The d factor: Why publicly owned, financed FTTP may not balance the Crawford equation

Author Susan Crawford in her 2018 book Fiber: The Coming Tech Revolution – And Why America Might Miss It, set out a vision of ubiquitous and affordable fiber connections as with copper delivered voice telephone service in the 20th century.

The United States stumbled in the late 1980s and early 1990s by failing to develop a comprehensive strategy to transition from the legacy copper to fiber to support digital Internet protocol voice, video and data services. Instead, fiber to the premises (FTTP) was left to the market whims of investor owned companies that construct it only where it meets their rate of return and profitability standards. That’s typically densely settled urban and suburban areas.

That leaves much of the nation outside these areas unfibered with uncertain prospects for FTTP amid a multiplicity of siloed federal and state grant programs. Only recently have these programs begun to favor FTTP for subsidization albeit with eligibility still based on marketed “broadband” bandwidth to protect the customer “footprints” of incumbent providers from interlopers.

An open question is can publicly owned and financed regional telecom authorities provide a lower cost work around to the investor owned providers whose business structures require them to generate profits and dividends for their owners and pay income taxes on their earnings?

Let’s call Crawford’s vision the Crawford equation and express ubiquitous access as x and affordability as y. Can these alternative business models solve for both since they avoid the higher structural costs of the investor owned business model?

They may not. It boils down to the same reason for both: residential density. Let’s call it the d factor. For the investor owned providers, building FTTP isn’t likely to pencil out in less densely developed exurban areas with lower d value featuring curvilinear roads instead of suburban and urban grid-style development. These areas typically fall short of the investor owned standard of about 15 homes per linear road mile. That translates to more road miles and a relatively lower number of homes per mile. That leads to higher construction costs and longer returns on investment, diminishing the short term profitability investors desire and more certain revenues debtholders want for debt service.

For publicly owned providers and particularly open access FTTP networks reliant on network revenues to service capital bonds, bond underwriters prefer a sizable number of end users to ensure bonds secured by network revenues obtain sufficient revenue from end user fees. That correlates with d. A higher d factor translates to more end users. That translates to lower default risk since there is more revenue to secure debt service. The y factor -- affordability -- can also be adversely affected by networks seeking to boost the x factor in less densely developed areas.

For ISPs offering services to end users, the d factor is similarly critical. ISPs aren’t going to be interested in leasing network access unless there is a sizable market of end users, particularly since they are likely competing against other ISPs on an open access network.

Bottom line, publicly owned and financed FTTP infrastructure may not solve the Crawford equation for much of exurban America where telecom infrastructure is often substandard and not up the needs of knowledge workers migrating to metro fringes and beyond.