The City of San Francisco seems poised to tackle building fiber to everybody in the city. They have conducted several studies looking at the cost of building fiber. The city also created a Blue Ribbon Panel that has recommended in this recent report that the city should construct a fiber network.
The city is proposing to finance a fiber network in a new way. The city is looking at fiber connections in the same way as any other utility like electricity or water. The concept is that everybody in the city would pay a monthly utility fee that would fund the construction and operation of a fiber network. The number that was tossed around earlier this year was an average monthly fee of $26 per month to be charged to every household and business in the city. It’s hard to tell from the various reports if that’s the number still being considered. The Blue Ribbon report does recommend that the city seek private investment which would be used to lower that number.
The city wants to build the fiber network to everybody in the city, which differs from the typical ISP demand model that only builds to those that buy a broadband connection. The city does not want to be an ISP and wants to emulate some of the large cities in Europe which open up their fiber networks to multiple ISPs. The hope is that multiple ISPs using the network for a minimal charge will create competition and low-price broadband.
It’s an interesting concept. There are smaller municipalities in the country that are financing fiber with municipal bonds – but in most cases the expectation is that the fiber project will generate enough revenue to repay the bonds. But fiber construction is expensive in big cities and the utility fee is needed to finance a network that will cost more than $1 billion in San Francisco.
The city’s rationale for considering this is to provide world-class broadband to everybody. This is a city that is in direct economic competition with cities in Japan, Taiwan and South Korea – and the city views fiber as a necessary component to long-term financial success. Comcast is the biggest ISP in the city and they have fast broadband today with speeds now up to a gigabit download. AT&T offers DSL plus has built fiber to large businesses and MDUs. Sonic has been building some fiber to residences in the Bay Area. And like in every large city there has been some fiber built by ISPs and CLECs to selected locations in the city.
But the city is concerned that a significant percentage of the public can’t afford fast broadband access today. The Blue Ribbon Panel notes that the government-sponsored fiber network in Singapore reduced broadband prices from $90 per month down to $30 – $40 today while speeds leaped to a symmetrical gigabit connection.
No NFL city has yet tried to build fiber and this proposal is going to meet a lot of resistance. Certainly Comcast, AT&T and other big ISPs will do everything possible to derail such an effort. The city says that they don’t want to directly compete with commercial ISPs, but if the fiber network really lowers gigabit prices to $30 – $40 that will clearly get most of the customers in the city.
I foresee all sorts of attempts to try to stop this project. The big ISPs are enjoying unprecedented support today in Congress and the FCC, and one ISP tactic might be to legislate against the project – either at the federal or state level. My fear is that a legislative approach might also stop more traditional municipal broadband projects. I would also expect to see numerous lawsuits from ISPs challenging the project. It’s such a new concept that it’s hard to envision the basis for such lawsuits, but I fully expect them. I can also envision a few citizen lawsuits trying to stop a mandatory new utility fee – picture forcing Comcast employees to pay to construct a competing network.
The final big hurdle will be in getting enough quality ISPs on the network to offer real customer choice. The few open access networks in this country have not attracted the many quality ISPs. The open access model works in Europe because the old state-monopoly telcos and cable companies have been forced into competing with each by the formation of the European Union. And perhaps quality ISPs will take a chance on a network in an NFL city. But in this country there seems to be agreement among cable companies to not compete with each other and it’s unlikely that we would see Charter, Mediacom or others stepping in to compete against Comcast.
This is a really interesting idea and it could be a viable way to get gigabit broadband to everybody in a big city. The city has not made the decision to take the leap forward, and if they do they will certainly face an uphill battle to make it work. But this could be the first trial in trying to bring the European open access model to the US.
Another great article – thank you. You should take a serious look at the network built in Ammon, ID – how it was financed, the edge technology deployed, and the impact to service pricing. For example, when the network was first constructed, a 100/100 MB connection cost $49.95/month. Today, or 1 year later, this same connection costs $9.95/month. In my humble opinion, Ammon is the only true Open Access network in the US. They are using Software Defined Networking on the edge which enables any ISP to provide services over the network. The cost of doing business is simply access to the network and transport. You will see more municipalities adopting this model in the next 12-18 months. Harvard recently published an interesting report on this model.
The are differences between this and what Ammon is doing. In Ammon this is voluntary. Folks there that want to pay a fee to get broadband can, while others can elect no to do so. In San Francisco this would not be voluntarily and folks who don’t want broadband would still be on the hook for the broadband utility fee. And the difference in size also means that San Francisco will be under the microscope.
The blog just points out the hurdles the city has to overcome. It will be an interesting challenge if they move forward.
I understand and perhaps should have been more clear that I was commenting on the technology solution more than the financing aspect of what SF is proposing. Do you know if the Utility fee incorporates the cost of maintenance as well?
If they can find an alternative financing path that does not include a mandatory fee, the argument an Incumbent will make on a competition basis has very little credibility in a true open access architecture. CenturyLink has already crossed this bridge in Sterling Ranch, CO where they will provide services across a network they do not own or operate. First time in their history that they are doing this. And as you know in Ammon, any ISP can provide services over the network including Incumbents. Its a question of control.