Posts tagged: from-incumbents

Palo Alto User-funded Fiber Network Economically Unfeasible

By admin, June 15, 2012 6:36 pm

Some residents and local governments have clamored for municipal fiber access, but the economics make it difficult to achieve in practice.

If a tech-heavy city like Palo Alto?(News – Alert), Calif. can’t make it cost-effective, other cities building similar networks might reconsider the idea.

The city’s Utilities Advisory Commission made a four-to-three vote to recommend that the City Council stop considering expanding Palo Alto’s dark fiber network to more residents. This is only advisory, however, and the city has not yet decided to actually kill the 41-mile fiber ring.

The reason for the recommendation is simple: they just can’t convince residents to fork over their money for fiber service.

“A fully user-financed citywide fiber-to-the-premise system is not possible to achieve in Palo Alto,” a Tellus Venture Associates report said. “An opt-in FTTP system can be built using a combination of upfront user fees and City financing, but there is very little probability of the debt incurred being repaid through operations.”

Although the city receives over $2 million in annual revenue from the network, extending the last mile into residents’ homes is expensive. In a “best case” scenario, residents would pay $1,000 for the installation, and $75 a month for service.

Only 10 percent of Palo Alto residents would pay $3,000 for installation, even if the service was free from then on.

“What the Palo Alto case says is that if you’re looking at a user-financed model to pay the upfront costs of building the network and you’re in a competitive market where you have good service from incumbents, it’s not going to fly,” Steven Blum, author of the Tellus report, told Ars Technica.

Given the close vote, however, it seems that the decision to scrap the network, if it actually comes, won’t be easy. Responding to the article in Ars Technica, Jonathan Foster, who chairs the Utilities Advisory Commission, said some members of Palo Alto’s City Council were still strong advocates of the network.

Edited by Braden Becker