last mile, regulatory incentives, etc (was: att fiber, et al)

Thu Mar 22 16:26:50 UTC 2012

On Mar 22, 2012, at 11:05 AM, chris wrote:

> I'm all for VZ being able to reclaim it as long as they open their fiber
> which I don't see happening unless its by force via government. At the end
> of the day there needs to be the ability to allow competitors in so of
> course they shouldnt be allowed to rip out the regulated part and replace
> it with a unregulated one.

I think this partly captures the incentive case here, but there is also a larger one at play.  Over the years the copper infrastructure was installed and extended through various incentive programs.  You can see the modern-day reflection of that in the RUS (used to manage rural electrification act, part of USDA) and NTIA (Department of Commerce).

The barriers to entry are significant for a new player in the marketplace.  The cost is putting the cabling in the ground vs the cost of the cable itself.  One can easily pick up hardware for $250 to light a single strand of 9/125 SM fiber @ 10km for a 1Gb/s ethernet link.  That's low enough you could likely get a consumer to buy the hardware.  The real cost is the installation per strand foot/mile.

In the past this has been subsidized for copper plant.  There is no reason in my mind that the fiber plant should be treated differently from this standpoint.  I can find fiber optic cabling for $0.25/ft.  The problem here is a multi-dimensional one that I've seen play out in a few markets:

Verizon selling assets to Fairpoint (NH, ME, VT).  These are high cost areas due to low-density population.  For the sale to go through, Fairpoint had to agree to build into these higher cost areas.  The result was bankruptcy for Fairpoint.

Verizon sold assets in Michigan (and other states) to Frontier.  I've not tracked this one as closely, but I suspect the economics of this are fairly complex.

I've also spoken to some small ISPs and their general cost of building fiber to the home tends to be $2500/subscriber in upfront capital.  This covers just the installation cost.  Due to years of subsidy and regulation, people are unwilling to pay this amount to install a telecommunications service whereas a new home requiring a connection to the water, sewers, natural gas or electric grid may pay $10k or more to connect.  Many people wouldn't think of buying a home without electric service, but without modern telecommunication service?  I've seen this play out after the fact with friends asking how to get service.  Satellite, Fixed wireless or just cellular data quickly become their fallbacks.  The demand is there, the challenge becomes recovering the build cost.

It is my firm belief that without a regulatory regime it will not be feasible to connect many communities robustly to modern communications infrastructure.  This could clearly change if the carriers involved see fit to replace this infrastructure, but with their current debt loads, I think it will be challenging to say the least.

Taking a look at Verizon - Their most recent quarterly balance sheet shows:

http://finance.yahoo.com/q/bs?s=VZ

Assets: 230.461 Billion USD
Liabilities: 194.491 Billion USD. 

This is not a lot of money, considering they have growing liabilities on a quarterly basis as part of their debt load (Long-term debt of $50 Billion).

A large fiber build would easily cost a few billion dollars and have lots of regulatory barriers.  In my county it costs $200 to go over or under any public road (just for the permit).  This starts to add up quickly.

I do think we need a new last-mile regime in many areas, be it more "fair" access similar to pole attach fees or the removal of local barriers to build this infrastructure.

Some school and other governments here in Michigan would love to sell/lease their excess fiber capacity to the private sector, but are worried about turning a profit when it was built with taxpayer funds and problems associated with that.  I'd like to see these barriers removed.  If it's there, lets make it of value.  If the school system turns a profit on their enterprise, that's fine, it can lower the tax burden elsewhere.

Me?  I'd be willing to pay $2500 to have Fiber built to my home.  I might even pay more.  At this point, my research continues on building the fiber and arranging my own easements for where to place it.  I suspect you just need a few geeks that are willing to part with some extra $ for fiber bragging rights and one can build it.

- Jared