Observations on Penn Law review of muni fiber

New Penn research assesses financial viability of municipal fiber networks •Penn Law: Using industry standard financial analysis tools on five years of official data, the study finds that 11 out of the 20 fiber networks assessed do not generate enough cash to cover their current operating costs and only two out of the 20 are on track to recover their total project costs during their 30-40 years of expected useful life. Key findings include:

• 11 of 20 projects studied are cash-flow negative, many substantially so.
• 5 of the 9 cash-flow positive projects are generating returns that are so small that it would take more than a century to recover project costs.
• 2 of the 9 cash-flow positive projects would have a recovery period of 61-65 years, beyond the expected useful life of a fiber network.
• Only 2 of the 20 projects studied earned enough to expect to cover their project costs during the useful life of the networks, one of which is an outlier that serves an industrial city with few residents.
• The analysis also models the returns for a hypothetical project, finding it would take over 100 years to recover expected project costs.

Three observations on this study:

1. The study's findings do not invalidate the concept of municipally operated telecommunications infrastructure per se. Rather, they suggest the financial model requires further assessment and adjusting and enhanced federal subsidization.
   
2. The scope of the study does not encompass the external benefits of modernized telecommunications infrastructure, particularly in areas where investor-owned private network investment would also be NPV (Net Present Value) negative, miring these areas with substandard infrastructures and associated adverse economic implications.
3. The executive summary states that "[a]lthough some claim that investing in fiber serves a necessary function of future-proofing a municipality’s infrastructure, evidence shows little current need for such high broadband speeds." This is the classic infrastructure planning error of estimating future infrastructure needs based on present needs and detracts greatly from the study's credibility since this point is typically made by legacy incumbent telephone and cable companies opposed to public sector telecommunications infrastructure modernization projects as an encroachment on their largely unregulated service territory monopolies.

Curb your enthusiasm: Google Fiber won't likely serve "thousands" of municipalities

Google To Use City-Owned Network To Bring Fiber To Huntsville 02/22/2016: This private-public model for broadband could spread far beyond Huntsville, according to muni-broadband proponent Christopher Mitchell, director of the Institute for Local Self-Reliance's Community Broadband Networks Initiative."In many ways, I think this is a tremendously hopeful development," Mitchell tells MediaPost. "It gives cities a great confidence that if they build passive infrastructure, they will be able to work with ISPs."

Mitchell adds that many of the municipal officials he has spoken with recently have said they're willing to build fiber networks, but not provide broadband or telephone services. He adds that he expects a few other cities cities to follow Huntsville's lead in the next one to two years, and that "thousands" of municipalities could ultimately do so.

Thousands? Unlikely. Few local governments have the existing utility infrastructure or financial resources to build fiber to the premise networks serving their residents as they continue to recover from the 2008 economic collapse and face competing demands for other infrastructure such as roads and sewer systems and public pension obligations.

The rainbow rabbit leaps over incumbents: Google Fiber in diligence for expansion in 9 metro areas of U.S.

Google Fiber's announcement today that it is in diligence with local governments in nine metro areas of the United States for possible expansion of its proprietary fiber to the premise (FTTP) telecommunications infrastructure illustrates how a company that has been in the Internet business from the beginning can nimbly hop over legacy incumbent telephone and cable companies. The incumbents are weighed down by large investments in metal wire-based infrastructure and outmoded pricing structures that rely on creating artificial bandwidth scarcity and unit-based consumption. They must also satisfy shareholders who favor big dividends over capital investment in FTTP networks -- which explains why Verizon halted its FiOS FTTP product expansion in 2012. Finally, incumbents have sowed sour relationships with local governments that have asked for better service for their residents for years, making them likely to heartily welcome the Googlers.

What's also evident from today's announcement is Google Fiber's colorful hare won't likely be running to areas of the U.S. where it's needed most -- locales where homes and businesses lack wireline premises Internet service due to redlining by the incumbent providers.

Those areas will likely have to rely on municipal and cooperative fiber builds, although some investor-owned players could potentially offer them FTTP as in this rather counterintuitive circumstance in Mississippi. They can, however, benefit from Google Fiber's experience, adopting principles and techniques that lower costs and improve the economics of FTTP. These include prioritizing construction based on interest from potential subscribers and differential pricing models that include an option for basic, flat rate service at low cost for a limited period of time.

Demand aggregation won't attract investor-owned providers

Broadband Internet service for rural communities eyed - The Daily News Online: News:

A consultant asked Genesee County lawmakers Wednesday if they wanted to join a regional coalition to try to get broadband Internet service to rural communities and homes.
Evhen Tupis of Clarendon said he’s been working on getting high-speed broadband for unserved areas of Orleans County and Niagara County. The sparsely populated parts of the two counties don’t have a provider because it isn’t financially feasible for companies such as Time Warner and Verizon.

The coalition would issue a request for proposals to broadband service providers “with 100 percent coverage,” he said.
Tupis’ proposed Inclusive Internet Initiative would pool together the region’s counties to make it more attractive to communications companies. He estimated the cost to provide broadband to most or all of Genesee County at $150,000, the same as it would in Niagara.

Yet another misguided notion that investor-owned telecommunications infrastructure providers can be convinced to serve an area that is insufficiently profitable for them by aggregating demand.  Demand aggregation does not solve the underlying economics that make deployment impractical for these providers.  If businesses and residents want modern Internet access, they will have to provide it themselves with municipal fiber or a consumer cooperative.

Dark fiber owners seek buyers -- but last mile will determine value

Today's Wall Street Journal reports dark fiber left dormant since the dot com bust of a decade ago is on the block, its owners hopeful that the transition to Internet protocol-based telecommunications that stalled around the same time will finally take off.

But now as then, the so-called last mile (or first mile as some refer to it) remains key since the dark fiber was put in place for long haul and in some cases middle mile infrastructure. Long haul and middle mile fiber standing alone do not a network make. It takes last mile fiber infrastructure to reach customer premises.

Potential purchasers of that dark fiber must assess the odds whether there will be sufficient last mile fiber to connect to. Reliance on legacy incumbent telcos and cable companies lowers the odds. They have largely upgraded and built out their networks to the extent their business models allow. Verizon, the sole legacy telco that was building fiber to the premises, recently pulled back to concentrate on wireless service in metro areas. But if local governments and telecom cooperatives crank up construction of fiber to the premises infrastructure to fill the gap left by legacy providers, the value of these dormant dark fiber assets will likely increase.

Economic development goals pit local goverments against legacy telcos, cable companies

Local government economic development agendas are clashing with investor-owed legacy telcos and cable companies in North Carolina as the Associated Press reports in this item appearing in The Daily Reflector.

The locals want fiber optic-based infrastructure to attract employers and create jobs. The business models of the incumbent telco and cable companies preclude them from profitably providing it. But rather than accept that business reality and seek more profitable business ventures, they've engaged in disinformation by declaring telecom infrastructure -- a natural monopoly -- as a competitive market. Therefore, they've argued to North Carolina lawmakers, local governments should get voter approval before issuing bonds to cover the cost of municipally owned telecom infrastructure in order to level the "competitive" playing field.

That sounds reasonable on its face. But the incumbent agenda isn't driven by public interest by ensuring prudent expenditure of public funds. It's a self interested one aimed at introducing delay. Unfortunately for the incumbent investor-owned providers, that merely adds costs and does nothing to increase profits. That could depress their share values and potentially leave them open to shareholder lawsuits.

White paper highlights role of muni fiber as U.S. develops national broadband plan

Here's an excellent white paper on the status of U.S. municipal fiber to the premises systems issued this month by the Fiber to the Home Council.

The report lists 57 muni fiber networks that serve both homes and businesses operating as of October 2009 (it adds at least 15 more serve businesses only), noting that "a growing number of municipal governments are taking it upon themselves to build FTTH networks – much in the way that they have previously built roads, sewers and/or electrical systems – as a means of ensuring that local residents have access to necessary services, in this case, Internet connectivity for the 21st Century."

These muni fiber systems typically spring up after private service providers have declined to upgrade their networks or build such systems, the report notes. As such, the white paper concludes, these networks are an important component of the U.S. telecommunications infrastructure and should be encouraged.

That conclusion should be given due consideration by the Federal Communications Communications Commission as it develops a recommendation due to Congress in February 2010 on a national broadband deployment plan.

Municipalities, telco coops essential players in fiber to premises deployment

Verizon issued a news release Monday pointing to a study commissioned by the Fiber to the Home Council suggesting that once the U.S. housing market begins to thaw, homebuyers will be hot for fiber. Or as another study issued last November by Google described them, "Homes with Tails."

As the only telco committed to a full fiber to the premises strategy for both brownfields and greenfields with its FiOS product, Verizon clearly has an interest in promoting the concept. The problem is Verizon like other big telcos as well as cable companies have segmented their markets such that locales where fiber would be most the desirable real estate amenity -- such as those that are home to exurban and semi-rural telecommuters and small businesses -- are least likely to see it. The only way these places can expect to get fiber to the premises in the foreseeable future is to start municipal fiber projects and fiber telecommunications cooperatives.

Both types of entities are also good candidates for some of the $7.2 billion in broadband infrastructure subsidies contained in the American Recovery and Reinvestment Act signed into law in February as well as likely follow on funding promised by the Obama administration.

The underlying conflict driving muni, coop fiber

The saga of the planned City of Monticello, Minnesota municipal fiber network clearly points up the fundamental conflict between privately run advanced telecommunications providers and municipal fiber projects such as Monticello, which as this story reports successfully withstood a lawsuit by TDS Telecommunications aimed at blocking the project.

Privately held providers are primarily accountable to their investors and shareholders. In the case of costly telecommunications infrastructure requiring extensive capital expenditures that can crimp investor returns over the short term, their interests are directly at odds with those of consumers and businesses desiring more and better value services necessitating those capital expenditures.

Given these starkly conflicting agendas, it's no wonder we're seeing alternative models of constructing advanced telecom infrastructure emerge such as muni and cooperative fiber projects that are accountable to their constituents and members. These alternative models will be particularly viable in areas where existing providers have built incomplete local access networks that leave numerous broadband coverage gaps -- which describes much of the United States.

Thanks to Ron Britvich for the link to the story.

Vermonters declare independence from telco/cable duopoly

The Wall Street Journal today features an initiative by 22 central Vermont towns to take their telecommunications destiny into their own hands instead of relying on a telco/cable duopoly that cannot meet their needs.

They're doing so with a public/private partnership to deploy 1,400 miles of aerial fiber-optic lines to provide high-speed Internet access, phone and video. The project is to be financed through a capital lease, with the towns raising money from investors to build the network, then leasing it back from the investors over 23 years.

Tim Nulty, the project's consultant to the towns, told the WSJ he originally wanted loan guarantees as part of the recently enacted federal economic stimulus package but is now looking into grant funding under the legislation, which allocated $7.2 for broadband built out.

While this project involves a sparsely populated rural area, I expect other more densely populated areas will also form municipal and cooperative fiber ventures as it becomes more apparent that locals must take responsibility for getting fiber over the last mile and cannot continue as they have for years in vain to expect telcos and cable companies to provide it -- particularly when it's not in their business plans.

The article also contains a desperate comment by a telco flak to keep the telco's outmoded copper-delivered DSL relevant -- which due to DSL's notorious technical limitations can't easily serve areas like rural New England -- amid the growing realization that its future prospects are severely limited in the era of fiber.

Telcos, cablecos have future role as middle mile and long haul IP connectivity providers

Bob Frankston has penned a thoughtful piece that encourages out of the box thinking when it comes to broadband Internet connectivity. He's dead on. We're at a transition point between yesterday's legacy single purpose, proprietary telco and cableco owned systems designed to dispense discrete services as billable events and the open architecture possibilities of the Internet that allow for customization according to need.

The two models are not compatible -- which Frankston says explains the artificial market scarcity of bandwidth delivered via the telcos (slow and costly 1970s-era T-1 lines that telcos are still selling, for example) and cablecos at a time where fiber to the end user is capable of delivering hundreds of megabits and even gigabits per second.

Instead of expecting telcos and cablecos to meet our Internet protocol-based telecommunications needs, Frankston suggests we view these entities as middle mile and long haul carriers. They would still have a critical role to play, serving locally owned and operated telecommunications entities such as municipal fiber systems and fiber cooperatives. Frankston has seen the future and I share his vision.

Minnesota muni fiber project prime example of where broadband infrastructure stimulus funding should go

Blandin on Broadband tipped me to this municipal fiber project whose $18.5 million bond financing goes before North St. Paul, Minnesota voters next month.

It's a prime example of where the new Congress and the incoming Obama administration should be directing economic stimulus infrastructure funding. Federal funding would help reduce the financial risk of these municipal fiber projects by helping them cover their start up costs sooner while creating badly needed jobs and stimulating electronic commerce.

North St. Paul City Manager Wally Wysopal has the right idea in suggesting this isn't simply about filling in broadband black holes but instead is putting in place vital telecommunications infrastructure that can meet the city's needs going into the future. This approach is far superior to simply playing catch up by wasting stimulus funding on rolling out increasingly obsolete copper cable-based DSL that should have been more widely deployed years ago under the incentives and tax breaks of the 1996 federal Telecommunications Act.

"The idea here is to become the best-connected small town in Minnesota," Wysopal told the TwinCities.com Pioneer Press. "We're not getting into this for the sake of providing lower rates for cable or telephone but to provide a service that's superior to anything that's being contemplated today."

Private, public sectors clash on broadband deployment

As fiber optic guru Tim Nulty accurately observed, wireline telecommunications infrastructure is a natural monopoly. That fact has spawned conflict between the private and public sectors over which will build out infrastructure to provide modern IP-based services. At issue in this confrontation that has played out throughout much of the United States over the past decade is who will get first rights to build since whoever deploys infrastructure first dominates the market given its monopolistic nature.

But there's more to it than that. Both sides have conflicting agendas. The private sector telcos and MSOs (cable companies) want to maintain an open ended option to build whereas public sector entities like muncipalities motivated by constituent pressure to rapidly deploy, pressure that naturally increases over time as demand for broadband-based services from consumers and businesses grows. In that regard, time is on the side of the public sector. That reality has spurred private sector players to employ litigation to buy time to preserve the option to serve a given area.

Case in point: this week, a Minnesota judge ruled this week that Minnesota cities have the authority to issue bonds to finance community fiber-optic networks. Monticello, a town of 12,000, has been locked in a legal battle with its incumbent phone company, TDS Telecom, which filed a complaint to prevent the city from building a network its citizens overwhelmingly approved in a referendum last year, according to Christopher Mitchell, Director of the Telecommunications as Commons Initiative for the Institute for Local Self Reliance (ILSR). “All along, we have said that this lawsuit is frivolous and was merely a delaying tactic,” Mitchell said in a news release. Mitchell adds that TDS "was merely trying to protect its monopolistic interests, much to the detriment of the citizens of Monticello who clearly want a local, accountable alternative to existing services.”

More delay could be in store. ILSR reports Monticello had to put the project on hold until the case was decided and escrowed funding until the case is fully resolved and all appeals are exhausted.

At present, the rules allow private sector providers to game the system to buy time. Even if they lose on the merits of muni fiber project legal challenges as in this case, they still win because they've achieved their goal of buying time to exercise their option to build. The problem is that option is currently open ended at a time when the nation is falling farther and farther behind on broadband and time is of the essence.

It needs to be tightened up with legislation that would give either public or private sector providers the option to build broadband infrastructure and subject the party exercising the option to deploy it to stringent oversight including incremental progress deadlines, late penalties and completion bonds.

Expert says municipalities should facilitate fiber builds versus wireless

Tim Nulty, a name that has appeared on this blog before, is once again sharing his sagacity on the future of U.S. broadband. Nulty, who until recently served as director of Burlington Telecom, a publicly owned broadband system serving the city of Burlington, Vermont and who now runs ValleyFiber, a nonprofit organization focused on bringing municipal fiber to Vermont towns, suggests municipal wireless broadband isn't going to hack it because it doesn't have sufficient bandwidth.

Nulty uses a transportation metaphor to illustrate that while wireless systems may offer mobility, a fiber-optic network connected directly to homes boasts nearly unlimited capacity. "Think about 747s and helicopters,” Nulty told The Progressive magazine. “Helicopters are marvelous when they’re used for what they’re good at. But you don’t use them to fly thousands of people between Boston and Chicago. For that you need 747s.”

Nulty makes a valid point that has been missed by most industry observers. Exploding demand for bandwidth could make even wireless broadband technologies with 20Mbs throughput such as WiMAX and 4G LTE cellular obsolete not long after they are projected to hit the market by 2010-12. (Indeed, existing wireless broadband infrastructure is arguably already obsolete, typically unable to deliver even speeds matching DSL and hamstrung by 1970s era copper T-1 technology used for backhaul)

Only wireline-based fiber has the capacity to handle the booming demand for bandwidth. Local governments should encourage fiber optic infrastructure investments, particularly since their residents and business owners cannot necessarily count on telcos and cable companies to step into the gap.

Palo Alto fiber project represents important test of open access concept

Here's an update from the Palo Alto Daily News on Palo Alto, California's efforts to put in place an open access fiber optic network. If the city council gives the OK to this project -- which doesn't require the municipality to fund or operate the system -- it will be a renewed test case of the open access network concept .

The open access model is emerging as a public/private initiative to build out broadband faster than the proprietary infrastructure owned and operated by telcos and cable companies which are unable and/or unwilling to invest in upgrading their plants. The latter have resisted open access initiatives by local governments, arguing they represent unfair competition and in some cases have gone to the courts to seek to halt the projects.

That's a poor strategy because the telcos and cable companies would benefit from open access fiber projects since they could sell customers improved IP-based services faster than they might otherwise could since it would take far longer for them to build their own proprietary fiber infrastructures. By going to court to block or slow these projects, the telcos and cable companies are shooting themselves in the foot. They also risk provoking local governments to counter with eminent domain actions to take over aging and increasingly obsolete metal-wire based systems in the name of economic development.

Palo Alto moves forward with open access fiber

After more starts and stops than a dial-up connection, ultra-high-speed broadband Internet may soon be feasible in Palo Alto.

In a new business plan recently submitted to city staff, a group of companies proposed funding and constructing an open network capable of delivering cutting-edge communications, including voice, data and video services.

The city council will review the plan at a study session on Monday and will direct staff later this month whether to move forward with the project.

The new network would have the capability of delivering Internet to residents at a speed of 100 megabits per second. In contrast, a regular broadband service sends out information at a speed of two-tenths of a megabit per second, said Palo Alto resident Bob Harrington, one of three council-appointed citizens advising on the project.

This is the kind of thing I like to see: solid steps toward actually building broadband infrastructure in a public private partnership instead of useless projects by telco-funded nonprofits to study broadband black holes and aggregate demand, as if the latter activity is going to have any influence whatsoever on telcos' broadband depolyment plans. It doesn't as shown by numerous petition drives directed at telcos and cable companies over the past several years by folks who are still waiting in vain for high speed Internet.

Funding these nonprofits are merely cynical PR efforts by the telcos to paper over their sprawling broadband black holes and give the impression they are "concerned" about the lack of broadband access, costing them very little money relative to the real dollars they would have to invest to bring their infrastructures into the modern digital age.

WSJ: About 60 municipal fiber projects deployed in last decade

According to The Wall Street Journal, about 60 U.S. towns and small cities including Bristol, Va.; Barnsville, Minn.; and Sallisaw, Okla., have built state-of-the-art fiber networks and an additional two dozen municipalities, including Chattanooga and Clarksville, Tenn., have launched or are considering similar initiatives.

The newspaper notes the projects have revived policy debates similar to those of more than seven decades ago when local governments opted to build out their own electrical distribution infrastructures to serve areas large private sector providers neglected.

The Nashville Tennessean, which carried and supplemented the WSJ story, reports Clarksville's Department of Electricity is building some 860 miles of fiber cable to offer TV service, broadband Internet and phone, and will start to sign up customers this year. Meanwhile, Columbia Power & Water Systems offers from 1Mbs to 7Mbs of broadband Internet speeds for residential customers at prices ranging from $29.95 to $52.95 per month.

The public providers complain the private providers are moving too slowly. They're willing to take on more risk than the private sector, and that risk is real for poorly planned and executed government run fiber systems as recent events with Utah's UTOPIA and IProvo systems illustrate. IProvo's financial problems have prompted the Provo City Council to consider selling off that city's system; a vote on the transaction is set for this week.

Fiber infrastructure can pay off in broadband black holes, muni fiber expert says

Tim Nulty, who until recently served as director of Burlington Telecom, a publicly owned broadband system serving the city of Burlington, Vermont and who now runs ValleyFiber, a nonprofit organization focused on bringing municipal fiber to Vermont towns, has to be one of the most honest and smartest guys out there. He tells it like it is and isn't afraid to question telecommunications industry mythology.

Earlier this year, Nulty dismissed the industry's oft-stated notion that there can be robust competition in America's privately owned and operated telecommunications infrastructure. Rather, Nulty correctly observed in my opinion, it's a natural monopoly that by its very nature cannot foster robust market competition to benefit subscribers. The costs to build telecom infrastructure are so high that only large telcos and cable companies have the capital to play. And once one has put infrastructure in place, it discourages other players from coming in and doing a "over build" with its own proprietary infrastructure since it becomes less certain the new entrant will be able to lure a sufficient number of customers away from the incumbent provider to earn a profit on the investment.

It is precisely in this vein that Nulty argues fiber to the premises can pencil out in broadband black holes. First, Nulty, told the Broadband Properties Summit this week, there is by definition a lack of competition in such locales, making a strong business case for a potential fiber-based provider since it would have the market to itself. Second, having the fiber market to itself in what was once a digital dead spot would translate into a higher take rate that would generate more revenues to cover the cost of installing fiber to the premises, also reducing uncertainty and building a stronger business case.

The folks out West in Utah who run that state's multi-muni fiber system UTOPIA and are currently reassessing their numbers after disappointing results would be well served to consult with Nulty.

Muni fiber growth pains: Utah's UTOPIA, iProvo reconnoiter

Here's a comprehensive account by the Provo, Utah Daily Herald of the challenges that can arise in public-private fiber optic projects designed to bring state of the art telecommunications services to residents and businesses.

Both the Utah Telecommunication Open Infrastructure Agency (UTOPIA), a fiber venture begun in 2003 underwritten by 18 Utah municipalities and iProvo, Provo's muni fiber project, are experiencing cash flow problems due to take rates falling short of projections and a low cost federal loan coming in later and with far less money than requested. The finances of both projects are under review as are a number of options to improve the numbers.

The lessons that can be drawn here for such ventures are 1) Making sure there is a committed base of business and institutional subscribers who are hungry for "big pipe" data-intensive services and making connections affordable for small businesses and 2) Getting good estimates of projected demand in residential areas to help prioritize build out to those where demand is highest.

"The initial model was build it and they will come," Paul Recanzone, UTOPIA's project manager, told the newspaper. "The new model is to let the market tell you where the demand is before building out."

Seattle gets serious about building municipal fiber infrastructure

The Puget Sound Business Journal reports Seattle city officials, growing increasingly frustrated with the metal wire-based broadband offerings of incumbent telco/cable duopolists Qwest and Comcast, are preparing to issue a request for proposals to build a fiber optic telecommunications infrastructure.

According to the newspaper, in 2005 a city-commissioned task force recommended a fiber-to-the-premise (FTTP) system as the best way to provide Seattle's populace with high-bandwidth voice, video and data options.