Google Fiber's Kansas City experiment demonstrates need for publicly owned advanced telecom infrastructure

Google Fiber made Kansas City better but didn't transform it | The Kansas City Star: There may be a lesson here. Digital technology has undoubtedly transformed our world, disrupting media, entertainment, politics, retail, money management and more. But the miracle is at the end of the pipeline — the miracle isn’t the pipeline itself. Most Americans now see internet service as a utility, and price remains an important consideration. That could explain why Google Fiber is rethinking its role in getting digital service to the home.

Internet protocol-based advanced telecommunications is indeed a modern utility for residential, commercial and institutional premises just as electricity and telephone service before it. However, what remains unclear is the appropriate business and pricing model. Electricity is correctly billed on a consumption basis. Use more megawatts, pay more. That makes sense because the generation of those megawatts incurs costs directly attributable to their production. But the same cannot be said for the gigabits and terabits that power advanced telecommunications carrying voice, video and data.

The Kansas City Star correctly observes price of this most new utility is a consideration. It's because ISPs bill using a monthly recurring charge as do other utilities. Every household budgets based on its monthly recurring costs such as mortgage or rent payments and utilities. But is that the right pricing model for advanced telecommunications, particularly when the monthly recurring charge is based on bandwidth? While large businesses and data and call centers might be in the market to buy bandwidth, most consumers are not. They merely want reliable telecommunications service that doesn’t distort, slow down or stall and don’t care about the bandwidth that ensures that level of service.

 

The only way to ensure that service standard going forward as the bandwidth requirements of advanced telecommunications services evolve and grow is fiber to the premise telecom infrastructure. It’s the only technology that provides sufficient headroom for whatever services may be coming in the foreseeable future as well as adequately supporting today’s. In that regard, Google Fiber got the technology side of the equation right. But as the Star suggests, the business model essentially copied that used by legacy telephone and cable companies needs rethinking.

A better model would be to treat most telecommunications infrastructure as a public asset like roads and highways, funded by taxpayers at all levels of government – federal, state and local. Google Fiber and other ISPs would have a role to build and maintain those fiber thoroughfares and sell services over them on an open access basis. But they shouldn’t own them. Since they would be selling services, it would be in the economic interests of the ISPs to ensure the reliability of the network.

The current private ownership model of advanced telecommunications service is clearly broken and crippled by market failure in much of the United States lacking infrastructure capable of reliably delivering high quality voice, video and data. As the Google Fiber experiment shows, simply adding another investor-owned ISP isn’t going to solve that national problem. A new path forward is needed.

Google to Offer Internet Service in Olathe, Kansas - WSJ.com

Google to Offer Internet Service in Olathe, Kansas - WSJ.com: Google hopes its fiber initiative can put pressure on cable and phone companies to improve their networks as Americans use more bandwidth for online-video services such as Google's YouTube, among other sites.

Nonsense. Even assuming the truth of this purported rationale, Google can apply pressure all it wants, but for these publicly traded, investor owned Internet service providers -- Google included -- the real pressure is the pressure to produce quarterly earnings plus in the case of the incumbent telcos and cablecos, generous dividends.  And that imperative will always win out over CAPex to improve and build out network infrastructure.

Google Fiber expansion unlikely to solve America's incomplete infrastructure problem

As I recently blogged, market failure dogging the U.S. telecom infrastructure that continues to leave millions off the Internet grid calls for new business models.  Nearly six years ago, I speculated big Internet content amalgamators flush with cash (i.e. Google, Yahoo!) could might acquire legacy telcos and cablecos and upgrade their incomplete and inadequate infrastructure with their own.  That post wasn't fully on the mark because it didn't include the possibility that the content players' "big play for the pipes" as I termed it would be to overbuild the incumbents with their own infrastructure as Google recently did in a single American city: Kansas City. 

This Wired piece is sparking speculation that Google might in fact be planning an effort to expand its proprietary fiber to customer premises infrastructure supported not just by customer service charges but also by its own content, similar to the incumbent cableco business model.  "If it turns out Google Fiber helps Google sell more (and more valuable) ads and content," the Wired article notes, then building out more fiber would support Google's business model.  However, the article notes that the cost of doing so would strain even Google's vast economic resources, leaving the U.S. with what President Barack Obama described in his 2012 State of the Union Address as an "incomplete high-speed broadband network."

Another recent article posted at ZDNet points to the same conclusion.

Google's Kansas City fiber build doesn't change underlying infrastructure economics

This Kansas City Star article discusses the implications of Google's rollout of fiber to the premise (FTTP) infrastructure in Kansas City.

The newspaper interviewed Josh Olson, a technology industry analyst for Edward Jones & Co.  Olson sees the Google fiber deployment as a template to boost user demand for higher bandwidth and speeds.  If new applications that can run on this gigabit speed capable infrastructure emerge, it would increase pressure for incumbent cable and telephone companies in other markets to upgrade their networks. However, Olson goes on to dismiss that notion, noting incumbent telcos and cablecos can make money off their existing services.  Of course they can when these are the only wireline services available to most U.S. homes and small businesses unless their communities build their own fiber networks operated by local governments or consumer cooperatives.

And as industry analyst Dave Burstein points out, Google's fiber deployment in a single U.S. city cannot change the underlying economics for incumbent providers that must earn a rapid return on investment to keep their shareholders happy -- a business model that directly conflicts with the long term ROI associated with high cost infrastructure projects.  Plus telecommunications company shareholders are accustomed to receiving high dividends -- money that can't be directed toward CAPex.

“The problem is it costs a lot of money to climb all those poles and dig all those trenches to make it happen,” Burstein told the Star. “You don’t make money in three years, but you make money in 10 years."

Read more here: http://www.kansascity.com/2012/09/24/3832330/google-fibers-gigabit-gamble-has.html#storylink=cpy

Google Unveils Superfast Internet in Kansas City, Mo. - NYTimes.com

Google Unveils Superfast Internet in Kansas City, Mo. - NYTimes.com: Milo Medin, the company’s vice president of access services, said the technology and technical capacity were available to create this product on a global scale, but economics, such as the cost of constructing the fiber network in communities, presented a barrier.

Google's demonstration project does nothing to alter the cost and business model constraints that require communities to build their own fiber networks rather than investor owned providers.  While everything may be up to date in Kansas City, unfortunately for much of the United States it is not when it comes to premises Internet access.

It also starkly illustrates the dismal state of Internet capable premises telecommunications infrastructure in America -- accurately described as "incomplete" by President Barack Obama in his January State of the Union address -- where many must still rely on obsolete dialup modem technology that was state of the art when Obama's predecessor Bill Clinton was starting his first term two decades ago.  One city does not a network make.