Google Project May Spur Broadband Competition - NYTimes.com
The take away from this story is it's highly unlikely incumbent telephone and cable companies will upgrade and build out their infrastructures to provide better Internet connectivity and serve more premises. It makes more business sense for them to preserve the status quo and harvest whatever profits can be had from their existing cable plants. Particularly given the fact that the legacy incumbents pay fat dividends to their shareholders. Google pays none.
The NY Times piece postulates it will take an third party like Google to break the inertia. But Google thus far is pursuing fiber builds in only a few metro areas of the United States including Kansas City and Austin and lacks a strategy to serve the nearly 20 million Americans forced to live off the Internet grid because the incumbent telcos and cablecos won't serve their homes. These areas will have to rely on good old fashioned American self help and build fiber to the premises infrastructure operated by local governments and consumer cooperatives as was done in much of the nation in the 1930s and 1940s for electricity and telephone service.
There's also the sheer enormity of the financial challenge that would test the resources of even the deepest pocketed players like Google. In 2009, the U.S. Federal Communications Commission projected it would cost $350 billion to universally deliver 100 Mbps or faster Internet connections to all American homes and businesses. That's more than the sum of Google's 2012 revenues.
Showing posts with label incumbent providers. Show all posts
Showing posts with label incumbent providers. Show all posts
Wednesday, May 08, 2013
Thursday, April 18, 2013
Google chooses Provo, Utah, as next city to receive search giant's ultra-fast Internet service | Fox News
Google chooses Provo, Utah, as next city to receive search giant's ultra-fast Internet service | Fox News: The rollout is an expensive undertaking and gamble for Google, which hopes it will drive innovation and pressure phone and cable companies to improve their networks. Google benefits when people spend more time online.
The "pressure phone and cable companies to improve their networks" rationale is repeatedly made in media accounts to explain Google's fiber to the premise (FTTP) builds in some metro areas of the United States. But is it really true, notwithstanding AT&T's pyrrhic posturing in Austin, Texas? It implies the incumbent cable providers and telcos are somehow reluctant to improve their networks. But upgrading their networks is how they can capture more customers and sell more services. If doing so generated sufficient revenues and profits, they would do it without hesitation, Google or no. The issue is their business models don't have sufficient funding for large scale capital expenditures on new plant and equipment. And no one has yet devised a way to more cheaply deploy fiber to the premise Internet infrastructure -- of which an estimated 70 percent of the cost is labor.
Another major issue overlooked in media accounts of the Google FTTP builds is they don't address the large gaps in Internet access that the U.S. Federal Communications Commission in 2012 estimated leave about 19 million Americans offline. The reason they don't is Google shares the same limitations of the investor-owned business model as the incumbent cablecos and telcos that cannot profitably serve areas that remain disconnected and still accessing the Internet via obsolete, circa 1993 dialup connections and satellite Internet.
Sunday, December 02, 2012
Telecom infrastructure demands competing business models
The Salt Lake Tribune has published a set of articles on UTOPIA, a public open access fiber network. For other publicly owned and operated telecommunications infrastructure, the take away is they are like building and financing toll highway systems over a period of many years. A prudent, long term financial plan is essential and their success can't be measured in isolation over the short term.
That's why investor owned incumbent telco and cable providers haven't built out fiber to the premise infrastructure. Their shareholders expect a certain return on investment within five years or less as well as hefty dividends. Infrastructure projects have long term time horizons that aren't compatible with their business models.
Some of those interviewed in the articles assert that UTOPIA and other publicly operated telecommunications networks shouldn't be competing with incumbent, investor owned telcos and cablecos. I disagree. The challenges of constructing and operating telecommunications infrastructure demand competition to produce the best business models demonstrating the greatest potential for long term viability. It's not an easy task. The incumbent providers been unable to produce one. That has led to extensive market failure in wireline telecommunications services, leaving millions of Americans without premises Internet access. UTOPIA and other non-incumbent operators despite their shortcomings are to be commended for making the effort to develop alternatives to build and construct this essential infrastructure for the 21st Century.
That's why investor owned incumbent telco and cable providers haven't built out fiber to the premise infrastructure. Their shareholders expect a certain return on investment within five years or less as well as hefty dividends. Infrastructure projects have long term time horizons that aren't compatible with their business models.
Some of those interviewed in the articles assert that UTOPIA and other publicly operated telecommunications networks shouldn't be competing with incumbent, investor owned telcos and cablecos. I disagree. The challenges of constructing and operating telecommunications infrastructure demand competition to produce the best business models demonstrating the greatest potential for long term viability. It's not an easy task. The incumbent providers been unable to produce one. That has led to extensive market failure in wireline telecommunications services, leaving millions of Americans without premises Internet access. UTOPIA and other non-incumbent operators despite their shortcomings are to be commended for making the effort to develop alternatives to build and construct this essential infrastructure for the 21st Century.
Saturday, September 29, 2012
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."
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."
Friday, June 04, 2010
Incumbents mount new challenges of proposed ARRA telecom infrastructure projects
The Obama administration's policy to support build out of Internet Protocol telecommunications infrastructure with grants and low cost loans is once again running into stiff resistance from legacy incumbent telephone and cable companies.
As they did in a previous round for funding requests for $4.2 billion set aside for this purpose in the American Recovery and Reinvestment Act of 2009 (ARRA), the incumbents are challenging numerous projects proposed for funding under the current funding round of USDA's Rural Utilities Service (RUS) Broadband Initiatives Program (BIP). The challenges are permitted under provisions of the Act that allow incumbents to delay or block proposed projects in their service areas by claiming they already provide advanced telecom services. A searchable list of BIP applicants and incumbent challenges is posted here.
Unlike in the first round of ARRA funding last year, the RUS has not posted details of the challenges. Listed are only the service areas of the proposed projects and the name of the challenging incumbent provider. Incumbent challenges of ARRA telecom infrastructure projects administered by the National Telecommunications and Information Agency's (NTIA) Broadband Technology Opportunities Program (BTOP) have not yet been posted by the NTIA.
As they did in a previous round for funding requests for $4.2 billion set aside for this purpose in the American Recovery and Reinvestment Act of 2009 (ARRA), the incumbents are challenging numerous projects proposed for funding under the current funding round of USDA's Rural Utilities Service (RUS) Broadband Initiatives Program (BIP). The challenges are permitted under provisions of the Act that allow incumbents to delay or block proposed projects in their service areas by claiming they already provide advanced telecom services. A searchable list of BIP applicants and incumbent challenges is posted here.
Unlike in the first round of ARRA funding last year, the RUS has not posted details of the challenges. Listed are only the service areas of the proposed projects and the name of the challenging incumbent provider. Incumbent challenges of ARRA telecom infrastructure projects administered by the National Telecommunications and Information Agency's (NTIA) Broadband Technology Opportunities Program (BTOP) have not yet been posted by the NTIA.
Wednesday, June 02, 2010
Emotion rather than logic drives incumbent opposition to local telecom infrastructure improvements
In a recent email exchange with Craig Settles, I've attempted to plumb the paradox of why incumbent legacy telco and cable companies will as Settles put it "rush in like storm troopers" before local providers can activate their own Internet Protocol (IP) telecom infrastructures. Infrastructure built by local governments and consumer cooperatives because it doesn't pencil out for the shareholder-owned incumbents to construct. The result: a plethora of "broadband black holes" and underserved/overpriced areas due to incomplete infrastructure that extends only as far as the incumbents' business models allow.
The question that vexed me is why the incumbents would come in on the heels of community-based provider deployments when they've already concluded there isn't enough business to make it worth their while to expand and upgrade their plants in the first place. Particularly for take rates south of 30 percent and a shift to Internet-based video content that makes consumers less inclined to purchase pricey 300 channel TV packages that are among incumbents' most profitable service offerings.
Settles explanation: there is no logical, business M.O at work in this circumstance. Telcos and cable companies that normally operate in a logical, numbers driven mode (for example, cable providers don't deploy infrastructure unless it strictly falls within a pre-approved, set ratio of occupied premises per linear mile) suddenly turn illogical when a community-based provider emerges with an alternative and typically nonprofit business model that avoids obstacles that limit the incumbents' ability to expand their footprints.
Since incumbents tend to regard their service areas as proprietary, exclusive franchises regardless of how much -- or how little -- they actually provide IP-based services, they view community-based providers as interlopers invading their turf. That provokes an illogical, emotion driven response.
"It's nothing about logic," Settles explains "It's often paranoia -- if one community builds a better network than what we offer, other communities will follow suit and sometimes a case of whose belt is longer. Incumbents seem to prefer to destroy a community network rather than figure out how to adapt services to leverage that network." In other words, a classic pissing contest in which a large, distant corporation attempts to impose its corporate will upon local residents -- who know their needs best -- for the sake of preserving its own pride.
In this respect, the incumbents aren't actually fighting the local upstarts who would dare challenge their territorial hegemony. They're really fighting the future. The incumbents' perceived enemy isn't so much the community-based providers. It's the alternative business paradigm they represent and which fostered their creation.
The question that vexed me is why the incumbents would come in on the heels of community-based provider deployments when they've already concluded there isn't enough business to make it worth their while to expand and upgrade their plants in the first place. Particularly for take rates south of 30 percent and a shift to Internet-based video content that makes consumers less inclined to purchase pricey 300 channel TV packages that are among incumbents' most profitable service offerings.
Settles explanation: there is no logical, business M.O at work in this circumstance. Telcos and cable companies that normally operate in a logical, numbers driven mode (for example, cable providers don't deploy infrastructure unless it strictly falls within a pre-approved, set ratio of occupied premises per linear mile) suddenly turn illogical when a community-based provider emerges with an alternative and typically nonprofit business model that avoids obstacles that limit the incumbents' ability to expand their footprints.
Since incumbents tend to regard their service areas as proprietary, exclusive franchises regardless of how much -- or how little -- they actually provide IP-based services, they view community-based providers as interlopers invading their turf. That provokes an illogical, emotion driven response.
"It's nothing about logic," Settles explains "It's often paranoia -- if one community builds a better network than what we offer, other communities will follow suit and sometimes a case of whose belt is longer. Incumbents seem to prefer to destroy a community network rather than figure out how to adapt services to leverage that network." In other words, a classic pissing contest in which a large, distant corporation attempts to impose its corporate will upon local residents -- who know their needs best -- for the sake of preserving its own pride.
In this respect, the incumbents aren't actually fighting the local upstarts who would dare challenge their territorial hegemony. They're really fighting the future. The incumbents' perceived enemy isn't so much the community-based providers. It's the alternative business paradigm they represent and which fostered their creation.
Subscribe to:
Posts (Atom)