When discussing the ongoing revitalization efforts in Detroit, it's hard to miss the name Dan Gilbert. The founder of Quicken Loans, owner of the Cleveland Cavaliers, and a Detroit native himself, Gilbert's investment firms have funded dozens of tech startups in the city and turned its defunct old buildings into shiny new workspaces that look like Silicon Valley transplants.
Until last year, what Detroit lacked in this daunting task to become a tech hub was access to affordable, high-speed broadband, the kind that Google Fiber was famously bringing to other cities around the country. So, rather than pray for Google to arrive or incumbent Internet Service Providers (ISPs) to spontaneously change their pricing and services, Gilbert invested in two Quicken Loans employees who were crazy enough to suggest building a fiber network themselves.
The result is Rocket Fiber, which was formed last year and is stepping into the broadband market with its own Google Fiber-inspired offering: 1 Gigabit-per-second (Gbps) broadband service for $70 per month. To date, the company has laid almost seven miles of fiber in Detroit's downtown area and has received "submissions of interest" from more than 80 businesses and 3,000 consumers, with plans to reach 12 miles and 32 buildings by the end of the year.
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What's most notable about Rocket Fiber, however, is how the company has been able to mitigate the risk of entering a market known for capital-intensive investments, time-consuming deployments, and billion-dollar incumbents with a reputation for stamping out any whiff of competition.
Last July, Ars Technica published an article providing an in-depth look at several fiber startups that struggled in this market. The article described the obstacles that stand in the way:
"A new fiber provider needs a slew of government permits and construction crews to bring fiber to homes and businesses. It needs to buy Internet capacity from transit providers to connect customers to the rest of the Internet. It probably needs investors who are willing to wait years for a profit because the up-front capital costs are huge. If the new entrant can't take a sizable chunk of customers away from the area's incumbent Internet provider, it may never recover the initial costs. And if the newcomer is a real threat to the incumbent, it might need an army of lawyers to fend off frivolous lawsuits designed to put it out of business."
Randy Foster, co-founder and CTO of Rocket Fiber, says his company is taking a unique approach that might give it a fighting chance in the broadband market. One unique advantage is its ties to Rock Ventures, Gilbert's investment firm which funded Rocket Fiber and also owns more than 75 properties totaling more than 12 million square feet of commercial real estate in downtown Detroit. Foster says these properties and the companies within them are free to pursue internet services from any provider, and that Rocket Fiber has never assumed exclusivity with any of them. Foster does admit, however, that Rocket Fiber's relationship with Rock Ventures gives it an advantage that can help it reach new customers more easily than other companies.
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"Where it works is we get the synergy that [comes from] working with an organization to get access agreements, to get into the buildings, especially when you only have to sign one access agreement and you have access to the 70-plus properties that that organization has," Foster says.
Access to buildings has been a serious challenge for others in the broadband market. Earlier this month, when the city of New York released an audit that alleged Verizon had failed to meet an agreement to build out its fiber-based FiOS service throughout the city, Verizon claimed the primary reason it hadn't reached every customer was that landlords and property owners had prevented it from building the network out to certain buildings. Rock Ventures' control of so much real estate helps Rocket Fiber avoid an obstacle that has tripped up even the largest ISPs in the country.
Another important factor in Rocket Fiber's early growth stemmed from a unique challenge in laying fiber in Detroit. The city lacks accurate records on what was built underground in its metropolitan downtown area over the years, so rather than risk a construction disaster, downtown Detroit has a moratorium on constructional boring. Traditionally, this meant that a company laying fiber would have to dig a "macro-trench," a hole in the street about two-feet wide and up to four-feet deep, a labor-intensive and costly process that Foster says can only accommodate about 800 feet of fiber in a day.
Instead, Rocket Fiber embraced a process called "micro-trenching," a more efficient process that has been tested in several areas and which Verizon used in New York in 2013 to replace copper equipment damaged during Hurricane Sandy. Micro-trenching only requires cutting a hole only from three-quarters of an inch to one-inch wide and just 10-inches deep. Foster estimates that it enables the company to cover between 1,200 to 1,500 feet in a day at about one third of the cost of macro-trenching.
The benefits of a more efficient process for laying fiber have a broader impact on the city as a whole.
"After they come by with the cut and they cut this one-inch wide hole, you can allow traffic to drive over the top of it even before they restore or fill it with the fillers and restore it to the surface level," Foster says. "So it's far less impactful to the city to allow this to happen."
More than anything else, though, Foster says Rocket Fiber is relying on its relationship with the community. He says it's not a matter of if, but when the incumbent ISPs challenge them with similarly priced gigabit services, as they have in cities like Kansas City, Kansas, or Chattanooga, Tennessee, where Google Fiber or municipal broadband projects have forced their hand. While he acknowledges that there will always be customers who will choose the lower-cost deal, Foster says the broadband market is in need of an offering that focuses on what major ISPs largely ignore customer service. Nationwide, ISPs are widely regarded as the worst-performing organizations in customer service. Rocket Fiber aims to set itself apart by being the rare local ISP that can focus all of its resources on the one region it serves.
"There's a whole host of things that people are disenfranchised about [with] the current providers that, even if they offer exactly the same product at exactly the same price point, we still feel that they will still choose us because there are still intrinsic values other than just the dollar value that you get," Foster says.
In a sense, Rocket Fiber can achieve its goal even if incumbent ISPs force it out of the market. Some speculate that Google does not intend to become a long-term broadband provider, but rather created Fiber to disrupt a broadband market that wouldn't have changed on its own. If ISPs roll out affordable gigabit broadband to compete with Google Fiber, more internet users get access to it. Whether or not Google provides the service, internet users will be able to consume more of Google's online services.
The same can be said about Rock Ventures. The company has invested a lot of money in downtown Detroit's commercial real estate and needs to fill it with businesses. With affordable gigabit internet service, Rocket Fiber gave it a new selling point to attract prospective tenants. And even if another ISP introduces a competitive service that makes Rocket Fiber irrelevant, businesses in Detroit will still have access to cheaper broadband all the same.
Foster says neither Rocket Fiber nor Rock Ventures has looked at the situation this way. He knows full well that a big ISP could introduce a competitive service at any moment. But he's optimistic. Foster sees the sudden competition in broadband throughout the country not as a temporary setback for incumbent ISPs, but as a sign that internet users are eager to see the market change.
"The reality is that these new startups coming like Google being the big example, or if you look at Chattanooga, EPB, they've been able to take a relatively good market share against the incumbents even though AT&T is announcing now that they're going to provide a similar product," Foster says. "So it'll be interesting to see how that continues to go, but it looks like, from our research, a lot of the incumbents are struggling with the desire, the pent-up demand for a new provider, new competition, and a new alternative."