Its “dark fiber” project in Huntsville creates a model that might finally thrust US Internet access into the 21st Century



Illustration by Patrycja Podkościelny This week, Google launched what amounts to a religious war in American telecom land. In a surprising announcement, the Alphabet company known as Google Fiber said it would expand its high speed Internet access services to Huntsville, Alabama — but in a different way that it currently has started up operations in cities like Austin and Kansas City. In cities it services to date, Google Fiber actually lays down the fiber-optic cables that allow it to deliver super-high numbers of bits to customers and businesses. But in Huntsville, it will lease “dark” fiber that will be built and owned by the electric utility in that city. (Dark fiber is passive, unlit by lasers, so not capable of carrying information until someone comes along and lights it.) The Google lease is nonexclusive — any other ISP can show up and provide services — and will allow Google to provide retail gigabit fiber Internet access services to any home or business that Huntsville decides to serve.

I am over the moon about this. It’s a similarly exhilarating feeling to the one I’d have if I were a rabid football fan and my long-suffering team just won the Super Bowl. And don’t mock my wonkiness — because you should be celebrating too.

The reason this is totally exciting is that this is the model that has been used with enormous success in several other cities — and could be revolutionary here in smashing the current dogma that keeps Americans overcharged and under-served.

Why haven’t we adopted this dark-fiber model? Because high-speed Internet access policy here has to date been full of stories of large incumbent companies taking positions that make no sense. They do it because doing otherwise would violate a deeply-held belief that they think is core to their business survival. Sticking to their story becomes an article of faith — a religious icon — something to hang onto in the face of common sense and, often, facts.

In this case, the crucial religious tenet of the handful of giant high-speed Internet access providers in America (chiefly our enormous local monopoly cable companies) is that consumer-protective competition among them will come from the ability of private actors to build, own, and operate competing wire services to every home and business. Cable will fight it out with telephones! Someday “broadband over powerline” will arrive!

But that’s not how competition actually works in telecommunications — and certainly not how it has worked out in America. As I’ve been saying for years, the phone companies (AT&T and Verizon) have backed off from from wired competition and become mostly wireless companies providing a complementary service, while the cable operators (Comcast and Time Warner Cable, chiefly) have decisively won the market for high-speed wired Internet access — becoming mostly monopoly providers in their footprints. Where consolidation is possible, competition is impossible.

In reality, the way competition actually happens in telecommunications is to have a world-class, basic, fixed-price, passive, wholesale wire to every home and business that can be used by any retail operator to provide services. That’s it. That’s the sensible model. Once you have that in place, competition explodes: the retail sellers know how much the wholesale input costs and can rely on that pricing while they differentiate their services by price, customer service, and quality commitments. Presto: prices charged to consumers begin to approach the marginal cost of the service and service quality climbs.

No one needs more than one world-class wire to a house, just as no one needs more than one water or electricity connection. But everyone needs reasonably-priced, world-class connectivity — and, right now, the “free market” in the US is not providing that service.

But dark fiber can change this. Before Huntsville, we’ve seen only glimmers of it here, in in small towns like Rockport, Maine and Ammon, Idaho. But look overseas for proof that this model can work beautifully. And zero in on the capital of Sweden, Stockholm.

More than 20 years ago, the city of Stockholm decided to treat high-speed Internet access as infrastructure. But the city didn’t want to itself offer services in competition with private providers, and didn’t want the streets to be torn up haphazardly by companies selling competing services. So it set up a holding company that purchased an existing duct network and began deploying dark fiber using loans backed by the city. Stokab, the holding company, started leasing out dark fiber connections, quickly paying back the loans and becoming cash-flow positive.

In Stockholm today, more than 95% of residences — and all businesses — have fiber optic Internet access connections. Connectivity is cheap — $15-$35 per month — and ubiquitous. Stokab charges simple, standardized, and predictable prices for dark fiber leases. Its customers range from real estate developers to mobile phone companies, and include many service providers. Because of Stokab, Stockholm was the first city in the world with four competing LTE mobile networks. Stokab is trusted and professional, and makes tens of millions of dollars a year for the city of Stockholm.

This didn’t happen by magic. It happened because of policy. And it’s been transformative. Broadly, Stockholm is ranked as a highly attractive city for business and is a regional leader in tech jobs — and is home to Skype and Spotify, among many other companies. The city can assume connectivity in providing online municipal services. (I’m visiting next month to see their “smart city” and telemedicine pilots; I’ll report back.)

As great as the dark fiber story has been for Stockholm, the city hasn’t been able to take the fullest advantage of it. Why? Because the culture lacks America’s robust venture capital environment and a (necessarily) slightly messy history of individual innovation. When I was last there, a city leader talked to me about needing more “grit” in Stockholm. Things are too neat, he said. They started a non-stop flight to Silicon Valley to import some grit.

But if Huntsville and other American cities, with their entrepreneurs, scientists, innovators, sources of capital, and history of individual attainment, can take this totally straightforward step of building and leasing dark fiber, anything is possible here. Low prices, ubiquitous connectivity, new forms of making a living, WiFi everywhere…we’ll bring all Americans closer to a thriving life.

Huntsville (“Rocket City”) happened because it has a well-run electrical utility (like Chattanooga) and a forward-thinking mayor. You don’t have to have a utility, though, to build a dark fiber network. All you need is capital, and we have plenty of that in America. All it takes to set up these wholesale networks is attractive financing and an “anchor tenant” retail provider willing to take the first step in providing actual services. (It is crucial that the wholesale facility be owned or controlled by local government, however; you don’t want a private equity company snapping up the wholesale network and gouging retail providers unpredictably.) That’s how Rockport ME built its network. (I’ve made an extensive suggestion here about how to make financing fiber a national policy possibility.) That’s how Connecticut plans to build dark fiber to many towns.

What’s remarkable — and welcome — is that Google and Huntsville are willing to break ranks with the other incumbent ISPs in America — to challenge their constricting religion — and say, implicitly at least, that the economics of this network make sense. The same actor that constructs a wholesale network does not have to be involved in service delivery in order to make money. The same actor that owns a wholesale network does not have to be involved in service delivery either — and will be more trusted, as the Stockholm example shows, if it isn’t. And the same actor that delivers services — here, Google — doesn’t have to build a network from scratch in order to use it.

This should energize other ISPs around the country to look hard at their business models — that is, if they’re willing to second-guess their religious views.

In New York City, for example, it would probably make economic sense for Verizon, which has been struggling to establish its FiOS network in the city, to turn itself into a wholesale dark fiber provider whose pricing is overseen by the city. Benefits to Verizon: no more servicing of individuals or buying overpriced television programming, so overhead goes way down. A predictable stream of money from leasing that will continue until the sun explodes. Benefits to the city: finally, a fiber connection to every home and business, with reasonably-priced services sold by different, competing providers.

Other American cities and hamlets and towns should similarly look at this wholesale model. Fiber is good for the next 40 to 50 years. It’s essential to manage the flood of data from self-driving cars, virtual reality, gaming, telemedicine, and emergency services that we’re going to generate. Its seemingly limitless transmission capacity can be put to work by youngsters imagining new businesses, families wanting to educate their children, and older people who want to live with dignity at home.

A very interesting element of this story is that Huntsville, AL is Comcast territory. Comcast has announced no plans to build high-capacity services to Huntsville residents. I wonder whether the company would consider being a retail operator by leasing the Huntsville fiber.

I doubt it. That would be against Comcast’s religion. But the rest of us should understand that the Huntsville dark fiber story could be the holy grail for high speed Internet access policy in America.