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It May Be Time to Make a BID

Jan. 30, 2019
Open Access Models That Work Self-Financing Broadband and Digital Infrastructure Broadband is the most important differentiating infrastructure today, and is critical to the economic competitiveness and quality of life for […]

Open Access Models That Work

Self-Financing Broadband and Digital Infrastructure

Broadband is the most important differentiating infrastructure today, and is critical to the economic competitiveness and quality of life for communities and regions. Those localities that are unserved or underserved with broadband face population and business losses, higher costs in providing
civic services, stalled business attraction, and limited future economic growth.

As part of a larger vision, localities need to ensure they have the digital infrastructure and broadband needed as a platform to improve the quality of life for citizens and the economic prospects for businesses. This vision must be broader than simply bridging broadband gaps. Unserved and underserved areas exist because there is not enough of a return on their private sector investments, so localities decide some level of intervention is needed. While addressing this is essential, doing it in a way that allows municipalities to own and control their digital future is also essential. Technological advancements, such as 5G and Smart City services, move in lockstep with evolving user needs and expectations. These will drive increasing demand for new networks or network overlays that may be implemented independently by different providers for different reasons at different times.

What municipalities increasingly need is a coherent and integrated platform that enables digital transformation, allowing communities to be proactive in addressing evolving needs, rather than being reactive to the latest technology innovation.

Broadband connectivity is an obvious starting point. Traditionally, to address their broadband gaps, localities have taken a municipal service provider approach to decide whether there is a business case for them to invest (i.e., revenues are greater than capital and operating expenses). The broadband feasibility assessments they have undertaken look at whether there is a case for municipalities to become a competitive provider in a market with existing incumbent service providers. This is an approach that has had mixed success, and presents many challenges and risks for municipalities.

A strategy moving forward needs to be chosen with the understanding that expanding broadband access is a process — and the first step in that process is to answer the question Does an investment in a locally owned fiber network pay off for our locality? The typical strategy choices that localities have considered are shown in Figure 1.

Figure 1. Strategies for Municipalities to Address Their Broadband Gaps

Even with their challenges and risks, these strategies, can be made to work. However, there are trade-offs for localities. On one side, they relinquish control of their digital future. On the other side, they need to be singularly focused on successfully competing in a private-sector-dominated market to be sustainable. These implications are not amenable to long-term digital transformation strategies, nor the ability to adapt to evolving demands.

Another approach is possible. A digital infrastructure strategy is founded in building a digital infrastructure platform that is sustainable, ubiquitous, and can meet an area’s future needs that go beyond broadband availability. The path to reach that goal starts with focusing on demand and the drivers of demand. Rather than technology-focused, localities need to first assess whether economic and community benefits outweigh the costs for a local investment in broadband and digital infrastructure.

Digital Infrastructure and Broadband Improvement District (BID)

A digital infrastructure strategy is based on the locality (City) owning and operating an open access fiber network that:

  1. directly provides connectivity services to municipal locations and key anchor institutions; and
  2. provides a city-wide platform open to retail ISPs to provide services to households and businesses, overcomes many challenges and risks. This is an open-access, city-owned network strategy that offers the following benefits as compared to a traditional municipal retail ISP approach:
  • The City is not directly competing with commercial retail ISPs.
  • Increased retail ISP competition is enabled by an open-access network.
  • The network can be self-financed through municipal cost reductions and Smart Community services without the City taking on unsustainable debt nor raising taxes.
  • The network is built to committed demand,1 thereby eliminating financial risk to the City with a network that is sustainable when it starts providing service.
  • Allows the City to leverage its core strengths in providing infrastructure, rather than operating as a commercial entity.

This digital infrastructure strategy minimizes financial burden and risks to the City.
The network deployment and operational strategy analyzed in this assessment is delineated in 2 distinct stages.

STAGE 1. Establish a core network across the city that serves municipal buildings, public schools, and key anchor institutions. The core network has the potential to be self-financed through Internet and telecommunication cost reductions enabled by the City building, owning, and operating its own digital infrastructure.

Further cost reductions are possible through Smart Community services, which have the additional benefits of improvements in service and potential new municipal revenues. Therefore, this core network stage should also include an initial specific Smart Community initiative.

The Smart Community initiative should be one that provides immediate and tangible benefits to the community and to City operations, such as smart waste management.2 By implementing a Smart Community initiative as part of Stage 1, the City gains direct benefit while demonstrating to the community that the investment in a city-owned fiber network is not only about providing Internet connectivity. It is intended as a platform for long-term community benefit.

STAGE 2. Expand the access network community-wide using a Broadband Improvement District model. Once the core network is in place, providing essential facilities strategically located throughout the city, the network can be extended into neighborhoods based on committed demand from property owners.
The Broadband Improvement District (BID) model consists of the following key elements:

  • A BID is a contiguous area determined by the City representing a relatively homogenous market demand for broadband within the city to be targeted to provide fiber access to the households and businesses within it.
  • Multiple retail ISPs are invited to provide services to households and businesses over the City-owned network. These ISPs gain access to new customers without any capital (network) investment, and can offer services at competitive rates.
  • Property owners will be given the opportunity to opt into the BID by committing to an up-front payment that can be financed at affordable rates. Property owners who do not opt in are not required to pay anything, neither directly nor through City taxes.
  • The BID network investment is not made until there is sufficient committed demand within the BID area.
    Property owners on the fiber network would have monthly payments based on 3 components:
  • BID network capital payment, financed as a monthly payment.
    1. Monthly operating cost payment, typically added to the monthly utility bill.
    2. Monthly fee for Internet services, paid to the retail ISP they select.
    3. The total monthly cost to the property owner is typically less than they would currently pay for current commercially available services, and with much higher speeds.
  • With open access, property owners can easily switch between retail providers at any time.

The exact boundaries of BIDs are to be determined at a later planning stage. However, this should be done with the reasonable expectation that sufficient property owners will opt in, thus self-financing making the BID investment sustainable from the moment it starts providing service. n

1. Committed demand is the level of sign-ups by localroperty owners to the new open access network.
2. Based on discussions with the Innovation & Information Services Director from the City of Winchester.

Michael Curri is President of Strategic Networks Group, Inc. He has more than 20 years of experience in broadband and local economic development. For more information, please email [email protected] or visit Follow Michael on Twitter: @SNGroup.

About the Author

Michael Curri

Michael Curri is President of Strategic Networks Group, Inc. He has more than 20 years of experience in broadband and local economic development. For more information, please email [email protected] or visit Follow Michael on Twitter: @SNGroup.