Open Access Model
Public Private Partnerships are an oft-touted vehicle for municipal network deployments, but often left out of the conversation is how the right business model can make or break these projects.
Let’s talk for a bit about Public Private Partnerships, or P3s. Many broadband consultants vociferously advocate for municipalities to use them to make their communities more enticing investments for Internet Service Providers (ISPs). This is particularly true in markets where it otherwise makes no sense for the incumbent carriers to spend their limited resources in upgrading their aging plant. After all, why would they when they can get a much better bang for their buck elsewhere?
There is an attractiveness to this type of arrangement, but significant downsides as well. It can
be politically unpopular because in a very straightforward way it is essentially governmental subsidization of a private enterprise.
So, what is a community to do, when the incumbent can’t or won’t invest in upgrading their network infrastructure to 21st Century standards? And what happens when the politics of forming a P3 with an ISP to partially relieve them of their CapEx burden puts a stop to the community broadband discussion altogether?
The answer is in the business model.
Thinking that the only flavor of P3 is one in which the community partners with a single ISP to build out their town is frankly an astonishing lapse in creative problem solving in the consultant community. Especially when an alternative already exists and has flourished for years in Europe. In many ways, it seems that Open Access is the potential silver bullet for this problem, though a vocal minority of the broadband consulting world seem to have written it off.
Why do I make the claim that open access is a cure-all for the ailments of the P3 approach?
Firstly, because it is the most consumer-friendly way of delivering service to customers, and therefore circumvents all issues associated with putting all of a town’s eggs into the basket of a single ISP.
Secondly, instead of subsidizing the ability of a single company to make a profit from the town’s residents, the open access approach, encourages the town to subsidize the creation of a competitive marketplace.
Finally, from a business case standpoint, it helps tremendously.
Ordinarily when assessing the potential revenue from a market, many service providers use an estimated 30% take rate. But there are ways to engineer higher percentages of sign ups, most notably with a fiberhood-based demand aggregation approach. This technique is of tremendous potential value to network builders. By using it, you can insure that you only start construction when a critical mass of subscribers comes on board and you know construction costs are therefore covered.
Using this model in Open Access environments, take rates tend to be upwards of twice as high, which means a much faster return on investment. This dramatic difference in take rate is due to a combination of factors, most notably the ability for an end user to quickly and easily switch ISPs via a web portal from the comfort of his/her own home. That means the end user will not be stuck with a provider forever.
The other major contributing factor to these higher take rates is service pricing. While those of us in the industry will happily explain to anybody willing to listen that we need all the bandwidth we can get our hands on, the fact of the matter is that many consumers pick their service based solely on price and its ability to deliver basic, reliable service. An Open Access marketplace provides a range of prices and service levels, with an offering perfect for everybody’s needs.
The genuinely competitive marketplace enabled by the Open Access model ensures that over time, service pricing will likely decrease, and customer service scores will go up. This, coupled with the fact that the Open Access network should be the fastest, most advanced telecommunications and data delivery platform available to these residents, means that over time the take rate continues to rise, flattening out at near total coverage.
Typically, when building out an FTTP network, the goals are simple: to deliver data, phone, and television, to the subscriber with the quickest possible speeds. But if the community has a stake in ownership of the whole venture, they can utilize the network infrastructure in essentially infinite new ways, including revenue-generating use cases outside of the traditional Triple. Think about use cases such as telehealth and home security, backhaul for 5G antenna sites, and Smart City applications.
I urge you to take a deeper dive into what Open Access will mean for the service provider community — particularly small scrappy companies (of which there are around 200 in my home state of Colorado alone). Open Access networks represent a tremendous opportunity to expand your network footprint and customer base without the need for CapEx. (See https://isemag.com/2017/09/the-real-ilec-transformation/)
For cities and towns weighing their options, make sure the consultants you’re considering hiring give this business model an honest appraisal and not just pitch yesterday’s inappropriate ILEC models.
Please feel free to reach out to me or any of the other Open Access Evangelists. We’d be happy to step off our soapboxes for long enough to talk your ear off about it.