Broadband Expansion 101

The task of bringing broadband Internet service to an unserved area has two key components:

1. the local connection
2. the long distance connection

The logistics are similar to setting up a town with postal service. The neighborhood post office is responsible for moving mail to and from all local addresses. It is also responsible for transferring mail to and from trucks sent by the large regional post office for long distance travel. Note that all in-town mail traffic travels through the neighborhood post office whether it stays in town or travels long distances.

In place of a local post office, broadband service relies on an automated device called a router located somewhere in the neighborhood. The router is so named because it is responsible for routing messages sent over the Internet toward their destination. All Internet messages sent or received by local addresses pass through the neighborhood router. Either wires or antennas must be installed to establish a link between each individual customer and the neighborhood router. It must also have a link to at least one high capacity long distance router to handle Internet messages traveling to or from out-of-town destinations.

Local Versus Long Distance

The equipment and labor required to run a local post office is distinct from what is involved in getting mail between distant post offices. At the local level, postal workers must concern themselves with local street names and addresses. Between post offices, the focus is on the zip code and country name. At the local level, individual letters are sorted by hand and delivered on foot or in small trucks. Long distance mail traffic travels in boxes sorted by regional destination and is carried in large trucks and planes.

The equipment required to maintain broadband Internet service at a local level is similarly distinct from the long distance requirements. At the local level, the neighborhood router is focused on carrying a relatively low volume of Internet traffic between many different customers located in relatively close proximity. Outside the local level, the focus is on high capacity and long distances.

High capacity, long distance, broadband equipment is generally referred to as backhaul infrastructure. To remember this term, I think of hauling lots of stuff and that it takes place in the background rather than in my vicinity. Backhaul routers generally don't support nearly as many connections as neighborhood routers. They just have to handle a lot of capacity and hand off messages to the next router in line.

Local broadband equipment is generally referred to as last-mile infrastructure. It does not have to support the distance or capacity required by backhaul infrastructure but it does have to support lots of individual connections with all the unique complications of maintaining a reliable connection with each individual customer. These complications are commonly known as the last-mile problem. It is similar to all the local knowledge that an individual mail carrier accumulates about which houses have dogs, where individual mailboxes are hidden, etc.

Economies of Scale

A single postal employee with a sorting table and small vehicle can handle all the mail traveling in or out of a single neighborhood route. The complexity, labor and capital required to operate a regional postal hub is huge by comparison. Despite this greater complexity and capital expenditure, the cost of moving one letter one mile is much lower at the regional level than at the local level due to economies of scale.

The same economies of scale apply to broadband infrastructure. The large cables and high capacity equipment that carry long distance Internet traffic are more expensive to set up than local equipment but per mile and per message sent they operate at a far lower cost than local equipment. The last-mile problem can be solved with less expensive equipment but it must be largely solved one customer at a time.

Risk and Return on Investment

It is generally assumed that the cost of setting up broadband infrastructure will ultimately be paid for by the customers who benefit from the service. On paper, it is not terribly difficult to justify these costs. The required equipment is nowadays produced at amazingly low cost. Once people become accustomed to having broadband service they generally find that the value they receive is well worth the cost. The tricky part is managing the up front investment required to put the infrastructure in place.