Competition will make or, likely, break Pacific Grove muni FTTH business model

by Steve Blum • , , ,

The business case for a muni fiber-to-the-home play is the number one worry as the Pacific Grove city council considers whether to pay SiFi Networks about a million dollars a year for the next 30 years to build and operate a system.

At its meeting on Wednesday evening, the council heard a presentation from Lee Afflerbach, principal engineer with CTC Consulting, who was asked to evaluate the technology. The questions afterward, though, were all about the business model: would the system make enough money to pay the lease, or would taxpayers be on the hook?

“We have not been engaged to look at the business plan yet”, Afflerbach replied. That said, he talked about muni FTTH projects he’s worked on, saying that the successes he’s seen have been in rural areas with no cable operator, and where the local agency involved already runs an electric utility or similar. Even getting to 30% penetration – SiFi says it needs at least 38% – is difficult when there are already two competitors in the market.

“Where this has been most successful is where there’s only one [competitor] and there’s a successful utility operator”, Afflerbach said. “You don’t have [utility] infrastructure, you don’t have a utility”.

The problem is compounded by the fact that Pacific Grove is served by AT&T and Comcast, which will respond aggressively.

“They are very proficient at changing their rates and such. Predatory is the word, I think”, Afflerbach said. When a small city takes on Comcast or AT&T, the disparity in resources and aggressiveness can be fatal. “It’s sorta like infinity versus zero. Your odds aren’t very good on that”.

There are other factors that, on the surface at least, don’t tend to work in Pacific Grove’s favor. Thirty percent or a little more – call it a third – of households are second homes, and the demographics of the other two-thirds skew older.

The next step is for city staff to dive deeper into SiFi’s proposal; that process was expected to begin the next day.