With Google Fiber (NASDAQ: GOOG) planning only to bring its 1 Gbps service into a few targeted apartment communities, and widespread gigabit services by other providers like AT&T (NYSE: T) months away, the city of San Francisco is exploring how much it would cost to build its own municipal fiber network to serve residents and businesses.
Such a network could cost between $393.7 million and $867.3 million, depending on the strategy the city potentially adopts.
A new report from the city's Budget and Legislative Analyst Office laid out three possible options for deploying a citywide fiber optic network: a completely public model, with the city taking on both development and ownership of such a network; a completely private model, with the city incentivizing ISPs to build out in the area; or a public/private initiative that would split the costs and burdens of development and ownership between the city and private providers.
The study estimated that the private, or "demand-driven" model would cost the city $393.7 million for the network buildout. A wholly public, or "utility-based" model would have the highest upfront layout, $867.3 million, "because construction would include costly network connections to every premise in San Francisco," the report said. The city would also incur annual costs between $103.2 million under the demand model and $231.7 million under the public model.
The idea is ambitious: No U.S. city of comparable size to San Francisco has deployed a ubiquitous fiber to the premises network. But the need is also great. Despite its connection to Silicon Valley, San Francisco's Internet speeds are checkered, with the top 10 percent of users in the city averaging between 12 Mbps and 279 Mbps depending on their ISP, the report said. Only 2.6 percent of users have access to 1 Gbps or higher speeds.
However, it remains to be seen whether San Francisco acts on the study. Each of the recommended buildout models have their pros and cons: the demand-driven option costs the city the least amount of money up front, but its percentage of the service fees that it would receive from private broadband providers likely wouldn't cover the debt it incurs, because competitive market rates of $70 to $100 per month are too low, the report noted.
On the other hand, the utility-based option would need to be paid for by a monthly utility fee, ranging between $25 and $115, charged to the city's residents and businesses -- and that fee requires approval by two-thirds of San Francisco's citizens. The upside of the public model is that baseline service would be available with no additional monthly cost.
A third option, the public-private partnership, could bring costs down dramatically, the report said -- dropping construction costs to $285 million and ongoing annual costs to just $56.3 million.
Source: San Francisco Budget & Legislative Analyst's Office, "Policy Analysis Report," March 2016
Bringing higher broadband speeds to San Francisco has been somewhat fraught over the past few years. Residents balked in 2011 when AT&T began installing VRAD (video-ready access device) boxes along public rights-of-way to deliver its U-verse video service in the city, for example.
AT&T, which competes with Comcast in the city, in January began offering its fiber-based 1 Gbps GigaPower network to residences and businesses in parts of the San Francisco area. "We're contacting customers in eligible areas directly to make sure they are aware of the initial availability of the service, with pricing for speeds up to 1 gigabit per second starting as low as $70 per month," an AT&T spokesperson told FierceTelecom. The carrier said it will announce a formal launch date for "parts of the larger San Francisco metro in the coming months."
Google Fiber, meanwhile, is facing yet another battle over access to utility poles in Silicon Valley, pleading with the California Public Utilities Commission (CPUC) to be allowed to install its fiber network in the area using the poles. However, incumbent carrier AT&T and the California Cable & Telecommunications Association are moving to block Google's access to utility poles.
AT&T's spokesperson told FierceTelecom that it was the first provider to work with Google Fiber on granting access to AT&T's utility poles. "We already have a national agreement with Google to give them access on a city-by-city basis. We're glad to grant them access to our poles like we have for others, but Google attempting to change the rules for their benefit is ridiculous."
Google will avoid the utility pole issue in San Francisco -- and other problems like digging up streets to trench fiber -- by utilizing the city's existing dark fiber network to roll out its 1 Gbps services in a limited number of neighborhoods.
Google Fiber battles AT&T, Comcast for utility pole access in Silicon Valley
Google to use existing fiber to roll out 1 Gbps services in San Francisco in challenge to AT&T, Comcast
AT&T to light 38 new metro markets with 1 Gig service
Updated March 17 with clarifications and statements from AT&T.