Utopia at a Crossroads: Part 3

This is the final installment of a three part series, in which we examine the current state of the UTOPIA network, how it got there, and the choices it faces going forward. Part I can be read here and Part II here

In Part I of this story, we laid out the difficult situation the open access UTOPIA network finds itself in and how it got there. Part II gave the broad outlines of Macquarie’s preliminary proposal for a public-private partnership to complete and operate the network. The numbers we deal with here are mostly from the Milestone One report, and assumed the participation of all 11 cities. It should be noted that since five of eleven UTOPIA cities opted out of proceeding to Milestone Two negotiations, the scope and scale of the project is subject to change. The basic structure of the potential deal is mostly set, however, allowing us to draw some reasonable conclusions about whether or not this deal is good for the citizens of the UTOPIA cities.

Let’s first turn to why Macquarie wants to make this investment.  This would be the firm’s first large scale broadband network investment in the U.S., allowing it to get a foothold in a massive market that has a relatively underdeveloped fiber infrastructure. To offset network build and operation costs, it will also be guaranteed the revenue from the monthly utility fee, which my very rough calculations put between $18 and $20 million for the six cities opting in to Milestone Two (or between $30 and $33 million per year for all 11 cities) depending on whether the final fee ends up closer to $18 or $20 per month.

Jesse Harris of FreeUTOPIA puts Macquarie’s base rate of return between 3.7% and 4.7%, which is slim enough that they should have the incentive to make the network successful and truly universal, boosting their share of the revenue from transport fees in the process.

The monthly utility fee is a difficult pill for UTOPIA cities to swallow politically, and has allowed opponents to paint it as a massive new tax.  But this claim ignores the costs of the existing $500 million debt (including interest), which will have to be paid regardless of whether the network is ever completed or any more revenue is generated.

The existing debt adds up to about $8.50 per month per address over 30 years, without accounting for ongoing operating losses (or bond prepayment penalties if the network goes dark) or necessary network maintenance and upgrades. Without completing the network, there is no hope that it could return to self-sufficiency, meaning it would likely require operating subsidies in perpetuity.

Again, Jesse Harris has paved the way by doing an analysis of what is in the best interest of taxpayers from a purely self-interested perspective (ignoring indirect benefits of the network) here and here. As he sees it, it all depends on the take rate: if Macquarie can reach a 38% take rate in the newly expanded network coverage area, the entire deal will cost the same for taxpayers as simply selling off the network. A higher take rate would mean the cities actually spend less to get a completed network than they would to sell it off. But that’s only a narrow look at the balance sheet.

Even at the point where the deal is a wash financially, cities still get a completed network with an included basic level of service for every resident. Comcast and CenturyLink will slash their prices substantially in response to the competition (at least 50% in Provo) so that every citizen benefits regardless of if they use the network. Even for someone with a very basic Internet connection that wouldn’t use the network, they would be paying no more than $11.48 to potentially save at least $15, a net gain. The cities also get a $100M annual revenue stream at the end of the 30-year contract, effectively making the worst case scenario break even after less than seven years of ownership.

Opponents, especially those from the CenturyLink-funded Utah Taxpayer Association (UTA), have focused on the extra cost from the new utility fee to the small segment of the population that neither has nor wants a telecommunications connection. However, some studies have also shown that a fiber connection increases the value of a property, so there really may be some gain for everyone under this deal.

As it stands today, 2,100 miles of fiber have already been built, 70% of it underground. 40% of UTOPIA addresses are passed by the network (meaning they are able to purchase a connection upfront or on a payment plan), but only 10% are actually connected. Some cities are almost completely covered, others less than 20%. Some neighborhoods have one side of a street where connections are offered and the other where services are unavailable. The result of constant funding constraints, frivolous incumbent lawsuits, and poor planning, these pieces of stranded infrastructure can still be reclaimed and capitalized on with additional investment. 

Essentially, UTOPIA city taxpayers are on the hook either way. They can either get something for their troubles with the Macquarie deal (and maybe even end up paying less), or they can call it quits and pay to shut it down. They‘ve taken out a mortgage and built most of the house, but run out of money before they put a roof on. They can either restructure the debt and get on a payment plan to finish the roof, or they can watch the house rot and pay the mortgage for 30 years anyway. 

It is important to note that UTOPIA has a unique dynamic because the network has struggled financially (unlike the vast majority of community networks, most of which use a different business model and learned from the early mistakes of UTOPIA). We have not yet seen any communities proposing to establish a utility fee from the start, but it is an interesting proposition and we will explore it at length in a paper later this summer.

The Past and Future of Muni Fiber in Boulder - Community Broadband Bits Episode 108

Boulder is the latest Colorado community to recognize the benefits of using city-owned fiber to spur job growth and improve quality of life. Boulder Director of Information Technology Don Ingle joins us for episode 108 of the Community Broadband Bits podcast.

We discuss the many ways in which Boulder has benefited from community owned fiber over the past 15 years and the smart policies they have used to expand conduit throughout the community.

We finish with a discussion about the upcoming referendum that Boulder will likely place on the November ballot to regain local authority to use and expand its fiber assets to encourage job growth and increase residential options.

We want your feedback and suggestions for the show - please e-mail us or leave a comment below. Also, feel free to suggest other guests, topics, or questions you want us to address.

This show is 17 minutes long and can be played below on this page or via iTunes or via the tool of your choice using this feed.

Listen to previous episodes here. You can can download this Mp3 file directly from here.

Thanks to Waylon Thornton for the music, licensed using Creative Commons. The song is "Bronco Romp."

Gigabit Network Expansion Moves Forward in Longmont, Colorado

Construction on Longmont's fiber expansion will begin by August 13th, reports the Times-Call. TCS Communications of Englewood, Colorado recently signed an agreement with Longmont Power & Communications (LPC) to deploy the gigabit network for $20,095,022. Completion is scheduled for 2017.

A July 14th article on the project noted that LPC and TCS will complete construction in six phases. A substantial number of potential subscribers will have access early in the process:

The first phase will be done in south-central Longmont, the area nearest to LPC itself. The work will then proceed into central Longmont by early 2015. At that pace, 11,147 of the utility's 39,061 customers would be able to get fiber service within a year of the start of construction.

Readers will recall that last November the people of Longmont voted to approve a $45.3 million bond issue to bring the network to every premise in the city. Chris spoke with Vince Jordan, one of LPC's champions, in episode #106 of the Community Broadband Bits podcast.

Clearly, LPC is carrying on the customer service priority established by Jordan and the LPC crew:

"We set a high bar with regards to quality of work, customer service and timeline," LPC general manager Tom Roiniotis said in a release Monday evening. "We want to make sure it is done efficiently; we want to make sure it is done right."

LPC provides updates and a map of the project at its website

Hudson Issues RFP for Broadband Needs Assessment, Business Plan

Hudson, Ohio, located in the Akron area, recently released a Request For Proposals (RFP) for a Broadband Needs Assessment and Broadband Business Plan. The community of 22,000 hopes to connect all municipal facilities, connect business parks, and eventually implement an FTTH network.

A May 4 Hub Times article covered an April city council discussion to expand existing fiber resources throughout the city. Internet Service Manager Bill Hillbish described a plan to connect traffic, security cameras, and possibly provide Internet access to other entities in Hudson. The original plan was to spend approximately $47,000 for fiber and hardware to connect remaining municipal facilities with Hudson Public Power managing the expansion.

At that meeting, the City Council also discussed using the network to connect local businesses and, eventually, residents. Apparently, local businesses are not happy with the incumbent provider: 

Some Council members wanted the work completed sooner than the five-year forecast by Hilbish. Hanink suggested 2016 instead of 2019.

"The business community is screaming for Internet connectivity and speed," said Council President Hal DeSaussure. "We can use it as an economic development and business retention tool."

Economic Development Director Chuck Wiedie said businesses were frustrated with Windstar, which was slow and lacked customer service.

"Our businesses need the Internet," Wiedie said.

At a later City Council meeting, Members delved deeper into the possibility of using fiber for more than an I-Net. From a June 22nd Hub Times article:

Interim City Manager Scott Schroyer June 10 asked for direction for the broadband infrastructure work. The city wants to circle the city with fiber to provide communications for all its city facilities. Council members suggested offering the broadband service to businesses and residents.

Broadband would provide a competitive advantage for economic development for attracting businesses, said Council member Dennis Hanink.

"I'd like to see us try to get to the business parks within a couple years," Hanink said.

At that meeting, Schroyer said the City would seek assistance from a consultant to create a financial and business plan. On July 9th, Hudson released its RFP.

For the past decade, Hudson has incrementally expanded a fiber network to connect major buildings and facilities (see page 3 of the RFP for a map of existing fiber). Some of the facilities include public safety buildings, town hall, schools, and utility buildings. The proposed project will connect remaining electric substations and the City Cemetery.

Through the RFP, Hudson hopes to determine the best way to complete its network for municipal purposes and explore a possible open access network. Hudson expects infrastructure recommendations, business plan possibilities, and needs assessment review. Proposals are due August 15.

Media Roundup: Blackburn Amendment Lights Up Newswires

Rep Marsha Blackburn (R-TN) and her love for large corporate ISPs was all over the telecommunications media this week. She attempted to kneecap the FCC as it explores options to restore local telecommunications authority to communities. Blackburn introduced an amendment attacking local options as the House took up general appropriations bill H.R. 5016.

The amendment passed 223-200, primarily along party lines, with most Republican Reps voting with Blackburn and all but two Democrats opposing the amendment.

Democrats voting to support the amendment included Georgia's 12th District's John Barrow and Jim Matheson from Utah's 4th District. If either of these gentlemen represent you, take a moment to call their offices and point out their voting mistake.

Republicans that voted No were Mike Rogers and Mo Brooks from Alabama's 3rd and 5th Districts. Charles Boustany from the 3rd District in Louisiana and Chuck Fleischmann from the 3rd District in Tennessee (includes Chattanooga) also opposed the restriction. If these elected officials represent you, please take a moment to contact them and thank them for breaking ranks to support local authority.

Coverage this week was fast and furious.

Sam Gustin from Motherboard reported on Blackburn's efforts. Gustin checked in with Chris:

"Blackburn's positions line up very well with the cable and telephone companies that give a lot of money to her campaigns," said Mitchell. "In this case, Blackburn is doing what it takes to benefit the cable and telephone companies rather than the United States, which needs more choices, faster speeds, and lower prices."

Mitchell says that he's sympathetic to the arguments against "preemption"—after all, he works for an organization called the Institute for Local Self-Reliance—but points out that while Blackburn opposes the federal government inserting itself into state law, she apparently has no problem with the states telling cities and municipalities what they can and cannot do.

"The argument that Blackburn puts forth is not coherent," Mitchell said. "It's just politics."

Gustin and the International Business Times were only a few of the many reporters that connected the dots between Blackburn's campaign balance sheet and her concern for big ISPs. From IBT:

Blackburn’s top campaign donors include private telecommunications firms that do not want to have to compete with publicly owned ISPs. Her state is home to EPB, a taxpayer-owned power company in Chattanooga that also provides local residents some of the fastest Internet speeds in the world at market-competitive rates. EPB is now aiming to expand its services beyond Chattanooga.

However, to go forward with its expansion plan, EPB needs the FCC to enter the fray, applying its authority to preempt a Tennessee law backed by the private telecom industry that restricts the utility’s ability to move into new regions.

According to campaign finance data compiled by the Center for Responsive Politics, two of Blackburn’s largest career donors are employees and PACs affiliated with AT&T (NYSE:T)  ($66,750) and Comcast (NASDAQ:CMCSA) ($36,600). Those are two of EPB’s private-sector competitors in Chattanooga. Blackburn has also taken $56,000 from the National Cable & Telecommunications Association, the lobby for the big telecoms.

Ars Technica's Jon Brodkin also notes that EPB has turned away local communities that repeatedly request help in areas where broadband is not available. Tennessee law prevents EPB from serving beyond its electric service area. As Brodkin reports, Blackburn is not willing to look beyond the State Capitols.

EFF Logo

Brian Fung, who offered our community networks map for his Washington Post article, delved into the history of the issue. He noted growing support in D.C. for local telecommunications authority. Multichannel News also reported on the opposition to the amendment voiced on the House Floor by New York Representative Jose Serrano. Serrano said:
Whatever happened to localism or local control? This amendment means the Federal Government will tell every local citizen, mayor, and county council member that they may not act in their own best interests. Any such amendment is an attack on the rights of individual citizens speaking through their local leaders to determine if their broadband needs are being met.

The Electronic Frontier Foundation wrote about consumer concerns - the lack of competition and state policy that maintains large corporate monopolies and duopolies:
Projects like community mesh networks and mayors’ attempts to bring fiber to their cities should never be illegal or stifled by misguided state laws. On the contrary, they should be encouraged. That’s because community and municipal high-speed Internet projects provide users more options.
Municipal and community broadband projects offer alternatives, so when companies like Comcast and Verizon are behaving badly, users have somewhere else to go. But right now there are 20 states that have laws that make it make it hard or impossible for communities to take their Internet into their own hands.
The National Journal also published a brief account.
Karl Bode at DSLReports.com summed up the legislative formula that brings us to this point in political time:
The underlying argument from Blackburn and friends continues to be that municipal broadband is the devil -- but letting local massive corporations write state telecom laws (laws that often completely eliminate your right to choose for yourself what your town does or doesn't do, while also resulting in less competition, higher prices, and worse customer service) is perfectly ok.
And my snarky favorite came from Brad Reed, who offered a little sarcasm at BGR.com with "Congresswoman bravely stands up for ISPs’ rights to deliver inferior service with no competition":
Either way, we’re still glad to see that some patriots in this day and age are still standing up to protect our freedoms from the municipal broadband menace. As certain historical figure might have said were she alive today, “Let them eat dial-up!”

Fibrant Signs Up 3,000th Customer, Increases Top Speed to Gig With No Rate Hike

Salisbury's Fibrant network recently signed on its 3,000th customer, reports WCNC from Charlotte. The publicly owned network also recently increased speeds for residential customers with no price hikes, reports BBP Mag. Households that were signed up for symmetrical 100 Mbps service for $105 per month will now have gigabit service for the same rate.

BBP Mag spoke with Dale Gibson, one of Fibrant's first gigabit customers:

“Generally when an Internet service provider gives a speed, it represents bandwidth, or a theoretical 'best effort' speed, not the 'throughput' or actual speed. My speed tests are consistently above 900 Mbps.” A network professional for over 20 years, Gibson added that typically even in the best test conditions, it is more common to see numbers in the 800s and, “Fibrant should be very proud of that 900 number.”

Other speed hikes include:

20/20 Mbps for $45 per month raised to 50/50 Mbps

30/30 Mbps for $65 per month raised to 75/75 Mbps

50/50 Mbps for $85 per month raised to 100/100 Mbps

The network has also revamped its video packages to include more channels, new HD options, and remote DVR. For a complete overview of Fibrant's new packages, visit their pricing page.

Utopia at a Crossroads: Part 2

This is the second of a three part series, in which we examine the current state of the UTOPIA network, how it got there, and the choices it faces going forward. Part I can be read here and Part III here.

With the status quo untenable, no easy exit strategy, and political opposition mounting, UTOPIA appeared besieged in early 2013. Then along came Macquarie, which started studying the network and putting together a proposal for a partnership. The full Milestone 1 report from Macquarie is here,  but in case you aren’t prepared to read 100 pages the broad outlines are as follows:

  • Macquarie will invest $300 million of its own capital to aggressively finish the network build out in 30 months, finally reaching every address in every participating city without a connection fee (UTOPIA had been charging residents in some areas who wanted service around $3,000 to make the expensive last mile connections to individual addresses).
  • Macquarie would be responsible for network maintenance and periodic upgrades, as well as meeting performance benchmarks. Cost overruns in any of these areas would be paid by Macquarie.
  • Sharing of network revenue (from charging ISPs for transport) between Macquarie and UTOPIA, which could be used to pay down the existing bond debt.
  • At the end of a 30 year period of operations run by the public-private partnership, the network would revert fully to public ownership.
  • All homes would be eligible to receive "free" basic service, with 3 mbps download/upload speeds and a 20GB monthly data cap. For all other services, businesses and homes could choose from any of the 8 ISPs currently operating on UTOPIA, all of which offer affordable gigabit speeds. With a larger, complete network, it is likely that UTOPIA would attract new service providers as well.
  • Imposition of a monthly $18-20 utility fee, assessed to every address in the UTOPIA area over the next 30 years, regardless of whether or not they are network customers. This is why we put the "free" basic service in quotations. The utility fee would be structured with a 50% discount for apartments or other multiple-unit addresses, a 100% premium for businesses, and an option for each city to offer a hardship waiver for the indigent or discount for seniors.

In sum, this is a huge infusion of capital from a private company that could remove the risks associated with running, maintaining, and upgrading the network from the member cities, while potentially offering them a source of revenue to pay down the existing bonds. It also offers universal basic internet access, and the chance for everyone to purchase high speeds and premium services (voice and video) in a truly competitive market running on state-of-the-art infrastructure. The downside, of course, is the monthly utility fee, which is already proving contentious, as well as ceding control of the network to Macquarie for 30 years.
   
In the third and final article on this Macquarie series, we’ll look at the political implications and weigh the costs and benefits of the utility fee compared to what these cities are already paying.

Vote Expected Today on Blackburn Amendment Targeting Munis; Call D.C. Now!

Last night, GOP Representative Marsha Blackburn, introduced an amendment intended to destroy local authority for telecommunications investment by severely limiting FCC funding. The amendment, introduced during debate on H.R. 5016, targets 20 states, many with state-erected barriers already in place and/or municipal networks already serving local communities.

The vote was postponed but is expected today (Wednesday) at approximately 2:30 p.m. ET. Now is the time to call the D.C. office of your Representative and tell him or her to vote NO on this amendment. If your Rep has a telecom staffer, ask to speak to him or her first.

The text of the amendment is as follows:

AMENDMENT TO H.R. 5016, AS REPORTED OFFERED BY MRS. BLACKBURN OF TENNESSEE

SEC. ll. None of the funds made available in this Act to the Federal Communications Commission may be used, with respect to the States of Alabama, Arkansas, California, Colorado, Florida, Louisiana, Michigan, Minnesota, Missouri, Nebraska, Nevada, North Carolina, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, and Wisconsin, to prevent such States from implementing their own State laws with respect to the provision of broadband Internet access service (as defined in section 8.11 of title 47, Code of Federal Regulations) by the State or a municipality or other political subdivision of the State. 

Multichannel News reports that New York DFLer Jose Serrano reacted the way we hope all Members will when it is time for the vote:

Wheeler has argued that those laws were the result of incumbent broadband providers using their lobbying muscle--he used to be one of those himself as president of the National Cable & Telecommunications Association--to try to block competition.

Rep. Jose Serrano (D-N.Y.), who rose in opposition to the amendment, agreed with Wheeler, saying that the issue is about allowing cities to operate without cable company lobbyists stopping them.   He said the amendment was an attack on individual rights of citizens speaking through their local leaders. "This is to stop states...from choking grassroots competition," he said.

Representative Mike Doyle (D-PA), who opposes the amendment, sent out a statement to his House colleagues when it became clear Blackburn would introduce the amendment (emphasis Doyle's).

Municipal broadband offers a genuine opportunity to inject real competition into the broadband marketplace and gives communities an innovative set of tools that they can use to solve their own problems.  Local communities should have the opportunity to decide for themselves how to invest in their own infrastructure, including the option of working with willing incumbent carriers, creating incentives for private sector development, entering into creative public-private partnerships, or even building their own networks, if necessary or appropriate.…

I urge you to VOTE NO on the Blackburn Amendment.

Local communities should retain the right to decide how to meet their connectivity needs whether through publicly owned infrastructure or through the private market. Rep Blackburn and those that support this amendment do not trust local communities to make the best choices for themselves. The FCC wants to ensure state legislatures do not impose their will as influenced by the telecommunications lobby. Call your Rep!

Davenport, Iowa, Releases RFP for Feasibility Study

Davenport recently issued an RFP, hoping to hire a vendor to complete a feasibility study. The community wants to learn more about connectivity options that build on its current fiber assets.

According to a May 2014 Government Technology article by Colin Wood, the city has installed fiber throughout the community over the past decade. CIO Rob Henry told Wood:

“For years, residents and businesses have been asking us to do this,” Henry said. “We always knew we were going to get to this point.”

Henry goes on to note that current services from incumbents in Davenport are not sufficient for economic development. The first step will be to connect businesses then follow with fiber to each premise.

Davenport's population is approximately 103,000. During the 70s and 80s, manufacturing was the predominent industry but today tech firms are moving into the area. It is considered part of the Quad Cities region, midway between Chicago and Des Moines from east to west and the Twin Cities and St. Louis from north to south.

According to the article, government facilities began using fiber first, with schools, hospitals, and parks following. The network saves Davenport $400,000 per year because the city serves its own telecommunications needs rather than buying service from a provider.

Wood reported that the city has spoken to CenturyLink and Mediacom; Chris told GovTech:

It’s good that Davenport is trying to cooperate with local Internet service providers (ISP), Mitchell said, but it’s unlikely to produce much substance because, in some cases, ISPs will attempt to starve the municipality for customers. “Every local government at first tries to work with incumbent providers,” said Mitchell, adding that, “my thinking is the city is not going to get a whole lot out of trying to work with them.”

The feasibility study will include several components, including a business case needs analysis, an evaluation of Davenport's current fiber optic capabilities, and recommendations. Bids are due in mid-July; the RFP is available online [PDF].

National Coalition Opposes Anti-Muni D.C. Legislation; Time to Call Your Rep!

The National League of Cities (NLC), National Association of Counties (NACo), and National Association of Telecommunications Officers and Advisors (NATOA) joined together this morning to send a letter to Congress expressing their opposition to anti-muni legislation being discussed in the House.

As we reported yesterday, it is imperative that concerned constituents speak out against two anticipated amendments that can stifle local investment or end local telecommunications authority. The amendments are expected within the next few days, so we need to act now.

Appropriations bill H.R. 5016, introduced on July 2nd, provides funding for financial services and general government, including the FCC. H.R. 5016 will be the vehicle to force through language to further restrict community broadband networks.

The amendment most damaging to local telecommunications authority is expected to come from Rep. Marsha Blackburn (R-TN). The amendment's purpose is to remove authority from the FCC to preempt state laws preventing local broadband infrastructure investment. By restricting the FCC's use of its funding, the legislation will choke the agency's ability to explore its plan to influence anti-muni state barriers so local communities can decide their own fates.

As the NLC, NACo, and NATOA write in their letter to Congress:

The National League of Cities (NLC), the National Association of Counties (NACo), and the National Association of Telecommunications Officers and Advisors (NATOA) strongly urges you to oppose any amendment to HR 5016 that would hamstring the Federal Communications Commission (FCC) from taking any action on – indeed, even discussing – the issue of state laws that prohibit or restrict public and public/private broadband projects. It is clear that such laws harm both the public and private sectors, stifle economic growth, prevent the creation or retention of thousands of jobs, and hamper work force development.

...

The private sector alone cannot enable the United States to take full advantage of the opportunities that advanced communications networks can create in virtually every area of life. As a result, federal, state, and local efforts are taking place across the Nation to deploy both private and public broadband infrastructure to stimulate and support economic development and job creation, especially in economically distressed areas. 

State barriers to public broadband are counterproductive to the achievement of these goals. Efforts to strip funding from the FCC to even discuss this issue, let alone take action, are misplaced and wrong. Please oppose any amendment to HR 5016 or any other measure that could significantly impair community broadband deployments or public/private partnerships.

Contact your Representative's D.C. office today and tell them to vote NO on any H.R. 5016 amendment that negatively impacts community broadband, restricts the FCC, or impairs local authority over telecommunications decisions.

UPDATE: The Coaltion for Local Internet Choice (CLIC) also released a letter to Congress today. From CLIC's letter:

As Congress and the Commission have often recognized, ensuring that all Americans have reasonable and timely access to advanced telecommunications capabilities, particularly in rural and other high-cost areas, is “the great infrastructure challenge of our time.” Toward this end, Congress has assigned the Commission a central role in defining the relevant terms and standards and in identifying and removing barriers to broadband investment and competition. While preemption of State barriers to broadband investment and competition should be used rarely, in only the clearest of cases, it should not be ruled out categorically in all cases, as the Blackburn amendment would do.

At this critical time in our country’s history, we should not preclude or inhibit any potentially successful strategy that will enable our communities and America as a whole to thrive in the emerging knowledge-based global economy. Nor can we afford to take off the table any approach that may be necessary in certain cases to remove barriers to broadband investment and competition.

Read both letters below.