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.

“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!

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

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.

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.

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.

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.

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.”