Municipal broadband is an economic choice, not a holy crusade

15 July 2013 by Steve Blum
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The debate continues.

I’ve been taken to task for an article I wrote on the prospects for fiber-to-the-premise service in Palo Alto. It was just published in Broadband Communities, and was based on a study I did last year for the City of Palo Alto evaluating a particular business model.

Christopher Mitchell, the proprietor of and an advocate of public ownership of telecoms networks, called it odd and misleading in a blog post. It’s fair criticism to the extent I didn’t do a good enough job of putting the study in context. My scope of work for the City was narrowly focused because specific questions were being asked. He’s right in saying the business model being considered – an FTTP build-out based on subscribers opting in and paying a pro-rata share of construction costs – has never been tried.

That was the point of the study, mate.

We seem to agree that the user-financed model is a hard, maybe impossible, business case to make. As Mitchell correctly points out, the numbers are ridiculous. Where we part ways seems to be over how markets work.

In the study, I characterised AT&T and Comcast as offering “high levels of service at competitive rates.” Both companies have invested in upgrading their plant in Palo Alto. Not surprising, given all the reasons Mitchell cites for making the pro-FTTP argument there. Consumers and businesses alike care about performance and costs, and not about technology. The bandwidth supply in Palo Alto has risen over the years to meet demand.

Why do I say that? Because of the independent market research the City of Palo has done. I won’t rehash it – it’s well documented in my study – but one point comes through very clearly: people there don’t have much appetite for paying more than they already are, regardless of speed. If an FTTP system offered cheaper service, it would be a different story. That’s not on offer, though.

A municipal FTTP system in Palo Alto would, as in every other competitive market I’ve studied, require taxpayer or utility ratepayer subsidies, given the realities of current consumer demand. That’s a choice for voters and their elected representatives to make. But all cards – demand and supply side – have to be on the table.