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Why municipal fiber hasn’t succeeded

By 11 March 2010 15 Comments

The following paper was authored by Dr. Robert D. Atkinson (ITIF) and George Ou (while at ITIF), and originally published at Chaffee Fiber Optics (page 17) on March 2, 2009.  Article was updated by George Ou on 3/11/2010.


With the United States falling in broadband rankings and trailing many other countries in broadband deployment for a variety of reasons[i] [UPDATE 3/11/2010 - the rankings are extremely dubious], some communities have lost faith in the private sector and have begun to look to community-based alternatives.  The promise of affordable ubiquitous fiber broadband service and the potential economic development opportunities that come with it are so enticing that a number of cities are considering the municipal fiber route.  But despite the promises of municipal fiber, the actual success rate of these community fiber projects has been lukewarm at best and in many cases a failure at worst.  This article explains why fiber is not necessarily the only technology to focus on, how faster speeds are evolving, and why municipal fiber over-build projects are economically inefficient, and why municipal fiber hasn’t succeeded in many cases.  Finally it presents a policy framework for thinking about this.

Broadband Evolution

Broadband technology has evolved rapidly within the last 10 years.  First generation broadband started as a copper based technology either through copper phone wires from the phone company or copper coax from the cable TV company.  Next generation broadband uses three technologies: Fiber to the Home (FTTH), Fiber to the Node (FTTN), and DOCSIS 3.0.  All three technologies use a combination of fiber and copper technology to bring broadband into the home.  FTTH brings fiber all the way to the home but it uses copper coax cables for the final 30 meters within the home.  FTTN is a Digital Subscriber Line (DSL) technology that brings fiber to within 1,000 meters of the home and uses existing copper phone wiring to get to the home.  DOCSIS 3.0 is a cable broadband technology that brings fiber to a node which splits into 50 to 1000 homes and uses existing copper coax cables originally deployed for cable TV service.

Figure 1 – How broadband technologies compare under load

Figure 1 compares the potential bandwidth performance of broadband technologies on the access portion of the network.  It assumes 10 homes sharing an FTTH node and 150 homes sharing a DOCSIS 3.0 node.  Also note that the total capacity numbers are based on “signaling rates” and actual performance will be 10 to 20 percent lower due to overhead.  “Average user activity” indicates the average per subscriber bandwidth consumption and not the percentage of activity on the entire network.  So if 20% of the cable broadband subscribers are using the network and each person has an average activity level of 10%, the average user activity per subscriber is 2%.

The capacity and performance advantages of running fiber to the home are undeniable, but the high deployment costs of FTTH are often difficult to justify so long as the other two technologies which leverage existing plant continue to offer “good enough” performance to meet consumer demand.  Some ardent FTTH proponents have questioned why we are investing more money in copper technologies like FTTN and DOCSIS 3.0 that may or may not be obsolete in 5 or 10 years when FTTH is far more future proof.  The reality is that staying with existing copper phone and coax wiring is like squeezing another few years out of an old car by spending a little money on tune-ups.  Since technology always drops dramatically in price, boosting speed while staying with existing copper allows network operators to hold off on FTTH technology until it is cheaper in the future.

Furthermore, there is no reason to believe that DSL and cable technology based on existing copper wiring have reached a ceiling in performance.  Long term research in Dynamic Spectrum Management (DSM) is promising up to 1,000 megabits of dedicated symmetric capacity using existing copper phone wiring[ii].  Whether or not DSL technology can improve quickly enough to keep up with market demand or if the telecoms will be forced by market pressure to extend fiber all the way to the home remains to be seen.  DOCSIS 3.0 technology will continue to improve incrementally based on market demand and it could have a practical ceiling of 4,000 Mbps shared between as few as 20 homes[iii].  Even under extremely heavy average user activity levels of 25 percent per subscriber, each DOCSIS 3.0 subscriber could still receive 800 Mbps.  These upgrades to FTTN and DOCSIS 3.0 don’t come free, but they are smaller incremental which are easier to finance.

Higher Speed Broadband is Coming

The broadband market has grown at a rapid pace over the last 10 years.  At the turn of the decade, only 4.4% of all households subscribed to broadband[iv].  By the end of 2008, household penetration had reached 59%[v] and next generation broadband offerings from 20 Mbps to 50 Mbps had grown at a rapid pace.  Verizon passed 11.9 million homes with FTTH service and AT&T passed 17 million homes with FTTN service.  By the end of 2009, Comcast will have passed over 30 million homes with DOCSIS 3.0 service.

We are now in midst of an intense market competition between cable and telephone companies for the lucrative “triple play” market which encompasses TV, phone, and Internet service.  This competition started when the cable companies started having success with their digital voice phone services which is taking away the market share of traditional phone services.  Cable companies with first generation DOCSIS broadband are already effective triple play providers while phone companies with basic DSL service are only capable of providing phone and slower broadband service.  The three major Incumbent Local Exchange Carriers (ILEC) telephone companies are deploying FTTH or FTTN technology to be able to compete in the TV market and offer more competitive broadband services.  This in turn is pressuring cable companies to deploy DOCSIS 3.0 technology to remain competitive.  Because of this intense competition, it is only a matter of time before the 94 million broadband homes covered by ILECs today will have access to either FTTH or FTTN broadband.  The cable broadband footprint in the United States as of September 2008 was 119.8 million homes passed out of 124.6 million homes passed by cable video service[vi], and most of those broadband enabled homes will eventually be converted to DOCSIS 3.0 to compete with the ILECs.  This does not mean that next generation broadband, or even basic broadband, is everywhere.  In fact, we estimate that about 19,000 communities lack broadband altogether.  But in most communities broadband is available.

Competition as the Answer?

One of the leading rationales used by supporters of municipal broadband networks (either wireless or wired) is that a publicly subsidized (whether publicly or privately owned) additional network will boost competition, driving down prices and making it easier for residents to afford broadband.[vii]

Yet, surprisingly very few advocates of municipal fiber networks make the argument that cities need to invest to an additional electric wire network to the home, or a second gas pipe network to the home.    Indeed, most homes have just one electricity wire, one water pipe, one gas pipe, and one sewage line because building a duplicative “pipe” for any of these services would cost an enormous amount of money, significantly outweighing any consumer benefits from more competition.

The economics of broadband are no different.  Building a duplicative network costs a large amount of money and often provides no better service, only more choice in the service.  Broadband markets are different than existing single-pipe network infrastructures like electricity in that in most communities there are two existing providers, cable and telephone.    But the implications are still the same: subsidizing a municipal fiber over-builder will lead to a waste of societal resources.

The impacts of this will be felt both within the community and outside.  To understand why, consider that by definition an additional new network will mean fewer subscribers for existing providers[viii].  Even if some of the lost revenue from the fewer subscribers goes directly to lower profits, it is unlikely that all of the loss will, with the result that the provider will have to raise prices (or at least not reduce them as much as they would otherwise).  This means that municipal fiber overbuilding projects will result in higher prices for broadband consumers outside the community deploying fiber who subscribe to a service from a competitor in the community.  Because the existing companies now are getting less money, but their costs have not come down a commensurate amount, they have to make up that loss somewhere, and it will come from higher rates.  Fiber overbuilding also means that there will be marginally less investment in next generation networks by incumbents outside the community because there will be less overall revenue to support that investment[ix].  In this sense, there is a negative externality to society as a whole from communities investing in municipal fiber overbuild projects.

But many community leaders might respond that their responsibility is to their residents, not to residents outside their community.  Toward this end they will often argue that they need to invest in municipal networks in order to spur competition and lower prices.  But this notion overlooks the fact that pricing plans for TV and broadband services are regional in nature and not street- or community-based.  In other words, because pricing plans are regional, customers are not given higher monthly bills or inferior support because they don’t have any other broadband provider.  For competition to work there does not need to be a competitor on every street, in every neighborhood, or even in every city.    As long as companies do not engage in price discrimination (which to date they have not), as long as there are two competitors in at least a moderate portion of the region the companies are serving, then the pressure to compete against each other there will discipline prices in all areas a provider serves.

The effect on pricing for the municipal fiber network itself depends on a number of factors, including take up rates and levels of subsidy.  Even under ideal circumstances, three facilities based competitors in the market makes survival very challenging because the overall broadband market as of 2008 is approximately 59% of all households.  Assuming that all the broadband players are equally competitive, that’s roughly 20% market uptake for cable, telecom, and municipal fiber provider each.  Twenty percent market share simply isn’t enough to sustain a healthy and cost effective business model because network operators typically have to build out to roughly 90% of any region to attain those levels of uptake.  This is extremely hard for network operators especially fiber operators because they have to bear the cost of building out new infrastructure to 5 homes just to reach 1 subscriber.  Municipal fiber projects throughout the country have not been very successful for this very reason.  If municipal fiber projects can’t get enough subscribers to cover their costs, prices could still stay low but only if the project is subsidized from other sources, such as general fund revenues.

The Municipal Fiber Experience

While there have been some limited success stories of communities that have tried municipal fiber, there have been many failures, for precisely the reasons related to economics described above.  In Utah, Provo County’s “iProvo” municipal fiber service was such a financial failure that they were forced to give the network to private network operator Broadweave Networks where Broadweave would resume the city’s bond payments.  Eleven other counties in Utah which formed a municipal fiber coalition called “UTOPIA” which was on the verge of financial collapse in 2008 and they were forced to extend their $202 million dollar 20-year sales tax pledge to $504 million over 33 years[x].  If that wasn’t bad enough, UTOPIA began asking their customers to pay co-op fees of $1,100 to $3,500.  But even with the additional sales tax pledges from the UTOPIA communities, there is no assurance that the project will ultimately survive.

The lessons learned in Utah is that projected uptake models and deployment plans don’t always come to fruition, and when that happens the consequence is failure.  For UTOPIA, the project was projected to reach 35% uptake rates by February 2008 but the reality was less than 17% uptake.  UTOPIA had also hoped for 17% uptake from lucrative business customers but the reality was only 2 to 3 percent.  Provo County’s iProvo was hoping for 10,000 subscribers by July 2006 with the assumption that 75% of those customers would subscribe to lucrative triple play services, but the reality was 10,000 customers in late 2007 with only 17% of those customers subscribing to triple play[xi].    Many consumers were quite happy to subscribe to existing broadband cable or telecom providers.  The consistent theme in Utah was an overestimation of the uptake rates and the underestimation of competition from incumbent cable operator Comcast and telecom operator Qwest which led to consistent underperformance.

Exacerbating the situation for many municipal fiber projects like UTOPIA and iProvo is the wholesale business model which has proven to be very inefficient.  These networks were originally designed to provide wholesale services to companies that would resell retail services (e.g., data and video) Broadweave Networks has already vowed to switch iProvo to a more efficient retail model where it operates the network and sells broadband service directly to consumers rather than rely on an intermediate service provider.  Burlington Vermont’s former general manager Dr. Timothy Nulty concurs with this conclusion when he stated that wholesale fiber was “a recipe for financial failure”[xii].

In Burlington Vermont, Burlington Telecom, which is considered the most successful municipal fiber operation in the nation [UPDATE 3/11/2010 - Burlington Telecom is now officially a financial disaster], offers a lower performing product at a higher price than the nation’s largest FTTH provider Verizon.  When comparing standalone pricing, Burlington Telecom’s 8 Mbps symmetrical fiber service costs $72[xiii] per month compared to Verizon’s 20 Mbps symmetrical service at $70[xiv] per month.  This price difference can be attributed to scaling efficiencies.  Large network operators like Verizon operate nationwide networks allowing them to peer with other large Internet networks at no additional cost.  Centralized network operations centers and all the experience of installing fiber in previous communities eliminates redundant infrastructure and training which translates to lower costs when deploying fiber to new communities.

Even with generous government incentives, spurring fiber deployment through tax incentives will remain difficult because the cost of deploying fiber to the home per subscriber can easily be more than $4,000[xv] and that takes a tremendous amount of external incentives to get any company to assume that kind of risk.  Even Verizon with its ability to absorb the near term losses and lower FTTH deployment costs due to a high percentage of aerial fiber deployment faced immense pressure from their shareholders for their decision to deploy FTTH.  Qwest has stated that over 75% of their cabling is underground whereas Verizon is just the opposite[xvi].  This is a crucial distinction because a study in San Francisco showed that underground fiber costs 6.69 times more than aerial fiber to deploy.[xvii] That could easily mean that Qwest’s FTTH deployment costs are a few times higher than Verizon.  The end result many of these projects are not viable without government subsidies.

Policies Regarding Muni Fiber

While municipal fiber overbuilding almost always represents a waste of community and broader societal resources, there may be times when municipal fiber provision may be appropriate.  Cities rightly seeking to have faster broadband networks, however, should consider municipal provision as a last resort, rather than a first one.  Assuming that a community has at least one broadband provider, their first step should be to try to incentivize their existing cable or phone operators to reach a certain broadband performance milestone, and not some specific technology such as FTTH.  They should do this by engaging in a public private partnership to fund at least some of the costs of expanding and upgrading the existing networks.  They should also reduce regulatory barriers such as right of way fees.

If municipalities try to work in good faith with incumbent providers to have them upgrade their networks and the operators refuse to move forward with reasonable and timely performance milestones then cities should consider going the municipal fiber route, assuming that they believe the economics of doing so are viable.  However, cities that are seriously considering municipal fiber should also factor in accelerated deployment and aggressive competition from cable and phone companies in any viability analysis.

The situation is different for areas without any broadband providers.  There municipal fiber provision can make more economic sense, not just for them but for society as a whole.  But in these cases a key factor is whether the municipality has the technical wherewithal to build, manage and upgrade networks and do so efficiently.

Over the years, ITIF has been a most vocal proponent of faster broadband and we have just released a new report “The Need for Speed: The Importance of Next-Generation Broadband Networks” stressing the need for next generation broadband[xviii].  However, we advocate a more pragmatic, technology neutral approach where companies achieve the required level of performance (currently defined by a minimum of 20 Mbps downstream).  While we would ultimately prefer to see more FTTH deployment because it brings us into the gigabit era and beyond, we recognize that consumer demand may not always be high enough to make it economically feasible today.  What’s more important is reaching next generation broadband speeds today with any feasible technology and cross tomorrow’s milestones when we reach that bridge.


Robert D. Atkinson, Daniel K. Correa and Julie A. Hedlund, “Explaining International Broadband Leadership”, (Washington, D.C.: Information Technology Innovation Foundation, May 2008) <http://www.itif.org/index.php?id=142> (accessed March 12, 2009).

David Orenstein, “Pioneer of digital subscriber line wins prestigious fellowship”, (Stanford News Service, September 2006) <http://news-service.stanford.edu/news/2006/september27/cioffi-092706.html> (accessed March 12, 2009).

This is assuming that the entire spectrum in the copper coax cable is allocated to Internet access and that a node sizes are shrunk to 50 homes with 40% uptake.

OECD, “OECD broadband portal”, n.d. <http://www.oecd.org/document/54/0,3343,en_2649_34225_38690102_1_1_1_1,00.html> (accessed March 12, 2009).

IDC, “IDC 2008 U.S. Consumer Panel Broadband Survey”, (IDC, August 2008) <http://www.idc.com/getdoc.jsp?containerId=213724> (accessed March 12, 2009).

NCTA, “industry data”, n.d. <http://www.ncta.com/Statistics.aspx> (accessed March 12, 2009).

For more information on municipal provisions, see Craig Dingwall, Municipal Broadband: Challenges and Perspectives, 59 Fed. Comm. L.J. 67, 67-103 (2006).

Ford models how reduced market size reduces the number of profitable providers.  George S. Ford, Competition After Unbundling: Entry, Industry Structure, and Convergence, 59 Fed. Comm. L.J. 331, 332-67 (2007).

Verizon’s FIOS strategy requires considerable capital.  Comcast’s recently announced DOCSIS 3.0 investment is estimated to cost less, but will still be in the billions of dollars.  Whether such high-speed networks will be rolled out in most places, though, remains to be seen.

Grace Leong and Joe Pyrah, “The Case for UTOPIA and iProvo: Double down or cut bait?” (Daily Herald, April 2008) <http://www.heraldextra.com/content/view/263223/18/> (accessed March 12, 2009).

Grace Leong and Joe Pyrah, “The Case for UTOPIA and iProvo: Double down or cut bait?” (Daily Herald, April 2008) <http://www.heraldextra.com/content/view/263223/18/> (accessed March 12, 2009).

Ed Gubbins, “Bell tolls for wholesale-only muni fiber”, (Telephony Online, May 2008) <http://telephonyonline.com/fttp/news/telecom_bell_tolls_wholesaleonly/index.html> (accessed March 12, 2009).

Burlington Telecom, “Residential Services,” n.d. <http://www.burlingtontelecom.net/residential/internet/> (accessed on March 3,2009).

Verizon, “Plans and Prices,” n.d. <http://www22.verizon.com/content/consumerfios/packages+and+prices/packages+and+prices.htm> (accessed on March 3, 2009).

$4000 per subscriber assumes uptake rates of 25% and ~$800 per home passed plus the additional cost of extending the fiber from the curb to the home and other equipment.

Larry Dignan, “Qwest CTO on FTTP, bandwidth caps and integrated services”, (ZDNet, August 2008) <http://blogs.zdnet.com/BTL/?p=9781> (accessed March 12, 2009).

CTC Communications, “Fiber Optics for Government and Public Broadband: A Feasibility Study”, (San Francisco Government, January 2007) <http://www.sfgov.org/site/uploadedfiles/dtis/tech_connect/SFFiberFeasibility.pdf> (accessed March 12, 2009).

Stephen Ezell, Robert Atkinson, Daniel Castro and George Ou, The Need for Speed: The Importance of Next-Generation Broadband Networks, (Washington, D.C.: Information Technology Innovation Foundation, March 2009) <http://www.itif.org/index.php?id=231> (accessed March 12, 2009).

15 Comments »

  • Jim Baller said:

    There are so many errors of fact and reasoning in this article that it would take a piece much longer than the article itself to respond to them all. Fortunately, that’s not necessary. Suffice it to say that the article’s main error is foreshadowed by the title itself — its unsupported premise that municipal fiber networks have not succeeded is simply wrong. In fact, the vast majority of municipal fiber networks ARE succeeding on multiple levels, some spectacularly so. This is confirmed in a Fiber to the Home Council study of the nearly 60 municipal fiber networks on line today, which is available online at http://tinyurl.com/yl5jctd.

  • Frank said:

    Provo’s failure is due to the fact that politics and not sound business rules were applied to the project. This can be extended to the decision to adopt the retail business model itself. When the project was in the design phase, the retail model was very quickly abandoned because of politics and not the bottom line. The failure of the project can be assigned to only two people; Kevin Garlick (Director of Provo City’s Energy Department) and Mayor Lewis Billings.

    To look at success, look no further than 15 miles to the south. Spanish Fork Community Network is cash flow positive, financially stable, very inexpensive and has about a 75% take rate. What makes the difference? People.

  • George Ou (author) said:

    Jim,

    I see you every time rushing in to apologize for the failures of muni-fiber. What about the criminal investigation in Burlington Vermont and their $50M debt for a mere 4800 customers? Burlington was supposedly a model of success yet it’s just as bad or worse. You say that I have my facts wrong yet you can’t even cite a single specific example.

    Frank, 75% adoption rate would be very high for all providers combined. Typical take rate is 65% combined, and that’s split between all the providers. If a community can get 75% take rate in a single muni provider, then that means there are no other providers in the community and the people of the city are very techno-inclined. Getting 75% adoption would certainly make it easy to succeed, but that’s extremely unusual. The biggest problem for most of the muni-fiber projects is that they’re trying to become a second and third provider and trying to split a 65% adoption pie which makes it extremely costly and unlikely to be profitable.

  • More on Muni Fiber Failures said:

    [...] somehow missed this excellent ITIF paper by Robert D. Atkinson and George Ou when it came out at this point last year, but George has just [...]

  • Craig Settles said:

    Actually George, Jim is quite right. From your article title and throughout the entire article are fallacies and ridiculous logic. During the five years I’ve interviewed communities and worked with others in this space, I’ve seen the same fallacies, which are usually supported by trotting out iProvo and Burlington Telcom while ignoring the dozens of success stories. It’s the same as attacks on municipal wireless supported by trotting out failures that were in fact the failures of private sector companies (Portland, OR, Tempe, AZ, Philadelphia). Fact, George, not some twisted reality you and the other telco sock puppets try to foist off on the public as credible research.

    Here ya go genius, you want some specific examples of muni network successes? Check out these 10 to start – http://bit.ly/Ejg6L. But wait, there’s more. Over these past few years I’ve accumulated from cities and counties quite a stockpile of evidence of successful community networks that improved economic development, educational advancement of local youth and delivery of government services. My list of successes trumps your list of failures.

    And for heaven’s sake, come off this backward logic embodied in your comparison of copper lines to an old car. Did it ever occur to you that people with old cars on their last legs pay more in gas, repair bills, lost time while the car’s in the shop, etc. etc.? Furthermore, how quickly would your neighbors toss you out on your butt if you walked into their house and told them they couldn’t buy a new car because you think they should drive the old one for a few more years? Well, telcos sticking their noses into communities to prevent them from making their own broadband decisions is the same thing.

    If you actually spent time talking to some of the thousands upon thousands of people disgusted with their service providers, and enraged by the telco jerks who can’t lead, don’t follow and won’t get out the way of communities’ ability to create or buy their own solutions, you might write a decent factual article. But then again, probably not.

  • George Ou (author) said:

    Craig, it’s one thing if you want to provide an alternative view, but you’ve offered nothing to disprove the facts in this paper.

    Yes it is possible to run a successful municipal network, but there is a time and place for it and Utah and Burlington were the wrong place to try it.

    I’ll leave you with the conclusion I provided here.
    http://www.digitalsociety.org/2010/03/burlington-muni-fiber-joins-the-ranks-of-tech-welfare-queens/
    “The lesson in this fiasco is that there is a right way and wrong way to build a successful municipal network and Burlington Telecom is an example of what not to do. If a community has no high speed Internet services and no commercial operators already providing service or planning to provide service, there is a role for the community and government to step in to fill in the demand. When that demand is already filled by one or more commercial providers, nothing good can come from using tax payer dollars to destroy the commercial entities.”

  • Craig Settles said:

    Ok, so maybe I’m not always the spot on, but let’s look at two out of many lines in your story my response disproves.

    First, “Why municipal fiber hasn’t succeeded.” The very title suggest every muni network effort has failed. I gave you a link to 10 that haven’t failed. There’s plenty more where those came from.

    Second, there’s the comment in the first paragraph: “But despite the promises of municipal fiber, the actual success rate of these community fiber projects has been lukewarm at best and in many cases a failure at worst.” What many cases are you talking about. I don’t see it, especially compared with the number of successes versus the two candidates you guys always trot out. And don’t start rattling off the usual suspects we see time and time again used to make the case against muni wireless when the failures were run by private companies.

    Oh, what the heck, let me put in a third item. From your conclusion “When that demand is already filled by one or more commercial providers, nothing good…” This glosses over the fact that many a FTTH project started expressly because NO incumbent would serve the community. And then when a community did start the project, incumbents who are poster children for market failure fought those communities tooth and nail. (Here’s a community that won such a fight – http://bit.ly/aJegrj) Or, in cases where there were one incumbent, the second it became clear a competitor was coming on the scene, prices magically dropped and service offers started popping up in places previously denied.

    Have a nice weekend.

  • George Ou (author) said:

    Craig, I looked at your link and most of those weren’t even examples of municipal fiber. In fact, I counted only 2 examples of muni-fiber in your link and they were tiny deployments. Here are the two pulled from your link.

    Wilson, NC
    Population: 49,000 Square miles: 23
    Network Type: Fiber Sq Miles: 23
    Date started: November, 2006 Network owner: City government
    Initial investment: $28 million Source: Bank loans

    Pulaski
    Population: 8,000 Square miles: 6.6
    Network Type: Fiber Sq Miles: 10
    Date started: March, 2007 Network owner: Public utility
    Initial investment: $8.5 million Source: G.O. bonds
    Business subs: 160 Individual subs: 1,450

    Second, there wasn’t even detail on the few examples of muni-fiber. It might be that those particular examples were successes, but they were limited in scope and square footage and they might not have entered an already saturated market.

  • Christopher Mitchell said:

    Agreeing with Craig and Jim Baller on this one – George Ou has put no time into studying these muni networks, appearing to instead focus on BT – which is a political disaster because the administration failed to act transparently and keep the City Council informed on what was happening. There is indeed an investigation and I think many of us look forward to finding out how Burlington spent so much without passing everyone.

    As for where networks have succeeded, I sincerely doubt Mr Ou would be able to see them as successes because he is so focused on evaluating these networks with a private sector balance sheet. Communities build infrastructure to attract people and businesses, they are not expecting networks to turn a profit in a few months or years. They want to improve the quality of life with better connections, competition, and other public benefits.

    Public networks are often “tiny” deployments because these are areas most neglected by incumbents – and the ones willing to do something about it. This includes but is certainly not limited to Reedsburg, WI; Kutztown, PA; Spencer, IA; Powell, WY; BVU, VA; Loma Linda, CA; Monticello, MN; Lafayette LA; several public utility districts in WA; and HFC networks like Tacoma, WA and Cedar Falls, IA.

    I have no doubt that a quick analysis by Mr. Ou will find some of these networks are “failures” by his facile analysis based on whether they are profitable or not at the current time. This misses the impact of these networks — which requires actually talking to people in the towns and finding out how the network has changed the community.

    Finally, this focus on tax dollars is utterly facetious. The vast majority of communities finance networks using revenue bonds — the vast majority of these networks have used ZERO tax dollars. Mr. Ou is either ignorant of how these networks operate or dishonest – an allegation I only suggest in light of his connection to industry-funded ITIF.

  • George Ou (author) said:

    Christopher, sounds like you’re basically agreeing with me that these examples are disasters and that muni projects should fill unserved needs rather than enter saturated markets.

  • Jesse Harris said:

    Two words: Spanish Fork. You may not have noticed, but that muni network has been adding six figures a year to the city budget. They recently added VoIP to their offerings and can deliver a $86/mo triple-play. I’d call that a big fat helping of success. Or do you not want to talk about that? (I’m guessing not since you decided to ignore Bristol, VA for the same reason: success doesn’t fit into your preconceived notions.)

    You also completely fail to consider any kind of success beyond black ink. What about decreased city telecommunictions costs, lower retail rates for residents, jobs retained or attracted, increased telecommuting leading to lower traffic, or any number of a host of other positive benefits? Sure, it can be hard to quantify the benefits of these things, but it’s also pretty hard to quantify the benefits of public parks, well-maintained roads, and a host of other municipal services. If cities want to do it and the residents approve, what business of yours is it? Anyone who doesn’t like it has the freedom to move.

    Jim may not have time to rip your weak arguments apart, but I sure do.

    Many communities have lost faith in private providers and their ability to deliver necessary services. Many of them have begged incumbents to upgrade service or even offer it in the first place. The city of Lindon, a UTOPIA member, offered to pay Qwest to do fiber upgrades in their city, an offer that the incumbent telco declined. If a city identifies a need, makes a good faith effort to work with incumbents to fulfill it, and gets snubbed, do you propose that they just suck it up and accept that it’s tough noogies? If I were a resident of a town with a council and/or mayor that spineless, I’d turn them out on their heads.

    You also criticize municipal overbuild efforts while failing to pick up on a very important point: ALL overbuilding is hard. Incumbent providers have created regulatory and market conditions that prevent most private providers from being successful. You spend a lot of time talking about municipal overbuild failures, but you ignore that there are more private examples of failed overbuilds by an order of magnitude. The Knologys of the world are few and far between.

    You also completely gloss over the cost of fiber deployment. While it may cost quite a bit to roll out fiber, Only about 1/6 of the cost is the actual fiber. At least 50% is eaten up in pole attachments and trenching costs. The difference between using fiber or another medium such as coax is negligible, especially given the advantages in doing so. Verizon has reported that system maintenance costs have plummeted by 90% in areas with FIOS while ARPU has doubled. The up-front cost of fiber is justified entirely by the profit margins associated with it. Attacking fiber as a medium is a technologically and economically ignorant argument, especially since sharp increases in worldwide fiber deployment have dramatically lowered equipment costs.

    You argue that because DSL and cable could potentially deliver fiber-like speeds in the future, fiber is unnecessary. This makes a ridiculous assumption that copper-based technology will move forward while fiber-based technology will stand still. Fiber, right now, can peak at 40Gbps with 100Gbps equipment due in months, not years. Terabit specs are already being created. The “copper is just as good” argument is only great for companies unwilling to let go of aging and deteriorating copper plants and completely denies reality. To put it more succinctly, copper promises gigabit, fiber does it now.

    The three major Incumbent Local Exchange Carriers (ILEC) telephone companies are deploying FTTH or FTTN technology to be able to compete in the TV market

    Wrong again. Qwest is offering nothing but VDSL2+. No VoIP, no video, just raw data. Many smaller ILECs are in the same boat like Frontier, FairPoint, etc. Competition is non-existent over large swaths of the country, even is urbanized areas. The suburb of Woods Cross, just miles from downtown Salt Lake City, doesn’t have any wired broadband options in much of the city. Even Salt Lake City itself has DSL in just 95% of the city. They aren’t competing; they’re barely even serving existing areas.

    Your argument about other utilities falls flat. Electricity, gas, and water are highly price-regulated and rates cannot change without approval from a state agency. Telecom companies, on the other hand, can change rates at will and have been increasing the costs for their services many times the rate of inflation, especially when they are given regulatory concessions. They are in a monopoly position and yet are not subject to the same monopoly regulations as their power counterparts. That’s a captive market, not a free one. I have difficultly finding empathy for companies that operate on triple-digit markups.

    You’re also woefully under-informed about what has been going on here in Utah. Broadweave Networks bought iProvo, burned through millions of dollars from investors, and ultimately had to merge with another company because they couldn’t make the bond payments anymore. Now I’m hearing rumblings that the new company that took over might not be able to do it either despite having healthy revenues from their existing business and no debt on the books. Problems with making an overbuild work are not specific to munis.

    UTOPIA has also been doing a lot behind the scenes that most people never see including a significant amount of long-haul transport. Top-name service providers like Integra and Voonami are willing to stake their reputation on the network, a vote of confidence in its superiority. Other smaller service providers, like XMission, have no choice but to put all of their eggs in the basket as Qwest sabotages their business on the wholesale side. You have also failed to note that Qwest’s legal and legislative maneuvering (which I have personally witnessed) has been responsible for numerous delays and roadblocks to UTOPIA, including using the Utah Taxpayer’s Association as a proxy for attacking the network and spreading false information.

    In short, you don’t have a clue what you’re talking about beyond a few slanted articles you’ve read that support your already-formed conclusions. Sorry to take such a confrontation tone, but I’m pretty much done with reading the same rehashed false argument time and time again from out-of-staters that wouldn’t know what’s really going on out here if it came up and bit them in the face. What you don’t know would fill a warehouse.

  • Ken DiPietro said:

    Mr. Ou,

    First off, my apologies for being late to the discussion.

    Please allow me to take a somewhat different approach. Assuming that I am willing to accept your analysis that the Burlington, VT FTTH network, as well as the ones you cited in Utah, have failed, I would suggest that we would all be better served if you were to follow up this article with one that would list the mistakes you believe were made and how these networks might have otherwise succeeded.

    I do take strong exception to your assertion that these networks have failed as I believe it is premature to make such a claim. While we would probably both agree that they have not lived up to their business model’s projections, I would like to believe that at some future point they will. As such, labeling these networks as failures only because they underestimated take rates or overestimated where their revenues would come from and how much they might expect, is somewhat misleading, again, from my point of view.

    Addressing the greater subject of can municipal fiber (or wireless) networks be successful, I would like to point out that we may be using very different metrics as to what constitutes a success.

    Hypothetically, if the municipal network does not turn a profit but the municipality benefits indirectly due to more businesses opening up, with more people being gainfully employed, thereby generating more tax revenue, how are you applying this cost/benefit to the municipality? In your analysis, is there a value to be considered generated because an elderly or infirmed person can now live a richer life from having access to reasonably priced broadband? How about the direct benefit of students having a better resource to use for study as compared to the children outside of the coverage area? Doesn’t this indicate that there will be a value which will not be recognized for a decade or more? Where in your analysis does this value appear?

    One point I would like to make in closing, we are entering a brand new telecommunications landscape and there are no long term models that we can draw upon as best practices to be replicated. There will be experiments and there will be experiments that fail – but that doesn’t mean that we shouldn’t try, it simply means we should learn from what works and what doesn’t.

    I would invite you to join in that process as it has been my experience that anyone can point out flaws while very few can actually implement perfection.

    Respectfully,

    Ken DiPietro
    Ellerslie MD

  • mike said:

    I just read the entire article as well as all of the comments and, to be honest, it was a lot of fun. I agree with most of the comments in terms of the flaws contained in the original article. However, since I know little about municipal broadband (till I read this article, thanks for the info Ou, btw), what did it for me was:

    “The impacts of [subsidizing a municipal fiber over-builder] will be felt both within the community and outside. To understand why, consider that by definition an additional new network will mean fewer subscribers for existing providers[viii].”

    It’s only the second sentence that’s important, but I pasted the first one too to give some context (btw, when you write “this”–be sure to follow it with a noun). Disagreements with the argument aside, talk about an unnecessary reference! OF COURSE (or “by definition”) a new network will translate into fewer subscribers for existing providers–isn’t that just how economics works? You don’t need a reference for that! Plus, you say “by definition” which further removes any need for a reference. If it’s by definition, it’s BY DEFINITION! It’s not “by definition….(as evidenced by this guy).” I understand that you were referencing data for the definition, but it’s unnecessary and doesn’t do anything to further the topic of the article. It’s as if you first wrote the article, then plugged in some random citations to give the article the appearance of having some semblance of academic rigor. I could easily think of at least 10 or 15 other parts of the article where I would’ve liked to see some references. You make some pretty big jumps, as others have alluded to, that I’m not so sure are valid nor substantiated. I mean, I don’t really know much about broadband (other than the fact the Comcast is throttling :( my BT), but I’m just saying.

    Anyway, the reason I’m here is because I’m looking into getting some municipal broadband where I live. I did learn quite a bit reading the article (and links, and posts), so now I feel a bit better informed. It seems that economic viability can only be achieved by doing the “triple play” deal, but it seems like a dumb idea to offer phone services. I understand that a lot of people still have landlines…well I guess offering phone service wouldn’t be that big of a deal–all the cables and such will already be in place. And wifi seems like a terrible idea too–simply not fast enough. High speed fibers are the only way to go. Big initial investment but, given the relatively less-competitive economic forces affecting public firms and the relaxed pricing strategies they afford, I see no reason (other than bad planning) why municipal broadband initiatives would fail.

    Anyway, thanks for the good reading!

  • George Ou (author) said:

    @mike “OF COURSE (or “by definition”) a new network will translate into fewer subscribers for existing providers–isn’t that just how economics works?”

    Thanks for the grammar lesson, but you seem to gloss over this fact a little too quickly for my taste. It’s not just fewer subscribers for existing providers; it’s fewer subscribers for all providers. This is a very crucial fact in terms of the economics of a sustainable broadband infrastructure. When three facilities based operators go into a single market, each operator must build to 100% of the region but only be able to get an average 22% market share (splitting 66% three ways). Building 100% of the region is extremely expensive and an operator really needs a lot more than 22% if they want to remain viable.

  • clynie said:

    nice post