I had an opportunity to see Tim Scott of PacketFront talk about open access FTTH networks at the Digital City Expo in January. I thought his presentation was interesting and asked if he would follow up with more information for the blog. PacketFront was gracious enough to send us their responses and I am happy to post them below. I want to thank them for their time and consideration…
PacketFront is a very strong and vocal advocate for the open access model in municipal broadband. Open access is the only community network model that offers true freedom of choice and competition for consumers. In the right setting, open access networks bring down retail prices and increase service innovation, thus stirring economic growth and enhancing quality of life.
That being said, open access isn’t a viable option for every community network. In fact, we don’t believe open access is really feasible for networks of less than 3,000 homes. Further, to be really successful, open access networks need to start with 30,000 homes and businesses and go from there.
But how then can small and rural communities hope to reap the benefits of an open access network? To answer this question, it is probably useful to define the options available for service provider access to networks.
Closed: Networks that have one exclusive service provider. This single service provider may provide a variety of services on the network (voice, video, different levels of data service, etc.). This scenario is often seen in networks that are actually owned by the service provider as well (good examples of this are the Verizon FiOS networks, cable company networks, etc.). Closed networks are also found in smaller communities that, due to the low number of potential subscribers, cannot offer enough incentive for more than one service provider. Sometimes, a municipality that builds and owns its network will also choose to offer retail services on that network as the only service provider.
Limited Access: Networks that limit access to a capped number of service providers—more than one but fewer than five. This is a newer model which may suit some rural networks, especially in their earlier phases. Typically, the suite of service providers in this scenario would include at least one major triple-play provider, as well as one or two additional voice/data providers, and perhaps one or two niche providers.
Limited access networks allow smaller networks (less than 30,000 addresses) some of the same benefits of a completely open network while still allowing a solid revenue proposition for the service providers. In other words, by limiting the number of providers on the network, there is more revenue to share.
Open Access: Networks that are open for any qualified service provider to use. Sometimes these are owned by municipalities that offer the use of the network to service providers for a wholesale rate. The service providers then sign up subscribers and charge a retail rate; their profit comes from the difference between the retail rate they charge their subscribers, and the combination of their operating costs and the wholesale rate (or revenue share) they pay to the network owner. In a completely open network with a large enough subscriber base (typically more than 30,000), many service providers will join the network, offering major voice/video/data products, along with niche products that fulfill specific needs (i.e, distance education, telemedicine, security, gaming, visual communications, etc.).
No matter what option works best for a network at its outset, bear in mind that it is much easier to accommodate future growth on a network if it is initially built as an open access network. Why? Technologically, it is much easier to move from a limited access network to an open access network than it is to move from a closed network to an open- or limited access network. This is because the decisions made early in the design and build of the network (open, closed, limited) will dictate many of the decisions regarding governance, financing, marketing, electronics, and operating systems.
So if any type of an open network is anticipated or desired in order to achieve the long-term objectives of the network, PacketFront would recommend that the network be initially built to accommodate an open access model, even if it will be operated, at first, as a closed or limited access network. Doing so will enable a far easier and less expensive transition as the network grows and evolves.
The idea here to be able to easily add more service providers to a network as it matures, (even if the network starts with just one provider) in order to provide the freedom of choice and service innovation that is the promise of open access.
A community fiber network will encourage innovations beyond the standard services typically provided on a closed network to include telemedicine, distance education, local community outreach, social services, e-government services, spiritual services, and in-network communications. Competition drives innovation and product development. Traditional phone and cable providers are not on the leading edge of new application development—because they operate in a closed environment and do not invite true innovation.
For example, if a local health care clinic wants to run a consultation service (a live “Ask a Nurse” service that uses remote visual communications) on the network, do you think the local cable company would consider allowing the clinic to host their service on the cable network (even assuming it had sufficient bandwidth)? No, but the clinic could easily offer this service on the community-owned network. Likewise with any other local service provider—a community network creates opportunities within the community to foster innovation, creativity and competition.
This sense of community growth through a community-owned network has been extremely successful in many European communities. Though the concept is still emerging in the United States, it is gaining mindshare and being implemented in communities this year.
Peter Drucker said that there are only two things that really matter in business—Innovation and Marketing, everything else is an expense. The success of a community-owned open access fiber-to-the-home network will happen when these two things come together. Remember—when communities began installing electrical grids, the only thing we really knew to use electricity for was to power light bulbs. Think of all the applications we’ve since discovered and expect from electricity!
To address the specific questions posed by Blandin, PacketFront’s responses are below each question:
1) There is not enough revenue to share – the providers will not pay enough to support the network and the network needs providers to provide services. Communities give away the store to attract the providers.
The answer to this question lies in the number of service providers and the number of potential subscribers on the network.
Every service has a cost and a margin. In broadband, scale is key to success. We recommend that smaller communities form network aggregates with other communities (especially those communities that are geographically close together) in order to create networks with more subscribers; larger networks will be far more attractive to service providers.
Alternatively, some communities may consider operating a closed or limited access network to meet their objectives, either initially or conclusively. If deployed correctly, closed or limited networks can be very successful in fulfilling community goals such as increased bandwidth, community connectedness, and ubiquitous deployment.
2) Smaller markets will not be able to attract big providers who might be more attractive than mom and pop providers, especially to businesses.
The ability to attract large providers lies in a community’s ability to take advantage of economies of scale. It is for this reason that we often recommend that smaller communities create network aggregates (or cooperatives) with neighboring communities in order to take advantage of larger subscriber bases.
Alternatively, communities could choose to work with a network operator that spans multiple markets, and thereby gain instant economies of scale by leveraging the operator’s subscribers in other areas.
There is a balance to be struck between an acceptable wholesale rate for the network owner (the community) and providing enough revenue for the service providers. This formula can be calculated by experienced network planners to the mutual benefit of all parties.
A larger potential subscriber base will attract a greater number of quality regional or national providers. There are benefits to attracting both kinds of providers. The larger providers can sometimes provide more and better services, while the smaller local providers can often provide better customer service and more community-focused services. They also help keep some of the revenue dollars inside the community.
3) How does a community enforce some quality of service standards with providers? If the providers are poor, who gets the blame? If poor providers are deleted from the network, how does customer transition take place without disruption?
It all starts with attracting high quality service providers to begin with. These providers must be qualified and held to those quality standards. In an open access environment, once a service provider passes through the initial due diligence of the network operator/owner, and allowed to begin providing service, the market will control the rest. The whole idea of open access is to prevent customers from suffering the consequences of service provider failure. In an open model, customers have the choice to move to another service provider anytime. This is not the case in a closed network.
If there is an under-performing provider on the network, they will likely not have many customers, so disruption is often not a major concern. Again, the market controls this. There should be Service Level Agreements (SLAs) put in place with all service providers who operate on a community’s network, and these SLAs should be strictly enforced. Doing so protects the integrity of the network as a whole, better ensuring its success.
If a service provider needs to be removed from the network for poor performance, contractual exit strategies should ensure a seamless transition to another provider for its customers.
Developing good partnerships and having a clear and congruent strategy where all parties thrive is essential for the network owner, service providers, and customers. Service provider changes can and will happen on an open network, and these eventualities can be planned for so that they are minimally disruptive. On a busy downtown street where there are many shops, one or two are bound to change over time. The beauty of this is the consumer can simply go to the next shop and continue buying.
4) Open access networks were compared to the post 1996 telecom world- “It’s CLECs all over again.” Trouble shooting becomes difficult with finger pointing as the main strategy for problem solving.
Successful networks begin with good partnerships and strategies that meet both network owner and service provider needs.
Troubleshooting actually is pretty simple when adequate network operating/automation systems are in place. Networks should be built with advanced network automation systems that enable service providers to clearly see and troubleshoot their own portions of the network. If a service provider can easily see what is or isn’t an issue with their own service, they can act accordingly; fix it if the issue is theirs to fix, or involve the network operator if it’s a network issue. Advanced network automation systems remove all ‘finger pointing’ because it becomes very obvious to everyone exactly where the failure has occurred.