Sunday, September 14, 2008

Telco Sues Municipality For Laying Their Own Fiber

I think you are missing a very key point, here. It's true that telcos were paid government funds to build a significant part of the telephone network. But it's also true that in the vast majority of cases, those parts are the UNPROFITABLE parts.

Let's say you have a water pumping service, doing business in town, and you're making whatever profits you are making. For this example, we'll ignore the fact that most communities have community water. Business is good, you're expanding to cover more and more houses, starting with the most profitable ones first. (densest neighborhoods)

But then de gubbmint comes in and tell you that you have to do a bunch of stuff in order to continue to do business, because of the benefits to the general health of the community or whatever. For example, since you provide water to some houses in your town, now you have to provide water to ALL houses in your town.

Now, it's not as though you wouldn't love to serve all the houses in the town, but some of those houses are over a mile apart! Just the cost to dig the pipes out that far will cost you over $10,000 per house! Since you are charging $50/month for water service, it's going to take almost 20 YEARS before you even break even on the base cost, nevermind the finance charges you'd incur to borrow the money to deliver the service the gubbmint requires!

And you can't charge the homeowners, either - they aren't buying anything, they didn't ask for it, and making them pay would be onerous on them, too.

So, in circumstances like these, it's very typical for the private company (your water company) to ask for funding to assist in the problem areas. It often comes as a sort of deal: Your water company enjoys a monopoly status, subject to various regulations that you have to perform, in exchange for funding to cover the plumbing for the unprofitable areas.

So the net effect goes something like this:

1) Your company is now a monopoly that must turn in a Profits and Loss statement, along with proof of regular water testing to the city council every month or so. You cover 100% of the houses in the community, and you have no effective competition. One of your concessions is that the municipality can levy taxes via your bills. You have to calculate this bill, and turn over the tax money to the city quarterly.

2) The city has now satisfied its goal of everybody having 100% availability to clean drinking water. It's paid for costs of plumbing by taking out a bond, secured against a tax raised against people's water bill.

3) Everybody who lives in the community now pays a 5% monthly tax on the water bill to cover the cost of plumbing outlying areas. Financially, it's a raise in your bill if you were already contracted with the water company when it was all private, it still brings benefits such as improved local economy resulting from the improved infrastructure.

Telco Sues Municipality For Laying Their Own Fiber
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1 comment:

yogijp said...

Towns already run their own water pipes, sewer pipes, fire alarm systems, roads, etc. What is one more cable?

I call BS if you say running fiber takes more expertise than running water and sewer pipes. Electrons can go uphill of their own accord, water needs help.