San Francisco eyes municipal telecom infrastructure project to bring fiber to every doorstep

San Francisco Municipal Broadband Targets $26 Monthly Base Price - Telecompetitor: City officials have recommended construction of a San Francisco municipal broadband network based on a public-private partnership. The recommendations came in a 103-page report issued by the office of Supervisor Mark Farrell on March 15.
According to the San Francisco Municipal Fiber Advisory Panel’s report – Financial Analysis of Options for a Municipal Fiber Optic Network for Citywide Internet Access – a publicly funded broadband utility network would cost the city an estimated $867.3 million in construction costs plus $231.7 million a year in maintenance costs. Projected subscriber revenue would result in an annual deficit of $145 million. Given this, as well as the desire to build in some market competition, the authors recommended the city launch a public-private partnership model that calls for all San Francisco homes and businesses to pay an average $26 per month utility fee for baseline Internet access. Introducing tiered pricing models based on type of service or bandwidth use could offset operating costs and lower baseline fees.

The Utah Telecommunication Open Infrastructure Agency (UTOPIA) had planned to expand its services using a similar financing mechanism with a private finance partner, Macquarie Capital Group. It pulled the plug on the partnership last month amid resistance to the utility fee. However, the model could fare better in the city by the bay due to multiple factors including its relative affluence, more liberal political leanings and its well established place in the information technology industry. Unlike UTOPIA, a regional network involving several municipalities, San Francisco is also a much more compact service area of just 14 square miles with pre-existing municipal infrastructure that would facilitate construction. That likely made it easier for San Francisco to reject the model used by legacy telephone and cable companies and Google Fiber that builds infrastructure serving some but not all neighborhoods.

UTOPIA reconnoiters as resistance to local parcel fee halts PPP with Macquarie

Macquarie is probably dead, and that’s probably okay – Free UTOPIA!: While I wasn’t able to attend the latest UTOPIA board meeting (bit of a drive from Cedar City), I did get a summary of what was discussed during that meeting. One of the things that came up was the long-delayed Macquarie deal. For all intents and purposes, it’s most likely not going to happen. There appears to be slow action on a binding public vote and the utility fee was very unpopular (and wasn’t coming down). The board has voted to pay Macquarie what they are due and take those reports as valuable information to plan for the future with no further action.

As this blog reported last March, resistance to a utility parcel fee stalled progress on a public-private partnership between the Utah Telecommunication Open Infrastructure Agency (UTOPIA) and an Australian firm that invests in public infrastructure projects, Macquarie Capital Group. That resistance created a massive stumbling block to the expansion and financial future of the UTOPIA regional fiber to the premise (FTTP) that serves 11 Utah municipalities.

Now nearly a year later as the blog cited above reports, that resistance has proven fatal to the partnership. In order for it to work under the long term financial plan prepared by Macquarie, the parcel fee was a necessary component of the partnership given that a public-private partnership by definition requires the contribution of public financial resources. No public contribution means no partnership, leaving the private partner like a single hand clapping.

This development is yet another example of the lack of adequate funding mechanisms at the state and local government level to ensure the construction of FTTP telecom infrastructure serving all American homes, businesses, and public institutions. The situation calls for an aggressive federal public works program to construct this needed infrastructure for the 21st century as I propose in my recently issued eBook Service Unavailable: America’s Telecommunications Infrastructure Crisis.

UTOPIA’S “fiber highway” offers roadmap to greater competition for premise telecommunications services

A major complaint about Internet service in the United States is legacy incumbent telephone and cable companies lack incentive to provide better value and customer service and to build out their networks to fully serve communities and neighborhoods and not just selected segments. Many believe the solution is introducing more competition.

But given that telecommunications infrastructure costs a lot to build and maintain, that circumstance creates high economic barriers to potential competitors. That leaves the incumbent telephone and cable companies firmly entrenched in a market that naturally tends to be monopolistic. It puts them in the dominant position and consumers in the weaker role, forced to be what economists call “price takers,” meaning they must pay whatever their ISP charges or go without service. 

Summed up, a market that’s naturally monopolistic can’t easily be transformed into a competitive one without a radical reordering. One such example is the Utah Telecommunication Open Infrastructure Agency (UTOPIA), which operates its regional fiber telecom infrastructure as public works -- like a road or highway. That introduces competition by giving consumers the choice of what Internet services they want to purchase and from which ISPs. “The value to users is generated through greater choice of providers that generates a shift in the balance of power from the ISPs to the user and the superior service that the new network will provide,” notes this recent update by Macquarie Capital on its public-private partnership venture with UTOPIA.

As the report notes, there has been some resistance to a key financing element: a proposed monthly utility fee. But as it also points out, the estimated $22.60 monthly utility fee is offset by better value consumers would receive than as price takers of the incumbent telephone and cable companies.

As the maxim holds, there’s no free lunch. But some lunch deals are better than others, particularly when they help fund fiber to all and not just some premises as with Google Fiber’s “fiberhoods.” UTOPIA’s open access model provides the additional advantage of ensuring everyone is connected regardless of where they live or operate their business. Applied on a regional basis as UTOPIA plans, the utility fee model is a particularly important financing mechanism in places like Bettendorf, Iowa and Danbury, New Hampshire -- small localities that would be challenged to fund Internet infrastructure construction without new revenue streams.

The Obama administration and the Federal Communications Commission – looking for ways to increase competition for premise telecommunications service amid a growing tide of consumer dissatisfaction – would be wise to look to UTOPIA’s open “fiber highway” model. And consider tax incentives such as making utility fees tax deductible for all taxpayers to make them more palatable.

The FCC is moving to preempt state broadband limits - The Washington Post

The FCC is moving to preempt state broadband limits - The Washington Post: Under Section 706 of the Communications Act, the FCC is authorized to promote the deployment of broadband in the United States. By ruling that the anti-municipal state laws constitute barriers to that mission, the FCC's draft order invokes Section 706 in preempting the laws.

But that theory has already been questioned by Republicans who believe private investment is a more effective tool for rolling out high-speed broadband. 

Private investment in theory might be effective -- if there was a lot more of it. The legacy, shareholder owned incumbent providers are constrained in their capital investment capacity by the demand for short term profits and high dividend obligations and debt loads. Witness Verizon, for example. The company stopped new build outs of its FiOS fiber to the premise infrastructure in response to shareholder concerns.

Private pension money might be brought into play as is the case with Australia-based Macquarie Capital, the financial partner of the Utah Telecommunication Open Infrastructure Agency (UTOPIA). But so far no other similar financiers with the billions that are needed have emerged.

In summary, there really isn't any point in debating what's the best source of U.S. fiber to the premise telecommunications infrastructure funding. What's truly important is that there be an adequate and viable funding source -- something the nation is currently lacking.

Kentucky middle mile telecom infrastructure project needs solid last mile solution

 

Kentucky.gov: - Governor Beshear, Congressman Hal Rogers Launch Statewide Broadband Initiative, Beginning in Eastern Kentucky: The first stage of the project is to build the main broadband fiber lines across the state. These major fiber lines are called the “middle mile.” The “open access” network will allow the private sector to use the fiber to deliver services into communities. Once complete, other Internet service provider companies, cities, partnerships, or other groups may then tap into those “middle mile” lines to complete the “last mile” – the lines that run to individual homes or businesses.

This last sentence is key and delineates between what's actually planned to be built and what's theoretically hoped to be. Without those last mile ISPs, Kentucky will end up with an incomplete network, condemning many of its residents to continued subpar Internet service. It would be like building an expressway and having gravel or dirt roads at the exits and on ramps. As the news release from Gov. Beshear's office notes, Kentucky rates poorly compared to other states on Internet access. That sad statistic is unlikely to improve without a solid plan to build fiber to the premise infrastructure to serve the last mile.

Historically, middle mile projects like this one do a good job getting anchor institutions like schools, libraries and government offices connected. But that doesn't automatically mean nearby homes and small businesses will get connections and can even hinder their getting service as network expert Andrew Cohill has noted since the network operators tend to concentrate their efforts on serving anchor institutions and figure someone else can solve the last mile problem. That someone else has typically proven to be nonexistent. It's essentially a funding problem since there tends to be insufficient and/or uncertain future revenues to attract those interested in investing in the needed infrastructure to bridge the last mile to homes and small businesses.

In Utah, the private funding partner of the Kentucky initiative, Macquarie Capital Group, is working with the Utah Open Telecommunications Infrastructure Agency (UTOPIA) on an open access fiber to the premise project serving 11 cities. That project solves the last mile funding problem by treating the fiber to the premise infrastructure as public works, funded in part by fees assessed on property owners. Which makes sense since these properties collectively benefit by being able to access the various economic, educational, health care and other services made possible with fiber connections. Kentucky would be wise to draw upon the Macquarie/UTOPIA partnership to plan and construct a complete fiber telecommunications network that will serve all its residents in the 21st century.

Broadband and the future of learning | Computerworld

Broadband and the future of learning | Computerworld: Since learning may take place anywhere and anytime, connected learners also need broadband access outside of school. Although 70% of U.S. households now have broadband, millions of households still do not. Private-sector initiatives are helping to expand access. For example, Comcast’s Internet Essentials program offers low-income families broadband service for $9.95 a month, along with the option to purchase an Internet-ready computer for under $150 and free digital literacy training. In its first three years of operation, the program has provided affordable broadband service to more than 350,000 households.

It should be noted that Comcast and other incumbent legacy providers redline many neighborhoods, leaving them without access to modern landline Internet connectivity at any price.

There are also promising public-private partnerships to increase access. In Forsyth County, Georgia, the local school district worked with the Chamber of Commerce to create a directory of free Wi-Fi locations in the community and to provide participating businesses with signs indicating where free Wi-Fi is available. And a middle school in Manchester, Tenn., that has equipped all sixth-graders with iPads had convinced local businesses to open their Wi-Fi hotspots to students to maximize the benefits of their technology tools.

Public-private partnerships need to go far beyond Wi-Fi and help construct fiber to the premise infrastructure to make blended learning possible since it heavily relies on students having adequate access in their homes. A good example is in Utah, where an investment firm, MacQuarie Capital, is partnering with the Utah Telecommunications Open Infrastructure Agency (UTOPIA) to finance and complete the construction of open access fiber to the premise infrastructure.

Another public regional telecom infrastructure project may be ripe for PPP investment

In Utah, several cities are moving ahead with due diligence on a public-private partnership (PPP) to construct fiber to the premise (FTTP) telecom infrastructure.

Another public FTTP infrastructure project in the eastern United States might also be an attractive partner for private investment companies like Australia-based Macquarie Capital Group, which is looking at investing in Utah's UTOPIA regional network.

This one's in western Massachusetts and is a utility cooperative of 42 municipalities. According to a June 2014 update by the Wired West cooperative, it is hoping to obtain state funding to move forward with construction as people in western Massachusetts continue to be vexed by the lack of adequate internet service.

Given the scope of the Wired West project, it will likely need significantly greater funding from the private sector as part of a PPP like that under consideration in Utah.

Future of U.S. telecommunications infrastructure could be determined in Utah

Utah is the site of an economic laboratory for two different business models for the construction and operation of fiber to the premise telecommunications infrastructure. The outcome of the experiment is likely to have significant implications for role of the public sector in these networks as well as the overall future of U.S. telecommunications infrastructure at a time when the nation has reached an inflection point on the issue.

Drew Clark of BroadbandBreakfast has written an overview of the two models: a closed access network based on the business model used by incumbent telephone and cable companies and an open access network operated by a public-private partnership. In a closed access network, the network operator acts as a retailer that “owns” the customer, billing them monthly based on subscribed services. By comparison, an open access network is akin to a public thoroughfare. It wholesales network access to information and service providers that pay to reach customers.

Provo is the site of the closed access model operated by Google Fiber, which is purchasing iProvo, a municipally operated network. Nearby, an open access network operated by the Utah Open Telecommunications Infrastructure Agency (UTOPIA) serves 11 cities. Both the iProvo and UTOPIA networks have encountered financial difficulties but already have deployed a significant amount of fiber serving customer premises, making them attractive test beds for the contrasting business models.

Macquarie Capital, an Australian-based investment company that invests in large scale infrastructure projects like airports, is proposing to invest more than $300 million of debt and equity financing as part of a 30-year leasehold of the UTOPIA network. The rest of the funding needed to fully build out the network would come from a monthly telecommunications utility fee on all residences and businesses within the 11 cities of $18-20 per household, $9-10 per apartment unit and $36-40 per business connection, according to Clark’s summary. Residences would receive free access to a basic broadband network initially offering 3 Mbps symmetrical connectivity.

The key strength of the UTOPIA model is the utility fee assessed on all premises that helps mitigate the business risk of whether enough premises will sign up for services to generate sufficient revenues to offset construction and operating costs and in the case of investor-owned networks, generate operating profits within a reasonable time frame. This uncertainly has been the primary obstacle to build out of incumbent telephone and cable company networks that operate on the customer subscription model. Since Google Fiber uses the same model, it is similarly constrained and thus limits its fiber networks to select “fiberhoods” where the company believes enough premises will subscribe to its network.

UTOPIA’s open access model also has some uncertainty associated with it -- whether Internet service providers will choose to offer services over the network. Since the open access model is novel in the United States and runs counter to the dominant closed access model, UTOPIA has had difficulty attracting enough ISPs necessary to offer services in order to attract customers. Offsetting this uncertainty, however, is the UTOPIA model’s ability to scale and build out to reach areas ignored by closed access, investor-owned networks leery of the business risk associated with deploying to these areas that leaves about one in five U.S. homes without Internet connections.

Policy debate -- not market competition -- predominates in U.S. premises Internet infrastructure

In the United States, the major competition in last mile wired premise Internet infrastructure is playing out in the public policy arena more than in the marketplace. In order to have market competition, there has to be a market. In many areas, there isn’t one. Those looking to purchase wired premise Internet service cannot do so because no providers want to sell it to them. The basic definition of a functional market is willing buyers and willing sellers. Others want better value service and more options. Here again, the market fails. No providers are willing to make the necessary investment in order to sell better value services to them – the impetus behind many municipal Internet infrastructure projects.

Second, telecommunications infrastructure due to its high construction and operating costs excludes many potential providers. It’s what known as a natural monopoly or at best, a duopoly. Roads and highways are tremendously expensive and thus tend to be operated by one provider that can bear the large cost burden: the government. In a limited number of cases, a duopoly exists where motorists have the option of taking the public highway or a private toll road. By definition, there cannot be a competitive market, which is one made up of many sellers and many buyers.

Which brings us to the major ideological battleground over last mile wired premise Internet service: Whether it should be operated like a closed, private toll road or an open access public thoroughfare. Big money has joined the fight to bolster the latter position. Macquarie Capital Group, an Australian firm that invests in multi-billion dollar infrastructure projects around the world, is considering investing in UTOPIA, an open access fiber to the premise (FTTP) network serving 11 Utah municipalities. (See item here).

On the other side of the debate are the legacy incumbent telephone and cable companies that want to preserve their closed network models. As Community Broadband Networks reports, they are sponsoring bills in both chambers of the Utah legislature opponents say are intended to scotch a potential Macquarie investment in UTOPIA. In Kansas, the cable company lobby is seeking legislation that would add Kansas to the roster of 20 states that bar local governments from building Internet infrastructure projects to serve their citizenry.

Possible alternative to capitalize U.S. FTTP build out emerges in Utah

Building infrastructure of any kind is a costly undertaking, including fiber optic to the premise (FTTP) telecommunications networks. Those high capital costs have crimped FTTP build out in the United States, challenging existing telephone and cable companies as well as newcomers like Google Fiber.

In Utah, a new strategy is emerging involving a global firm that with patient capital that specializes in big dollar infrastructure projects. The Salt Lake City Tribune reports Macquarie Capital Group, an Australian firm that advises and invests in public projects around the world, will launch an engineering and feasibility study to operate Utah's 11-city UTOPIA FTTP network in a public-private partnership: 

Macquarie’s investors — including pension funds, large insurance firms and private endowments — were seeking to develop stable, long-term investment opportunities and were drawn to technology-based projects, Hann said. 

If the feasibility study proves fruitful and Macquarie agrees to take over the network, it likely will entail a deal in which the firm would assume management of the network for 30 years and invest in building out and upgrading the rest of the lines to neighborhood homes, Hann said. 

The network would remain an open-access network and Macquarie would partner with third-party Internet service providers, he said.