We at CTC have had the honor of advising the City and County of San Francisco on broadband planning for a dozen years, and we’re proud that the City today released our new study on “Fiber for San Francisco” and is also, with the leadership of Mayor Ed Lee and Supervisor Mark Farrell, initiating an innovative procurement to select a private partner to finance, design, build, and operate a fiber network that would reach every home and business in San Francisco.
We’ve been working on this initiative since early 2017, with a project team that includes our friends at IMG Rebel, a creative and experienced financial advisory and P3 structuring firm that provided the perfect expertise to match our broadband engineering and business planning capabilities.
The City directed us to develop a delivery strategy for ubiquitous fiber-to-the-premises to every home and business in San Francisco that would be open, offering equal potential access to the network by multiple ISPs enable competition. The City directed that we consider the potential for (1) fully public, (2) fully private, or (3) public–private partnership (P3) arrangements for financing, designing, constructing, maintaining, and operating the network—with the policy goals of enabling equity, innovation, and local authority.
As part of this engagement, our engineers developed a technical design and cost estimate for deployment of a fiber network that would connect (on an open access basis) every home and business in San Francisco, and then we evaluated how such an infrastructure could be delivered.
What we found is that private broadband investment is resulting in new broadband competition in unevenly distributed ways across San Francisco. AT&T is upgrading its network to fiber in certain areas, but not, to our knowledge, on a ubiquitous basis. Comcast has recently upgraded its residential service footprint with DOCSIS 3.1 electronics that will allow speeds of up to a gigabit in the downstream direction, but this network still relies on coaxial cable for distribution and the gigabit service is priced in excess of $150 per month. On the competitive side of the industry, a new class of competitors including Sonic, Webpass, and Monkeybrains is making important investments in fiber and other technologies in some San Francisco neighborhoods, but these new networks are available only in certain areas and to certain buildings or consumers. In addition, none of the incumbent or competitive providers in San Francisco operates its network on an open basis, allowing its competitors to reach consumers over its infrastructure.
We therefore concluded that the private sector is not currently poised to deliver the City’s stated goals of ubiquitous, open, fiber-based service throughout San Francisco.
A purely public network could meet goals for ubiquity and openness, but the City has raised a number of areas of concern, including internal capacity to build and operate a new utility; public finance challenges in light of the many important project vying for public financing, and the substantial risks of proceeding on a purely public basis. Indeed, in a purely public model, the City would meet its policy goals but would assume all project risk, including construction, operations, performance, customer service, demand and market considerations, and technology change. A parallel set of concerns relates to public sector capacity and interest in building, maintaining, and operating a communications utility, including the particular challenge of operating a communications network in an area of the country where hiring professionals in that field is most competitive.
As an innovative alternative, we evaluated the potential of P3 delivery. This mechanism enables the City to own the core infrastructure and use it to achieve policy goals such as competition and equity—at the same time as shifting some risk to the private sector and leveraging private sector delivery capabilities. In a formal P3 structure, a selected private partner takes responsibility for some combination of design, construction, financing, operations, and maintenance, at least partially funded or guaranteed by the public partner over the period of the concession.
Formal P3s have emerged in the broadband sector in other parts of the world where infrastructure is more frequently delivered through a P3 than in the United States. In the past few years, a range of creative broadband P3 structures has started to evolve in the United States. The nature of these P3s range from public sector facilitation of private broadband investment (through process, regulation, and economic development incentives) to public deployment of infrastructure for use by the private sector.
What is novel about the Fiber for San Francisco Initiative is that it contemplates application of the “classic” P3 structure to a broadband network that would reach 100 percent of the homes and businesses in the community.
Our report includes extensive technical, business, and financial analysis of how a P3 delivery mechanism could be structured to meet the City’s goals. For more (much more), download our report here.
We welcome your comments or questions—feel free to reach out to us at info@CTCnet.us. I hope to hear from you.
October 18, 2017