A few weeks ago, a Geekwire interview with outgoing Seattle Mayor Mike McGinn announced that the Gigabit Squared project there was in jeopardy. Gigabit Squared has had difficulty raising all the necessary capital for its project, building Fiber-to-the-Home to several neighborhoods in part by using City owned fiber to reduce the cost of building its trunk lines.
There are a number of important lessons, none of them new, that we should take away from this disappointing news. This is the first of a series of posts on the subject.
But first, some facts. Gigabit Squared is continuing to work on projects in Chicago and Gainsville, Florida. There has been a shake-up at the company among founders and it is not clear what it will do next. Gigabit Squared was not the only vendor responding to Seattle's RFP, just the highest profile one.
Gigabit Squared hoped to raise some $20 million for its Seattle project (for which the website is still live). The original announcement suggested twelve neighborhoods with at least 50,000 households and businesses would be connected. The project is not officially dead, but few have high hopes for it given the change in mayor and many challenges thus far.
The first lesson to draw from this is what we say repeatedly: the broadband market is seriously broken and there is no panacea to fix it. The big cable firms, while beating up on DSL, refuse to compete with each other. They are protected by a moat made up of advantages over potential competitors that includes vast economies of scale allowing them to pay less for advertising, content, and equipment; large existing networks already amortized; vast capacity for predatory pricing by cross-subsidizing from non-competitive areas; and much more.
So if you are an investor with $20 million in cash lying around, why would you ever want to bet against Comcast - especially by investing in an unknown entity that cannot withstand a multi-year price war? You wouldn't and they generally don't. The private sector invests for a return and overbuilding Comcast with fiber almost...Read more