Monday, July 17, 2006

Who Will Deliver Broadband to Small Markets?

I am going to take a break from the net neutrality discussion to talk about something else that is not happening where government should have a role.  I am talking about how to deliver broadband services to cities where the major telecommunications providers do not see a sufficient return on investment to build broadband networks.

For 20 years, I have been chasing the dream of delivering fiber-to-the-premises (FTTP) for various carriers and equipment manufacturers, and the case studies were always marginal at best in any situation except for Greenfield applications.  Equipment costs keep coming down and ARPU goes up with the inclusion of bundled services which make FTTH and FTTB an economical business proposition for fairly densely populated areas.  That is great for urban and surrounding suburban cities, but where does that leave cities with under 200,000 inhabitants not close to a major metropolitan city?

Small local exchange providers have banded together in places like Iowa to get economies of scale in purchasing FTTP equipment so they can prove-in broadband network deployment.  Home builders have seen it as a differentiator for their products, and they have partnered with firms that can engineer and build the networks.  I have come to believe that the best method to drive broadband in small markets is for the municipality to take an active role in creating a communications infrastructure framework.  Notice that I said framework not network.  The framework is an all encompassing plan that guides policy in delivering wired and wireless services to homes and businesses in the community.  It contains elements of public and private partnerships to deliver advanced broadband services to the city.  

Municipalities have the advantage of being able to take a long-term view to investments and payback.  Return on investment does not have to be measured strictly in revenue from the network.  There are benefits to the economic development of a community because the network can attract knowledge-based companies with higher paid workers.  Communications networks improve the ability to educate a community by allowing citizens improved access to schools and other educational institutions.  Government can be more efficient and transparent by taking advantage of the Internet.  These are the intangible benefits that a municipality can include as its ROI.

The question that the framework should address is who will build this network?  Early in the twentieth century when the electrification of America was a concern the government financed much of the wiring of rural America with the Rural Electrification Act.  Municipalities formed their own electric utilities and cooperatives to deliver energy to their community.  This act is still in existence today (Do bureaucracies ever go away?) and expanded to include broadband services.  Unfortunately it is not sufficient to serve communities with more than 20,000 inhabitants.  Communications is a part of a city’s infrastructure so the concept of a municipal communications utility is a valid one.  The purpose of this utility should be to develop a framework and act as a catalyst for the building and operation of a broadband network.

I carefully chose the word catalyst and not carrier because the government should not be in the business of selling communications services.  Actually some states, such as Colorado, have laws prohibiting a government entity from becoming a carrier.  So if the city cannot sell services, then how will they build and fund the network?  There are a variety of different business models that a city can utilize as its framework to build a broadband network.  Any network built by any public or private funding should allow for non-discriminatory access to any service provider.  This competition creates lower prices and greater utilization of the network creating economies of scale by amortizing any expenditure across multiple service providers.  

The exact content of the framework is dependent on a city’s objectives, demographics, geography, and existing infrastructure.  Architecture of the framework will contain a metro backbone and last-mile access.  Many cities built fiber rings as a metro backbone early this millennium paid for by bonds.  They leased bandwidth on these rings to carriers building out wireless and wireline networks to reach homes and businesses.  They receive revenue from the carriers utilizing their bandwidth, and the carrier delivers the service and bills the user.  Build-out of the last mile can be accomplished by a CLEC wanting to reach a business or a third-party working with home developers to build and sell triple-play services.  Mobile service providers can utilize the backbone to build their network to provide mobility services to users in the community.

This is just a few ways that a city can create an advanced broadband network without taxpayer subsidies.  The city may build and own some facilities funded by bonds and revenue from carriers, but they do not actually sell the service.  They act as a pipe for any service provider that sees an opportunity for their business in that community.  Incumbent and competitive carriers alike can take advantage of the facilities.  Where the city actually funded the network, it may eventually see a positive cash flow from service providers over time.  

Cities with less than 200,000 people can have a broadband communications network without spending taxes or waiting for incumbent local exchange providers to build it.  Establishing a communications infrastructure framework will guide the development of the network with the city facilitating the development with infrastructure developers and service providers.

Tag: municipal broadband networks