Open access networks offer opportunities for competition and innovation that networks owned and operated by one entity can’t provide. We've written about open access networks owned, operated, and funded by public entities; now private investors are increasingly attracted to these competitive, fiber optic environments.
Over time, American Internet access subscribers have become accustomed to the idea that options are limited because large, corporate Internet access providers have positioned themselves so as not to compete with one other. In areas where local communities have deployed open access models, such as in Ammon, Idaho, or in places with regional open access networks, like UTOPIA Fiber in Utah and the many Public Utility District networks (PUDs) in the state of Washington, those connecting to the network have benefitted from ISP choice and access to high-quality connectivity.
In Europe and Asia, open access models appear more regularly, but in the U.S., the open access arrangement has primarily been adopted by local governments offering wholesale service to ISPs. Often they do so as a way to comport with state law. In the past few years, however, private companies and investment firms have seen the potential of open access fiber optic infrastructure in the U.S. For example, SiFi Networks announced a project in Fullerton, California, earlier this year with plans to establish similar infrastructure projects in other communities.
We recently touched base with Kelly Ryan, CEO of iFiber Communications, an Internet service provider that operates via open access networks owned and operated by PUDs in Washington. We also talked with James Wagar, Managing Director of Thomas Capital Group, who has eyes on open access fiber optic network projects.
The Finance Piece
James notes that in recent years, privately funded open access networks have started to appear after several proposed projects that couldn’t find their way to completion in the U.S. Obtaining capital, working through the necessary processes for deployment, and finding ISPs to deliver services are only a few of the pieces of the complicated puzzle of an open access network project. While these puzzle pieces were typically left on the table for municipal and county government, experience handling multi-layered infrastructure projects, private sector investors shied away.
James says that in recent years, investors aren’t willing to provide “a blank check” to a network owner, but that investors are contributing to large pools of capital in order to fund networks on a project-by-project basis. Once the model is tested and the investment has been proven to be fruitful, he predicts investors are more likely to give network owners funding with more leeway, which will result in increased efficiency. He feels optimistic that projects, such as the SiFi Network in Fullerton, will help prove the strength of the investment.
As with other infrastructure projects, investors consider risks before making the leap. Main concerns that dog Internet infrastructure projects, regardless of where funding comes from, includes whether or not projects are on time and within budget. James points out that, if a network owner can demonstrate with only one or two projects that they’re able to keep to timeline and within budget, their chances of attracting private sector investment increase.
Another factor that greatly influences the ability for private open access networks to succeed, which will help prove the concept and drive more investment in similar projects, is the quality of the ISP working with the network owner. An ISP that provides responsive customer service, reliable Internet access, and reasonable rates will help keep the network’s reputation high. As a result, more people will want to subscribe.
Where Does the Investment Come From?
Large pension plan organizations, large fund management organizations, and organizations that typically invest in other infrastructure projects are now considering open access networks as smart investments. Issues such as future access to 5G and efforts to shrink the digital divide have helped spark interest.
Other factors that fund managers consider mirror the types of factors that real estate developers consider, including:
- Political Will: The existence of “bad” competition, such as an incumbent provider in a proposed project area that hasn’t upgraded their network. Poor customer service from the incumbent; disgruntled consumer experience. City council and Mayor embattled over ongoing complaints from constituents about the incumbent.
- Population Density: Population density can’t be too low, but not typically as high as that found in “NFL” cities.
- Economic Promise: Typically there is a large employer such as a hospital, university, or some other large entity that provides as an economic base for the community. A strong Internet access provider with a solid reputation and the ability to deliver quality services to residents, businesses, and institutions is considered an anchor tenant necessary to attract investment. Kelly and James note that opportunity zone policies can contribute to investor interest.
The Competitive Environment
As Kelly notes, an open access network allows more options for those connected to the infrastructure. At iFiber, he says, they consider the competition a benefit because it keeps the company innovative and at the top of their game.
In order to go the extra mile, iFiber is focusing on delivering information important to local people. The company has launched a new site, iFiberOne.com with local news and is working with schools to livestream sporting events. The company supplies broadcast equipment and training for students, who produce their own high school sports, “It looks like Monday Night Football,” Kelly says. He describes how parents attend the game and watch replays on their phones through the stream while they're in the stands. He notes that it’s the fiber network that allows this and similar local innovations.
The company considers themselves the schools’ communications partner, rather than an entity operating in order to extract profit from the institution. In addition to fulfilling a need in the community, iFiber is bolstering their local reputation.
What the ISPs Consider
For their part, Internet service providers also consider several factors when determining whether or not to enter into agreements with network owners. Having a city council and city hall that supports these projects and helps educate the community about potential benefits is a primary factor. Kelly believes that one of the reasons local communities are warming up to fiber, especially those in rural areas with agricultural economies, is because they recognize the importance of diversifying their economies.
Kelly said that, as the most requested provider operating on the open access networks in Washington, iFiber has been able to apply all they’ve learned to new projects. The company has become pleasantly surprised at the upward trajectory of opportunity in the past few years. He describes iFiber as a “true” open access partner ISP — they own no infrastructure and only operate on fiber networks that belong to other entities. As a result, they can focus on delivering Internet access without the distraction of maintaining the physical network.
Kelly notes that iFiber has worked in rural areas and sees open access arrangements as a promising way to deliver high-quality Internet access to more regions. In areas where large national companies have decided not to invest in infrastructure, open access networks can offer a way to deliver fast, affordable, reliable connectivity. Now that private investors see the increasing desire for high-quality Internet access and the value of competition, more communities may enjoy the benefits of open access networks.