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Being a Gig City: It's All About the Upload

This is the second in a series of posts examining a premier Gigabit Community - Wilson, North Carolina. The first post is available here.

It's all about the Upload. If you are the owner of a small engineering business with dense blueprints to send to your European clients, or a specialized country doctor who depends on the quick transmission of x-rays, a digital film effects company, a photographer or a local broadcaster, your ability to upload your dense information to your colleagues, clients, and residents means business. For Gig City, Wilson in North Carolina, offering gigabit upload speeds to its community is essential to ensure local businesses thrive.

According to a recent Speed.Net report, upload speeds in the United States compared to the rest of the world are dismal. If you live in Hong Kong (60 Mbps), Singapore (47Mbps) and South Korea (44Mbps), you are in the drivers' seat with the fastest upload speeds in a world where time wasted means money. If you are in the U.S., as of February 2014, you're in the slow lane. We rank 41st at 6.69 Mbps. But not if you live in Wilson. With access to Greenlight's gigabit residential upload speeds, living in Wilson means being competitive and working easily with the world's top achievers.

The owners of Wilson-based Exodus FX know this. Digital artists Brad Kalinoski and Tinatsu Wallace found Wilson in their nearly impossible search for small-town affordability but world-class broadband infrastructure. Two years ago, they started a small growing boutique that caters to the visual effects needs of global film and television production companies. When their broadband rates in West Virginia skyrocketed despite the local broadband infrastructure seriously underperforming, the company's survival depended on relocating.

Exodus FX logo

"We had to choose an area that could offer a low cost of doing business, while delivering an infrastructure better than that of other states and countries," wrote Mr. Kalinoski, a three-time, award nominee for his special effects contributions to Black Swan and LOST, the Final Season. "We even considered places like Seattle, Japan, Austin and Kansas City for its Google fiber. But when weighing the cost of living, cost of doing business, diversity and broadband infrastructure, it really wasn't much of a debate." They moved to Wilson."In less than an eight hour period, we pushed almost 18 Gigabyte of data to and from New York, Los Angeles, Canada and to other states. We are finding that the bottleneck is no longer us, it's the client's bandwidth."

"Timing out" and "that bottleneck" drew web-designer and digital musician, Dave Baumgartner, to Wilson as well. "I was doing consulting web design work from my home in Raleigh using Time Warner Cable's "Turbo boost" Internet access, but could not get my file uploads to clients on the west coast to complete because they would time out." This was the fastest residential internet access available in Raleigh. "I would start an upload before dinner, it was still going when I went to sleep, and failed by the next morning."

Dave moved to Wilson which allowed him to serve and provide innovative web design to clients anywhere in the country. "Having a fast and reliable connection also allowed me to test bandwidth-intensive technologies like embedded HD video and audio, and various streaming technologies." (Greenlight does not data cap the way other large incumbents are known to do.) Dave recently recorded a vocal drum track in Wilson for a group based in another state, and then sent the files to their producer in California in what seemed like fractions of a second. He is now in talks to be involved in a recording project where no two performers are in the same state, and a few of them are in Europe. In between all that, Dave and Wilson's Greenlight operations found each other. He is now Greenlight's web designer.

Designing the future is what also attracted Wake Forest fiber optic entrepreneur, and aviation photographer, Dan Holt, to Wilson. He can't move to Wilson because he owns his home in Wake Forest, so he commutes 30 minutes each way to access Wilson's gigabit symmetrical speeds from his satellite office at the City's local business incubator. His vision for the Wake Forest Fiber Optic Initiative started years ago "even before Time Warner Cable released their 30/5 and 50/5 tiers." "I am an aviation photographer, and rely on service like flckr and smugmug (and more recently Google+ and Google drive) to backup my photos. More often than not, each one of my photos averages about 25 Mb each." A couple of thousand of these after a weekend shoot and you have a multi-gigabyte upload. "This would take days to upload... you can only do partial uploads." So Holt found himself juggling his work schedule so he could upload his photos, and projects would sit for six months "Having access to gigabit fiber allows me to upload everything I have in one sitting, allowing me to focus more on editing and selling photos."

Holt has hooked up four servers to Greenlight's gigabit speed, which virtualize the home of the future with multiple, simultaneous, Netflix video streams and dense file upload exchanges for his Wake Forest Fiber Optic Initiative. "The future is about video," he stated, citing a study showing 50.2% of internet traffic is video -- Netflix and YouTube - not Bit Torrent." His Town officials now have been able to physically see through Wilson's Greenlight capacity, the economic vision he has for his own community.

Photo courtesy of www.Whirligigpark.org

An economic vision driven by bits of gigs, Whirligigs exactly, means something to Jeffrey Currie, Repair and Conservation Manager of the City's new world-renowned Vollis Simpson outdoor Whirligig Park, Currie drives into Wilson every day from Nash County to manage the taking apart and rebuilding of thirty, sometimes, fifty-foot wind-driven sculptures from a farm in the county to the City's downtown. The vision is to use this wind powered art to help drive the city's economic future with STEAM (Science, Technology, Engineering, ARTS and Mathematics).

"Yeah, we like to use that word STEAM more and more." laughed Currie, as he displayed the hand-held tablets that record the intricate pieces of this gargantuan move. "We needed to know what the Whirligigs looked like before they were taken apart." Greenlight connected the warehouse to its Gigabit network. "We take high-resolution photographs of the sculptures before they are disassembled, scan older images of Vollis' work and just upload them to Dropbox. This lets the artisans have a clear picture of how they should be restored, assembled and painted, because often there is little paint left after 30 years out in Vollis' field."

What was amazing is that Currie described these large uploads like he was flipping a switch. "It's quick," he said, without thinking about it. "We're burning out the computers, not the internet," quipped Don Davis, who takes photographs and who does much of the uploading for the collections section. Greenlight's upload speeds facilitate the rebuilding of this important economic driver in seconds instead of months.

"The media consistently focuses on the download part of the broadband equation, but if your business handles information at any level, your business is really all about the upload. If you can't get your information out, whether it's your quarterly insurance reports to your corporate office, engineering blueprints to your China clients, or your latest digital art creation to New York, you simply can't compete. We are living in an information economy now," said Will Aycock, General Manager of Wilson's Greenlight system.

"The thrust of Greenlight is captured by our three guiding principles,' said Aycock. ‘Supporting the economic health of the community, improving the delivery of city services, and enhancing the quality of life for the citizens of Wilson. This is our gig in Wilson."

Whirligig photo courtesy of www.whirligigpark.org

Cable Industry Dumps Dark Money into DC

The Center for Public Integrity released data last year showing some of the ways big cable companies are distorting our republic by funnelling millions into political groups working to further the interests of massive corporations rather than local businesses and citizens.

The head cable lobbying group, the National Cable & Television Association, collects some $60 million in membership dues, and is currently headed by a former chairman of the Federal Communications Commission. Michael K "Revolving Door" Powell makes some $3 million a year.

They spent nearly $20 million lobbying in 2012, employing 89 federal lobbyists of which 78 had worked in government jobs.

This cable cabal donates heavily to groups like Americans for Prosperity while also donating to both sides of the aisle, from the Democratic Attorneys General Association to the Republican Mayors and Local Officials coalition. One has to spread the wealth around to ensure they can continue their cozy relationship and not fear any real competition.

Until we fix the way elections are financed, we cannot hope to match the political might of a few massive monopolies.

High Speed in the Blue Grass State: Russellville's Gig

The Logan Journal recently reported that the Russellville Electric Plant Board (EPB) now offers gigabit service to local businesses. The article notes that Net Index, an online tool to measure download and upload speeds, recognizes EPB as the first Gig city in Kentucky. To learn more about the community and its network, we talked with Robert White, General Manager of EPB.

The community of 7,000 is the county seat of south central's Logan County. Russellville is located in the center of several other larger communities: Nashville, Bowling Green, Hopkinsville, and Clarksville, Tennessee. Manufacturing has been a large part of the local economy for generations, but community leaders recognize the vulnerability of a narrow economic base. In order to encourage a versatile economy, Russellville invested in its telecommunications utility.

The community wants to encourage small business while simultaneously providing manufacturers the connectivity they need. Leadership sees the ability to remain competitive directly tied to their network. In addition to the economic development opportunities a fiber network can provide, communities like Russellville rely on electricity revenue from large consumers. Retaining the large electric consumers that also provide jobs in the community it a must.

Russellville's electric utility created a strong advantage when it was time to venture into telecommunications. EPB had already established a strong relationship with its Russellville customers, says White, and locals felt they could trust their municipal electric provider.

EPB began offering wireless Internet to the community in 2005; at the time, there was very little choice for wireless or wired Internet. The product was competitively priced and it performed well for wireless service at the time but EPB eventually shifted focus to its next generation high-speed network. The wireless service is still available to customers who subscribed prior to the construction of the fiber network but EPB no longer offers it to new customers. Wireless speeds vary from 1-2 Mbps download and approximately 500 Mbps upload. The area now has several options from the private sector - Verizon and Bluegrass Cellular provide wireless up up to 10 - 15 Mbps.

Russellville EPB Logo

According to White, Russellville's inspiration to build the network was not to compete, but to fill the services gap. He told us:

"We support Logan County residents having the best product. If that means us offering the product, that's fine. If it means the private sector will step up to the plate and serve the areas we can't serve…that's fine as well. We want our residents to be served, whether by us or an incumbent."

Larry Wilcutt, White's predecessor at EPB, began studying the possibility of a fiber network in 2007, but external forces motivated Wilcutt and EPB to seriously pursue the project a few years later.

In early 2010, EPB learned that its power supplier, the Tennessee Valley Authority (TVA), would switch to time-of-use wholesale rates and begin using smart grid technology by 2012. In order to participate in the new technology, EPB needed meters that could communicate with its electrical system operations. EPB installed fiber optics for Advanced Metering Infrastructure (AMI) and for future expansion into telecommunications. A News-Democrat & Leader article from October, 2010 (reprinted at MobilityTechZone.com) reported:

The EPB's goal is to eventually install fiber optic cable to every home and business in Russellville, is installing the cable to every home in the Russellville, city limits -- even those that are serviced by other electricity providers. There are also plans to include some locations outside of the city limits to extend service to the more populated areas adjacent to the city limits of Russellville. 

The article quoted Wilcutt:

"The Board has been working on this project for over two years and we are extremely excited to finally start construction on this project. We want to provide the citizens of Russellville with a system that is second to none, one they will be proud of, one that will entice new investment in the community. Whether that new investment is in the form of capital, technology or people, we believe the City of Russellville and Logan County will benefit well into the future" Wilcutt said.

AT&T Logo

At the time, the best connectivity in Russellville was AT&T's DSL at 6 Mbps download. Satellite Internet was available but was unreliable, expensive, and maximum speeds were 1 - 2 Mbps download.

The community was also starved for quality video service. Suddenlink did not offer HD channels and made it clear that HD service was not planned for Russellville. Large corporate providers had no interest in Russellville so EPB felt it was time to take control of their own connectivity.

Construction of the 99% aerial, 120-mile network began in October 2010; EPB began offering services in December 2011. White presented the results of an audit in November 2013 to the City Council showing that 8% of EPB's total revenue came from its broadband division. The audit also showed that the network was ahead of its projected take-rate with 1,300 active subscriptions out of 4,000 passed homes. 

The network capital costs were approximately $11 million with approximately two-thirds designated for electrical system expenditures. In 2010, the American Recovery and Reinvestment Act (ARRA) offered Build America Bonds (BABs), some of which provide federal subsidies to help communities pay back interest to bondholders. BABs, backed by electric system revenue, provided funding for the entire project and contributed to interest expenses.

EPB offers services to every home and business in its service area and hopes to expand further. They expected video to be the lead product, but  Internet service is the most popular. White considers the lack of high-speed Internet in the region the driving force. The commercial gigabit product is new and no customers subscribe yet but local businesses take advantage of the fiber network. One local contractor tells White he enjoys the ability to share documents and bid for projects online without fear of technical glitches. When he used unreliable DSL connections to transmit data, he was perpetually concerned about deadlines and the status of data sent via DSL.

Local public safety agencies, the local library, Russellville City government, and Russellville Independent Schools now use the network. EPB and the Logan County Schools may soon be working together.

Word of Mouth graphic

In addition to providing much needed connectivity to the community, the network provides an increased stream of revenue. EPB submits a payment in lieu of taxes (PILoT) to county and city governments based on electrical and broadband services revenue. As EPB gains customers transitioning away from satellite video service, its contribution to the City increases; satellite providers do not pay a franchise fee to Russellville. At a July 2010 City Council meeting, EPB expected broadband services to add approximately $25,000 in PILoT within the first five years. EPB also pays a separate and voluntary video franchise fee to the local municipality. 

These days, White and EPB are concentrating on raising awareness of the commercial gig product and service to residents. To spread the word, EPB holds regular workshops for the community to explore ways to maximize the the network's possibilities. Commercial gig service is available for $1,499.95 per month.

White and the EPB understand that the private sector must make decisions based on returns. In the case of this publicly owned network, some key returns take the form of benefits to the community. Since EPB lit its network, White and his crew often hear from customers who rave about their service. White says:

"They hate to pay electric bills but they say getting superior broadband services from EPB is all worth it."

EPB's residential fiber Internet services begin at 20/5 Mbps for $39.95 per month with higher speeds at 100/25 Mbps for $69.95 per month. Video services from EPB range from $29.95 per month to $62.95 per month with the option to add over 100 HD channels. Voice packages start at $14.95 per month.

For Chris' recent interview with White, check out episode #82 of the Broadband Bits podcast. 

The Challenge of Open Access - Lessons Learned Part III

To finalize our series on reflections from Seattle and Gigabit Squared, I discuss open access networks and how the requirement that a network directly pay all its costs effectively dooms it in the U.S. Read part one here and part two here. I started this series because I felt that the Gigabit Squared failure in Seattle revealed some important truths that can be glossed over in our rush to expand access to fast, affordable, and reliable Internet connections.

The benefits of public-private-partnerships in these networks have often been overstated while the risks and challenges have been understated. We have seen them work and believe communities should continue to seek them where appropriate, but they should not be rushed into because they are less controversial than other solutions.

Sometimes we have to stop and remember that we will live for decades with the choices we make now. It was true when communities starting building their own electrical networks and is still true today. I hope the series has provided some context of how challenging it can be without removing all hope that we can stop Comcast, AT&T, and others from monopolizing our access to the Internet.

In this final piece, I want to turn to a different form of partnership - the open access network. I think it follows naturally as many in Seattle and other large cities would be more likely to invest in publicly owned fiber networks if they did not have to offer services - that being the most competitive, entreprenuerial, and difficult aspect of modern fiber networks.

Chattanooga construction

The desire to focus on long term investments rather than rapidly evolving services is a natural reaction given the historic role of local governments in long term infrastructure investments. Fiber certainly fits in that description and as many have noted, the comparison to roads is apt. An open access fiber network allows many businesses to reach end users just as roads allow Fedex, UPS, and even the Post Office, to compete on a level playing field.

In an open access approach, the local government would build the network out to connect all residents and businesses but not directly deliver services. Instead, multiple independent Internet Service Providers (ISPs) would compete on the network for business, ideally specializing in different niches - some providing great video game optimizations and others focusing on meeting small business needs.

Unfortunately, there are reasons we have not seen this approach gain widespread traction. The model is more difficult than is readily apparent.

A large part of the difficulty comes from incumbent providers that refuse to use the fiber network. The cable and the telephone companies claim that they don't want to abandon their assets, but that is not the main reason they have refused to participate in these networks. The big cable and telephone companies know that they have terrible reputations and would be slaughtered in a competitive market - so they put great effort in ensuring that they face as little competition as possible. Allowing the open access market to develop would all but ensure mighty Comcast would have to compete against local providers that offer much better customer service, lower prices, and more.

From an economic perspective, an ideal open access network would be one physical fiber network on which all ISPs compete. With a take rate over 80 percent, the revenue would likely be sufficient to pay the costs of building the network, operating costs, AND the ISP costs. But because the cable and telephone companies have fought against open access, subscribers are often split among three different physical infrastructures (cable, copper telephone lines, and the fiber network), generating too little revenue to pay the costs of building the fiber network.

If a major metro area does a feasibility study to build a citywide open access network fiber, it will find that the network will almost certainly not pay for itself using a conventional private sector accounting system. The interest on the debt required to build the network accrues faster than revenue. Of course, the roads and bridges don't pay for themselves via user fees either, but we still invest in them.

Community BB Logo

In a recent podcast, we discuss how over the first five years, a network can save more in aggregate for the community that it costs to build. But those benefits acrue individually to households. Thus far, very few communities have used this approach - to raise monthly taxes by $3 to save $10 on household telecom bills, for instance. Leverett is a rare example of this approach.

That does leave another option - building an open access network incrementally, as Danville has done in Virginia and Palm Coast FiberNet in Florida, among others. This is a viable option for just about any community but comes with the difficult reality that connecting everyone could take decades. And there are still other gotchas.

Some communities that wanted to build an open access network have found it can be challenging to find service providers that will operate on the network. Sometimes a local ISP can step up, as in Danville and in other cases, but not always. Until a network has thousands of potential subscribers, ISPs may not be interested in offering services. But incremental approaches will often start with just tens or hundreds of subscribers.

We have written elsewhere of how important it is to have at least one strong, trusted provider on the network. An important lesson from Provo, among other places, is the difficulty in recovering once a network has a bad reputation. A bad provider can ruin the name of a perfectly good network, especially as most people will not know whether to attribute any problems to the physical network or ISP.

UTOPIA Logo

All of that said, open access offers a tremendous promise. Networks like UTOPIA and Chelan PUD (Washington) have been unable to pay the capital cost of building the network solely from revenues but offer some of the fastest speeds in the nation at a fraction of the price we pay elsewhere. I recall the testimony of a local business to the Utah Legislature who basically said, "Yeah, my taxes went up a little -- but my monthly telecom bill went down a lot."

Nonetheless, nearly every municipal fiber network has been built and financed with the expectation that it would pay for itself - generally breaking even years after the high upfront investments have been made. Each community should be free to choose what expectations it has in building the network it needs to ensure a vibrant economy and high quality of life for everyone. Our role has been to help them understand that choice and push back on those who want to take it away. I hope this series helps in that effort.

Many of the municipal fiber networks that now directly provide services started with a hope of working with a local partner or building an open access network. As they considered their options, they found they effectively had to choose between doing nothing and venturing into a very challenging business.

There are few easy answers for communities stuck with subpar Internet access, or even for those that regard "par" as unacceptable. When Lafayette Mayor Joey Durel was presented with the idea of a municipal fiber network shortly after taking office, he was skeptical. But he ultimately decided they should examine it - saying "shame on us" if they didn't at least see what they could do. Maybe they would hit a brick wall... or maybe they would build one of the most impressive broadband networks in the country. That was good advice.

No one solution works for every community. Thus our guiding philosophy: communities should be free to choose for themselves the solution they prefer.

Construction photo courtesy of Chattanooga Electric Power Board

Over the Top Video: A Peak or a Path Forward?

About six months ago, I was quite bullish on advances in over-the-top (OTT) video making it easier for communities to build fiber networks because they would no longer have to deal with the challenges of securing and delivering traditional cable television channels. I explored these challenges in a recent post.

OTT video includes Hulu, Netflix, Apple TV, and similar services that deliver video content over your broadband connection, ideally to your television. Last summer, we were anticipating more devices and services that would expand OTT options.

In the time since, I have been disappointed. There have been advances - the Google Chromecast dongle works well (if you have a good Wi-Fi signal near your TV - no ethernet option unfortunately). But Chromecast works with a limited suite of video services.

Hulu works well enough, but seems to have fewer shows that I want to watch available on Hulu plus. Also, Comcast owns it and won't always be shackled by the temporary conditions it agreed to in order to secure permission to buy NBC Universal.

Aereo continues to be a very interesting model but will be fighting in the courts for awhile yet, creating an air of uncertainty over its future. Additionally, its business model hurts public access media (locally produced content), which often depends on franchise fees that Aereo and broadband providers don't have to pay. On the other hand, Aereo solves the problem of getting sports programming over the top and that is a big deal.

We had high hopes for an announcement from Intel that it would begin marketing a service offering television channels over the top but it ran into the steep barriers to entry we have previously noted. Now the Intel effort is dead to us: Verizon has purchased it.

Maybe Sony or Samsung or some other manufacturer will suddenly come out with a breakthrough, but given my experience with their user interfaces, I would be shocked if it were usable, to say nothing of desirable.

It is distinctly possible that we will see breakthroughs that make OTT video more accessible and therefore help to drive new investment in fiber networks that don't require large investments in cable head end technology and acquiring hundreds of channel contracts. But I think it more likely that we are going to see OTT content hold steady or even draw back - we may see still fewer popular programs available on Hulu in the near future, for instance.

Regardless, we should not assume that we are in the midst of a linear progression from little OTT video to much more. Given the massive power of Comcast, Time Warner Cable, and the channel owners, we could well see a return to content only being available to those who pay ever-increasing fees to the local cable monopoly.

There is a reason Google decided it needed to offer television channels to get enough subscribers to make their investment worthwhile. Communities may not need the same high subscriber rates that Google wants, but it is a sign of where they think the market is staying.

Meet Russellville, Kentucky's Broadband Speed Leader - Community Broadband Bits Podcast #82

The municipal electric utility in Russellville has launched Kentucky's first citywide gigabit service on its FTTH network. Russellville Electric Plant Board General Manager Robert White joins us to share their motivations for building a fiber network.

The utility had originally offered some telecommunications services over a wireless system but recognized the need for a more robust fiber system, in part because of the lack of investment in modern telecommunications by incumbent cable and telephone providers.

Now Russellville has much better options for residents, local businesses, and schools. We expanded on this interview with a mini case study of their network.

We want your feedback and suggestions for the show - please e-mail us or leave a comment below. Also, feel free to suggest other guests, topics, or questions you want us to address.

This show is 15 minutes long and can be played below on this page or via iTunes or via the tool of your choice using this feed.

Listen to previous episodes here. You can can download this Mp3 file directly from here.

Thanks to Haggard Beat for the music, licensed using Creative Commons.

Cox Ditches Cable for Fiber in Upscale Housing Development

John St. Julien covered this story last month, but I couldn't resist amplifying it. Cox Cable, which has undoubtedly told hundreds of communities that they don't need anything better than what it delivers over its cable network, has opted for a full FTTH in a wealthy new development in California's Orange County.

CED has the details, but the key point for us is yet another recognition that cable networks are yesterday's technology, unable to deliver the services that communities need today and will certainly need tomorrow.

Communities are smart to invest in their own fiber networks not only because the technology is superior, but because local, community ownership results in a more accountable network that will continue to meet community needs long into the future. Municipal electric networks have offered less expensive, more reliable services for over 100 years in some cases - a track record that reminds us how powerful this model can be.

Seattle, Gigabit Squared, the Challenge of Private Sector Cable Competition

This the second in a series of posts exploring lessons learned from the Seattle Gigabit Squared project, which now appears unlikely to be built. The first post is available here and focuses on the benefits massive cable companies already have as well as the limits of conduit and fiber in spurring new competition.

This post focuses on business challenges an entity like Gigabit Squared would face in building the network it envisioned. I am not representing that this is what Gigabit Squared faced but these issues arise with any new provider in that circumstance. I aim to explain why the private sector has not and generally will not provide competition to companies Comcast and Time Warner Cable.

Gigabit Squared planned to deliver voice, television, and Internet access to subscribers. Voice can be a bit of hassle due to the many regulatory requirements and Internet access is comparatively simple. But television, that is a headache. I've been told by some munis that 90% of the problems and difficulties they experience is with television services.

Before you can deliver ESPN, the Family Channel, or Comedy Central, you have to come to agreement with big channel owners like Disney, Viacom, and others. Even massive companies like Comcast have to pay the channel owners more each year despite its over 10 million subscribers, so you can imagine how difficult it can be for a small firm to negotiate these contracts. Some channel owners may only negotiate with a provider after it has a few thousand subscribers - but getting a few thousand subscribers without good content is a challenge.

Many small firms (including most munis) join a buyer cooperative called the National Cable Television Cooperative (NCTC) that has many of the contracts available. But even with that substantial help, building a channel lineup is incredibly difficult and the new competitor will almost certainly be paying more for the same channels as a competitor like Comcast or Time Warner Cable. And some munis, like Lafayette, faced steep barriers in just joining the coop.

FCC Logo

(An aside: if we are going to pretend that competition can work in the telecommunications space, Congress and/or the FCC have to ensure that small providers can access content on reasonable terms or the ever-consolidating big providers will be all but unassailable by any but the likes of Google. Such regulations should include rigorous anti-monopoly enforcement on a variety of levels.)

Assuming a new provider can secure a reasonable channel lineup, it now needs to deliver that to the subscribers and this is more complicated than one might imagine. From satellite dishes to industrial strength encryption to set-top boxes, delivering Hollywood content is incredibly complicated.

When confronted with this challenge for its Kansas City network, Google evaluated all the options and decided the only option was to build its own technology for delivering television signals to subscribers. Google has the some of the best engineers on the planet and even they encountered significant challenges, suggesting that route is ill-advised for new companies. Even if Google were willing to share their approach, it was written for the Google eco-system and would need significant porting to work for other firms.

Several of the recent triple-play municipal FTTH networks used Mediaroom, a technology developed by Microsoft that was recently sold to Ericsson, which has strong connections with AT&T. All of which suggests that delivering television channels is not becoming easier for small, local networks.

From the tremendous challenges of securing television channels to the difficulty of delivering them to subscribers, investors are aware of the mountain a new entrant has to climb before even starting to compete with a massive firm like Comcast.

Longmont Power and Communications Logo

It remains to be seen whether a network delivering only Internet access (or with telephone as well) will succeed today, but most have believed that television is needed to effectively compete for subscribers (and generate enough revenue to pay for the network). Longmont is bucking that wisdom in deploying a gigabit and phone network throughout its footprint north of Denver and many are watching intently to see how it fares (our coverage here).

The main lesson from Part II of our Seattle Gigabit Squared analysis is the difficulty of a small firm competing against a massive cable company like Comcast and the subsequent reluctance of most investors to fund such firms.

This is not to say it is impossible for small entities to compete, especially entities that can handle a distant break-even point or justify its network by the many indirect benefits created by such an investment - including more jobs, lower prices for telecommunications services, and improved educational opportunities to name three (see our recent podcast on this subject). In most cases, the kinds of entities that are willing to include indirect benefits on their balance sheets in addition to cash revenues are nonprofit entities.

We strongly support the right of communities to decide for themselves how to ensure their residents and businesses have the connections they need to thrive in the 21st century. We also recognize that many cities, particularly the larger metro areas, would prefer not to directly compete with some of the most powerful firms on the planet, even if they are also tops among the most hated. Few local governments relish the opportunity to take on such a new challenge and understandably search for firms like Gigabit Squared that can assist them, reduce the risks of building a network, and shield them from charges of being godless communists by think tanks funded by the cable and telephone companies.

However, we are not optimistic that many communities will find success with this public-private-partnership approach. Indeed, with recent news suggesting that Gigabit Squared left at least $50,000 in unpaid bills behind, the risks of going with such a solution may indeed be greater than previously appreciated.

It is for the above reasons that we continue to believe most communities will be best served by building and operating their own networks, though some may choose to do so on an open access basis where multiple ISPs operate on the network.

That is where we will turn in the final segment of this series. Read that post here.

Big City Community Networks: Lessons from Seattle and Gigabit Squared

A few weeks ago, a Geekwire interview with outgoing Seattle Mayor Mike McGinn announced that the Gigabit Squared project there was in jeopardy. Gigabit Squared has had difficulty raising all the necessary capital for its project, building Fiber-to-the-Home to several neighborhoods in part by using City owned fiber to reduce the cost of building its trunk lines.

There are a number of important lessons, none of them new, that we should take away from this disappointing news. This is the first of a series of posts on the subject.

But first, some facts. Gigabit Squared is continuing to work on projects in Chicago and Gainsville, Florida. There has been a shake-up at the company among founders and it is not clear what it will do next. Gigabit Squared was not the only vendor responding to Seattle's RFP, just the highest profile one.

Gigabit Squared hoped to raise some $20 million for its Seattle project (for which the website is still live). The original announcement suggested twelve neighborhoods with at least 50,000 households and businesses would be connected. The project is not officially dead, but few have high hopes for it given the change in mayor and many challenges thus far.

The first lesson to draw from this is what we say repeatedly: the broadband market is seriously broken and there is no panacea to fix it. The big cable firms, while beating up on DSL, refuse to compete with each other. They are protected by a moat made up of advantages over potential competitors that includes vast economies of scale allowing them to pay less for advertising, content, and equipment; large existing networks already amortized; vast capacity for predatory pricing by cross-subsidizing from non-competitive areas; and much more.

So if you are an investor with $20 million in cash lying around, why would you ever want to bet against Comcast - especially by investing in an unknown entity that cannot withstand a multi-year price war? You wouldn't and they generally don't. The private sector invests for a return and overbuilding Comcast with fiber almost certainly requires many years before breaking even. In fact, Wall Street loves Comcast's position, as penned in an investor love letter on SeekingAlpha:

We're big fans of the firm's Video and High-Speed Internet businesses because both are either monopolies or duopolies in their respective markets.

Seattle Conduit

Seattle has done what we believe many communities should be doing - investing in conduit and fiber that it can use internally and lease out to other entities. This is a good idea, but should not be oversold - these kinds of conduit and fiber projects are typically deploying among major corridors, where the fiber trunk lines are needed. But networks require far more investment in the distribution part of the network, which runs down each street to connect subscribers. With this heavy investment comes the modern day reality that whoever owns the distribution network owns the subscriber - that owner decides who subscribers can take service from. (We have more conduit tips from previous Seattle coverage.)

Additionally, different conduit and fiber segments may be owned by various entities, including different departments within a city. This may introduce administrative delays in leasing it, suggesting that local governments should devise a way of dealing with it before a network is actually being deployed.

Even if a city wanted to lay conduit everywhere for the entire network (trunk and distribution), it would need to have a network design first. Different companies build different networks that require different layouts for fiber, huts, vaults, etc. Some networks may use far more fiber than other designs depending on the network architect preference. The result is a limit on just how much conduit can/should be deployed with the hope of enticing an independent ISP to build in the community.

In deciding the size of conduit and where to lay it, different types of fiber network approaches are either enabled or disabled (e.g. GPON vs Active Ethernet). In turn, that can limit who is willing to build a fiber network in the community. The same can be true of aerial fiber, attached to utility poles.

Investing in conduit and/or fiber along major corridors may go a long way to connect local businesses and some residents but almost certainly will not change the calculations for whether another company can suddenly compete against a massive firm like Comcast.

And paradoxically, beginning to connect some businesses with fiber and a private partner could make a citywide system less feasible. The firms that are prepared to meet the needs of local businesses may not have the capacity nor inclination to connect everyone. But without the high margin business customers among neighborhoods, a firm that wants to connect neighbors may struggle to build a successful business plan. Additionally, some firms may only be interested in serving high end neighborhoods rather than low income areas.

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This is a major consideration in our continued advocacy for community owned networks. They have an interest in connecting businesses as the first step in connecting the entire community. An independent ISP may only find it profitable to focus on the businesses, though some ISPs share our values of ensuring everyone has access.

In the first Geekwire interview, Mayor McGinn returned to his original position when campaigning - that the City itself should be playing a larger role and investing its own resources rather than pinning its hopes on distant firms.

McGinn noted that “we haven’t given up on the private sector,” but said that if he were continuing as mayor, he’d start garnering political support to build a municipal fiber utility. That’s actually something the mayor considered back in 2010, after a consultant recommended that the City find a way to build an open-access fiber-to-the-premises communication infrastructure to meet Seattle's goals and objectives.

A feasibility study looking at one particular way of building an open access fiber network put the cost at $700-$800 million. However, there were other alternatives that they did not pursue, opting instead for a far less risky (and with far less payoff) public-private-partnership with Gigabit Squared.

Over the next few days, I will explore other lessons. A review of lessons from today:

  • Comcast and other cable companies have tremendous advantages that other would-be competitors in the private sector will generally fail to overcome
  • City owned conduit and fiber helps to encourage competition but is subject to significant limitations
  • Communities should invest in conduit in conjunction with other capital projects but should not inadvertantly weaken the business case for universal access

Update: The Gigabit Squared deal with Seattle is officially dead. Part II of this series is available here.

Ellensburg Pursues Its Fiber Project in Washington

Ellensburg is quickly moving forward as it make plans to build a publicly owned fiber optic network. The City Council approved a contract with Canon Construction  on December 16th, reports the Daily Record.

From the article:

Canon Construction of Milton won the contract to lay 13 miles of above- and underground fiber optic cables for the city with a $961,000 bid.

Multiple public organizations, including Central Washington University and Kittitas Valley Fire and Rescue, contract with the city for cable Internet services through the city.

We recently reported on the City Council decision to establish a telecommunications utility serving municipal needs. At the December 16th meeting, they also approved an ordinance needed to move ahead with the utility.

The community network will replace the Institutional Network supplied by Charter Communications. Charter and the City have been negotiating a new franchise agreement with little success. Charter wants to charge $10,000 per month to provide the service that it previously offered at no charge beyond the incredibly valuable access to the public's right-of-way. The City determined building a network was more economical and we suspect the City will also achieve greater reliability and have access to better technology than Charter would have installed.