5 Questions Municipalities Should Ask Potential Community Fiber Partners

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The time is coming when the lack of a universal fiber optic infrastructure will impact the local housing market and local business creation and retention. Without it the young will move away, and new businesses will stay away.

Community leaders are at a critical decision point. You know there’s a great need for universal fiber but you’re not sure how to get it. Why? Because few cities really want to be in the broadband and fiber businesses. You have enough problems and budgetary constraints.

Therefore, when a privately funded or owned company comes to town offering to deploy fiber at no cost to you, it might be tempting to say yes. But wait! Before you sign away your access to public assets and rights-of-way, you must ensure the city and the residents are protect over the long-term.

Do Your Due Diligence

Be sure you have these 5 questions answered by those who are offering to bring fiber to your town. Be sure you ask your community leaders the same questions as well:

Question 1: What happens when the private owners sell the fiber assets? Will that change the open access model and pricing upon asset transfer or change in management?
The investors in the private open fiber company must eventually sell the company and/or assets to realize their economic return. Yet, fiber and broadband are critical community infrastructure. Who are they going to sell your 21st Century road system to? Will the new owners keep the open model? Will they double or triple their wholesale fees? Will they honor the original intent of the agreement? Will their corporate by-laws can be changed? This should be addressed in writing as to who they can sell to and what they buyer can do.

This also applies to a change in their management team. Will the new management team honor the spirit of the original team that sold the deal to the city?

Question 2: How will the private company address recreating and/or widening digital divides that have occurred in other communities?
Cherry-picking, redlining, and Fiber-to-the-Rich, are business practices that have long ago been deemed unfair. In those cases, the owner builds to the more desirable areas, such as dense and affluent neighborhoods.

Today, most private overbuilders will ask for and likely receive the permission to “smart build”. That means building first to demand or to those streets and neighborhoods with the highest percentage of homeowners who have committed to the new fiber network. It allows the private entity to achieve breakeven as soon as possible and the network to achieve self-sustaining scale quick. This is a fair and reasonable request.

That said, you still need to ask what happens if in a few years if the company only does buildout to the affluent or dense areas? Or if the pace of the buildout has suddenly slowed? What if take rates are lower than expect due to the incumbent deciding to compete aggressively? Is the private company mandated to complete the universal buildout? In what time frame? And what happens to your community if they stop building?

Question 3: Are you replacing one unresponsive (out-of-state) monopoly with another unresponsive (out-of-state or out-of-country) monopoly?
The goal of traditional open access fiber is to provide competition for Internet access. However, the underlying fiber may be a monopoly. Cities should negotiate upfront with the fiber overbuilder service level agreements including performance and availability targets and even penalties for non-compliance. Without firm agreements in writing, cities may lack the power to get the new fiber company to deliver the promised infrastructure.

Question 4: Is your potential partner building 30-year infrastructure?
Universal fiber should be considered at least 30-year civil infrastructure and should be built as 30-year infrastructure. The most expensive component of a community-wide fiber deployment are the construction costs. Cities need to ensure the proposed network is being constructed using methods and procedures that are infrastructure grade. They need to be aware of newer techniques that same lots of time and money upfront but may lead to excessive future operation costs and excessive network outages.

Question 5: How will Net Neutrality and Privacy be handled?
To address this question, you need to understand 2 definitions: Net Neutrality, and Privacy.

Net Neutrality — determines who can send what type of packets over the infrastructure.

Open access networks in theory are neutral by design. But are they in reality? Did the public company commit to allowing any and all reasonable service providers to offer services over the network? Did they show up with their favorite ISP or can any local company offer retail services over their fiber? Are ISPs the only service provider that can offer services over the network? All these questions need to be answered and documented upfront.

Privacy — determines who can read your packets and what they can do with that knowledge.

Privacy is a deeper concern to many. The fiber company, or entity offering active bit streams, or lit services can read every data packet on their network. Will they? And what will they do with the information gleaned? Will the private fiber company read all your residents’ packets and then sell the data to advertisers? Was this discussed in your negotiation with these private companies? Local data could end up being the most lucrative portion of the entire network.

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Bottom Line

Every city knows it needs modern last mile digital infrastructure including ubiquitous fiber to succeed in the future. This pressure on city officials to get one will increase exponentially as more and more cities get one.

Since this is new territory for all involved, federal, state, and local, regulatory frameworks have not been created. Nor have common standards and industry best practices been established. Until such time as these are established, city leaders must take the time and thoroughly understand both the immediate and long-term (e.g., 30 year) implications of potentially replacing a current monopoly with another.

 

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About Author

Greg Whelan, Principal at Greywale Advisors, is a leading expert on Open Access Broadband and Neutral Communication Infrastructure. He provides guidance to a wide range of broadband ecosystem participants including Technology Vendors, Municipal Leaders, Communication Service Providers, and Private Equity Investors. Greywale Advisors is a leading independent research firm focused on The Open and Neutral Future of Broadband. They work with private and public entities throughout the ecosystem to create the business, technical and financial architectures and implementation plans. If you’d like to discuss this, please contact us at gwhelan@greywale.com. For more information, please visit www.greywale.com. Follow Greywale Advisors on Twitter @greywale.

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