Gates Foundation Proposal – Linchpin to National Broadband Strategy?

A few days ago the Bill & Melinda Gates Foundation sent analysis data to the FCC postulating that $5 – $10 billion could install fiber networks in most of the anchor institutions (hospitals, medical facilities, schools) in the U.S. The FCC quickly issued a public request for comment to validate the financial and technology assumptions in the Foundation’s analysis.

My strategic mind scooted past the numbers to ponder a question that should always be near the top of people’s thinking on broadband: does wiring 98,400, or 80% of all U.S. anchor institutions, that lack Net access make good business sense?

The premise behind the Foundation’s report – wire of all these institutions first and great things will happen – in my view is a great strategic approach to reap broadband’s promised benefits. It should be the core for our national strategy plan, as well as a central strategic objective for those applying for stimulus grants. In one fell swoop you resolve three critical issues: financially sustaining the network, fostering economic development and generating widespread broadband adoption.

Financial sustainability

The Foundation’s analysis estimates the cost to install fiber in every institution but doesn’t include the costs of keeping it operational. In my assessment, I’m taking their premise and assuming you’re going to build a network business, not just create little islands of fiber access. For one thing, money for ongoing  operations has to come from somewhere. To make that money, communities will do best by integrating their institutions’ fiber cabling into one network if possible.

If your ultimate objective is to create a communitywide broadband network, then these institutions have to become anchor tenants that actually pay for network services, with libraries being the one possible exception (more on their role in a bit). In many underserved rural and urban areas, low population density and/or low income make it difficult to get enough individual subscribers to pay for a network’s operating expenses (OpEx,) even when the network is built mainly on grant money.

If you look at successful networks already in place, anchor tenants collectively produce most of the revenue because each one spends more per month for services (maybe $1,000, $2,000/month or more) to replace older slower communication technologies, and capitalize on new computing technologies. Extrapolating the Gates premise, you boost communities’ main institutions over the big hurdle of broadband buildout with financing, and thus make it easy for them to become anchor tenants. 

It’s important you include local government since it is the mother of all anchor tenants. Some are burdened with so much ancient legacy communication technology, a small town of 84,000 people can justify the network costs because they save $700,000 or $800,000/year replacing that old technology with fiber. You shouldn’t have much trouble building an ROI case here.

Furthermore, local government can build a wireless network on top of the fiber that produces an even greater financial bang for the buck. New York City, Minneapolis, Providence, RI and Oklahoma City are major cities that built or subscribed to citywide wireless networks to run hundreds of mobile government workforce applications and reduce government operating costs.

While it’s true that adding local governments would add to the cost projected in the Foundation report, governments can show a significant return on investment to underwrite their portion of the buildout and the OpEx.

Economic development

Once you have your anchor institutions wired and wireless, they become a catalyst to drive economic development. Santa Monica proved that once a local government and other anchors have a network that’s saving or generating money, it’s less expensive to extend that network to your largest 10 – 12 businesses. Word of mouth sells services.

This network extension builds on itself. As infrastructure goes out to the biggest companies, you attract new businesses looking to move or expand to small towns and rural areas. Network costs stay reasonable so small businesses in rural and urban areas can afford to tap into the infrastructure. Each anchor tenant can build a wireless hub that attracts shoppers and tourists, which impacts the neighborhood’s economic picture.

Broadband adoption

Anchor institutions, particularly when you include libraries in the mix, address one of the more vexing challenges of broadband – getting individuals to subscribe. It can cost hundreds of dollars to win and keep an individual as a subscriber. It’s months before each subscriber becomes profitable. Many people have no interest at all in getting on the Internet.

Rather than bust your rump and your budget chasing after these individuals, leverage the anchor institutions. If each institution provides content, services and applications that enable their constituents to benefit without having to fight traffic, stand in line or sit for hours with a phone locked to their ears, individuals will subscribe to the network.

As part of the strategy for broadband adoption, anchor institutions hold the key, so be creative in structuring relationships with them. Libraries especially hold promise in this area because they already are a central point within communities for people who want to use the Net to do research or hunt for jobs. 

This discussion, of course, may all be for naught if no one can figure out where the $10 billion is coming from to invest in the anchor institutions. I was hoping Bill and Melinda would round up 9 or 10 of their similarly heeled golfing buddies and put together a broadband investment group. But none of the press articles indicated any such luck. It may be hard to get a second chunk of change out of Congress on the heels of this $7 billion, but stranger things have happened.

For the moment, we can speculate as to the possible sources of funding, but at least this is a strategic path that shows promise. What are your thoughts?

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