Smaller ISPs Should not Get into the FTTP Business

Implications: 1.      Run-of-the-mill ISPs might be very attracted to operating a municipal fiber network, especially one with open access. 2.      However, they lack the necessary experience and support equipment. 3.      Also, with not much skin in the game, the level of their commitment is going to be questionable.

Analysis:  Look at a successful ISP that has been in business for a while.  The company started out doing dial-up and then it shifted over to unbundled copper loops from the phone company -- and it is selling to both businesses and residences.  It likes the idea of the city’s fiber optic infrastructure and it says that it will come in and run it.  The management has certainly done marketing before.  But is it prepared to conduct door-to-door sales efforts?  Because that is what it is going to take, period.  

Let’s say the ISP believes it can engage in such rigorous marketing activities.  It seems like a pretty sweet deal for the provider.  Potentially, it gets an exclusive for triple play (while also competing against, let’s say, Comcast and Qwest), but there is no upfront capital necessary for the ISP.   

Then one starts drilling further down.  What is the company going to use for a switch? Perhaps the response is that it is talking to Avail about an IPTV headend, which is about $200,000 to $400,000.  Of course, the provider really knows nothing about video really or any of the issues.  The ISP is asked again – what are you using for a switch?  The answer might be “We’ve got this Linux server in the backroom.”End of discussion.