Gates Foundation Proposal: Linchpin to National Broadband Strategy?

istock_000006279005smallThe Bill & Melinda Gates Foundation last week sent analysis data to the FCC that put the cost of installing fiber networks in 80 percent of the anchor institutions (hospitals, medical facilities, schools) in the U.S. at $5 billion–$10 billion. But while the FCC quickly issued a public request for comment (PDF) to validate the financial and technology assumptions in the foundation’s analysis, I had to wonder: Does wiring the 98,400 U.S. anchor institutions that lack Internet access make good business sense?

I think it does. In fact, the premise of the foundation’s report –- wire these institutions and great things will happen –- is in my view a great strategic approach to reaping broadband’s promised benefits. It should be the core for our national strategy, 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

To be clear, the foundation’s analysis estimates the cost to install fiber in every institution but doesn’t include the costs of keeping it operational. My support assumes that network business would be built, not just little islands of fiber access. For one thing, money for ongoing operations has to come from somewhere. Communities have the best shot at making that money by integrating their institutions’ fiber cabling into one network.

If your ultimate objective is to create a community-wide 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 with grant money.

If you look at successful networks already in place, anchor tenants collectively produce most of the revenue. It costs less money to win, and then support, for example, 10 anchor tenants at $1,000 or $2,000/month than 400 subscribers at $50/month. Plus, if you provide great service, anchor tenants re-new their contracts every year. And extrapolating the Gates’ premise, you use financing to take communities’ main institutions over the big hurdle of broadband buildout, and thus make it easy for them to become anchor tenants.

It’s important to include local government in that equation, since it’s the mother of all anchor tenants. And many local government offices are burdened with so much ancient legacy communication technology that replacing it with fiber would save hundreds of thousands of dollars a year. Especially when it comes to small towns, building an ROI case is not hard.

Furthermore, local government can build a wireless network on top of the fiber, producing an even greater financial bang for their buck. New York City, Minneapolis, Providence, Rhode Island and Oklahoma City are examples of 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, Calif., 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. After all, it can cost hundreds of dollars to win and keep an individual as a subscriber and it takes months before each one becomes profitable.

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.

-1As part of the strategy for broadband adoption, anchor institutions hold the key, so be creative in structuring relationships with them. Especially libraries, which are already a central point within communities for people who want to use the Internet 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 nine or 10 of their similarly well-heeled buddies and put together a broadband investment group, but so far, no such luck.

Craig Settles is an industry analyst and consultant who specializes in developing business strategies for community broadband networks. You can follow him on Twitter (cjsettles).