municipal networks & community broadband

The good folks at Broadband Properties Magazine recently ran an article I wrote about Brigham City's use of a new financing model for FTTH networks. You can read it there in the nice layout and formatting, or here:

The UTOPIA project, an ambitious fiber-to-the-home network developed by a consortium of 16 Utah cities, has encountered difficulties that delayed its original buildout schedule. However, it is now building out fiber in Brigham City, one of the original cities in the consortium. Brigham City found a local solution to UTOPIA’s slow deployment schedule and created a model to speed buildout in willing communities.

Brigham City, a city of 18,000 in northern Utah, decided to form a voluntary assessment area – sometimes called a special assessment area – to finance the network buildout that will pass all homes and connect residents looking to subscribe. As with all wired networks, upfront costs are steep and typically require a heavy debt load. Brigham City’s unique approach may catch the interest of deployers unwilling or unable to shoulder that debt.

For several months, a group of canvassers organized by UTOPIA went door to door in Brigham City to talk to residents about UTOPIA and ask if they were interested in subscribing to the network. Supporters organized some 30 block parties and invited UTOPIA to attend with a mobile home to demonstrate the superiority of full fiber optic networks. Residents who wanted service were requested to ask the city to create a voluntary assessment area. Creating this special district would allow participants to finance their connections themselves.

Residents who wanted to subscribe could either pay the connection cost up front or agree to pay up to $25 per month (the exact amount would depend on how many joined the program) over the course of 20 years. This amount does not include the cost of services; rather, it is the cost of connecting to the network and having the option of subscribing to UTOPIA-based services (see sidebar for current services). Those uninterested are not levied.

In other UTOPIA cities, when residents subscribe to services on the UTOPIA network the connection costs are included in the service fees. Those connection costs will be deducted for Brigham City residents who have paid the full cost of their connections, meaning that the assessment cost will be balanced by ongoing savings on services.

Perhaps the biggest long-term benefit of this approach is having a built-in take rate. UTOPIA knows it will have almost 30 percent of the Brigham City community from the day it starts offering services – and that those subscribers are sufficiently interested in the services to place a levy on themselves. Having bought in, they are unlikely to switch away if incumbent providers engage in predatory pricing. Furthermore, if they do decide to switch, UTOPIA has not lost the cost of the connection.

Before UTOPIA began building its fiber network in Brigham City, many residents already had access to last-generation broadband services delivered over copper networks. Both Comcast and Qwest offer some broadband in the city, although not everyone has access. In some neighborhoods, Qwest offers “up to” 7 Mbps and Comcast offers “up to” 20 Mbps. As is common with DSL and cable providers, these connections are asymmetrical, offering slow upstream speeds. UTOPIA, by contrast, offers 100 Mbps symmetrical service.

Qwest sent some of its Salt Lake City lawyers to the city council meeting that created the assessment area. The lawyers complained they did not know enough about what the city was doing and noted that Qwest planned to upgrade its infrastructure in Salt Lake City and might invest in some areas of Brigham City in 2010. Qwest also claimed that, if Brigham City supported the network, it was essentially telling private industry it was creating a public monopoly – a stunning statement, as UTOPIA encourages private-sector companies, including Qwest, to offer services on its network.

Brigham City does have a local, independent provider, Brigham.net, that offers dial-up and DSL services. To provide DSL services, Brigham.net leases and resells Qwest circuits. Incumbent telcos such as Qwest have long fought federal regulations that required them to open their networks to competition, and they have largely won. The number of competitive Internet service providers in the United States has fallen precipitously. Once UTOPIA is operating in Brigham City, Brigham.net will be on the same level ground with other service providers, rather than having to pay Qwest exorbitant prices that leave it unable to compete on pricing. (See city council minutes [pdf])

The City put up $300,000 to connect municipal buildings and facilities – a one-time cost that will result in thousands of dollars in savings in operating costs per month while also generating new operational efficiencies from increased network capacity.

Some 400 households paid $3,000 up front for a connection, while 1,200 other households opted for the 20-year assessment (Brigham City has some 5,600 households in total). Residents opting for 20-year assessments will pay $22.50 per month for 20 years ($5,400 over the full term) for their connections. The city creates a lien on each of their properties as security against a $3.66 million tax-exempt bond at 5.5 percent interest. Monthly payments from the 1,200 households will repay the bond.

Those who choose not to take services from UTOPIA will not be assessed, but will still benefit from the network; they are likely to pay lower rates for their triple-play services due to the competition offered by UTOPIA.

The City Council allocated an additional $371,000 to ensure that the network would be able to accommodate residents and businesses who later choose to join. The city believes that if only 207 subscribers join in the future, it will recover this investment.

UTOPIA has long been dogged by a group called the Utah Taxpayers Association (UTA). UTA, working with Comcast and Qwest, has pushed laws through the state government to hinder UTOPIA and regularly attacks it in the press. Prior to Brigham City’s decision to enact the voluntary assessment area, UTA mailed out postcards to residents criticizing the plan. The city quickly responded to each of the points on the postcard, and those who came to the city council meeting to establish the assessment area (other than the Qwest lawyers) were overwhelmingly in favor of the proposal.

However, the UTA’s opposition reveals dangers for other municipalities contemplating this path. (For more thoughts on this, see FreeUTOPIA blog.) UTA’s postcards threatened that people would lose their homes if they did not pay the assessments they agreed to. Due to these scare tactics and the anxieties of a few people who did not realize they were agreeing to liens on their properties because they did not read the contracts they signed, UTA was able to manufacture a controversy. Groups like UTA can stoke the fears invoked by words such as “assessment” and “lien” despite the fact that unpaid assessments rarely lead to foreclosure – in the case of Brigham City, city officials note they have “never exercised its option to foreclose” under liens for street infrastructure projects.

Though this assessment model solves the financing problem, the costs and difficulty of canvassing neighborhoods are fairly significant. Additionally, the citizens of Brigham City were already committed to UTOPIA, having supported the sales tax pledge, and had waited many years for their connection. Thus, they were likely more receptive to the idea than other communities may be. Still, other communities may find they can finance portions of a fiber-to-the-home network with similar assessments rather than attempting to finance the entire network by borrowing against the liens.

This approach is not for everyone, but it may be appropriate for communities in the right circumstances – other communities in the UTOPIA footprint are already investigating it to finish their build out.

Joe Abraham, from the University of Louisiana, recently addressed the LUS Fiber network in Lafayette. This is possibly the fastest and most affordable network in the entire country. Apparently, Joe has been asked by friends if they should switch to the new municipally owned network. His answer is an unequivocal yes - backed up by several points like it is a faster, cheaper service that strengthens the whole community. But really, I like this point:

Inherent in democracy, in the First Amendment, and in free markets, is a central concept: we have no idea what these things will produce. We only know that they are the means-- they are the how-- to produce an endless supply of very important & valuable things. The Internet has proven to be the same, it produces a continuous stream of innovative, valuable things. It should be obvious that building the most advanced community Intranet will attract a lot of innovative people to our city, and encourage our own people to be innovative, as well.

To the extent we require these networks to produce profits, they will not be the "how" of the new economy. Infrastructure rarely pays for itself directly, but pays for itself many times over indirectly.

He also has a response to those who fear the public should not compete with the private:

But what if, instead of public vs. private fiberoptic lines early in the 21st century, you find yourself in the early 18th century, and the question is building state-owned roads and bridges that will decrease the profitability of privately-held services?

What if you live in the early 19th century, and the question is building public libraries that will compete with for-profit bookstores?

What if it is the early 20th century, and the question is creating public schools that will pull students from private institutions?

Well done, Joe!

Another article from the same paper interviews Director of Utilities for Lafayette, Terry Huval. This is a guy that understands the value of publicly owned fiber networks:

In addition, we will launch a digital divide product that will provide Internet accessibility in homes where there are no computers, and no Internet services today.

All of this is just the tip of the iceberg. There is much more to come, and much of those are things that I don't even envision myself. If we go back to the early days of electricity in the 1890s, I'm convinced that Thomas Edison never envisioned the microwave oven or the TV-- much less the computer. This fiber capability, this infrastructure, is in its infancy and that's why Lafayette is going to be on the front edge of that development.

The article finishes by noting his mean fiddle - and I have heard from many people that his fiddle skills are quite impressive. I hope I get to see if firsthand when I head down there in April.

Minnesota is one of the eighteen states that have enacted specific barriers to prevent the public sector from building networks (protecting incumbents from any competition). It presently has the uniquely high - 65% - referendum requirement on communities that want to build a network that will offer telephone services (which thereby includes all fiber-to-the-home triple play networks).

However, up in Cook County, they could not meet that threshold. They had a referendum in which 56% voted yes - a majority but not satisfactorily large for a 1915 MN law. State Representative Dill and Senator Bakk realized this was crazy - state law set too high a bar for the County they represented. Cook would be unable to build the network they need - remember that the whole County was isolated following a single fiber cut because Qwest does not invest in communities where profits are scant (let's not blame Qwest though - private companies are not supposed to be charities and they should not be expected to build the essential infrastructure communities need).

Rep Dill and Sen Bakk introduced a bill to reduce the 65% to 50% referendum but the private providers must have thrown some sort of tantrum. Before the bill could even be heard, incumbent providers had reached some sort of a deal with Rep Dill and Sen Bakk, agreeing that they would not oppose the bill if it only applied to Cook County. Cook would be able to build its network, but all other local governments, many very rural and in similar but not equal severity, would be stuck with the 65% referendum requirement if they wanted to build a similar network. In the House, this "compromise" has flown through multiple committees with little debate.

In the Senate, some fought back, wondering if perhaps massive incumbent providers shouldn't be the ones to determine if communities can build modern networks -- especially when the providers won't. So the bill was introduced in the Senate. It was quickly amended to the incumbent demanded-text, but was then amended back again to a 50% majority for all MN (better than the 65% in current law). This was all in the Senate Committee dealing with Telecom. Confused yet?

It was next forwarded to the Committee dealing with Local Government, where the providers had created a new, super secret compromise with a number of Senators. Providers agreed to the 50% language for all, if they got some draconian additional language that made it incredibly difficult for communities in other ways. Just before the meeting, Qwest's lobbyist was hanging with some of the cable co lobbyists - that combination never bodes well for those of us that want competition.

As a side note, the 65% to 50% requirement should not require appeasing the incumbent providers. They already have tremendous advantages -- including decades of generous government subsidies and massive scale. The idea that Qwest, a massive company operating in 14 states, needs to be protected from a small community in outstate Minnesota baffles me. We need more competition, the incumbents shouldn't be able to attach conditions, further privileging their advantages in the market.

The Committee offered an amendment (attached here) that represented the provider "compromise." In return for incumbents not opposing the change to law, communities would have a 50% referendum requirement in addition to a variety of additional requirements, some far more onerous than the 65% referendum represented. In particular, the local governments would have to provide detailed business plans to their competitors, word the referendum in a specific manner not previously required by law, and subject any agreement between the local government and an entity related to the network to competitive bidding requirements -- which would totally disrupt the freedom of communities to choose their partners based on criteria they feel most important.

In short, the Committee took a bill intended to lower the barrier to entry for communities to build the networks they need, and they RAISED it. One might expect such a significant shift was debated, perhaps hotly. It was not. I was the lone testifier about the amendment but I might as well have sung a song. There were no questions, no discussion. Just like that, it was over. Few had known of the amendment's existence, let alone read it. Without so much as a word, the Committee announced its intention to create more barriers for community networks -- the one hope for competition and modern infrastructure in Minnesota outside the metro area.

More on this to come -- I certainly hope some of the Senators come to their senses. I do not know where the bill is headed next because its status is not yet updated, some 24 hours after the Committee adjourned.

These are the comments I intended to offer on the bill before it was hijacked by the amendment:

I am Christopher Mitchell, a researcher at the Institute for Local Self-Reliance. We are a 35 year old non-profit in Minneapolis that focuses on policies that encourage community development. Five years ago, we developed an interest in telecommunications because we recognized these networks are a necessity for communities. My research has focused on community networks, particularly fiber-to-the-home deployments.

I support this bill because it lowers a significant barrier to building the telecommunications infrastructure needed by Minnesotans. People in rural areas have found themselves unable to enjoy modern broadband technologies because building these networks is incredibly expensive and offers little hope of profits for the private sector absent public subsidization.

Just as many rural communities built their own electrical networks to ensure they could partake in the essential utility of their day, some have now started to build these broadband networks. The private sector is unable in many cases and unwilling in others, to build the necessary networks. Communities must already overcome many barriers to build a network.

Some, like the high cost of building a network, are inevitable. But the 65% supermajority, unique in the nation, is not.

The 65% referenda requirement invites providers who do not want to deal with competition to spend heavily, knowing that they only have to convince or confuse a minority of voters to maintain the status quo.

In truth, ILSR believes Minnesota should join the majority of states that have enacted no state barriers to public ownership of networks. In a time when the State itself has recognized the value of greatly increasing access to broadband networks, it should not be creating additional barriers to discourage the people most motivated to build them. After all, local governments are already structurally accountable to their citizens. If they cannot build these networks, the odds are that no one will.

To the extent we want to encourage competition in policy, barriers to public ownership have the opposite effect. Too many of our rural areas cannot attract even a single broadband provider. They will certainly never see the benefits of competition unless freed to build their own network.

One hundred years ago, we saw the results of expecting the private sector alone to build the electrical infrastructure. Some 90% of farms had no access. Though private utilities argued then that electricity was too complicated for local governments, the public sector stepped up and ensured all Americans could benefit from that essential technology.

I urge the Committee to reduce, or ideally remove, this barrier to essential infrastructure.

Photo by Jackanapes, used under creative commons license.

The Longmont Times-Call continues its coverage of the community network struggles of a Colorado community. This story has a lot of the history behind how Longmont developed a fiber ring and how they have used it even as they are prohibited from expanding it.

Longmont is not alone in working for upwards of a decade to bring better broadband to the community that actually meets local needs rather than maximizing profits. Other communities have also spent ten, fifteen, or even long with on-gain, off-again plans to build a publicly owned network. This reality provides a handy refutation of state preemptions based on the logic that communities will act too quickly in not considering their plan for a network. Communities take years in researching, planning, and developing networks.

In Longmont, the first public fiber investment came in 1996 and was expanded shortly thereafter by the Platte River Power Authority. The city moved more than 40 facilities to a gigabit network, leaving T1s to communities that prefer to vastly overpay for their telecommunications needs.

They worked with a private company, Adesta, to expand the network to residents and businesses but the company filed for bankruptcy in the following year. The arrangement certainly had its upside though - Qwest and Comcast mysteriously decided to start offering broadband in Longmont shortly after the Adesta agreement. This happens almost every time a community invests in infrastructure -- it leads to increased investment from incumbents.

They quote a techie from the Longmont Hospital who explains the one of the benefits of the publicly owned fiber already in the ground:

“It’s at least a three times reduction in cost,” Niemann said of leasing fiber from the city, versus contracting with a commercial provider. “And oftentimes, if you go with a commercial provider, you have construction costs.”

The city would like to expand the network, both to bring competition to the DSL/cable duopoly, and to invest in smart grid applications for its public power utility. Unfortunately, they have to win a referendum per Colorado's incumbent-protection law. The incumbents are more than willing to spend hundreds of thousands against any such measure, knowing they would lose far more in profits if they had to deal with competition in the community.

Though it may not be a major selling point for communities considering building a network, they can offer tremendous research potential. Local communities are more approachable for researchers and more likely to form mutually beneficial partnerships. Consider an interesting story about the Oklahoma City Wi-Fi network and weather researchers.

This is a massive network -- at 555 square miles, the largest in the world. Local universities have teamed up with the city to closely monitor the weather constantly throughout the network. This data is useful in tracking how air currents move around a city - which is really helpful for those trying to understand and mitigate terrorist chemical or biological weapon attacks... for instance.

This is just one of some 200 applications the City uses its network for:

Steve Eaton, information security architect for Oklahoma City, characterizes the project as the most unique application the city utilizes. The Wi-Fi network currently runs about 200 applications that range from video surveillance to GPS tracking systems.

Folks in New Hampshire are fed up with the private carriers ignoring them and have started an initiative to build their own fiber-optic open access network. Looks like the site is pretty new, so check back for details.

Last summer, I predicted the NTIA's rules for the broadband stimulus would disadvantage the public sector and tilt the playing field toward the private sector. I was right.

Consider a recent story about the first round of the stimulus:

With time and resources scarce and applications to review from nearly 2,200 entities, favoring vendors was less complicated because they wrote savvier proposals and required less follow-up, in Winogradoff's view.

Private companies were able to submit savvier proposals and generally swamp the system with far more proposals, slowing the entire process because the federal agencies did not expect the volume. NTIA claimed they wanted to make the funds more widely available and instead shut out much of the public sector.

NTIA, along with most federal agencies, simply does not understand that a "level playing field" between private companies and the public sector is simply not possible. The public sector has different interests - maximizing social benefits whereas the private sector is interested in generating profits. Public and private entities are different creatures, operating in different regulatory environments, with divergent motivations. You can no more create an objectively level playing field between the two than one could in designing a contest between basketball and soccer teams. The rules are simply going to favor one or the other.

The question becomes, who should the rules favor? When it comes to infrastructure and tax dollars, the rules should favor those who put the public interest first. This was the lesson of the Rural Electrification Administration, which was horrified at the idea of lavishing grants on profitable companies in the hopes they would temporarily invest in rural areas. Instead, they offered loans to cooperatives and extended electricity to farms across the country during the worst Depression in our history.

What have we learned from that? Nothing. We contort our policies while offering more and more money to companies that time and time again show they have no interest in serving rural America. This is ludicrous - not only have we already built a wire out to almost every home in America, we still have the polls!

We should ramp up loans - not grants unless absolutely necessary - to rural cooperatives, nonprofits, and other publicly-oriented organizations that put the common good first. This is a long term solution to a very serious infrastructure problem. Publicly owned fiber networks would offer faster services at lower prices -- ensuring all Americans would benefit from this communications revolution.

The second round of stimulus learned nothing from the first. We might hope the FCC National Broadband Plan does better, but the real solution is for your community to consider how it can best invest for its future.

Readers undoubtedly know that Google has proposed a limited fiber-to-the-home open access network rollout that will offer gigabit speeds. Communities are applying to be considered -- all we know at this point is that Google envisions ultimately serving some 50,000 - 500,000 subscribers.

Parts of this announcement are very exciting for those of us working to create better networks that serve community interests. I think the long term impact of it being open access may well dwarf the impact of having gigabit speeds available to some at "competitive" rates (though one wonders how rates can be competitive when the service is unlike any other?).

The idea of open access -- where the network is an infrastructure that supports independent service providers, creating a true market for broadband services -- is a game changer. Unfortunately, the number of people served by open access networks in the U.S. has been too small to prove the model (as I discussed here). If Google connects half a million people with an open access network, it could change the landscape of broadband networks, pushing us toward a non monopolistic world... but probably not in the first year or two. These changes take time.

Beyond that, the gigabit test bed will be very interesting. Lafayette's LUS Fiber has been experimenting with the 100Mbps network and now Google will be upping the ante. Given the number of people who are excited and the number of communities announcing their application, it is clear that the telecom carriers are not meeting community needs.

Though I think the experiment interesting, I hope it is limited. My fear, which I do believe is premature but has poked its head up nonetheless, is that Google may launch another round of Earthlink Wi-Fi free-lunch hopes from local governments. Those who once pinned their hopes on an outside company building the network they wanted have now recognized the folly. Even though Heinlein's TANSTAAFL warning came half a century ago, few seem to have internalized the lesson. There Ain't No Such Thing As A Free Lunch.

10 years ago, Google was a different company. In 10 years, we have no idea what Google's interest will be but we can be sure that communities will need connectivity that puts local citizens and businesses before profits. Will Google's network serve community interests then? Maybe. Publicly owned networks offer self-determination in an uncertain future.

I think Google's program can do much good, so long as communities aren't misled into believing the search (advertising) king is going to solve their problems for them. I wouldn't discourage communities from applying for this fascinating program -- 1 gigabit speeds will certainly set them apart -- but for most communities, this will be a distraction from what they need to do themselves to succeed in the 21st century.

In a recent issue, the Economist profiled BVU - the first municipally-owned triple-play fiber-to-the-home network in the U.S. Evidently, the Economist thinks Bristol an unlikely spot to find a full fiber-to-the-home network, but some of the best networks in the U.S. are in these unlikely spots because they are built by communities who have realized the private sector will not build the needed infrastructure.

And this infrastructure has brought many jobs to the region:

And the fibre brought jobs. In 2007 both Northrop Grumman, a big American defence contractor, and CGI, an international IT consultancy, said they would hire between them 700 technicians, consultants and call-operators at offices in nearby Lebanon, Virginia, part of BVU’s fibre backbone. Both cited the area’s universities and low cost of living, but neither would have come without BVU’s investment, which Northrop calls absolutely critical.

The article asks a common question but answers it exceedingly well:

Should cities be in the business of providing fast internet access? It depends on whether the internet is an investment or a product. BVU could not afford to maintain its fibre backbone without selling the internet to consumers. And it could not build a subscriber base without offering cable television and a telephone line as well; households these days expect a single price for all three services.

Most communities would rather not have to get involved with selling services like cable television, but such services are generally a necessity to cash-flow the network. So, as they did before with electricity, they do what they must to keep the community strong and competitive.

Good news out of Louisiana - the LUS Fiber deployment in Lafayette is running considerably ahead of schedule. This is especially important because Louisiana law makes requirements on publicly owned networks to break even within a relatively short time period, explicitly favoring private companies in law.

The city should be fully passed this summer, allowing anyone to take one or more of the triple play services. Fortunately, many are taking the full triple-play:

Although LUS is not releasing the exact number of customers who have signed up for fiber services, Huval said it is "many thousands" and that a higher-than-expected number are signing up for all three services at once.

Networks succeed financially when they generate high amounts of revenue per user - ARPU in industry terms. Because the fixed costs are so high to connect users, the low revenues generated by only a single service (like telephone) may take many years to pay off the connection expense.

The schools are also making use of the network:

Besides serving residences, LUS Fiber is also being offered to businesses throughout the city, and the wholesale numbers have been at or above expected, Huval said. All Lafayette Parish public schools also are connected to the system, and the technology was used for a partnership among Carencro High School, LITE, Louisiana Public Broadcasting and a San Francisco, Calif. school system, during which students were able to teleconference and collaborate with each other.