Originally posted by Dr. Robert Wack, City Council President, Westminster, MD on LinkedIn. Reprinted with permission.
Back in 2009, Derek Slater and Tim Wu published an article with an interesting thesis: the capital expenditure barrier hindering fiber to the premises build out could be overcome by private, shared ownership, like a condominium, of the last mile fiber connection. Home owners would buy their fiber drop from the municipality or their service provider, either with a lump sum up front, or a monthly fee tacked onto their bill. The “tail” from the home would terminate at the local Point of Presence, and the maintenance and operations of the connection would be shared by all the owners of the tails, just like common area expenses are shared by residential condo owners.
This model shares the capital expenditure of a community fiber build between the users and the municipality and/or service providers, thereby lowering the capex of the larger build for the network operator, favorably altering the economics of the project. Back in 2009, the authors pointed to UTOPIA and Ottawa, Ontario as examples where this was attempted.
Since then, another community used this model, with impressive success. Ammon, Idaho is an emerging success story for both the financing of their build, and their open access operating model for retail services. But before diving into some of the details of Ammon’s project, let’s review how the two cited in the paper have fared since 2009.
From the beginning, the UTOPIA project provoked prodigious spillage of ink, exceeded only by the blood, sweat, and tears of those who struggled through the years to see it through to a successful implementation. It is by turns held up as the model of an ideal multi-community collaboration, a cautionary tale of the perils of municipal broadband projects, or the archfiend of government waste and overreach, depending on whose axe is grinding. Suffice to say, its path has not been easy, and recent successes hard won. However, condominium ownership of the fiber drops, though well received in the communities that offer it, like Brigham City, ultimately didn’t play a significant role in the outcome of the overall project. At least for UTOPIA, houses with tails was not a panacea.
I reached out to Bill St. Arnaud, the former Chief Research Officer of CANARIE, and the lead on Ottawa last mile fiber project discussed in the paper. Bill relates that the Ottawa project did not have a happy-ish ending like UTOPIA. The challenge in Ottawa was that take rate, the percentage of potential customers passed by the fiber that actually subscribe to services, was externally suppressed by two factors: 1) the difficulty obtaining reasonably priced video packages, and 2) the lack of affordable backhaul. Without sufficient subscribers, adequately sharing the cost of the last mile build out became impossible, and the economics of the project foundered.
Ammon, Idaho is building out a FTTP network to residential and business customers using this model, but with some key differences from UTOPIA and Ottawa. No new taxes were levied to finance the build, and the financial risk of the new construction for the project is born by the users. Similar to the description in the Slater-Wu article, a property owner desiring a fiber connection can either pay in full at installation or over time with a monthly payment on a bond attached to the property, plus a modest operations and maintenance fee. In turn, they can choose from providers offering a range of service packages, for an additional monthly fee. The base package provides a symmetric 75 Mbps connection for $53 per month, all other fees included.
Ammon does not initiate the build to a given neighborhood until they have commitments from a minimum number of subscribers in that neighborhood. They also put the responsibility for arranging backhaul on their service providers.
The individual service providers are also responsible for the details of their service offerings. Even in a community as small as Ammon (a little over 14,000 population), the competing providers generate a variety of packages, price points, and service offerings. Voice and video are not currently available, but as the project scales, the service providers will be able to add them as demand dictates. In any case, instead of the City of Ammon having to worry about the cost of video content packages, the market figures out what people want at what price points.
This general approach is consistent with Ammon’s strategy from the very beginning: gradual incremental build out that maximally leverages existing assets, and minimizes (but does not eliminate) risk for the City. It’s a delicate balancing act requiring vision, prudent risk taking, creative problem solving for unforeseen glitches, and determination to see the project through despite complications. Ammon has all that in spades.
Ammon’s success isn’t necessarily because of the condo approach to the last mile, although the financing of that cost is certainly a major element. This raises an important point about municipal projects generally that I will expand on in another post: the precise path isn’t as important as the sequence of elements of the project that are deployed, and how they are leveraged against each other. That seems to be more important than the specifics of any given model. More soon……