Re: Muni fiber project in Utah in deep trouble

[David Farber <dave () farber net>]

________________________________________
From: Rahul Tongia [tongia () cmu edu]
Sent: Friday, August 01, 2008 5:03 AM
To: David Farber
Cc: ip
Subject: Re: [IP] Muni fiber project in Utah in deep trouble

Dave,

I think many of us had high hopes for Utopia, but its "failures" aren't,
IMHO, due inherently to a failure of the design per se, but the fact
that this was in many ways a public competitor to non-compliant private
operators who, I have read but would love more data on, were
relentlessly subject to the "Walmart Effect." I.e., the incumbents
miraculously matched prices in those ares where Utopia came to be, but
(mostly) not otherwise.

I remember when AirTran started flights from NYC to Pittsburgh.  Cheap
fares. What did the highly dominant USAirways do (they had some 85% of
PIT gates)? They matched fares. Most flyers preferred USAirways, esp.
business flyers.  In a short while, AirTran folded that route.  Then, lo
and behold, USAir's fares went up.

One thing the article linked below got very right - the retailers and
wholesalers have to work together to make open access work.  That works
well in things like roads (where ford/gm/toyota or UPS/FedEx/DHL or
contractor A/B/C compete).  Retailers need to compete with each other,
not the infrastructure provider.

Let's bound this problem, ignoring fungibility of broadband via cable
vs. fiber etc.  If we claim that 60% of homes have broadband, and we
have 3 competitors at a physical level, then, on average, they each
would have 20% market share.  Makes things a little expensive.  The
Utopia model is perhaps best suited for Open Access in places where it
could realistically strive for 30-50% market share.  Open Access ("layer
0") does work - I've had a number of chats with the founder of Stokab,
Sweden's fiber company that was private, not public.  I've published on
this topic extensively, but public vs. private is somewhat of a red
herring in many cases, especially when we consider developing countries.

Rahul

************************************************************************
Rahul Tongia, Ph.D.
Senior Systems Scientist

Program in Computation, Organizations, and Society (COS)
School of Computer Science (ISR) /
Dept. of Engineering & Public Policy

Carnegie Mellon University
Pittsburgh, PA 15213 USA
tel: 412-268-5619
fax: 412-268-2338
email: tongia () cmu edu
http://www.cs.cmu.edu/~rtongia




David Farber wrote:
> ________________________________________
> From: Richard Bennett [richard () bennett com]
> Sent: Thursday, July 31, 2008 11:03 PM
> To: David Farber
> Subject: Muni fiber project in Utah in deep trouble
>
> Here's an interesting bit of news on the publicly-owned fiber front. Here we have all the elements of network 
> nirvana, fiber to the home, public ownership, and structural separation, but it's a boondoggle of major proportions. 
> And it's not like these are network-ignorant areas, this is the home of Novell.
> -------------------------------------------------------------
>
> When the idea of municipally-owned state-of-the-art fiber-optic networks -- UTOPIA and iProvo -- was first pitched to 
> Utah cities and residents about six years ago, it created a hailstorm of debate.
>
> Many who bought into the idea of a government-run fiber-optic network did so because they were frustrated with the 
> broadband offerings of incumbent telecoms Qwest and Comcast, and were seduced by the promise of next-generation 
> ultra-high-speed Internet and other services that only fiber-to-the-home has the capacity to handle.
>
>
>
> Critics however argued that governments, whom they perceive as lacking industry expertise, shouldn't be dabbling in 
> the high-risk telecommunications market, or even worse, gambling with Utah's tax revenues.
>
> But fiber-to-the-home advocates won the first round, as elected bodies were wowed by impressive projections of Utah's 
> market potential and the lure of economic opportunity.
>
> In 2003, when an 18-city consortium began organizing UTOPIA's build-out, the $400 million network was glowingly seen 
> as serving nearly 249,000 residences and 34,580 businesses. Eventually, the projections were cut roughly in half. 
> Eleven cities in Utah, including Orem, Lindon and Payson, committed to the bonds, pledging $202 million in sales tax 
> revenues over 20 years to pay them back.
>
> Now, unexpectedly low subscriber counts and revenue shortfalls are threatening UTOPIA's ability to continue to make 
> its bond payments. Tax revenues haven't been tapped yet, but if UTOPIA fails, the 11 cities could be on the hook for 
> up to the full $202 million, the Utah Taxpayers Association warns.
>
> To avoid that, UTOPIA wants to refinance. It is asking the cities this week to increase their sales tax pledges and 
> extend their guarantees to 33 years.
>
> The question facing city councils this week is whether UTOPIA's track record gives them enough confidence of future 
> success to commit taxpayers for three decades.
>
> ------------------------------
> Read the whole thing at:
>
> http://www.heraldextra.com/content/view/263223/18/
>
> RB
>
> --
>
> Richard Bennett
>
>
>
>
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