I recently attended the Georgia Municipal Association 2021 Summit in Savannah. I was surprised to discover that I was one of the very few broadband consultants in attendance. But, I was pleased to have the opportunity to speak to a number of mayors, city commissioners, and state-level administrators from across Georgia. I also had the opportunity to talk with other civil engineering companies, gas, and water utility companies, and some of the incumbent telecommunications companies that attended.
One seemingly unknown aspect that I was able to share about municipal broadband programs was the separation of the different roles into the four (4) functions of Network Owner, Network Operator, Service Provider, and Consumer. Historically, the first three (Owner, Operator, and Service provider) were all bundled into a single service and fee by the incumbent telecommunications companies. This made sense back in the days of telephones and cable TV, but today’s broadband networks look a lot different. In today’s models, each role can be performed independently, or any variation of the multiple roles can be performed by a single entity.
In our conversation, a representative from one of the incumbent telecommunications companies (Telcos) conveyed to me that they are not very keen on the idea of the network being owned by a public entity. They prefer to protect their position as overseer of the telecommunications industry and manage all three aspects of Owner, Operator, and Service provider. But when you contrast the urgent need for broadband expansion into unserved and underserved areas against the inadequate state of telecommunications infrastructure today (evidenced by the negative impact it had on communities when the elderly, work force, and students needed to stay home during COVID), and then consider upcoming Federal grants for broadband infrastructure – I don’t see the traditional Telco model as the best strategy going forward. To aggressively expand broadband in areas that needed the most – I believe Municipal broadband is clearly the best path.
Outside the window of my office is a pole with three fiber optic cables attached to it. At first blush, that seems fantastic. Competition is a great thing! But I still see a bigger problem. Each of those three cables is owned by a different Telco. Now, they all paid virtually the same thing to build their own individual network and place their cable on the pole. But, all three of those Telcos compete for the same set of consumers. Assuming all things being equal for the sake of this conversation, they will each only get 1/3rd (or only some portion) of the consumer base. This triples the inefficiency.
The Telco is not going to take the hit on the expense-to-revenue ratio and take smaller profits (now, I don’t blame them for this – remember they are businesses that answer to stockholders and their job is to make a profit), so they pass all these costs down to the consumers.
But a city isn’t a business created to make profits. It is a social structure aimed at improving the quality of life within the community. This allows for a completely different set of financial goals and constraints and a more efficient way to address both broadband Access and Adoption. If there were only one network owned by the city, the comparative cost would be 1/3 as expensive as three Telcos placing three different cables along the same path. This lower cost to construct and maintain a single network (instead of three) could be leveraged to benefit consumers with lower connection fees. This lower cost means more people can afford service (Adoption). Additionally, because the lower cost of building and maintaining a single network is so significant, there is a greater potential to expand the network into other areas that would otherwise not be served (Access).
One argument you might hear from the Telcos and their lobbyists is that federal grant funds going to public entities will unfairly displace private companies. At first, it doesn’t seem like capitalism, which is the foundation of our economy. However, I would argue the Telcos have been taking funding from the government to build out their networks for decades (FirstNet, CAF, USF, RUS, etc.). So, why would we change that process? How is this any different?
Simply – when the private Telcos take the government funding, they keep it as profits.
With federal funds supporting the deployment of municipal broadband, the members of the community are the beneficiaries.
So, how does that work?
It’s worthy to note that the amount of public federal funding allocated to each community to build a broadband network will not be sufficient to cover the complete cost. However, this contribution will entice participation from private equity investors via a P3 (public private partnership). Private equity investors see this as an opportunity to significantly boost education, employment, and commerce for the future. This “social impact funding” is a means to protect the future economy. Most Telcos operate off of a very short ROI (Return on Investment) period. However, in the terms of a P3, private equity investors can assume a much longer ROI. And in many cases once the private equity has recouped all of its investment (their goal is really just to not lose money), they are willing to give the network back over to the city. This is something you never see the incumbent telecommunications companies do.
When private equity investors work in collaboration with a city, further synergies can be leveraged. For instance, though a portion of the ARP and Infrastructure funding of 2021 is intended for Broadband, we expect the bulk of it to be allocated to the replacement of aging and failing water and gas mains.
Through good planning and efficient collaboration, broadband networks can be installed at a significantly reduced construction and installation cost by sharing pathways with other utilities. When a city’s gas or water main (pipe) is replaced, the broadband construction team could install conduit into the open trench. Or even better yet, install fiber cable directly into the abandoned water or gas mains. These pipes are usually 2 inches or greater in diameter (completely adequate for fiber cable), and already go to all the same locations you would want fiber to go in the first place. We could add a broadband buildout to a gas or water infrastructure buildout and save more than half the typical cost to do it alone.
Remember, these “once in a lifetime” grants will eventually be paid off by our kids and grandkids. I want them to be able to look back and know that we didn’t waste their investments. This is the time to leverage smarter ways to accomplish our goals.
This is why I believe it makes more sense for the public entities to operate as network infrastructure owners. But that doesn’t mean we completely cut out incumbent telecommunications companies – we need everyone working together to solve this national crisis. There is still plenty of room for them to function competitively as Network Operators and Service Providers. And, if they are willing to truly collaborate with cities, municipalities could choose to only design and install networks that serve areas where private Telcos do not currently provide fiber optic service. Telcos could then retrofit their legacy copper and coax network routes with fiber, connect to municipal networks (recall my argument above that it is inefficient to replicate networks), and access an even greater number of consumers. We just need to work together – smarter!
Is this all new or confusing to you? Does it frighten you?
Do you feel like this will just all be taken care of by the current service providers?
Are you excited about the possibilities…..but don’t know where to start?
Let’s talk – we’re here to help!
Reach out to the Broadband Engineering team at Foresite Group and let us show you how. We suggest you invest most of your current ARP grant dollars into an interest-bearing account, and let’s just take a small portion to create a Broadband Master Plan. By understanding the current state of broadband connectivity in your community and identifying the technology gaps and needs, we can start modeling a broadband-based infrastructure solution. The resulting High-Level Design will be used to calculate the cost to build and operate a network, establish relationships with other stakeholders (operators, service providers, and consumers), and create a business model for investments and revenues. Everyone will be clamoring for these funds. But, by executing a Broadband Master Plan now, you will have an essential fundamental tool to both inform the best way to invest the current grant dollars that you have already secured – and also demonstrate that you have a responsible strategy when applying for the subsequent grant payouts.
Our goal is to connect people – to information, to ideas, and to each other.
FORESITE GROUP – WE KNOW BROADBAND
About Lee Comer
Lee Comer is the Broadband Engineering Services Practice Area Leader at Foresite Group, LLC. He brings over 20 years of experience as a designer, supervisor, and project manager in the telecommunications industry. A native Alabamian, Lee earned his B.S. and M.S. in Industrial Design from Auburn University. With a passionate focus on improving the way people relate to each other, information and technology, and their environment, Lee translates his knowledge of design, construction, and installation of communication networks into a comprehensive infrastructure program to create connected communities.