Broadband Strategies for Localities with Unserved and Underserved Areas

How can we get broadband for our unserved and underserved areas?

Areas are unserved or underserved with broadband because they do not represent enough of a business case for private sector internet service providers to invest. To prevent out-migration of residents and businesses, localities know they need to do something if they are going to stay competitive and relevant in an increasingly online economy. When residents and businesses complain that they are not getting the speed, reliability, and quality of service they need for their connection to the internet, communities and regions have traditionally had 3 strategies to address that need.

The costs, benefits, and outcomes of traditional broadband strategies have left many localities hesitant, leaving their broadband issues unresolved. Based on SNG’s research on the economic feasibility of investing in broadband, we recommend localities choose a new strategy – a Digital Infrastructure Approach – as outlined in the second table.

Traditional Broadband Strategies for Localities with Unserved and Underserved Areas
Strategy	Costs	Benefits	Outcomes
Option 0) Do Nothing – leave unserved and underserved market to private sector service providers	Reduced economic opportunities and quality of life Reduced tax revenues and property values	No financial implications to City because City not getting involved	Poor broadband services in unserved and underserved areas will persist where there is not enough of a private sector business case to serve them No control over digital future, e.g. smart community services
Option 1) Develop a public-private partnership with a selected ISP	Investment by City to attract private sector partner investment Subsidization of business case to a private sector partner	Service to designated areas as part of partnership agreement	No competition to the provider under contract Limited control over digital future – City’s goals (economic vitality, community benefits, smart community services) may not align with provider’s goals (revenues, profitability, ROI compared to other investments)
Option 2) Become a municipal internet service provider	Resources to build, operate, and manage network Continual need to acquire customers Need to compete against incumbent and new providers	Ability to serve neighborhoods, and potentially to generate positive cash flow, if there is a business case	Full control over digital future Operating as a competitor to incumbent providers for market share Unserved and underserved neighborhoods may not be enough to sustain municipal investment

By taking a Digital Infrastructure Approach, as outlined in the table below, localities can bridge the digital infrastructure gaps and choose an operating and service model based on their needs and situation.

Option 3) Digital Infrastructure Approach for Unserved and Underserved Areas
Strategy	Costs	Benefits	Outcomes
City builds and owns core network for municipal facilities	Initial fiber investment to serve municipal sites and schools, etc. Backhaul traffic carriage costs Operations center, or outsource operations. Financed over 20 years	Net internet and telecommunication cost reductions over 20 years. Telecom budget spent on network rather than leased services.	City can self-finance network from municipal cost reductions. By owning its digital infrastructure, the City can: Service municipal facilities with unlimited connectivity with minimal incremental cost Ensure affordable digital infrastructure available as an essential service for connecting neighborhoods Provide a platform to enable smart community services
Build and own access network for Broadband Improvement Districts (BID) using open access model	No net cost to city because property owners self-finance last mile connectivity Property owner investment financed over 20 years Network costs covered by up-front property owner payments	Total net subscriber savings due to lower cost per month Network is sustainable by building to committed demand Minimize political risk – no cost to non-participating taxpayers	Greatest alignment of any model between community needs and broadband service Lower costs for bandwidth than other models – multiple provider competition over open access platform Providers can access new subscribers through digital infrastructure they did not have to pay for Economic impacts benefit to GDP, new jobs, and taxes
Operate or outsource operations of the access network	No cost to city as subscribers pay for operations and maintenance No capital financing costs or revenue margins	City can outsource operations, or create own department if it has the resources and expertise	Digital infrastructure with software-defined networking enable automation to minimize costs and enable new operation and internet service models, such as a public-partnership with a provider or using an open access approach

We know that service providers already have their expected take rates and will use their spreadsheets in developing their own business case. However from SNG’s extensive research, the majority of the community benefits from broadband are off-balance sheet to providers – which means providers under-value their return on investment as compared to community returns on investment (i.e. community benefits). We call this an economic case for investing in broadband – some people call it a government business case because the community’s goals (economic vitality, community benefits, smart community services, long term planning) may not align with private sector service providers goals (revenues, profitability, enough return on investment compared to other investment opportunities). It’s the same reason we have public investment in roads.

Localities have a role to step-in to address their broadband gaps so that residents and businesses in unserved and underserved areas can have the speed, reliability, and level of service they need. It’s time for a new approach to broadband that can offer private sector providers new market opportunities.

Summary of Broadband Strategies

Option 1) Partnering with an internet service provider may be the path of least resistance for some localities. Taking a public-private partnership strategy contributes funds toward service provider investments to build out their networks into your rural areas. Essentially, the community would be offsetting a portion of the provider’s capital cost to enable a positive business case for investment on their part. The amount that the community would need to invest is something that would have to be understood and negotiated so that the outcomes are satisfactory to all – to achieve a win-win.

Option 2) Becoming a municipal internet service provider requires resources to build, operate, and manage network, a continual need to acquire customers, and a need to compete against incumbent and new providers. The benefits are local determination and ability to serve target neighborhoods. There is also the potential to generate positive cash flow, if there is a business case.

Option 3) Building your own digital infrastructure which multiple providers can then use to provide services requires a local investment. However this can be self-financed from municipal telecommunications and internet cost reductions. By owning its digital infrastructure, the city can service municipal facilities with unlimited connectivity with minimal incremental cost, ensure affordable digital infrastructure available as an essential service for connecting neighborhoods, and provide a platform to enable smart community services.

Regardless of which strategy a locality chooses, the first step is to understand whether the community benefits from an investment in broadband will outweigh the costs. At SNG, we call this the economic case for investing in broadband.