My Fiber Bias

I will readily admit that I have a fiber bias when it comes using infrastructure grant funding. This is a policy issue for me and is not limited only to broadband. The federal government is handing out huge once-in-a-lifetime infrastructure grants. I think federal infrastructure grants should be used to build infrastructure that will last as long as possible to create the longest-term public good. I am perplexed when I see cities using ARPA funding to buy firetrucks and computers if that city has big infrastructure deficits for things like water systems or public housing. I obviously have no bias against firetrucks or computers – but they aren’t infrastructure.

My position raises the obvious question of what qualifies as infrastructure. In my mind, infrastructure is an asset with a long useful life. I think everybody would agree that roads, bridges, and water pipes are infrastructure. These are assets that will be useful to the public for a long time.

It’s a little less clear with broadband infrastructure. Conduit is clearly infrastructure, and there is no reason to think that conduit won’t still be functional in a century.

Fiber is a little less clear-cut. I remember when fiber was being constructed in the 1980s, we thought of it as a 40-year asset. There are some fiber routes built in the 80s that are showing wear, but a lot of fiber built in the 1980s is still going strong.

But fiber manufacturing technology has improved significantly since the 80s. Fiber is now much clearer and less likely to grow opaque with age. Fiber today has much tougher outer sheathing. We’ve also learned a lot about fiber installation techniques, and many of the problems that have arisen from older fiber are due to stress placed on the fiber during construction. While the manufacturers won’t go on the record on the useful life of fiber, I’ve been told privately by fiber manufacturing engineers that fiber ought to last 70 or 80 years if installed properly. That sounds like infrastructure.

The biggest weakness of all broadband technologies in terms of longevity is the electronics. This applies equally to fiber and wireless technologies. The conventional wisdom is that most broadband electronics are good for about 10 or 12 years. Part of this is due to true obsolescence, where circuit cards wear out after being used non-stop for a decade. But part of the obsolescence is due to vendors that stop supporting older technology. It becomes harder each year to support a network if vendors aren’t making replacement cards. Everybody that’s owned a broadband network for twenty years can still point to a few pieces of gear that are still chugging along – but for the most part, electronics have to be replaced over time.

If my philosophy is that infrastructure is an asset that lasts for a long time, how do I reconcile any broadband grant with relatively short-lived electronics (at least short-lived on an infrastructure time scale)? I define infrastructure in the same way as lenders. Federal bond rules say that a borrower can’t have a bond term (the years to pay back the loan) that is longer than the average economic life of the assets being funded. A lot of commercial banks have a similar test as part of evaluating infrastructure loans.

What’s the average useful life of a fiber network? Consider the following real-life example of a recent rural fiber project I worked on.

Average Life % of Project
Conduit 100 25%
Fiber 40 – 60 60%
Drops 30 8%
Buildings/Huts 40 3%
Electronics 12 4%

Folks can disagree about the average life of fiber. I’ve been conservative since I think fiber will last longer than shown in the table. If you assume that fiber is good for 40 years, the weighted average useful life of the above network is 53 years. If you assume the average life of fiber is 60 years, the useful life climbs to 65 years. Aerial fiber networks have a lower economic life without conduit, but the range of expected life is still between 37 years and 53 years.

Other broadband technologies have a much shorter economic life. My guess is that the economic life for Starlink is under ten years since the satellites are designed to fall out of orbit by then. There are probably components in satellite base stations that will last longer – but most of the investment is in the satellites.

It’s hard to do the same math and get a useful economic life for the typical fixed wireless network that is higher than 15 years. It is possible to construct a fixed wireless network with a higher average useful life. Well-built towers can easily last 75 years. Fiber backhaul to towers has the same useful life as last-mile fiber. However, my reading of the BEAD grant rules is that it will be difficult to win funding to build towers or middle-mile fiber. A fixed wireless grant that funded towers and fiber would probably pass my infrastructure sniff test.

I can’t begin to estimate the average useful life of an FWA cellular network, but it’s not very long. These are networks that are built to use the excess capacity of cell phone networks and are not constructed just for broadband. When I consider the rapid evolution of cellular technologies, it seems likely that any system built today will be technically obsolete when real 5G standards are finally implemented.

Hybrid-fiber coaxial systems have an average economic life that is about the same as the lower range of fiber network lives. The coaxial wire won’t last as long as fiber, but forty years is a reasonably assumed life for the coax.

The NTIA tried to express the same sentiment as me without defining why. The NTIA said early on, after it was given responsibility for the BEAD grants, that the agency favors fiber. It would have been a lot clearer if the NTIA said instead that it doesn’t support infrastructure grants for projects that don’t have infrastructure useful lives – I think that is what they meant. If the agency had set a definition of infrastructure as projects with a useful life of at least thirty or forty years, we wouldn’t be having the discussion of funding networks with short useful lives.

Service Unavailable

51H2Ytxu9TL._SX361_BO1,204,203,200_I just finished reading Service Unavailable, a new book by Frederick L. Pilot. It’s a quick and easy read for anybody in the broadband industry and covers the rural broadband crisis we have in the US.

The first two-thirds of the book are a great history of how we got to where we are today. Pilot explains the decisions made by the FCC and by the large ISPs in the country that have brought us to today’s broadband network. In far too many places that network consists of old copper wires built to deliver voice; these have deteriorated with age and are wholly inadequate to deliver any meaningful broadband. The large ISPs have poured all of their money into urban networks and Pilot describes how the networks in the rest of the country have been allowed to slowly rot away from lack of maintenance.

It’s a shame that his book went to press right before the FCC took an action that would have been an exclamation point in Pilot’s story of broadband policies gone amuck. The FCC just gave away billions of dollars to the largest telcos to upgrade rural DSL to 10 Mbps download speeds – a speed that is already inadequate today and that will be a total joke by the time the last of the upgrades are done over a six year period. The FCC seems not to have grasped the exponential growth in consumer broadband demand that has doubled about every three years since the early 90s.

Pilot goes on to recommend a national broadband program that would direct many billions of dollars to build fiber everywhere, much in the same way that the federal government built the interstate highways. He says this is the only way that places outside of the urban areas will ever get adequate broadband.

I certainly share Pilot’s frustration and have had the same thought many times. We could probably build fiber everywhere for the price of building one or two aircraft carriers, and one has to wonder where our national priorities are. As Pilot points out, broadband everywhere would unleash a huge untapped source of creativity and income producing ability in the parts of the country that don’t have good broadband today. And as he points out, many of the places that barely squeak by with what is considered broadband today are going to find themselves on the wrong side of the digital divide within a few years.

But then I stop and consider how federal projects are run and I’m not so sure this is the right answer. I look back at how the stimulus grant programs were run. These grants shoveled large sums of money out the door to build a whole lot of fiber networks that barely brought broadband to anybody. And they did it very inefficiently by forcing fiber projects to pay urban wage rates for projects built in rural counties where the prevailing wages were much lower. And these projects required things like environmental and historical structure studies, things that I had never seen done before by any fiber project.

And then there is the question of who would run these networks? I sure wouldn’t want the feds as my ISP and I wonder how they would decide who would be the recipient of these huge expenditures of federal monies? Pilot proposes that such networks be operated as open access networks, a model that has not yet seen any success in the US. It’s a model that works great in Europe, where all of the largest ISPs jump onto any available network in order to get customers. But in this country the incumbents have largely agreed not to compete against each other in any meaningful way.

But beyond the operational issues, which surely could be figured out if we really wanted to do this, one has to ask if this idea can ever get traction with our current government? We have such a huge backlog of infrastructure projects for maintaining roads, bridges, and waterways that one has to wonder how broadband networks would get the needed priority. I have never understood the reluctance of Congress to tackle infrastructure because such expenditures mostly translate to wages, which means full employment, lots of taxes paid, and a humming economy. But we’ve just gone through over a decade of gridlock, and I have a hard time seeing anything but more of the same as we seem to grow more divided and partisan every year.

Still, Pilot is asking exactly the right questions. Unfortunately, I am not sure there can ever be that one big fix-it-all solution that will solve the broadband crisis. I completely agree with Pilot that there should be such a solution and I also agree that this is badly needed. We are quickly headed towards a day of urban America with gigabit speeds and the rest of the country with 10 Mbps DSL, a wider broadband gap than we have ever had. And all we have is an FCC that is shoveling money out the door for band-aid fixes to DSL networks on old copper.

So I’m not sure that the solution suggested by Pilot can be practically implemented in today’s political world, but it is one possible solution in a world where very few others are proposing a way to fix the problem. I would think that the industry could figure out a workable solution if there was any real inclination to do so. But instead, I fear we are left with a world of large corporations running our broadband infrastructure who are more interested in quarterly earnings than they are about reinvesting in the future. If I could, I would wish for a more utopian society where we could put Pilot and other thinkers into a room together until they worked out a solution to our looming broadband crisis.

The Infrastructure Crisis

infrastructure revealed

infrastructure revealed (Photo credit: nicolasnova)

This country has an infrastructure crisis. A lot of my blog talks about the need for building fiber since I consider fiber as basic infrastructure in the same way that roads, bridges and sewers are infrastructure. Any town without adequate fiber is already starting to get bypassed in terms of opportunities for its citizens and businesses. And this is only going to get worse with the upcoming Internet of Anything, because only fiber is capable of carrying the vast amounts of data that are going to be generated.

But this country has a crisis with every kind of basic infrastructure. We are not spending enough money to keep our roads, bridges, power, water and other basic infrastructure from slowly deteriorating. The backlog of infrastructure upgrades needed just to get the country back to adequate is staggering.

It has historically been the purview of government to take care of a lot of this infrastructure – and while the federal government takes care of interstate highways and some bridges, the obligation for keeping up with infrastructure falls largely on state and local governments.

And those government entities do not have anywhere near the borrowing capacity to begin tackling the cost of fixing everything that needs fixing or updated. And local property and other taxes would have to be increased a huge amount to pay for it all. Even if there was a taste for doing the needed upgrades, the recent economy has brought many local governments up against their borrowing limits. And we are starting to see municipal bankruptcies, small and large, which is a sign that the municipal borrowing system is cracking around the edges.

And the ability for municipal entities to borrow could get much harder. The recent Detroit bankruptcy is just the tip of the iceberg in terms of large cities that are buckling under accumulated pension costs. And the nonsense going on in nonsense going on in nonsense going on in Washington with the federal debt ceiling might drive up interest rates.

Given all of these factors one has to ask if government financing is the best way to build infrastructure. There certainly are mountains of evidence that municipally funded projects cost more than similar projects constructed by private firms. And while municipal bond interest rates sound cheap, bond money is extremely expensive money due to the additives to bond borrowing such as capitalized interest and debt service reserve funds.

If this country has any hope of putting a dent in the huge infrastructure hole we find ourselves it is going to have to come from bringing private capital to bear on the problem. Where there is a financial crush in the public sector today we are looking at huge amount of private equity on the sidelines today just waiting to be invested in good projects.

The trick to attracting private money for infrastructure is to find a good way to forge public / private partnerships. Unfortunately, there is one key missing component that is making it hard to bring private money into infrastructure deals. And that is development capital.

Development capital is the money that is spent up front in a project to take it from concept to working plan. This includes such things as creating business plans, doing basic engineering, identifying hurdles and solutions – all of those early steps that private equity expects to be done before they will consider a project. In layman’s terms, private equity investors expect somebody else to have done the legwork to prove the feasibility of a project before they will consider it.

We have a development capital gap in this country. There are very few entities today that are willing to tackle spending the development capital needed to prove infrastructure projects. And so hundreds, even thousands of worthy projects are going undone because nobody is willing to spend that first 1% of a project needed to get it started.

What we need is a person or a group of people to step up to provide development capital. This could be government. For instance, for the cost of building one bridge they could instead provide the public development capital to build one hundred bridges. So state governments might be a great place to get this done.

It could also be done privately, meaning that somebody needs to create funds that strictly are development capital. Such funds could produce fantastic returns. But this is a concept that is alien to US investors.

But somebody needs to figure out how we get development capital or our infrastructure is going to continue to deteriorate until we have no choice but to fix it directly with tax dollars.

Will Telecom Investing Become Sexy Again?

Image representing Google as depicted in Crunc...

Image via CrunchBase

Will the fact that Google is investing in fiber make it sexy again to invest in telecom? The last time that there was a big boom in investing in new telecom ventures was the late 90’s. At that time there were dozens of start-up CLECs, a number of which were able to issue IPOs and go public. Every smart investor had some telecom stocks in their portfolio.

But the new CLECs and telecom firms of that time almost all went bust with only a few of them still around today. There are a number of reasons for the bust. The business plans of many telecom startups depended upon arbitrage – using the facilities of the incumbent rather than making infrastructure investments. And many of the telecom start-ups had bad business plans that expanded into too many markets too quickly to do it well. And somehow the telecoms got tied in with the dot.coms and when those went bust the telecoms followed them down the tubes. And investors lost a lot of money and got soured on telecom. The lasting effect of the bust was that it became unsexy to invest in telecom.

And almost nobody has invested in telecom since then. It’s hard to find anybody who doesn’t recognize that the US is falling behind the rest of the world in telecom infrastructure, namely fiber. Since the telecom bust the only ones investing in fiber to whole communities have been Verizon, some municipalities and some smaller independent telephone companies. Verizon’s decision to build fiber was a bold one, but it didn’t drag anybody else along. And Verizon’s fiber build dwarfs all of the rest of the builders collectively. The vast majority of the country does not have fiber but wants it badly.

But now Google comes along and is boldly investing in fiber in large communities – Kansas City and Austin. What they are telling the world is that there is profit in fiber, profit in infrastructure investing. Kansas City was touted as a trial, but by having announced Austin so quickly it is obvious that Google thinks that their experiment is working. And while Google has made an announcement for Provo, Utah, that is a one-off since they were able to pick up an existing fiber network and customers at a very good price.

I keep hearing that there is a lot of money today on the sidelines, meaning money waiting to get invested in good projects. And this is interesting to me since there is such an obvious need in this country today for new and upgraded infrastructure. In addition to a huge need for fiber networks there is a huge demand for clean energy generation plus the usual things like bridges and roads. Perhaps at least to some small degree the Google decision to boldly invest in infrastructure can be the first step towards unleashing the private equity in the country to invest in infrastructure again. Google thinks such investing can be profitable and obviously it is good for the country. Will others follow?