Bigger than Google Fiber: LA plans citywide gigabit for homes and businesses

Why is this doomed? I'm from telecom land and this is how it is always done...

The fact that LA is soliciting bids might mean that they provide easements on the entry rights (which are the main thing that prevent rollouts of this nature). The common carriage clause is great and is actually the only way to build networks like this if you want competition. I don't know if you know this, but Fiber is not subject to common carriage laws like Copper and thus the only way to have shared fiber networks is with regulation or commercial interest (with the latter being unsurprisingly limited to the old boys club).

In short, this is actually the way to build a fiber network if you want competition. Alternatively, raise a bond and build it yourself.

Source: I rolled out a fair amount of fiber for Comcast in San Francisco. Each square foot of street we tore up was about $300 and crossing a cable car track was prohibitively expensive. These costs were the main limitations in fiber optic rollouts (pushing the payback period on buildings over 30 years made them unbuildable). In fact, the main advantage Google Fiber got in Kansas City (which was arguably unfair and anti-competitive) was easing of street cutting costs.

edit: grammar.

They're basically selling the right to be a monopolistic utility vs. a consumer facing monopoly.

1. No one else is going to come in after you and lay more fiber, it's just not worth it

2. Your competitors are going to buy from you but you're still the one earning revenue from the network. In a competitive market your competitors will earn their value-add (marketing) and you'll earn yours (infrastructure + servicing)

3. You'll displace existing infrastructure competitors. Immediately. All that infrastructure Comcast built? useless, no one is going to be buying shitty internet from them anymore. If they want to continue to operate in the market they'll come just another marketing affiliate for you, which is a game that has much lower barriers to entry.

4. They say they won't give you any favorable treatment but they will. This is now a high priority issue that the city explicitly said they'll do. Which means you saving millions on just the legal costs of figuring out if its feasible in this jurisdiction. They won't contradict themselves (too much).

In my experience, Cable/Telco companies don't build fiber networks with greater than 15 year payback, with 30 being the hard cap. I think your math is fairly accurate.

Source: See my other comment, I did fiber rollouts with telcos including Comcast in the Bay Area.

Right on. And it will 100% go over budget given the amount of work needed, ancient infrastructure, non-compliant landlords and the "I just don't give a shit to change" LA attitude.

I remember two years ago when I was the CTO of a 100 employee company in Beverly Hills just how difficult and annoying it was to get a single 10/10Mbps Fiber link to our offices.

It took 6 months from the date the order was placed to the provisioning. And it took another 2-months to go from 10-20Mbps. It's totally insane that these things take so long and it was 50% the fault of AT&T and I kid you not - 15 employees at AT&T dealing with this - and 50% the fault of the building who didn't even know what Fiber was and thought it was a back link from their telco room to our servers.

Insanity

This assumes 100% gross margin. If they are buying a bundle, you probably mean TV, so they are going to have to pony up to the networks. Then they'll have to pay for upstream (I don't think AT&T etc is going to freely peer with a 750k residential/commercial network), then they'll have to pay for all the support costs associated with running a fiber network.

I'm thinking they'd be lucky to be able to use half of $18.5M/MO to pay off their $5B investment. We're now at 50 years! And that assumes they can keep their price high despite technological advancements over the next half-century (imagine paying $150/mo for an internet connection using technology from 50 years ago). Oh, and they have to wholesale it to their competitors. There is 0 chance this is happening with these numbers.

Great analysis! Some suggested tweaks below.

SALT:

1. You estimated revenues - let's multiply that by AT&T's 5.7% 2012 net income margin [1]. Y1 earnings: $12.7 million.

2. That seems low - let's double your business revenue estimate. Adjusted Y1 earnings: $17 million.

3. Los Angeles-Long Beach-Anaheim real GDP grew at 2.4% a year between 2009 and 2012. Assume that continues into perpetuity. AT&T pays 5.3% and 3.7% on its 2041 and 2029 debt, respectively - let's say you can borrow between those.

--> Present value of cash flows: $0.6 to $1.3 billion. Quadruple your revenue estimates and borrow at 3.75% to hit $5 billion.

CAYENNE:

1. $5 billion to roll out fibre across Los Angeles seems optimistic. The issue is compounded by the city council having no skin in the game, even with regards to bureaucratic inefficiencies (e.g. some land use or environmental commission jamming the entire project for 5 years).

SUGAR:

1. Your revenue estimates look pessimistic - businesses could pay differing rates based on usage and more than 1/4 of the population could sign up. You also don't include government demand. But it's thorough enough to look closer than 4x off.

∴ The RFP in its present form looks more like a political stunt than a serious proposal. Not sure what the LA electoral calendar looks like over the next 3-6 months.

[1] http://finance.yahoo.com/q/is?s=T+Income+Statement&annual

*- There are about 1 million households in LA (3M+ population but 3 people per household in LA County)[1]

What am I not seeing? The census link states population: 9,962,789, Housing units: 3,449,273.

They even mention that the vendor would pay for all expediting of permitting and such. Wtf is the city actually doing?

How is this even remotely something that a vendor would want to pursue?

This seems like exactly what Google Fiber is offering in Kansas City, so much that it looks like an RFP for Google Fiber LA.

Semi-relatedly, one of my greatest criticisms of all that stimulus spending of the last several years was how incredibly unimaginatively it was allocated. I've seen figures which indicate gigabit fiber could be rolled out nationally to 95%+ of homes and businesses for $400 billion if gov't paid it all, or $100 billion if done in a private/public partnership. Another figure I've read is that if the U.S. heavy duty truck fleet were converted to run on CNG, we could reduce our oil usage by 20%.

Those would both have been transformational accomplishments, and the $950B or so spent in total could have probably done it all thrice over. Bitterly disappointing.

This is correct, but you do need to understand that there are technical limitations to twisted pair. Even if AT&T or $TELCO runs fiber to the node everywhere, twisted pair has gigantic line loss issues over long distances. We really need fiber to the prem or frankly we're just messing around.

There's no financial model that will support building fiber networks except the obvious societal benefit. Having fast fiber everywhere is incredibly valuable from both a social and economic perspective. To put it bluntly, GDP goes up when internet gets faster.

Now, the costs will always be wrong for a fiber network. I question why LA would do this instead of building a WISP (wireless ISP) that would deliver speed over radiowave. Forget tearing up all the streets, just put radio towers on the buildings! The costs are lower, the bandwidth is fast and the rollout is asynchronous (you roll the radio towers as you sign people up).

Source: I come from the Internet and stuff. My credentials: Comcast fiber rollout, AT&T sales, Avaya consulting and 2600hz (open-source telco infrastructure).

> There are tens of thousands of old buildings in LA that make it impossible or extremely difficult to run fiber to the home

Really? Here in Sweden, I haven't seen any problems with running fiber to at least ~80 year old apartment buildings (I recently went apartment hunting, and literally zero of the apartments I looked at didn't have fiber internet)

Indeed, the City is vast, and what people refer to as Greater Los Angeles—which includes most of the grey areas on the first map, like my hometown of Glendale, and a ton more to the east not displayed—is still more vast.

Greater LA aside, there's no chance in hell they lay fiber to every residence in the Valley (the communities that the 134/101 run through and everything else north of that), there's no chance in hell they lay fiber all the way down to San Pedro. Not for five billion dollars, not for five trillion dollars.

Anyone who has so much as casually observed an LA infrastructure/works project in recent history knows that this ends in tears.

From the article:

"But Google Fiber in its current form wouldn't be considered. "They would have to change their business model," Reneker said of Google. "They only run residential. We're requiring a component for the business. That would be a new market for them."

We should take bets on what comes first: this or the high-speed rail.

Doesn't matter how fast wireless is at what point in time -- a wire (or fiber) will always be much, much faster.

Isn't that the point? To get people to pay for better service?

It doesn't mean there can't be higher free tiers if it makes economic sense, just that those are the minimum required free tiers. The network will be open access. How about you open a free 100 Mbit ISP of your own ontop of the fiber network?

And to me they sound fine - enough of a connection that those living in poverty aren't cut off from access to social services like job hunting and news, but low enough that anyone who actually wants to get use of the internet will become a customer.