As anyone who is even vaguely in touch with this field knows, Muni Broadband projects are a really inflammatory issue right now. This has created some pretty interesting dynamics that move past amusing. We have the ILECs squarely against any kind of project they see as a threat to “their” business in agreement with many WISPs (if that isn’t unusual, I don’t know what is!) in that the use of tax money to set up communications infrastructure is something the ILECs are squarely against. If this isn’t the definition of ironic, I can’t find a better one and if the ILECs wanted to convince more of us as to their sincerity in this matter they could certainly start refusing the acceptance of any tax credits themselves.
We have the Heartland Institute (a name that invokes a warm, American sound, doesn’t it?) taking one side of the issue as you can see here. We all want to hear all the sides of any issue but I also believe it is important to understand motivations as this can help us to understand the perspective of the opinion.
According to Glenn Fleishman of WiFiNetNews, the Heartland Institute has a rather interesting history and some unusual ties that make me want to question their perspective. In fact, Glenn did an excellent job “connecting the dots” to see where the financing for the Heartland Institute actually comes from.
Personally, I think I might have felt a little better about this perspective if right from the start Steven Titch (the author of these articles from the Heartland Institute) had mentioned his financing was courtesy of the ILECs. To give you a little more of an understanding of the important work the Heartland Institute has done, here’s an interesting article about how they feel cigarette smoking, something that simply has to be read. I don’t have any clue who financed this opinion but based on what I have read I could make an assumption.
The funny thing is, I tend to fall on the side of the ILECs and the Heartland Institute on the Municipal Broadband issue – under a set of very strict circumstances. What’s worse, if these concerns had looked at issues that are behind the situation and told the hard truth instead of slanting their presentation as best they could, they might have picked up some serious support. However, this is probably something that would be difficult to do unless you are well versed in the business and are willing to lay it all out in the open – something that organization are sometime reticent to do.
So, what I is my take on the debate?
Well first, let me provide you with the obligatory disclaimer – something the Heartland Institute apparently overlooked, as they probably didn’t think it was prudent.
I am a businessperson deeply involved in this industry both from the owner’s standpoint of a very small ISP/WISP and someone who has invested a lot of time and money in this field. If the concept of Municipal Broadband did take off and become commonplace I would stand to lose a significant amount of money but more importantly I believe I would lose the ability to have access in many of the places I would choose to live. This is exactly the point I wish to address. One more thing, just to be clear, I am not being paid by anyone, anywhere, including the ILEC, the cable companies or any other entity on the face of the earth for this opinion – go ahead and check in you have that kind of time!
What nobody seems to want to tell you is that this business is all about numbers – sorry, I would love to tell you it’s about bringing broadband to “our communities” or bridging the “Digital Divide” but the reality is, from just about everyone’s perspective from the giant ILEC right down to the single end user, it is all about the numbers.
I don’t care who you are or where you fit into the spectrum of the broadband world, you need to understand one thing there is a cost to bring broadband to the customer. With the possible exception of satellite (a technology that in its current state isn’t considered broadband by either the FCC or myself) every single delivery method of broadband I can think of depends on a certain level of population density. To put it another way, we need a certain number of people per mile in order to deliver service at a price you (the end customer) will be willing to pay.
From the perspective of the ILEC or the cable company, if there aren’t a set number of customers for every mile of wire or fiber they have to roll out, there is never going to be a return on the investment. The same holds true for a wireless deployment but we aren’t necessarily bound by the same restraints as in having to follow the roads. We still need to have a fixed number of customers inside the radius of our coverage area or the cost to deliver per subscriber climbs proportionally.
It stands to reason that densely populated areas serve as the best locations to deploy service – the more people that live in a square mile, the less wire that has to be installed to service them. Conversely, is a rural or sparsely populated area, the situation is exactly the reverse.
This is where the problem starts to become apparent. Where are the Municipal projects looking at rolling out? Why, the densely populated areas! Okay, so what? Well the problem starts to be that once you have deployed in the densely populated areas and then you deploy in the suburban areas there is no business model that will do the same thing for rural areas! A different way of saying this is to say if we have a huge project that gets built in the big city that is financed by the big city there is a very good chance if it is well designed, deployed correctly and managed efficiently, it will succeed. In fact, it should be able to be a profit producing revenue stream for the city.
Next down on the scale is the suburban areas that surround the city. They can form their own broadband projects which while will not have the scale of economics to draw from will also be successful providing the project is run well.
Now we need to look at the next ring of the population, the rural areas that fall outside of the suburban areas. This is where the problem appears, there aren’t enough people per mile to support a project like what has been built in the city or the surrounding suburbs. Since each of the projects are owned and financed by the location they are in, the rural areas cannot effectively “piggyback” on those projects because it would raise the average cost per user to the “host” municipality. People, being what they are, usually won’t go for that kind of a proposal, in effect, leaving the more rural areas in a position where they either cannot get broadband or they have to pay significantly more for the same level of service.
This also explains why the ILECs are concerned about these projects. Without the “cash cows” (the larger metropolitan areas) the suburban and rural areas simply are not worth servicing. This also holds true once the broadband network starts to replace the copper telephone network. If there isn’t a lot of people paying to support the copper network in the city, there isn’t enough money to bring dialtone to the very rural areas. Opps, their business model just started to crumble. In all fairness, it isn’t the ILEC’s business model, the deal is that they get a monopoly if they will provide service universally. Every single one of us pays for the customer in areas of the country that are not profitable. Now, if the profit making areas leave the ILEC’s network, who is going to pay for the areas that will never turn a profit? Carrying that to the logical conclusion, if every metropolitan area were to start a municipal broadband project and a fair amount of the customer base then switched to VoIP as their standard communications, where does that leave the ILEC?
The next issue that needs to be looked at is why would I care and more importantly to you, why would you care?
Like many WISPs I live in a rural part of the country, northern Vermont. As I explained above I need a certain amount of customers per mile for me to support my business. Just like any astute businessperson, I am going to set up my business to service the market that will bring me the highest return first. Once I have maximized my investment in this community (that would be the most densely populated area, as you recall above) I will then have to look for other markets to expand into if I want to expand.
Next up, suburban locations (such as they might be in my area) will probably get brought in and when they are connected to the maximum saturation rate I will then look to rural areas that have a sufficient population density to justify deploying in this area. This cycle will continue until I have exhausted the process where at that point I will either choose to repeat the process in another area or try to continue to filling in customers on my existing network.
At this point, you should clearly be able to understand that the process is interdependent, no big city, no suburban deployment and the rural area hasn’t got a prayer in hell of ever seeing service at a reasonable price. Yes, I realize that some of the rural areas are where the very wealthy choose to live and that these people would be willing to pay significantly more for service but I submit this is the exception – not the rule.
This isn’t rocket science here, it is an easily definable business model that is pretty easy to understand once you understand the dynamics. If the city chooses to build a municipal broadband project, there is not population base that will sufficiently support the rest of the area.
Our state (Vermont) has a different way of killing broadband, we give out grants! You would think this might be a good thing but the reality is, it kills the deployment of independent broadband faster than anything else I can think of. Would you want to deploy in the next town over from a company that just got $50K with next to no strings attached? No? Why, it’s not like this would be a threat to your business or anything right? What happens when this money is introduced into an industry? I submit that is kills the industry dead. Why? Would you invest in an industry that at any moment could create a competitor out of nowhere that has no cost of goods? I wouldn’t think you would put your money up against that kind of opponent. The funny thing is Investors are just like you and me, they won’t invest in a venture that could one day have to compete with a company that has no cost of money or goods.
What about these “state-financed” businesses? Won’t they use the money wisely to roll out broadband to other areas? I doubt it because in order to qualify for these grants you need to deploy in an area that has no other form of broadband – read sparsely populated. Wait a minute, sparsely populated areas, don’t they need to have sufficient population density to support such a project?
The reality is, this (in my opinion) is simply a way of the political establishment to tell their constituents that they are doing something. Does it need to be something effective? Apparently not, but remember, the people who award these grants don’t understand this business – not even the basics. They do appreciate a well written paper and a carefully crafted presentation.
What scares me in the realization that a lot of our tax dollars are being spent in very much the same way.