Business Models For Public Broadband Service

There are a number of different conceptions of what "public broadband" means, and what it would include (organization, business model, services), especially in the case of Syracuse. There is the idea of having an up-to-date fiber to the home (FTTH) system that the city would own and would compete against Time Warner Cable and Verizon for all services. Then there are more limited approaches such as city-wide WiFi, or an institutional network, i.e., municipal connections between various sectors (education, tech, gov, non-profits), which could be part of an FTTH network. And how does all this relate to the new initiative coming from the FCC and the administration (stimulus money etc.)? I'll touch on each topic and then answer the question on stimulus.

As to organization, SMBI proposes a publicly owned utility company—a municipal authority, consumer cooperative (501c12), or other non-profit (501c3)—organizationally and financially separate from the city, but regulated by it and/or subscribers. It would be financed and then operated exactly like a privately owned utility, except that it would be publicly owned and regulated. Initial financing would be via revenue bonds, just as privately owned utilities would use. The bonds would be repaid with subscriber revenue, not taxes.

As a full-service FTTH broadband provider, the utility would employ a well-established and understood business model to successfully sell bonds, and would compete with incumbents via newer technology (somewhat compromised by Verizon FIOS imminent entry) as well as lower prices and more services, options, and community benefits (in lieu of profits), and also the "buy local, it's our network" loyalty advantage. (Note that Verizon FIOS can't take advantage of and compete with its full capabilities—very high bandwidth, significantly lower prices than normal—because it will attract criticism from its other markets, provide proof of price gouging, and create bad press and lawsuits).

A standalone city-wide WiFi network is problematic. First, the technology is limited and inefficient for large area use; it doesn't provide anywhere near the bandwidth of a FTTH network. Second, if you don't already own the backhaul network (as a FTTH utility would), it's not cheap. Third, the business model is far less compelling (as history shows for both private and public attempts), and makes financing more difficult and expensive. In short, a standalone WiFi network is not a viable solution for high-speed broadband (with current technology). However, it would be an excellent addition to an FTTH network.

A more robust cell-type network (Wimax, LTE, white space spectrum, etc.) is an interesting alternative. But the Wimax spectrum license is currently held by ClearWire, and white space spectrum use policy has not yet been established by the government. This more robust (higher speed, cheaper) solution is more compelling, but still a partial solution, insufficient to deliver all services (TV, data, phone) efficiently. Wireless works best as an add-on to wired broadband service—extending the ubiquity and flexibility of the network.

An institutional network (INet) exists today in the form of Syracuse Metronet. However, it gets its service from Verizon. A state court judgment against Verizon, 10 or so years ago, provided Syracuse (and others) financing for their INet, where members pay about 10% of the market rate for their service. That money is now gone, and members are scrambling to find another low-cost solution. Establishing a municipally owned INet would cost money, which would be borne only by its dozen members. This is where SMBI can provide the ideal solution. SMBI could incorporate any infrastructure Metronet and the city owns and offer below-market rates to Metronet members. In a city-wide full service (TV, data, phone, etc) FTTH network buildout, the cost of connecting the INet premises would be a tiny fraction of the cost of building the INet alone. For example, building the INet alone would cost $6M–$8M, but only $400,000–$500,000 as part of an FTTH network.

As to the applicability of broadband stimulus grants, they can be used in many parts of the network buildout, such as connecting government and non-profits, funding public access computer clusters, connecting to the premises of low income families (public housing and individual homes), possibly computer literacy training, etc. It seems at least 1/3 of the network could qualify for grants. The lower overall financing overhead will allow us to offer even lower prices and more generous community services.

(Updated on 2010-03-29)