I've read Rob Atksinson's and George Ou's article published in the latest FTTH Prism newsletter entitled "Why Municipal Fiber Hasn't Succeeded". The authors argue that municipal broadband has not been successful because municipal broadband initiatives have not proven to be financially viable. The argumentation is persuasive at first reading; however, I'd like to take a look at the issues surrounding the municipal broadband from a different point of view and comment on the major topics addressed in the article.

First off, the article concludes that municipal broadband networks are not successful primarily because a number of local initiatives shutdown or are near bankruptcy. I find this rather an oversimplification. Judging from the history of the telecommunications industry, it's probably just too soon to conclude whether municipal broadband networks are proven to be non-economical. Investments in physical infrastructure require a significant payback period and long ROI and to be objective and fair with our assessment, we can only evaluate the municipal efforts after enough years of operation. Management can exercise significant flexibility to deal with uncertainty and unanticipated outcomes (e.g. low demand, regulatory intervention, competition reactions) and holds the power to revert the situation with appropriate measures. For example, although Amsterdam had limited activation rates at its current build-up, the market dynamics of its FTTH network have persuaded big market players to join the network operating company and finance the second deployment phase. Pau Broadband Country, in France is another example. When the French started their network in Pau take-up rates were very small, far lesser than initially anticipated. The management changed the form of operation: an ISP was introduced to offer internet services to the public, modern technologies were applied to reduce deployment costs and new services are currently being designed. These actions made the network more attractive to the citizens and increased substantially the penetration rates resulting in significant economic and social spillovers (e.g. IT related business activities are outsourced from Paris to the broadband-enabled Pau).

The article reflects on the decreasing deployment cost of FTTH and the contemporary research on spectrum management over copper and suggests that it may be wiser to take as much from the copper before replacing it with fiber. FTTH deployment, in the future, would cost less as the costs associated with FTTH construction are expected to decrease [1]. There is certainly another way to look at this. This strategy best fits incumbent access providers' business plans that already own the copper and are local in nature (therefore making it easier to confront competition and secure their regional market share). That way Telcos can leverage on their existing infrastructure as much as possible, by applying incremental/marginal upgrades to their infrastructure. However, in the globalized economy, regional and national economies compete directly with one another and what is proven from international experience is that national and regional Governments cannot afford to let economic development in the hands of the traditional players of the market (i.e. incumbent telcos, cable operators). Municipal efforts to provide fiber access to their citizens is strongly underpinned by international developments and other communities being broadband enabled, thus becoming more competitive. Assessing the situation upon a narrow regional or even national perspective prevents decision makers to grasp the risks stemming from the lack of broadband .

By the same token, I have argued in a previous post (See: A Different View on Broadband Sustainability), that municipal success should not necessarily be linked only with financial viability rather with the degree of accomplishment of its strategic objectives. Only if broadband infrastructure is laid to increase economic performances should its success be linked with financial profitability. Intuitively, if there existed clear indications that investments in the areas of interest where financially viable, telcos would probably have already invested and we wouldn't be discussing in the first place. Municipalities invest in high-end communications infrastructures aiming at a much broader set of socio-economic results than financial profitability. These include among others a) opening the market to outsiders, 2) increase the level of competition, 3) increase broadband awareness, 4) improve health care and educational services etc.

I need to elaborate a little more on the article's perspective on competition stimulation. I don't see municipalities building broadband networks to directly compete with infrastructures already in place. If this was their ultimate objective then, as nicely put in the article, we would be seeing redundant electricity grids, water & sewage networks etc. On the contrary, the goal of the municipalities is to install broadband infrastructures that will enable any interested service provider to leverage on the municipal network and offer high-quality, value-adding broadband services to the citizens. Retail service offerings by municipalities are used to offset financial burden stemming from the lack of ISP's interest to use the network. Municipal networks operating on open access principles ensures a fair and non-discriminatory provision of next generation access which can effectively spur competition. This is the unique added-value that municipal infrastructures offer to the broadband value chain and the public that no private ISP so far showed that is willing (or can "afford" to) provide to its competition (See: Infrastructure-based Competition in NGA: The Best Way Forward?)

The way I want to interpret the article is that we need to understand the reasons of failure/limited success of municipal broadband networks worldwide and learn from past experiences. Municipal initiatives need not to be discouraged by intermediate half-way through assessments rather be encouraged by the significant prospects of social and economic local development and enlighting international examples.

[1] I don't see any dramatic change in the FTTH deployment costs in the near future. FTTH construction is labor intensive and construction totals approx. 70% of the full service cost (See: AIT Workshop on April 11, 2008 (comments and conclusions) - PART2)

In a report released recently by Microsoft which you can download from scribd , Europe's future digital prospects are illustrated in flying colors. According to the report, given that current media trends continue their growth, internet consumption will overtake traditional TV by mid-2010, or at worse by the beginning of 2012. This however does not mean that users are stepping away from TV content. It's the form of how TV content is consumed that is dramatically changing. Users use PC to see live TV (9%) or record TV programs on their hard-drives (4%), or own portable TV content (10%). In all these figures, IPTV has only a 6% overall penetration.

Interestingly, PC usage is expected to drop from 95% to only 50%. The main reason is that high-end internet enabled devices are flooding the markets (e.g. interactive TV sets, game consoles, 3G devices, etc) [which rather implies that video content is indeed important for the end user; however current TV sets lack serious functionality].

Time online is driven primarily by content and communication services (i.e. news sites, online video, social networking sites and email) that currently represents 65% of all online time. Internet usage is expected to grow due to the variety of internet enabled devices that are being available in the markets. For example, 48% of the people is expected to use a smartphone by 2013 making internet connectivity effective nearly everywhere.

Traditional newspaper's readership is falling very fast. Digital versions of traditional paper media add extra functionality to their users. For example 58% of newspaper websites feature some form of user generated content (more than doubled since 2007). Also 75% of the newspaper sites allow users to comment on their articles and other content (more than doubled since 2007 too). User's involvement in news coverage, analysis and reports seems to shape fast [reader's comments, user-generated content and blogs are having a profound impact on public thinking. For example, as some may have guessed, the picture depicts the effect of Broadband Prime on young girls]. You can read the report for more.

I have been reflecting on the discussions in Telco 2.0 blog on their telco business model based on the two-sided market theory. Essentially the business idea is to to extract behavioral information and trends about tastes and usage of users from data found in the operators' databases (i.e. Call Detail Records - CDRs) and make it available to downstream service providers targeting the user base of the operators. Thus, operators act as intermediates between buyers and sellers in the telecommunications content/service market. Ofcourse the extracted information can be used by the operators' retail team to market successfully new content services to their existing subsribers.

If you put it in a wider perspective, the Telco 2.0 notion can be extended further. Telecom operators may not only focus on extracting information from their own data but they may also colaborate with social networks to gain additional insight on their clientele. Combination of network data with social profiles can achieve a better understanding of their subscribers' preferences. More and more internet users (both fixed and mobile) are using social networking sites to keep contact with their peers (colleagues, friends, familly), share their preferences, discuss matters of mutual interests, etc. Social networking sites contain a wealth of information which is made publicly available by the users themselves for professional, social and other reasons. Proper alignment of information found on social media with data found on telco's network can create a much better picture of what the end-customers like, detest, are interested in, or favor. Thus, content provision can more effectively address the needs of the masses (categorized by as many attributes as desired - e.g. demographics, education, profession, hobbies etc) and at the same time be tailored to the special needs and wants of individuals.

The concept can bring about benefits for all parties. Customers will enjoy services crafted for their own personal wants, services that are location, age, hobbies-aware and are even focused for example on their at-the-time mood. Service providers will create better services and attractive pricing schemes. Telcos will harvest a great opportunity for additional revenue streams and potential extra revenue for their existing content services. Finally, social networking sites will leverage on their free services by offering added value to their users while eventually being able to capitalize on their business. Imagine the prospects that stems from linking frequent updates and accurate profile information in social sites with enhanced, good quality, value-adding content services.

Certainly there are several issues open, e.g. IT, partners coordination, implementation, policy implications, privacy concerns, etc. An interesting thing is if and how this could fit with mobile and/or fixed operators' current business models, or even further, whether the concept is a better fit for wireless or fixed operators. Whatsoever, the point is that if appropriately applied, this business model has the potential to revitalize the "services-for-free" market (not only social networking sites) and encourage high quality, enhanced broadband offerings.

In cold blood, the Australian Government threw away the proposals filed for its NBN RfP and went for plan B. While everyone was expecting the announcement of the winning consortium, any day soon, Australian Government concluded that none of the proposals fitted Government's long-term plans and decided to "toss" a few extra dozens of billions (43b in total for an 8-years execution period) and construct it by itself.

In all respects, this is a massive, truly and surprisingly massive investment budget for this vast and rural country that seems to eventually realize the nature of the telecommunications market, the key role of broadband in trans-sector economic development and the huge social impact of next-generation access technologies.

Recal that Telstra "managed" to get disqualified by the project committee during the earlier days of the RfP by drafting a proposal that did not meet the standard requirements. However, as it evcentually proved, none of the competitors for the bid provided a good value for money proposition.

This is a lovely day for fiber promoters and open access enthousiasts. I look forward to see how these plans are going to materialize. Whatsoever, this announcement pronounces a clear realignment of the Australian Government NGA priorities. You can read Paul Budde's excellent analysis on the matter, and the Government's announcement for more details.

In conclusion: It's always good to have a plan B... and have the guts to take it!

A lot has been going on during my relative inactiveness from the blog. Here's a short compilation of what I find important and worth mentioning for future reference:

1. The country's plan for a nationwide FTTH project continues to develop in fast pace [ in Greek ]. According to sources coming from the ministry of Transportation and Communications an appropriate regulatory framework is being worked out and it will be released for an open consultation before the summer. The committee in charge of the task examines 1) rights of way for public, municipal and private premises, 2) installation of in-building wiring in a multi-home dwelling when even one owner requests access to the network, 3) Possibility for synergies with other network infrastructures (e.g. water & sewage utilities, gas companies).

2. Another regional municipal initiative [ in Greek ] has formed by 15 municipalities of Crete and several aegean islands. This is the third analogous municipal initiative as I've pointed out in a previous post .

3. By leveraging on its recently built municipal MAN, the city of Karditsa has deployed the first Greek FTTH network offering fiber access directly to residential users [ in Greek ]. The project is currently on a pilot mode and serves a small part of the city. I plan to post more info about this soon.

4. In Frankfurt, the 19th of March, OTE and DT officially announced the full integration of their networks (which was completed at 10/2/2009) [ in Greek ]. Business synergies are expected to reach 2 billion Euros in the next decade.

I have assisted several investors build broadband business plans/models the last few years. And I have always been requested to prove the sustainability of the project as a way to help my occasional employer achieve its objectives (ie get funding, decide and schedule the investment etc.)

However, I can’t honestly align myself with the notion that sustainability must be directly linked with financial viability when it comes to broadband deployment. Does really financial viability become synonymous to success? Because, if this is true then most likely the educational system of every nation should be considered a disaster!

We definately need to understand the bigger picture when accounting for broadband benefits. The success of a broadband project has to be evaluated based on its objectives and not necessarily on its financial profitability. I understand that a private firm requires profits quickly in order to invest but governments (luckily) have quite different views and expectations from broadband infrastructure. Only if an investment is pursued to spur economic activity should be judged purely on financial terms. Otherwise, it must be evaluted based on whether it achieved its goals (e.g. increase awareness, encourage innovation, open market to outsiders etc). Never shall we forget that broadband is only a small piece in what we like to call Information Society, however, its impact to inter-sectoral economic activity and growth will be so immense as it is almost impossible today to accurately estimate and measure.

Did the first power plants and the distribution grids that brought electricity to the cities’ main squares and central streets were considered economically viable? Certainly not. But they were made, and noone probably understood why, at the time. In the end, this simple solution, whose adoption rates and benefits was almost impossible to forecast, (along with standardization, availability, quality of service etc) boosted innovation and created an economic and social ecosystem that we all consider for granted today. Did the road to “villabajo” and “villariba” build on pure financial criteria or simply for the benefits associated with social inclusion, and the right of people for equal opportunities?

I think it’s time to assess broadband in a broader context, far broader than a colorful P&L chart…

Also published here:

http://broadbandprime.blogspot.com/2009/02/different-view-on-broadband.html

According to EC’s recommendation, member states have to encourage infrastructure-based competition as the best and fastest way for broadband development [1]. At first, the arguments behind infrastructure-based competition policies seem solid. Competition does good to the market: provides efficiency incentives to operators, reduces prices, increase penetration, etc. This seems to cheer everyone: 1) Customers are happy for receiving cheaper service, 2) incumbents are happy because alternative networks start spending money in infrastructure, and gradually stop cherry picking over their infrastructure, 3) operators see higher penetration rates as a way to increase their market potential and revenue streams. In all this ideal setting, regulators’ overall efficiency, as measured by EC, increases.

However, broadband development and infrastructure-based competition come with some significant costs. Social benefits from higher broadband penetration (stemming from infrastructure competition) are offset by a) operation inefficiencies of duplicating/redundant infrastructures and b) the cost of laying out these infrastructures.

So, here’s the billion dollars question: Do the benefits outweigh the costs? Does network competition truely advances the market (and at what extent) or do competitors simply eat out each other’s profits. Infrastructure competition can lead to price wars (when you compete at the conduit level, what else there is to compete over) which then makes the business case of the networks worse. Intuitely, this means that only those with the deeper pockets are going to survive. International experience provides the evidence: Telco’s bankruptcies and consolidations imply that indeed firms’ benefits (producer surplus) is negative.

For that, telcos seem to initially choose unserved geographical markets to deploy their networks and avoid direct competition, as Benoit points out , but this will not necessarily last for ever .

Thus, we are faced with a serious potential deficit: Socially sub-optimal over-spending in duplicating, parallel infrastructures. Would it be possible that infrastructure-based competition does not serve social welfare in the long-run? Should we look beyond short-term gains of increased broadband penetration?

Maybe, it should be worth revisiting the current policies aiming at quick broadband penetration, especially in these times where huge piles of money are being prepared to be invested in physical infrastructure. Public, publicly-owned or public-private physical infrastructure operated under open access rules is a serious alternative to the current policy guidelines and it must be re-assessed by regional/national regulators.

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[1] EC also suggests that in the regions that experience a market failure the Government must intervene and subsidize, finance and/or facilitate physical infrastructure on some sort of public ownership terms (wtih the aid of EU funds). The three most evident examples of EU funding in regional/municipal physical infrastructures are Sweden’s in the late 90′s early 00′s, Ireland’s in 2003-2006 and Greece’s in the period 2005-2008. In all three cases, municipal metro networks were built and FTTB connections to public buildings (education, health, public administration etc) were constructed.

I havent' been blogging very pationately the last few weeks. I have been trying to tie up some loose ends lately and this allows me only occasional posting (I've set one post per week as my low threshold though). Anyways, to share a laughter with you, in these tough times (!), check here the comics series of the year! If you are or have ever been a PhDc (c stands for candidate) you are definately going to plug it in your feeds list! Cheers, C.-

According to EC's recommendation, member states have to encourage infrastructure-based competition as the best and fastest way for broadband development [1]. At first, the arguments behind infrastructure-based competition policies seem solid. Competition does good to the market: provides efficiency incentives to operators, reduces prices, increase penetration, etc. This seems to cheer everyone: 1) Customers are happy for receiving cheaper service, 2) incumbents are happy because alternative networks start spending money in infrastructure, and gradually stop cherry picking over their infrastructure, 3) operators see higher penetration rates as a way to increase their market potential and revenue streams. In all this ideal setting, regulators' overall efficiency, as measured by EC, increases.

However, broadband development and infrastructure-based competition come with some significant costs. Social benefits from higher broadband penetration (stemming from infrastructure competition) are offset by a) operation inefficiencies of duplicating/redundant infrastructures and b) the cost of laying out these infrastructures.

So, here's the billion dollars question: Do the benefits outweigh the costs? Does network competition truely advances the market (and at what extent) or do competitors simply eat out each other's profits. Infrastructure competition can lead to price wars (when you compete at the conduit level, what else there is to compete over) which then makes the business case of the networks worse. Intuitely, this means that only those with the deeper pockets are going to survive. International experience provides the evidence: Telco's bankruptcies and consolidations imply that indeed firms' benefits (producer surplus) is negative.

For that, telcos seem to initially choose unserved geographical markets to deploy their networks and avoid direct competition, as Benoit points out , but this will not necessarily last for ever .

Thus, we are faced with a serious potential deficit: Socially sub-optimal over-spending in duplicating, parallel infrastructures. Would it be possible that infrastructure-based competition does not serve social welfare in the long-run? Should we look beyond short-term gains of increased broadband penetration?

Maybe, it should be worth revisiting the current policies aiming at quick broadband penetration, especially in these times where huge piles of money are being prepared to be invested in physical infrastructure. Public, publicly-owned or public-private physical infrastructure operated under open access rules is a serious alternative to the current policy guidelines and it must be re-assessed by regional/national regulators.

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[1] EC also suggests that in the regions that experience a market failure the Government must intervene and subsidize, finance and/or facilitate physical infrastructure on some sort of public ownership terms (wtih the aid of EU funds). The three most evident examples of EU funding in regional/municipal physical infrastructures are Sweden's in the late 90's early 00's, Ireland's in 2003-2006 and Greece's in the period 2005-2008. In all three cases, municipal metro networks were built and FTTB connections to public buildings (education, health, public administration etc) were constructed.

I found this video clip (approx. 5 min) on Internet Evolution. It's an excellent comentatory on India's efforts for internet/broadband. And it also explains how often, the simplest ideas can do good, when we talk about rural broadband connectivity.