Municipal Market Demand For FTTP
Since the year 2000, cities have increasingly recognized that incumbent telephone and cable providers are financially unwilling or unable to widely build out FTTP. To acquire FTTP for their citizens, communities have increasingly recognized they would have to become proactive.
Municipal (community) driven market demand for FTTP has rapidly increased since 2000. By 2005, Brilliant Nations estimated U.S. municipal market demand at more than $50 billion, as measured in capital expenditure costs (cap-ex). In 2010, when Google Fiber was announced, 1,100 cities applied, representing about 30% of the U.S. population and more than $100 billion in cap-ex. Market demand has continued to increase and likely exceeds 50% of the U.S. population.
Impact Of Municipal Demand
Communities will be competing against each other to acquire FTTP in a timely manner. As both capital and human resources to finance and build out FTTP networks are finite, the most proactive will acquire fiber networks first. Passive communities will be forced to wait in an ever growing pool of communities seeking FTTP.
A community's options for acquiring FTTP in a timely manner are:
• Municipal bond financing, ownership, and operation of a community FTTP network
• Seek the participation of a company to build out the FTTP network (see “Financing FTTP”)
Though a FTTP network is a critical community infrastructure, it is a business that puts the owner in direct competition with incumbent telephone and cable providers. A community considering financing and building out FTTP networks must recognize the business aspect of FTTP network ownership.
Municipal financed and build out of FTTP networks have been both successful and suffered great failures. Chattanooga, Tennessee’s fiber network is the model of municipal success, including increasing the city’s bond rating, thereby lowering financial costs. Some municipal networks have fared well, some are marginal in success, others have become millstones around their community’s necks due to continuing losses, and a few have failed.
FTTP networks capitalized by municipal revenue bonds require “backstops” to the debt repayment. The bond issuer and investors will only participate if additional cash flows are pledged to make up any revenue shortfalls from the FTTP network. A city may pledge revenues from an existing sales tax. A municipal electric company may be required to pledge its cash flows to backstop any potential revenue shortfalls.
Communities that announce their intention to use municipal revenue bonds to fund a FTTP network are likely to be sued by incumbent providers, who naturally see FTTP as a threat. As the bonds will not be issued until the lawsuit is dismissed, the incumbent providers will use the legal process to frustrate the community’s intentions, forestall build out of the FTTP, and may upgrade their own networks as the initial lawsuit and subsequent appeals wind their way through the courts.
Once operational, a municipal FTTP network will face constant challenges from entrenched incumbent competitors using pricing and other offerings to deter subscribers from signing up to the municipal network. Incumbents are motivated to bring about failure of the local FTTP network and to deter other communities from pursuing FTTP.
Avoiding A FTTP Digital Divide
All communities are best served by FTTP networks. The bandwidth capacity of fiber networks will foster the development of new advanced applications and services that will greatly improve health care, education, media, and many other areas.
However, FTTP networks are capital intensive to build out and the economics favor first building out communities with high population density, which reduces build out costs. Higher household income assures greater subscriber take rates (sign ups) and purchases of more services.
Geographic areas with low population densities and lower household income are most likely to be built out with FTTP last or potentially far into the future. The paradox is FTTP networks represent a social and economic necessity for rural markets to drive economic development and acquire needed services. Household income should not determine access to a fiber network, in the same manner that household income does not define access to city water, transportation, or sewer connections.
In presentations to FCC Commissioners, the Company illustrated how a FTTP divide can be avoided with no increase in Federal expenditures.