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Why Aren’t Municipal Fiber Networks More Widely Used In The U.S.?

Wade Anderson, Former SVP of SMB - Jul 17, 2019 11:00:00 AM

Why Arent Municipal Fiber Networks More Widely Used in the U.S. (featured image)

In the U.S., municipal networks face considerable resistance on a number of fronts.

There are several reasons why they haven’t been deployed more widely:

  • Challenging economics
  • Market dynamics
  • Government regulation

As more small to mid-sized communities explore alternative high-speed internet solutions for their residents, the debate around municipal networks will only increase in intensity.

Challenging Economics

Although fiber cable costs have come down since the technology was first introduced, building networks from scratch still requires heavy capital investment. Costs can differ widely between deployments depending on local geographies and community needs.

Labor and materials can vary drastically, which means that service providers have to be extra cautious when it comes to projecting revenues and costs. Additionally, adoption thresholds are relatively high as consumers are price sensitive when it comes to paying for internet and TV services. Overall, the economics in the fiber space can be challenging for newer businesses.

Market Dynamics

Another major obstacle facing municipal fiber networks today is the inherent monopolistic nature of the space. Because fiber networks require significant upfront investments, it is harder for smaller ISPs to meet ROI hurdles and generate large enough customer bases to justify their costs and pay for ongoing operations.

Larger, more established ISPs benefit from being able to spread economic risk and administrative costs out across wider footprints. In addition, those who have been around for many decades have already built out adequate capacity in many major cities. As a result, newer ISPs are unlikely to get permission for new installations, which means they must collaborate with incumbent competitors instead (not an easy task).

Government Regulation

Currently, 26 states outlaw municipal fiber developments or make it very hard for communities to move in that direction. Many state governments don’t believe that local municipalities can effectively run public networks at scale. Poorly run broadband operations put taxpayer dollars at risk. Consequently, municipal networks have become a political issue.

Many states don’t actually ban municipal networks outright. Instead, laws may require certain approvals before projects can move forward or specific processes around how cities must engage with private ISPs. Moving forward, municipal networks will continue to be a hotly debated topic at the local, state, and federal government levels.

Municipal Networks: Past Success But Challenges Ahead

Many communities have seen great success and economic development as a result of effective municipal fiber network deployments. There are, however, also examples of failures in which taxpayer money was wasted on poorly executed projects.

There are valid arguments on both sides of the debate. Although we don’t expect widespread resolution soon, OSPInsight is committed to fiber and we are optimistic that constituents, regulators, and businesses will find effective solutions.

Regardless of where you stand, know that OSPInsight has your back :)