BROADBAND BREAKFAST INSIGHT: A good, basic summary of what an open-access network is, and why cities can benefit through the open-access approach. The best part of this piece is the discussion about why open-access is necessary for Smart Cities. Left unsaid are some of the more innovative approaches to financing open-access networks. Some of these were discussed at the Broadband Communities event earlier this year.
Guest Blog, Isak Finer, COS Systems: Why I Believe Open Access is The Right Choice for Communities, from Next Century Cities:
An increasing number of US cities are considering a deployment of fiber networks to ensure job creation, economic development, and quality of life for their residents. Community leaders realize that the younger generations and businesses of the future will not accept inadequate broadband access. What they also realize is that the incumbent providers will prioritize their investments to the bigger markets or the densest urban areas where the business case is the most favorable. It’s simply how the market dynamics work. For the US to reach its national broadband target and to stay competitive in an increasingly connected world, cities need to build networks. The right model for community networks is Open Access and this blog post will explain why.
What is an Open Access Network?
First, we need to agree on what the Open Access business model is, since there are more interpretations of the term than one could count. Some people consider a model where a network owner builds a fiber ring in the community and allows multiple providers to tap on to that fiber and build their own last mile network to the actual houses, as Open Access. We don’t encourage that approach since it won’t create enough choice for the end user, which is the very definition of Open Access.
The Open Access model described here is a 2 or 3-layer model where there are subscribers, service providers, an operations company, and a network owner. In the 2-layer model the network owner is also the operator managing their own network, while in the 3-layer model the network owner has contracted an external operations company to manage the day-to-day operations of the network.
The network owner will build the actual fiber infrastructure and maintain it. This is the ideal role for the city or community to be in, and often in mature open access markets this is a utility company since they are used to deploying cables or pipes in the ground. The most important thing to remember is to document the network properly so that it will be easy to locate e.g. a fiber cut in the future or how to do construction work without the risk of cutting the optical cables.
The operations company would manage and often supply the active layer equipment in the network. This means the routers and switches that control the actual internet traffic and keep track of which ports should be open or not, among other similar things. When a subscriber orders a service, it’s the operations company that will make sure that service is properly activated with the service delivered by the service provider that was chosen by the subscriber. Large operators often have systems that could automate this, so that the subscriber could get the service activated instantly.
The service providers are generally private companies who specialize in delivery of IP based services such as Internet access, VOIP (Voice over IP, replacing the traditional phone line), IPTV (replacing traditional TV) and other services getting more common today, such as home security, cloud storage, elderly care services, etc.
The very important difference in the Open Access network compared to traditional networks built by a service provider is that the subscriber has a choice. Since the Network Owner (the city) has built the network all the way to the house, they open the market to any service provider to sell services to the subscriber. If you’re not happy with your current provider you can just switch to another one. It’s even possible to buy Internet from one, TV from a second and VOIP from a third provider.
What about the money?
In the Open Access model the subscriber will buy the services from service providers, most commonly from a marketplace provided by the operations company where all the providers and services are published for subscribers to easily compare and choose what suits them best. Just like an Appstore, where all apps are easily available to the smartphone user. Subscribers would pay service providers directly and receive technical support from them as well. The service provider would in turn pay the operations company a fee for being allowed to deliver services over the network, normally a monthly fee per service. Then, if the network owner is a separate entity than the operations company, there is an arrangement between those two, that normally goes two ways. The network owner is paying the operations company money for operating their network, while the network owner is sharing the revenue from the service providers based on how much utilization (customers) there is on the network.
A pothole some network owners and/or operations companies have come across has been sending bills to the subscriber, for example a monthly fee that’s supposed to cover costs for maintaining the fiber infrastructure. This setup is very costly for numerous reasons. One is the cost for the handling of all those invoices, but the major issue is that it creates uncertainty for the subscriber about whom to contact when they have a problem. Because they get invoiced from multiple entities for their broadband related services, they might contact the network owner or the operations company with issues that should be handled by the service provider, and vice versa. This confusion will cause a lot of unnecessary communication between the different parties, perhaps sending the customer back and forth.
The customer should get one single bill from the service provider and all inquiries should go through the service provider. The operations company will need much less staff and focus on the more technical issues the service providers cannot handle.
Who will connect the farmer?
Everyone can agree that the farmers are quite important, since they provide the food we eat. But the farmers are as affected by the new digital era as everyone else. They collect their orders online, they pay their bills online, and have many high tech devices like milking machines that expect network access. Their kids also need to be able to do their homework which is has moved online. But the costs of building to these areas of low population density make a return on investment challenging. Private companies must make money to survive and in all honesty, would you be happy to see your retirement fund investing in companies who wasn’t trying to maximize their profit? No, many profit-maximizing firms will not build to rural areas. But the community has a different agenda. Communities recognize the importance of investments that create indirect benefits as well as direct benefits.
The above scenario also explains why the “dark fiber middle mile” version of Open Access won’t work. Even with a fiber ring, the service providers would only build where they are able to make a quick return, leaving farmers even worse off because cherry-picking off the middle mile would result in less overall revenue for a business model that would connect everyone. Having local government build an open access fiber network to everyone will avoid this problem.
Why Competition is key to success
As in all industries, competition will drive the price down and quality up and competition is only created if the end customer can actually make a choice between different providers. Research from my home country of Sweden, with the most mature open access approach anywhere, shows that there is a clear correlation between the number of service providers and the price of service. Especially when you go from one to two and three providers, but even the ninth and tenth provider will help to push the price down.
In the lowest cost community networks, a 100 Mbps symmetrical Internet service costs approximately $25. In Sweden the hundreds of Open Access community networks have been key to the vast build-out of high-speed broadband and especially fiber networks. Sweden has a population density of only 57 people per square mile (US has 90) but according to PTS (Sweden’s FCC) still 99.99% of the population has access to at least 10 Mbps broadband, 73% to 100 Mbps and 79% have access to fiber (within 45 yards of a fiber line). These numbers are for 2016 and increasing rapidly as both private and public network owners are now competing fiercely to reach the last customers with fiber first. So at a national level the build-out of strong community networks also pushes the private telecom giants to build more and faster and provide higher speed services at competitive prices, which benefits the country as a whole.
The Open Access model is also an enabler for the city to control the subscriber price on an aggregate level. If the city wants to subsidize Internet services to increase adoption they can simply lower the cost to the service providers to sell services on the network, which due to competition will drive the end customer price down and lead to higher utilization.
Why Open Access is necessary for Smart Cities
Today there is a big trend towards IoT (Internet of Things) where a lot of different devices and machines are connected. It could be everything from the heating system in your house being accessible to control and monitor via an app in your phone, to the utility placing smart meters in every home, or street lights that are connected to be able to allow much more sophisticated management of traffic, enabling free passage for emergency vehicles. All these smart services that will benefit the community and residents will be easy to implement if the city owns a citywide fiber network, but consider what happens when the entire network, or big parts of the network (in the case where the city only builds the fiber ring) is owned by private providers.
Let’s say you have five different profit-driven providers owning the infrastructure. This means you need to negotiate five different agreements to be able to deploy the services and still you might not be able to do a city wide roll-out, since the private providers will only have built their network in areas where they reach their ROI targets. As a city you might be forced to build those “worst” areas just to be able to deliver those smart services to all who need them and thereby force you into being a network operator anyway. With an open access network reaching every desirable end-point you’re ready for any smart service application the future may hold.
Yes, the private service providers will be able to make money
There is a fear that open access would lead to great service for subscribers but push the prices so low that ISPs will not have enough margin to profit. The answer is yes and no. No, those companies who don’t adapt to the competitive nature of the Open Access networks won’t make money. If you don’t deliver capacity and speeds as promised and don’t have excellent customer service (things not as important if you own the infrastructure and the customers have no other provider to turn to) you probably won’t be very successful in the long run. Also trying to lock customers in with long contracts or using data caps will be a hard sell in a competitive environment.
For those providers who focus on delivering high quality of both service and support at a reasonable price, there is the chance to also be very profitable. By focusing on service delivery, customer care and billing and not having to spend resources on capital intensive construction and maintenance of the physical infrastructure, they can build a highly specialized organization.
It’s also easy for new entrants, since there are no large investments as would have been the case if you are to build your own infrastructure. In Sweden there are numerous nationwide service providers who started with just a few guys in a basement, today creating jobs for hundreds of young, service-minded people. Even though the price for broadband in Sweden is lower than in the US, the profit margin among Service Providers on Open Access networks in Sweden is looked upon with envy by companies in other industries.
Open access is the right choice for cities who consider building their own network infrastructure. It’s important that the network is built all the way to the subscribers’ property. This way the digital future of the city is in their own hands. They can decide which providers are allowed to sell services on their network and adopt smart city services as they please. It will also give more power to the subscriber since there is competition at the subscriber level. This will make sure services are delivered with quality and at reasonable prices. The affordable prices will increase adoption and subsequently create the benefits the new broadband enabled services will bring to the community as a whole.
Dianne Crocker: Recession Fears Have Real Estate Market Forecasters Hitting the Reset Button
Growing fears of recession trigger pullback on previous rosy forecasts.
The lyrics to “Same As It Ever Was” by the Talking Heads certainly don’t apply to how 2022 is playing out in the commercial real estate market. Two quarters of negative economic growth has put a damper on market sentiment and triggered fears that the U.S. economy is heading for a recession. By midyear, market analysts were taking a good, hard look at their rosy forecasts from the start of the New Year and redrawing the lines.
Once upon a time…
At the start of 2022, forecasters were bullishly predicting that commercial real estate investment and lending levels would be nearly as good as 2021. This was significant, considering that 2021 set new records for deal-making and lending volume as the debt and equity capital amassed during the pandemic while looking for a home in U.S. commercial real estate.
What a difference a few quarters have made. Virtually, all the predictions that started the New Year were obsolete by mid-summer. The abrupt shift in market conditions is palpable and surprised just about everyone. Now, markets are reaching an inflection point that is in sharp contrast with the strong rebound of last year.
The two I’s: Inflation and interest rates
At the core of the recent upset in market sentiment is the persistence of high inflation, which seems to be ignoring all attempts by the Federal Reserve to raise interest rates and bring prices down. Higher inflation is having a ripple effect throughout the economy, pushing up the costs of construction materials, energy, and consumer goods. Among the notable economic indicators showing stress at mid-year was the GDP, which fell for the second consecutive quarter, and the Consumer Price Index, which jumped 9.1% year-over-year in June – the highest increase in about four decades.
In July, the CPI fell to 8.5%, an encouraging sign that inflation was beginning to stabilize. By the latest August report from LightBox, however, hopes were dashed when the CPI showed little improvement, holding firm at a still high of 8.3%.
The market is responding to a higher cost of capital as lenders tap the brakes. As the cost of capital rises with each interest rate hike and concerns of a recession intensify, many large U.S. financial institutions are pulling back on their loan originations for the rest of 2022 and into 2023. This change in tenor is a significant shift, given that 2021 was a record-breaking year for commercial real estate lending. Many lenders have already shifted to a more defensive underwriting position as they look to mitigate risks.
The Mortgage Bankers Association, which had previously predicted that lending levels in 2022 would break the $1 trillion mark for the first time revised their forecast downward in mid-July. By year-end, the MBA now expects volume to be a significant 18% below 2021 levels—and one-third lower than the bullish forecast made in February. Now, investment activity is cooling as higher borrowing costs drive some buyers from the market.
In the investment world, transactions were down by 29% at midyear due to a thinning buyer pool as higher rates impact access to debt capital. Market volatility is causing investors, lenders, and owners to rethink strategies, reconsider assumptions, and prepare for possible disruption.
Looking ahead to year-end and 2023
The rapid and diverse shifts in the market make for an uncertain forecast and certainly a more cautious investment environment. The battle between inflation and interest rates will continue over the near term. As LightBox’s investor, lender, valuation, and environmental due diligence clients move toward the 4th quarter—typically the busiest quarter of the year–unprecedented volatility is driving them to recalibrate and reforecast given recent market developments.
Continued softness in transaction volume is likely to continue as rates and valuations establish a new equilibrium. If property prices begin to level out, there will be more pressure on buyers to consider how to improve a property to get their return on investment. The next chapter of the commercial real estate market will be defined by how long inflation sticks around, how high interest rates go, and whether the economy slips into a recession (and how deeply). The greatest areas of opportunity will be found in asset classes like office and retail that are evolving away from traditional uses and morphing to meet the needs of today’s market. Until barometers stabilize, it’s important to rethink assumptions, watch developments, and recalibrate as necessary.
Dianne Crocker is the Principal Analyst for LightBox, delivering strategic analytics, best practices in risk management, market intelligence reports, educational seminars, and customized research for stakeholders in commercial real estate deals. She is a highly respected expert on commercial real estate market trends. This piece is exclusive to Broadband Breakfast.
Broadband Breakfast accepts commentary from informed observers of the broadband scene. Please send pieces to email@example.com. The views reflected in Expert Opinion pieces do not necessarily reflect the views of Broadband Breakfast and Breakfast Media LLC.
White House Presses Outreach Initiatives for Affordable Connectivity Program
White House officials urged schools and other local institutions to engage in text-message and social media campaigns for the ACP.
WASHINGTON, September 15, 2022 – The White House on Monday urged schools and other local institutions to engage in text-message and social media campaigns, PSAs, and other community-outreach initiatives to promote enrollment in the Federal Communications Commission’s Affordable Connectivity Program among of families with school-age children.
The Affordable Connectivity Program subsidizes internet service bill for low-income households. Monthly discounts of up to $30 are available for non-tribal enrollees, $75 for applicants on qualifying tribal lands. In addition, the ACP offers enrollees a one-time discount $100 on qualifying device purchases.
To boost ACP enrollment, speakers encouraged schools to reach out directly to families. Bharat Ramanurti, deputy director of the National Economic Council, said text-message campaigns drive up enrollment in government programs. A Massachusetts text-message campaign doubled ACP enrollment rates in subsequent days, said Ramanurti.
Also highlighted was the administration’s “ACP Consumer Outreach Kit,” which provides partners with resources, including fliers, posters, audio PSAs, social-media templates.
In fact, many of these tactics have proved effective in increasing ACP enrollment among telehealth patients. In addition, Microsoft and Communications Workers of America recently announced a circuit of ACP sign-up drives in that will tour several states including Michigan, New York, and North Carolina.
Political considerations as November nears…
As students go back to school and midterm elections loom, new ACP sign-ups could benefit the enrollees as well as the Democrats’ political chances.
Public officials and private experts alike recognize the value of community involvement in extending broadband connectivity and digital literacy nationwide. Marshaling community institutions – like schools – to maximize broadband access could help Biden and other Democrats overcome inflation-driven electoral headwinds in the November midterms. The White House obtained commitments from 20 providers to offer high-speed internet plans for $30 per month or less to ACP-eligible households – this means no out-of-pocket costs for recipients of ACP discounts. Free broadband coverage could bring the administration – and all Democrat candidates, by extension – back into the good graces of low-income families.
Federal Government Must Collect More Granular Data on Minorities to Aid in Initiatives
Discussion on the “data gap” comes as the nation tries to connect the unserved and underserved.
WASHINGTON, August 31, 2022 – In order to serve the needs of all Americans, the federal government must gather and act on more granular data on underrepresented minority groups that have been historically overlooked in the data-gathering process, said Denice Ross, the White House’s chief data scientist.
Ross argued at an online event hosted by the Center for Data Innovation on Tuesday that many minority groups – including African Americans, Native Americans, the disabled, and the LGBT community – are disadvantaged by the “data divide,” a term which refers to disparities in the amount and quality of available data on various groups.
Ross was citing a report issued earlier this year by the Equitable Data Working Group, a task force created by President Joe Biden earlier this year, which said policymakers are often unable to perceive or ameliorate problems facing minority communities if data on those communities are unavailable or insufficiently disaggregated. Disaggregated data, the report says, is “data that can be broken down and analyzed by race, ethnicity, gender, disability, income, veteran status, age, or other key demographic variables.”
The report recommends a federal data collection strategy that safeguards privacy and facilitates analysis of “the interconnectedness of identities and experiences,” or how individuals’ various minority-group identities compound the societal disadvantages they face. The report also advocates the creation of “incentives and pathways” promoting minority representation in the data collection process.
The recommendations come as the broadband industry and federal agencies try to improve knowledge of where there are unserved and underserved areas for broadband connectivity and to take action to improve digital literacy. The Illinois Broadband Lab and other state broadband offices, for example, implement a community-up approach to data gathering. Direct community involvement provides data insights that help states deliver coverage to in-need communities, officials say.
In the panel discussion that followed Ross’s opening remarks, experts and academics agreed that community outreach is a necessary step in closing the data divide. Dominique Harrison, director of bank Citi Ventures’ Racial Equity Design and Data Initiative, said that some in the African American community view data collection with skepticism.
Christopher Wood, executive director of LGBT Tech, argued that the passage of a federal privacy standard is a critical step toward establishing trust in government data collection. The most recent attempt to pass a national privacy regime, the American Data Privacy and Protection Act, was approved by the House Committee on Energy and Commerce last month.
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