Internet access for all will be determined by the cost of access. The last barrier to access is the “last mile”.
And this brings up a story…
A year ago, the City of San Francisco had a problem. They wanted to deploy broadband access to one of the housing developments that the San Francisco Housing Authority runs. The Alice Griffith (aka Double Rock) housing development is located in the south east corner of the city. Many of San Francisco’s housing developments are down there such as Hunter’s View, Hunters’s Point West and Sunnydale.
In the extreme south/east corner of San Francisco where Alice Griffith is, there is only one broadband provider, Comcast. They really were not that interested in helping this project out as they already have a contract with the city to provide cable to the housing development as part of their franchise. The other San Francisco broadband provider is AT&T (aka, Pacific Telephone and Telegraph, Pacific Bell, SBC). AT&T did not install DSL in this area. With that, in order to get broadband to Alice Griffith, San Francisco was about to ink a deal with AT&T for two DS-1 connections that would give Alice Griffith 3Mb/s for $1,300 a month(1). You would think that since Pacific Bell’s original corporate office was located in San Francisco that AT&T would have some interest in helping out 3 Mb/s of broadband. Nope. They wanted the bucks.
Right now, wholesale broadband costs anywhere from $10 a month per megabit to say $100 a month. At my company we get it on the cheaper end of that range. With the assumption that AT&T needs to cover say $30 a month for the wholesale cost of 3 Mb/s, that leave a tidy profit of $1,270 per month.
Ok, we need to count in the cost of the copper to Alice Griffith. AT&T typically charges about $12 or so a month for each copper pair to DSL providers. Two DS1s will take either two pairs or four pairs depending on the technology AT&T is using to transport it (HDSL vs. standard DS1). Right now AT&T use 1 pair for DS1. So assuming that AT&T makes zero profit off of the $12 a month they are charging DSL providers (yeah, right), then the cost for the copper is $24 a month. Ok, $1,270 – $24 leaves around $1,246 net profit.
How can AT&T charge this? Simply there is no competition.
When we at TLGnet (San Francisco’s first ISP) first started out in 1990, we were paying $5,000 a month to UUnet for bandwidth via a DS1. Of course we had to pay for the DS1 to get it to us. That was about $500 a month. Since then, bandwidth is in the $20 a Mb/s per month range and DS1 costs are exactly the same. The last mile cost in 1990 was 9.1% of the total costs. Now it is about 87% of the total costs (assuming say $100 for the bandwidth and $650 for the DS1).
Wholesale bandwidth has plenty of competition from folks like AT&T, MFN, MCI, Savis, Level3, XO, Global Crossing, among other “tier one” providers and have dropped bandwidth prices to about 3% of what it cost us in 1990. Like San Francisco, last mile providers have no competition and have not changed their pricing at all. The various telecom acts to reform this has very little if any impact for the end user.
It was interesting that even Comcast didn’t try to make a buck here. They just said no. If you counted on at least two providers providing competition, you would be disappointed.
On the next rant, I am going to look back in San Francisco history for precedents to this issue.
(1) It so happens my ISP is 4 blocks away from Alice Griffith and we put in a 5.8GHz radio link to it. Now they have 50Mb/s of free access as opposed to the 3 Mb/s that they would have had to pay $1,300 a month for.