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Municipal Broadband Strategy: Beyond Wireless Municipal leaders put millions of dollars at risk if they rely solely on current wireless standards to satisfy their constituents’ broadband needs. Having a portfolio of options is a more prudent approach. By Chris O’Brien, John Erik Garr, and Jack Rejtman

Municipal leaders should be commended for increasing their efforts to provide constituents with wireless access. Those initiatives can provide real value to citizens, businesses, police and fire departments and other local stakeholders. But don’t be misled; deploying a wireless network is not a broadband strategy. Governments must look beyond shortterm fixes and take a comprehensive approach to ensure multi-million dollar investments in broadband networks truly address the issues of affordability, access, mobility, capacity, and widespread adoption.

Executive Summary

“. . . alone, wireless networks at best address only part of the problem . . .”

Frustrated by uneven access to broadband in their cities and fearful of falling behind international competitor cities offering faster speeds at affordable prices, nearly 450 U.S. metropolitan areas are building or planning municipal wireless networks. Policymakers and government executives are caught between a compelling public interest to expand broadband access and a telecommunications industry struggling to do so profitably. The public pressure is clear. Editorial pages are full of commentary on the role that government needs to play in building the proper technical infrastructure to attract the high wage jobs of the future and to promote equitable access to the infrastructure for downtown office workers and neighborhood residents alike. Legislators are also getting into the act, passing state laws and local ordinances mandating broadband standards. The evidence is on their side, as studies have shown improved broadband access and affordability is linked to economic growth and improved quality of life. Less clear is what a municipality can do to work with the range of technology providers to manage this pressure. Local governments are used to making major infrastructure investments in stable technologies like roads, rail systems, and airports with solid business cases that offer substantial long-term paybacks. The

For more information contact:

Chris O’Brien, Partner, Public Sector Practice [email protected] 2

current state of the telecommunications industry, however, provides no safe harbor, as new technologies hit the market in months instead of years, with business models changing just as quickly. Diamond commends cities such as Philadelphia, Chicago, and San Francisco for boldly introducing major public wireless efforts and agrees that critical components of a city’s economic and cultural growth should not be left to market whims. Diamond believes that wireless networks can be an effective component of a government’s overall approach to improving connectivity within its jurisdiction. But alone, wireless networks at best address only part of the problem and at worst will be unable to meet consumer bandwidth demands by the time they finally come on line. Many municipalities may miss the market and end up building a dirt road where an eightlane highway is required. To strike the right balance, local policymakers should approach broadband infrastructure as they do the development of roads or airports: Begin with constituent needs and develop a portfolio of initiatives, including— but by no means limited to—those that improve wireless coverage and will provide the best long-term payback, while avoiding the seduction of short-term investments that make good headlines but only chip away at the problem.

Defining the Problem

“. . . many government executives find themselves with initiatives in flight before correctly understanding the problem they are trying to solve. . . .”

The United States has no meaningful federal broadband policy; consequently, state and local governments are driving municipal broadband initiatives, often without fully understanding the needs of their communities. As a result, many policymakers have bitten off large infrastructure investments without being able to answer the most fundamental questions: What problem are we trying to solve and what is the best way to solve it? So far, the municipal broadband market has been long on press releases promising major benefits and short on delivery. Due to the enormous pressure from interest groups, many government executives find themselves with initiatives in flight before correctly understanding the problem they are trying to solve. In many cases, the lack of a clear and compelling definition of the problem and hard data to support it has created a vacuum into which providers and activists have presented competing pictures of reality. The resulting disagreements have created confusion and stalled momentum. In our view, many municipal network initiatives fail before they begin because policymakers have not decided which problems they are trying to solve and have further neglected to tailor specific solutions to the unique set of problems they face. In Diamond’s experience, there are three compelling reasons for municipal investment in broadband initiatives, each with very different technology options, business cases, and associated investments.

Problem 1: Digital Inclusion Access to technology is as essential in the early 21st century as access to electricity was in the early 20th century. Technology in general, and the Internet in particular, have changed the way people work, learn, heal, entertain, socialize, and organize. Broadband networks—

both wireline and wireless—now connect people to essential tools. Citizens without affordable broadband access increasingly will fall behind economically and socially. This digital divide is found throughout U.S. rural and urban areas where too many individuals lack access to even basic broadband networks. Even those with access often pay premium fees for sluggish service. With respect to broadband, the digital divide in reality comprises two separate problems. The first is that certain geographies have limited access to highspeed networks, due to underinvestment by providers or aging physical plants. The second problem is one of adoption, which is driven primarily by affordability and awareness, and it can affect segments of individuals across geographies. Both of these problems are real and often related, but they require different sets of solutions. Right or wrong, delivery of U.S. broadband largely has been left to the private sector. This has left major U.S. cities and other municipalities in a position where a critical enabler of economic growth in their jurisdictions is somewhat out of their control. No jurisdiction is the same, and some citizens face a competitive market with broad access, a suite of options, many at reasonable prices, while others face a monopolist service provider restricting supply and keeping prices high. To make matters worse, most municipalities lack reliable data on which situation they are in, and how that situation changes from neighborhood to neighborhood. For example, some neighborhoods may have plenty of options and require no dramatic municipal intervention. For roughly $35, residents in these neighborhoods can choose between one of several broadband services, with costs falling and service quality increasing as providers innovate and compete for business. Just a few miles away, other neighborhoods can present a 3

completely different situation, with only one carrier offering service and limited innovation in service quality resulting from the lack of competition. To further complicate matters, economically disadvantaged residents may encounter difficulty affording broadband, no matter which community they live in. Addressing the digital divide requires knowing where these geographies and populations are located. Unfortunately, policymakers lack reliable data on access and affordability within each neighborhood. Indicators such as income and education level are poor substitutes for reliable data on coverage. Many municipalities that lack this data will end up over-investing in some neighborhoods and under-investing in others.

Problem 2: Economic Development Many municipal broadband efforts are focused on creating an attractive environment for the service and high-tech industries that have transformed cities like Austin, Texas, and Seattle, Wash., over the last two decades. It is clear that all businesses, but especially those relying on knowledge workers, depend heavily on network infrastructure and other technological support structures. Pressure from abroad also comes into play. Major U.S. cities are increasingly at risk of losing companies in bandwidth-intensive industries such as financial services and biotechnology to foreign cities with faster digital infrastructures. Increasingly, the United States is falling behind Europe and Asia, where leading countries have established national broadband policies and have spurred investment in core fiber infrastructure. Another version of the economic development argument draws from the theory of a Creative Class City, popularized by Richard

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Florida in his 2002 book entitled The Rise of the Creative Class. The notion presented holds that cities must grow innovationbased industries, and that young, talented, creative workers are the fuel that drives these industries to thrive in the manner of Austin and Boston. Mr. Florida argues convincingly that in order to attract creative-class workers, governments should seek to cultivate a thriving culture and quality of life. Some have extrapolated from this theory to argue that creative-class workers, such as lawyers, writers, musicians, and high-tech entrepreneurs depend on high-bandwidth networks to share their ideas and, as such, governments have a compelling interest to act.

“Building networks is extremely complicated and they are often out-of-date before they go live.” Feeling these pressures, many U.S. cities are acting, but the question is: If you build it, will they come? In our view, that depends on whether you build something that will meet the demands of these bandwidth-starved companies and individuals. Unfortunately, too many cities have built their broadband strategies around technologies such as Wi-Fi, which alone are ill-suited to meet this demand. In addition, infrastructure is only one tool for attracting creative workers, and should be bundled with other investments if a city hopes to foster this type of development.

Problem 3: Improving Government Communications Since the terrorist attacks of Sept. 11, 2001, governors and mayors have woken up to the need to improve the way their

employees communicate with their constituents and other government workers within their jurisdictions and across others. For example, Chicago is one city that has installed cameras with gun-shot detection capabilities and have implemented sophisticated crime-modeling and analysis tools to stay one step ahead of the bad guys. The problem for governments, however, is that the majority of their law enforcement workers are not tethered to wired connections at their desks, and there is no reliable, commercially available network to safely and reliably stream the massive amounts of video, voice, and data content to mobile workers in the field. In response, many municipalities have undertaken efforts to build their own wireless networks that allow them to better share data. Unfortunately, building these networks is extremely complicated and they are often out-of-date before they go live. Some cities, relying on rosy promises of technical capabilities from vendors, have found that these networks, once constructed, are no more reliable and offer little additional capacity than the commercial networks they were designed to replace. In reality, most jurisdictions enter into municipal wireless initiatives with the best intentions of solving each of these problems—and to be sure each of these problems is worthy of solving. But addressing all of these problems with one approach is a recipe for disappointment and might even cause the city and its residents and businesses to be left behind while others modernize their information infrastructure to support the jobs and lifestyles of the future.

A Call to Action

To address these challenges, Diamond recommends the following essential steps:

where coverage gaps remain. The key is to focus on four layers of data:

Build a Fact Base

• Broadband Infrastructure: The fiber, central offices, and cable that carry data;

City officials would not think of investing in roads or bridges without first considering basic information concerning existing infrastructure availability or future demand. But with broadband investments, policymakers have been forced to invest with little or no information. Cities and states need data to understand what problems they must solve with broadband solutions, and this information can be difficult to come by. Data on broadband access is incomplete at best and useless at worst. Broadband providers often make broad statements regarding coverage but are unable or unwilling to provide specifics. At the national level, the Federal Communications Commission still defines a high-speed connection as 200 Kbps—a measure set last decade, when the dial-up modem was the dominant Internet access technology. In addition, the FCC methodology for tracking high-speed access and penetration considers an entire zip code covered if only one broadband subscriber is connected. As a result, cities often must make policy decisions based on subjective views of broadband coverage, ranging from bold provider reports to activists’ bleak assessments. The resulting confusion is a roadblock to achieving consensus. Disagreements regarding the current state of broadband weaken momentum and diminish the case for action. In the same way cities and states analyze data before investing in roads and bridges, they should seek data to understand which neighborhoods have the greatest need for broadband. Gathering this data is difficult but not impossible, and Diamond has developed tools to help cities identify—down to the block level—what infrastructure exists and

• Address-Level View: An address-byaddress assessment of broadband options and pricing; • Demographic Data: Data on who lives at these addresses, including income levels, educational attainment, and number of small and large businesses; and • Qualitative View: Data concerning the perceptions of consumers regarding broadband availability, quality, and affordability. With this data, cities can understand their current broadband environments and how they are positioned to meet future needs. Policymakers can gauge the magnitude of the digital divide and target solutions appropriately. They also can identify the degree to which broadband infrastructure will support economic development goals. This analysis provides an unassailable fact base that is essential to understanding needs, creating consensus, directing investment, and managing results.

Define a Strategy and Portfolio, Manage Investments In our experience, the fact base will demonstrate that certain geographies are well covered while others have severe gaps. Additionally, it will show exactly which population or economic segments face adoption challenges. Armed with a robust fact base, policymakers can create an overall strategy that includes a portfolio of initiatives, each of which is targeted at a specific portion of the problem. Unfortunately, too many governments view the decision to simply construct a 5

wireless network as a broadband strategy; it is not. Governments must define more comprehensive broadband strategies to ensure the important aspects of affordability, access, mobility, capacity, and adoption are addressed. In South Korea, for example, the government set a goal of establishing state-of-the-art networks that provide fixed and wireless access for anyone, anywhere, at reasonable costs. Such a vision required a bold commitment to a portfolio of initiatives, and the results are compelling: In Seoul, 89 percent of households enjoy broadband speeds up to 100 Mbps for $30 or less a month—that is about 80 times faster and 30 percent cheaper than in the United States. In our view, wireless technologies can be an important part of a broadband portfolio, but cities that solely rely on wireless solutions will almost certainly miss the mark. Wireless networks are being touted as a “silver bullet” solution to solve many problems related to mobility, affordability, access, capacity,

and adoption. But in reality, wireless networks only address some problems. We have major concerns that wireless networks will not be able to meet emerging bandwidth demands. Based on an analysis of growing application bandwidth demand, Diamond projects that within the next five years, capacity requirements will rise from their current level of 1 to 5 Mbps to more than 100 Mbps. The explosion of bandwidthintensive applications, especially those with video-based content, will place a near-term strain on broadband delivery networks. Municipal wireless networks alone cannot meet this demand. In fact, fiber to the premise (FTTP) is the only existing or emerging technology that can achieve this. Cities that craft broadband strategies solely or largely based on Wi-Fi or WiMax networks risk building a white elephant that will not be able to keep pace with exploding bandwidth requirements and will support only a very limited range of applications.

Joe Mambretti, director of Northwestern University’s International Center for Advanced Internet Research, said many U.S. cities mistakenly plan to rollout wireless in lieu of fiber infrastructure. “Wi-Fi won’t solve their core problem, Mr. Mambretti says. “The lifeblood of the cities, medium to small businesses, requires true broadband.”3 Mambretti estimates that within five to 10 years, U.S. governments and businesses will require download and upload speeds more than 1,000 times greater than what is available today. Diamond urges cities and states to manage their broadband portfolios much like smart investors balance investments between those with a sure return, those with moderate risk, and those that could yield breakthrough results—albeit at significant risk. The weighting of this portfolio largely will depend on facts. But we believe most cities, as stewards of the citizens’ money, should favor stable, long-term investments. Unfortunately, wireless networks do not fit

Portfolio of Options

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this definition. With that in mind, cities should balance investments in these technologies with programs that offer a more stable, reliable stream of benefits. While governments can make many investments to improve broadband access, typical investments fall into the following categories: • Direct or Indirect Investment in Infrastructure: Cities can construct their own broadband infrastructure or facilitate third-parties constructing it on their own, either on a large scale or on a more targeted basis; • Governance and Market Influencing: Cities can use their leverage over carriers and other providers to steer them toward providing greater service either through regulation (franchising) or other means; • Subsidies: Cities can provide direct or indirect subsidies to defray broadband cost for consumers or businesses; • Demand aggregation: Cities can help buyers pool their needs to attain greater buying power; and • Adoption Campaigns: Cities can educate businesses and residents about broadband benefits. In Diamond’s view, U.S. access problems are multi-faceted and can only be solved with a portfolio of initiatives. To meet nearterm capacity demands, municipal wireless initiatives should be supplemented with plans

that encourage development of fiber to the premise. Governments also should carefully explore programs that target specific geographies and populations that hard data show are underserved. Most importantly, all initiatives should tie to measurable objectives so progress can be tracked. A comprehensive strategy and portfolio of broadband initiatives is necessary for success, but alone is not sufficient. Many governments have faltered in translating broadband strategy into fully implemented programs. In our experience, a leading cause of problems is the popular but misguided business model in which the vendor building and paying for the network manages rollout. This model intellectually appeals to governments, many of which have struggled to effectively manage large infrastructure programs and believe the private sector can do it better. But cities should be wary of handing over full control, because private sector incentives often are at odds with the public interest. While cities may not directly invest taxpayer money, their leaders invest political capital. Failure to deliver on promises made to citizens can be costly, and potentially disastrous. Cities should manage these initiatives as if their own money were at stake, with comprehensive program management and oversight to ensure key benefits are achieved. Governments need smart, experienced, and objective advocates on their sides as they manage large-scale municipal broadband initiatives. These advocates may be permanent employees, consulting partners, or independent resources selected by

the government but funded by the network provider. In any case, they should be selected based on their ability to craft a project plan; mercilessly manage deadlines, resources, and risks; monitor the delivery of promised benefits; align community, government, and private sector stakeholders; and oversee compliance with contractual and other terms. The importance and scope of these responsibilities should not be underestimated. And they certainly should not be left solely to the network partner.

Conclusion Large-scale municipal broadband networks have the potential to transform U.S. cities. Successful deployment will enable continued growth of an innovation-based economy and expanded educational, employment, and recreational options for all citizens, regardless of income or geography. Failure could mean citizens and businesses will fall behind in the global economy. Unfortunately, current wireless efforts are unlikely to drive this transformation if not linked with a broader portfolio of initiatives. Forward-thinking policymakers will begin by assessing the unique broadband requirements of their businesses and residents. Supported by a solid fact base, they will then formulate and execute broadband strategies—carefully managing a portfolio of initiatives and vendors to address their communities’ short- and longterm needs.

Endnotes 1

Vos, Esme. “August 2007 Update of wireless cities and counties in the US,” MuniWireless, http://www.muniwireless.com.

2

“Top 25 Countries in Household Broadband Penetration.” Point Topic, April 2007.

3

Mambretti, Joe. Interview held with Diamond, March 2007.

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About the Firm

Diamond (NASDAQ: DTPI) is a management and technology consulting firm. Recognizing that information and technology shape market dynamics, Diamond’s small teams of experts work across functional and organizational boundaries to improve growth and profitability. Since the greatest value in a strategy, and its highest risk, resides in its implementation, Diamond also provides proven execution capabilities. We deliver three critical elements to every project: fact-based objectivity, spirited collaboration, and sustainable results. To learn more visit www.diamondconsultants.com.

About the Authors

Chris O’Brien is a Partner in Diamond’s Public Sector practice. Prior to joining Diamond in 2006, Chris was appointed to the cabinet-level position of Chief Information Officer for the City of Chicago by Mayor Richard M. Daley in 2000. Chris has been named one of Crain’s Chicago Business’ “40 Under 40” and one of Government Technology Magazine’s “Top 25 Doers, Dreamers and Drivers.” He was also awarded the Chicago Software Association’s 2004 Spotlight Award as leading CIO in the Chicagoland area and he led Chicago to five consecutive top-five showings in the annual Digital Cities study. John Erik Garr is a Partner in Diamond’s Public Sector practice, with a proven track record advising some of the world’s top companies and government agencies on strategic and operational issues. His clients range from global investment banks to state government and large not-for-profits, and his areas of expertise include strategic planning, sourcing strategy, and market development. Jack Rejtman is a Manager at Diamond. He has led strategic planning, market analysis and execution of complex, global technology projects for Fortune 500 companies. Prior to joining Diamond, Jack was a Technology Columnist, Business Writer and Municipal Reporter for The Miami Herald, where he covered the South Florida Internet community and statewide efforts to establish a network access point in Miami. Diamond consultants Neil Harrison, Hedy Moolenaar, and Ed Fostveit also contributed to this report.

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© 2007 Diamond Management & Technology Consultants, Inc. All rights reserved. C hicago

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