Thoughts On Community-owned Broadband
"Open access", Google's prices, network building expertise, organization and financing, profitability, and community network competitive advantages.
March 14, 2015
The flaw in the "open access" business model
In the "open access" model, as promoted by many consultants and business interests, the City builds the infrastructure and leases access to multiple private providers who offer services to end users. The premise is that retail competition will lower prices. The problems with this approach are several:
Real open access networks
Open access should not be about private providers reselling the same base commodity services (Internet, phone, TV). This only divides the market, reduces economies of scale, increases costs (multiple managements, equipment, facilities, advertising), and leads to unnecessarily high retail prices. Real open access should allow independent providers of unique or specialized network services access to the physical network as may be needed to implement the service. That said, with the advent of ubiquitous 1Gb/s service to the premises, almost all services that used to require access to a network's central office can now be offered directly from one's home or business. A community-wide 1Gb/s service to all premises is inherently open access.
The idea that a community owned network cannot operate as efficiently as a privately owned one
The quality of an organization depends upon the quality of its members. The larger the organization the less physically efficient it is, regardless of whether it is public or private. Large multi-billion dollar companies are not physically efficient. They have certain types of economies of scale, but these efficiencies are often lost to their large bureaucracies and distant decision-making. On the other hand, a scrappy community (like a scrappy startup company) can be highly motivated (to improve their own lot) to develop efficient, low-cost, community-specific solutions.
The knowledge to build and operate a fiber-optic network service
There are business/engineering consultants and equipment manufacturers who can assist a company in setting up a new network and service. This is true for opening a restaurant, a hotel, or any other business. Likewise, there are experienced contractors to build the physical network, and vendors to provide the hardware and software solutions. What is important is that company management has reasonable technical knowledge so that it can choose well its contractors and vendors and at the right price.
Google's low pricing is not due to Google's unique knowledge and ability
Google's pricing is not particularly low, at all. $70/mo for Internet and phone, or $120/mo with TV is approximately normal, especially anywhere there is some competition. What Google offers is far better Internet service. But this is due to having a brand new network, and what the current state of technology offers. Anyone who builds a new fiber-optic network can offer the same quality of service at or below Google's prices. In fact, proof of lower prices exist around the world. Moreover, any special concessions communities have granted Google, communities can grant to themselves. A community should not want Google; it should organize to create it's own superior community owned and controlled service.
Community-owned network business organization and financing
Although it may be OK for a municipality to own the physical network, it is most likely a bad idea for the municipality to operate the service. This is because the rules of employment, decision-making, and freedom-of-information access will put a municipality at a serious competitive disadvantage to competing private operators. It is much better if a separate community-owned and controlled entity is created to operate the service. There already exists a form of incorporation designed specifically for non-profit utility services. It's called a 501(c)12 Utility Service, a mutual company, otherwise known as a consumer cooperative. It operates as any private corporation, except that it does not issue stock (it only borrows), and the consumers (customers) have voting rights instead of the stockholders (there are none). Voting includes yearly voting for company officers, at a minimum, but normally is far more generous and would include referendums on major company policies, services, investment, etc. In this way, corporate control cannot be taken away from the community. A 501(c)3 non-profit corporation is not acceptable because it is privately managed and cannot guarantee long-run community control and service purely in the public interest.
As to financing a community-owned network, there are several ways. A standard approach is the issuance of Municipal Revenue Bonds, whereby the revenue from operations guarantees the bonds, not the municipality; it is the way most private utilities have been financed in this country. Another approach is a general corporate bond issue through an investment bank; however, banks may be unwilling, or the interest rate and fees may be much higher. Yet another approach is, basically, crowd-funding, i.e., finance at least part of the network build-out via the sale of promissory notes to the very residents who will benefit from the new network); it could raise a significant amount of financing if the community strongly backs the community network initiative. Perhaps the ideal method of financing would be to crowd-fund as much as possible and finance the balance via a revenue bond issue.
The idea that a community-owned network is unlikely to pay for itself
I think it would be acceptable if a community-owned network didn't pay for itself, as long as it did when accounting for the savings to the community. Most municipal services (school, police, fire, water, public works) generate no revenue, only a benefit (the value). However, I see no reason for a community-owned network not to pay for itself according traditional business accounting. Frankly, I haven't heard a reasoned argument as to why a community-owned network cannot pay for itself. So, I have no criticism to respond to. However, there are some advantages a community-owned network will have over incumbent private providers:
I see no reason why a medium-sized city with a highest-quality community-owned city-wide network built thoughtfully to the customized needs and preferences of a strongly supportive community cannot pay for itself directly while additionally providing low prices and a savings to the community of $20–$30 million per year. That savings is a helluva return on investment.
To comment, contact moneti ATT arsteca DOT net