Friday, December 04, 2015

Massachusetts Broadband Institute pulls funding from WiredWest, advises towns to walk away from proposed contract | masslive.com

Massachusetts Broadband Institute pulls funding from WiredWest, advises towns to walk away from proposed contract | masslive.com: The WiredWest agreement creates "unnecessary financial and operating risks" for member towns, wrote Nakajima, and would require fundamental restructuring to move forward.

One problem identified by MBI is that under the WiredWest model, towns would transfer ownership of their physical network to WiredWest in perpetuity, while retaining legal responsibility for any debt service associated with the buildout.

In essence, the towns and state would pay for the fiber-optic network, and WiredWest would end up owning it.

MBI also questioned whether the WiredWest business model would work. WiredWest has been courting small towns with the promise that if they take on significant borrowing, and gain commitments from 40 to 55 percent of households for service, that customer fees would not only cover network operating costs, but cover the cost of municipal debt service after several years.

"WiredWest's plan to repay debt service to the towns will be difficult or impossible to achieve at reliable subscription rates. ... Towns should assume that they will have to repay most if not all of the debt that they borrow," wrote Nakajima.

This development illustrates the enormous financial challenges facing state and local government-initiated telecommunications modernization infrastructure projects. The fundamental financial risk facing them -- as well as Google Fiber -- is the same one that deters incumbent legacy telephone and cable companies from upgrading and building out their last mile networks: a business model based on selling month to month subscriptions for a package of services and the associated uncertainty of not knowing how many households will subscribe and keep their service active.

This is why I lean towards viewing telecom infrastructure as public works like roads and highways. They serve all occupied premises and aren't predicated on premise occupants having vehicles or driving on them. But they bring long term value to premises regardless.

Also, roads and highways are not a competitive market but rather a natural monopoly. That's why I advocate federal government (via a 501(c)(1) nonprofit) sponsorship of construction of universal fiber to the premise infrastructure to serve all American homes and small businesses in my recently issued eBook. I believe government is the most appropriate ownership model for a natural monopoly since natural monopolies don't lend themselves to market competition. As long as the nation attempts to address its telecom infrastructure deficits with market-based "competitive" models, it will be  continually vexed and prone to setbacks and failure -- and fall even further behind the rest of the industrialized world.

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