x
Video services

Utah's Broadband War

SALT LAKE CITY -- Broadband Cities Convention -- Utah’s incumbent broadband providers appear to be fighting back, dropping broadband prices to retard the uptake of new triple-play services provided by Utah Telecommunication Open Infrastructure Agency (UTOPIA). UTOPIA is a publicly owned fiber network managed by a privately held company, DynamicCity Inc. As a wholesaler it leases the infrastucture, which was funded using bonds, to retail broadband service providers for the distribution of their services (voice, video, data, etc.).

Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Qwest Communications International Inc. (NYSE: Q) are distributing marketing materials advertising lowered prices, but the fine print stipulates they apply only to cities where UTOPIA service is available, says Ben Gould of DynamicCity.

UTOPIA's fiber now reaches fewer than 10,000 of the 450,000 the network hopes to eventually service.

Perhaps this is an indication of the future path of warfare between commercial incumbents and municipal broadband networks. Thus far, the incumbents have attempted to block UTOPIA’s progress through legal and legislative means, and those tactics are still being used. Qwest filed suit some months ago against UTOPIA and one of its member cities, and both Qwest and Comcast have worked to influence anti-muni broadband legislation in the state legislature. (See Cannon Fires at Incumbents.) Since UTOPIA began delivering broadband service over its fiber in March, the conflict appears to have taken a new turn. (See Muni Networks: The Public's Not Buying.)

Comcast has dropped its Internet service price from $45.95 to $29.95 a month for people in "UTOPIA cities" Midvale and Murray, and that price is locked in under a one-year contract. Comcast’s high-speed Internet service maxes out at 4 Mbit/s for downloads and 384 kbit/s for uploads, far less than the competing UTOPIA service. One of UTOPIA’s triple-play service providers, MStar.NET LLC, offers 15 Mbit/s of symmetrical broadband for $39 a month. When it comes to the bundle of voice, video, and data services, Gould says MStar actually has the lowest price for UTOPIA city residents. MStar’s triple-play bundle sells for $104 a month, while Comcast’s bundle comes to about $140 a month, Gould says.

But as UTOPIA fiber reaches more and more neighborhoods, how far will the incumbents’ price cuts go? Could the day come in UTOPIA cities where the cost of broadband is $5 dollars a month? UTOPIA executive director Paul Morris doesn’t think so. “You can’t find a case where [prices] will go down to 5 bucks a month for broadband service,” Morris says. “If they went to five bucks a month, then other cities are subsidizing that low price, and they wouldn’t put up with it."

Should such a price war occur, DynamicCity’s Gould suggests that a municipal network might be better prepared than the incumbents to survive it. (See Poll: RBOCs Fuel 'Broadband Gap'.)

“They need a three- to five-year return on their investment in any given market,” according to Gould. Government-owned networks, by contrast, can be financed with a 20- to 30-year bond, he says (See Light Readers Embrace Muni Nets .).

Still, the 14 cities that own UTOPIA plan to pay off the $85 million bond they floated in July 2004 using profits generated by wholesaling the network -- not through new tax levees. UTOPIA faces pressure to win market share to bring in that revenue.

UTOPIA’s fate matters because it has become one of the models for municipal networks that many community activists are watching as they contemplate building such networks in their own towns. It also employs a business model that many believe has the best chance of weathering the political battles and surviving competition from incumbents.

The success or failure of the UTOPIA model could have a profound impact on other municipalities considering the expense of launching similar networks.

— Mark Sullivan, Reporter, Light Reading

Page 1 / 3   >   >>
OldPOTS 12/5/2012 | 3:00:40 AM
re: Utah's Broadband War Did I hear $24.95?

OldPOTS
optical_man 12/5/2012 | 3:00:37 AM
re: Utah's Broadband War if you let them give you inexpensive service.
Beware.

"Should such a price war occur, DynamicCityGÇÖs Gould suggests that a municipal network might be better prepared than the incumbents to survive it."

Why? "Because we can just raise taxes to subsidize the latest technology. Our citizens will pay higher taxes for a better service".

This guy Gould is SO OUT OF TOUCH with reality it's scary.

"a municipal network might be better prepared than the incumbents to survive it" (a price war)

Wonder where Mr. Gould's revenue shortfall is made up from? Yep, slash services, raise taxes, it all works out.

Vote this down if it comes to your town. This will get way out of control, real quick.
The 12 months of LOVE will quickly disappear.
When the first new VENDOR UPGRADE hits, your MUNI will spend MILLIONS to get it, and YOU will pay the bill.
Ernee 12/5/2012 | 3:00:35 AM
re: Utah's Broadband War Care to guess where we would be without the national interstate highway system?

Providing a municiple infrastructure for the information highway will create more opportunities for new businesses and better services.

There is no turning back, there is only delay caused by people trying to slow down the inevitable to protect their own self interest.

The power of true broad band access will create a real advantage for the communities who have the wisdom and will to make it happen. It can also create a nation-wide advantage.

Ultimately, if restrictive laws are not used to create artificial barriers, the consumer will decide the outcome. A free market should not be the exclusive domain of big carriers and MSOs.
HeavyDuty 12/5/2012 | 3:00:33 AM
re: Utah's Broadband War The roads are built by the government, so are the airports, loading docks, etc...

Why?

Because there is no serious profit in providing common carrier infrastructure, and there is profit motive for denying equal access to private infrastructure.

"Laissez-faire" was proposed by a man living in a merchantile economy, because there had never been any such thing as a completely free (no government regulation or participation) market system. Unenlightened self-interest was completely over- looked by Adam Smith, and continues to be denied by his adherents.

Any workable economic system will include government participation; municipal infrastructure/telecommunications included.
fiber_r_us 12/5/2012 | 3:00:31 AM
re: Utah's Broadband War A little real competition, and the prices come down!
materialgirl 12/5/2012 | 3:00:08 AM
re: Utah's Broadband War This selective pricing should work against the incumbents, as it proves they price gouge. Otherwise, they would not be able to afford to selectively under-cut the competition. This is a classic way monopolists keep competition at bay, by subsidizing predatory pricing through gouging other customers. Look at MSFT.
geof hollingsworth 12/5/2012 | 3:00:07 AM
re: Utah's Broadband War Care to guess where we would be without the national interstate highway system?

Sure, why not? I would guess that we would have less suburbanization and sprawl, congestion, smog, automobile dependency, we would not have seen the drop in densities of urban areas or the decline of mass transit, etc. In general, far from a universally beneficial occurence.

But more to your point, the system was built for military purposes, at a time when Eisenhower felt the need to provide evacuation routes from our cities in the event of nuclear attack and for the ability to move miltary equipment across the country. Unless there is a new Rooskie threat I have missed or there is some other miltary benefit to providing us all with home broadband, I don't see how the highway system has any relevance.


stephencooke 12/5/2012 | 3:00:06 AM
re: Utah's Broadband War Materialgirl:
This selective pricing should work against the incumbents, as it proves they price gouge. Otherwise, they would not be able to afford to selectively under-cut the competition. This is a classic way monopolists keep competition at bay, by subsidizing predatory pricing through gouging other customers. Look at MSFT.

Obviously a rather successful strategy, don't you think? In other markets it is called "bundling". All big players, if they find thay can't compete head-to-head with a, generally, smaller competitor, offer a more attractively priced bundle of items, including items not in the competitor's portfolio. As many of these big players have vertically integrated business units they reduce the margin on one product line to get a big win on another. Obviously this requires sign-off at a level above the silos as the head of each business unit is graded on financial performance.

In a carrier there are many levels of sign-off including geographic- and service-based silos. Managing these bundles is not trivial (ie: requires serious attention to fluctuations in adjacent markets. Adjacent can mean either or both geography and/or services. Note the resource requirements.). It has been postulated that to bring down an incumbent requires a 'broker' approach to communications services (ie: offer a 'bundle' of targetted providers who can each provide better operating margins on their products than the incumbents leading to a price point that the incumbent cannot compete with). The logistics here are also non-trivial, not to mention the politics of dealing with multiple communications services providers, but has been done on a small scale in various areas.

I would suggest that this is exactly what BT Retail has been afraid of with their 21CN deployments and Ofcom's forced creation of Openreach. BT Retail's grip on their last mile is now almost non-existent so a broker approach in the UK can actually be used against BT Retail using BT's own infrastructure. Put together a better post-demarc platform that has more service capability than BT Retail's offering and you could theoretically bundle BT Retail out of business.
rjmcmahon 12/5/2012 | 3:00:04 AM
re: Utah's Broadband War A little real competition, and the prices come down!

I don't perceive the cable co's response of lowering their prices for internet access as a good sign for municipal fiber projects.
materialgirl 12/5/2012 | 2:59:45 AM
re: Utah's Broadband War That is what I was getting at. The selective price competition hurts newcomers and helps incumbents, who always have another captive customer to gouge. It should, however, make their pleas for high pricing look false in the eyes of an independent regulator. They complain on one hand that the states set UNE prices too low, but are in a hurry to offer exactly those prices or lower if a real threat comes along. If the price is not economic in one situation, it is not in the other either, bringing up the spectre of illegal predatory pricing.
Page 1 / 3   >   >>
HOME
Sign In
SEARCH
CLOSE
MORE
CLOSE