Hopes for patient capital investment in open access advanced telecom infrastructure may prove unfeasible

Private Investment in Community Digital Infrastructure: Gaps will continue until localities and investors find viable solutions that better align community needs with investors’ returns on their investments. The critical first step is to pivot to a digital infrastructure approach in which the long-term economic benefits to community growth and business success accrue to the network deployers, leading to a virtuous cycle that increases network revenue opportunities and returns
on investment.

The author, Michael Curri of Strategic Networks Group, correctly identifies a major reason behind advanced telecom infrastructure deficiencies that have plagued the United States for many years. Investor owned companies build infrastructure where it generates the biggest and fastest returns on investment. They lack business or regulatory incentive to do so outside of their discrete "footprints" of cherry picked neighborhoods. 

That private interest to reward shareholders does not align with the broader public interest in having the infrastructure reach all premises. Localities hoping for infrastructure gains by partnering with private providers run the risk of replicating the problem of unconnected neighborhoods since they too require rapid returns on investment and thus are inclined to prioritize only limited areas to attain the fastest return on their dollars.

The solution, Curri argues, is substituting more patient capital held by pension funds and private infrastructure capital firms that doesn't require a return in five years or less. The risk/reward tradeoff is infrastructure is there for the long run and will generate solid returns for many years. Additionally, investment in open access infrastructure will provide broader benefits for their economies and residents  -- what economists refer to as externalities -- that are of little or no interest to investor owned providers.

Curri correctly points out the presence of incumbent investor owned incumbent providers poses a challenge to the ubiquitous infrastructure needed to attain those externalities. Those incumbents have already grabbed those neighborhoods that spin off the most revenues, complicating obtaining sufficient revenues to attract patient investment capital.

The essential problem for Curri is his concept requires premises to subscribe to services, emulating the subscription-based business model of the incumbents other than it calls for open versus closed access infrastructure. Subscription revenue would be supplemented by charges to service providers to offer services over the open access infrastructure as well as mobile wireless backhaul and "specific value-added services and smart-community services."

Potential patient capital investors may well see the presence of incumbent providers who will seek to protect their private monopolies as a key risk factor that would outweigh the many positive aspects of Currie's concept. Unless in the unlikely event those incumbent providers signal a withdrawal, it may prove unfeasible.

Why the “more competition” argument for better Internet service is misguided

Hardly a day goes by without calls for “more competition” as the elixir to make modern Internet-based telecommunications services more widely available and offering better value than those offered by the legacy incumbent telephone and cable companies. U.S. Federal Communications Commission Chairman Tom Wheeler has curiously joined the chorus calling for more competition -- even though his agency and its 2015 Open Internet rules are predicated on regulating Internet service as a natural monopoly common carrier utility.

The problem is telecom infrastructure by nature isn’t a competitive market defined as having many sellers and buyers. There are many buyers but there cannot be many sellers because it’s too costly and economically inefficient to have multiple providers building and owning infrastructure connecting homes and businesses. More competition isn’t a solution here. 

In the states, the legacy incumbents reinforce the notion of competition by blocking projects that would threaten their service territory monopolies. From their perspective, these projects represent competition because they would potentially steal away customers. Therefore, proponents reason, competition must be a good thing if the incumbents oppose it. This however illustrates the faulty reasoning of the “more competition” argument. 

The problem is the pro-competition proponents are buying into the incumbents’ concept of competition -- and not a consumer perspective. For the incumbents, any project that would build infrastructure in their service territories is competition. However, for consumers, having a choice among many sellers is competition. That’s not possible with telecommunications infrastructure. But it is possible if the infrastructure is publicly owned like roads and highways. That would open up Internet service to competition since multiple Internet service providers could offer their services over that infrastructure.

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.

Media accounts lament lack of "broadband competition" in U.S. but overlook the solution: open access fiber infrastructure

This is how Internet speed and price in the U.S. compares to the rest of the world: So why are Americans paying more for slower service? The answer: There’s limited competition in the broadband market.

In fact, half of American homes have only two options for Internet service providers for basic broadband, according to the Federal Communications Commission. And for faster speeds, a majority of households have only one choice.

Everyone favors competition for Internet services. But what most media stories miss including this one is the only way to get it is through open access fiber to the premise telecommunications infrastructure that offers wholesale access to Internet service providers and other vendors selling services to consumers such as is the case in some of the comparative nations. In the U.S., competition is limited because vertically integrated providers like Comcast, AT&T and Verizon own the infrastructure over which they offer services like data, video and voice.

The story goes on report that "a handful of cities have chosen to create their own municipal broadband services to compete with private broadband providers: Chattanooga, Tennessee, Bristol, Virginia, Lafayette, Louisiana, Cedar Falls, Iowa, and Wilson, North Carolina."

This is inaccurate. These municipalities have not endeavored to compete with the legacy incumbent telephone and cable companies. Rather, they acted to address private market failure on the sell side. Their citizens and businesses want fiber to the premise Internet connections the incumbent providers are unable to offer them.

UTOPIA holdout cities should adopt broader view of economic benefit of UTOPIA-Macquarie PPP

Orem, Utah and four other cities that have opted out of a public-private partnership between the Utah Telecommunication Open Infrastructure Agency (UTOPIA) and Macquarie Capital Group are now grappling with a fundamental question as to how to finance the future operation of fiber to the premise (FTTP) telecommunications infrastructure to serve their residents. The question: support the partnership’s public works approach to the increasingly essential infrastructure or default to legacy incumbent telephone and cable companies and the poor value and customer service and disparate access they typically offer as monopoly providers.

Six of the 11 cities comprising UTOPIA agreed in concept in 2014 to assess a parcel utility fee to help offset the cost and mitigate the business risk associated the pure subscription-based model used by incumbent providers. They mitigate their business risk by cherry picking neighborhoods believed to have the greatest profit potential for their proprietary network investments while redlining those that don’t.

The utility parcel fee is a key sticking point in negotiations between UTOPIA and the five hold out cities including Orem. A Daily Herald dispatch cites from a memorandum to the Orem mayor and council from Orem City Manager Jamie Davidson:

"There is a concern that Orem is unpredictable and not easy to work with," Davidson said. "It's concerning to me to see new options entering the market [UTOPIA] with a stranded investment for the future."

“However, bottom line, the proposal remains a utility fee-based model,” Davidson said. “If, as a council, you cannot wrap your arms around the assessment of a monthly utility fee to all customers (with potentially a few exceptions, for example, the indigent), nothing else matters.”

Davidson’s right. The parcel fee is essential to making the UTOPIA partnership with Macquarie pencil out by mitigating the business risk of relying solely on customer subscription revenues. UTOPIA operates an open access fiber network, enabling competition among ISPs that want to offer customer premises services delivered over the network. In that regard, the UTOPIA network is like a road or other public works project that benefits and enhances the value of the properties it passes. The UTOPIA cities benefit because these properties can support higher levels of economic activity as well as boosting their market value and, by extension, their ad valorem property tax revenue potential to fund other municipal services.

The American way of broadband: slow - LA Times

The American way of broadband: slow - LA Times: In Southern California, for example, an open-access arrangement would allow upstart Internet companies and low-cost wireless providers to book space on broadband and cellular networks owned by the likes of Time Warner Cable, AT&T and Verizon.

"If you want to lower prices and improve service, you need to increase competition," said Allen Hammond, a professor at Santa Clara University School of Law who specializes in telecom issues. "One way to do that is keep the network open."

A primary reason existing telecom infrastructure providers are slow to upgrade and build out their networks is their reliance on closed access, proprietary networks serving customer homes and businesses. That introduces a lot of business risk that impedes upgrades since they cannot easily predict how many will subscribe to and maintain Internet service offerings.

Since they operate on a wholesale basis selling access to Internet service providers, open access networks substantially reduce and spread that risk since any one provider doesn't have to bear network construction costs directly alone and cover them by signing up and keeping subscribers.

FCC's Wheeler: US needs more high-speed broadband competition | PCWorld

FCC's Wheeler: US needs more high-speed broadband competition | PCWorld: U.S. residents lack meaningful choices for broadband providers that offer 25Mbps or faster download speeds, and the U.S. Federal Communications Commission will push for more competition, the agency’s chairman said Thursday.

While more than 93 percent of U.S. residents have access to a broadband provider, fewer than 15 percent can buy service from more than two wired providers that offer “yesterday’s broadband” with 4Mbps download speeds, FCC Chairman Tom Wheeler said during a speech at Washington, D.C., startup incubator 1776.

“At the low end of throughput ... the majority of Americans have a choice of only two providers,” Wheeler said. “That is what economists call a duopoly, a marketplace that is typically characterized by less than vibrant competition.

As long as Internet service providers own the infrastructure that connects customer premises, there will never be any meaningful degree of competition, owing to the fact that telecommunications infrastructure due to high costs and barriers to entry functions in a natural monopoly market. As Andrew Cohill wrote in his 2010 white paper, that's about as inefficient and senseless as having FedEx or UPS operate proprietary roads to serve neighborhoods that are closed to competing shipping services.

The policy of the United States has been to preserve this very market structure of which the Federal Communications Commission chair laments. What's needed to achieve any level of real competition is to encourage and fund the construction of publicly owned open access fiber to the premise networks where ISPs compete to sell services to customer premises. Call it the public option for telecommunications in the Internet age.

Open access fiber telecom infrastructure funded in West Virginia over telco's objections

Competition in telecommunications infrastructure isn't really among major telcos and cable companies. They operate in market that due to the high cost barriers to entry functions as a natural monopoly or at best, a duopoly where service is available from just two landline providers: the phone company or the cable company. In much of the United States, the choice is only one of the two or sadly, neither because they have redlined parts of their service territories.

The real competition is between the business models for premise Internet connectivity: open access Internet infrastructure such as employed by the Utah Telecommunication Open Infrastructure Agency that regards it as a public asset like roads and highways or the proprietary, closed access infrastructure model of investor-owned telephone and cable companies.

This week in West Virginia, the debate tipped in favor of open access after the West Virginia Broadband Deployment Council voted 3-2 to provide $690,000 in funding to the West Virginia Network, a state agency that provides Internet service to schools, universities and other public facilities. The deciding factor was the state wanting more control over the infrastructure and not being subject to the whims of a monopoly provider.

“Frontier is the only provider in the region, and there is no open access to that infrastructure,” one of the council members noted. “You can’t really connect any of the dots [communities] together . . . . We can hopefully connect those rings and enable broadband expansion in the area.”

This is a notable development because it signals that public policy is shifting towards viewing Internet infrastructure as essential as public thoroughfares and thus not best controlled and operated as a hodge podge of private toll roads with high tolls and serving only some areas while leaving others disconnected from the Internet.

Click here for the story.

West Virginia Broadband Deployment Council voted 3-2 to award the money to West Virginia Network, or WVNET, a state agency that provides Internet service to schools, universities and other public facilities. WVNET would own the three-segment fiber network that would connect Snowshoe to Cass, Valley Head to Mill Creek, and Durbin to Green Bank. - See more at: http://www.wvgazette.com/article/20140723/GZ01/140729675/1419#sthash.ldOg1t7a.dpuf

West Virginia Broadband Deployment Council voted 3-2 to award the money to West Virginia Network, or WVNET, a state agency that provides Internet service to schools, universities and other public facilities. WVNET would own the three-segment fiber network that would connect Snowshoe to Cass, Valley Head to Mill Creek, and Durbin to Green Bank. - See more at: http://www.wvgazette.com/article/20140723/GZ01/140729675/1419#sthash.ldOg1t7a.dpuf

West Virginia Broadband Deployment Council voted 3-2 to award the money to West Virginia Network, or WVNET, a state agency that provides Internet service to schools, universities and other public facilities. WVNET would own the three-segment fiber network that would connect Snowshoe to Cass, Valley Head to Mill Creek, and Durbin to Green Bank. - See more at: http://www.wvgazette.com/article/20140723/GZ01/140729675/1419#sthash.ldOg1t7a.dpuf

West Virginia Broadband Deployment Council voted 3-2 to award the money to West Virginia Network, or WVNET, a state agency that provides Internet service to schools, universities and other public facilities. WVNET would own the three-segment fiber network that would connect Snowshoe to Cass, Valley Head to Mill Creek, and Durbin to Green Bank. - See more at: http://www.wvgazette.com/article/20140723/GZ01/140729675/1419#sthash.ldOg1t7a.dpuf