Friday, April 23, 2010

Why Boulder Is Ideal for 1 Gbit/s Broadband Network from Google

I started this article weeks ago before the RFI was due and never found the time to finish it.  The problem was that there was too much content to keep confined to a short article.  After looking at my draft and realizing that readers, including Google, did not want to read a 10,000 word explanation, I condensed it to a bullet list.  So here are the reasons that Google should choose Boulder, Colorado to for their Google Fiber for Communities Project:

  1. 69% of our residents have bachelors’ degrees or better
  2. We have the highest per capita number of software developers in the nation
  3. Boulder ranks #3 in the number of inventors
  4. Boulder ranks #7 in the number of entrepreneurs
  5. 10% of our businesses are home-based and over 25% of people work from home
  6. Home to the $100 million SmartGridCity™, the nation’s first fully integrated electricity system
  7. Seven federally funded laboratories
  8. University of Colorado at Boulder
  9. Industries such as green energy companies, biosciences, health care, foods, clothing and footwear, outdoor and biking companies, electronics manufactures, computer companies, storage companies, defense contractors, venture capitalists, and several other industries but let’s not forget Google!
  10. Silicon Flatirons Center as a center for telecom and technology debate and discussion
  11. Telecom companies with several decades experience building last-mile fiber networks including working with leading edge vendors and operation of these networks
  12. Many Existing facilities to support the build-out of the network
  13. 96% broadband penetration so we know how to use bandwidth
  14. Headquarters to a few globally known advertising, public relations, and media firms
  15. More Asian restaurants per capita than San Francisco or New York

CenturyTel Acquires Qwest: What’s In It for Qwest?

Facade of Qwest headquarters in downtown Denver, Colorado on May 3, 2005. REUTERS/Rick Wilking

The unwanted step child of the Baby Bells has finally found a suitor to help it beyond its awkward years, but is this acquisition good for Qwest?  After the previous CEO’s failed attempts to sell the lumbering giant to AT&T and Verizon, CenturyTel (CTL) finally a agrees to purchase Qwest (Q) for $22.4 billion including debt.  Although this is big news for CenturyTel and Qwest, the purchase will not have any major impact on the telecommunications industry or their customers.  The transaction is rather ho-hum after thinking about it.  CenturyTel’s growth has come through acquisitions of smaller players and purchasing access lines from Ameritech and Verizon.  The previous growth spurt came through the purchase of Embarq (history).  The Qwest purchase brings it from the fourth largest local phone company to the third largest with 17 million access lines and 5 million broadband users.

The advantages to CenturyTel are obvious.  It goes from a $2.6 billion per year revenue company pre Embarq acquisition to a $20 billion per year revenue company, and it increases its presence to 37 states.  The larger jewels are Qwest’s business and government customers which will more than offset the loss of land line customers all local providers experience.  CenturyTel’s business customers are mainly small and a few regional medium sized companies.  Larger companies purchase business services from AT&T, Verizon, and other carriers.  The addition of Qwest’s business services and government customers provides new and growing revenue sources.  Additionally, combining the business assets of Embarq and Qwest make the new CenturyLink a formidable competitor to AT&T and Verizon in their territories.  Once the mergers are complete and cost savings mostly realized, expect CenturyLink to make a significant wireless purchase.  Leap Wireless comes to mind.

For Qwest the advantages are difficult to find.  Qwest is clearly the acquired party with the name changing to CenturyLink and Glen Post remaining the CEO.  Watch for other executive retirements and departures in the next few months.  CenturyTel is known for its frugality so expect it to squeeze out every penny of the announced $625 million in cost reductions from mostly the Qwest assets.  Qwest employees should expect large staff reductions in marketing, accounting, operations, and engineering.  Denver and Minneapolis will be hit the hardest.  Local telephone operations will undergo a major restructuring with activities centered in Monroe, LA.  Although no one will call Qwest an innovator, CenturyTel’s services are definitely farther on the right side of the technology adoption curve.  Expect a simplification of residential and small business services to cut costs.  Also at stake is Qwest’s relationship with DirectTV since CenturyTel uses DISH.  Many of the long-haul assets will be written down in value and retired because least 33% of Qwest’s long-haul fiber routes cannot support 80-channel DWDM.  CenturyTel will leave business and government operations will remain mostly intact because those are not duplicated by the current operations and they do not want to tamper with the revenue flow.  For shareholders, the result will be a much leaner, efficient organization with a solid cash-flow.

Consumers will be impacted by the name change and a potential switch of video providers when the DirectTV contract is up; otherwise, things will stay mostly the same.  There will be no net negative impact to Qwest customers.  On the other hand, no one should expect any new innovative services or major investments in network upgrades like fiber-to-the-home or faster Internet services until the debt load is dramatically reduced.  The combined companies are firmly entrenched in DSL and will continue delivering industry average speeds at competitive prices.  This service strategy allows them to continue to milk the profits out of the old copper in the ground to pay down on the debt.  If communities are looking for faster Internet or video competition, they need to look elsewhere.

All in all, Qwest shareholders and CenturyTel benefit the most from this acquisition.  Qwest employees not in government or business services will be impacted the most and consumers are no better or worse off. 

Related Article:  Qwest Deal Is Risky Bet for CenturyTel's Chief -

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Wednesday, April 21, 2010

Telecom Pragmatics Calls Google Effort “Token”

Google FiberTelecom Pragmatics recent press release and report stating that Google’s Fiber for Communities project will be just a token effort misses the objective of Google’s project.  Google has been very clear through its minimalist communications of its objectives for this project.  They want to stimulate new applications, test new deployment techniques, and drive competition beyond the current duopolies.  They do not want to become a carrier or service provider.  They do not want to get into the business of building networks.  Google simply wants to find a business model for building last-mile networks that will stimulate the deployment of ultra-high speeds at reasonable costs through competition.  Whether they will do that in one or a couple communities is still up in the air.  Google clearly states that they do not have the expertise to come up with a solution to the U.S.’s broadband deficiencies, but they are betting on the telecommunications industry and capitalism to find one.

Google is currently vetting over 1,100 RFI submissions to find the few finalists that assembled the appropriate players to test out a model for building an open-access municipal network.  Their approach is different that the bureaucratic direction of the FCC with the National Broadband Plan.  They know that they do not have all of the answers and are looking to the experts to develop some solutions.  I applaud Google in their efforts and whether they select Boulder, Colorado or not, I will support their efforts to the fullest.  Sam, Mark, and David at Telecom Pragmatics are smart guys and I know that they understand what Google is trying to accomplish.  I trust that their report fully divulges Google’s true intentions.  As a community that has been driving FTTH for two decades, we need to fully open our experiences to Google to make their little experiment a success. 

Tuesday, April 13, 2010

What the 1,099 Communities Not Selected by Google by Google Should Do

Boulder Fiber Forever The past month has been crazy ever since Google announced that they are going to build an open access fiber-based network in one or a couple communities from 50,000 to 500,000 in population.  Over 1,100 communities submitted responses to the Google Fiber for Communities Request for Information including my own Boulder and Longmont, Colorado.  Those communities took the time to thoroughly understand how broadband infrastructure could benefit their community.  So what should the 1,099 or so communities that are not selected do?  They should build the open-access broadband network anyway.

Why?  Communities that responded to the RFI realize that a broadband infrastructure will not only offer their citizens greater choice of service providers, but also provide economic growth to their community.  Studies in Europe, Asia, and North America have confirmed the benefits that will come to these communities (link and link).  Some cities conducted their own surveys asking businesses how a broadband infrastructure could benefit their business.  Boulder’s results can be found here and here.  So now that Google has stimulated this awareness of the benefits, why should a community take it on themselves to build the network?  Obviously one of the incumbent carriers will build it eventually, right?

Communities need to realize that incumbent carriers are not going to make any multi-billion dollar investments in infrastructure in the next couple of years no matter how hard they squeeze them during franchise negotiations.  Verizon has publicly announced that they have completed their FiOS buildout passing approximately 18 million homes and gathering 2.86 million TV and 3.43 million Internet subscribers.  AT&T’s U-verse service only reaches 2.1 million subscribers and it based on a FTTN architecture that only provides limited speeds.  Comcast has been the most aggressive with hitting more than 80% of its service territory with DOCSIS 3.0 by the end of the year and reclaiming spectrum for more data use via Project Calvary.  Comcast is offering speeds up to 50 Mbit/s for Internet.  The bottom line is that if you do not live in a major metropolitan areas that these providers already hit, you can only expect incremental or no improvements in service.  Most of these communities will not see Internet speeds greater than 50 Mbit/s or a choice of more than two video providers. 

The economics of building a single carrier infrastructure are not suitable for these companies to undertake.  Verizon spent $23 billion building out its FiOS network which equates to over $7,600 per subscriber.  Ivan Seidenberg, CEO, stated that they would like to achieve at least 7.2 million subscribers;  thereby, cutting the cost per subscriber in half.1  Assuming that the company nets $50 each month per subscriber, which is generous, and that Verizon achieves its 7.2 million subscribers, it will take over 5 years to see a positive return on investment.  Investors in public companies do not want to see payback periods beyond 2 years even though the investment’s lifetime is greater than 20 years.

The economics for a open-access infrastructure are much different because there are multiple service providers utilizing the infrastructure that improve the fill rate and cash flow.  Successful open-access networks enjoy a fill rate of greater than 60%.  Some of the installation issues that plague large companies like Verizon are mitigated in municipal networks.  Smaller carriers have reduced installation costs down below $1,500 and even lower.  Just taking these two factors into account and allocating $30 per month to pay for the infrastructure moves the payback time to 5 years, and that figure does not include the revenue from any business customer that definitely improves the economics.  This article, published on the Gerson Lehrman Group site, takes a look at the economics with a smaller adoption rate but does not separate the service from the infrastructure.  They conclude that the payback time is much less.  Our company, Inphotonics Research, has more detailed case studies that indicate a payback period closer to the 5 year period factoring in all of the expenses and incomes which is far too long except for the patient investor.  On the other hand, the municipal bond investor may see a compelling investment opportunity and communities may even be able to enjoy a net positive revenue flow into their general fund.

Now that communities realize the the economics are feasible and that such a network provides numerous benefits to the community, how will they do it?  The purpose of Google’s grand experiment is to show communities how they could build their own infrastructure.  Their objective is not to build these networks in every community, but share the results so other communities could do it themselves.2  Understanding the formula will get a community started.  It does not give them the expertise to build and operate the infrastructure as well as attract service providers.  Companies exist that will assist communities to plan, build, and operate their infrastructure such as Inphotonics Research.  These companies have the relationships with appropriate industry players to make the project successful for a community.  So if you are one of the communities that does not end up selected by Google, go ahead and leverage Google’s work and build the network yourself.  You can do it with a little help.

Saturday, April 10, 2010

Is The Court of Appeals Decision in Comcast v. FCC Good for Net Neutrality?

Much was written this week about the U.S. Court of Appeals for the District of Columbia’s decision against the FCC fining Comcast for blocking BitTorrent traffic in 2008.  Most of those articles missed the point of the decision and declared that the FCC cannot regulate the Internet.  This decision said one thing, and one thing only:  the FCC overstepped its enforcement authority in telling Comcast how they can manage their network.  It did not vindicate Comcast in blocking BitTorrent traffic nor say that the FCC cannot create regulations and enforce them on Internet services.  It just set a limit on where the FCC’s enforcement ends based on their past actions.  Specifically the court stated that the FCC did not have ancillary authority to regulate Comcast's network management practices.1  It is expected that the FCC will appeal the case to the Supreme Court.2

On the surface it may appear that Comcast and other Internet Service Providers (ISP) are winners and the public is a loser.  That interpretation is not entirely accurate when you take a longer-term perspective.  The backlash from the decision may be worse than the decision itself.  The court itself made it a point to support the necessity of a free-and-open Internet as noted from this statement by the FCC:

"The court in no way disagreed with the importance of preserving a free and open Internet, nor did it close the door to other methods for achieving this important end," said FCC spokeswoman Jen Howard.3

The court’s decision prompted an immediate backlash from the press, consumer groups, and lawmakers for Congress to take action to remedy the situation.  That remedy could range from having Internet service reclassified as a telecommunications service which gives the FCC the necessary authority or a law defining “net neutrality” and other aspects to regulate the Internet.  All of them come with consequences that could restrict innovation and unfettered use of the Internet.

The FCC itself thwarted its own ability to regulate Internet services when it classified them as the less regulated Title I services.  I believe that this was the most appropriate action for them to take because it limited their authority to regulate.  If it would have kept them at a Title II service, then they would have been within their jurisdiction to regulate Comcast’s and other ISP’s traffic management techniques.  This action would have stifled innovation and the delivery of new services because the service providers would have opted for more restrictive services and information providers like Google would have had to fight it out at the FCC and courts.  If the FCC attempts to reclassify Internet access as a Title II service expect to see this type of behavior.

The alternative is to get Congress involved and have them legislate the definition of net neutrality and expand the FCC’s powers even more.  Although this may be what the EFF and other consumer advocates want, the most likely scenario is that the resulting legislation is something that nobody wants, and even could be contradictory to the principles of net neutrality.  Almost every Congressman does not understand the nuances of the issues that distinguish an application/site/service from data transmission.  I have written at length on my belief of net neutrality and the FCC has come out with a higher level statement that does not contradict my principles. 

I clearly believe that this issue should stay under the jurisdiction of the FCC and that the FCC needs to clearly define the rules of net neutrality with the hands-off approach that made the Internet what it is today.  The Congress does not have the expertise nor is it the proper forum for industry, regulators, and consumers to come together to define how to keep innovation and commerce flowing on the Internet.  The FCC needs to go through the proper rulemaking procedure so it can enforce these principles.  Service providers need the ability to manage traffic on their network to ensure a quality experience for all customers and consumers need the ability to access any lawful service over these networks equally whether they are provided by the network provider or a third-party.  The best way to achieve this balance is to have true competition in the access network.  Regulation is a last resort when there is no competition and apparently I am not alone in my opinion. 

My next article will discuss how Google is doing more to stimulate competition than  the National Broadband Plan.