Assertions to the contrary can't alter underlying microeconomics: Advanced telecom infrastructure is a natural monopoly

Editor's Note: Welcome to the Roaring ’20s: Meanwhile, according to RVA LLC, 2019 proved to be a banner year for fiber to the home, and 2020 promises to be nearly as good. Broadband providers have now passed 46.5 million unique U.S. homes with fiber, up more than 6 million since the year before – not bad for a technology that got started just 20 years ago. In addition, nearly 3 million households can choose between two or more fiber connections. Not bad for what was once considered a “natural monopoly.”

Advanced telecom infrastructure remains a natural monopoly market due to high costs of entry that make it difficult for would be private sector competitors to challenge an established provider. If it weren't, most all American households would have had fiber connections at least a decade earlier in the 2000s -- when fiber was hardly a new technology -- and millions would not lacking them today.

Nor would there be a need for publicly and consumer cooperatively owned fiber to the premise infrastructure since competitive market forces would work to ensure nearly all homes were connected by investor owned players. That some providers opt to compete by cherry picking homes in what they consider "high potential" neighborhoods by inefficiently building multiple premise fiber connections doesn't alter the basic underlying economics.

Study finds relationship between recent U.S. settlement patterns and telecom services

The November-December 2014 issue of Broadband Communities includes primary research finding a correlation between population trends and the robustness of telecommunications services. The study covers the period of April 2010 to December 2013.

Editor-at-large Steve Ross, who conducted the research, notes his findings relate to a recent U.S. Commerce Department study showing the relative lack of robust Internet service in rural areas compared with urban areas. Examining census data, the Commerce Department study found for the first time in U.S. history, most rural counties lost population between 2010 and 2012.

Ross includes a couple of caveats on his research. He notes the broad urban/rural county classification used doesn't take into account that exurban counties often include some areas that are functionally urban and others that are functionally rural. He also cautions against drawing conclusions from the data as to whether the availability of strong telecommunications services attracts population and lack thereof drives out migration.

Given the relationship between robust telecommunications services and settlement patterns, Ross's research suggests that U.S. settlement patterns could strongly be influenced with the deployment of more robust telecommunications infrastructure in less populous areas of the nation. Especially given the fact that much of today's information and knowledge-based economic activity can take place most anywhere that infrastructure is available.

The 2 key inaction risks facing community fiber projects

Creative risk taking is essential to success in any goal where the stakes are high. Thoughtless risks are destructive, of course, but perhaps even more wasteful is thoughtless caution which prompts inaction and promotes failure to seize opportunity.

  -- Gary Ryan Blair 

Communities contemplating fiber Internet infrastructure projects should keep in mind that there are risks -- negative impacts -- associated both with taking action as well as not taking action.  The latter risk -- termed inaction risk -- is perhaps one of the most threatening and pervasive risks.  For some regions and communities, that risk is being left permanently off the modern Internet grid and unable to realize the benefits it offers for government, public safety, health and education, economic development and transportation demand mitigation. 

Milo Medin, Google's vice president of access services, laid out two major underlying rationales explaining why communities needlessly run the risk of inaction in his address to the 2013 Broadband Communities Summit. 

1.  The unswerving belief despite more than a decade of market failure that incumbent legacy telephone and cable companies will upgrade and build out their infrastructures to serve all premises.  Here's what Medin had to say on that point:

Part of the reason the U.S. is falling behind is that most cities haven’t been intentional about their broadband infrastructure. Cities know they have to make sure the water system works and scales to support growth, the roads are maintained and built, garbage is collected properly. But often, they think broadband is something that the phone company or the cable company will take care of for them and they can ignore it, or that the FCC will make sure the appropriate incentives are put into place to drive competition and upgrades. Depending on those processes is how we got into the situation we’re in today.

2. The misguided belief that wireless services have obsoleted fiber networks. Medin explains:

Some argue that fiber networks are not really needed because of wireless network growth. As an engineer, quite honestly, this kind of talk makes my brain hurt. Wireless network growth is driven by fiber. All those base stations that smartphones connect to are increasingly connected by fiber because, as speeds go up, fiber is required to carry that kind of traffic. Copper just won’t do for modern wireless networks.

Cisco and others expect wireless data to grow by a factor of 50 in the next few years, and you’re not going to be able to solve that kind of growth by throwing more spectrum at it. You’re going to have to reduce the size of the cells, shrinking them, reducing the number of users that are being served by a given base station. And that means a lot more cell sites and a lot more fiber to feed those cell sites. In the limit, the future of mobile is going to look a lot like Wi-Fi: tons of small cell sites connected by a wireline network, connected by fiber – and that’s just physics, folks.

The full Broadband Communities article excerpting Medin's speech can be viewed here and here (pdf).