Gigabit Business Model Changed with "Neighborhood" Approach

There is one thing executives at Verizon Communications, AT&T and Google all seem to agree upon concerning gigabit networks that require fiber to the home networks: the business model varies neighborhood by neighborhood, even within larger metropolitan areas that are promising.

Verizon, for example, continues to maintain that further deployments of Verizon FiOS, though conceivable, will require a fairly-stringent financial viability test.

Google made a key breakthrough in convincing local governments that the traditional criteria--universal access--was not optimal for getting rapid deployment of gigabit networks.

The change in thinking, one might suggest, is something that has grown organically since passage of the Telecommunications Act of 1996.

In legalizing local competitive communications services for the first time, the Act allowed U.S. service providers to experiment with revenue models that served businesses only, for example, not “all locations.”

The enduring examples have been out of region services sold only to business customers of some size. That approach has allowed a few firms, including Frontier Communications and Windstream, to dramatically reshape their customer profiles and revenue sources.

Where both firms traditionally have earned most of their revenue from rural and smaller market consumer customers, both now earn substantial revenues (more than half) from business accounts.

The point is that Windstream and Frontier have been able to grow revenues, and add new high-capacity facilities, precisely because they had no requirement to serve “everyone” in a particular market.

So the principle that it is lawful for a communications supplier to serve only some parts of a city, or only certain customers, has been established policy for some time.

What Google Fiber did was gain widespread support for the idea that the same principle could expedite gigabit network facilities serving consumers, on a neighborhood by neighborhood basis.

Fundamentally, that is the same logic that other service providers have done in serving the business market. Perhaps it took a new provider such as Google to convince local regulators that consumers would benefit for the same reasons as business customers, by allowing building of facilities that do not serve every location, or every neighborhood.

Both AT&T and Verizon executives have spoken of the change in potential feasibility the Google Fiber model has enabled. And it is no surprise that AT&T already is exploring doing so in scores of metro areas. The economics simply are better when a neighborhood approach is used.

Forethought, for example, is building gigabit networks serving business customers in Denver, building by building, as most competitive local exchange carriers and metro fiber providers have done.

Denver Telecom Company does the same. And CenturyLink recently has announced it will do so for at least some neighborhoods in Denver.

The larger point is that the gigabit business model is a lot more attractive for any fixed network facilities-based Internet service provider when the CLEC model is used: build first in neighborhoods where demand exists, and not everywhere.


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