The problem with FTTH is there’s no problem

It’s not about finding a mass market solution. It’s about finding a sufficiently acute mass market problem.

The struggle to develop a general fiber-to-the-home (FTTH) or premises (FTTP) business model for city-wide deployments doesn’t result from a market failure. Quite the contrary. It’s evidence that the laws of supply and demand are in full effect.

Demand, meet supply.

People generally get the broadband service someone else – a business or government agency mostly – is willing to give them for the price they’re willing to pay. FTTH market research tracks closely with actual results. If you ask consumers if they’d like faster broadband, they say yes (who wouldn’t?). But when you test price points, they’re generally pleased with what they’re paying now and don’t perceive enough additional value from higher speeds to motivate them to pay more.

From the point of view of a city or other prospective overbuilder, it’s a competitive market. AT&T, Comcast and the rest do a fair job most days meeting most customer expectations. They leverage that complacency to fiercely defend their turf. Successfully, for the most part.

Cities are good at filling broadband infrastructure gaps where immediate economic demand exists, either directly or by bringing a private partner to the table. Lit San Leandro, Palo Alto’s dark fiber and Mountain View’s WiFi system are good examples. But those are specific solutions in largely unique business circumstances that also suit the particular political character of each city.

There won’t be a market-driven case for FTTH until a sizable fraction of the residents and small business owners in a community have a problem that 1. they’re willing to pay an extra, say, $50 a month to fix, and 2. can’t be solved to their satisfaction by existing technology and service providers.

Adding institutional IT budgets to the kitty is not as helpful as some FTTH backers, such as Gigabit Squared, think. An organization with an IT budget hefty enough to make a difference is really looking for wholesale service. Big IT systems need big pipes and budget accordingly. That’s helpful, maybe decisive, for funding a middle mile project, and there are examples where it’s done the trick.

You need a significant fraction of the available homes and businesses ready to spend more now, to tip the balance for an FTTH business case. Until the economic demand (i.e. marginal willingness to pay) develops, the Gigabit Squared model will only work if it leverages political demand: grants, direct tax money, cross-subsidies from other municipal utilities or other public support, in healthy quantities.