A new report from Pike & Fischer’s Broadband Advisory Services says municipal broadband networks do pose a threat to incumbent service providers, particularly where Wall Street and the investment community is concerned.

Written by Senior Consultant Mitchell Shapiro, the report says the muni broadband threat is growing as municipalities increasingly use internal cost-reductions and other social benefits to justify the construction of networks, which can then provide low-cost or even no-cost Internet access services to residents.

“While muni broadband's technical and business models--and their impacts on incumbent service providers--remain largely speculative, there is a real possibility that even a modest realization of the potential claimed by its supporters could add significantly to Wall Street concerns regarding the financial prospects of incumbent service providers,” Shapiro said.

His report, “Municipal Broadband: The Economics, Politics and Implications,” reviews and cites evidence from many other recent reports on municipal broadband networks, as well as published data and information from many different cities which have built both fiber and wireless networks.

Different technologies and business models being used by municipalities will have differing impact incumbents, Shapiro said. The most disruptive approach is a hybrid fiber-wireless network architecture which could diminish revenues for voice, data and video services up to 48%, and reduce incumbent wireless revenues by 36%, the report states.

While the arguments over the viability of municipally owned and operated networks have been highly polarized, to date there isn’t yet a track record for municipal networks that proves their potential success or potential risk, according to the Pike & Fischer report. In addition, the business models for municipalities are evolving as more cities and towns consider public-private partnerships, wholesale versus retail network operations, and cost-savings for city governments and other institutions.

For many municipalities, broadband access is considered a public necessity, and essential to economic development, Shapiro writes, and when broadband access isn’t pervasive or when limited choices keep prices high, cities believe the private market approach to broadband is failing. His analysis of Federal Communications Commission broadband deployment data concludes that one-quarter of U.S. households don’t have a choice of cable or telco broadband services and at least one-tenth don’t have broadband access at all.

In addition, cities that already operate the local power utility have particular incentive to add broadband access for the internal benefit of services including automated meter reading, the report states. It includes a Duke Power Co. list of 27 internal services that are enabled or improved over a muni broadband network.

“Even before the recent surge of utility interest in ‘smart grid’ applications, municipal utilities have made investments in telecom infrastructure to support their internal needs and have found that it makes sense to use this same infrastructure to provide commercial services,” the report states.

Additional city government benefits including more productive remote workers such as building inspectors, reduced cellphone bills for police and city workers, better communications for health-care providers, lower-cost wireless connections for security cameras and a whole host of other internal IT cost-reductions and service enhancements are also enticing to municipalities, according to the report, which cites the specific benefits of some individual city networks.

“Our research suggests that there remains a lack of real-world data to quantify the value of the types of ‘public service’ benefits described above,” the report states. “Nevertheless, our review of the plans of selected communities suggests that they foresee a fairly wide range of such benefits, some of which would be enabled by wireless networks and possibly even hybrid networks that combine the strengths of fiber and wireless.

Given this, it seems premature to dismiss the potential benefits targeted by the expanding range of muni-broadband technology and business models, and wise to begin careful testing of them as more and more networks are deployed.”

There is also not sufficient data to prove the economic development benefits that many municipalities tout, Shapiro states.

The report also details the many different approaches, both in business models and in technology choices, that municipalities have taken in building networks. It provides lists of cities deploying fiber optic networks and wireless networks.

The report explores the possibility that telephone or cable companies will partner with municipalities in the future, citing AT&T’s recent participation in bidding on municipal wireless networks, and the possibility that telephone companies, in particular, could speed their access to fiber-to-the-home networks for video services by encouraging and helping municipalities build the fiber infrastructure.

Shapiro also details federal and state legislation regarding muni networks and the efforts of incumbents to opposed their construction.