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Cedar Falls Utility Gets High Bond Rating from Moody's

We have long been impressed with Cedar Falls Utilities (CFU) in Iowa. They built an incredibly successful municipal cable network that has now been upgraded to a FTTH network. CFU transfers $1.6 million into the town's general fund every year, reminding us that community owned networks often pay far more in taxes than the national cable and telephone companies.

Last week, Moody's Investor Service gave an investor-grade A-3 rating to revenue debt from CFU, another sign of its strong success.

Moody's rating report noted the utility's large market share, competitive pricing and product offerings, expansive fiber optic network, long-term financial planning and conservative budgeting practices as reasons for the continued strong rating of the utility's revenue debt.

CFU also compiles the community savings resulting from each of its services by comparing its rates to nearby communities (see most recent comparison [pdf]). The benefits total $7.7 million each year, almost $500 per family. This includes a $200 difference in cable TV bills and a $130 difference in Internet service.

Arkansas Town Targeted by Cox Prior to Community Broadband Referendum

Siloam Springs, sporting 15,000 people in the northwestern corner of Arkansas, could be the next community to build its own community fiber network. But first they have to pass a referendum in May in the face of stiff opposition from Cox Cable, which would prefer not to face real competition.

For over 100 years, the city has provided its own electricity via its electrical department. Now, it wants to join the more than 150 other communities that have done so. After last year's changes to Arkansas law, Siloam Springs has the authority to move forward if it so chooses.

Pamela Hill at the City Wire has covered the situation with a series of stories, starting with an explanation of why they are moving forward:

David Cameron, city administrator, said the proposal is not so much about dissatisfaction with current providers as it is about finding new revenue for the city. Cameron said revenue from electric services has been a key source of funding for various projects and necessities for the city. That “enterprise” fund is getting smaller, Cameron said, and an alternative funding source is needed.

“We have done a good job managing accounts, building a reserve,” Cameron said. “We want to keep building on the programs we have. It takes money and funds to do that.”

City officials discussed the issue for the last 18 months and decided to put it to a referendum. Voters will decide the issue May 22.

That is a fairly unique reason. Most communities want to build these networks to encourage economic development and other indirect benefits to the community. Given the challenge of building and operating networks, few set a primary goal of boosting city revenue.

Map of Siloam Springs

If approved by voters, the city plans to spend $8.3 million to install 100 miles of fiber optic cable directly to homes and businesses. The city should be able to repay the debt in 12 years, if things go according to a feasibility study presented to the city’s board of directors in January. Cameron said projections show the system could begin making a profit after three years.

Just as in Longmont, Colorado, the incumbent cable company has created a fly-by-night astroturf group to oppose Siloam Spring's initiative. In Longmont, the group predictably disappeared shortly after Comcast lost the referendum.

In the Longmont referendum, the opposition came out of Denver. To fight the community in Siloam Springs, Cox is funding a group out of Little Rock that calls itself Arkansans for Limited Government. (If the only threat to my monopoly were a local government, I suppose I would want to limit it also.) Though CenturyLink ostensibly competes with Cox, its DSL cannot offer the same capacity as cable networks (the problem we call a Looming Monopoly).

After the approach was announced, the usual public v. private rhetoric emerged. Among others, the head of the of Arkansas Chamber of Commerce is defending Cox, probably a significant member of that Chamber:

“Make no mistake, when government competes with private business it always has an unfair advantage, and it will stifle economic growth and competition in the Siloam Springs market,” Zook wrote.

And so we see the same false claims we have previously debunked. And right next to claims that the public sector has all the advantages and will crush the private sector, we find a paradoxical claim:

Zook said there are many instances across the country where cities have tried this and failed.

The reality is that Cox and CenturyLink have all the advantages AND that communities generally succeed in creating signficant community benefits by building their own networks. They get real competition, lower prices, more investment, and a better climate for local businesses to succeed.

Another article was dedicated entirely to arguments against the community effort (as though every other article did not devote enough time to these pro-Cox arguments).

Cox Logo

In it, a manager for CenturyLink claimed that they would be in favor of a public/private partnership but Cox quickly rejected the idea:

In a public-private partnership, a city pays a certain percentage of costs for new or upgraded services and an established private company does the work and provides the service.

...

Pitcock said Cox Communications has never taken public monies for joint ventures, and probably wouldn’t take part in a public-private venture in Siloam Springs.

If CenturyLink wants a public/private partnership, it should join UTOPIA to offer real services to Utah residents and businesses rather than its patheticly slow DSL.

Following one of several community meetings to discuss the project, reaction to the initiative seemed mixed, with many people wanting more information.

At the meeting, the assistant city director of Sallisaw, which operates a muni FTTH network in Oklahoma, spoke about their experience.

Skelton talked about the success of the Sallisaw system, noting that 99 out of 100 test customers stayed with the city’s service after the trial period in 2005 and said the city should make a profit by the end of the year. Customer bills average $103, he said.

Sallisaw Logo

However, Sallisaw had fewer options for broadband when they started. By contrast, Cox has proved willing to get very dirty in its opposition to new competition, as seen in Lafayette (see the last paragraph of this story).

The most recent story from the City Wire discusses other muni broadband networks in Arkansas.

Conway in central Arkansas and Paragould in the northeast corner have had city-owned cable services since 1980 and 1990, respectively. They’ve continued to upgrade and add services as times and technologies changed. Officials for both systems say they operate at a profit.

Chattanooga Network Hits Milestone, Projected to Pay Off Debt Early

Chattanooga's EPBFi community fiber network has been one of the most celebrated muni networks in the nation. They were the first to offer a gigabit to anyone in the city and have launched a bounty for geeks that relocate to the "Gig City."

They have connected 35,000 subscribers to the network, blowing away their original goal of 26,000 by the third year. They have attracted thousands of new jobs that would not have materialized if they simply accepted the AT&T/Comcast duopoly for their community.

The Times Free Press reports:

At the current rate, EPB can shave seven years off the time it will take to pay off its telecom debt, becoming virtually debt-free by 2020 instead of 2027 as projected, Eaves [EPB CFO] said.

Even so, the government utility still is spending money to sign up new customers, a process that will increase debt until 2013, Eaves said.

The utility has $51 million in total debt so far, but it only needs 30,000 customers to break even on operational costs, Eaves said.

"We are currently cash- flow positive from an operations standpoint, but still increasing debt to fund the capital associated with signing up new customers," he said.

As we frequently remind our readers, finances are complicated. Even though the network continues to do very well, its debt will increase for a few more years while it continues rapidly acquiring new subscribers. Each subscriber takes years to pay off the debt of connecting them.

Recall that EPB unexpectedly got a Department of Energy stimulus grant to deploy its smart grid much more rapidly than planned for. As the electric division owns much of the fiber fabric, the grant does not impact the finances of the Fiber-Optic division, aside from allowing EPB to roll the network out to more people more rapidly. The changed plan increased their costs and their revenues over the original plan.

Greenville: The Texas Muni Cable Network

If you the take a look at our community broadband map, you'll see that Texas has only one citywide wired network owned by the public: Greenville. The story behind it is the same story we hear from just about every other community - but they actually spelled it out on their history page.

In 1999, Greenville, Texas' economic development leaders were unable to attract certain businesses and on the verge of losing existing companies due to a lack of high speed Internet.

In response, Mayor Sue Ann Harting asked SBC for a commitment to deploy DSL. That request was denied. The city's cable franchise, Time Warner, also declined to commit to cable modem Internet deployment.

Greenville found itself in a situation similar to one that many towns had faced years ago when railroads changed transportation. If the railroad was not routed through a town, that town just might die. What would happen to Greenville if the information superhighway did not come through the city?

Incumbent cable and telephone companies, their lobbyists, and associated "think tanks" like to claim that communities are somehow "duped" into building publicly owned networks. The truth is that just about every community wants to avoid the hassle of building a network but incumbents refuse to invest sufficiently to keep the community competitive for economic development and a high quality of life.

They build networks when backed into a corner, not because they want to. Fortunately, all that hassle almost always pays off with far more benefits than problems over the long term as communities transition from depending on some distant corporation to solving their own problems locally.

In fact, the results are often like that of Greenville:

Greenville citizens were not willing to take that chance. They took destiny into their own hands by amending the city charter to allow their revenue-only supported, municipally-owned electric system to build a hybrid fiber coaxial system to make high speed Internet available to everyone. Digital cable TV was offered as an option on that same system.

Once the citizens had committed to this venture, the city's incumbent telephone and cable franchises found ways of deploying that high speed Internet that they had only recently declared not feasible in Greenville.

In 2001, citizens began connecting to the city's state-of-the-art system that accessed all 10,000 of the homes and business in Greenville. Public acceptance has been very good, with more than 4,500 of those homes and businesses (as of June 2005) now choosing the new municipal services after less than four years in business. Financially, this non-tax supported venture was seeing black ink earlier than expected.

Public acceptance readily came from slightly lower cost to the consumer plus faster Internet speeds and more cable TV channels than the incumbents offered. (The existing cable company wasn't even offering ESPN 2 in 2000). Consumers also welcomed the chance to have these multiple services placed on one bill with "one-stop" local customer service to handle all of the municipal services - one inclusive bill for water, sewer, garbage, electric and cable TV and Internet as options.

After the community built its network, the incumbent providers finally upgraded their services and undoubtedly lowered their prices. The local Chamber of Commerce has this to say about the public investments:

Greenville is fortunate to have its own non-profit, locally operated municipal electric, digital cable television, high speed Internet, water, and wastewater utility systems. 

Unfortunately, Texas is one of the four states that have made it all but impossible for other communities to copy Greenville's success. And as long as AT&T can dump millions into the Legislature, that law will be hard to change.

nDanville's Quiet Success in Rural Virginia

nDanville, the open access fiber-optic network operated by the City's public power company, has been quietly succeeding in southern Virginia. This network has already connected half of the communities health care facilities, allowing them to improve medical care with 100Mbps and gigabit circuits at affordable prices.

The medical network connects Danville Regional Medical Center and about half of the area’s medical facilities to nDanville, a fiber optic network established by the city. The high performance fiber allows real-time access to patient medical records and allows for the exchange of CT and MRI scans instantly.

Another article notes praise for the city's efforts:

"It enables us to better serve our patients by having their information available across multiple sites," Deaton [CEO of Danville Regional Medical Center] said. "We will continue to support the city's efforts in linking our medical community together, and I want to commend the city for the success of this network and making healthcare a top priority."

The Intelligent Community Forum brought the above success to my attention in awarding Danville a recipient of its 2011 Founders Awards. (Chattanooga is in the running for Intelligent Community of year and really, how could it possibly lose?) But ICF details more impressive details from nDanville:

logo-icf.gif

On average, fiber connections for these facilities provide twice the bandwidth of the previous connection but at a 30% savings. More than 90% of the medical facilities (approximately 125 locations) are to be connected by December  2011, said Jason Grey, the Broadband Network Manager of Danville Utilities, who led Danville’s charge to become a recognized intelligent community by ICF.

ICF further noted that the nDanville Network provides a crucial link between the Danville Diagnostic and Imaging Center and the Danville Regional Hospital. This high capacity connection allows the two facilities to exchange CT and MRI scans instantly, as well as other patient information, thus helping doctors do their job more effectively.

The project has impacted education as well. At the Danville Community College medical technician students train on new interactive systems which provide monitoring and feedback to accelerate learning. Training rooms have a sophisticated video system that allows instructors to record students training and to provide detailed critiques, thus combining the technological and the human art of healing.

Dentists are also taking advantage of the network, which has allowed one Dentist's group create new jobs by opening a fourth office.

This network has been available for businesses for a few years now and the city is really seeing the benefits. Officials say when it first became available, many businesses were interested, but then the economy hit a slump. Now that things are looking a little brighter, utilities officials say they expect many more businesses to sign up, expand and hopefully come to the area because of it.

It was the nDanville network that prompted Dr. Albert Payne to open his fourth dental office. He says multiple offices don't make sense if you can't keep them connected.

"I told them we wouldn't go out there if the network wasn't available for us," he said. "You want to have access to all the charts from all the different locations at one time."

But take note, the success of the network is not merely better health care and a few more jobs - it has changed the perception of Danville:

"I could see in five years everybody would be retired and there wouldn't be any dentists to work on anybody, so now, we've got some young people ready to go to work," said Dr. Payne.

He says young people have been impressed to see a small city like Danville big into technology.

logo-danville-utilities.pngThe network connects over 100 businesses and currently has a single ISP operating on it, a local business that is clearly getting the job done. But nDanville has spoken with a number of ISPs excited to come on the network as soon as it has more potential customers.

We most recently wrote about nDanville when it considered expanding the network to some residential areas last year. The City Council decided not to, but the utility is working with City Council to begin a less ambitious expansion that would not incur any debt.

For years, nDanville has been generating net income, some of which gets depositing in the City's General Fund and some of which goes into an unreserved fund balance that can be used to further expand the network (later generating more revenues, and the circle of life begins anew). Those decisions will be made over the course of the next month.

Chattanooga EPBFi Network Leads to More Jobs

Chattanooga's impressive publicly owned FTTH network can take credit for yet more jobs being created in the community, following an announcement last month from HomeServe, a call center that wants to keep jobs in the United States.

"When a HomeServe customer is in need of assistance, we want them to have the convenience and reassurance of being assisted by a representative based here in the United States," Jonathan King, chief executive for HomeServe, said in a statement. "We decided on Chattanooga because of the availability of high-quality employees combined with the robust telecommunications and data infrastructure available in the area."

WindomNet Saves Jobs, Provides Stellar Customer Service

Minnesota Public Radio, as part of its Ground Level Broadband Coverage has profiled WindomNet with a piece called "Who should build the next generation of high-speed networks?"

Dan Olsen, who runs the municipal broadband service in Windom, was just about to leave work for the night when he got a call. The muckety-mucks at Fortune Transportation, a trucking company on the outskirts of town, were considering shuttering their office and leaving the area.

"They said, Dan, you need to get your butt out here now," Olsen recalls. "I got there and they said, 'You need to build fiber out here. What would it take for you to do it?'"

Fortune, which employs 47 people in the town of 4,600, two and a half hours southwest of the Twin Cities, relies on plenty of high-tech gadgetry. Broadband Internet access figures into how the company bids for jobs, communicates with road-bound truckers, controls the temperatures in its refrigerated trucks and remotely views its office in Roswell, New Mexico. Fortune even uses the Internet to monitor where and to what extent drivers fill their gas tanks in order to save money.

Yet, when it was time to upgrade company systems three years ago, Fortune's private provider couldn't offer sufficient speeds.

That's where Windomnet came in. Though Fortune was a mile outside the municipal provider's service area, "We jumped through the hoops and made it happen," recalls Olsen. "The council said, "Do it and we'll figure out how to pay for it.' We got a plow and a local crew. We had it built in 30 days."

I have thought about this story frequently when I hear claims that publicly owned networks are failures. For years, lobbyists for cable and phone companies have told everyone in the state what a failure WindomNet has been - they crow about debt service exceeding revenue while ignoring the fact that all networks -- public and private -- take many years of losses before they break even because nearly all the costs of the network are paid upfront.

Toward the end of the article (which should be read in its entirely rather than in the snippets I repost here), Dan puts the matter in context:

Dan Olsen retorts that Windomnet was never designed to make money; one of the benefits of a municipal system is that nobody takes profits out of it. He says the plan was to break even by year five, which arrived in 2010, and it looks like they'll come within $50,000 of doing so.

"We don't charge enough to make money," says Olsen, noting that Windomnet serves the vast majority of the town's 2,000 homes with internet, phone, cable or all three. They also provide free service to city buildings and the library. "The point is not to make money, but to break even," Olsen says. "The number one goal of the system is to provide broadband to the residents of Windom."

And the vast majority of residents take service from WindomNet. With a population of 4600, meaning probably 2000 households, the network has 1846 fiber drops that are active with at least one service. They have people working for companies in South Dakota but able to work from home regularly due to the Internet connection. Compare that to Sibley County, where Qwest has not even bothered to offer DSL in the county seat of Gaylord!

And the customer service comes highly recommended. Again, from the MPR article:

For his part, Dale Rothstein, who runs the IT systems at Fortune in Windom, says, "I get three calls per month from people trying to get me to convert. I say 'no.' Dan and Windomnet took care of us. I'm not going anywhere. It's a great relationship. When there is a problem, I call and it's taken care of. It's great to have a local company to deal with."

Major providers, like Frontier (famous for some of the worst DSL in the nation) pretend to be reasonable on the issue by claiming that publicly owned networks will make it harder to reach the highest cost households. This must be why Frontier is trying to derail the Sibley County project from building fiber-to-the-farm when Frontier can't even provide reliable slow DSL across all of its phone lines in the area. Not only does Frontier have no plan to connect these farmers, they have no reason to as such an investment would not generate sufficient return for them to be interested.

FiberNet Monticello

TDS has been the king of BS in this arena, putting out patently absurd press statements that reporters feel compelled to repeat no matter how implausible. Regarding Monticello, MN, which built a FTTH network compelling TDS to upgrade their poor DSL service (while also delaying the Monticello network with a year-long frivolous lawsuit that was eventually tossed out of court):

Fast forward to today, a city with two fiber networks. Andrew Petersen, director of external affairs for TDS, acknowledges "the importance of broadband to stimulate economic development in urban and rural communities" and says his company would have built a fiber network eventually, without prodding from the city. He believes the network may be somewhat ahead of its time, though.

Ha! Monticello begged TDS to invest in a modern network and TDS refused, saying that their DSL was perfectly suitable for what Monticello needed. They suddenly changed their mind when the City decided to build their own network to ensure not only faster, more reliable connections, but a LOCAL option.

Keep an eye on this MPR coverage of broadband - they have several of the few reporters in the state that have developed a good background in telecom and can get beyond the soundbites too common in broadband coverage. Well done.

This article led to a great response on Connected Planet Online by Joan Engebretson:

Take this quote from a Frontier executive cited in the MPR story. “Simply pouring money into projects that overbuild and compete with networks built by private investment discourages private investment and does not help reach those highest cost households,” the exec said. “Duplication of the network is no guarantee of success, and is often simply a waste of both public and private resources.”

This argument, of course, ignores the fact that if the new facilities truly were simply a “duplication” of what was already there, there would be no need for them and local municipalities would not be taking on the task of building the new higher-speed networks.

Exactly.

DC-Net Looks to Expand

Following 9/11, Washington DC built a muni fiber network for government use.  We wrote about it Breaking the Broadband Monopoly -- noting its strong record of success.  The Washington Examiner has noted that DC-Net is looking for expansion opportunites.  

The city invested $87 million into D.C.-Net to get there. It now has 350 miles of fiber optic cable connecting city agencies at 355 locations in all eight wards. More than 33,000 District employees use it every day, and it handles calls to the emergency 911 call center and the city's 311 information line. The District also hasn't spent a dime on it since 2007. Instead, the network runs on a surplus, which is reinvested into its infrastructure, officials said. Now, the city stands to earn millions by leasing access to the network out to federal agencies.

While private companies constantly claim that local governments have no capacity to run fiber broadband neworks, DC-Net has proven not only can munis run these networks, they can offer faster speeds, lower prices, and better reliability.  Now DC-Net has a $1.6 million contract with US Office of Personnel Management.  

UTOPIA More Pro and Con Analysis

Publication Date: 
July 10, 2009
Author(s): 
Jesse Harris
Publication Title: 
Free UTOPIA!

In two articles, Jesse Harris offers some insight as to how one can evaluate UTOPIA as a success or failure. In the first article, "Defining UTOPIA's Success," he looks at some of the indirect benefits from the network.

Financial success is the most obvious kind. It’s very easy to look at expenditures and revenues and come up with a bottom line figure. I don’t mean to discount the importance of coming up with a positive number at the end of that statement, but it really isn’t the entire financial picture. (Take a look at my breakdown of Provo’s real and potential savings from iProvo for a good example.) Orem, for example, is saving somewhere in the neighborhood of $600K per year in telecommunications costs by using UTOPIA fiber in their city. None of the other cities have released similar figures (at least not that I am aware of), but I think it safe to say that they are experiencing similar savings. Such an approach also fails to recognize that incumbent providers are forced to offer better service and pricing to attract and retain customers. Based on national figures, a UTOPIA-served neighborhood is likely to save 25% or more off of telecommunications costs.

In the second and longer article, "FUD Alert: Utah Taxpayers Association Continues to Bend and Cherry-Pick the Truth," he directly answers one of the fiercest critics of UTOPIA - the UTA.

His response is well worth a read as a model example of how to respond to these ignorant attacks. We cannot allow lies against community broadband to go unchecked - thank you Jesse for your strong response.

The Case for Public Fiber-to-the-User Systems

Publication Date: 
March 6, 2006
Author(s): 
Jim Baller - Baller Herbst Law Group
Author(s): 
Casey Lide - Baller Herbst Law Group

Jim Baller and Casey Lide are two of the foremost experts on municipal broadband systems in the United States. This report offers a clear and rational defense of publicly owned broadband systems. The discussion takes on philosophical, economic, and pragmatic arguments and comes to the conclusion that communities should not be prevented from building their own networks.