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Cable Technology Feature Article

March 15, 2010

Overbuilds, Municipal or Otherwise, a Tough Sell

By Gary Kim, Contributing Editor

Proponents and opponents of municipal fiber-to-customer networks have argued for decades about the feasibility of such networks, and some actually have been built. But it appears the ability to finance such networks now is a casualty of soaring local, state and national structural deficits as well as challenging private network economics that make prospects for such ventures worse, not better.
Ignoring for the moment the long-term economics of such municipal networks or the potential success of networks already built and operating, it increasingly seems likely that the ability to finance new networks of any size is gone. It isn’t clear how local governments can raise the money to do so, at a time when they face more-pressing financial issues, including unfunded pension liabilities nobody seems willing to talk about.
Compared to the situation of a few decades ago, the competitive environment is which such networks would have to operate has gotten tougher as well. Consider the situation facing a triple-play-providing new municipal network. At one time, the argument would have been that such a network had to take some amount of existing share from local cable and telco providers.
These days, such a network has to compete against local cable, telco, satellite and wireless mobile networks, at a time when many observers say voice service is going away as a service provider revenue stream. That means a potential municipal broadband network cannot hope to compete, long term, on the basis of a triple play service, but rather as a “dual play” entertainment video and broadband access provider.
There are some additional problems, in that regard. The position of satellite video providers is stronger than two decades ago, not weaker. So a video entertainment provider faces three strong video providers in most markets, and as many as four where the telco also is in the market.
The other problem is that a growing number of observers think the future for multi-channel video service providers is not so good, going forward, as alternate online alternatives begin to take hold.
Also, the broadband access market is more competitive than it was forecast to be, a decade ago. Today, both cable and telco broadband services are well entrenched in most markets. And it will get worse. There now are four facilities-based national broadband wireless providers in operation, rapidly enhancing their access rates, and likewise expected by many observers to start taking share from fixed-line providers. Services operating at speeds between 7 Mbps and 20 Mbps will be operational in scores of markets by 2011, for example.
One way of looking at those challenges is the tough challenges some already-funded overbuilders have faced.

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Marisa Torrieri