Sunday, October 12, 2014

Avoiding the Pitfalls of Municipal Broadband Networks

I just posted an article on municipal broadband from Forbes that is one of many that points out the pitfalls of municipal broadband. Lest we forget all of the muni-WiFi follies of the last decade. It is not the purpose of government to compete with free enterprise in a capitalist economy. Government should only step in when private enterprise will not or cannot financially serve a market.

This article touches on the fact that fiber-based broadband networks are extremely costly to build. That last-mile access is the most expensive because it is the portion of the network least shared. Add to it the fact that we have a much lower housing density in the United States than in most countries, and you have added even more to the cost of providing service to a single home. Now consider the fact that the electronics that power the network will be replaced typically every 5 years to keep up with the demand for more services and bandwidth and you have offset most of the benefits of the 40-50 year life-cycle of the fiber. Do not forget the pressure to lower cost due to competition and the increasing costs for content. Now maybe you can see why there are only two providers at best in each market.

The business case for broadband services (i.e. voice, video, and data) works for at most two providers if they build and operate their own networks. Most areas of the United States are currently in this situation. A duopoly does not promote competition; hence, the desire for a third player. Google has chosen to stir up the pot in several markets by competing with the incumbents but their business objective is to use these captive eye-balls to push more Google advertising. I personally applaud Google for taking a long-term and different approach to provide true competition in some markets. The down side to what they are doing could be the "walled gardens" that so many net-neutrality wonks are afraid with managed services on the Internet. What's to prevent Facebook from doing the same as Google? Why not? The problem is if Facebook and Google start limiting content to competing services. It could happen. Remember AOL and CompuServe?

These fears and the fact that Google has only announced a limited number of markets it is entering. In Google's defense what is limiting the speed of their penetration is the byzantine regulatory environment that they have to navigate. Many cities and towns do not want to wait for Google or someone else to come so they have turned to government to fill in where private enterprise will not. A persuasive argument could be made for wanting municipal broadband which citizens of Chatanooga and around Salt Lake City have bought.

Cities have not considered out-of-the-box solutions such as they lay and manage the fiber infrastructure and allow service providers to lease the fiber access from a centralized location to the subscribers' home. Locales in Europe and Asia have successfully implemented this model. Where they have open-access broadband infrastructure, competition has flourished. I have challenged several municipalities to try open-access but they had employees more interested in building and running their own little networks. Civic leaders need to reach beyond their own bureaucrats or desire for bigger government and look for solutions that will work for the economic growth of their cities.