Greed, Lies, and 'Progress' > muni is bad

muni is bad

As most people know, broadband Internet is qualitatively different than dial-up. It changes usage patterns, and enables new applications (such as VoIP). Most people (and most businesses) are willing to pay more for broadband than dial-up, but since few people are truly dependent on the Internet, they are not willing to pay too much more. Over time, I expect Internet dependency to increase, and willingness to pay increase as well. But for now, most people seem willing to pay $25 to $45 per month ($300 to $540 per year) for broadband Internet.

Depending on the source, and cost, of their capital, most companies look to break even on their investments within 5 years (but in down economies, where capital is scarce, it is often much shorter). If, for example, it costs $10 million to install a fiber network to serve a town of 10,000 homes, the construction costs would be $1000 per home. Typically, construction costs represent about 40% of the 5 year costs of operating an IP network, so the overall expense of operating the network is $25 million. Therefore, with 100% participation, 10,000 homes paying $500 per year, would generate $5 million per year, allowing a 5 year breakeven (amazing how the math works so well in this example!).

The telcos and cable companies always act in their own self interest. They are deploying fiber as rapidly as they can afford to (still have to meet Wall Street's financial ratios), and are prioritizing their deployments based on ROI calculations, and strategic responses to competitors. ROI calculations are obviously much better where there are greater concentrations of users (and revenue) because the construction cost per user is lower. At current construction costs, rural areas may not break even for more than 10 years (or ever!).

As to why telcos and cable companyies try to block efforts by local municipalities to build their own networks, there are two main reasons: one - they are afraid of precendents, where larger municipalities may also construct networks, posing serious competition; and two - network construction costs are expected to fall, and they don't want to lose future opportunities.

Most companies will not set up an office or facility in a town where they cannot get broadband, so the municipalities must ensure broadband to attract new jobs. If the telcos and cable companies don't have compelling ROIs, the municipalities must consider building their own. One of the downsides to that is becoming a network operator.

I would like to hear ideas on how municipalities can get broadband for their businesses and residents, but avoid the long term commitment of being network operators. One idea might be to lease the network facilities (or some of the capacity) to various IP carriers, who actually provide and bill for services.

Thoughts??

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