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June 24, 2009 9:07 AM

Thoughts On Public/Private Partnerships For Broadband

So in one camp you have folks who think broadband deployment should be purely market-driven, all broadband networks should be owned/operated by private companies, and these networks should be vertically integrated with services.

In another camp you have those who believe all broadband networks should be publicly owned and operated, and that these networks should operate as dumb pipes.

The public guys don't think we can get world-class connectivity to everyone without government intervention, and that the old model of providing telecommunications services is holding back the new paradigm of abundant bandwidth and open competition.

And the private guys don't think a public network can be run efficiently, will be adequately invested in over time to continue driving innovation, and should be allowed to duplicate and compete with private investment.

Yet at the same time these debates are going on, a common theme coming out of both sides is the need to focus on public/private partnerships as a way to solve our broadband dilemma. But what does a "public/private partnership" mean or look like?

There's a lot that's possible when we step beyond any specific ideology and start considering how best to marry the strengths of both public and private models into something greater.

To get this conversation rolling, let me suggest some guiding principles that public/private partnerships should be striving to achieve:

Make as much capital available as possible.
Getting the best broadband to all citizens is hugely capital-intensive. While we should absolutely acknowledge the tens of billions private industry are investing each year in their networks, we should also make full use of the many tools at government's disposal to make more funding available, whether that be by incentivizing continued investment through tax credits, encouraging greater availability of private capital through government partially guaranteeing loans, or government being a direct source of capital through loans or grants.

Aggregate demand and reduce barriers to deployment.
By working together, public and private parties can be educating and inspiring the public to better integrate the use of broadband into their lives, thereby creating more customers and improving the business case for broadband deployment. Also, by the public sector doing more to streamline the government processes needed to facilitate deployment, and by the private sector doing more to respect their public interest obligations, we can make broadband deployment more economically viable and efficient.

Concentrate that investment on non-duplicative networks.
Leaving the deployment of broadband purely up to market forces has proven to result in communities with more attractive markets getting all the investment in upgrading capacity while less attractive markets get left behind. Public/private partnerships should be geared towards insuring that all citizens get equal access to the best broadband so that everyone can have a level playing field to compete on in the 21st century. That means less of a focus on facilities-based competition and more on making the best broadband ubiquitous.

Encourage as much competition and innovation as possible.
As facilities-based competition is too capital-intensive to support more than a couple of big players, and as the key to fostering innovation is embracing the principles of openness that the Internet has proven to be so effective, the best way to accomplish these goals is to have networks that are supported by public/private partnerships be open to multiple service providers competing on the same open infrastructure alongside unfettered over-the-top competition.

Offer many opportunities for private companies to make money.
I am a believer that market-driven, for-profit entities are often best at driving new efficiencies and creating new innovation, so public/private partnerships should embrace every opportunity to incorporate that mindset into their model. And everyone needs to understand that just because something's called "municipal broadband" doesn't mean there aren't many potential roles for private enterprise to make money.

With these thoughts in mind, I want to propose a more fully realized model for public/private partnerships in broadband deployment.

I'll start with the premise that the underlying network infrastructure should be publicly owned, and that that network should be open so that we're maximizing opportunities for competition. Now let's unpack this a bit.

To get these networks funded we should leverage a mix of public and private capital sources. As readers of App-Rising.com know, I'm particularly fond of government partially guaranteeing loans from the private capital markets as a way of maximizing the leveraging of government dollars while minimizing risk. By doing this we reduce the outlay needed to be made by government while providing a way for private industry to make money. It's really the ultimate public/private partnership.

Then, to get these networks built, we can outsource the design and build work to private contractors. In some instances local public entities may have the resources on staff to help get this job done, but in most these projects would be better served by bringing in outside experts. In this way the networks will be built with the public interest in mind yet still provide opportunities for private companies to drive new efficiencies and make profit.

Next, to operate these networks, while they are owned by some public entity it makes sense to outsource this management work to a private company. So again, profit can be made but the public will be protected against any predatory practices since they own the network and can kick off whoever's managing it if they're abusing their position.

To maintain these networks and upgrade them over time use whatever money is being earned by the public owning the networks, and also consider having ways to either charge private service providers or give them the opportunity to help invest in upgrading the network's capacity to better support their services and applications.

The most exciting part of this model is in the offering of services, which will most definitely be driven by private companies in search of a profit. Only now, because of the public's involvement in helping finance and owning the networks, these private providers can focus their investment on developing new services rather than deploying and maintaining physical infrastructure. Because of this public/private partnership we'd be able to realize a whole new era of open competition that will drive a host of new innovation.

So there you have it, through a more complete model for public/private partnerships we can achieve the best of all broadband worlds, balancing the needs to respect public interest with the benefits of embracing profit-driven efficiencies and innovation.

Often I worry that when people talk about "public/private partnerships" they stress too heavily one side of that equation or the other. Either they get caught up in the ideology of public networks without acknowledging the benefits of having profit-driven private involvement, or they think a "public/private partnership" should only mean government doing more to make the life of private companies easier as they go about their market-driven ways.

But there is a better solution to be had through pursuing a more fully realized definition of what public/private partnerships can mean.

Now I'm not saying that what I've laid out here is necessarily a silver bullet to solve all our broadband problems as there are lots of details still to be worked out. And I'm not claiming ownership over these ideas as many of them are already being put into practice both in the US and abroad.

But if we are to tackle the massive challenges associated with bringing the best broadband to all Americans so that everyone can compete equally in the global digital economy, then we need to be leveraging all the tools at our disposal to their greatest degree. And the best way to do that is to embrace all the possibilities of public/private partnerships in order to help us achieve our broadband goals.

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Comments (4)

I believe this is the model at least one of the Norwegian countries use. Basically, the part of the picture that is a natural monopoly (the physical infrastructure connecting to each location) is publically owned and maintained, and private companies rent and offer services over these lines. I've heard from one individual that he has a choice of more than 20 companies to choose from for Internet access. This is something I'd like to see happen here.

I mean, I start from a libertarian/free market mindset, but I draw the line on places where the free market does not work, like infrastructure like roads, electricity, water service, and physical telecommunication lines. Projects like LUS's publically owned fiber to the home are a great start for this. The wonderful thing about network infrastructure is that many companies can rather easily serve multiple customers over the same lines; much easier than multiple companies can provide water or electricity over the same lines. The public entities have to maintain the routers that will separate where info goes, but even that can be contracted out to private companies if desired (though truthfully, I'm ambivalent about that. That aspect can actually kept "in house" for all I care).

Posted by Nick on June 25, 2009 1:05 PM

Jeff, good piece on PPPs, their role and importance in getting US broadband moving.

Let me know if you have an interest in exploring some successful global broadband PPP examples, such as France, Singapore and the Alberta SuperNet.

Posted by tim scott on June 25, 2009 1:55 PM

I think "partnership" is the wrong metaphor for how public entities, such as municipalities, and private entities ought to cooperate in deploying and operating FTTP networks.

Partners share goals, but municipalities and private entities don't. Municipalities care about the public interest; private entities don't.

When a municipality wants to obtain financing, e.g., revenue bond financing, for a FTTP project, it doesn't need a "partner," it needs investors (whether they're public-sector investors or private-sector investors) willing to settle for the interest rate associated with revenue bond financing. (If the muni could find an entity willing to partially guarantee the bond, that would be great!)

When a municipality wants to build out a FTTP system, it doesn't need a "partner," it (often) needs to outsource the construction, in the usual contractual way.

If a municipality decides to outsource the operation of a FTTP system, it doesn't need a "partner," it needs to outsource the operation in the usual contractual way. (The way some municipalities outsource garbage collection service.)

If a municipality would like retail service providers to offer retail services on its open-access FTTP network, it doesn't need "partners," it needs retail service providers that are willing to show up and play by the municipality's rules.

Posted by Jeff Hoel on June 27, 2009 8:48 PM

Thoughtful suggestions, but I think it will be hard to conceive a model that will work in all circumstances or one that can never work. Nevertheless public/private broadband deployment partnerships can be greater than the sum of the parts. You just have to look at the facts of each circumstance and what each partner can bring to the table. When such partnerships (in whatever configuration) make sense, go for it, but set milestones and monitor to make sure they are making acceptable progress towards the achievement of their potential.
Bruce Hahn
American homeowners Grassroots Alliance

Posted by Bruce Hahn on June 28, 2009 10:50 PM

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