Is Municipal Broadband Really Unsuccessful?
I’ve read Rob Atksinson’s and George Ou’s article published in the latest FTTH Prism newsletter entitled “Why Municipal Fiber Hasn’t Succeeded“. The authors argue that municipal broadband has not been successful because municipal broadband initiatives have not proven to be financially viable. The argumentation is persuasive at first reading; however, I’d like to take a look at the issues surrounding the municipal broadband from a different point of view and comment on the major topics addressed in the article.
First off, the article concludes that municipal broadband networks are not successful primarily because a number of local initiatives shutdown or are near bankruptcy. I find this rather an oversimplification. Judging from the history of the telecommunications industry, it’s probably just too soon to conclude whether municipal broadband networks are proven to be non-economical. Investments in physical infrastructure require a significant payback period and long ROI and to be objective and fair with our assessment, we can only evaluate the municipal efforts after enough years of operation. Management can exercise significant flexibility to deal with uncertainty and unanticipated outcomes (e.g. low demand, regulatory intervention, competition reactions) and holds the power to revert the situation with appropriate measures. For example, although Amsterdam had limited activation rates at its current build-up, the market dynamics of its FTTH network have persuaded big market players to join the network operating company and finance the second deployment phase. Pau Broadband Country, in France is another example. When the French started their network in Pau take-up rates were very small, far lesser than initially anticipated. The management changed the form of operation: an ISP was introduced to offer internet services to the public, modern technologies were applied to reduce deployment costs and new services are currently being designed. These actions made the network more attractive to the citizens and increased substantially the penetration rates resulting in significant economic and social spillovers (e.g. IT related business activities are outsourced from Paris to the broadband-enabled Pau).
The article reflects on the decreasing deployment cost of FTTH and the contemporary research on spectrum management over copper and suggests that it may be wiser to take as much from the copper before replacing it with fiber. FTTH deployment, in the future, would cost less as the costs associated with FTTH construction are expected to decrease [1]. There is certainly another way to look at this. This strategy best fits incumbent access providers’ business plans that already own the copper and are local in nature (therefore making it easier to confront competition and secure their regional market share). That way Telcos can leverage on their existing infrastructure as much as possible, by applying incremental/marginal upgrades to their infrastructure. However, in the globalized economy, regional and national economies compete directly with one another and what is proven from international experience is that national and regional Governments cannot afford to let economic development in the hands of the traditional players of the market (i.e. incumbent telcos, cable operators). Municipal efforts to provide fiber access to their citizens is strongly underpinned by international developments and other communities being broadband enabled, thus becoming more competitive. Assessing the situation upon a narrow regional or even national perspective prevents decision makers to grasp the risks stemming from the lack of broadband .
By the same token, I have argued in a previous post (See: A Different View on Broadband Sustainability ), that municipal success should not necessarily be linked only with financial viability rather with the degree of accomplishment of its strategic objectives. Only if broadband infrastructure is laid to increase economic performances should its success be linked with financial profitability. Intuitively, if there existed clear indications that investments in the areas of interest where financially viable, telcos would probably have already invested and we wouldn’t be discussing in the first place. Municipalities invest in high-end communications infrastructures aiming at a much broader set of socio-economic results than financial profitability. These include among others a) opening the market to outsiders, 2) increase the level of competition, 3) increase broadband awareness, 4) improve health care and educational services etc.
I need to elaborate a little more on the article’s perspective on competition stimulation. I don’t see municipalities building broadband networks to directly compete with infrastructures already in place. If this was their ultimate objective then, as nicely put in the article, we would be seeing redundant electricity grids, water & sewage networks etc. On the contrary, the goal of the municipalities is to install broadband infrastructures that will enable any interested service provider to leverage on the municipal network and offer high-quality, value-adding broadband services to the citizens. Retail service offerings by municipalities are used to offset financial burden stemming from the lack of ISP’s interest to use the network. Municipal networks operating on open access principles ensures a fair and non-discriminatory provision of next generation access which can effectively spur competition. This is the unique added-value that municipal infrastructures offer to the broadband value chain and the public that no private ISP so far showed that is willing (or can “afford” to) provide to its competition (See: Infrastructure-based Competition in NGA: The Best Way Forward? )
The way I want to interpret the article is that we need to understand the reasons of failure/limited success of municipal broadband networks worldwide and learn from past experiences. Municipal initiatives need not to be discouraged by intermediate half-way through assessments rather be encouraged by the significant prospects of social and economic local development and enlighting international examples.
[1] I don’t see any dramatic change in the FTTH deployment costs in the near future. FTTH construction is labor intensive and construction totals approx. 70% of the full service cost (See: AIT Workshop on April 11, 2008 (comments and conclusions) – PART2 )
