TORONTO — It may come down to whether they operate in an urban or rural environment, but not all service providers and funders of broadband fibre networks agree that the benefits of owning one’s own facilities necessarily outweigh the costs and challenges of building and maintaining the last mile of fibre to the customer.
That much was obvious from the discussion that arose during a special panel about alternate last-mile service delivery strategies at the 2017 Canadian ISP Summit, held this week in downtown Toronto. In a two-to-one split in opinion, executives from urban fibre network providers Beanfield Metroconnect of Toronto and HCE Telecom of Hamilton, Ont., argued for a facilities-based approach to building and operating last-mile fibre networks, while the CEO of rural-focused Southwestern Integrated Fibre Technology (SWIFT) advocated for open access to the facilities built by network providers.
Using public investment from all three levels of government, SWIFT is funding the build of a high-speed fibre optic network that will connect more than 350 communities and 3.5 million people in the southwestern Ontario region. However, SWIFT does not plan to operate as a service provider itself, explained SWIFT’s CEO, Geoff Hogan, who is based near Collingwood, Ont. “We have no facilities and intend to own no facilities. However, we have a big pot of money to be able to incent the TSP (telecom service provider) community to build fibre where you have no business case to build fibre. Our intent is to get fibre or broadband for everyone,” he said.
“In a rural market where SWIFT is largely focused, we can’t afford to put the first piece of fibre in. To do facilities-based competition in a rural area is completely not affordable, and we need to think of ways to change that and I personally believe open access is a way to do that,” Hogan added.
While conceding rural markets may require an open-access model for delivering last-mile services to geographically dispersed customers, Beanfield’s CEO and CTO, Dan Armstrong, said his company would lose its competitive advantage if it didn’t own the fibre-optic facilities it operates to connect more than 600 commercial buildings and residential condominiums in the Toronto area. “If I’m forced to use somebody else’s infrastructure, I will have completely lost my competitive advantage and market differentiator. If I need to service a customer well and fix a problem quickly, I can only do that if that’s my own facility,” Armstrong said, adding that if one service provider owns all of the underlying fibre infrastructure that would simply create a monopoly not unlike the current telecom model where a large incumbent such as Bell owns the telephone network infrastructure and resellers provide services on top of it.
Jeffrey Cowan, vice-president and CTO of HCE Telecom, based in Hamilton, Ont., pointed to the demise of leased-line resellers such as Norigen Communications and C1 Communications, among others, during the dot-com bubble of 2000/2001 as examples of companies that “didn’t drive businesses that produced high operating profits, per se, and very few of them are around today.”
Facilities-based providers have the advantage of being able to control the customer experience and the pace of innovation, which allows them to compete against other service providers, Cowan said. He added that Internet services have become heavily commoditized, which has created prices that are “just a race to zero… But in saying that, the one part of this industry that will always be the scarce commodity is how you actually connect the end user. From that perspective, I still encourage where feasible as much last-mile competition to directly connect to end users,” Cowan said.
Panel moderator Ian Collins, president and owner of Claremont Holdings Corp., asked if joint operation or maintenance of last-mile fibre network facilities couldn’t provide some benefits to competing service providers, by essentially turning the infrastructure into more of a network utility.
Beanfield’s Armstrong responded by saying his company is “starting to dabble around in the Montreal market”, where there is a municipally owned conduit system that is operated on a cost-recovery basis, that “works really well,” he said.
“Except even that creates such a level playing field that these small service providers come in and they build a few buildings and then they go out of business or get bought,” Armstrong said. “The market has become a dog-eat-dog world down there, and no one can differentiate themselves. Now everyone is dying off and the market price has been completely scorched, where no one can make any money. So trying, from an engineering perspective, to do what makes sense I don’t know is necessarily good for the market.”
HCE Telecom’s Cowan spoke about an infrastructure project in downtown Hamilton that will see an LRT (light rapid transit) line built along King Street, which will require the rebuild of municipal utility networks as well as telecom facilities along that corridor.
“Then you have the CRTC that sits there, and they have some draconian things that maybe made sense 20 years ago, they sit there and say, ‘You can’t force-upgrade customers’.” – Jeffrey Cowan, HCE Telecom
“This is a generational opportunity to redevelop basically the main artery of Hamilton,” Cowan said. “But there’s a problem with the process. Here’s a project sponsor, being the provincial government, basically they come out with a mandate that says, ‘We are going to fund the recreation of like for like.’ And then you have the CRTC that sits there, and they have some draconian things that maybe made sense 20 years ago, they sit there and say, ‘You can’t force-upgrade customers.’
“By the time this thing is done, in 2020 or 2025, one of the big incumbents, being Bell in that area, is going to recreate 500-pair copper bundles with 500-pair copper bundles, because that is what the process is going to allow to happen,” Cowan said. “That effectively gives short change to other competitive players in the market. I firmly believe that competition and people owning infrastructure to the last mile definitely drives innovation, it drives competitiveness. I don’t want to be High Comrade Telecom where everybody just buys the brown cable because that’s what is available.”
While SWIFT’s Hogan agreed with Cowan that government bureaucracy can create challenges for municipal network projects, he said that in the case of his organization it’s in its best interests to facilitate the buildout of the fibre network at the centre of SWIFT’s initiative. “Because we’re a municipal, regional project, we’re going to try and make things easier for the telecoms to actually install infrastructure in our area,” Hogan said.
Hogan added that the 290 kids who attend the local high school in Meaford, Ont., should have the same opportunities that kids have in downtown Toronto and Hamilton. Furthermore, he said he pays $125 per month for 15Mbps Internet access at home, which not everybody in rural areas can afford. He added that if rural customers can’t get access to affordable broadband, “we’re going to end up with a massive Canadian digital divide.”
Returning to the issue of market differentiation in order to compete for customers, Collins asked if the real business opportunity is in providing value-added services, such as voice, managed firewall or backup services, rather than simply trying to make money by owning the infrastructure.
“We don’t make money on television. All the cloud providers are taking all their data centre services and sucking them dry. That whole cloud thing has become a race to zero. We’re finding it’s very difficult to make money on any value-added services. Our big margin is on Internet.” – Dan Armstrong, Beanfield Metroconnect
“We’re finding quite the opposite,” Beanfield’s Armstrong said. “We’re finding that all of these services that we layer on top of our Internet offering are actually loss leaders. We don’t make money on television. All the cloud providers are taking all their data centre services and sucking them dry. That whole cloud thing has become a race to zero. We’re finding it’s very difficult to make money on any value-added services. Our big margin is on Internet,” Armstrong said.
Having said that, the two facilities-based network providers on the panel agreed the nature of the services they provide beyond network access has altered the traditional demarcation point between their infrastructure and their customers’ networks. “We’re very deep into the customer network now,” Cowan said. “As much as we try to differentiate in the marketplace by being a facilities-based provider, the product conversation is naturally driving us much deeper, absolutely.”
Armstrong concurred: “We’re much deeper into the customer’s network than we ever envisioned we would be, but that’s just what you have to do…We have to be careful in the enterprise, because we have a lot of consultants selling for us, so we don’t want to be in competition with those consultants. But certainly, in the residential space, we have to be there for them. You have to support everything.”
With the majority of the panel discussion focused on fibre to the home or business for last-mile connectivity, one audience member asked about 5G as an alternative last-mile solution.
“One hundred percent, I think it’s going to be wildly disruptive. But I think the transition to 5G is going to take a very long time, just because of how intensive it is to build the infrastructure,” Cowan said. “It is the alternative to fixed-access networks. The reality is, though, it requires really deep, extensive fibre on how pervasive these access points are going to have to be. But wireless should be a huge strategy on anybody’s roadmap.”
Hogan pointed out that SWIFT’s mandate is to fund only fibre infrastructure. However, he said his organization recognizes that a lot of fibre needs to be built before 5G becomes ubiquitous in rural areas.
Armstrong agreed that 5G is going to be disruptive, but having been in the telecom business for 30 years, he said: “There’s been the spectre of wireless putting us wireline guys out of business three or four or five times.
“I think there’s a huge opportunity for us to light up buildings. We already have the fibre there, but instead of having a whole bunch of subscribers paying $50 a month, we may have a whole bunch of individuals paying $20 a month. That might even be more lucrative, who knows?”
