Vermont's Department of Public Service has released its audit of Burlington Telecom. The audit is highly flawed and a disappointment in terms of actually illuminating what went wrong with Burlington. We have been awaiting this audit in the hopes that it would actually explain how the network could have gone into such great debt so quickly. The few answers provided from this audit are entirely unsatisfactory, due in large part to its overall sloppiness. We will soon put up a more substantial post about Burlington and lessons learned, but we wanted to post this information now as readers are undoubtedly wondering. The audit should be read by any community running or considering a network because it describes a number of bad practices that should not be duplicated. That said, it isn't yet clear how accurate the audit is (they did not even attempt to interview key people), as explained by Tim Nulty in his response to it (linked below). Perhaps the biggest disappointment is that the audit simply did not explain where the money went. Steve Ross examined this question more than a year ago, but we appear no closer to an answer. A longer explanation on this, next week. Finally, Andrew Cohill's thoughts about lessons learned from BT is well worth a read as well. Regardless of whether BT really did make all those errors, Cohill's post should serve as an educational item to any community considering such an important investment.

BVU, which operates OptiNet (the nation's first triple-play muni FTTH network), has transitioned from being owned by the City to being an independent authority. In its last fiscal year (2010-11), the public power utility finished with net income. OptiNet finished ahead of projections. Having split from the city, BVU is taking advantage of the Virginia Resource Authority to issue $44 million revenue bonds to refinance its debt.

“We’re going through the VRA pool which helps fund 88 cities and service authorities. Because of that – and because of the market – we’re potentially looking at very low interest rates of 3.3 percent,” Rose told the board during his presentation.

The debt currently has an interest rate approaching 5%. After refinancing, the utility expects to save some $500,000 to $750,000 a year - for a period of 20 years. The cost of refinancing is $900,000. This story is worth noting for two reasons:

1. Restructuring debt is not necessarily a sign of weakness -- BVU's OptiNet is quite successful.
2. A reminder that small communities can benefit significantly by pooling bonding through programs like Virginia's VRA. States should help communities to work together in this way.

The Chelan Public Utility District in Washington state is upgrading network capacity as it starts expanding the network following its broadband stimulus award. We previously covered their consideration of whether to expand from passing 80% of the territory to 98%. Chelan is one of the most rural publicly owned fiber networks as well as one of the oldest ones. In a rarity, it looks likely to run in the red permanently (the pains of rural, mountain terrain) with the support of most ratepayers. These ratepayers recognize the many benefits of having the network outweigh its inability to entirely pay for itself. The utility also runs a sewer project that is subsidized by wholesale electricity sales. Though some areas in Chelan are served by Charter and Frontier, the more remote folks would have no broadband access if not for the PUD. With the planned upgrades in 2011, Chelan's open access services will offer far faster speeds than available from the cable and DSL providers. Under Washington law, the PUDs cannot sell telecommunications services directly to customer. The PUD builds the network infrastructure and allows independent service providers to lease access while competing with each other for subscribers. Though this is a great approach for creating a competitive broadband market, it has proved difficult to finance (if one believes this essential infrastructure should not be subsidized as roads are). When the PUD considered whether to pursue the expansion (meaning taking a federal grant covering 75% of the costs and agreeing to run the network for 22 years), it asked the ratepayers for feedback:

Sixty-four percent of 450 randomly chosen Chelan County registered voters who were part of phone survey in August said they favor taking the grant and completing the buildout, even if it means their electric bills will go up by as much as 3 percent — about $1.50 more on a $50 per month power bill.

On November 9, PUD Commissioners approved the rate increase. Chelan's service providers currently offer connections of 6Mbps/384kbps or 12 Mbps/384kbps.

Vermonters are asking some hard questions about the federal broadband stimulus decision to throw money at a wireless network for Vermont rather than loaning money to an organization dedicated to delivering real broadband. Senator Bernie Sanders convened a meeting to discuss the awards toward the end of October.

Senator Bernie Sanders led off his “broadband town meeting” Saturday morning at Vermont Technical College with a ringing affirmation of the need for better broadband coverage in Vermont and the nation. However, nobody in the crowd of nearly 300 people needed to be convinced of that. What they wanted to know was whether a huge new federal grant to a private company was the right way to do it.

VTel, a small private telephone company, received a $116 million grant to build a FTTH network to serve their existing 18,000 footprint as well as a wireless network that is intended to serve the entire state. In contrast, the East Central Vermont Fiber Network (which we have covered previously), applied for a loan to build a FTTH network to everyone in the 24 communities that have joined together to form the network. The ECFiber network would be run by a nonprofit and would repay the loan from revenue generated by selling triple-play services on the network.

David Isenberg, of isen.blog, has published a short history of Reedsburg's community fiber network that he previously wrote for the FCC when they were gathering evidence of successful networks they would later ignore in formulating a plan to continue the failed status quo of hoping private companies will build and operate the infrastructure we need. Nonetheless, one cannot say that smart people like David did not try to help the FCC overcome its obsession with national carriers who dominate the conversations, and whose employees often work periodically with the FCC in what we call the revolving door (which itself, is a reason the FCC has been captured). Back to Reedsburg; it is a small community approximately 55 miles northwest of Madison that just happens to have far better broadband service than just about anywhere else in Wisconsin. David writes,

RUC first entered the telecommunications business in 1998, when it constructed a ring to tie its wells, its five electrical substations together and to provide Internet access for its high school, middle school and its school administration building. In planning the ring, the city asked Verizon and Charter if they would build it, but they were not responsive. RUS built a partly aerial, partly buried 7-mile ring of 96-strand fiber at a cost of about $850,000. Internet access was provided by Genuine Telephone, a tiny subsidiary of LaValle Telephone Cooperative which ran a fiber from LaValle, about 8 miles NW of Reedsburg.

As they were building the ring, local businesses asked to be connected as well. Reedsburg took the path that so many communities have followed, start by building for yourself and expand opportunistically. Of course, this requires that you originally engineer the network so it can be later expanded, which is good practice regardless of your future plans. Reedsburg used bond anticipation notes, a financial mechanism that few others have used in building similar networks.

A local bank loaned the initial $5 million in bond anticipation notes for planning and construction.

Yet another town has decided to take responsibility for their broadband future: a small Florida community has secured financing and is moving forward with their publicly owned FTTH network.

The City Council voted unanimously Monday night to approve the $7.3 million in funding with Regions Bank in Orlando. City Manager Lisa Algiere told the council members the city would be doing most of its business with the local Regions Bank. The funding will come in the form of three bonds: a series 2010A Bond, which is good for 20 years and has an interest rate of 3.61 percent; the second bond is a Series 2010B Bond and is for five years with an annual interest rate of 3.20 percent; while the third bond is a Series 2010C Bond and is good for one year. The funding secured by the city is a drawdown loan, meaning it will only take what it needs and only repay that portion.

The network has been branded Greenlight (though the website is not yet fully functional). Greenlight is also the name used by the Community Fiber Network in Wilson, North Carolina. Light Reading interviewed a network employee, shedding more details than have been released elsewhere. He says they are passing 7,000 premises, but Wikipedia only notes a population of 2,000 in 2004, so there is more than meets the eye at first glance. They financed the network without using general obligation bonds, working with a nearby bank (Regions is a big bank, headquartered out of state). Local competitors are AT&T and Comcast, though both offer extremely slow services; the fastest downstream speed available from Comcast is 6Mbps. The new network, as do nearly all recent community fiber networks, will offer much faster connections, the slowest being 10Mbps.

Craig Settles kicks off this event with a 45 minute presentation discussing what community networks should do to succeed financially and how they can go beyond simply making broadband access available to more people. Bryan Sivak, Chief Technology Officer of the District of Columbia; Joanne Hovis, President-Elect of NATOA and President of Columbia Telecommunications Corporation; and Gary Carter, Analyst at City of Santa Monica Information Systems Department responded Craig Settles' presentation. One of the key points is something we harp on here: if community broadband networks run in the black according to standard private sector accounting procedures, that is great. But it is a poor measure of how successful a community network is. Community networks create a variety of positive benefits that are not included in that metric and those benefits must be considered when evaluating such a network.

More towns in Utah are deciding whether to support UTOPIA's new plan to expand the network and recover from the significant errors of the first managers. Under the new management, UTOPIA has added new ISPs and thousands of new subscribers, a significant turn around for a network many had written off as a failure. Unfortunately, UTOPIA has too much debt and no capital to expand the network to bring new subscribers online. As we have consistently maintained, building next-generation networks is challenging in the best of circumstances - and the circumstances around the towns in Utah are far from ideal. Most of the information in this post comes directly or indirectly from the Free UTOPIA blog which has excellent independent coverage of the network (as well as stinging critiques of wasted opportunities like the broadband stimulus). I strongly recommend following FreeUTOPIA, but I wanted to comment on some of the recent developments. As UTOPIA and some member cities have formed a new agency to fund further expansion. Five cities have agreed to be part of the new Utah Infrastructure Agency with at least 2 deciding against and more still considering what they want to do. The Salt Lake Tribune has tepidly endorsed the plan (which involves some changes regarding rogue providers - something I want to follow up on). The Utah Taxpayers Association (which is funded by Qwest and Comcast, among others) decided to mount a big protest in Orem to convince the City to abandon UTOPIA. Rather than simply waiting to see what effect the rally would have, UTOPIA responded decisively.

The Utah “Taxpayers” Association thought it would get an upper hand with a BBQ in Orem just before the city council voted on a new construction bond.

The East Central Vermont Fiber Network is launching a pilot project to start connecting rural customers with a FTTH network. EC Fiber has long labored to find funding -- it was one of many projects to see funding avenues disappear with the economic collapse following the fall of Lehman Brothers. The Feds also failed to fund them (instead opting to fund middle mile after middle mile of projects that were less offensive to powerful incumbent companies. But they have returned to the private markets and feel sufficiently confident about financing options to build this pilot project.

The pilot project will provide a solid foundation for the capital lease used to build out the rest of the network, providing 100% coverage in 23 towns in East Central Vermont. While the intent of the project is to prove that the larger project is viable, according to Nulty, “it will be able to stand on its own if we don’t raise another dime of capital.”

The project is expected to cost some $80 million in total to cover the 23 participating towns. ECFiber has already obtained the necessary permissions from the State to offer video and telecommunications services. The Pilot Project targets the town of Bethel, where the central hub for the entire network is located. ECFiber is one of many groups that are using a nonprofit ownership model to build the network. The towns work together to create a nonprofit that will finance, own, and operate the network to ensure community needs are put before profits -- now and in the future. Update: The pilot project will only offer broadband and phone services due to the high fixed cost of trying to offer video services for such a small population.

Cedar Falls, Iowa, is the latest of a number of publicly owned cable networks that are upgrading to FTTH. Cedar Falls has been planning this for some time, squirreling away net income over the years as it ran surpluses to help afford the costly upgrade. A story in the WCF Courier notes it will cost $17 million and is expected to be completed in 2012. The bonds used to finance the project will be repaid over 10 years. When I last spoke to folks in Cedar Falls, they had massive take rates - bolstered by local service that Mediacom could not compete with. Cedar Falls Utilities (CFU) had already been offering fiber services to local businesses and will be expanding that to the entire area. According to an article in the Cedar Falls Times, the utility had already been installing FTTH capability into greenfield developments, so they have certainly planned for this transition. Motivation for the upgrade seems to be the faster broadband speeds and more capacity for HD channels. The Utility also noted that needed bandwidth has been doubling every year -- a likely reason they opted for FTTH rather than a cheaper DOCSIS3 upgrade that would not offer the same scalability as FTTH (and DOCSIS3 is much more constrained in upstream capacity). The Cedar Falls Times article explains the benefits of FTTH over HFC:

An HFC plant uses thousands of active devices (such as amplifiers) to keep data flowing between the customer and the service provider. Any one of these devices can fail, interrupting service. In contrast, the all-fiber plant will be a passive optical network, with no active components between the distribution center and the end user. Fewer “moving parts” means fewer points of failure and a more reliable system.

CFU puts community needs first:

“We know from experience that economic growth comes to cities that keep their infrastructure up to date, whether it’s roads, water, electricity or broadband,” said Krieg [CFU General Manager]. “CFU is going to do what it takes to make sure Cedar Falls has leading-edge communications technology, and maintain economical rates for internet and video services.”

The network was launched in 1996, one of the first communities with citywide broadband access.