There is no question that the most expensive part of networking is the access piece. Move inward and you quickly reach a point where hundreds of thousands of customers can be aggregated onto a single set of resources, but out in access-land it’s literally every home or business for itself. Not only that, selling a given user broadband access means having the connection available to exploit quickly, which means building out infrastructure to “pass” potential customers.
The hottest residential broadband concept in the US is fixed wireless access (FWA), which addresses the access cost problem by using RF to the user, and with at least optional self-installation. In mobile services, operators have long shared tower real estate and in some cases even backhaul. Now, we’re seeing growth in “open” fiber access, where a fiber player deploys infrastructure that’s then shared by multiple operators. Is this a concept that could solve the demand density problem for fiber? Is it the way of the future? Let’s take a look.
In traditional fiber networks, and in fact in “traditional” access networks overall, it’s customary for the service provider to deploy the access infrastructure exclusively for its own use. That means that every competitor has to build out like it was a green field, despite the fact that there may already be competitors in the same area who have already done so. Open fiber access changes to something more like that shared-tower model of mobile services; a fiber provider deploys infrastructure and then leases access to multiple service providers. This doesn’t necessarily eliminate competitive overbuild, but it reduces the chance it would be necessary. It also reduces the barrier to market entry for new providers who perhaps have special relationships with a set of broadband prospects that could be exploited.
At this high level, open fiber access seems like a smart idea, and it might very well be just that. It might also be a total dead-end model, and it might even be a great idea in some places and a non-starter in others. The devil here is in the details, not only of the offering but of the geography.
If a given geography already has infrastructure that can support high-speed, high-quality broadband (which I’ll define as being at least 200/50 Mbps) then the value of open fiber access is limited because either fiber or a suitable alternative is already in place. The open fiber then becomes a competitor who’s overbuilding, which sort of defeats the reduce-overbuild argument’s value.
If there is no quality broadband option in an area, the question becomes one of demand density. A small community of twenty thousand, with perhaps five thousand households and several hundred business sites, might well not have a current quality broadband provider. A county that’s spread over a thousand square miles might have the same population, and also not have a quality provider. The first of our two population targets would likely be a viable opportunity providing that household income was high enough to make the service profitable, but the second target would simply require too much “pass cost” to even offer service, and the per-customer cost of fiber would be very high because of the separation of users.
OK, suppose that we are targeting that first community of under-served users. The next question is whether we can support the same community with our base-level 200/50 broadband using another technology, like FWA. In many cases that would be possible; what’s important is that the community be fairly concentrated (within a radius of perhaps two miles max) and that a small number (one or two) node locations with towers could achieve line-of-sight to all the target users. If FWA works it’s almost surely going to be cheaper than open fiber access, which means the latter would have a retail service cost disadvantage out of the box.
But here we also have to consider demand density, the economic value per mile of infrastructure based on available users and price tolerance. If demand density is high enough, then an alternative broadband option could still be profitable. Most of the areas where FWA is being deployed are already served by technologies like CATV, and where demand density is high enough it’s still profitable to deploy CATV. If you could reduce the cost of fiber through “federating” access across multiple operators, the net pass cost could be low enough to put fiber to the home (or curb) in the game.
The home/curb point is our next consideration. A positioning fiber deployment would “pass” homes, meaning it would make a node available at the curb, from which you could make connections. You still have to bring broadband into a home/business to sell broadband, and obviously you can’t do that until you actually sell a customer service. When you do, how does the cost of that drop get paid? Does the service provider who did the deal pay it, or does the open fiber access operator do the job? If it’s the former, how do you account for the cost if the customer changes providers? What if the first provider elects to use a limited-capacity path from node to home? If it’s the latter, the open fiber access provider has to bear what’s essentially installation costs. They also decide what the feed technology will be, which probably means it would be very high in capacity, as in fiber. That raises overall service costs, perhaps higher than some service providers targeting more budget-conscious users would accept.
Then there’s the question of whether there’s a potential link between open fiber access and “government” fiber. Any level of government could decide to deploy fiber and make it available to broadband service providers. That’s already being done in a few places, and it might eventually open up whole communities with marginal demand density to high-speed fiber broadband availability.
All of these questions pale into insignificance when you consider the last one, which is “Why would an open fiber access provider not become a broadband service provider?” This is the biggest cost of broadband, overall. You could deploy and share at a wholesale rate, or you could deploy and keep all the money. What’s the smart choice? Unless you have a target geography that for some reason is easiest to address via a bunch of specialized providers, each with their own current customer relationship to exploit, keeping all the money seems the best option. Even if it’s not the first option taken, does the open fiber access provider’s potential entry into the retail service market hang over every wholesale relationship? Eat thy customer may not be a good starting adage to live by, but as new revenue opportunities disappear, the old rules of the food chain fall by the wayside.
There a corollary question too, which is “Haven’t we invented the CLEC model again?” I noted in an earlier blog that requiring big cloud providers to wholesale capacity would create the same sort of model regulators created when they broke up the Bell System and required local operators to wholesale access. That was supposed to be a competitive revolution, but all it really did was create an arbitrage model instead of a true facility-based deployment model. That could happen here too, but so far we are seeing the open fiber access model bring fiber to places where it otherwise might not be deployed, and that’s a good thing.