The problem with the notion that competition could spur broadband deployment to the under-served, even with the (modest) stimulus of the infrastructure bill just signed, is that broadband just isn’t all that profitable. The majority of the initiatives we’re seeing are targeting not so much “under-served areas” as “under-served micro-areas”. Even in rural areas, there are pockets (communities) where demand density is high enough that, with subsidies, it could drive even fiber deployment. Picking off those communities is one strategy to increase broadband access, but there may be another, better, one.
There are two problems with broadband as a business. One is that the profit margins are low, even in areas with decent demand density. The other is that there’s often a substantial cost (“first cost”) associated with getting enough infrastructure in place to even offer to connect customers. High first costs mean you have to be a lot just to enter a market. The other is that different technologies have different “pass costs” and in areas of low demand density, it’s common to avoid the technologies with the highest pass cost.
The telcos worldwide tend to be adapted to low margins; they were once either government elements (PTTs for “Postal, Telegraph, and Telephone”) or public utilities and protected monopolies. If we wanted to look for players who might want to enter the broadband space, it would be logical to look at other public utilities. These companies have rights of way to install stuff. They have connections to homes and offices, field support personnel, call centers for customer support, and so forth. They also tend to be “cash flow machines”, generating a lot of cash and benefitting from very low borrowing (bond and loan) rates. The electric companies, in particular, seem a logical source of new competition.
Utility entry into broadband has been controversial from the first, and it still is. Telenor recently threatened (or postured) that it would start selling electricity to customers if electrical utilities entered the telecom market. Going back almost 20 years, there was talk about broadband-over-power-line, and there were some initiatives that actually got to the market, but the technology couldn’t compete with fiber or CATV cable, and eventually even cellular service. That’s not the focus today.
Electric companies have polls and people who climb them. That reduces their cost of installing the initial infrastructure (passing). Others, in many areas, are already stringing broadband cabling on power polls, in fact. They also have funds, attractive cost of money, and other assets that most broadband competitors don’t have. So could electric utilities solve the problem of under-served areas? Not so fast.
Residential demand densities relate to household density, which varies significantly. In urban settings, there’s no question that you can serve business and residential customers profitably. A tightly packed suburb might have 50×100 foot lots, which could be packed, with street right of way, to roughly 8 lots per acre. A more distant suburb would typically pack no more than 2 lots per acre, and in near-rural areas the median household density is down around 1 lot for every four acres. But put in terms of “passes”, a mile of PON fiber would pass a hundred tight-suburb homes, roughly 35 homes in the deeper suburbs, and 12 homes in near-rural areas. Go deeper into the rural zone and you could lay a mile of fiber and pass one customer. Most operators tell me that fiber deployments to areas with less than 16 homes per mile of “passing fiber” would present an ROI challenge, and less than 10 would probably not be considered without some subsidization.
This is where electrical utility economies might come into play. One mid-western utility told me they believed they could profitably run fiber to areas where a mile of fiber would pass only 12 customers, and possibly as low as 10. Add in some subsidies and incentives, and the number would drop to 9 to as low as 5. This presumes that the utility would sell fiber broadband and offer streaming live TV through a relationship with a provider. Pull any realistic TV revenue out and the numbers all go up by one or two households/mile. Add in business services, home security, and other services, and they could go down by that same one or two.
Some electrical utilities have offered broadband for a long time; I worked with one that offered business broadband a decade ago. Those who have offered, trialed, or studied it in detail tell me that they’ve determined the key issue is opex. The benefits of reusing facilities and rights of way, and the low ROI requirements of utilities, are surely a benefit, but they can be eaten up by customer care in particular.
One utility told me that a trial they did showed that broadband Internet generated an astonishing twenty-two times the number of support calls as electrical power did. They also learned that unlike power, broadband is difficult to assess remotely, and that there are conditions that render a broadband connection useless that have nothing to do with the broadband service itself. Their conclusion was that they needed a broadband-specific customer-care portal, a browser-based tool that could help them diagnose Internet problems, and an app that a user could install on a mobile phone and use to interact with support when the Internet connection was down.
One thing I found interesting in the comments made by utilities was the extent to which traditional telco and cableco ISPs agreed with the points. Users of major US ISPs report problems with broadband Internet support that sound just like the problems that electrical utilities want to avoid, yet most of those ISPs have not adopted any of the measures I just cited, and many haven’t seriously considered it. Some will admit that they’re deterred by the cost of the new measures, reasoning (probably correctly) that customers aren’t leaving now over these issues, and therefore probably won’t leave in the future.
Utilities may be in an interesting position with broadband. They not only have some financial, outside plant, and workforce advantages they could exploit, they can draw on the negative experience of early ISPs and address issues those ISPs have faced but have failed to deal with. They might be able to create a customer care framework that would not only improve support responses, but also reduce churn, which is actually associated with the largest component of opex.
A utility focus on opex and, in particular, customer care might also impact the seemingly endless stream of website, DNS, and other above-the-network problems we’ve seen. Consumers can’t distinguish between a broadband problem, an Internet problem, and a site problem, and some believe that ISPs have been slow to offer strong customer care tools because it would likely involve them in problems that aren’t theirs to fix. Maybe they aren’t, but the ISPs have influence on the rest of the structure of the Internet, and the rest of the players. Might a customer care revolution at the ISP level, driven by utility entry into the market, end up creating a broader pathway for Internet users to learn about problems, and a broader incentive for everyone to get their act together? It could happen.
The utilities’ focus on opex might be especially appropriate for ISPs today, given that the growing interest in and dependence on streaming video erodes the stickiness of one of the things that wireline ISPs have depended on to acquire customers and reduce churn. Could customer care become a major differentiator, an attractor, and a way of retaining customers? On the surface, it seems like it should be possible, and it may be that utility broadband, if it does grow, will show the way.