A New Era of Broadband Deployment

Submitted on February 26, 2016

You’re reading the Benton Foundation’s Weekly Round-up, a recap of the biggest (or most overlooked) telecommunications stories of the week. The round-up is delivered via e-mail each Friday; to get your own copy, subscribe at www.benton.org/user/register

Robbie’s Round-Up for the Week of February 22-26, 2016

Google Fiber’s New Model
On February 22, the city of Huntsville, Alabama, became the next Google Fiber city. Huntsville will own the fiber network and will lease it to Google. For most other Google Fiber cities, Google has built the fiber network from scratch. With the Huntsville partnership, Google is demonstrating its willingness to offer its services over a network it doesn’t own -- and that’s a game changer.

The expansion of Huntsville's fiber network will cost the city $55-$60 million, but it expects to earn back its investment by leasing the fiber to Google and other providers. This new model signals that, “communities throughout the U.S. have entered into a new era of possibility -- that of robust, sustainable broadband public-private partnerships,” according to Joanne Hovis, president of independent communications and IT engineering consulting firm CTC Technology & Energy President (and Benton Foundation board member).

In Huntsville, the incumbent broadband provider, Comcast, responded to the announcement saying it provides the fastest speeds to the most homes in the Huntsville area, and it may take a considerable amount of time before a competitor can offer a widespread population similar or superior services.

"Any newcomer would need to build an enormous network capable of delivering video and data to provide what we have already invested heavily to build," Comcast spokesperson Alex Horwitz said.

Comcast announced in January it would begin building its own fiber network with the goal of providing business customers 10-gigabit speed Internet access. The company has yet to make a formal announcement on whether it will or will not plan to compete with Google in the Huntsville residential fiber marketplace.

Google's shared-risk partnership puts the municipality in the business of building infrastructure, and leaves to the private sector all aspects of network operations. This allows a community to take its long-term destiny into its own hands, rather than waiting for private investment to materialize (in the form of a Google Fiber build or a network upgrade by an incumbent). Hovis said, “This locality-driven model enables the community to build, own, and maintain the fiber infrastructure of the future — while still benefiting from private sector competition and innovation.”

Google also announced it will be providing service to some apartments, condos, and affordable housing properties in San Francisco (CA) using existing fiber. Google is tapping into San Francisco’s “dark fiber” network, which the city has been exploring and investing in since the 2000s.

Why Does This Matter?
Christopher Mitchell, director of the Community Broadband Networks initiative at the Institute for Local Self-Reliance, said he expects many other cities to follow suit, investing in their own infrastructure to provide an alternative to local monopolies like Comcast or AT&T.

Blair Levin, of the Brookings Institution, highlighted the significance of the Google-Huntsville partnership:

The Huntsville model changes Google’s path to scale as it potentially decentralizes construction efforts to multiple cities. Further, it represents the first effort by a major company to decouple ownership of the fiber network from providing Internet services, potentially forcing both incumbents and other tech companies to rethink their strategies.

The model also provides cities a new tool to accelerate the delivery of abundant bandwidth to its residents. One can see a number of forces—cities, construction companies, finance companies—joining forces to construct, and in some places complete, dark fiber networks far faster than Google Fiber has been doing with its current model. The new model also allows a city to address a number of city specific policy objectives, such as enterprise zones and closing the digital divide, along the way. This path resembles how America built out its electric grid; through local, rather than national efforts.

Levin’s bottom line:

In short, if Google, or others, offer this opportunity broadly, it provides a win for cities that want new broadband options but without taking on problematic risks, a win in accelerating America achieving affordable, abundant bandwidth, and a win for America’s efforts to lead in the broadband delivered global information economy.

The Benton report recently published The Emerging World of Broadband Public–Private Partnerships: A Business Strategy and Legal Guide, a report written by the principles of the Coalition for Local Internet Choice. The report highlights a number of models for collaborations between local communities and private companies.

The City of Westminster, Maryland, built and maintained dark fiber, and looked for partners that would light the fiber, deliver service, and handle the customer relationships with residents and businesses. The city eventually selected Ting Internet, an upstart ISP with a strong track record of customer service as a mobile operator. Ting shared Westminster’s vision of a true public–private partnership and of maintaining an open access network. Ting has committed that, within two years, it will open its operations up to competitors and make available wholesale services that other ISPs can then resell to consumers.

Under the terms of the partnership, the city is building and financing all of the fiber (including drops to customers’ premises) through a bond offering. Ting is leasing fiber with a two-tiered lease payment. One monthly fee is based on the number of premises the fiber passes; the second fee is based on the number of subscribers Ting enrolls. Based on very preliminary information, this could be a highly replicable model.

Santa Cruz (CA) has tweaked the Westminster Model. The Santa Cruz City Council approved an agreement between the city and a local ISP, Cruzio. The city will build, own, and maintain a fiber network; Cruzio, which is a DSL reseller, will migrate many of its DSL customers over to the city’s fiber network—and will actively pursue additional new customers to buy broadband services over the fiber. As in the Westminster agreement, Cruzio will pay the city both a per-passing and a per-subscriber fee for its use of the city’s fiber.

Cruzio is a small company, which creates a certain amount of partnership risk for the city. But from the city’s standpoint, it is a very attractive partner—a locally based, locally owned company that employs Santa Cruz residents. In fact, the name of the company incorporates the city’s name. For Santa Cruz, identifying a local partner was a key factor in its negotiations. Cruzio’s localism was so important to the city that in early 2015, the Council directed city staff to negotiate exclusively with Cruzio. The benefits of the partnership to the city include not only owning a next-generation network—and all the positive externalities that come with such a network—but also supporting and enabling an important local employer and longtime partner in the community.

Order for Modernizing the Universal Service Program
In a blog post this week, Federal Communications Commission Chairman Tom Wheeler announced that he had circulated a proposal to “modernize universal support for rate-of-return carriers.” These carriers are typically small, rural telephone companies concentrated in one area. They generally have higher operating and equipment costs due to lower subscriber density, smaller exchanges, and limited economies of scale. Rate-of-return carriers also rely more heavily on revenues from interstate access charges and universal service support.

Details of the proposal have yet to be released, but Chairman Wheeler’s blog post indicates the proposed rules are a package of reforms to address rate-of-return issues that are fundamentally intertwined—the need to modernize the program to provide support for stand-alone broadband service; the need to improve incentives for broadband investment to connect unserved rural Americans; and the need to strengthen the rate-of-return system to provide certainty and stability for years to come.

We will be covering the proposal as more details emerge.

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