Interview: Malcolm Matson of OpenPlanet on OPLANs

For some time we've been convinced that the key to success in fixed networks is innovation in the financing, access and pricing of the network - and not trying to evolve the vertically integrated model (as attempted by our American friends and lusted after by our German cousins).

As you may have read in our Digital Town event summary, Malcolm Matson from OpenPlanet gave a strong endorsement of a fundamentally different way of building access networks: Open Local Access Networks (OPLANs). We find these an intriguing idea, but also a hard one to get a firm grip on. Hippy communitarian dream or level-headed investor opportunity?

The nutshell definition is an OPLAN is a privately financed access network, dedicated to serving a local geographic community (anywhere from a street or business park to an entire town or city). It is open to all-comers who wish to interconnect with it. It isn't tied to a specific technology, but typically means deploying fibre access with symmetric speeds, since many users may produce more traffic than they consume.

Access outside of the local network (e.g. Internet access) is a service which is provided by a partner on top of the access network. The OPLAN itself provides no services whatsoever beyond local transmission.

Partners in developing an OPLAN are typically municipalities although Malcolm stresses that it is their covenant as an anchor tenant, committed to using the OPLAN for all its local connectivity needs, that is the key, NOT direct municipality investment. Long-term he argues that OPLANs will become owned by passive institutional investors (e.g. pension and insurance funds) as 'the new real estate', delivering stable returns, low risk and passive investment management costs. The key defining feature of an OPLAN is the legal and financial set-up of the network which, whatever the corporate structure, prevents the OPLAN from acting like a traditional telco.

OPLANs superficially look like the unbundled local copper loop solution, except that:

  • the network is truly separately owned, no Chinese walls and whispers.
  • the capital hasn't been confiscated from either taxpayers or investors in privatised PTTs.
  • its constitution is designed to be non-discriminatory to any retail partners.
  • it is guaranteed not to engage in any form of service which could compete with users..

We had a number of questions for Malcolm, who has kindly agreed to respond to them here.

T2: You state "end-user 'access' charges are broadly based on servicing capital and maintenance cost-recovery". Can you elaborate on how this works in practise?

Because the OPLAN model is derived from what I call the "imperatives" of the new digital technologies (namely that intelligence is at the periphery in the hands of users and the network is 'dumb') then it stands to reason that there are no 'operators' as such. It is no longer like a railway where the routing and control of traffic is in the hands of the infrastructure itself, and therefore 'buying a ticket for the service of riding on a train' is all that is on offer. Now we have a motorway situation whereby there is no relationship between the financing of the construction and maintenance of the motorway itself and any vehicle that runs over it.

This principle is already well in place in the 'internet', despite the attempts of some vested interests to try and destroy this 'network neutrality'. But in the local access network, everything (and I mean everything) goes through the local central office of the telco operator (now also occupied by me-too vertically integrated competitors) where it can be 'taxed'. In the OPLAN model, the financing of the construction, maintenance and upgrading of the infrastructure is dealt with in any number of ways - but totally independent of any specific service running over the network.

T2: If OPLANs are such a good idea, why don't we see more of them?

OPLANs are only a 'good idea' for the mass of citizens and businesses that are not part of the global telecoms/cable TV cartel. For the latter, OPLANs are the kiss of death to their vertically integrated service-provider business models! But because these vested interests are massive corporations (and tax generators), they have the ear of public policy makers and their now, great ally the regulator, to tilt and twist the market terrain to extend their life way beyond what a true free market would otherwise permit. But I believe we will see a collapse of the service provider model and an explosion of OPLAN developments in the next decade. 'When?' precisely, will depend on the vision and political commitment of the pioneering cities who have the courage and determination to go for an OPLAN solution.

T2: How should incumbent fixed operators react to the threats and opportunities of OPLANs?

Most have left it too late ...preferring to rely on sector specific regulation and a helping hand from their friend the Regulator. For most of them, my advice is what I gave in my interview with TelecomTV at Telco 2.0.

T2: How is the rate of return of the network managed? If you're a monopoly provider, won't you capture monopoly rents?

I have already stated that there is an important element of preserving the 'public good' and ensuring democratic accountability in terms of preserving the benefit for users and not 'absent owners'. There are any number of ways of ensuring this, many different models and legal mechanisms to deliver this. As the OPLAN market matures, the financing will increasingly be 'debt only'. In these early days, there is a risk which requires a degree of equity funding, but even here, the special purpose vehicle (SPV) can negotiate caps on this or even use mezzanine debt. My hunch is that many OPLANs will be owned by non-profit bodies or 'Community Interest Companies' as we have in the UK. This does not mean that there are no profitable opportunities surrounding the funding and management of OPLANs - of course there will be and this is essential if they are to emerge in a market economy. But these profitable opportunities will not be based on the 'ownership' of the infrastructure and an obsolete 'service provider' model.

T2: How can the idea of serving the common good be squared with the demand for investors to get maximum return?

See above Think of your own home - the bank (or building society) owns the physical structure but ALL the benefit and value to be derived from using it, remains with you. There is a massive DIY market and countless other free market opportunities from this model but the only person who benefits from any return on the investment in the house itself - is YOU.

T2: Does an OPLAN rely on public sector sign-on as an anchor tenant to ensure sufficient capacity utilisation?

I would say, undoubtedly 'yes'. The public sector (all arms of it) in any town or city is almost certainly the largest revenue generator for the telco in terms of naked connectivity. But in few countries is there any joined up policy at the local level - it is all centrally state driven in vertical sector silos.... health, education, police etc. It is only when a city (under visionary local political leadership) appreciates the potential value of having the local school connected over an OPLAN to the local hospital (say) that there is likely to be the necessary commitment to travel down the rocky OPLAN path.

T2: Can OPLANs co-exist with legacy telco and cableco access infrastructure, or do the economics demand a monopoly access provider?

I do not think they can. As soon as an OPLAN is in place, then why would anyone want to use anything other than this 'cost based' delivery infrastructure - especially as, almost by definition, it is the cheapest to use and secondly, it guarantees not to compete on service provision. But that's why the OPLAN model is seen as poison by any vertically integrated telco/cable TV operator committed to persisting with that obsolete business model.

T2: Which geographies of markets are most promising for OPLAN deployments?

I would not wish to generalise here - there are so many critical variables plus choice of technologies, that there are no rules yet. OpenPlanet has a good understanding of these and before embarking upon any specific project, we insist on undertaking an exhaustive joint-venture feasibility /business modelling project with the municipality of the community or city concerned.

T2: How are the funding, construction and operation of an OPLAN structured? Are build-out and operation outsourced? Or are those players brought in more closely as long-term business partners rather than just suppliers?

As much as possible is outsourced by the SPV OPLAN vehicle which OpenPlanet and the local municipality will create and this is done on a strictly competitive tendering basis - element by element... design, construction, financing, open-lit layer, maintenance etc.

T2: What evidence is there that investors will find OPLANs a more attractive investment than conglomerate vertically integrated telcos?

Already dealt with this - I have no doubt that banks and institutions will come to love these low risk, asset backed 'real-estate' investments. Private and public equity investors that have been deluded into thinking that the vertically integrated business model will persist into the future, will have a real shock as many of today's market leading telcos and cable TV companies go under. Only then will they turn their attention to investing in the plethora of new service and application providers (if thay have any shareholders funds left!) - but what advantage will they have over the creative 14 yr old in his San Jose bedroom? You Tube is a sign of things to come. The old days of 'hundreds of markets of millions of users' is over ...we now will see a world of 'millions of markets of hundreds of consumer'. So there will be ever more money made from free market deployment in this digital age ... it may just mean that 'fortunes' are more quickly made (and lost).

T2: Isn't a national operator a more attractive option to a services partner than a fragmented bunch of local wholesale operations each with its own peculiar technology and business processes?

Have you heard of Google or Yahoo? They seem to do quite well over the highly fragmented IP net we call the internet. In an all IP world, there is no room for a 'service partner' whose entire raison d'etre in the past has been based upon a unique capability to link 'source of content' with 'demand for content'.

T2: We heard of the co-operative movement in Nuenen (Onsnet) where the users are (subject to a membership fee) also the owners and recipients of any dividend payments. Why private OPLANs rather than community co-operatives?

Nuenen is an OPLAN (except that its not really 'open'!) A co-operative IS a free market form of private ownership and no doubt this will be used by some communities - not very many I believe but as I have already said, an OPLAN can adopt any number of means of organising itself to achieve its primary objectives of openness and user-value. The mutual ownership model is one.

T2: What are the three best real-world examples of OPLANs being deployed, and what are the lessons from them?

I am not going to say! I have long argued that unless and until there are one or more OPLANs that have delivered demonstrably sensational socio-economic benefit to their communities, the world will remain sceptical. Given what is at stake here, I am not going to draw the attention of the vertically integrated, service provider community to where the seeds are best taking root to destroy their futures! Rest assured that there are a number of such very encouraging OPLAN developments and the world will get to see and hear about them in due course and then a mighty cry of "why can't we have one' will be heard ... a cry that will be too loud for politicians to ignore or to loud for the special pleading of vested interests to drown out. But take a look at www.oplan.org for some front runners!

Thanks to Malcolm for talking the time to share his ideas with Telco 2.0 blog readers.