From the Early Adopter’s Dilemma to the Game of Gigs:Building the Information Rich

Commons

Blair LevinBrookings Institute

Metropolitan Policy ProjectKansas City – Gigabit City Summit

January 13, 2014

The Arc of History

You Are Here

A Commons in Our Time

What assets would be critical for economic and social progress in the

decades ahead?

Known• Water? • Electrical?

Unknown• Distribution Center?• Airport?• Technology Focused University?

City Thinking in 1914

The Future

Economic value creation, which for several millennium was based on the manipulation

and distribution of physical objects, increasingly will be based on manipulating,

transporting, and analyzing bits of information.

What assets will be critical for economic and social progress in the decades

ahead?

Known• Ubiquitous, affordable and abundant bandwidth

networks• Device, Sensor and M2M networks that provide

actionable intelligence • A digitally ready population and digitally ready

city government

City Thinking in 2014

The Information

Rich Commons

Bandwidth• Never a constraint to

innovation, economic growth, social progress

Tools• Ubiquitous, cheap,

smart sensors providing actionable intelligence

People• A digital ready

population • A digital ready city

government

The Information

Rich Commons

Networks• Gigabit Fiber• Muni Wi-Fi

Devices• The Internet of Things• Open Data• Big Data

People• Universal Affordable

Access• Digital Readiness• Responsive

Government

The Information

Rich City

Networks• Gigabit Fiber• Muni Wi-Fi

Devices• The Internet of Things• Open Data• Big Data

People• Universal affordable

access• Digital Readiness• Responsive

Government

Today’s Focus

Prediction:In Five Years There Will be Two Kinds of Cities

Cites with Cable v. Copper

Cities with Cable v.

Fiber

Prediction:In Five Years There Will be Two Kinds of Cities

Cites with Cable v. Copper

Cities with Cable v.

Fiber

Housing

Early Data: Increases Housing Values

The Impact of High-speed Broadband Availability on Real Estate Values: Evidence from United States Property Markets

By Molnar, Savage & SickerUniversity of Colorado, August 15, 2013

Prediction:In Five Years There Will be Two Kinds of Cities

Cites with Cable v. Copper

Cities with Cable v.

Fiber

Economic Attractiveness

Early Data: Increases Attractiveness as Business Location

Prediction:In Five Years There Will be Two Kinds of Cities

Cites with Cable v. Copper

Cities with Cable v.

Fiber

GDP Growth

Early Data: Increases GDP

“Our study suggests that communities where gigabit broadband was widely available enjoyed higher GDP, relative to similar communities where gigabit broadband was not widely available. The 14 communities with widely available gigabit broadband that we studied enjoyed over $1 billion in additional GDP when gigabit broadband became widely available, relative to communities where gigabit broadband was not widely available.”

The Early Adopter’s Dilemma:No Map of Path to the New World

Two Questions

What Networks will Market Forces, Left Alone, Produce?

What Have Municipal Efforts To Date Produced?

Topics for Today

What Networks will Market Forces, Left Alone, Produce?

What Have Municipal Efforts To Date Produced?

In the Summer of 2009, the National Broadband Plan Team asked CITI to provide a report on all publicly announced broadband

deployments for the years ahead

The Data was Deadly

For the First Time Since the Beginning of the Commercial Internet there was no National Carrier with Plans to Deploy a Better Network

than the Current Best Available Network

Report suggested, and experience confirmed, current market forces would not drive deployment of world leading wireline networks in the U.S.

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For 85% of the Country, Cable had the Faster Network and the Cheapest Upgrade Path

The Future Looked Like a Cable v. Copper Competition that would be Premised on Allocating Scare Bandwidth Instead of Building on

Technological Advances to Deploy Abundant Bandwidth

Cable v. Copper

Business Model: Allocating Scarce Bandwidth

Consequence for Innovation:Buffering drives desire for higher priced tiers; therefore upgrades follow innovation

Core Proposition:Harvesting from Past Investment

Cable v. Fiber

Business Model: Deploying Abundant Bandwidth

Consequence for Innovation:Scales to higher levels of video (4k, 8k), thereby upgrades enable innovation of higher performance knowledge exchange.

Core Proposition: Future Proof

How do we move from here

to here?

The Prisoners’ Dilemma

A Way to Understand the

Challenge

The Prisoners’ Dilemma

The Prisoners Are Both Better Off if They Trust Each Other Not to Confess

The Prisoners’ Dilemma

The Prisoners Are Both Better Off if They Trust Each Other Not to Confess

The Cops’ Mission is to cause a “Defection”

The Prisoners’ Dilemma

Substitute the Idea of Investing in Next Generation Deployments for Confessing and Harvesting Sunk Costs for Staying Quiet

The Prisoners’ Dilemma

Cable and Telcos Are Both Better Off if They Trust Each Other Not to Deploy NG Networks

The Regulator’s Dilemma

How to Cause a Defection?

Topics for Today

What Networks will Market Forces, Left Alone, Produce?

What Have Municipal Efforts To Date Produced?

Three Different Drivers

Supply Side Driven(Google Fiber v.

Incumbents)

Demand Side Driven

(Gig.U, etc.)

Small Cities(Federal Money,

Market Structure Driven)

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C + O > (1-r)R + SB + (-CL)

C – Capital ExpendituresO– Operating Expendituresr – RiskR- RevenuesSB- System Benefits (Benefits that drive increased revenues outside the communities where the new or incremental investments are made.)CL- Losses due to competition

Currently, the private investment equation usually looks like this:

Current Math: Returns Do Not Justify the Investment

Costs Benefits

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C + O < (1-r)R + SB + (-CL)

But how do we do that?

The path forward: change the math

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Reduce CapEx, OpEx, risk

Use Existing Assets More

Effectively

Reduce CapEx, OpEx, risk

Regulatory Flexibility and

Efficiency

Reduce risk and raise revenues

Aggregate Demand

Key Strategies

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• Build to Demand Model• Access to ROWs, Facilities• Reduce Regulatory Time

Reduce Cap Ex

• Access Payments• Reduce Ongoing Regulatory Costs• Utilize Existing Billing Platforms

Reduce Op Ex

• Build to Demand• Standardize Functions Across Areas,

VendorsReduce Risk

• Demand Aggregation• Marketing Platform• New Services

Increase Revenues

• Distributed Innovation• Seeding Long-Term Growth

Increase Ecosystem Benefits

Tactics within existing powers of communities

Google Starts Spreading Information

Commissioned by GooglePublished 2013

Winston-Salem*AugustaDallasFort LauderdaleGreensboroJacksonvilleHoustonMiamiOaklandChicago*

AustinKansas CityRaleigh-Durham*CharlotteNashvilleAtlanta*San AntonioSan Jose

Provo

Seattle*DenverSioux FallsSpokaneTucson*Columbia

Phoenix*

Las VegasOmaha

The Unfolding “Game of Gigs”(as of August 5, 2014)

*Gig.U Community**Note: Cox plans to eventually build a gigabit throughout its footprint, but is starting with these cities.***Category not comprehensive

Independent Projects***

Cleveland*San Francisco

ChattanoogaLeverettLongmontWilsonUrbana-Champaign*Gainesville*BurlingtonBristolChanuteBlacksburg*

St. LouisSan Diego

Los Angeles

Salt Lake CityPortland

Jefferson CityColorado SpringsAlbuquerque*Minneapolis - St. Paul

Orlando

**

But what about those communities who are not on Google’s Map?

GIG.U FALL 2014 STATUS CHARTUniversity Community State Method StatusVirginia Tech Blacksburg VA PPP Downtown Gig ZoneMichigan State East Lansing MI PPP Local ISP OfferingU of Florida Gainesville FL Local Utility Innovation Zone Network BuiltU of Louisville Louisville KY RFP 3 New Entrants Building Gig NetworksU of Kentucky Lexington KY RFP PendingTexas A&M College Station TX RFP Incumbent upgrade to GigU of NC Chapel Hill NC NCNGN Deal with T, Negotiating with GFNC State U Raleigh NC NCNGN Deal with T, Negotiating with GFDuke U Durham NC NCNGN Deal with T, Negotiating with GFWake U Wake-Forest NC NCNGN Deal with TASU Phoenix AZ GF Negotiating with GFGeorgia Tech Atlanta GA GF Negotiating with GFU of Chicago Chicago IL Legal Reform Telco Upgrading Network

U of CT Storrs, New Haven, others CT State RFP RFP in Process

U of Missouri Columbia MO RFP Developing RFPU of Montana Missoula MT Study Study Complete; developing responseU of New Mexico Albuquerque NM RFP Developing RFPU of Ill Cham/Urbana IL RFP Local ISP Developing NetworkCase Western Shaker Heights OH PPP Pilot ProjectU of WV Morganton WV PPP Spectrum Based Pilot OperationalU of Washington Seattle WA Legal Reform Telco Upgrading NetworkU of Maine Orono ME PPP In Discussions, Spin Off Projects

Zone• Cleveland

• Beta Block• Blacksburg

• Gigabit WiFi Zone

• Morgantown• Transit Areas

Using White Spaces

Zone (Cleveland, Blacksburg and Morgantown)

District• Gainesville

• Innovation District in Partnership with University, Utility, and Real Estate Developers

Zone (Cleveland, Blacksburg and Morgantown)

District (Gainesville)

Neighborhoods and City• Lansing

• Community Strategies

• Louisville• RFP with Three

Providers• Champaign-

Urbana• RFP with Single

Provider

Zone (Cleveland, Blacksburg and Morgantown)

District (Gainesville)

Neighborhoods and City (Lansing, Louisville, and Champaign-Urbana)

Region• North Carolina

NGN• Joint RFP with Six

Communities and Four Universities

Zone (Cleveland, Blacksburg and Morgantown)

District (Gainesville)

Neighborhoods and City (Lansing, Louisville, and Champaign-Urbana)

Region (North Carolina NGN)

State• Connecticut

• RFI Organized by Major Cities in which All Communities are Invited to Participate

Zone (Cleveland, Blacksburg and Morgantown)

District (Gainesville)

Neighborhoods and City (Lansing, Louisville, and Champaign-Urbana)

Region (North Carolina NGN)

State (Connecticut)

Key Question for City Officials

Are the Networks Serving Your Community Today

Sufficient for Ten Years from Now?

Three Key Insights

1. Everything that happens in your city ten years from now will be enhanced or degraded depending on the

quality of the networks.

2. Many things you are doing today or will do in the next few years will affect the quality of the networks you

have ten years from now.

3. Broadband is bought as a community. While Individuals think they make a choice, the choice is predetermined by choices the community makes.

86% of the experts

believe there will be “new, unique and

compelling technology

applications that capitalize on

significant increases in bandwidth in the

United States by 2025.”

Bottom Line

Cities with Cable v. Fiber

Cities with Cable v. Copper

Thank You