The CEO of Sonic says that being a fiber provider is profitable without any additional services, and that their wholesale cost for upstream bandwidth keeps dropping.
Where I'm at now (prob less than a mile from their fiber service, sigh..), when we first moved in, we got Comcast. Of course, the Comcast service was all over the place. Some days 1Mb, some 100Mb (which I never signed up for, but just received), some 45Mb (what I signed up for). As usual, I had man techs come out to try to fix things and of course, none did and all of them had a different excuse as to why things didn't work. So many support people promised me good service but I never got it.
Fed up, I saw I could get Sonic FTTN and it's been rock solid for over a year. It's never gone down and just works - as I would expect. It's too bad we don't have more ISPs like them because if we did, access would be a totally different experience.
But in your situation, it sounds like you were likely extremely far from the central office, and probably had lousy indoor wiring as well. 20Mbit/s is basically the "I can see the phone company office from my window" speeds (less than 1000 wire-feet, give or take).
That was my experience with comcast as well. So many friendly people who promised so much and they all delivered nothing. It was maddening. Months after I cancelled, I got a check that returned all my money. I would have preferred internet service given that they were the only provider around, but that was not something their support people could provide.
I expect Cogent will be the next company to be acquired by one of the last-mile providers after Level3.
Even if the so called Tier 1 carriers are losing their prominence due to donut peering of smaller operators and large content providers building their own networks, getting settlement free peering with the big ones remains a challenge. Settlement free peering itself isn't an exclusive club, but being an operator with significant market power is.
While the majority of settlement free peering agreements are informal, studies show that about 10% are more formal with written contracts and conditions.
Even with public peering fabric which is what I think you are talking about and that I've used LINKS, NYIIX and AMS-IX etc,. you still have to backhaul that traffic yourself, its not making a significant dent in Tier dominance.
What studies have shown that there are contractual agreements for settlement free peering? Citation? Links? I would be interested in seeing that. My source was from experience working in the industry.
Transport, crossconnects and port costs apply regardless if you use a public IX or do private interconnects.
Here's a link to the study about settlement free peering: https://www.pch.net/resources/Papers/peering-survey/PCH-Peer...
I had the percentage wrong, or then I may recall a more recent study. This one is from 2011. Of course it depends greatly upon who you peer with, as to whether a written contract is needed or not. As such the sampling may skew the results.
-BillADSL2+ would be close to Comcast's affordable cable internet plans, and thus interesting competition.
AT&T wouldn't offer anything better than ADSL1 either, so I guess nobody's investing in the copper plain old telephone system.
The only thing that can improve this limit is pulling a new wire. The other providers can't do anything different because their ADSL would be piggybacking of the exact same physical wire.
If someone's going to pull new wire, then there's no reason to not make it an optic wire and skip the copper, since you can provide all services (including landline phone) over that.
So yes, of course, in that sense nobody's investing in the copper plain old telephone system, and never ever will be.
In Los Angeles, as a customer, I got a mailing from them FOR supporting title 2 and encouraging an open internet. Wild...
They might not be able be bought, they are feisty like Theo and for some people (myself included) throwing money in our face won't make us take action that will screw over society.
Preserving freedom is more important than the fanciest of homes and most luxurious car...
They have denied this repeatedly, and seem really insistent that they do want to be an ISP.
ex: https://www.google.ca/search?q=google+fibre+is+a+real+busine...
The limited deployments at the moment are BECAUSE they want it self-sustaining/profitable to continue to justify roll-outs.
Fiber providers live and die by their uptake rate. Most of the investment is in passing a house, but only about a third of houses you pass will subscribe. The cost of passing all the other houses has to be recovered from those that do subscribe. Historically, a condition of entering a city has been wiring up the whole city, without regard to customer interest in different neighborhoods. Google refuses to play that game. It only builds to Fiberhoods with demonstrated interest. That changes the economics entirely. But it's highly unlikely that approach will work across the country.
When their sole source of income is selling broadband. Part of the profit for google fiber includes the ads served up. If you think they don't track ad serving to their own customers based on the IP addresses they're accessing google from, you're crazy.
While I don't think ANYONE outside of Google knows their end-game - it's entirely possible that the fiberhoods are just proving the business model out before further investment.
The ad income is just peanuts compared to the monthly cost of Google Fiber. We are talking about a few bucks per month for ads versus $70 for fiber. Ads are just not going to move the needle in any meaningful way.
I'm quite confident they have the capacity. They have more than pretty much everyone besides maybe the government.
It was a (poor) business decision not to go for public cloud earlier, but not driven by datacenter capacity.
https://fiber.google.com/cities/sanfrancisco/ Google Fiber is coming to parts of SF using existing fiber infrastructure.
Similar mission to Google Fiber?
[1] https://en.wikipedia.org/wiki/Google_Maps#Google_Ride_Finder
Honestly I think Project Fi is amazing and it's the perfect counter to the issues mentioned in the article -- value-added bundling -- because it puts Google between you and your mobile internet provider.
Google is so successful at the OTT/services level that it could easily build out the fiber infrastructure underneath its internet empire if it wanted to. But it doesn't want to because there's no profit in that! And it's a messy, government-regulation-filled industry that is becoming less and less profitable YoY.
It boils down to: Dumb pipes are a cost center. OTT/services are a revenues center.
Why build your own roads when you can use others? As long as the government keeps those roads in good repair. And Google has a lot of friends in Washington D.C. ;)
Verizon makes $10 a gigabyte from mobile data. Multiple news articles lately have pointed out that Verizon makes orders of magnitude more money from running "dumb pipes" than does EVERYBODY else in the mobile advertising ecosystem put together, including the content companies.
In fact, if Verizon rebated 5% or so of the data charges back to mobile web sites, mobile web sites would have a much more lucrative business than they have with advertising today. (And if Verizon did that, they'd have the media in their pocket, just as Google does today -- between the ad revenue Google brings in and the fact they can make your traffic go away, even the New York Times is afraid to confront Google)
The mobile phone and internet business is also highly profitable. If you believe the advertising you see you might think it is competitive, but it is not. Just try using satellite internet and paying the high cost per GB.
Google does not want to get into VZ's business because it is a capital intensive business. The great thing about Google, Facebook and such is that they have tiny workforces and a small amount of hardware -- if you can get your users to make content for free you don't have to pay writers, actors, directors, makeup artists, etc.
Telecoms buy spectrum in auctions for the same reason why Google hires so many engineers -- to keep them away from competitors. Wireless as it is is the perfect rent-seeking industry as it has government barriers to entry.
Overbuilding any kind of wired internet infrastructure is a brutal business today because of the latent competition; where I live Frontier charges $95 a month for something that makes cable look like the Jetsons. They are paying huge dividends to the stockholders because they can do that with 0 investment. They could afford to offer the same for $45 or less a month and they would if you brought in anything better.
The other issue is that companies do not enter into mergers rationally. Time and time again you see that mergers destroy value.
Lolwat? Google builds multiple datacenters full of computers, sells access to them to other people, has bought a lot of dark fiber, and sells internet to home consumers in Kansas City. These are fairly capital intensive operations, but apparently Google execs have deemed them sufficiently valuable. It's kinda interesting how Verizon FiOS and other incumbant telco offerings are incredibly unpopular, while people are lining up for Google's Fiber service.
> The great thing about Google, Facebook and such is that they have tiny workforces and a small amount of hardware --
Verizon reports 177k employees, to Google's 51k. Google is smaller, but not as small as people might imagine, and if they continue rolling out Fiber and Fi, I can only imagine their footprint will grow.
> The mobile phone and internet business is also highly profitable. If you believe the advertising you see you might think it is competitive, but it is not. Just try using satellite internet and paying the high cost per GB.
It must be, because the only place I can think of where Google is buying not building is their cellular network offering, which multiplexes Sprint, T-Mobile, and US Cellular. MNOs have made it so easy to be a Virtual, Google would be foolish to bother rolling out their own infra until their subscriber base grows.
A little bit like what they did with Chrome. To my understanding the point in Chrome was not to dominate the browser market, but affect the direction of browsers in general (fast Javascript execution, standards compliance, just a chrome for the content and not big-fat-portal-style experience).
Then what is the rationale for buying one of these failing content companies, Yahoo, for $4.8b?
> Google does not want to get into VZ's business because it is a capital intensive business
As is cloud computing, but Google is forging ahead with GCP. This also doesn't square with your previous point that the ISP business is seriously profitable - if it was, Google would be rolling fiber out nationwide, as it has the cash to spend on capital-intensive project if it sees a high NPV in doing so. But it doesn't, so it just rolls out fiber to support select Google endeavors and keep the major carriers somewhat in check.
Man, that era wheen there was just 4 tv networks was something in comparison when thinking about this comment
Every time the government talks about rolling out broadband to poorer neighborhoods they just shove more cash at AT&T/Verizon/CenturyLink/etc, who are then meant to run the wires and profit off of the new customers.
This is likely partly the result of strong lobbying at both state and national levels. But regardless of the reason, all this money could have been used for "dumb pipes" which are non-profit, or only profit enough to expand further.
That's what bugs me, not that the government uses money for broadband expansion, but that they just give it to for-profit companies to use as they please, and to make a profit.
I'm lucky and have solid internet access even if it's not the fasted. It's very reliable and low latency. But I'd still love some google fiber.
However, I don't think it's fair to attribute altruism or happiness to be a dumb pipe to google.
Ding ding ding!
Joel Spoksky wrote s great article on exactly this 14 years ago.
The future of Telco is not in the ground, but through the air. This is the entire reason Google Fiber acquired WebPass.
It is relatively simple to transmit extremely high connection speeds through radio waves. I have a receiver on the top of my house that is a point to point signal, pumping 1 gig +, and soon to be much higher, speeds.
Google's strategy to expand GF will not longer include a massive ground infrastructure move, but use point to point to get to the neighborhoods. An entire zip code can be offered GF services at a fraction of the cost and a few months, as opposed to the old way...TOS of capital and years.
It will happen fast, and I imagine the giant Telcoms will have to follow suite to keep up.
Folks have tried high-speed fixed wireless for almost 2 decades now, and the only places it has been a viable business are rural areas where hard lines are not an option. Once the housing density gets above a certain level, wires beat wireless for any fixed installation--higher speeds, better reliability.
At very high frequencies, basic physics is working against you. Nothing has changed that.
> I have a receiver on the top of my house that is a point to point signal, pumping 1 gig +, and soon to be much higher, speeds.
To get a point-to-point signal, I would need a ~20m mast on top of my house to clear neighborhood trees, and so would the central antenna, and so would all my neighbors.
As frequency goes up and wavelengths get pencil thin, issues like "do I have clear line of sight" and "is there fog today" are more of a challenge than interference from others using the same frequencies/wavelengths.
There's plenty of bandwidth available in RF, but every option has it's tradeoffs. There's a limited amount of spectrum available at frequencies with convenient propagation properties for certain use cases.
I have been worried about line-owning ISPs trying to become content providers, because it was obvious that they would try to find ways to privilege their content over non-wire companies like Netflix, Google, Apple, Hulu, Amazon, etc.
But with the net neutrality ruling, it might actually be a good thing. If Verizon doesn't want to be a dumb pipe, then the logical extension is: why own pipes at all?? I could see companies like Comcast or Verizon eventually leasing access on dumb cheap fiber like muni or Google, as a cost-saving measure vs. maintaining their own infrastructure. Comcast already outsources most of their installation and network maintenance to contractors.
Comcast won't even take government subsidies to build out to unserved areas.
[1] http://money.cnn.com/2014/05/20/technology/innovation/chatta...
Tele2 advertises to business users as a "flat data pipe". To consumers, it profiles itself as a cheap provider offering a lot more data in it's packages. It slowly looks like it started a data-war among the providers. The past year, there has been a lot of movement in the dat package offerings, while in the era of 2005-2015 about the only movement was "Unmetered access for €10" to data-packages.
I'm very curious to see Dutch subscriber numbers over the first half of 2016. I expect them to go up slowly but steadily.
They're a big, big network and getting bigger all the time and they run their business just like I like to run mine: provide simple, boring services that just work.[1]
They are the best dumb pipes around.
[1] rsync.net uses he.net in Fremont, Denver and Hong Kong and Oh By (0x.co) uses he.net in Fremont.
As consumers we like it, but I don't think there's anything redeeming about it from the business's point of view. Heck, step #1 in the business playbook is "differentiate".
The telcos already have the commodity aspect of their business handled. AT&T and Verizon aren't going anywhere. They just want to line their pockets. Demand is fixed in a commodity market. The world only needs so much wheat and there's not much you can do to make it need more. So you sell your wheat in a fancy new package. That's essentially what a cable network is. The label on your can of green beans.
People can eat wheat or meat. You can make meat from wheat. Lots of poor people are happy to eat more meat (or any meat at all), if the price comes down. Demand for wheat is elastic.
Sure, but what makes the price come down? Industrial production is absolutely aimed at ensuring a solid, steady supply. Sharp fluctuations are rare, and are usually due to political upheaval. Prices might spike, but they rarely drop dramatically, because technological advances that lead to increased supply are usually already priced into the market.
It's like that with any commodity market. There are so many people's lives and pocketbooks relying on stability in production and pricing that checks are built right into the market at every level, from production to end-consumer purchasing.
Speculators lose their shirts in commodity markets because they aren't established players, they're gamblers. That gives the segment the illusion of being way more volatility than there really is. Everybody else is insulated very well from random shocks.
If there's more wheat (and the price drops), the economy will consume more---even if people won't eat more wheat directly.
Hey Verizon! Try being the bestest dumb pipe that anyone ever saw! Best value for the price. Best service. See what happens. It seems like a lot of successful business have been built that way instead of trying to be the most hated companies.
If Google wanted to become AT&T or Verizon, nothing is stopping it. It has the capital, and even on the regulatory lobbying front--Google is winning. While Verizon is getting pilloried for not meeting buildout requirements in New York, Google won't even agree to buildout requirements in Fiber cities.
But Google doesn't want to build dumb pipes either: http://www.techpolicydaily.com/internet/whos-making-money-in....
At this point I'd bet on a GSM carrier like T-Mobile to get there first.
http://arstechnica.com/tech-policy/2016/03/tennessee-kills-m...
https://www.fcc.gov/document/fcc-releases-order-preempting-t...
Those duopolies business models are contingent upon have access to public right-aways. The resources are owned by the general public/tax payers in the municipalities the operate in. There is technical reason we can't have near universal and affordable dumb pipes, just political.
I personally see this as going to be a success for either Verizon or its share holders, quite the opposite. It will be paid for by end users in the form of increased fees.
In 2014, the GON increased its revenues from $80.7 million to $99.9 million.53
Revenue from Internet access sales in particular saw a net increase of about $17 million,54 much of which was due to residential customer growth.55 Overall, residential services accounted for two-thirds of EPB Fiber’s revenues in 2014.56 Expenses and transfers to the city of Chattanooga totaled $84.7 million.57"
This sounds OK to me, what am I missing?
Why is it important that their electricity monopoly subsidized anything? How is that any different than any other new enterprise that has gotten funding from a VC? You don't hear anybody criticize that some star up is only possible because they got money from an investor. How is the source of funding relevant?
"Recent reports estimate that those numbers have risen to over 65,000 residential customers and about 5,500 commercial customers so far in 2015.48 This represents about a 45 percent share of the local residential market for broadband, video, and telephone service. 49 Despite being available to all potential customers, only about eight percent – or fewer than 5,500 – of residential customers that purchase Internet access subscribe to its signature gigabit service.5"
This venture is only 5 years old(2011) and the bond has a maturity length of 25 years! Lastly only 162 million out of the bond issue was used to build out the fiber network, the rest was used to build a smart grid.
I think in such a situation I would perhaps try to play on people's pride and make an emotional appeal.
And/or sell equity to customers. Some are happy to hold part of an enterprise they believe in, and will accept submarket returns. Come to think of it, a cooperative wouldn't be too different.
The source of the funding is a bond, not a subsidy from the power company.
EPB Fiber is profitable, is servicing it's debt in full and is not subsidized by electric ratepayers.
Not only are electric rate payers not subsidizing the fiber network, the fiber network is subsidizing the electric side!
The EPB fiber made $15M profit (FY14) is after debt service. EPB paid $19M in debt service (FY14).
Source: https://static.epb.com/annual-reports/2015/wp-content/upload...
Your link shows less than $1 million of debt service on a network that cost $400m. Interest rates are low, but they're not that low!
I can't tell if you are joking or merely being frivolous, but of course municipal bond interest rates aren't that low. The base fallacy in your comment is that you are comparing the interest payment to the total network build cost and not the outstanding debt. These two are obviously not the same thing and only outstanding debt affects the size of the interest payment.
> Read page 14 of the article you linked in light of page 3 of the article I linked. The vast majority of the debt used to build the fiber system is ascribed to EBP, not the fiber division. So it doesn't appear in EBP fiber's profit calculation
You are correct in noting that the majority of the debt is ascribed to EBP and not directly to EBP fiber. This does not, however, mean that EPB fiber gets a free ride or receives a subsidy from the electric side. Quite the opposite in fact! As clearly noted also in the research paper you linked to, it is the electric side that receives a subsidy from the fiber side. So not only is the fiber side pulling its weight, it's also creating and sharing the wealth!
Normally how this is done in cases like these, is that the department that carries the debt gets an internal transfer from the department utilizing and profiting from the asset that was constructed with the debt financing. In other words, EPB fiber would pay EPB for the use of the fiber network and EPB would use the payment to service the debt.
Referring to the EPB financial report, EPB fiber certainly has the money to do so. In addition to their FY15 $17M profit, they have booked a $15M Provision of Depreciation. This $15M is a non-cash expense, so they are basically just sitting on $15M in cash on top of their profit. I'd expect this would be used for the internal transfer to EPB to service the debt.
Now for arguments sake, let's assume that EPB fiber was just sitting on that $15M in cash and not sharing with EPB, content in just collecting a mountain of cash. Even so, with EPB fiber making a profit of $17M FY15, that profit is more than enough to cover the debt service in full on EPB fiber's part of the debt (originally $162M). In fact that $17M is almost enough to cover the debt service in full for the whole of EPB, electric utility and all.
So, while you may reasonably and justifiably criticize Chattanooga's fiber project for a lot of things, being unprofitable and subsidized is not one of those things.
From the article:
> One unique and important advantage for EPB of such a close relationship between the electric division and its fiber-optic division is that investment in fiber by the utility for the ostensible purpose of bolstering its smart grid can be socialized amongst its captive electric ratepayers (i.e., every resident and business in its service territory). In practice, this means that at least some percentage of the GON is being subsidized by the parent utility.42 The benefits flow the other way as well. For example, EPB readily admits that “ “cover increases in operating costs.”44 Whether and how these increased rates might be used for the benefit of the utility’s broadband network remains to be seen. revenues from [its] Fiber Optics division have allowed the utility to defer rate increases that would have totaled 5 [percent] over the last four years.”43 Nevertheless, EPB recently raised its rates by 3.5 percent for customers to
You are correct that no such transfer is explicitly shown. I don't know if it's done or not behind the curtain, but you may recall that I explicitly accounted for this scenario in my fifth paragraph of my previous post.
So summarize, EPB fiber's profit in itself is enough to pay for debt service regardless of if an internal transfer is made or not. Furthermore the money doesn't simply disappear, just because it isn't transferred. The profit is still there, regardless of how it is accounted for and where it is kept.
EPB fiber is making money, EPG's debt is being paid off (in advance I might add), EPG fiber is not being subsidized (the power side is) and cash is being accumulated.
No matter how you look at it, EPB fiber is both profitable and sustainable.
> Moreover, it's not the debt outstanding that matters, but the original capital investment.
Oh, so we are moving the goal posts now, eh?
Not being able to claim that EPB fiber is unprofitable, you are now instead taking issue with it not being profitable enough.
But, to address your original point directly, no, the original capital investment does not matter. Only and only the debt outstanding matters if part of the original investment was funded by other means.
It's preposterous to claim that an expansion of a project would have to produce returns twice; once on the original project and again in full when the project is built upon via an expansion.
> A real company would be expected to generate a return on the original $390 million that exceeded the weighted average cost of capital.
This is provably false.
If a company built a national network to serve it's own internal communications needs, it would then not be expected to show (additional) returns on that national network, if it later decided to build out a local network in one of the markets in order to expand it's business.
The company would only be required to show returns on the additional investment it made in the local market. Doubly so, if the company received a federal grant to build out the original national network.
> Having a big chunk of that money fronted internally without imputing an interest rate to it is a subsidy.
No money was fronted internally without any interest. EPB made out a $50M loan to EPB fiber which EPB fiber later repaid in full with interest.
EPB did receive a $111M federal grant to build a smart grid, which it did. The grant was not used to build EPB fiber's network. That capital was raised separately through a bond.
I'm happy to concede that if you don't have to actually pay for much of your fiber network, you can indeed show a "profit."
Very well then, but why did you start of this thread with provably false claims? EPB fiber is not subsidized by the electric side (refer to your own research paper if you don't believe me) and Chattanooga is most definitely servicing their debt in full (again check your paper).
> The question is--could Baltimore go out and do this?
Perhaps, I haven't looked into it, so I don't know. But, why Baltimore? Different state, different laws on municipal broadband, much larger metro area and a very different socioeconomic mix.
> Or, what's stopping a private company from doing this in Baltimore?
Nothing much if they have the money and inclination to do so, assuming they can get the appropriate permits and franchises. Apparently Verizon did consider doing it.
> And what's relevant to that is the real capital expenditure to build the fiber network--not just extending a fiber network you had lying around.
So if Verizon decides to build out FiOS in Baltimore, which part of their existing (national and local) fiber network should they according to you include in their network build budget and show an additional return on?
> I'm happy to concede that if you don't have to actually pay for much of your fiber network, you can indeed show a "profit."
Which parts of the EBP fiber network do you feel have not been paid for? And what do you mean by "profit"? Are you claiming that EPB is cooking the books and not really making a profit?
Muni fiber could certainly be unprofitable or unworkable, there's no magic reason why it has to work in practice.
Outside of that, I think google cares less
All the reliable data I have seen shows the opposite.
Note, returns very a lot by company the industry average is ~6%, but that includes a lot of poorly run lemons.
Also, there was a huge bubble that put in a lot of dark fiber, but that glut has passed.
PS: Yes, those returns look low compared to say MS. But, software company's have larger issues borrowing money at very low rates.
The Chattanooga network is illustrative: http://www.nyls.edu/advanced-communications-law-and-policy-i....
Revenues are about $100 million, with operating expenses being $85 million. That's about $15 million profit, on about $400 million invested, or under 4% ROIC. The system was funded with bonds issued at 4.5%, meaning it would never break even without being subsidized by electric ratepayers.
As to Chattanooga network, economy's of scale are huge in this business and those 4.5% bonds are well above the industry average right now. Still, a city breaking even is not bad if their debt is growing slower than inflation. It's a question of deprecation of assets not rate of loan repayment.
PS: They city may also not be trying to make much in the way of direct profit, it would be interesting to take a closer look at their books.
Your is assertions are incorrect. EPB Fiber is profitable, is servicing it's debt in full, pays less than 4.5% in interest in their bonds, is not subsidized by electric ratepayers and would have broke even even without the grants it has received.
Not only are electric rate payers not subsidizing the fiber network, the fiber network is subsidizing the electric side!
Looking at the finances, about $400M was invested, but EPB fiber only has ~$260M in debt left due to a $111M grant for smart meters. Furthermore the $15M profit is after debt service. EPB paid $19M in debt service (FY14).
Source: https://static.epb.com/annual-reports/2015/wp-content/upload...
I feel the municipal internet infrastructure should be publicly owned, like streets, but service on those pipes is carried by competing companies. These turf wars are getting old.
10K Google Wi-Fi kiosks are collecting millions of faces and MAC addresses http://massprivatei.blogspot.com/2016/07/10k-google-wi-fi-ki...
The issue with this sort of infrastructure is that it is very capital intensive to build and maintain, and require that the companies invest in real estate rights (telephone poles, utility trenches) that are powerful bargaining chips.
The return of Ma Bell?
The modern version of Ma Bell would be if Verizon owned or licensed every iPhone, computer, and server connected to their network.
As a customer and an investor, I'm a fan.
All the sum's I've ever seen (or done) end with 20 year+ paybacks, followed by lots and lots of money.
This breeds real shareholder fear - everyone who ever built this kind of network (rail, phones...) was either the government or went bust and then watched someone else (banks) cash in on the distressed asset at 0 risk.
So - agree, the red tape is a big issue.
But while modern organisations and investment structures can do 50 years of work for you, the capital is an issue. It can, and will, be done, but it will be quite some doing.