The Meeting was called to order at 8:10 AM by Bob Moss in the Fireside room of Lucie Stern Center. Sanford Forte was the guest speaker.
20031008-BroadbandinPaloAlto-Comnet.ppt
Sanford began by reviewing the current version of the Palo Alto FTTH plan proposed by Uptown Consulting. He noted his relevant professional background, and extensive interest in the topic, claiming that we all have the goal of providing ubiquitous broadband in Palo Alto, more capacity at less cost, for everyone.
The Uptown FTTH plan has problems. 1) pricing assumptions ignore market forces. 2) possible disruption from wireless is under-rated; 3) it predicts a stable subscriber base which is unlikely ; 4) it claims FTTH in Palo Alto can succeed by providing the best pricing and the best service, yet inadequately addresses fierce price competition; 5) focus is on consumers who purchase the most costly data and content bundles, not low-end consumers; 6) video services procurement and content isn't addressed well; 7) bundling seem confused, since VoIP may be dropped; 8) projections are based on a faulty survey; 9) The plan seems to focus on video with data and phone services an afterthought. 10) the mission statement for the plan reflects a 'plain vanilla' business case that would best for a traditional, not an information, utility. 11) FTTH will be too expensive and ahead of the real demand market, (e.g. only 20% of the FTTH trial customers took the highest speed, higher cost 100Mbps service. 12) CPAU has no operational experience as an information utility provider. Because of its inexperience CPAU should have strong operational and dynamic business development processes in place before startup.
Pricing doesn't matter only to high end users. Most consumers are very price sensitive. Services matter most to high end users, yet there is little in the FTTH plan that highly differentiates Palo Alto's projected FTTH offerings on the services side. Further, as most consumers are price sensitive, the pricing models do not provide adequate barriers-to-entry to future competitors. He feels Comcast provides adequate services.
Sanford claims that the broadband and telecommunications market is in dynamic flux, so accurate long-term projections up to 15 years are not possible.
In contrast, if cable companies are required to open their lines to other service providers. DSL will face the same problems later and also will have to open their lines to all.
The broadband and telecommunications market is in flux, so long term projections are impossible. Sanford compared today's telecom situation to railroads in the 1860s, claming that there was a lot of disruption over many years before anyone could make projections about that sector. Some reasons for lack of private investment in the telecom sector are: 1) uncertainty about market disruption; 2) uncertainty about which entities will gain access to telecom infrastructure (wired, and wireless); 3) the speed of current technology development; 4) overinvestment in telecommunications, especially wireless.
Private and public investors have different payback periods. Public investors are willing to wait longer, so a 15 or even 30 year term for full deployments to be completed and recover the investment plus profit would be acceptable.
First investors often get burned. This applies to wireless also. The case simply emphasizes better price and service. CPAU plans to operate like a private business giving preference to a high end group. Palo Alto could make its FTTH deployment a true utility that serves all residents optimally by deploying a scaled FTTH deployment (FTTC, FTTN, etc) in parallel with a fixed, high-speed wireless deployment.
In contrast a participant noted that CPAU did serve upper end customers for electricity, and sometimes for gas, in the 20's because not everyone could afford it. A number of homes had neither service. The services spread to everyone eventually. Fiber does the same thing now for commercial interests, since it is available everywhere, and often connects many residential and commercial properties to high speed services. We should try to serve everyone even if they don't have equal needs and interests.
Sanford's response was that FTTH is a great technology, and it (or a comparable technology) eventually should be deployed universally in Palo Alto. The difference between the electric utility example and the current FTTH proposal is that data and phone services are available now, via fixed wireless deployments. A scaled FTTH deployment, accompanied by community-wide fixed wireless would be better, cost less, and help CPAU learn about how its customers use broadband networks.
It was noted by Moss that this model ignores video, which is a major market and major source of income.
Sanford said the business case should fully investigate opportunity costs, and it doesn't. He suggested using those reserves for other purposes. Moss noted we can't, electrical reserves can only be used for electrical projects, both by law and financial requirements.
Sanford said we need to have plans and models in advance of actual startup. FTTH will be expensive and far ahead of the market. He offered an alternate funding model that soliciting funds from private institutions (Stanford University, Hewlett-Packard, etc.) and/or private individuals. He calls for a modified 'Private Placement' of funds to obtain the necessary funding to get Palo Alto' s broadband infrastructure off the ground.
Moss noted H-P did that when FTTH trial was begun. They offered to pay hook-up costs and monthly rates for 2 employees in Barron Park, but that area wasn' t picked. As for private funding, the venture capitalists have answered that negatively the past 3 years.
Jeff Hoel noted that private investors would tend to be in it for short term and to make money, which negates the CPAU approach with willingness to wait longer for return of capital. Most efficient way to finance building FTTH it is unclear.
Another option is a limited FTTH rollout only to nodes not directly to users, with fixed wireless as the first means of connection, then installing FTTH as needed.
Jeff Hoel said the fiber ring no longer can be used to scale up to FTTH. How do we know FTTC will scale properly in the future?
Sanford replied that a hybrid FTTH/wireless system will provide data/phone service faster and will do it cheaper. A fixed wireless network will be cheaper and can be deployed as fast as different areas request it. This approach will let us learn what works and what's desirable at lower cost with less risk. It will let CAPU find out how broadband works and let us grow the service as needed. Regulations also change over time and we need to be aware of the problems.
The Uptown model lacks adequate analysis of how people will actually use data or other services. Installing the wireless connections first will allow collection of real information on public acceptance and interests for voice and data, but not for video.
A fixed wireless network, deployed in parallel with a beginning FTTH deployment, will permit near universal data and phone use by all Palo Altans. It would also be cheaper in the long run, as the cost of the final phase of a scaled FTTH deployment should decrease, with installation savings dropping as advanced techniques for running FTTH develop. This approach will create efficiencies that arrive organically, instead of forced by having to fix costly mistakes made on erroneous assumptions about usage and subscribers.
Moss noted that unfortunately this approach will not create a true information utility since it ignores video, and the major revenues from that service. It creates part of a system, not a real communications utility.
Sanford said a city-wide wireless system can be built for less than $5 million. There are 2 cost elements for FTTH. One is the basic trunk, the other is customer connections. Everyone won't want fiber, so the plan should allow those who don't want or need fiber to have cheaper wireless.
It was noted that a problem is that it's only point to point and has limited flexibility.
Wireless connectivity is the most used system worldwide, especially in the developing world. With so large a market it's sure to be a major factor in communications. Service costs are lower, capital costs are lower, so it's accepted.
Sanford claimed a fixed broadband wireless deployment in Palo Alto's downtown core would cost a fraction of a full city deployment; it would work and would be an immediate income producer for CPAU. Service and capital costs would be lower and fixed wireless would be immediately available without truck rolls. All of these factors would lead to immediate use, and early acceptance of CPAU' s wireless/FTTH broadband business.
Moss noted we had fixed wireless downtown and they went broke and removed the system in less than 6 months.
Another financing approach is municipal incentives to private vendors for wireless deployment. Palo Alto could use private companies to deploy these networks. (He mentioned the Fiber Internet Center group as one source). Involve all the local stakeholders and investors in the project and ask them for funding and support. Revenues to pay for the capital investment plus on-going expenses would be from fees for subscriber services, although some advertising revenues also are expected.
Palo Alto should use local providers for wireless service rather than outsiders (assuming competitive costs).
Adjourned the meeting at 9:50 AM
Submitted by Bob Moss