Municipalities that want to build their own broadband networks can reduce the financial risk of doing so by taking a phased approach that carefully ties investment to community demand for services, according to a new Yankee Group report.

Analyst Tara Howard notes the pressure many communities face to establish their own broadband networks in order to retain and attract businesses. “Incumbent providers have yet to develop a profitable model for expanding their networks into rural areas, leaving communities to feel the pressures of the digital divide,” Howard said. But building out a network so quickly that its capacity exceeds local demand can create an unnecessary financial burden on the community, she stated.

The remedy is to take a phased approach that starts by connecting local government facilities for internal communications and then gradually extends the reach of the network into the community, beginning with local businesses. In the first phase, a municipality of any size connects its own buildings and begins to run its own internal data and voice networks, cutting the costs of buying such services. The next step in this phase opens up government, hospital and school networks to local residents through a gradual process.

“For local governments, this can include deploying kiosks to provide residents with easy access to government services such as document retrieval for licenses, deeds, municipal regulations or minutes to city council meetings,” said Howard. “These additional services also help encourage a larger range of community stakeholders to focus on the importance of deploying a network while helping to keep the momentum going for the later phases.”

In the second phase as outlined by the Yankee report, municipalities would extend their network services to businesses located in close proximity to government facilities and decide whether or not to offer their own retail services. Phase three extends the broadband network to the central business district, targeting larger buildings and clusters of smaller facilities to quickly reach more potential users while keeping a lid on costs. Phase four is a community-wide push, reaching small to mid-sized enterprises and residential customers.

Along the way, municipal officials need to be realistic about community needs, Howard said. “There may not be a great need for a fiber deployment that’s high in costs and provides few returns,” she said.” In that case, local providers can probably meet the community’s needs through other, less expensive means.”

The Yankee Group analyst also encourages municipalities and local incumbents – including telcos and cable companies – to try to work together on broadband projects and not view each other as competitors or enemies.

“Service providers can help [municipalities] gain insight into what technology best suits their needs, what services to offer and potentially who to lease the network to if the municipality chooses to act as a wholesaler,” Howard said. “Having the municipality fund the network buildout and wholesale the backbone to local and regional companies will create a cooperative environment that will provide revenue sources for both sides while bridging the digital divide for local residents and businesses.”