Monday, April 22, 2013

Google Goes to a Dollar Store

Last week Google went shopping at a dollar store – and came away with a fiber system. 
According to the April 18 Associated Press lead: "Google Inc. will pay $1 for a municipal fiber-optic system that cost $39 million to build, according to terms of the Internet company's agreement with Provo." 
That's Provo, Utah. 
The Provo acquisition looks like a good deal for cash-rich Google, which, by the way, said last week that it earned $3.3 billion during the first three months of this year. According to the AP: "Even as Google takes ownership of the municipal network, Provo will have to pay off loans for its construction for another dozen years, according to agreements released Thursday by city officials." 
In exchange for Provo selling its city-owned fiber network for $1.00, Provo's citizens will get upgrades to the current system and, supposedly, offers to subscribe to high-speed broadband services at reasonable rates. In the case of slower, basic service (5/1 Mbps), after payment of a $30 installation charge, the service will be free for a number of years. 
Late last week I wrote about the highly problematic nature of government-owned municipal telecom networks. In "Observing Troubled Government Telecom Systems," I chronicled the troubled history of some of these systems. The Provo municipal system is just one more example, among many. The Provo officials said the Google deal was a good one for the city "because the system hasn't been able to support itself." 
Of course, there are lessons here to be learned. Foremost, as I said last week in the "Observing" piece: 
"Governments should not enter the telecom marketplace with government-owned systems when private sector providers, with their own capital at risk, are willing to provide service. With the government systems' financial backing and subsidies from taxpayers - even if such backing and subsidies often are extracted unwittingly - along with various special privileges and benefits, it is exceedingly difficult for private sector companies to compete on an equitable basis with government providers." 

But with Google entering the local broadband marketplace in a few carefully selected cities, there is another important lesson as well. Just as private sector providers should not have to compete against government-owned providers – with their tax subsidies and other special privileges – so too should private providers not have to compete against other private firms like Google which are beneficiaries of government-conferred privileges.
When Google announced it was entering the Kansas City, Missouri market with its high-speed fiber service, in that case in competition with Time Warner Cable, it became evident that Google would be granted, as inducements, an array of special privileges and benefits extended by the city government.
According to compilations from various press reports, here is a list of some of the special privileges: 
    Free space in city facilities for installation of central office equipment and for additional network facilities 
    Free power for network equipment at city locations 
    Free access to city “assets and infrastructure,” including conduit, fiber, poles, rack space, nodes, buildings, facilities, and land 
    Right to build out only to neighborhoods demonstrating high demand for the service through pre-registrations 
    Right to terminate the agreement for convenience at any time up to two years after actual construction commences on the fiber network 
    Ability to build “fiber huts,” which are small buildings that house equipment, on city land at no cost 
    Waiver of city permit and inspection fees 
    Lower pole attachment rates than Time Warner Cable was paying 
    Cooperation from city in efforts to allow Google to gain access to poles and rights-of-way owned or controlled by third parties 
    Cooperation from city to obtain settlement-free interconnections with anchor institutions in city that have existing fiber and/or network connections 
    Free access to detailed GIS data and computer tools, including location information on all facilities owned by city and, to the extent available, those of third parties 
    Access to rights-of-way on property owned by city
    Provision by the city of (1) an “Executive Sponsor” for the project at most senior management level of the city; (2) a single point of contact; and (3) a team of city officials to work with Google employees 
    Regular (at least weekly) status meetings between city officials and Google for coordination of all matter relating to the project 
    City approval of all applications and documents within 5 days 
    Marketing support and education programs regarding the network, including direct mailings and community meetings 
I cannot vouch for the accuracy of the reports regarding each of the above privileges and benefits, but, for my purposes here, that is not necessary. The point is that municipal governments, whether in Kansas City, Austin, Provo, or wherever, should not offer one private sector provider government-conferred benefits that are not available on the same terms to other private competitors. While I am not certain of this, it is my understanding Kansas City may now have agreed to make the same terms available to Time Warner Cable, and others, as it is making available to Google. And press reports indicate Austin appears prepared to treat all private providers the same regarding city-conferred inducements.
I certainly am not opposed to Google entering the broadband marketplace in selected localities as long as the company does not receive special government-conferred privileges and benefits that are not available to its private sector competitors. Of course, this point applies not only with respect to local and state government-conferred benefits, but to any special privileges conferred at the federal level as well. 
More private sector competition is a good thing. What is decidedly not a good thing is for more governments to enter the telecom business with their own networks.