Open access infrastructure, wherein service providers lease the access layer of fiber to the premises (FTTP) networks to gain access to subscribers, offers substantial potential to alter the economics of deploying FTTP. FTTP deployment has lagged in the United States – currently passing less than half of all homes – because the business case for its deployment is based on recovering capital investment in a short term time horizon of 5-7 years from residential subscription fees. These deployers sell both access to its proprietary delivery infrastructure and bundled services delivered over a vertically integrated offering of web, email, as well as video channels and voice over internet protocol (VOIP).
Their business case analysis considers internal rate of return standards, the number of homes likely to purchase known as “take rate,” and projected average revenue per household unit or ARPU. That calculus has historically favored household density and income with the former carrying the most weight since the cost of deployment would be spread across more homes.
Open access infrastructure changes this revenue structure. Instead of solely relying on end user revenues, it derives some from leases to service providers. In the case of Utah’s UTOPIA Fiber open access network, fully 70 percent comes from service providers and the balance from end users. Open access infrastructure must attain significant scale to reach a lot of end users in order to offer an attractive market to service providers to lease access to the network.
The open access model also lengthens the investment time horizon allowing deployers to attract more patient capital that doesn’t need to hit ROI over the short term. It’s in it for the long game. The demand for FTTP is there – owing in large part to the fact that more than half of U.S. households lack access to it - and will continue to be. It’s also a long term asset with a life span of 30 to 50 years. And it’s sticky, affording deployers first mover advantage. Whoever deploys first is likely to own that end user premise customer for decades.
As one of the first open access networks formed in the early 2000s, UTOPIA Fiber has achieved the scale necessary to make the model work, serving 20 Utah municipalities that collectively own the network. The financial appeal of the open access model has also attracted private players including SiFi Networks, which according to its website is now in 11 American cities. More recently, AT&T is getting in on the open access action, forming a joint venture with BlackRock to deploy open access FTTP outside of AT&T’s existing service area.
Northern California could potentially host the nation’s largest regional open access network in terms of scale and geography, serving 40 member counties of the Rural County Representatives of California (RCRC) with the RCRC’s nascent Golden State Connect Authority, formed in 2021 as a joint powers authority. There, the open access model could provide FTTP in less densely populated areas passed over by the large, investor owned telephone and cable companies under the traditional closed access bundled services business model. Many households there are forced to rely on substandard, expensive wireless services.
Monday, September 25, 2023
Monday, September 18, 2023
Will Gigapower truly operate as open access network?
A cynical view of the investor owned open access fiber to the premises (FTTP) Gigapower build – AT&T’s joint venture with BlackRock – might hold that AT&T will end up as the sole service layer provider. AT&T will initially serve as the “anchor tenant” ISP riding on Gigapower glass.
That view is justified by the history of the unbundling of AT&T’s copper distribution network assets as well as those of other telephone companies mandated by the 1996 Telecommunications Act. The Act required the telcos to providing access to ISPs to compete with its own services. Since these competitive local exchange carriers (CLECs) were all selling the same thing – dialup access and later DSL over platforms like AOL, CompuServe and Netscape – it was difficult to for the CLECs to differentiate their service offerings from those of other ISPs and the incumbent telcos. That prompted a race to the bottom price war that AT&T and other telcos with their deep coffers would ultimately win, being able to hold out for the duration. In addition, a 2006 U.S. Court of Appeals decision held incumbent telcos were not obliged to provide CLECs access to fiber to the premises (FTTP) that was just beginning to replace the legacy copper in limited builds.
However, if AT&T were to monopolize Gigapower as the sole and not just the anchor tenant, the business model wouldn’t benefit from lease revenue paid by other ISPs leasing access to network assets Gigapower expects to defray capital and operating costs. But a cynical take there might be Gigapower will operate as a truly open access network for only the first seven to 10 years to help it finance capex and opex costs for fiber delivery infrastructure outside of its current service area that it couldn’t otherwise justify spending on its own. After which it would become exclusively AT&T’s with the Gigapower terminating and non renewing completing ISP service provider contracts.
That view is justified by the history of the unbundling of AT&T’s copper distribution network assets as well as those of other telephone companies mandated by the 1996 Telecommunications Act. The Act required the telcos to providing access to ISPs to compete with its own services. Since these competitive local exchange carriers (CLECs) were all selling the same thing – dialup access and later DSL over platforms like AOL, CompuServe and Netscape – it was difficult to for the CLECs to differentiate their service offerings from those of other ISPs and the incumbent telcos. That prompted a race to the bottom price war that AT&T and other telcos with their deep coffers would ultimately win, being able to hold out for the duration. In addition, a 2006 U.S. Court of Appeals decision held incumbent telcos were not obliged to provide CLECs access to fiber to the premises (FTTP) that was just beginning to replace the legacy copper in limited builds.
However, if AT&T were to monopolize Gigapower as the sole and not just the anchor tenant, the business model wouldn’t benefit from lease revenue paid by other ISPs leasing access to network assets Gigapower expects to defray capital and operating costs. But a cynical take there might be Gigapower will operate as a truly open access network for only the first seven to 10 years to help it finance capex and opex costs for fiber delivery infrastructure outside of its current service area that it couldn’t otherwise justify spending on its own. After which it would become exclusively AT&T’s with the Gigapower terminating and non renewing completing ISP service provider contracts.
Open access FTTP offers potential route to having edge providers defray FTTP infrastructure costs
AT&T’s joint venture with BlackRock to build and operate fiber to the premise delivery infrastructure as an open access network has implications for an issue related to how infrastructure deployment and operating costs are financed. Particularly, how revenues from internet service providers can defray the cost of planning, constructing, and operating it.
Some telecom industry trade groups have argued “big tech” edge providers such as Google, Microsoft, Amazon, and Meta should contribute to these expenses since their businesses benefit from the FTTP infrastructure providing them access to subscribers of their services and delivery platforms. The argument has been raised in a statutorily mandated U.S. Federal Communications Commission inquiry on universal service and the future of the Universal Service Fund as well as before EU regulators.
In an open access network, service providers pay to lease access from the network operator. Service provider leases could potentially offer investor owned telephone companies an indirect route to get edge providers to help defray them via contracts with ISPs offering services on open access networks. Edge providers would pay the ISPs to bundle their offerings and offer them to end users. Such an arrangement would naturally favor the scale of larger networks such as AT&T’s joint venture Gigapower hopes to attain.
Bringing ISP lease revenue to the table alters the traditional business case analysis for deploying FTTP since it provides owners/operators a revenue source independent of monthly end user or subscriber fees. Traditionally, business case analyses focus on household take rate and ARPU revenue estimates only. That has left many households effectively redlined for FTTP because a viable business case often cannot be made based solely on subscriber revenues.
Service provider lease revenue can flip the analysis, instead constituting most of the network revenues instead of end user subscriptions. For example, the publicly owned open access network UTOPIA Fiber gets 70 percent of revenues from these leases, according to a preliminary bond offering issued April 14, 2022 for $30 million in tax exempt telecommunications revenue bonds. The balance is from end user service contract fees.
Some telecom industry trade groups have argued “big tech” edge providers such as Google, Microsoft, Amazon, and Meta should contribute to these expenses since their businesses benefit from the FTTP infrastructure providing them access to subscribers of their services and delivery platforms. The argument has been raised in a statutorily mandated U.S. Federal Communications Commission inquiry on universal service and the future of the Universal Service Fund as well as before EU regulators.
In an open access network, service providers pay to lease access from the network operator. Service provider leases could potentially offer investor owned telephone companies an indirect route to get edge providers to help defray them via contracts with ISPs offering services on open access networks. Edge providers would pay the ISPs to bundle their offerings and offer them to end users. Such an arrangement would naturally favor the scale of larger networks such as AT&T’s joint venture Gigapower hopes to attain.
Bringing ISP lease revenue to the table alters the traditional business case analysis for deploying FTTP since it provides owners/operators a revenue source independent of monthly end user or subscriber fees. Traditionally, business case analyses focus on household take rate and ARPU revenue estimates only. That has left many households effectively redlined for FTTP because a viable business case often cannot be made based solely on subscriber revenues.
Service provider lease revenue can flip the analysis, instead constituting most of the network revenues instead of end user subscriptions. For example, the publicly owned open access network UTOPIA Fiber gets 70 percent of revenues from these leases, according to a preliminary bond offering issued April 14, 2022 for $30 million in tax exempt telecommunications revenue bonds. The balance is from end user service contract fees.
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