The Gigabit Dilemma

common carrierCox recently filed a lawsuit against the City of Tempe, Arizona for giving Google more preferable terms as a cable TV provider than what Cox has in their franchise with the city. Tempe undertook the unusual step in creating a new license category of “video service provider’ in establishing the contract with Google. This is different than Cox, which is considered a cable TV provider as defined by FCC rules.

The TV offerings from the two providers are basically the same. But according to the Cox complaint Google has been given easier compliance with various consumer protection and billing rules. Cox alleges that Google might not have to comply with things like giving customers notice of rate changes, meeting installation time frames, and even things like the requirement for providing emergency alerts. I don’t have the Google franchise agreement, so I don’t know the specific facts, but if Cox is right in these allegations then they are likely going to win the lawsuit. Under FCC rules it is hard for a city to discriminate among cable providers.

But the issue has grown beyond cable TV. A lot of fiber overbuilders are asking for the right to cherry pick neighborhoods and to not build everywhere within the franchise area – something that incumbent cable companies are required to do. I don’t know if this is an issue in this case, but I am aware of other cities where fiber overbuilders only want to build in the neighborhoods where enough customers elect to have them, similar to the way that Google builds to fiberhoods.

The idea of not building everywhere is a radical change in the way that cities treat cable companies, but is very much the traditional way to treat ISPs. Since broadband has been defined for many years by the FCC as an information service, data-only ISPs have been free to come to any city and build broadband to any subset of customers, largely without even talking to a city. But cable TV has always been heavily regulated and cable companies have never had that same kind of freedom.

But the world has changed and it’s nearly impossible any more to tell the difference between a cable provider and an ISP. Companies like Google face several dilemmas these days. If they only sell data they don’t get a high enough customer penetration rate – too many people still want to pay just one provider for a bundle. But if they offer cable TV then they get into the kind of mess they are facing right now in Tempe. To confuse matters even further, the FCC recently reclassified ISPs as common carriers which might change the rules for ISPs. It’s a very uncertain time to be a broadband provider.

Cities have their own dilemmas. It seems that every city wants gigabit fiber. But if you allow Google or anybody into your city without a requirement to build everywhere within a reasonable amount of time, then the city is setting themselves up for a huge future digital divide within their own city. They are going to have some parts of town with gigabit fiber and the rest of the town with something that is probably a lot slower. Over time that is going to create myriad problems within the city. There will be services available to the gigabit neighborhoods that are not available where there is no fiber. And one would expect that over time property values will tank in the non-fiber neighborhoods. Cities might look up fifteen years from now and wonder how they created new areas of blight.

I have no idea if Google plans to eventually build everywhere in Tempe. But I do know that there are fiber providers who definitely do not want to build everywhere, or more likely cannot afford to build everywhere in a given city. And not all of these fiber providers are going to offer cable TV, and so they might not even have the franchise discussion with the city and instead can just start building fiber.

Ever since the introduction of DSL and cable modems we’ve had digital divides. These divides have either been between rich and poor neighborhoods within a city, or between the city and the suburban and rural areas surrounding it. But the digital divide between gigabit and non-gigabit neighborhoods is going to be the widest and most significant digital divide we have ever had. I am not sure that cities are thinking about this. I fear that many politicians think broadband is broadband and there is a huge current cachet to having gigabit fiber in one’s city.

In the past these same politicians would have asked a lot of questions of a new cable provider. If you don’t think that’s true you just have to look back at some of the huge battles that Verizon had to fight a decade ago to get their FiOS TV into some cities. But for some reason, which I don’t fully understand, this same scrutiny is not always being applied to fiber overbuilders today.

It’s got to be hard for a city to know what to do. If gigabit fiber is the new standard then a city ought to fight hard to get it. But at the same time they need to be careful that they are not causing a bigger problem a decade from now between the neighborhoods with fiber and those without.

3 thoughts on “The Gigabit Dilemma

  1. Doug, while you are absolutely right about the “build out” requirements placed on incumbent cable operators, you neglect to mention the very important fact that these operators have had the benefit of being the de-facto monopoly (or, perhaps in limited cases and areas, duopoly) provider for the last 30 to 40 years in most franchise areas. I suspect that many, if not most, of the new fiber “overbuilders” would happily trade their build-to-demand approach for a 30 – 40 year monopoly head start. Don’t forget, for all practical purposes, the new fiber “over builders” need to take every single one of their potential customers away from an incumbent provider who has had decades to pay off their infrastructure investment as a monopoly/duopoly provider and develop a significant cash flow machine in the process. Also, the fundamental economics do not work if new, competitive providers are forced to build out an entire city, even when there is no meaningful demand for their services in certain areas and incumbent providers already offer some form of broadband throughout the city as a result of their quasi-monopoly arrangement. And, many studies have shown that a significant percentage of people who do not have/want internet access today do not understand how it may benefit them and are not willing to pay for even steeply discounted offerings to get online, leading to the current (non-gigabit) “digital divide”. This “digital divide” is a real issue and has little, if anything, to do with new gigabit service providers entering a market. Finally, the benefits that accrue to every resident of a city with a competitive provider are well documented: higher speed internet services, lower prices, better customer service, more choice, etc. So, unless Google Fiber decides to build out every city and town in America, the other new, FTTP competitive providers need to find a way to make the business work financially or they will not survive in the medium to long term, which would leave cities with their current, dysfunctional monopoly provider markets at work. In the words of Google Fiber’s Milo Medin, if you (the city leaders) do not want to make your city more attractive to a new, competitive provider like Google Fiber, then “enjoy your Time Warner Cable”.

    • You’ve just made the argument for why a city wants gigabit fiber and I completely agree with you on those issues. No city in their right mind would turn it down (although I know a few that have). I am not arguing that cities should not try to get gigabit fiber. What my blog today points out is that there are no perfect choices and there are long-term consequences of every decision. Ideally a city would want to have gigabit fiber everywhere, and I doubt manyy are going to get that, even with Google.

      We are at an unusual time right now in that we still have people in cities who elect to use dial-up or very slow DSL because they are the first generation of people who have ever had any kind of Internet access and many of them don’t feel the needs for the benefits that broadband can bring today. But look forward a decade or two and it’s hard to imagine that there will be many households that can function without good broadband. A lot of the basic things you will need to function in our society will only be available on-line. Where Internet access today is still an optional choice, I predict we are close to the day where it will be as necessary as having electricity.

      I absolutely foresee a huge urban digital divide between neighborhoods that have gigabit fiber and those that have something less. The houses in those neighborhoods will be less attractive. This will lower resale values and hold down rents and over a decade those neighborhoods will go downhill, while the ones around them with fiber will thrive. Areas today that are not slums but which don’t get gigabit fiber will eventually become the new slums. I think this is something that cities need to think about. And perhaps the answer is that over time the cities will have to pay to put fiber in those neighborhoods to eliminate the disparity. I’m not sure in this early stage of the issue what the solutions ought to be, but it would be turning a blind eye to think that there are not consequences to building only some portion of a city with fast Internet. The places without fast broadband will be at a disadvantage in many ways.

  2. Excellent post, Doug. We need to move away from our current constrained, micro view of “gigabit” and “broadband” that is available only in certain neighborhoods but not other adjacent ones. Instead, we need to be thinking of FTTP as universally available telecommunications infrastructure in keeping with the public policy expressed in Title II of the Telecommunications Act and the FCC’s recently adopted rulemaking reclassifying Internet as a telecommunications service under Title II.

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