"No Business Model" Problem Migrates from Rural to Urban Areas
Among the fundamental problem for communications service providers and policymakers looking at services in rural areas is that there essentially “is no market.” That is to say, the number and density of potential customers is insufficient to drive revenue, while the higher cost of building plant means the hurdle rates for standard investment are lacking.
There is, simply, “no business model.” So, historically, communications services in rural areas are subsidized, both in terms of capital and operating costs.
We are seeing new versions of that issue, but relating to gigabit Internet access, even in downtown cores of smaller communities without a huge enterprise or mid-market firm presence.
In many cases, even potential small fiber networks involving only 20 miles of plant are deemed uneconomic. In a growing number of cases, municipalities are looking for ways to subsidize such municipal networks on their own.
When no commercial suppliers (independent Internet service providers, competitive local exchange carriers and others) either cannot construct a viable business model, or can do so, but cannot secure capital to do so, municipal networks might be the best choice for fast action.
The emerging model seems to involve municipalities contributing assets (conduit, access, permitting) but not running the networks or providing taxpayer funding.
Cost control also appears to be among the potential success factors. If conventional business models do not work, and capital costs can only be reduced so much (by governments contributing conduit, for example), then operating costs must be tightly controlled.