Making money in the middle mile

The RUS’ Broadband Initiatives Program and the NTIA’s Broadband Technology Opportunities Program have awarded 47 middle-mile projects totaling $1.3 billion to date. These awards are intended for the extension of the information superhighway to underserved or unserved parts of the country, mainly in small towns and rural areas.

The term "middle mile" is relatively new to the telecom lexicon. We already know middle mile as the interexchange or interoffice network or, in some cases, the backhaul network. It’s all the same.

The middle mile buildout is like expanding the interstate highway system to rural America where only secondary highways and local roads exist today. Even with national and regional fiber networks crisscrossing the country, there are still areas where high-speed transport facilities are very expensive. Hence, the need for broadband stimulus funds to take the highways to places that they don’t go now and to break the monopolies enjoyed by the big long-haul carriers.

Though fiber optic transport is the technology of choice, many middle-mile projects include a mix of point-to-point microwave and point-to-multipoint wireless access along with copper and fiber access.

When you take a close look at middle-mile applications, you get a sense that there is a strong “build it and they will come” aspect to these projects. The thinking is that if we build high-speed, high-capacity backbone networks to places where no such network exists today, then local telecom operators -- local telcos, cable companies, wireless carriers, ISPs -- will quickly jump on board.

Clearly, there is pent-up demand for better long-haul service in many underserved or unserved parts of the country. But the fact of the matter is that for these projects to be successful, middle-mile operators still must go out and get the business. They all face similar challenges: build the network, drive traffic to the network and, more importantly, boost the volume of billable, profitable traffic.

Middle-mile operators know that building a network is complex but understand well the technical requirements: determine the route path, obtain the necessary rights of way, permits, and licenses, and install the equipment. Most long-haul networks are designed with state-of-the-art fiber optic and microwave systems that operate on the IP/MPLS mechanism.

Driving traffic to the network is another matter entirely. Many middle-mile projects were justified by proposing direct connections to so-called “community anchor institutions”. These anchor institutions include hospitals, schools, public safety organizations, and public institutions such as libraries and local governments. In other cases, the middle-mile operator is simply building the on-ramps to its superhighway by establishing connection points at local telcos’ central offices or other points of presence in the community. It is from these connect points that local service providers can then access the backbone. Some middle-mile operators serve as a common carrier for a number of rural telcos in their area and rely on these local telcos to drive a large volume of traffic and revenue onto the backbone.

What is not evident from the many BIP and BTOP applications is how proactive middle-mile operators will be in capturing traffic from off-net customers. These potential customers are not located on or close to the network but could be connected with the appropriate extensions. Off-net applications such as cell sites or WiMax base stations along the route, industrial sites and large businesses operating near the route represent growth opportunities. Middle-mile operators could offer to build the necessary links, either fiber laterals or high-capacity point-to-point IP microwave hops, to tie these customers into the backbone. By doing so, these operators can attract new traffic volumes and new revenues streams to their network.

Anchor institutions and non-profit organizations provide the revenue foundation of many middle-mile business cases. However, access and carriage charges paid by other service providers that utilize the same backbone will drive revenues and profit margins. The challenge for the middle-mile operators, once the low-hanging fruit is picked, is to identify and, in some cases, create new revenue streams using available wireline and wireless technologies, without waiting for customers to come to them.