, but also noted 

that there had recently been a proceeding examining its broadband data 

collection efforts and that some changes to the data collection had been 
Page 39 GAO-06-426 Telecommunications

implemented. In that proceeding, the commission also determined that it 

would be costly and could impose large burdens on filers—particularly 

small entities—to require any more detailed filings on broadband 

deployment. Although FCC staff told us that analysis of potential costs had 

been conducted, exact estimates of these costs and burdens have not yet 

been determined. Moreover, many have expressed concern about ensuring 

that all Americans—especially those in rural areas—have access to 

broadband technologies. Policymakers concerned about full deployment of 

broadband throughout the country will have difficulty targeting any 

assistance to that end without accurate and reliable data on localized 

deployment. As such, we recommend that FCC develop information 

regarding the degree of cost and burden that would be associated with 

various options for improving the information available on broadband 

deployment and should provide that information to the Senate Committee 

on Commerce, Science, and Transportation and the House Energy and 

Commerce Committee in order to help them determine what actions, if any, 

are necessary to employ going forward.

Agency Comments and 

Our Evaluation

We provided a draft of this report to the Department of Agriculture, the 

Department of Commerce, and the Federal Communications Commission 

for their review and comment. The Department of Agriculture provided no 

comments. The Department of Commerce and FCC provided technical 

comments that we incorporated, as appropriate. FCC did not comment on 

the final recommendation contained in this report.

We also provided a draft of this report to several associations representing 

industry trade groups and state and local government entities for their 

review and comment. Specifically, the following associations came to GAO 

headquarters to review the draft: Cellular Telecommunications and Internet 

Association (CTIA), National Association of Regulatory Utility 

Commissioners (NARUC), National Association of Telecommunications 

Officers and Advisors (NATOA), National Cable and Telecommunications 

Association (NCTA), National Telecommunications Cooperative 

Association (NTCA), Satellite Industry Association (SIA), US Internet 

Industry Association (USIIA), United States Telecom Association (USTA), 

and Wireless Internet Service Providers Association (WISPA). Officials 

from CTIA, NARUC, and NTCA did not provide comments. Officials from 

NATOA, NCTA, SIA, and USIIA provided technical comments that were 

incorporated, as appropriate. USTA and WISPA provided comments that 

are discussed in appendix V.
Page 40 GAO-06-426 Telecommunications

We are sending copies of this report to the appropriate congressional 

committees and to the Secretary of Agriculture, the Secretary of 

Commerce, and the Chairman of the Federal Communications 

Commission. We will also make copies available to others upon request. In 

addition, the report will be available at no charge on the GAO Web site at 

http://www.gao.gov. 

If you have any questions about this report, please contact me at (202) 512-

2834 or heckerj@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. 

Contact information and major contributors to this report are listed in 

appendix VI.

JayEtta Z. Hecker

Director, Physical Infrastructure Issues
Page 41 GAO-06-426 Telecommunications

Appendix I

Scope and Methodology AAppenednxidexiIs

The objectives of the report were to provide information on (1) the current 

status of broadband deployment and adoption, (2) the factors that 

influence the deployment of broadband networks, (3) the factors that 

influence the adoption of broadband service by households, and (4) the 

options that have been suggested to spur greater broadband deployment 

and adoption. To respond to the four objectives, we used a variety of 

approaches.

To gather opinions for all four objectives, we employed a case-study 

approach. This approach allowed us to identify issues at the state and local 

level that would not be apparent in nationwide data. We selected eight 

states for our case studies: Alaska, California, Kentucky, Massachusetts, 

North Dakota, Ohio, Texas, and Virginia. We selected these states based on 

Census Bureau data on statewide income, urbanization, population density, 

and percentage of households using the Internet. We also considered 

whether each state taxed Internet access. We sought to include states in 

diverse categories of each of our selection criteria. In each state, we 

interviewed state and local officials, including local franchising authorities, 

state public utility regulators, representatives from state governor’s offices; 

associations; private cable and telephone providers; wireless Internet 

service providers; and municipal and cooperative telecommunications 

providers.

We also spoke with a variety of individuals and organizations 

knowledgeable about broadband services. In particular, we spoke with 

industry providers, trade associations, and academic experts. We also 

spoke with representatives from the Federal Communications Commission 

(FCC), the National Telecommunications and Information Administration 

of the Department of Commerce, and the Rural Utilities Service of the 

Department of Agriculture.

To assess the factors influencing the deployment and adoption of 

broadband, we used survey data from Knowledge Networks/SRI’s The 

Home Technology MonitorTM: Spring 2005 Ownership and Trend Report. 

Knowledge Networks/SRI is a survey research firm that conducted a survey 

on household ownership and use of consumer electronics and media. 

Knowledge Networks/SRI interviewed approximately 1,500 randomly 

sampled telephone households, asking questions about the household’s 

purchase of computers and Internet access. All percentage estimates from 

the Knowledge Networks/SRI survey have margins of error of plus or minus 

7 percentage points or less, unless otherwise noted. See appendix II for a 

discussion of the steps we took to evaluate the reliability of Knowledge 
Appendix I

Scope and Methodology

Page 42 GAO-06-426 Telecommunications

Networks/SRI’s data. Using the data from Knowledge Networks/SRI, we 

estimated two econometric models. One model examined the factors 

affecting broadband deployment. We also developed a model to examine 

the factors affecting a household’s adoption of broadband services. See 

appendix III for a more detailed explanation of, and results from, our 

deployment and adoption models.

To assess the status of broadband deployment, we used FCC’s Form 477 

data that identified companies providing broadband service by zip code. 

We used FCC’s data to identify the companies reporting to provide 

broadband service in the zip codes where respondents to Knowledge 

Networks/SRI’s survey resided. To assess the reliability of FCC’s Form 477 

data, we reviewed documentation, interviewed knowledgeable officials, 

and performed electronic testing of the data elements used in our analyses. 

We made several adjustments to these data, such as excluding satellite 

companies and companies only providing service to businesses. See 

appendix III for more on our methodology concerning adjustment to FCC’s 

477 data. With these adjustments to the data, we determined that they were 

sufficiently reliable for the purposes of this report.

We conducted our work from April 2005 through February 2006 in 

accordance with generally accepted government auditing standards.
Page 43 GAO-06-426 Telecommunications

Appendix II

Data Reliability ApendxiI

To obtain information on the types of Internet access purchased, or 

adopted, by U.S. households, we purchased existing survey data from 

Knowledge Networks Statistical Research (Knowledge Networks/SRI). 

Their survey was completed with 1,501 of the estimated 3,127 eligible 

sampled households for a response rate of 48 percent. The survey was 

conducted between February 22 and April 15, 2005.

The study procedures yielded a sample of members of telephone 

households in the continental United States using a national random-digit 

dialing method. Survey Sampling Inc. (SSI) provided the sample of 

telephone numbers, which included both listed and unlisted numbers and 

excluded blocks of telephone numbers determined to be nonworking or 

business-only. At least five calls were made to each telephone number in 

the sample to attempt to interview a responsible person in the household. 

Special attempts were made to contact refusals and convert them into 

interviews; refusals were sent a letter explaining the purpose of the study 

and an incentive. Data were obtained from telephone households and are 

weighted to the total number of households in the 2005 Current Population 

Survey adjusted for multiple phone lines. 

As with all sample surveys, this survey is subject to both sampling and 

nonsampling errors. The effect of sampling errors due to the selection of a 

sample from a larger population can be expressed as a confidence interval 

based on statistical theory. The effects of nonsampling errors, such as 

nonresponse and errors in measurement, may be of greater or lesser 

significance but cannot be quantified on the basis of available data.

Sampling errors arise because of the use of a sample of individuals to draw 

conclusions about a much larger population. The study’s sample of 

telephone numbers is based on a probability selection procedure. As a 

result, the sample was only one of a large number of samples that might 

have been drawn from the total telephone exchanges from throughout the 

country. If a different sample had been taken, the results might have been 

different. To recognize the possibility that other samples might have 

yielded other results, we express our confidence in the precision of our 

particular sample’s results as a 95 percent confidence interval. We are 95 

percent confident that when only sampling errors are considered each of 

the confidence intervals in this report will include the true values in the 

study population. All percentage estimates from the survey have margins of 

error of plus or minus 7 percentage points or less, unless otherwise noted. 

The 95 percent confidence interval for the estimate of the total number of 
Appendix II

Data Reliability

Page 44 GAO-06-426 Telecommunications

U.S. households that subscribed to broadband service in 2005 is 28.5 

million to 33.7 million households.

In addition to the reported sampling errors, the practical difficulties of 

conducting any survey introduce other types of errors, commonly referred 

to as nonsampling errors. For example, questions may be misinterpreted, 

some types of people may be more likely to be excluded from the study, 

errors could be made in recording the questionnaire responses into the 

computer-assisted telephone interview software, and the respondents’ 

answers may differ from those who did not respond. Knowledge 

Networks/SRI has been fielding versions of this survey for over 20 years. In 

addition, to reduce measurement error, Knowledge Networks/SRI employs 

interviewer training, supervision, and monitoring, as well as computerassisted interviewing to reduce error in following skip patterns.

For this survey, the 48 percent response rate is a potential source of 

nonsampling error; we do not know if the respondents’ answers are 

different from the 52 percent who did not respond. Knowledge 

Networks/SRI took steps to maximize the response rate—the questionnaire 

was carefully designed and tested through deployments over many years, 

at least five telephone calls were made at varied time periods to try to 

contact each telephone number, the interview period extended over about 

8 weeks, and attempts were made to contact refusals and convert them into 

interviews.

Because we did not have information on those contacted who chose not to 

participate in the survey, we could not estimate the impact of the 

nonresponse on our results. Our findings will be biased to the extent that 

the people at the 52 percent of the telephone numbers that did not yield an 

interview have different experiences with Internet access than did the 48 

percent of our sample who responded. However, distributions of selected 

household characteristics (including presence of children, race, and 

household income) for the sample and the U.S. Census estimate of 

households show a similar pattern.

To assess the reliability of these survey data, we relied on a prior GAO 

report that made use of the Knowledge Networks/SRI 2004 survey for a 

similar purpose. In that prior assessment, we determined that the data were 

sufficiently reliable for our purposes. For this report we reviewed 

Knowledge Networks/SRI’s documentation of survey procedures for 2005 

and compared them to the procedures used in their 2004 survey. We 

determined that their survey methodology was substantively unchanged. 
Appendix II

Data Reliability

Page 45 GAO-06-426 Telecommunications

Additionally, we performed electronic testing of the 2005 survey data 

elements used in this report. We determined that the data were sufficiently 

reliable for the purposes of this report.
Page 46 GAO-06-426 Telecommunications

Appendix III

Broadband Deployment and Adoption Models ApendxiI

This appendix describes our models of broadband deployment and 

adoption. Specifically, we discuss (1) the design of our models, (2) the data 

sources, (3) our methodology for assessing broadband deployment, and (4) 

the estimation methodology and results.

Design of Our 

Broadband 

Deployment and 

Adoption Models

A company will deploy broadband service in an area only if the company 

believes that such a deployment will be profitable. Similarly, a household 

will purchase, or adopt, broadband service only if the value, or utility, to 

members of the household exceeds the price the household must pay to 

receive the service. In this section, we explain the two models we 

developed to examine the factors that influence the deployment and 

adoption of broadband service.

Deployment Model A company will deploy broadband service in an area only if the company 

believes that such a deployment will be profitable. Based on conversations 

with industry stakeholders, including companies deploying broadband 

service, we identified a number of factors that influence a company’s 

decision to deploy broadband service. In particular, the following factors 

may influence the decision to deploy broadband service: population 

density, terrain, backhaul costs, existing or potential competition, the 

technical expertise of the population, the income of the population, and 

regulatory policies (such as rights-of-way policies). We also reviewed 

relevant studies, and noted the same and additional factors that may 

influence the deployment of broadband service.1

 Some of these factors, 

such as the population density and backhaul, will influence the cost of 

providing broadband service, while other factors, such as the income of the 

population, will influence the potential revenues that a company may hope 

to generate. Together, these revenue and cost factors will influence the 

potential profitability of providing broadband service, and ultimately the 

decision to deploy broadband service.

To empirically test these hypotheses, we estimated the following 

econometric model; since all the variables identified above were not 

1

For example, see Tony H. Grubesic and Alan T. Murray, “Waiting for Broadband: Local 

Competition and the Spatial Distribution of Advanced Telecommunication Services in the 

United States,” Growth and Change, vol. 35, no. 2 (2004): 139-165; and James E. Prieger, 

“The Supply Side of the Digital Divide: Is There Equal Availability in the Broadband Internet 

Access Market?” Economic Inquiry, vol. 41, no. 2 (2003): 346-363.
Appendix III

Broadband Deployment and Adoption Models

Page 47 GAO-06-426 Telecommunications

available, we were unable to include some of the variables—such as 

terrain—in our model. The decision to deploy broadband service is a 

function of

• the population in the area;

• the population density in the area;

• the percentage of the population residing in an urban area;

• the per-capita income in the area;

• the educational attainment of the population in the area;

• the population teleworking in the area;

• the age of the population in the area; 

• the distance to a metropolitan area with a population of 250,000 or 

more; and

• whether the state in which the area is located imposed a tax on Internet 

access in 2005.

Adoption Model Households will purchase, or adopt, broadband service only if the value, or 

utility, that members of the household receive from the service exceeds the 

price of the service. In conversations with industry stakeholders, we were 

told that several characteristics of households influence the extent to 

which households purchase broadband service; we also reviewed other 

studies, and noted characteristics of households that these studies 

associated with the purchase of broadband service.2

 In particular, the 

following characteristics of households may influence the decision to 

purchase broadband service: income, education, age of household 

2

For example, see Scott Wallsten, Broadband Penetration: An Empirical Analysis of State 

and Federal Policies (Washington, D.C.: AEI-Brookings Joint Center for Regulatory Studies, 

2005); Scott J. Savage and Donald M. Waldman, “United States Demand for Internet Access,” 

Review of Network Economics, vol. 3, no. 3 (2004): 228-247; and Debra J. Aron and David E. 

Burnstein, “Broadband Adoption in the United States: An Empirical Analysis” (paper 

presented at the 31st Annual Telecommunications Policy Research Conference, Arlington, 

Va., 2003).
Appendix III

Broadband Deployment and Adoption Models

Page 48 GAO-06-426 Telecommunications

members, presence of children in the household, and the technological 

knowledge of members of the household. These characteristics may be 

associated with the extent to which a household would benefit from, and 

therefore value, broadband service, such as using broadband to telework, 

conduct research for school, and playing games. Industry stakeholders also 

noted that price influences a household’s decision to purchase broadband 

service.

To empirically test these hypotheses, we estimated the following 

econometric model; because we lacked data on the price of broadband 

service, we were unable to include this variable in our econometric model.3

The decision to purchase, or adopt, broadband service is a function of

• the income of the household;

• the education attainment of the heads of the household;

• the age of the heads of the household; 

• the presence of children in the household;

• the racial composition of the household;

• the occupation of the heads of the household;

• the number of people in the household;

• whether the household resides in an urban, suburban, or rural location;

• the number of companies providing broadband service in the area; and

• whether the state in which the household resides imposes a tax on 

Internet access.

Data Sources We required several data elements to build the data set used to estimate our 

deployment and adoption models. The following is a list of our primary 

data sources. In addition, we list all of the variables, definitions, and 

3

As such, we recognize that the parameter estimates will be biased. We are unable to assess 

the possible extent of this bias.
Appendix III

Broadband Deployment and Adoption Models

Page 49 GAO-06-426 Telecommunications

sources for the deployment model in table 1 and the adoption model in 

table 2.

• We obtained data on a sample of households in the United States from 

Knowledge Networks/SRI, using Knowledge Networks/SRI’s product 

The Home Technology MonitorTM: Spring 2005 Ownership and Trend 

Report. From February through April 2005, Knowledge Networks/SRI 

interviewed a random sample of 1,501 households in the United States. 

Knowledge Networks/SRI asked participating households a variety of 

questions about their use of technology, including questions such as 

whether the household purchased broadband service, and about the 

household’s demographic characteristics.

• From the Federal Communications Commission (FCC), we obtained 

information on the companies providing broadband service in zip codes 

throughout the United States in December 2004. For each zip code, FCC 

provided the names of companies reporting, through the agency’s Form 

477, that they provided broadband service to at least one residential or 

small business customer and the type of company providing the service 

(e.g., cable and satellite).

• We used the most recent information from the U.S. Census Bureau to 

obtain demographic information for the areas where the households 

responding to Knowledge Networks/SRI’s survey were located.

Table 1: Deployment Model: Definitions and Sources of Variables

Variable Definition Source

Deploy A binary variable that equals 1 if broadband service is available to the household 

responding to Knowledge Networks/SRI’s survey.

FCC 2004 Form 477 

and GAO analysis

Internet taxation A binary variable that equals 1 if the state where the household resides imposes a tax 

on Internet access.

GAO analysis

Population, in thousands The number of residents in the area where the household resides, in thousands. Census Bureau

Urbanization The percentage of the population residing in an urban area. Census Bureau

Distance The distance to a metropolitan area with a population of 250,000 or more. GAO analysis

Percentage of work-athome residentsThe percentage of the population working from home. Census Bureau

Percentage of 

population under 16

The percentage of the population under the age of 16. Census Bureau

Percentage of 

population 17 to 24

The percentage of the population 17 to 24 years old. Census Bureau
Appendix III

Broadband Deployment and Adoption Models

Page 50 GAO-06-426 Telecommunications

Source: GAO.

Table 2: Adoption Model: Definitions and Sources of Variables

Percentage of 

population 65 or older

The percentage of the population 65 or older. Census Bureau

Percentage of 

population with a highschool degree

The percentage of the population with a high-school degree. Census Bureau

Percentage of 

population with 

education beyond high 

school

The percentage of the population with education beyond high school. Census Bureau

Per-capita income, in 

thousands

The per-capita income in the area, in thousands of dollars. Census Bureau

Population density, in 

thousands

The ratio of population to square miles in the area, in thousands. Census Bureau

(Continued From Previous Page)

Variable Definition Source

Variable Definition Source

Adopt A binary variable that equals 1 if the household responding to 

Knowledge Networks/SRI’s survey purchases broadband 

service.

Knowledge Networks/SRI

Internet taxation A binary variable that equals 1 if the state where the household 

resides imposes a tax on Internet access.

GAO analysis

Number of broadband 

providers

The number of companies providing broadband service to the 

household.

FCC 2004 Form 477 and GAO analysis

Income between $30,000 

and $49,900

A binary variable that equals 1 if the household’s income is 

between $30,000 and $49,900.

Knowledge Networks/SRI

Income between $50,000 

and $99,900

A binary variable that equals 1 if the household’s income is 

between $50,000 and $99,900.

Knowledge Networks/SRI

Income $100,000 or more A binary variable that equals 1 if the household’s income is 

greater than or equal to $100,000.

Knowledge Networks/SRI

Race-white A binary variable that equals 1 if the household reported its race 

as white.

Knowledge Networks/SRI

College graduate A binary variable that equals 1 if either the man or woman of the 

household is a college graduate.

Knowledge Networks/SRI

Age 34 to 49 A binary variable that equals 1 if either the man or woman of the 

household is 34 to 49 years old, and neither is younger than 34.

Knowledge Networks/SRI

Age 50 or older A binary variable that equals 1 if both the man and woman of the 

household are 50 years old or older.

Knowledge Networks/SRI

Children A binary variable that equals 1 if a child age 17 or younger 

resides in the home.

Knowledge Networks/SRI
Appendix III

Broadband Deployment and Adoption Models

Page 51 GAO-06-426 Telecommunications

Source: GAO.

Assessing Broadband 

Deployment

FCC’s Form 477 data include information on companies providing 

broadband service to at least one residential or business customer in zip 

codes throughout the United States in December 2004. However, since zip 

codes can represent large geographic areas, companies providing 

broadband service in a zip code might not have facilities in place to serve 

all households in the zip code. Thus, while a household might reside in a zip 

code in which FCC’s Form 477 indicates that broadband service is 

available, that service might not be available to the household. Additionally, 

as we note in the text, we identified other concerns with FCC’s data. 

Therefore, we took additional steps to assess whether broadband service 

was available to households included in Knowledge Networks/SRI’s survey. 

In particular, we took the following steps for each observation in our data 

set:

• removed firms providing only satellite service;

• removed firms that provided only broadband service to business 

customers, since residential households were the focus of our study;

• removed large incumbent local exchange carriers when the company 

was identified as providing service in areas that lay outside of its local

Household size A binary variable that equals 1 if three or more people reside in 

the home.

Knowledge Networks/SRI

Occupation-professional A binary variable that equals 1 if the man or woman of the 

household reports working in a professional position.

Knowledge Networks/SRI

Occupation-clerical, sales, 

or technical

A binary variable that equals 1 if the man or woman of the 

household reports working in a clerical, sales, or technical 

position, and neither reports working in a professional position.

Knowledge Networks/SRI

Occupation-blue collar A binary variable that equals 1 if the man and woman of the 

household report working in a blue collar position.

Knowledge Networks/SRI

Occupation-other A binary variable that equals 1 if the man or woman of the 

household reports working in a position other than a 

professional, clerical, sales, technical, or blue-collar position.

Knowledge Networks/SRI

Rural location A binary variable that equals 1 if the household resides in an 

area outside a metropolitan statistical area (MSA).

GAO analysis

Suburban location A binary variable that equals 1 if the household resides in an 

area inside an MSA but outside the central city of that MSA.

GAO analysis

(Continued From Previous Page)

Variable Definition Source
Appendix III

Broadband Deployment and Adoption Models

Page 52 GAO-06-426 Telecommunications

exchange area, since these firms typically provide service only to 

business customers outside of their local exchange areas;4

• removed firms when 2 or more of the 10 largest cable operators 

reported providing broadband service, since large cable operators rarely 

have overlapping service territories; 

• removed cable operators if the responding household indicated that 

cable service did not pass the residence; and

• removed companies providing telephone-based broadband service if the 

household’s residence was greater than 2.5 miles from the central office 

facility, since DSL service is distance limited.

Estimation 

Methodology and 

Results

For both the deployment model and adoption model, we are estimating a 

reduced-form, binary-choice model. That is, broadband service is either 

deployed in the area or it is not, and the household either purchases 

broadband service or it does not. Given the binary choice nature of the 

models, we employed the probit method to estimate the deployment and 

adoption equations.5

 In this section, we present descriptive statistics and 

estimation results for the two equations and discuss the results.

Deployment Model In table 3, we provide basic statistical information on all of the variables 

included in the deployment model, and in table 4, we provide the results 

from the probit estimation of the deployment model. Of the 1,501 

respondents to Knowledge Networks/SRI’s survey, we used 1,402 

observations in the deployment model; we were unable to match the zip+4 

code for all 1,501 observations with publicly available data, which was 

necessary to assess whether the residence was 2.5 miles from the serving 

central office facility.

4

We did not remove Verizon, since thought its acquisition of GTE, it serves a wide variety of 

locations as an incumbent exchange carrier.

5

An alternative method to estimate these equations is the logit model. In a binary choice 

model, the differences between the logit and probit models are generally not significant. 

Differences can arise in the multinomial model, where there are three or more choices, 

because the logit model imposes independence conditions that sometimes do not reflect the 

conditions being modeled. Such was not the case in our models, since we are estimating 

binary choice equations.
Appendix III

Broadband Deployment and Adoption Models

Page 53 GAO-06-426 Telecommunications

Table 3: Deployment Model: Descriptive Statistics

Source: GAO.

Table 4: Deployment Model: Estimation Results

Variable Mean

Standard 

deviation

Minimum 

value

Maximum 

value

Deploy 0.911 0.285 0.000 1.000

Internet taxation 0.546 0.498 0.000 1.000

Population, in thousands 26.022 17.982 0.070 113.935

Urbanization 76.154 33.240 0.000 100.000

Distance 34.361 42.743 0.249 572.803

Percentage of work-at-home residents 3.257 2.064 0.000 33.333

Percentage of population under 16 24.018 4.651 6.225 41.219

Percentage of population 17 to 24 10.585 4.785 0.583 55.113

Percentage of population 65 or older 12.995 5.688 2.195 59.057

Percentage of population with a high-school degree 29.546 9.002 3.121 68.966

Percentage of population with education beyond high school 51.395 16.092 8.836 95.348

Per-capita income, in thousands 44.466 15.597 9.583 164.479

Population density, in thousands 2.976 6.876 0.002 74.814

Variable

Parameter estimate 

and [p-value]

Intercept -2.9299

[0.0097]a

Internet taxation -0.1486

[0.2275]

Population, in thousands 0.0099

[0.1140]

Urbanization 0.0102

[0.0001]a

Distance -0.0012

[0.3115]

Percentage of work-at-home residents -0.0600

[0.0392]b

Percentage of population under 16 0.0335

[0.1192]

Percentage of population 17 to 24 0.0198

[0.3027]
Appendix III

Broadband Deployment and Adoption Models

Page 54 GAO-06-426 Telecommunications

Source: GAO.

a

Significant at the 1 percent level.

b

Significant at the 5 percent level.

Results from our model indicate that several factors related to the cost of 

providing broadband service and the demand for broadband service 

influence the likelihood that service will be available in a particular area. 

Regarding the cost factors, we found that urban areas and areas with 

greater population density are more likely to receive broadband service. 

For example, urban areas are about 9 percentage points more likely to 

receive broadband service than are similar rural areas. These results are 

consistent with broadband service being less costly to deploy in densely 

populated, more urban environments, where a similar investment in 

facilities can serve a greater number of subscribers than is possible in rural 

areas. Regarding demand for broadband service, we found that areas with 

greater per-capita incomes are more likely to receive broadband service. 

Additionally, we found that areas with a greater number of people working 

from home are less likely to have broadband service and that areas with a 

greater percentage of people age 65 or older are more likely to have 

broadband service.

We did not find that taxation of Internet access by state governments 

influenced the deployment of broadband service. Taxes can raise consumer 

prices and reduce revenues and impose costs on providers, and thereby 

possibly reduce the incentive for companies to deliver a product or service. 

Since we used a binary variable to indicate the presence of taxes, this 

variable could also potentially capture the influence of other 

characteristics of the states, in addition to the influence of the tax. Results 

Percentage of population 65 or older 0.0468

[0.0271]b

Percentage of population with a high-school degree 0.0114

[0.3260]

Percentage of population with education beyond high school 0.0121

[0.1957]

Per-capita income, in thousands 0.0270

[0.0074]a

Population density, in thousands 0.1706

[0.0159]b

Number of observations 1,402

1-LogL/Log0 32.0077

(Continued From Previous Page)

Variable

Parameter estimate 

and [p-value]
Appendix III

Broadband Deployment and Adoption Models

Page 55 GAO-06-426 Telecommunications

from our model indicate that Internet access taxes do not affect the 

likelihood that companies will deploy broadband service; while the 

parameter estimate has the expected sign, the estimate is not statistically 

significant.

Adoption Model In table 5, we provide basic statistical information on all of the variables 

included in the adoption model, and in table 6, we provide the results from 

the probit estimation of the adoption model. Since households can only 

chose to purchase, or adopt, broadband service where it is deployed, we 

only include households from Knowledge Networks/SRI’s survey where we 

assessed that broadband service was available; based on our analysis, 133 

respondents did not have broadband service available. Further, 355 

respondents to Knowledge Networks/SRI’s survey did not answer one or 

more demographic questions and 29 did not answer, or did not know, what 

type of Internet connection their household purchased. Therefore, we 

excluded these respondents. Thus, we used 901 observations in the 

adoption model.6

6

We did not find that the households that failed to answer the demographic questions were 

more or less likely to be online than were the households that answered these questions.
Appendix III

Broadband Deployment and Adoption Models

Page 56 GAO-06-426 Telecommunications

Table 5: Adoption Model: Descriptive Statistics

Source: GAO.

Table 6: Adoption Model: Estimation Results

Variable Mean Standard deviation Minimum value Maximum value

Adopt 0.336 0.473 0.000 1.000

Internet taxation 0.553 0.497 0.000 1.000

Number of broadband providers 3.307 2.161 1.000 9.000

Income between $30,000 and $49,900 0.223 0.417 0.000 1.000

Income between $50,000 and $99,900 0.336 0.473 0.000 1.000

Income $100,000 or more 0.149 0.356 0.000 1.000

Race-white 0.858 0.349 0.000 1.000

College graduate 0.499 0.500 0.000 1.000

Age 34 to 49 0.378 0.485 0.000 1.000

Age 50 or older 0.424 0.494 0.000 1.000

Children 0.387 0.487 0.000 1.000

Household size 0.465 0.499 0.000 1.000

Occupation-professional 0.442 0.497 0.000 1.000

Occupation-clerical, sales, or technical 0.154 0.361 0.000 1.000

Occupation-blue collar 0.029 0.167 0.000 1.000

Occupation-other 0.244 0.430 0.000 1.000

Rural location 0.052 0.222 0.000 1.000

Suburban location 0.568 0.496 0.000 1.000

Variable Parameter estimate and [p-value]

Intercept -1.4919

[0.0001]a

Internet taxation -0.1683

[0.0745]

Number of broadband providers 0.0118

[0.6101]

Income between $30,000 and 

$49,900

0.4531

[0.0024]a

Income between $50,000 and 

$99,900

0.7429

[0.0001]a

Income $100,000 or more 1.1331

[0.0001]a
Appendix III

Broadband Deployment and Adoption Models

Page 57 GAO-06-426 Telecommunications

Source: GAO.

a

Significant at the 1 percent level.

b

Significant at the 5 percent level.

Our model results indicate that four characteristics influence whether 

households purchase, or adopt, broadband service. First, we found that 

households with greater incomes are more likely to purchase broadband 

service than are lower-income households. For example, the 25 percent of 

households with the highest income levels were about 39 percentage points 

more likely to purchase broadband service than the 25 percent of 

households with the lowest income levels. Second, households with a 

college graduate are about 12 percentage points more likely to purchase 

broadband service than are households without a college graduate. We also 

found that white households are more likely to purchase broadband service 

than households of other races. Finally, older households are less likely to 

purchase broadband service than are younger households.

Race-white 0.2905

[0.0405]b

College graduate 0.3525

[0.0009]a

Age 34 to 49 -0.2239

[0.0759]

Age 50 or older -0.3316

[0.0217]b

Children 0.1318

[0.3894]

Household size 0.1241

[0.3894]

Occupation-professional 0.2610

[0.1409]

Occupation-clerical, sales, or 

technical

0.2098

[0.2867]

Occupation-blue collar 0.2638

[0.3879]

Occupation-other 0.0212

[0.9086]

Rural location -0.3234

[0.1892]

Suburban location 0.0983

[0.3406]

Number of observations 901

1-LogL/Log0 16.2800

(Continued From Previous Page)

Variable Parameter estimate and [p-value]
Appendix III

Broadband Deployment and Adoption Models

Page 58 GAO-06-426 Telecommunications

As with the deployment model, we did not find that taxation of Internet 

access by state governments influenced the adoption of broadband service. 

As mentioned earlier, we used a binary variable to represent the presence 

of Internet taxation. As such, the variable may capture the influence of 

other characteristics of the states in which the households resided, in 

addition to the influence of the tax. Further, lacking a variable for the price 

of broadband service, we cannot assess how the imposition of the tax 

influenced the price of the service and thus the household’s adoption 

decision. Using our model, we found that the parameter estimate had the 

expected sign—indicating that the imposition of the tax may have reduced 

the likelihood that a household would purchase broadband service. While 

the estimate was not statistically significant at the 5 percent level, it was 

statistically significant at the 10 percent level, perhaps suggesting that it is 

a weakly significant factor. However, given the nature of our model, it is 

unclear whether this finding is related to the tax or other characteristics of 

the states in which households resided. 
Page 59 GAO-06-426 Telecommunications

Appendix IV

Additional Communications Technologies ApendxiIV

Based on our conversations with stakeholders, and our own research, we 

identified several emerging technologies that could further the deployment 

of broadband service.

Broadband over power lines. Broadband over power lines (BPL) is an 

emerging competitive source of broadband to the home. BPL transmits 

broadband by using existing electric distribution networks, such as the 

wires that deliver electricity to consumers. Although there are a few 

commercial deployments, most BPL efforts are currently at the trial stage. 

Trials and commercial deployments range across the urban-rural 

landscape, from Cullman County, Alabama, to Cincinnati.1

 Currently, BPL 

can provide upstream and downstream speeds of 3 million bits per second 

(Mbps), and next generation equipment is being developed to provide 

speeds of 100 Mbps.

Industry stakeholders have identified several concerns with BPL service. 

First, while traveling across the electric network, BPL can emit signals that 

interfere with other users of the spectrum, such as amateur radio and 

public safety. The Federal Communications Commission (FCC) has taken 

steps to document, mitigate, and alleviate this potential problem. Second, 

some stakeholders also expressed concern that, due to the age or condition 

of the electric network, providers in some areas would be unable to 

transmit Internet data at high speeds. Finally, some stakeholders expressed 

varied opinions about the feasibility of BPL to bring broadband service to 

rural areas. Some stakeholders were optimistic about BPL’s ability to serve 

these communities, while others expressed skepticism, pointing out that 

overcoming BPL’s distance limitations would require more equipment and 

additional costs. 

Wireless fidelity (Wi-Fi). Wi-Fi-enabled wireless devices, such as laptop 

computers, can send and receive data from any location within signal 

reach—about 300 feet—of a Wi-Fi-equipped access point. Wi-Fi provides 

data transmission rates, based on the current transmission standard, of up

1

BPL companies, such as Current Communications, offer the ability to improve the 

monitoring, detection, and management of the electrical distribution network through 

improved communication capabilities inherent in BPL equipment. These features increase 

the attractiveness of BPL to electrical companies, as the companies receive the benefits of 

improved network operation and potential revenues from broadband service. 
Appendix IV

Additional Communications Technologies

Page 60 GAO-06-426 Telecommunications

to a maximum of 54 Mbps,2 which is shared by multiple users. Wi-Fi 

equipment and services are based on the 802.11 series standards developed 

by the Institute of Electrical and Electronics Engineers (IEEE) and operate 

on an unlicensed basis in the 2.4 and 5 GHz spectrum bands. Several 

stakeholders we spoke with said that Wi-Fi service complemented, rather 

than substituted for, other broadband services.

The number of areas that can access Wi-Fi service, known as “hot spots,” 

has grown dramatically and, according to one equipment manufacturer, 

may exceed 37,000. Wi-Fi hot spots include such diverse entities as 

airports, colleges, retail establishments, and even entire towns. 

Increasingly, municipalities are planning or deploying larger area or 

citywide hot spots; some municipalities considering or deploying a Wi-Fi 

network include Atlanta, Philadelphia, San Francisco, and Tempe, Arizona. 

While Wi-Fi service is widely deployed in urban and suburban areas, some 

stakeholders identified a few problems with the service. Because Wi-Fi hot 

spots operate in unlicensed spectrum, interference can be a problem. 

Several stakeholders we spoke with mentioned congestion or limited 

distance capability in Wi-Fi as a potential limitation of the service.

Worldwide Interoperability for Microwave Access (WiMAX). With 

WiMAX service, the distance covered and data transmission speeds can 

exceed those found with Wi-Fi service. WiMAX can provide data 

transmission speeds of 75 Mbps with non-line-of-sight service—that is, the 

signal can pass through buildings, trees, or other obstructions—or up to 

155 Mbps with line-of-sight service. In a non-line-of-sight environment, 

WiMAX can provide service in an area with a radius of 3 miles or more; in a 

line-of-sight environment, WiMAX can provide service up to approximately 

30 miles. WiMAX equipment and services are based on the IEEE 802.16 

series of standards and operate in unlicensed and licensed spectrum. 

WiMAX networks are being deployed on a trial commercial basis, but some 

challenges remain for further deployment. More than 150 pilot and 

commercial deployments of WiMAX networks are currently in use. Because 

of its greater capabilities in terms of distance and speed, WiMAX can 

extend wireless broadband to less densely populated communities, where 

wired solutions may be more expensive to deploy. Stakeholders we spoke 

with serving smaller, less densely populated areas indicated that they were 

2

Discussions are underway for newer standards for Wi-Fi that would dramatically increase 

the transmission speeds.
Appendix IV

Additional Communications Technologies

Page 61 GAO-06-426 Telecommunications

testing or interested in WiMAX to serve their communities. However, 

concerns have been raised about spectrum availability, interference, and 

the ability of different manufacturers’ equipment to support the same level 

of broadband applications. FCC has several initiatives under way to 

increase the availability of spectrum for WiMAX services. While the WiMAX 

Forum Certification Lab certifies WiMAX equipment, the standard allows 

manufacturers of equipment various options, such as different levels of 

security protocols, and thus, not all equipment may support the same level 

of service, such as carrying voice over the Internet (VoIP) and security. 

Third generation (3G) cellular broadband. Recently, several major 

commercial wireless companies have introduced broadband service based 

on advances in cellular technology and data protocols. Focused primarily 

on the business customer and more expensive than cable modem and DSL 

services, 3G services permit consumers to receive broadband service while 

mobile. 3G services typically provide data transmission speeds of 400 to 

700 kilobits per second (Kbps). There are two competing technologies: EVDO service, introduced by Verizon and Sprint; and HSDPA, introduced by 

Cingular. Currently, Verizon Wireless reports that its service is available 

nationally in 181 major metropolitan markets, covering approximately 150 

million people. Sprint reports providing EV-DO service in major airports 

and business districts in 212 markets, covering approximately 140 million 

people. For HSDPA service, Cingular reports that its service is available to 

nearly 35 million people in 52 communities. Industry stakeholders 

expressed concerns about the ubiquity of service, data transmission 

speeds, and the monthly costs associated with 3G service. Opinions varied 

as to whether cellular broadband services would be a competitive threat, or 

a complementary service, for consumers of other broadband services. 

Fiber to the home (FTTH). FTTH provides a high-speed, wire-based 

alternative to traditional cable and telephone networks. According to the 

FTTH Council, as of September 2005, 2.7 million homes were passed by 

fiber and over 300,000 homes were connected to fiber in 652 communities 

in 46 states. Stakeholders expressed concerns about the high cost 

associated with deploying FTTH, and also that FTTH deployment was 

concentrated in urban and suburban communities, or in newly developed 

communities (known as “greenfields”).
Page 62 GAO-06-426 Telecommunications

Appendix V

Comments from Industry Participants ApendxiV

We provided a draft of this report to several associations representing 

industry trade groups and state and local government entities for their 

review and comment. The following associations came to GAO 

headquarters to review the draft: Cellular Telecommunications and Internet 

Association (CTIA), National Association of Regulatory Utility 

Commissioners (NARUC), National Association of Telecommunications 

Officers and Advisors (NATOA), National Cable and Telecommunications 

Association (NCTA), National Telecommunications Cooperative 

Association (NTCA), Satellite Industry Association (SIA), US Internet 

Industry Association (USIIA), United States Telecom Association (USTA), 

and Wireless Internet Service Providers Association (WISPA).

Officials from CTIA, NARUC, and NTCA did not provide comments. 

Officials from NATOA, NCTA, SIA, and USIIA provided technical comments 

that were incorporated, as appropriate.

USTA officials noted that our discussion of the effects of local franchising 

on deployment imply that franchise agreements have helped to ensure 

broad deployment of broadband, but that, in the view of USTA, franchise 

buildout requirements can deter entry and thus reduce deployment.

WISPA officials expressed concern about our findings regarding the 

taxation of Internet access and noted that it is important, in their view, that 

wireless Internet access provided by small providers not be taxed, and in 

fact, WISPA officials noted that small providers should be provided a tax 

incentive to encourage investment and expansion in underserved areas. 

Additionally, these officials expressed concern about the presentation of 

data on how households currently access the Internet from their homes. 

WISPA stated that these data understate the importance that wireless 

access will have toward the goal of universal broadband coverage both 

within and outside of users’ homes. WISPA stated that the report accurately 

depicts that wireless Internet service providers (WISP) currently hold a 

minority market share, and WISPA officials note that without certain 

government policies to foster growth in the wireless industry, WISPs will be 

at a competitive disadvantage. WISPA officials also expressed concern that 

the report understates factors that are hindering the growth of the wireless 

Internet industry—most notably, the need for additional spectrum under 1 

Ghz, such as the TV white spaces. Further WISPA noted that the data 

showing broadband penetration rates in urban, rural, and suburban areas 

should not be interpreted as indicating that access to broadband is lower in 

only rural areas. They suggested that differences in broadband penetration 

rates across these types of locations are not that great and that pockets of 
Appendix V

Comments from Industry Participants

Page 63 GAO-06-426 Telecommunications

areas with no access exist in many areas. As such, WISPA suggests that 

policy response regarding spectrum availability, USF funding, and Rural 

Utilities Service be focused on engaging smaller providers that can bring 

broadband to areas not currently served by the larger incumbent providers.
Page 64 GAO-06-426 Telecommunications

Appendix VI

GAO Contact and Staff Acknowledgments ApendxiVI

GAO Contact JayEtta Z. Hecker, (202) 512-2834 or heckerj@gao.gov

Staff 

Acknowledgments

Individuals making key contributions to this report include Amy 

Abramowitz (Assistant Director), Eli Albagli, Stephen Brown, Michael 

Clements, Sandra DePaulis, Nina Horowitz, Eric Hudson, Bert Japikse, 

John Mingus, Sara Ann Moessbauer, Karen O’Conor, Lindsay Welter, and 

Duffy Winters.

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