November 07, 2013 TechZone360
By Peter Bernstein , Senior EditorThere is an old saying in the U.S. that if you want to know what the future is going to look like, technologically as well as culturally, start with what is going on in California. And, while the Twitter IPO has captured the imagination of investors and content creators, and tech pubs constantly focus on the likes of Google, Apple, Facebook and their Silicon Valley neighbors, it might behoove everyone to take a hard and sustained look at what is going on in Southern California – Los Angeles to be precise.
In case you missed it, and my colleague Steve Anderson has done a nice job covering it, this week the Los Angeles City Council decided by a unanimous vote to set in motion the creation of a Request For Proposals (RFP), whose end game is the selection of a vendor to deploy a citywide fiber-to-the-home (FTTH) network to bring gigabit high-speed broadband service all 3.5 million residents and business within the city proper.
The RFP is expected to be issued in December. Responses, for the network whose initial cost for deployment is pegged at $3 billion to $5 billion, would be due back in March 2014.
Los Angeles says it has no intention of paying for the project, but has promised the winning bidder/bidders (a consortium appears to be acceptable) that the city will get rid of the red tape in the permitting and inspections processes. In return, the city will require the winning entity to open up wholesale access to the network to multiple providers so they can compete in provider value-added services. In addition, part of the plan would include free Wi-Fi access between 2 Mbps and 5 Mbps in certain public areas. Residents and businesses will have to pay for their own broadband subscriptions, which may include phone and TV service. There is also the expectations that the winning bidder will be expected to make donations of home broadband equipment to nonprofits to distribute to those who might not be able to afford it.
Image via Shutterstock
To put all of this is lay terms, LA understands that it economic vitality going forward is directly (pardon the play words) linked to the city having universally accessible and affordable broadband. In short, it is a modern version of the Communications Act of 1934, which created the FCC with a mission to do exactly what is envisioned here. And, as with the history of communications under the 1934 Act as amended and interpreted over time, the goal is to in essence make broadband access a right rather than a privilege under a regime where a franchise is granted in exchange for the regulatory jurisdiction have a major say in pricing and on the terms and conditions for encouraging competition.
On the latter front, as has been widely quoted in various news outlets, Los Angeles Information Technology Agency GM Steve Reneker told Arstechnica, “We're not looking at trying to be monopolistic and try to force anybody out of the market.”
Reaction thus far has ranged from this is the future to it is a boondoggle in the making. My own opinion is that while it certainly is going to be a wake-up call to current network service providers in Los Angeles—including Time-Warner, Cox, Charter, and AT&T—I am hopeful of a modified outcome which the RFP has a chance of setting in motion. Let me explain.
Ever since the breakup of the old AT&T in the mid-1980s I have been on record as saying that if the physical landline network operators were smart they would divest themselves of their outside plant and concentrate on becoming what we now call Over-the-Top (OTT) value-added service providers. Why communities of all sizes need two or more entities digging up streets has always escaped me on a host of fronts not the least of which is economic efficiencies. The deregulation of the electric utility business in the U.S. is a good example of this, and the physical plant that delivers communications services should be viewed as originally intended as a true utility service.
The nice thing about awarding provisioning of fiber as a utility service by a single entity, including the expansion of what would be free basic Wi-Fi services, is that regulators would have a less arduous task on a multitude of fronts. So long as there is equal access and equal interconnection (something the FCC and states have struggled with for decades) provided to qualified competitors the local entity would be in a position as overseer to assure the outside plant utility was not price gauging end users or value-added service providers and was meeting all public safety and operational metrics it proscribed.
There are a few things to highlight under such a scenario.
First, the single physical fiber network provider should be precluded from offering value-added services. It is asking for trouble. The challenge for regulators going back to the beginning of competition in the communications industry in the early 1970s has been figuring out how to let the monopoly regulated entities compete in unregulated markets on a fair basis. To be kind, they have done less than a wonderful job as technology innovation and the markets have moved a lot faster than the rules.
Second, a single entity under strict terms and conditions for deploying fiber to everyone everywhere, would be able to use the divested assets of current providers. The idea of reinventing the wheel seems counter-intuitive, especially in urban areas where broadband competition has caused fiber to be deployed to most if not all areas albeit not necessarily to residential customer premises.
I know this is going to come as a shock to my friends who are providing VDSL2 solutions that extend the life of copper by offering what are today broadband speeds, but having a single fiber utility with the responsibility universally fiber to the home and business for cities looking to gain competitive advantage long-term is less attractive than getting fiber in faster. Indeed, whether it is in Europe or Asia Pacific, counties and entire regions recognize the importance of accelerating the deployment of next-generation speeds and feeds, and the U.S. already lags several countries in terms of the average speeds we provide the average citizen and small business.
What the Internet revolution has spawned was a radical shift in value. It used to be that value in communications was a direct function of owning the network connection because it meant you owned the customer. What the Internet has done is said that owning the servers, applications and content that customers want is where premium value is to be extracted.
A good argument can be made that just being in the “dumb pipe” business is actually a good business. In fact, Google’s fiber efforts may prove this out assuming there is a watchful eye on Google using its myriad of online services in untoward ways. The fact is that Google may just be testing the waters to force others to accelerate fiber deployment. It is hard to imagine they have ambitions of fibering all of the top SMSA in the U.S.
Finally, for years the attraction of U.S. municipalities being service providers has been tantalizing. The problem, including Los Angeles interest in providing its own free Wi-Fi service, has been intense pushback from incumbent suppliers who see value in their franchises and the correct assumption that this is not an activity that government can and should be engaged in. That said, really good oversight, including protections for consumers and those who wish to use facilities to provide value-added services is a role government can play.
The reason to pay attention to what is going on in LA thus is not whether there is an RFP or whether the envisioned network under it gets built. We have entered a watershed period in the history of the converging broadly defined communications and adjacent industries, and industry restructuring is picking up speed in accordance with the roiling changes being driven by technology and consumer expectations. It is why I am hopeful the unintended consequence of the RFP lead to a future whose goal is the same as the intended consequences, but that the road taken is a cost-effective and more efficient short-cut as to how to get from here to there.
Is Los Angeles the future of urban broadband services delivery? It very well could be, and the next several months will be telling.
Edited by Alisen Downey
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