Well, it is time for another round of discussions about spending city funds on municipal fiber. I have been attending these periodic meetings for a quarter century now.
This time, the pitch is to use most of the $30 million the city has accumulated from the "dark fiber" services sold to large businesses for the project. What does this mean for our residents? Unknown, unless the city decides to build out an actual "fiber to the premises" (FTTP) system sometime in the future, perhaps five years from now. It appears that the detailed proposal includes wiring streets that have few if any large businesses. So, at least some of this money is being used in the expectation of moving forward with FTTP in a few years and not to support the dark fiber services.
The city is saying that the FTTP system would cost $90M all in. (I think this is low.) That would be mostly new money.
Let's ask if we should be doing this at all. In those fiber meetings I attended over the years, I learned a few things. I learned that we had incumbent companies such as Comcast and AT&T that were servicing our community. Second, I learned that these incumbents were getting better every year, a lot better, in terms of products and services. In recent years, our incumbents have offered services in excess of 1 gigabit to residential customers.
Building an FTTP system in Palo Alto is mainly duplicating the services that Comcast and AT&T have already built. It is very hard to construct an "overbuild" and make money on it. ("Overbuild" is an industry term for a broadband/cable system that is built in a community that is already well served. Overbuilds tend to be hard to build and unprofitable when completed.) One example is Google Fiber. Google undertook to completely change the broadband business with radical new ideas, and it failed. It was planning on building in Palo Alto and other nearby cities but withdrew.
With Google and other investors out of the picture, the city is once again thinking about competing with Comcast and AT&T.
I want to stress how unnecessary a city FTTP system is, and how risky such an investment would be. Here are some of the risks.
1. Funding: Where does the money come from? Much of the investment needs to be made before you can start charging customers.
2. Product definition: To compete, the city may have to offer cable and phone services along with broadband for the foreseeable future. Telephone is easy but cable is messy, and I predict we would have to subcontract cable. The city seems to think that broadband would be sufficient but this is questionable.
3. Construction: Building this is going to be a problem, considering all of the other things that are already in the ground. "Overbuilds" can have huge issues and escalating costs with construction.
4. Marketing, sales and services: This is not a "build it and they will come" situation; the city will have to fight to take customers from the incumbents. The city will have to come up with a marketing plan, organize a sales team (ongoing), and build a 24/7 customer support organization. Competition is not something that the city understands or, frankly, wants. The city overestimates how much respect residents have for the services it provides the residents.
5. Future shock: No one is sure what the future of wired systems will be. It is clear that many people now use cellphone service for phone, cable replacement, and broadband. 5G wireless transmission is coming, and no one is sure how this will impact wired systems.
6. Loss of reputation: Many cities have failed at municipal broadband and found that it destroyed their political environment for years. (Provo, Utah, and Alameda, California, are examples of such cities. Each city has its own circumstances. The most important sign that a community will not succeed with its own system is if the city is well-served by one or more large companies.)
Our city leadership is clear about what it wants. Mayor Tom DuBois said, "We have the opportunity to create a new city utility and deliver superior service to our residents." However, I believe it's clear that we do not need another broadband system and we should be suspicious about how successful the city can be in building and operating such a project.
Here are my recommendations about what the city should do.
1. Not proceed with the $30 million of upgrades to our dark fiber system, at least insofar as it is a down payment on a full FTTP system. Explore what other alternatives may exist for this $30 million pot. What else can we do with it? Can it be used for non-fiber expenditures?
2. Develop a more positive relationship with our incumbent broadband/cable providers. Ask them how we can help them, and share our ideas with them. The city has never tried to get along with these folks.
3. Urgently, think through how we can avoid the cuts in our existing services such as safety, libraries, and the Children's Theater. The community does not want these cuts. Is there potential to redirect the fiber funds to prevent these proposed cuts?