Saturday, June 28, 2014

New telecom infrastructure financing model struggles to emerge in Utah

A new public-private model to finance the construction and operation of modern fiber to the premise (FTTP) telecommunications infrastructure is struggling to emerge in Utah. Of 11 Utah cities that would be part of a public-private partnership to build out an existing FTTP network serving their region, only half have agreed to participate in the partnership as of this week’s deadline to decide. (See story here)
The sticking point is on the public side of the proposed partnership that entails a $20 monthly utility fee to finance construction and operating costs over a 30-year period. Since the Utah Telecommunications Open Infrastructure Agency (UTOPIA) network is an open access network that will build a fiber telecommunications highway to about 160,000 premises, the utility fee is based on the principle that like paved roads, all properties benefit from its presence directly or indirectly, both in the present and the future.

Those cities that have declined to participate in the UTOPIA partnership should revisit their decision. For four reasons:

  1. FTTP telecommunications infrastructure is needed to serve burgeoning demand for Internet connectivity and high capacity performance both now and in the future. Premise Internet service is shifting into a new phase where it is an essential telecommunications service like telephone service was in the 20th century and not an add-on feature to telephone or cable service in those limited areas where it is offered.
  2. Like roads, telecommunications infrastructure is expensive to build and maintain. That prevents the formation of a healthy competitive market since these high costs make it a natural monopoly. The existing private telephone and cable companies thus have no competitive incentive to upgrade and build out FTTP infrastructure. Private investor-owned providers are also highly risk averse when it comes to expansion since they owe a primary duty to their shareholders to generate profits and dividends with customer needs subordinate to that duty.
  3. Given high construction and operating costs, neither the private sector nor state and local government can shoulder the burden alone. Both must pool their financial resources into a public-private partnership to generate the large sums of necessary capital.
  4. The $240 annual utility fee needed to make the deal pencil out is a modest amount that approximates what many households are already paying every two months for telecommunications services.


InfoStack said...

Fred, are the economics behind the $20/month or $240 pa fee laid out in public records? If so I would like to analyze them. And if not, why not. It seems like a high tax given that the new provider will be generating wholesale fees as well, no?

Fred Pilot said...

See this white paper for more info: