Wednesday, April 30, 2008

Fiber infrastructure can pay off in broadband black holes, muni fiber expert says

Tim Nulty, who until recently served as director of Burlington Telecom, a publicly owned broadband system serving the city of Burlington, Vermont and who now runs ValleyFiber, a nonprofit organization focused on bringing municipal fiber to Vermont towns, has to be one of the most honest and smartest guys out there. He tells it like it is and isn't afraid to question telecommunications industry mythology.

Earlier this year, Nulty dismissed the industry's oft-stated notion that there can be robust competition in America's privately owned and operated telecommunications infrastructure. Rather, Nulty correctly observed in my opinion, it's a natural monopoly that by its very nature cannot foster robust market competition to benefit subscribers. The costs to build telecom infrastructure are so high that only large telcos and cable companies have the capital to play. And once one has put infrastructure in place, it discourages other players from coming in and doing a "over build" with its own proprietary infrastructure since it becomes less certain the new entrant will be able to lure a sufficient number of customers away from the incumbent provider to earn a profit on the investment.

It is precisely in this vein that Nulty argues fiber to the premises can pencil out in broadband black holes. First, Nulty, told the Broadband Properties Summit this week, there is by definition a lack of competition in such locales, making a strong business case for a potential fiber-based provider since it would have the market to itself. Second, having the fiber market to itself in what was once a digital dead spot would translate into a higher take rate that would generate more revenues to cover the cost of installing fiber to the premises, also reducing uncertainty and building a stronger business case.

The folks out West in Utah who run that state's multi-muni fiber system UTOPIA and are currently reassessing their numbers after disappointing results would be well served to consult with Nulty.

1 comment:

Gary said...

Fred,

I had read both the Burlington and UTOPIA stories (I am closer to UTOPIA).

One of the critical differences is that Utah law (thanks to QWEST) precludes a municipal network from being an end user service provider.

While the "Wholesale Open Access" model sounds good, it introduces another tier that requires compensation, confuses the end-customer on who is really in control and can lead to finger pointing between the wholesaler and the service provider when things don't go as planned.

Gary

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