San Jose's Google Fiber rollout is delayed while tech giant explores alternatives - Mercury News

San Jose's Google Fiber rollout is delayed while tech giant explores alternatives - Mercury News: SAN JOSE -- Google has told at least two Silicon Valley cities that it is putting plans to provide lightning-fast fiber internet service on hold while the company explores a cheaper alternative. The news comes nearly three months after San Jose officials approved a major construction plan to bring Google Fiber to the city. Mountain View and Palo Alto also were working with Google to get fiber internet service but said Monday that the company told them the project has been delayed.

The economics of selling monthly subscriptions to one customer premise at a time -- the business model employed by the vertically integrated legacy telephone and cable companies Google is challenging -- are difficult. That's why it has produced widespread market failure and disparate access. And when the incumbents throw up legal speed bumps to slow deployment like making access to utility poles difficult, the business case for infrastructure ROI becomes even more difficult.

It's no surprise Google Fiber is reconnoitering. Using the investor owned, vertically integrated, subscription-based closed access business model favored by the incumbents to finance and construct advanced telecommunications infrastructure is like building roads based on the number of occupied garages -- preferably housing BMWs, Lexus and Mercedes. Google Fiber's problem is it's insufficiently disruptive. It's taking on the legacy telcos and cablecos with their own business model -- one that favors established incumbents and not new entrants like Google Fiber -- without any major cost or marketing advantage.

FCC's Sohn: Wired Broadband Competition Lacking | Broadcasting & Cable

FCC's Sohn: Wired Broadband Competition Lacking | Broadcasting & Cable: Gigi Sohn, senior counselor to FCC chairman Tom Wheeler, told a New Haven, Conn., audience Monday that "the simple truth is that meaningful competition for high-speed wired broadband is lacking."

She came not to bury broadband, but to praise the state's 1 gig community broadband project as a way to provide that "lacking" competition.

Viewed in the context of landline Internet infrastructure as a whole, Sohn is correct. It's a natural monopoly due to high cost barriers that keep out potential competitors as well as inefficiencies that make building parallel infrastructures as nonsensical as building multiple competing roads and highways serving the same area. If they were privately owned and operated for profit -- as is most telecommunications infrastructure in the U.S. -- the likelihood of their having a net present value greater than zero is slim to none.

What this story as well as many others lamenting the lack of "broadband competition" fail to mention is how Connecticut's project does offer competition to the consumer for Internet services via open access fiber infrastructure that provides wholesale access to Internet Service Providers (ISPs) as an alternative to the vertically integrated, closed access infrastructures used by the legacy telephone and cable companies as well as Google Fiber. ISPs would then compete to sell their services to consumers. From the CT Gig Project website:

Competition:

The open-access model would introduce true competition into the Internet
marketplace. The idea is to build the infrastructure and then give Internet
providers equal access to utilize it. Your Internet choices should be made
based on price and service, not solely by the town boundaries you reside in.

U.S. FTTP infrastructure projects falling into 2 categories

The construction of fiber to the premise (FTTP) Internet infrastructure in the United States is falling into two main categories:

1. Projects in large and midsize metro centers such as those started or planned by Google Fiber, AT&T and Century Link as well as some cable companies. An article in the July 2014 issue of Broadband Communities magazine lists these deployments.
2. Community or regional projects by local governments, utility cooperatives and public-private partnerships serving less densely populated areas not containing large cities such as those tracked by the Institute for Local Self Reliance.

The bifurcation of these infrastructure projects is distinguished by the economic health of their respective markets. Those in the first category undertaken by investor-owned providers that need a rapid return on investment are targeted to markets undergoing rapid economic growth, Broadband Communities editor Masha Zager writes in her article on large metro projects, citing the FTTP deployment strategy of Cox Communications:

Cox explicitly named rapid growth as one of its criteria for selecting cities for gigabit deployments. In contrast to municipalities, which often deploy fiber in an effort to jump-start lagging economies, large players favor localities that are healthier to begin with.

For the second category of projects, FTTP is clearly an economic development strategy to a far greater extent than the first. Unlike those in the first category financed by the impatient capital of telcos and cablecos burdened with high debt loads and large shareholder dividend obligations, community or regional projects will rely on patient capital. Sources include long term public bonds and creative public-private partnerships that blend public and private funding such as the Utah Telecommunications Open Infrastructure Agency (UTOPIA).

The second category is also distinguished from the first by the ownership and business models of the network infrastructure. In the first category of investor-owned projects, the network is a proprietary, closed access property. The telcos and cablecos that own the networks charge a retail monthly subscription fee to connecting premises.

By contrast, the second category is more likely to utilize an open access business model (such as UTOPIA) where fiber infrastructure is like a public works project such as a road or highway. Instead of selling individual subscriptions to customer premises, an open access model operates as a wholesaler selling network access to Internet service providers who provide services to customer premises. This model is a better option for the second category of projects because it removes the business risk of getting sufficient numbers of premises to sign up for service in order for the network deployment to be economically viable.

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.