Phillip “Reality Check” Dampier

The city of Los Angeles believes if they ask for it, they will get it – gigabit fiber broadband, that is. It is too bad we have to run a reality check.

In December, the city plans to issue an ambitious Request for Proposals (RFP) inviting at least one private company to run fiber service to all 3.5 million residents (and businesses and public buildings) within the city limits. The idea, which won unanimous support from the City Council, does not exactly come with many risks for the city. The Council acknowledges the project is likely to cost up to $5 billion (we suspect more), and the city has made it clear it won’t be contributing a penny.

“The city is going into it and writing the agreement, basically saying, ‘we have no additional funding for this effort.’ We’re requiring the vendors that respond to pay for the city resources needed to expedite any permitting and inspection associated with laying their fiber,” Los Angeles IT Agency general manager Steve Reneker told Ars Technica. “If they’re not willing to do that, our City Council may consider a general fund transfer to reimburse those departments, but we’re going in with the assumption that the vendor is going to absorb those up-front costs to make sure they can do their buildout in a timely fashion.”

That is wishful thinking.

The winning vendor is not just on the hook for the cost of building the network. It also has to comply with a city requirement to give away basic 2-5Mbps broadband service, possibly recouping the lost revenue with advertising. Customers wanting faster access will pay for it. Although not required to offer phone or television service, Reneker anticipates the winning vendor will offer both to earn more revenue to pay off construction costs.

Greater Los Angeles is now served by a mix of AT&T, Time Warner Cable, Verizon, Cox, and Charter. Only Verizon has a history of providing a significant fiber optic broadband service, but it has suspended further expansion of its network. AT&T is the dominant landline provider, but considers its U-verse fiber-to-the-neighborhood design adequate for southern California. It seems unlikely any incumbent provider is likely to seriously contemplate such an expensive fiber project, especially because the city requires the winner to build an open access network that competitors can also use. Cable operators have also stated repeatedly that their existing infrastructure is more than adequate. The question providers are likely to ask is, “why do we need to partner with the City Council to build a fiber network we could build ourselves, on our own terms, that we ultimately own and control?”

The city can offer some incentives to attract an outsider, such as promising a lucrative contract to manage the city government’s telecom needs. It can also ease bureaucratic red tape that often stalls big city infrastructure projects. But Los Angeles is not exactly prime territory for a fiber build. Its notorious sprawling boundaries encompass 469 square miles, with many residents and businesses in free-standing buildings, not cheaper to serve multi-dwelling units.

Google avoided California for its fiber project reportedly because of environmental law and bureaucracy concerns. Even Google cherry-picks neighborhoods where it will deploy its fiber project in Austin, Provo, and Kansas City. The Los Angeles RFP will likely require universal coverage for the fiber network, although it will probably allow a lengthy amount of time for construction.

The City Council’s RFP comes close to promising Gigabit Fiber-to-the-Press Release.

Private providers govern their expansion efforts by an increasingly stiff formula to recover construction costs by measuring potential Return On Investment (ROI), which basically means when a company can expect to earn back the amount initially invested. Spending $5 billion on a fiber network that could actually cut expected Average Revenue Per User (ARPU) with a free broadband offer is going to raise eyebrows. Convincing investors to chip in on a fiber network “open to competitors” will also elicit a lot of frowning faces.

Wall Street analysts rolled their eyes when Verizon rolled out FiOS. It was “too expensive” and provided too few avenues for a quick ROI. ‘Verizon built a Lamborghini Aventador fiber network when a Honda Accord would have done just fine in the absence of fierce competition,’ analysts complained. Why spend all this money on fiber when fat profits were waiting to be harvested from high-ARPU wireless service? Verizon got the message and ceased expansion. AT&T never walked that Wall Street plank in the first place, delivering a less capable Chevrolet Spark network known as U-verse.

The city is likely to be disappointed with the proposals they receive, in much the same way local governments begging for competition from other cable companies get no positive results. The economics and expectations of today’s private broadband market makes it extremely unlikely an incumbent provider is going to rock a boat that has delivered comfortable broadband profits with a minimum of investment.

Breaking the broadband duopoly of high prices for slow service is only likely in the private sector if deep-pocketed revolutionaries like Google can self-finance game-changing projects. Los Angeles will likely have to sweeten its invitation to attract interest from players serious enough to spend $5 billion. It will likely have to invest some money of its own in a public-private partnership. Perhaps an even better idea is to take control of the city’s broadband destiny more directly with a community project administered by a qualified broadband authority with proven experience in the telecom business.

There is no reason private companies cannot be active participants in whatever project is ultimately built, but these companies are not charities and if their financial backers don’t see a pathway to profit running fiber rings around LA today, an RFP to build a fiber network with city strings-attached isn’t likely to garner serious interest tomorrow.

Next generation cable or a spray-on solution to a really bad quarter?

Time Warner Cable has a plan for multi-gigabit broadband speeds over a state of the art network that, for the first time, might include fiber to the home service.

TWC Max is Time Warner Cable’s code name for selected markets where customers will be given first class treatment and provided what incoming CEO Rob Marcus calls “best-in-class reliability and service.”

Marcus made it clear in a conference call to investors this morning that TWC Max will only be available in specially chosen markets, most likely those facing intense competition from Google Fiber (Austin, Kansas City), Verizon FiOS (New York, parts of Dallas, etc.) or upgraded AT&T U-verse.

TWC Max might also be offered in cities where community-owned fiber-to-the-home providers best TWC’s broadband speeds and prices. North Carolina, in particular, would be a logical choice as Time Warner Cable recently acquired DukeNet, a major commercial fiber broadband provider headquarted in Charlotte, also a major hub for Time Warner Cable’s data services. Wilson, Salisbury, Mooresville, Davidson and Cornelius are all served by publicly-owned broadband providers.

Beginning next year and over the next several years, those chosen will get major broadband speed upgrades — up to several gigabits, totally new customer equipment, and an all-digital experience.

“We will replace modems with state-of-the-art DOCSIS 3 modems and advanced wireless gateways, so we can meaningfully increase broadband speeds,” said Marcus. “And by the way, we’re not talking about tweaks here but rather quantum changes to our speed tiers. We’ll also replace standard definition and older HD set-top boxes and roll out new DVRs, better user interfaces and more advanced versions of our TWC TV apps to fundamentally improve the video experience.”

If the competition is DSL, you may have a really long wait to be considered a TWC Max city.

Marcus added that in some mixed business/residential areas, fiber to the home service is increasingly possible because of declining costs and pre-existing fiber infrastructure already serving commercial customers and cell towers.

But Marcus was quick to stress that his philosophy about upgrades is to provide them in focused markets, not share them with every city where Time Warner Cable provides service.

“The goal here is, really, to fundamentally change the customer experience in a given market, said Marcus. “So rather than spread our efforts like peanut butter throughout the footprint, I’m very anxious to deliver a complete experience.”

“That means not only going all-digital but also ensuring that we have state-of-the-art modems in every customer’s home, ensuring that they have the best video and that the overall experience is really optimal,” Marcus added.

“So we’re going to concentrate market by market rather than take individual components and run them through the entire footprint.”

So what are the chances your city will be designated a TWC Max target area?

After reviewing the transcript for this morning’s conference call,  Stop the Cap! has created this handy-dandy, simple to use guide:

• If your community has or was chosen for Google Fiber: A VIRTUAL CERTAINTY!
• If your community is served by Verizon FiOS or AT&T’s Next Generation U-verse: EXCELLENT
• If your community has a fiber to the home provider competing with Time Warner Cable: VERY GOOD
• If your community is served by copper-based DSL from the phone company with no prospect of getting U-verse or FiOS: WHEN PIGS FLY!

Broadband in the United States costs far more than in other countries — nearly three times as much as in the UK and France, and at least five times more than South Korea, according to BBC News.

The New America Foundation compared hundreds of available packages around the world and found customers in America’s largest cities are getting the biggest bills.

Customers in San Francisco with a discounted low-medium speed bundle including broadband pay $99 a month. A near-equivalent package costs London residents $38. New Yorkers get some savings from Time Warner and Cablevision facing down Verizon FiOS. But it isn’t enough. In the Big Apple, a promotional bundle averages $70 a month. “C’est la vie,” say Parisians. They only pay $35 for about the same. Even Washington, D.C. residents, which include the country’s most powerful politicians, pay Comcast its $68 asking price. In Seoul, South Korea, a comparable offer costs $15 a month.

High asking prices don’t buy better service. According to a report by the OECD issued over the summer, the United States ranks among the worst in terms of broadband-only pricing. With an average price of $90 a month for 45Mbps service, the U.S. ranked 30th out of 33 countries. Add phone and television service and the price spikes to around $200.

The BBC pondered why there is such a disparity in pricing. The answer was easy to spot: the lack of true competition.

“Americans pay so much because they don’t have a choice,” said Susan Crawford, a former special assistant to President Barack Obama on science, technology and innovation policy. “We deregulated high-speed Internet access 10 years ago and since then we’ve seen enormous consolidation and monopolies, so left to their own devices, companies that supply Internet access will charge high prices, because they face neither competition nor oversight.”

Although Americans can name the largest and deep pocketed providers — Comcast, AT&T, Time Warner Cable, Verizon, Cablevision, CenturyLink, Cox, and Frontier — most cannot choose from more than one cable provider and one telephone company. Comcast does not compete against Time Warner and AT&T does not compete against Verizon, except in the wireless world where both companies offer near-identical plans and pricing.

Comcast is quite the gouger in San Francisco.

Bay area customers told the BBC they get bills ranging from $120 a month for television and broadband (not including a $7 modem rental fee) to $200 a month for phone, TV, and Internet access. That same cable company is now testing a 300GB monthly usage cap on broadband in several American cities.

In contrast South Korea offers ubiquitous free Wi-Fi letting customers avoid usage charges. Home broadband is fast and cheap. Most pay $20 a month for 100Mbps.

Digging deeper, the BBC found clues why robust broadband competition delivers savings for consumers in Europe and Asia while Americans pay more.

Rick Karr, who made a PBS documentary in the UK comparing broadband costs at home and abroad, said the critical moment came when the British regulator Ofcom forced British Telecom to open its network and allow other companies to sell broadband over its copper telephone wires. In the United States, regulators never forced cable operators to open their networks, and after a 6-3 Supreme Court decision upheld the cable industry’s insistence it need not share access with competitors, telephone companies quickly called for parity.

A 2005 Supreme Court decision upheld the cable industry’s right to keep competitors off its cable broadband network.

Some argue the ruling promotes more competition by provoking competitors to build their own networks. But current conventional wisdom among the investment community teaches one cable and one phone company is considered good enough. Additional providers would erode the standing of all and force price cutting to compete.

There are exceptions. Although Google’s fiber to the home service has drawn national attention for its inexpensive gigabit fiber broadband network ($70 for broadband-only service), at least 150 cities are served by the public sector — co-op or publicly owned utility companies that offer broadband, often delivered over fiber optic networks.

Those networks often charge considerably less than the incumbent cable operator or phone company, a fact that has driven many privately run operators to seek legislative bans on community broadband.

In response to the report, telecommunications companies avoided the topic of prices and focused instead on value for money and the future.

Lowell McAdam, CEO of Verizon Communications, said Europe was replete with a decade of underinvestment, leaving many with less than 30Mbps service. The National Cable and Telecommunications Association said it was difficult to make international comparisons on price and Scott Cleland, part of the industry-funded NetCompetition website claimed although people may pay higher bills, they can at least choose among phone, cable, wireless or satellite.

“We may be paying more in your eyes today but we are building for tomorrow and the long-term,” said Cleland.

More than 5,000 residents and businesses living on the island Bailiwick of Jersey now have a choice of two Internet Service Providers – both supplying gigabit fiber optic broadband.

Jersey Telecom, a government-owned provider, has been removing obsolete copper wiring and replacing it with fiber to the home service that should reach the entire island by 2015. The fiber network is open to all competitors. JT charges £59.99 ($97.25) per month for gigabit speeds, but now caps usage at just 100GB a month. Overlimit fees are around 50c per GB between the hours of 8am-midnight. Usage is unlimited during off-peak hours.

In addition to JT, Jersey customers who live on the remote Channel Island, a British Crown Dependency off the coast of France, can now also choose Sure Jersey, a privately owned ISP that offers unlimited use plans.

The fiber optic network is spreading to other Channel Islands, with significantly populated parts of Guernsey set to receive a fiber upgrade next.

Using traditional Return On Investment standards, Jersey would barely qualify for basic DSL service. The island has a population of just 100,000 residents, some spread far and wide in remote locations. Basic DSL service was supplied to customers in more densely populated communities, but speeds were often slow and congestion became a major problem, especially at night.

The local government determined Jersey’s broadband needs could best be met by upgrading to government-owned infrastructure that private businesses could lease to sell service. Much like public roads benefit private companies that use them to transport goods, JT’s fiber network is designed to help bolster the island’s digital economy.

Since the introduction of gigabit fiber, new digital startups have launched on the island and others have moved their digital businesses to the fiber-enabled island. FeelUnique, launched from Jersey, has now become Europe’s largest online beauty retailer, employing over 150. Other businesses on the island have launched software ventures for the health care and education markets, banking/investment products and services, and 3D printing ventures. Having a wide broadband pipe has helped anchor digital businesses to the island because moving elsewhere leaves many with little better than substandard DSL or an enormous price tag for a customized new fiber build.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/JT Fiber Has Arrived 2013.mp4[/flv]

Residents of Jersey talk about how fiber broadband has changed their online experience. (2 minutes)

 [flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Digital Jersey Limited – Vision 2014 from Digital Jersey.mp4[/flv]

Digital Jersey released this video showing the group’s vision on how to leverage gigabit fiber broadband to boost the island’s digital economy in 2014. (3 minutes)

Azerbaijan, a former Soviet Republic in the Caucuses, is getting fiber to the home service and a nationwide speed guarantee of 10-100Mbps for all 9.3 million Azeris, no matter where they live in the country.

Most large cities will be scheduled for fiber to the home service, as part of successive annual budgets planned for telecommunications upgrades. The government has spent $182 million on telecom services so far this year, according to the Ministry of Telecommunications and Information Technologies.

From January to September, 673.3 kilometers of fiber optic cables were laid, primarily by Aztelekom, the country’s largest telecom provider. Much of the initial spending is for upgrades to the Azerbaijani telephone system, a combination or wired and wireless services.

The ministry plans to provide all areas of Azerbaijan with fiber speed Internet access by 2017. At present, 70 percent of Azerbaijan’s population uses the Internet and 50 percent have the service at home.

Officials claim the goal of the fiber project is to deliver blanket broadband coverage to the entire country, with speeds at least 100Mbps by 2017.

Azerbaijan sees fiber broadband as a critical part of the country’s development to meet the economic challenges of the digital economy. The government considers traditional telephone based DSL and cable modem technology wholly inadequate to the task. Presently, ADSL is the most common technology in Azerbaijan, but is limited to 2-8Mbps — performance now deemed obsolete and unacceptable by the ministry.

Azerbaijan’s largest ISP

The World Economic Forum’s report “Global Information Technology 2013″ ranked Azerbaijan 56th on the Networked Readiness Index among 144 world countries even before the fiber service is constructed. The U.S. is ranked 9th, Canada is ranked 12th.

Azerbaijan’s aggressive deployment of fiber optics has won recognition from the World Economic Forum for laying the foundation for much higher rankings in the future.

Much of the funding for the project comes from the Azerbaijani State Oil Fund, a special purpose state organization dedicated to sharing revenues from oil and gas production with the Azeri people through investments in social-economically important projects. Oil wealth is considered a national resource, not a windfall for oil industry executives and shareholders. The fund has helped build housing for persons displaced in the Armenian-Azerbaijan conflict over the disputed Nagorno-Karabakh region, construct potable water systems, and finance public transportation and telecommunications projects.

Azerbaijan plans to manufacture its own fiber cables for the project inside the country in a joint venture with an Austrian firm.

[flv width=”480″ height=”380”]http://www.phillipdampier.com/video/Azerbaijani ICT.mp4[/flv]

The Azerbaijan Ministry of Telecommunications and Information Technologies produced this English language introduction to telecom services and broadband (collectively called ‘ICT’) in the country.  “CIS” refers to the Commonwealth of Independent States, which includes many of the republics constituting the former U.S.S.R., as well as Russia itself.  (7 minutes)