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Geoff Daily

App-Rising.com covers the development and adoption of broadband applications, the deployment of and need for broadband networks, and the demands placed on policy to adapt to the revolutionary opportunities made possible by the Internet.

App-Rising.com is written by Geoff Daily, a DC-based technology journalist, broadband activist, marketing consultant, and Internet entrepreneur.

App-Rising.com is supported in part by AT&T;, however all views and opinions expressed herein are solely my own.

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August 22, 2008 12:50 PM

A New Model for Fiber Deployment: Customer-Owned Networks by Bill St. Arnaud

Last week I had the great fortune to learn about a potentially revolutionary new model for deploying fiber from Bill St. Arnaud, senior director for advanced networks at CANARIE and long-time industry visionary.

In a 400-home trial in Ottawa currently underway, Bill's trying to prove the concept of customer-owned residential fiber optic networks. So no longer would your pipe onto the Internet be owned by either a private service provider or public government entity, but instead you would own your own last mile network.

The genesis for these ideas grow out of CANARIE's history, which began when universities and school realized that purchasing and deploying their own fiber was far cheaper than buying managed services from telcos. The question then became, "Can we extend this concept to the last mile?"

The challenge with fiber deployment has long been the huge upfront capital costs required to build out the network.

For private providers, it's hard to find a business case that will pay for a big-bandwidth network when you're trying to drive revenue from triple play services at a time when over-the-top apps like VoIP and Internet video are eating into your base. And it doesn't get any easier when you're also having to compete against aggressive incumbent cable and DSL providers in a marketplace where consumers in general still don't understand the value of bigger bandwidth networks.

The circumstances aren't much better on the public side either, where cities have a hard time justifying investing millions if not billions into a network when they've got people starving in the streets. Plus managing an Internet network requires lots of skilled people and can be very difficult to maintain and upgrade in a cost-effective manner.

But what if there was a third option for deploying fiber? It's Bill's belief that not only is there a third option but that it's the best one yet.

It starts with the fact that there are a number of companies that are in the business of building fiber networks. They don't want to own these networks and offer services, they just want to make their money off designing and deploying fiber optics.

It then moves to an innovative funding mechanism. First it relies on subscribers to pay for and own their own fiber optic connections. But instead of charging for the connection upfront, Bill wants to roll the cost of fiber into your electric bill.

He cites the fact that there are companies that will now sell you a fixed rate energy deal where if you sign up for 5 years of service they'll guarantee you a certain price over the length of that contract, say 15 cents per kilowatt hour.

What Bill sees is the opportunity to offer homeowners the ability to pay 17 cents per kilowatt hour and in return get a fiber optic connection as well as some level of free Internet service.

He goes on to say that on average a typical homeowner will spend $1000-2000 a year on their electric bill. If you raise that kilowatt per hour rate two cents, you'd generate an additional $400 per year, which over a five year contract would pay for the fiber. Then for an extra quarter cent there'd be enough revenue to provide high speed Internet.

While most current models need at least 40% penetration to be economically viable, Bill claims his model could break even with only 10%.

But what do you get?

A home-run fiber pipe to a carrier-neutral facility.

Let's break down what that means.

First off, the default connection speed on the fiber from your home to the central office will be 1Gbps.

Secondly, "home-run fiber" basically means you get your own fiber strand, and because of that you and your service provider can choose whether or not to use GPON, ethernet, or any other technology over that fiber. (More on this on a later post.)

Third, the "carrier-neutral facility" is where multiple ISPs would compete for your business. If you don't like the service one is providing you, since you own the fiber you could switch to a competitor.

Fourth, this facility is also a place where other applications developers and service providers can connect directly to offer any number of additional services beyond the triple play and do so with a higher level of quality of service than is possible delivering them over the open Internet.

So in exchange for paying a little more for electricity, you as the homeowner get your own fiber pipe with huge capacity without losing competition between services while opening up new possibilities for Internet applications to gain a new level of quality of service by coming into the last mile access network.

But what about for ISPs?

This has been one of the biggest challenges to this model: getting service providers onto the network to create this competition.

The incumbents aren't interested as they see this project as a competitor to their business. They don't need any help as they already have their own infrastructure. And Bill acknowledges that the telcos have had reasonable reasons for why they didn't want to go over open access infrastructure in the past since there's always been a party in the middle that has the customer relationship. But with customer-owned fiber, there's no intermediary, there's a direct connection to the customer, and Bill hopes that it will make this an easier sell.

On another front, there was an assumption that even if the incumbents won't play along that there are other retail Internet companies that would jump at the opportunity to expand their footprints into new markets without having to invest deploying new lines. But they've run into a problem. Due to regulations in Canada, all of the small Internet retail providers have gotten clobbered by the incumbents, with many saying that unless you have a million customers you can't afford to stay in business. While there used to be over 200 of these companies, today Canada has about three, and none are in Ottawa. And while he has garnered some interest from the remaining companies, the challenge he now faces is that his Ottawa trial of 400 homes just isn't big enough to get any company to spend money on getting onto that network without any guarantees that by doing so they'll eventually gain access to a larger market.

Yet despite these initial challenges, ultimately Bill's model should be one that ISPs embrace as it offers them a lot of advantages over the status quo.

- By rolling the cost of Internet service into the electric bill ISPs can get a guaranteed return and they can rely on the electric company to collect payment, which is helpful as they have the bigger stick of being able to turn off the power if someone doesn't pay up.

- By having users pay for the network, ISPs can gain access to a cutting-edge infrastructure without having to commit a ton of their own capital.

- By having the network be open, ISPs can expand beyond their current, geographically limited footprints to reach new customers that they otherwise would've only been able to serve by buying existing or building new networks, both of which require a lot more money than being able to riding someone else's network.

While this model not only raises the specter but gives new form to the idea of structural separation, where the entity that owns/manages the network is different from that which offers services over it, in Bill's estimation this is nothing more than the natural evolution of telecommunications.

He cites the wireless space as an example of this. None of the carriers own their own towers in the wireless world. The reason for this is that the fierce competition in that space has led carriers to realize that managing towers is not their core competency, so instead a number of companies have sprung for whom that is their expertise, allowing carriers to focus on what they do best: delivering high quality, value-added services. He goes on to say, "When you have a competitive marketplace, structural separation naturally happens."

And elsewhere in the world some incumbents are coming to realize that. For example, Bill points to Sweden, where a number of municipalities have built full fiber networks that are now being either used or bought by the incumbent, Telstra. While at first Telstra resisted this movement towards muni-networks, they now embrace the concept as they're realizing that muni-networks allow them to get the business while someone else pays for the infrastructure.

But for now Bill's ideals are only in their earliest stages here in North America. The fiber's deployed in their initial 400 home pilot project in Ottawa, but to prove its viability he admits they need to get a bigger city to adopt it. Only by getting sufficient scale will we convince ISPs to jump onto the network and therefore realize the competition open networks promise. And only by proving this model's viability in a bigger city will we have any hope of opening other people's eyes to these possibilities.

This post has only begun to scratch the surface of what Bill's setting out to achieve. And while I found myself growing more and more excited the longer we discussed it, I still have to be realistic about the many hurdles it faces before we can achieve Bill's goal of establishing a third option for fiber deployment in Canada, the US, and across the world.

But at the same time, it's thrilling to hear about what he's doing as he's proving that there are still new ideas to be found that reach beyond the status quo to find new solutions to the task of overcoming the gigantic challenge we face in trying to achieve a full fiber nation.

And even more heartening is the fact that he's not trying to hide and protect his ideas but instead wants to share them with the world, garner feedback and criticism, and therefore be able to improve, enhance, and expand these possibilities so that we might find the best possible way to reach our goals.

Know that you're going to be hearing a lot more about Bill and his efforts north of the border here on App-Rising.com. If you have your own thoughts on how to improve this model, your own ideas for alternate models for deploying fiber, or questions you'd like to ask Bill about the specifics of what he's doing, post a comment below and I'll make sure your concerns are addressed.

Until next time, just remember that while achieving a full fiber nation won't be easy, that doesn't mean it's impossible, especially when we've got individuals like Bill St. Arnaud with the drive, intelligence, and vision to make what might have once seem a dream into a reality.

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