It’s rare to be surprised by events in the telecom world. The announcement last summer that CenturyLink will be an ISP on a city-owned fiber network in Springfield MO was one of the most surprising things I’ve heard since the announcement years ago that Google was going to become a gigabit ISP. The joint venture has been progressing and CenturyLink says it should be adding customers in the community this spring.

The partnership between the city and CenturyLink is interesting:

• CenturyLink has agreed to lease the network over 15-years at a payment that made the city comfortable enough to build the network. The city says they won’t have to raise electric rates since the lease revenue stream justifies the cost of the new $120 million fiber expansion.
• The city is providing dark fiber and CenturyLink will provide all of the electronics. There have been no public announcements saying which party pays for the fiber drops. Since this is being touted as an expansion of smart-grid, it would make sense that the city owns the drops.
• The arrangement is described as non-exclusive, meaning that other ISPs are free to serve on the network. The announcements don’t say if CenturyLink gets a head-start over other ISPs through some period of exclusivity before open access kicks in. That’s been the case in similar arrangements.
• CenturyLink is offering $65 gigabit broadband ‘for-life’ with a guarantee that the price will never be increased. Speeds are advertised ‘up to 940 Mbps. In other CenturyLink markets the gigabit product requires paperless billing and prepayment with a credit card or bank debit. CenturyLink charges $5 for an optional WiFi modem.

There are a few other similar well-known arrangements in the industry. This is similar to the Google Fiber arrangement with Huntsville, Alabama. It’s similar to the Ting arrangement in Westminster, Maryland and Charlottesville, Virginia. What’s unusual and surprising about this deal is that it’s with one of the big incumbent telcos. However, CenturyLink is not the incumbent in Springfield and enters the market purely as an outside ISP. CenturyLink will be competing side-by-side with AT&T, the first instance of two large incumbents telcos competing in a residential market. The other competitor and the incumbent cable provider in Springfield is Mediacom.

There are some in the industry touting this as a new paradigm for bringing gigabit fiber – but I’m not sure that is so. Like with any business model, all of the facts and the numbers must line up for any market to be a good target for overbuilding with fiber. It’s possible that there are unique characteristics of Springfield that might make this model hard to replicate in most other places.

Springfield owns a municipal electric utility and the utility decided years ago to build fiber to serve its own needs and to bring fiber to businesses in the city. The city started this new venture already owning 700 miles of fiber – much of which will likely be the backbone for building the last-mile for this venture. Springfield is also touting this as a smart grid initiative, meaning the electric utility is likely picking up a piece of the cost of the new fiber construction. There is a good chance that the math would not look nearly so favorable for a city without an electric utility – because in that case the venture would be starting with no existing fiber and the new fiber venture would have to absorb 100% of the cost of the new construction. I’ve looked at this lease model for cities that don’t own existing fiber or an electric utility and the math is often not pretty.

Don’t read those last statements as a criticism of the fiber lease model, but rather just as a recognition that all of the financial factors must align just right for this kind of venture to work. Any city owning an electric utility ought to do the math and consider this model. Cities with low construction costs for fiber might also be good candidates.

The surprising part of this arrangement is that this is being done by CenturyLink. This is an incumbent telco that is well known throughout rural America for operating lousy copper networks. The company has been ignoring the customers in rural markets, and CenturyLink customers living in rural Missouri can’t be thrilled to hear that the company will be offering gigabit fiber in a new market while continuing to ignore their broadband plight. CenturyLink is not going to sink a lot of capital in Springfield, but it’s paying for the cost of electronics and installation.

I have to give CenturyLink credit for tackling this venture. They were building fiber-to-the-home networks before Jeff Storey, the new CEO put a kibosh on spending capital for projects earning ‘infrastructure returns’. The FTTP businesses is an economy of scale business and CenturyLink can take advantage of the staff and platforms they already have in place to operate efficiently in Springfield. Since this is dark fiber the company can still do everything the CenturyLink way – which is an important factor for a big telco. We’ll have to wait to see if this is a new business line for CenturyLink or if Springfield is a unique case.