Free Fiber to the Home

A novel new approach to underwriting the costs of next generation broadband - fiber to the home while addressing the challenges of reducing energy consumption and CO2 emissions and providing new revenue model for service providers. See below for more details

Thursday, July 12, 2012

Google's secret strategy with the Kansas City Fiber project

[I have long been perplexed at how Google plans to make a profit with their Kansas City Fiber project.

About Me

Bill St. Arnaud: Bill St. Arnaud is a R&E Network and Green IT consultant who works with clients on a variety of subjects such as the next generation research and education and Internet networks. He also works with clients to develop practical solutions to reduce GHG emissions such as free broadband and electrical highways (See http://green-broadband.blogspot.com/) . For more about me please see http://goo.gl/pOpwB

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Executive Summary

This blog is about a novel new business model for delivering Fiber to the Home. A proposed pilot deployment is underway in Ottawa Canada.

A detailed business plan is available at: http://www.slideshare.net/bstarn/fiber-to-the-home-business-model-presentation/

The pilot project has 4 objectives:

(a) To validate a new private sector funded business model for deployment of fiber to the home designed for low take up rates and in a market already served by incumbent cable and telephone companies;

(b) To validate a new way to reduce green house gas emissions through "carbon rewards rather than carbon taxes"

(c) To validate true facilities based competition by the customer owning the last mile and being able to connect to a service provider of their choice at a central POP; and

(d) To validate a market based solution to network neutrality, rather than using regulation, through the customer owning the last mile;

Background

One of , if not, the greatest threats to our future society and economy is global warming. Governments around the world are wrestling with the challenge of how to reduce carbon dioxide emissions. The current preferred approaches are to impose “carbon” taxes and/or implement various forms of cap and trade systems. However another approach to help reduce carbon emission is to “reward” those who reduce their carbon footprint rather than imposing draconian taxes or dubious cap and trade systems. Consumers will generally respond more positively to voluntary reward mechanisms as opposed to mandatory solutions imposed by government or other authorities. For more details on carbon rewards see http://green-broadband.blogspot.com/

This paper discusses one possible reward system where consumers are provided with free true high speed Internet if they reduce their overall energy consumption. Not only does the consumer benefit, but this business model also provides new revenue opportunities for network operators and builders.

One of the significant challenges facing network operators today is the high capital cost of deploying next generation broadband network to individual homes. Fiber to the home or high speed wireless with data rates in excess of 100 Megabits or higher are seen as the ultimate end goal of delivering true high speed broadband to the end user. But the biggest challenge in deploying these types of networks is finding a business case to justify the necessary investment. This is particularly difficult as the revenue for services such as video and telephony trend to zero.

One solution is a novel new approach under development in several jurisdictions around the world is to bundle the cost of next generation broadband Internet with the resale of gas and electricity to home owners. Rather than charging customers directly for the costs of deployment of the high speed broadband network theses costs instead are amortized over several years as a small premium on the customer’sgas and electricity metered rate for energy. Customers are then free to use the new broadband infrastructure to connect to service and content providers of their choice, many of which will most likely be free.

Gas and electric retailers (Energy Service Companies - ESCOs) are not to be confused with utilities who own and operate the electrical grid or gas pipeline networks. In Ontario alone there are over 50 registered resellers of gas and electricity. Resellers purchase wholesale power from generators across North America or from the energy wholesale market and then use the electrical grid or gas pipeline network deployed by municipal or provincial utilities to sell power directly to businesses or homeowners.

Consumers have a choice of purchasing a variety of power packages with different rates and terms. The typical arrangement is for a customer to sign up with a gas and electric reseller where they agree to pay a small premium on their per kilowatt or per cubic meter metered rate for energy, in return for a promised fixed rate for the next 5 years or other benefits. For example, environmentally conscious consumers can agree to pay a premium on their electrical metered rate and purchase power that is only generated through renewable resources such wind and solar power systems (Bull Frog Power, Wind Energy, etc)

Some electrical resellers are now also offering bundled services where consumers can purchase power combined with a variety of products from hot water heaters, to home renovations or telecommunication services.

Direct Energy, Canada’s largest gas and electric retailer, had undertaken a similar business model where they offer 300 Free minutes long distance per month to customers who sign up for a 5 year deal on their gas and electricity resale offerings.

Clearly there is now an opportunity to use this business model to underwrite the costs of deploying the next generation broadband networks. No government financing is required. This is entirely a private sector market solution. As well no homeowner will be forced toparticipate or subscribe to such a program through municipal levies or taxes that often occurs with municipal run networks.

More importantly further inducements can be offered to the homeowner, by guaranteeing the continued delivery of the next generation broadband even if the customer reduces their overall gas and electricity consumption. In fact homeowners would be encouraged to reduce their overall consumption as part of their contribution to reducing global warming. As their reward they will continue to receive their next generation broadband delivery service without penalty.Hence the term “Green Broadband”

This novel business arrangement has many benefits for the network operator, the electric/gas reseller and most importantly the consumer. Briefly they are as follows:

For the network operator or builder they now have a guaranteed revenue stream for which they can underwrite the costs of deploying the next generation broadband infrastructure. Their revenue stream is protected regardless if profits from services such as telephony, cable TV and Internet trend to zero, as we are seeing happen elsewhere in the word. Just as importantly all billing, collection and bad debt is the responsibility of the local utility who bills the customer on behalf of the electric/gas retailer, who in turn pays a portion of their revenues to the network operator and/or builder.

For the gas and electric reseller, they now have a new sales tool to entice customers sign up for their gas and electric resale products.Currently the marketing strategy of electric and gas resellers is toguarantee a flat price for the gas and electricity rates over a 3 year or 5 year contract. As well the increased premium on the gas and electricity rates for the green broadband service enables greater arbitrage against the wholesale prices that the gas and electricity reseller must pay to the electrical generating companies which should enable greater profitability.

Both the network operator and electric gas reseller can also contribute to reducing emission of green house gases by encouraging customers to reduce consumption, but also protect their profits through intelligent arbitrage of their wholesale prices. And as we know from Economics 101 the surest way to reduce consumption of a precious resource is to increase its price. So the additional premium consumers would pay for green broadband would be a further incentive to reduce consumption, regardless of whether they believe in global warming or not.

Finally, and most importantly, the homeowner benefits through the availability of a low cost, or in some cases free next generation broadband connection, where they can also have a choice of service providers. This is especially important in communities where the economics of providing next generation broadband would not be possible with current business strategies of the incumbent carriers. In addition the homeowner, can make their own small contribution to global warming by reducing their overall consumption and yet not incur any penalty in terms of delivery of their next generation broadband delivery service. So customers can end up paying significantly less than they do today for their combined cost of gas, electricity, telephone, Internet and cable TV.

Finally governments can play a critical role by encouraging these new business relationships between network operators/ builders and the energy industry. Many electrical gas resellers are subsidiaries of government owned or controlled utilities. Governments can also accelerate the process by providing some seed capital as infrastructure loans for some early pilots and in rural or remote areas where the capital costs of deploying next generation broadband infrastructure are still daunting.

For further information and detailed business analysis please seehttp://www.slideshare.net/bstarn/fiber-to-the-home-business-model-presentation/

or contact the author Bill St. Arnaud at bill.st.arnaud@gmail.com.

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