Thursday, November 03, 2005

And the answer is...

I guess people have varying definitions for "amazing," and my teaser from last night somehow got people thinking I was talking about VoIP (and several others thought I had landed a mega-bucks job - dream on). I hope no one is let down. This is bigger than that one single issue, because it's about rewriting the rules of how telecom service is defined, funded and delivered, and re-examining the goals for which it is delivered.

Frequent readers of this blog will no doubt recall the frequency with which I have referred to the proposed Citynet FTTP project in Amsterdam. Well the embargo is now lifted, so I can reveal that Phase 1 has been formally proposed (to be debated and voted on by the City Council later this month), and the funding structure has been finalized. The City of Amsterdam is to be a 1/3 shareholder, with a consortium of five housing companies (also 1/3) and other unnamed investors (1/3). I'm curious to know who the other unnamed investors are. My guess is someone with a long-term view of investing and a preference for long-term predictability of returns. We are talking about a 20 - 30 year horizon here, so my gut feeling is that insurance companies are involved somehow.

Phase 1 consists of 40k premises, roughly 10% of Amsterdam, to begin in early 2006. Infrastructure build is to be carried out by Van den Berg and Draka Comteq, and bbned will be the wholesale network operator. This is intriguing, in that bbned is Telecom Italia. I expect there may be some interesting phone calls to KPN investor relations this afternoon. KPN was on the list of parties in the tender process (see the page entitled "oproep" in the Citynet site), but the company never publicly highlighted this fact.

These neutral network projects are not without historical precedents, but what I find so compelling here is that the city's priorities are spelled out so clearly:

"This enables our city to compete with other European cities. The fiber network
delivers to Amsterdam an innovative and freely accessible infrastructure,
suitable to support growth in demand for the next 30 years or more. In this way
we ensure a wide open marketplace for innovative service-providers and economic growth, as well as a fast track for the smarter and cheaper delivery of care, education and other public services."

Competing with other cities, yes, not just for the Olympics (hello London!), but for economic activity, tax revenues, social and cultural development (which attracts tourism and businesses). Smarter and cheaper delivery of public services, yes, as was articulated to me on my recent visit to Amsterdam. This stuff is too important to be left to gradualist measures like Ethernet over cable or ADSL2+, or to a duopoly market where investment and pricing decisions may be driven by shorter-term considerations such as share price or strategic redeployment of capital.

Not to put words in anyone's mouth, but I think the message is something like:

It may be "your network" and "your investment" you are trying to defend, but your customers are our taxpayers, our society, and we have a duty to look beyond the next quarter and where our share options are at present. Access to information is an essential building block of social development, like access to water and electricity. Highly-contended DSL products with bandwidth caps ain't gonna cut it.

This is powerful, challenging stuff, and I'm sure a lot of people in the market are going to be unhappy and stamp their feet. My sense from talking to politicians in Amsterdam was that political consensus is strongly in favor, and the press release itself expresses a high degree of confidence that Brussels will not consider this structure to be state aid. Certainly, cases like Limousin would seem to lend support to this view. I also sensed from my conversations with people in the local market that a number of other Dutch cities have been watching closely and drafting their own plans. Today is a green light to anyone with the vision to shake things up, and I’m sure that won’t be limited to the Netherlands.

I think this is an incredibly significant event for European broadband, and it's going to be fascinating to watch. How will traditionally access-oriented service providers adapt to differentiate themselves solely on price, user experience and customer care? For those who choose to sit out or attempt to fight back, what are the options open to them? What happens to pricing? (I have my ideas - remember I'm from the Deep South.) Longer term, and undoubtedly most importantly, how will Amsterdam be transformed? Neutral networks are a great leveller, commercially and socially.

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