Gigapower CEO Bill Hogg – the brand name for AT&T’s joint venture with BlackRock’s Global Infrastructure Fund to build open access fiber delivery advanced telecommunications infrastructure -- boasted other open access networks would be unable to scale up like Gigapower. Gigapower will be “much larger than any other provider in the space,” Hogg declared at a webcast panel presentation last September hosted by Broadband Breakfast. “The scale at which we are going to operate will be a differentiator in the U.S. marketplace.”
Publicly owned open access networks like UTOPIA Fiber, owned and financially backed by a 20 Utah municipalities, operate with a built in cost advantage over investor owned infrastructure like Gigapower. They operate free of the need to generate profits and earnings dividends for investors and income tax liability. Those advantages should provide them the ability to match the scale of Gigapower as regional open access networks.
But that advantage could be offset by freer, ready access to expansion capital from BlackRock’s Global Infrastructure Fund. The fund includes state and local pension funds, sovereign wealth funds, and family endowments, according to Adam Walz, managing director of the fund. According to Walz, the fund is focused on investments in digital infrastructure opportunities across fiber networks, data centers, and wireless infrastructure.
AT&T and BlackRock can independently make decisions on which Gigapower projects to build and finance. By contrast, publicly owned open access networks rely on capital bonds sold on public bond markets to finance construction. Bond underwriters set the terms and conditions of bond offerings and may require additional sources of repayment security beyond network revenues from end users and lease fees paid by internet service providers to access the network. That limits the scale and pace at which they can expand.
Going forward over the long term, this boils down to a competition between private and public capital and which is most responsive to slake the nation’s deep thirst for fiber to replace outdated metallic delivery infrastructure. The competition will likely play out at least initially in densely developed areas since both forms of ownership presently prefer them over less dense areas: privately owned for more rapid ROI and publicly owned to better assure sufficient bond debt servicing.
Monday, February 26, 2024
Sunday, February 25, 2024
AT&T’s two pronged fiber build out strategy
AT&T appears to be pursuing a two pronged strategy to build out fiber to the premises (FTTP) delivery infrastructure. The first is targeting densely built up metro areas with its Gigapower joint venture with BlackRock’s Global Infrastructure Fund. The second using subsidies extended to the states from the 2021 Infrastructure Investment and Jobs Act’s (IIJA) Broadband Equity, Access, and Deployment (BEAD) Program to build FTTP infrastructure in less densely developed areas that meet the program’s funding eligibility requirements.
Last fall, AT&T urged states to award the BEAD subsidies for contiguous builds that qualify as unserved (where at least 80 percent of serviceable addresses in the project are not offered throughput of 25/3 Mbps or better) and underserved (where at least 80 percent of serviceable addresses are not offered throughput of 100/20 Mbps or better). However, under BEAD, states must first exhaust their funding allocations on subsidies for projects addressing unserved locations.
As noted in the above linked blog post, AT&T’s BEAD funding appears predicated on the two generations of Digital Subscriber Line (DSL) technology that runs over its legacy copper voice telephone delivery infrastructure. The first, ADSL, will in many less densely developed areas qualify as unserved since it typically provides bandwidth lower than 25/3 Mbps. However, these areas are often adjacent to those served by its second generation VDSL technology. Those areas won’t qualify as unserved but could likely qualify as underserved.
Federal and state officials overseeing the award of BEAD funds will likely come under pressure from AT&T to liberally interpret the program rules to allow subsidization of contiguous FTTP projects spanning areas including both types of DSL technology. Expect AT&T to argue that this will provide the most efficient use of the funds and cover the greatest number of serviceable locations as well as meeting the BEAD program's preference for FTTP.
Last fall, AT&T urged states to award the BEAD subsidies for contiguous builds that qualify as unserved (where at least 80 percent of serviceable addresses in the project are not offered throughput of 25/3 Mbps or better) and underserved (where at least 80 percent of serviceable addresses are not offered throughput of 100/20 Mbps or better). However, under BEAD, states must first exhaust their funding allocations on subsidies for projects addressing unserved locations.
As noted in the above linked blog post, AT&T’s BEAD funding appears predicated on the two generations of Digital Subscriber Line (DSL) technology that runs over its legacy copper voice telephone delivery infrastructure. The first, ADSL, will in many less densely developed areas qualify as unserved since it typically provides bandwidth lower than 25/3 Mbps. However, these areas are often adjacent to those served by its second generation VDSL technology. Those areas won’t qualify as unserved but could likely qualify as underserved.
Federal and state officials overseeing the award of BEAD funds will likely come under pressure from AT&T to liberally interpret the program rules to allow subsidization of contiguous FTTP projects spanning areas including both types of DSL technology. Expect AT&T to argue that this will provide the most efficient use of the funds and cover the greatest number of serviceable locations as well as meeting the BEAD program's preference for FTTP.
Monday, February 19, 2024
The d factor: Why publicly owned, financed FTTP may not balance the Crawford equation
Author Susan Crawford in her 2019 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.
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.
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