The United States is at an inflection point relative to
premise Internet infrastructure serving homes and small businesses. The “walled
garden” business model of legacy incumbent cable and telephone companies has
reached the limits of its reach. Connecting the remaining 20 to 30 percent of
premises outside the wall isn’t economically practical as testimony at a U.S. House Small Business Subcommittee hearing this week in
upstate New York illustrates.
Mark Meyerhofer, a government relations
administrator for Time Warner Cable, said while there has been a change in the
national mindset that favors a greater focus on unserved areas, nevertheless
“It remains extremely challenging to extend broadband to most rural areas of
New York State, where geographic isolation and topographic issues make it
economically infeasible for companies to reach these areas,” Meyerhofer explained.
“Investments simply cannot be recouped before it is time to reinvest.” Although
Meyerhofer was specifically referring to only one part of the country, his
testimony applies elsewhere across the nation including many suburban and exurban areas where service gaps exist. That economic reality of the
walled garden Internet also applies to Google Fiber, which plans to expand into
several metropolitan areas.
The other challenge faced by the legacy
incumbent providers (but not Google Fiber) is the ever growing demand for more
Internet bandwidth. It’s similar to the problem facing manufacturers of silicon-based
microchips that eventually will reach a physical barrier where no additional
circuitry can be crammed onto the chip. That will require the incumbent providers
to change out their metal wire-based premise service infrastructure with fiber
optic connections to accommodate the additional bandwidth demand and stave off technological
obsolescence. But barring a revolutionary breakthrough that significantly reduces
the cost of constructing fiber to the premise infrastructure, their
shareholders aren’t likely to approve of such large capital expenditures that
could cut into dividends as shown by Verizon’s 2012 pullback of its FiOS fiber
to the premise product offering.
Given the growing consensus that the
so-called “last mile” premise Internet infrastructure challenge can’t be met within
a commercial framework, it strongly suggests other business models including a nonprofit
cooperative or public works approach similar to that used for roads and
highways will be necessary in many areas of the U.S.
