Operating on a Leased Network

One of the comments posted on a recent blog mentioned that CenturyLink recently had agreed to operate on somebody else’s fiber network to serve residential customers – the first time that one of the big telcos or cable companies had agreed to do so. One of the major reasons cited for lack of competition in the US is the unwillingness of the major ISPs to operate outside their own networks. This certainly sounded newsworthy and I looked into the example cited.

CenturyLink has agreed to use the fiber network provided by Lumiere Fiber, an affiliate company of Sterling Ranch, a new planned community outside of Denver. CenturyLink won the ability to serve the community through an RFP competition with Comcast, the cable company serving the area. As the winner, CenturyLink will be the exclusive ISP on the network – which only has a few homes now but has plans to grow to 12,000 residences.

So is this really newsworthy? I think the answer is both yes and no – but mostly no. It is true that CenturyLink will be using somebody else’s fiber network, and a large one at that, when the community is ultimately built. But there are a number of reasons why this is not as groundbreaking as it sounds.

First, this is not really unique. While this is a large new subdivision, in many ways this is similar to the thousands of arrangements that ISPs routinely have made to serve large apartment complexes. In the vast majority of apartments the wiring is owned by the landlord and not the ISPs. There are some large apartment units around the country numbering in the thousands of units and this opportunity is unique only from this perspective of being larger than most MDUS.

CenturyLink is already building a lot of fiber to residential neighborhoods, with nearly 1 million new units passed this year – so this isn’t going to present any technological challenges. I am sure that the company will use the identical electronics and provisioning software it uses everywhere else.

This also is not going to stretch the operational systems of CenturyLink. The only real difference between this and other CenturyLink fiber is that the company doesn’t own the fiber. But they are going to take orders and connect new customers using their normal processes. They will dispatch technicians for trouble calls in the usual manner. And if Lumiere hires CenturyLink to do the fiber maintenance then they would even make fiber repairs in almost the same manner (this detail was not specified in the press releases).

There seems to be two reasons why the big ISPs don’t generally use networks owned by others. In the case of the big cable companies there seems be a gentleman’s agreement to never cross those lines. I can’t find one example of a big cable company crossing the line to compete for residential customers.

But the hardest barrier for the big ISPs to use other networks is the fact that their systems are largely incapable of making operational exceptions. They have created operation systems and processes that work for them, on their own networks, with their own employees. These processes are often highly decentralized and it takes employees scattered across the country to accomplish normal daily tasks like adding a new customer or answering a trouble call. It’s extremely difficult for a decentralized company to make exceptions for customers that are treated different than everybody else – that always results in chaos.

An example of this is Verizon FiOS. When the company decided to build fiber they realized that they could not reshape their existing copper work processes and people to accommodate the new technology. They solved this by creating a totally new company and FiOS was new from top to bottom – from technology, to people, to processes.

The real headline I want to see is where one of the big ISPs gets on somebody else’s network in a competitive environment. For example, there are a number of open access fiber networks in Washington state that are significantly larger than the Sterling Ranch opportunity. There are numerous smaller open access networks around the country, and no big ISP has ever served residents on these networks. If the big companies would jump on competitive networks then a lot more of these networks would get built.

San Francisco is talking about building an open access fiber network and if it’s built will really challenge the big ISPs. If that network comes to fruition, will one of the other big cable companies decide to take on Comcast? That would be the big news we’ve always wanted to hear.

3 thoughts on “Operating on a Leased Network

  1. These are not truly competitive networks insofar as their operators are not business competitors of the big ISPs. They are more complimentary networks. The big ISPs have a vertically integrated business model where they want to own both the pipe and content and using another network even if it met their technical standards is contrary to that business model.

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  2. Thank you for authoring this although, as the person who originally left the comment on another story, I am not sure whether this is positive or not. There are two fundamental things you may have not considered:

    1. MDUs and large HOA-type communities are two distinctly different things: control offered over the MDU owner’s wiring inside the walls of buildings is far safer than the fiber, etc., running through the streets of a community. For example, the chances of wiring inside a wall being cut is far less likely than fiber cuts for street improvements, etc.

    2. I spoke to Comcast at our conference just before Sterling Ranch presented and here is what I was told: Comcast was never going to win the services RFP bid because they wanted to control the infrastructure inside Sterling Ranch. After all, they make over 24,000 changes to their network each day and do not trust outside engineering, etc. Even the representative from CenturyLink who spoke about their role said that this was a big deal internally to get approved for the very same reasons that Comcast objected to. Was he exaggerating? And not once, when asked by community leaders in the audience who asked if CL would now consider providing services over a city-owned network, did he compare Sterling Ranch to a large MDU to shut down the questions. In fact and as discussed prior to the panel, he suggested that this may open more opportunities for CL to work with Open Access Networks.

    Maybe this will be an anomaly for CL, maybe not. It does prove, however, that an Incumbent can technically provide services over a network they do not operate. That, more than anything, is good news.

    Jeff

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    • I completely agree. And this is groundbreaking from there perspective of using somebody else’s network. But this is still a half step compared to seeing one of the big companies jump whole-heartedly onto open access networks and competing with others. Here, the lure for CenturyLink was the exclusivity. It’s interesting that this was not enough of a draw for Comcast to consider this, and further goes to show that these big companies are just not good at doing anything that is just a little different than their day-to-day processes. You have to peek behind the curtain at these big companies to realize how hard-baked their processes are – to some degree Comcast might be incapable of making this work. That is probably the real story – how inflexible the big companies have become.

      This same thing was true in Europe before the creation of the European Union and each state-sponsored telco and cable company was fixed in their ways. But the creation of the EU forced them to reinvent themselves and become flexible ISPs. There is nothing driving companies like Comcast to be more creative. They would rather pass on the opportunity to serve 12,000 homes rather than change the way they do things. That’s a textbook definition of an ossified monopoly.

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