Broadband Properties Summit highlights municipal fiber networks

September 22, 2005 Irving, TX -- The Broadband Properties' Summit, held here last week, highlighted some of the key trends in fiber-to-the-home (FTTH) deployments. While sessions also targeted real-estate developers, CLECs, and rural ILECs, the municipalities found themselves front and center of many discussions, as presenters and panelists sought to explain why municipalities should deploy optical networks and how to overcome the hurdles they will likely face in the process.

September 22, 2005 Irving, TX -- The Broadband Properties' Summit, held here last week, highlighted some of the key trends in fiber-to-the-home (FTTH) deployments. While sessions also targeted real-estate developers, CLECs, cable operators, and rural ILECs, the municipalities found themselves front and center of many discussions, as presenters and panelists sought to explain why municipalities should deploy optical networks and how to overcome the hurdles they will likely face in the process.

Many of the presenters, including Ben Gould, vice president and chief marketing officer of DynamicCity (Lindon, UT), touted the economic benefits of FTTH networks. According to Gould, FTTH can drive economic development when three ingredients are present: 1) bandwidth, 2) availability, and 3) price.

DynamicCity's flagship project is UTOPIA, an all-fiber, Ethernet-based network that, when completed, will serve 170,000 homes in 14 Utah communities. It is based on a principle Gould calls an Open Service Provider Network (OSPN), in which the network infrastructure is made available to as many competing third-party service and content providers as possible to enable greater subscriber choice and lower costs.

So far, the OSPN plan seems to be working. The average price per Mbit in the U.S. is $35.30, but for subscribers of MSTAR, the first local service provider to take advantage of the UTOPIA network, the average price per Mbit is $2.33. (For comparison's sake, Japan leads the industry in terms of average price per Mbit at 90 ¢, followed by Korea at $2.50.)

Municipal network advocates

While there are numerous municipal networks operating successfully today, many faced significant hardships to get there. Joey Durel, mayor of Lafayette, LA, discussed some of the hurdles his city had to overcome when building its municipal fiber network. Durel began his talk with the startling admission that he was initially against a municipal network deployment, as he does not believe the government should compete with the private sector.

But his decision to enter the wholesale telecommunications business had nothing to do with saving money, he said, adding that he "never would have crossed the line" simply to provide a cheaper service option to his constituents. When the incumbents, BellSouth and Cox Communications, refused to provide services to the area, Durel realized, "If we didn't do it, we weren't going to get those services."

Of course, the $125-million project was not without risk, Durel noted. "The incumbents answer to Wall Street, but I have to answer to Main Street," he said. After a long and fierce battle with the incumbents, which tried to block the network's development, the municipality finally won over city residents, who voted 62% in favor of the FTTH plan.

Today, the network supports 12 wholesale customers, which generate over $1 million per year.

Michael Render, president of Render Vanderslice Associates (Tulsa, OK) and a leading researcher in the FTTH space, is encouraged by the growth he is seeing in the market. The builds are getting larger, he said, and the deployers more diverse. According to Render, CLECs account for 42% of FTTH builds, followed by municipalities at 27%, developers/CLECs at 16%, and rural ILECs at 15%.

Moreover, if you subtract Verizon from the equation, take rates are high--another positive sign for the FTTH industry, said Render. In Greenfield deployments, take rates are 75%. Underserved overbuilds are seeing take rates of 65%, while competitive overbuilds are experiencing take rates of 33%.

Some communities have had even greater success. Pinehills, the largest master-planned community in Massachusetts, has experienced a take rate of 90% among its residents, reported Thomas Reiman, founder and president of the Broadband Group (Sacramento, CA), a consultancy that represents 50 master-planned communities--ranging from 5,000 to 110,000 users--throughout the U.S.

He attributes this success to the high demand for user-centric services among younger homeowners. According to Reiman, 63% of 18- to 39-year-olds believes that buying a new home is a good opportunity to make new arrangements for broadband services. Two in five or 41% of young homeowners upgraded their Internet service at a higher cost when they moved into a new home. Two in five upgraded their television service as well.

In addition, said Reiman, new homeowners are more likely to upgrade to better technology, more open to changing service providers, and have more money to spend--all of which spells good news for private developers, rural ILECs, and municipalities hoping to enter the telecommunications market.

Municipal network detractors

Not everyone is sold on the idea of municipal fiber networks, however. David McClure, president and CEO of the US Internet Industry Association (Washington, DC), began his presentation with a list: "Birthday parties for five-year-olds. Communism. Municipal networks. Some things," he said, "just look better on paper."

McClure believes that a full fifty percent of government-owned networks (or GONS, as he calls them) are not financially viable. He cited Marietta, GA; Memphis, TN; and Ashland, OR, as examples of municipal networks that have failed for economic reasons.

To break even, he said, a municipal network must sign 15 subscribers per fiber mile; here, the risk is manageable. But many rural municipalities cannot meet this 15:1 benchmark because they are located in less populated areas or their take rates are not high enough. According to McClure, the national average for subscriber uptake is 24% of homes passed.

McClure argued that municipal networks are "yesterday's news" and espoused the benefits of a better model: Public/private partnerships. If you can't meet the 15:1 ratio work, he reasoned, you should change the numbers. Make less than 15:1 work by subsidizing broadband services in low-income areas. Or build a public/private network and wholesale the services.

--Meghan Fuller

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