Cambridge as broadband provider may be less needed, less attractive than supposed
Competition is usually good for consumers. More competition may lead to better service, lower prices or both for broadband in Cambridge.
But moving ahead with a plan for Cambridge to incur an estimated cost of $180 million at this point would be irresponsible without first engaging in a thorough financial and benefit analysis. This had been the recommendation of the final report of the Broadband Task Force to the city manager.
Moreover, competition is indeed coming, via some traditional providers and new players. More on this later.
In the nearly two years that the task force was active, the two fundamental justifications for a municipal system that emerged were to provide affordable broadband service to all Cambridge households and create a system that had greater capabilities than what is available to households today.
Additionally, task force members generally expressed dissatisfaction with Comcast, the primary broadband provider. The broader Cambridge community had a more nuanced assessment. In a survey of Cambridge households that was part of the task force’s report, more than half of respondents were generally satisfied with their service and almost all Comcast subscribers rated it as middle of the road for value.
That same survey, conducted by Opinion Dynamics, a professional market research firm, also surprised us with the finding that 95 percent of 403 households responding to a voluntary phone survey had Internet access in the home, excluding cellphone-only access. Only 0.3 percent of households had no Internet access either in the household or via mobile phone.
This finding confirmed the widespread consensus that Internet access today is indeed viewed as close to a necessity.
But it doesn’t address how many households are stretched financially in buying the service. The Opinion Dynamics survey does provide some small insight. When asked what two or three issues respondents would recommend to improve Internet in the city, close to 40 percent wanted “better service” and “competition.” Only about 17 percent mentioned lower prices.
Having been a student of the economics of the telecommunications industry for more than 40 years, my concerns are that there is a substantial likelihood that engaging in a city-funded and owned system at this time would lead to a substantial debt burden that would never pay for itself.
As part of the Broadband Task Force study we looked at cities and towns that did have municipally built and owned systems. One common thread in many of the cities that have lower-priced and faster broadband is that they also own the local electric utility. Thus, in those cases the costs of building and operating the municipal systems can be shared (for instance, rights of way, billing, marketing and customer service). A stand-alone system would need to bear all costs on its own.
Furthermore, the study did not – nor could not – make general conclusions about the economic viability of the municipal systems. We did learn that many municipal systems have found they are not sustainable other than through taxpayer subsidies. (Burlington, Vermont, is one). A municipal system must not only charge enough to cover operating costs, but repay bonds issued to cover capital costs.
Another critical factor that is overlooked in evaluating the price that a municipal system would have to charge is that the potential price is typically compared with stand-alone Internet pricing of for-profit carriers such as Comcast. But we know that most residences in Cambridge have their Internet service bundled with traditional cable TV. In these cases, the “marginal” price of the Internet service is much less than the stand-alone price.
To test that, a subscriber with Comcast cable and Internet (and maybe landline telephone as well), could go to its website or call them and find out what the cable TV-only cost would be if they dropped other bundled services. They will find that the difference between a cable TV-only subscription and the bundled TV plus Internet package would show they are in effect paying less for Internet than the stand-alone price would indicate.
Thus, many households would find that if they wanted to buy the Internet service from Cambridge and cable TV service from Comcast, their total monthly cost would increase. If Cambridge offered its own Internet-only service, its base of potential subscribers would not be drawn from all Cambridge households but primarily those who do not also want to have cable TV service. Would that be a large enough base to generate the revenues to pay back the bonds, operate the system – and provide subsidized service to low-income households, as many proponents also see as an advantage for a municipal system?
The task force also met with Cambridge businesses and many of its large institutional entities. Although there were some small-business owners who were unhappy with Comcast, the large users – universities and businesses – have Internet services that bypass Comcast. There was no sense that they would flock to a municipal system. Many smaller communities have used the need to attract business as a rationale for upgrading local Internet services. Cambridge, however, is a global hub for these businesses already. We never heard of any organization leaving or not considering Cambridge because of lack of appropriate Internet access.
Finally, perhaps most critically to any analysis of the viability of a municipal broadband investment, we are already seeing some competition entering Cambridge with lower price points than Comcast. Over the next few years we should be seeing more widespread availability from more competitors for high-speed broadband in Cambridge.
Among others, Starry, already serving some multiple-unit buildings, has announced plans to expand in Cambridge this year. Verizon is also likely to move into Cambridge as part of its Boston expansion.
Starry and other new providers are using what’s called “fixed wireless” rather than running fiber to every dwelling unit and office. This might be likened to how Wi-Fi (a wireless technology) has replaced ethernet (a wired technology) for broadband within homes, universities and offices. So competition – and with it, lower-priced options – are likely.
Verizon and AT&T, as well as the other phone providers, are also moving rapidly into the next generation of wireless technology, often referred to as 5G. It will offer speeds greater than what most household can now get with Comcast and has so much more capacity than today’s systems that data caps should be less of an issue. Many households may find that they can jettison their Comcast service and just use wireless for less cost that their combined current mobile data plan plus Comcast Internet.
Given these highly likely developments, do we want to incur the estimated $180 million cost and risk of a city-owned system that wouldn’t be ready for five or six years even if we started now?
If making Internet service less financially burdensome to low-income households is a goal, it may actually be cost-effective and certainly less risky for Cambridge to create a budget for direct subsidies via other low-income programs than commit to potential years of costly debt service for a municipal system that will never pay its own way.
The task force had recommended that the next step should be an economic analysis of a municipal system. That hasn’t been taken up by City Council or the city manager. But at this point the need may be moot. At the very least, such an analysis would be the first step in any drive to Upgrade Cambridge.
Ben Compaine is an entrepreneur, investor and academic expert in telecommunications. He is director of the Fellows Program at Columbia University’s Institute for Tele-Information and a lecturer in the D’More-McKim College of Business Administration at Northeastern University.