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Rural Indiana Looks to Tax Increment Financing to Build Fiber Networks

Wabash County, Indiana wants to expand its access to high speed internet through a fiber optic network build out, and is planning to use a distinctive financial tool to do so. The Wabash County Redevelopment Commission has begun the process of assigning a special Economic Development Area designation for the purpose of helping to finance new fiber deployment through parts of the mostly rural county of 33,000 people.

Tax Increment Financing (TIF) is method of public financing that uses future gains in property or sales taxes within a defined area to subsidize a redevelopment or infrastructure project. A local jurisdiction can borrow money up front, build the project, and then use the increased tax receipts it generates to pay off the debt over a period of years. The concept is actually pretty simple: capture the value that something will have in the future to build it now.

TIF  has been a popular approach among local politicians around the country for decades as a way to work around tight budgets and finance improvements in blighted areas, often in the form of public infrastructure. It has sometimes drawn criticism, especially in cities like Chicago where it is very heavily used. One downside is that it effectively takes properties off the general tax rolls. 

More important for our purposes, however, is that the use of TIF for next generation fiber optic networks is a fairly new phenomenon. While municipal networks around the country have used a wide range of financing approaches to cover upfront costs, most have revolved in some way around bonds that are repaid from network revenue. Using TIF to capture the increased property value that a fiber optic network would create is an interesting approach.

In the case of Wabash County, it’s not yet clear exactly how the funds would be used. There is a local private incumbent provider, Metronet, which received $100,000 last year to match its own $1 million investment to bring fiber to a town on the north edge of the county. The county also has a cooperative utility (Wabash County REMC) that provides power and telephone services in rural areas and has expressed interest in using TIF to build out a fiber network. Whichever entity ultimately receives TIF money, it does not appear that the county is interested in owning the network itself. 

Wabash County is not alone it its pursuit of TIF-backed fiber networks. Other counties and municipalities in rural Indiana have been moving along the same lines, from Chesterton in the north to Dubois County in the south. The Indiana  Association of Cities and Towns, meanwhile, recently helped defeat an attempt by telecom industry lobbyists (ahem, AT&T) in Indianapolis to pass legislation eliminating the authority of local governments to use TIF - but only for fiber optics and other telecommunications equipment.  

Whether or not TIF eventually proves to be a good tool for building high speed fiber optic networks in rural areas and small towns remains to be seen. Taking a broader view of the value of a the public and private value a municipal network creates, beyond a simple glance at network revenues, is a step in the right direction. In any case, the right of local communities to make their own choices about how best to finance, plan for, and pursue their shared needs is paramount.

Rural Utilities Building Broadband Networks - Community Broadband Bits Podcast Episode 109

If you have doubts that we can or will connect rural America with high quality Internet connections, listen to our show today. Alyssa Clemsen-Roberts, the Industry Affairs Manager at the Utilities Telecom Council, joins me to talk about how utilities are investing in the Internet connections that their communities need.

Many of these utilities are providing great connections, meaning that some of the folks living in rural America have better -- faster and more affordable -- Internet access than residents of San Francisco and New York City.

We discuss the demand for better Internet access and the incredible take rates resulting from investment in some of the communities that rural electric cooperatives are serving.

UTC has a been a strong ally of our efforts to prevent states from revoking local authority to build community networks. Within UTC, the Rural Broadband Council is an independent operating unit.

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."

Minnesota's Lake County Fiber Network Begins Connecting Customers

The Lake County fiber network is now serving a limited number of customers in northern Minnesota. According to the Lake County News Chronicle, the network's triple-play services are lit and bringing better connectivity to Silver Bay and Two Harbors.

About 100 customers in Silver Bay take service via the network; beta testers in Two Harbors are helping Lake Connections, the entity managing the network, straighten out any kinks in Phase One. Phase Two, which is more than 60% complete, will bring service to Duluth Township, Knife River, Silver Creek Townships, and Beaver Bay Township. Phase Two is scheduled for completion this summer; Lake Connections anticipates network completion in the fall of 2015.

The Lake County project has been plagued with problems, including delays cause by incumbents. Mediacom filed complaints with the Inspector General based on unsound allegations. While the cable company was not confident enough to sue, its accusations wasted time and money for Lake County. Frontier asserted ownership of a significant number of Two Harbors utility poles, even though the City has maintained them, and the two are still involved in negotiations over ownership and fiber placement on the poles. The Minnesota Cable Companies Association (MCCA) delayed the project further by submitting a massive data request.

The FTTH project is one of the largest stimulus projects, totaling approximately $70 million in grants, loans, and local matching funds. The project will cover almost 3,000 square miles when complete, connect almost 100 community anchor institutions, and provide services to over 1,000 businesses.

As we have noted before, the project was sorely needed. On more than one occasion, a single fiber cut to the area created Internet black outs to homes, businesses, hospitals, government, and any other entity depending on connectivity to function.

In Two Harbors, outdoor equipment supplier Granite Gear is on the new network. In the past, the entire company shared one DSL connection, forcing the company art director to work at night when bandwidth was available. Now, everyone works normal hours. From the article:

Dave Johnson, the strategic accounts manager for the 28-year-old company, said fast internet has become essential to Granite Gear in recent years.

“It’s not just nice having faster internet, but it has become an absolute necessity,” he said.

“Business is not just pushing emails back and forth. We maintain a website,” he said. “Doing business has become real bandwidth intensive.” A new technological era has dawned and companies are evolving to keep pace with their competitors.

Granite Gear Logo

Johnson told us via email that uploading files for customers in the past used to take hours but now the task takes a few minutes and does not disrupt service for other employees.

Delays have created extra expenses and Lake County will need more customers like Granite Gear to make the network strong. According to the article, the County has already started making loan payments:

[County Commissioner Rich] Sve said he understands his constituents’ concerns that the network may not be viable.

“I share that concern as a taxpayer. I think it’s legitimate,” he said.

But, he added, private companies have not stepped forward to provide the service, despite encouragement by federal and state government to do so. The county, therefore, opted to undertake the task.

“So far, we’re pleased with what we’re getting in Silver Bay and hopeful that it continues,” [Lake Connections Project Manager Jeff Roiland] said.

Businesses and residents interested in signing up for service from Lake Connections can contact them today to make arrangements:

“The biggest thing to do is contact our staff,” Roiland said. “They can call in (or) walk in and the gals at the office can explain to them what to do.”

Spencer Municipal Utilities Expands Upgrade to Fiber in Iowa

Spencer Municipal Utilities (SMU) in Iowa is expanding an upgrade project to bring fiber to approximately 2,000 additional premises. A little over a year ago, we reported on the switch from coax cable to fiber for 700 municipal network customers with no rate increase. According to the Spencer Daily Reporter, the original project is almost completed; the expanded upgrade will cost approximately $4.5 million.

Amanda Gloyd, marketing and community relations manager, told the Daily Reporter:

Since SMU first began offering Internet service to customers the amount used by customers has increased and we expect to see that continue. For example, the average peak usage from customers in the fall of 2010 was 125MB and today it averages around 800MB with maximums over 1,200 MB. The project to convert the whole town of Spencer will take several years and we continue to develop plans for future projects.

In April, the SMU Board of trustees approved a modest rate increase for video and Internet access to help defray increased costs for video content and increased demand on the system. The last time rates went up for video service was early 2013; residential Internet access rates have remained the same since November 2011.

New rates went into effect on June 1. Internet access rates range from $20 per month for 1 Mbps/256 Kbps to $225 per month for 100 Mbps/10 Mbps. Basic level video service begins at $14 per month; "Basic Plus" is $50.75 per month. Digital service and a range of channel choices are available as add-ons.

SMU also provides voice and partners with T-Mobile to provide wireless phone service in the community. The network began serving customers in 2000.

Spencer, population 11,300, is located in the northwest section of the state. In the Community Broadband Bits podcast episode #13, Chris spoke with Curtis Dean of the Iowa Association of Municipal Utilities (IAMU). Dean shared a story about Hansen's Clothing, a local upscale clothier in Spencer. Thanks to the presence of the SMU network, Hansen's was able to expand its sales to the online marketplace. Hansen's was struggling until it obtained the ability to reach clientele in New York and Los Angeles. The fresh business allowed Hansen's to flourish.

Reflections on Mountain Connect Rural Broadband Conference - Community Broadband Bits Podcast 105

With so many people on vacation this week for Independence Day, we decided to take it easy and reflect on my trip to Colorado to discuss rural broadband at the Mountain Connect conference. Lisa and I reflect on the event and what other states can learn from Colorado.

Though the Colorado legislature previously bowed to pressure from CenturyLink's predecessor to limit local authority, the Department of Local Affairs for the state of Colorado has a smart approach to encouraging rural broadband expansion. Rather than operating in a top-down fashion, it responds to plans that are developed organically by communities working together regionally.

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 12 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."

Chanute City Commission Approves FTTH Plan

Chanute City Commission decided on June 9th to take the next step to bring ftth to the community; Commissioners voted unanimously to pursue and finalize funding to deploy a municipal network.

The City's current fiber network provides connectivity to schools, hospitals, electric utility and municipal facilities, the local college, and several businesses. Chanute has worked since 1984 to incrementally grow its network with no borrowing or bonding. Plans to expand the publicly owned infrastructure to every property on the electric grid began to take shape last year.

At a work session in May, Director of Utilities Larry Gates presented several possible scenarios, associated costs, and a variety of payback periods. The favored scenario includes Internet only from the City, with video and voice to be offered by a third party via the network. Residential symmetrical gigabit service will range from $40 - $50 depending on whether or not the subscriber lives in the city limits. Commercial service will be $75 per month. Advanced metering infrastructure will also be an integral part of the network.

The Commission authorized the pursuit of up to $14 million to get the project rolling.

Get a Gig in Oklahoma: Rural Cooperative Deploying FTTH in Northeast Corner of the State

The Northeast Oklahoma Electric Cooperative, serving a five county rural region, plans to begin offering gigabit service in its territory by the end of 2014. The cooperative has formed Bolt Fiber Optic Services to offer connectivity to approximately 32,000 homes and businesses.

According to Light Reading, the infrastructure is funded with a $90 million loan from the Rural Utilities Service. Sheila Allgood, manager of Bolt, notes that the entity is separate, but "profit or loss will go back to the co-op."  Bolt will offer triple-play packages with a third party contracted to offer the VoIP services.

The project also includes a data center, already under construction, that will house network equipment and provide collocation services.

From the cooperative's newsletter announcing the project in December 2013:

The initial phase of the project will deliver fiber in areas of the largest population density (14-20 homes per mile) with subsequent phases eventually working their way into more remote, outlying areas. “We anticipate that the first phase of the project should be available to roughly one-third of Northeast Oklahoma Electric Co- operative’s membership,” explained Due. “A significant number of businesses and community institutions in our area would also be connected during this phase.”

The cooperative lists monthly residential prices as 20 Mbps for $49.99 per month, 50 Mbps for $63.99 per month, 100 Mbps for $83.99 per month, and 1 Gbps for $249.99 per month. All speeds are symmetrical. Bolt is asking interested customers to sign up with a $100 installation fee.

Project completion is scheduled for April 2017.

The Cooperative has produced a short promotional video to get the word out:

 

Video: 
See video

Plan for FTTH in Chanute Looking Positive in Kansas

Chanute has been exploring available options for a citywide FTTH network. In addition to offering residential service, city leaders want to expand the business use of its municipal fiber network. A limited number of businesses currently join schools, government, and utilities on the fiber infrastructure.

The community incrementally built a fiber network to serve government, utilities, and schools with no borrowing or bonding. The broadband utility continues to expand and uses WiMAX for public safety and to connect several businesses. For the full story of this central Kansas community, download our case study Chanute’s Gig: One Rural Kansas Community’s Tradition of Innovation Led to a Gigabit and Ubiquitous Wireless Coverage

As we reported previously, the City Council began reviewing potential scenarios to bring fiber to each premise. The Wichita Eagle reported that Utilities Director Larry Gates recently presented price and speed estimates to a City Council study session:

When complete, the city system will offer service at a speed of one gigabit per second.

City residents will pay $40 a month; it will cost $50 outside the city limits and $75 for businesses.

To put that in perspective, Chanute will offer the same ultra-fast connection speed as the Google Fiber system being rolled out across the Kansas City metropolitan area, but 42 percent cheaper than Google’s $70-a-month charge.

Or, to use another comparison, Chanute’s fiber-to-home system will be 14 times faster and cost 60 percent less than the best Internet service the town’s residents can get today.

Wow! And recall that this would not be possible if the cable lobbyists had their way earlier this year in the Kansas legislature. Kansas briefly considered making it impossible for communities to build their own networks and will likely take up the matter again next year.

We contacted Gates, who elaborated on Chanute's plan. The City will provide Internet only; a third party provider would use the network to offer voice and video. The service area will include the Utilities' three mile territory outside of the city limits.

The community is especially interested in bringing access to unserved students in the community and to patients who need access to telehealth from home. Seventeen percent of area students cannot afford or do not have access to the Internet from home. USD 413 and Neosho Memorial Regional Medical Center are each working with Chanute Utilities to develop solutions using the muncipal network.

Businesses have expressed their frustration with service from the existing cable and DSL service on many occasions. The City's network serves a limited number of commercial clients and others have asked to be connected. City Commissioner Martha McCoy is also a local business owner; she owns and operates a downtown antique and home-decor business. She told the Eagle:

“What I have today (at home), I can hardly ever get on,” she said. “And then I watch the ads they have on TV: Oh, we have super streaming and everything. It just isn’t happening here.”

The service at her business is “better, but it’s still not good,” she said. “It still knocks me off, so I still get upset with that. I have a lot of work to do and I don’t have time to wait.”

The Eagle reports that community leaders supported the initiative at the study session. The City Council formerly votes on June 9th whether to move forward.

Princeton Voters Want to Bring FTTH to Their Rural Massachusetts Community

On May 13, Princeton voters decided to continue their municipal network planning. At the annual town meeting, 91.4% of voters passed Article 4 [PDF], authorizing a new Municipal Light Plant. A year ago, voters approved a measure to proceed with planning.

Princeton, a community of 3,300 residents and 1,270 households, has DSL access available to approximately 49% of residents. Satellite, dial-up, and wireless are the other options. 

Entrepreneurs rent office space in nearby communities with better connectivity. Real estate professionals bemoan bad Internet because it lowers property values. A 2013 survey revealed an overwhelming desire to take action. Residents and businesses want an FTTH option.

The Worcester Telegram reported that the community also voted to appropriate $17,000 to make-ready costs, possible legal fees, construction costs for telecommunications huts, and other possible network costs.

"Passing Article 4 will allow us to start negotiations with the vendor," said John Kowaleski of the Broadband Committee. "Without passing this article we will have to wait two years to approach this subject again."  

According to Selectman Stan Moss, the community continues to explore a variety of options. Community leaders have met with several providers to discuss public/private partnerships. Large corporate players, including Charter and Comcast, are not interested in working with Princeton.

The community is also considering a pilot project as a starting point. MassBroadband 123, the network of the Massachusetts Broadband Institute (MBI) will soon serve local schools and several public facilities in Princeton (it should be noted that MBI has been saying "soon" for a few years). The schools will transistion from T1 lines to the new MBI fiber. Community leaders hope to eventually capitalize on the infrastructure to reduce overall costs and expand the reach of Princeton's future infrastructure.

In Kansas, Chanute Explores FTTH Options

Last December, we reported on Chanute's decision to move forward with plans for a FTTH network. The community has a fiber and wireless network in place that serves utilities, public facilities such as libraries and schools, and several businesses. The network also provides free Wi-Fi across the community. As we discussed in our 2012 case study, Chanute developed its network incrementally over two decades with no borrowing or bonding.

In a City Commission work session on May 5, officials reviewed several options for an FTTH network. In a nutshell, the City is contemplating their involvement in the operation of the future network.

Utilities Director Larry Gates presented several options, reported the Chanute Tribune. Two choices stood out for the working group members:

Scenario C calls for the build out of city provided fiber optic-to-home broadband internet services. Service drops would only be provided to homes that want the internet services.

Under Scenario C, the initial investment would be about $10,926,842 to build the fiber core. The city would need $9,468,033 in funding to complete the project. The project would become cash-flow positive in two years, one month. It would take five years, nine months to pay back financing for the project. The 20-year net present value for the entire system would be an estimated $40,623,151.

Scenario D calls for a build out of the fiber optic-to-the-home system for private communications companies to pay a fee to the city to lease the network and provide services to residential customers. The city would seek private companies for voice, video and internet services.

Under Scenario D, the initial investment would be about $13,906,416 to complete the build out. The city would need $9,468,033 in funding to complete the project. The project would become cash-flow positive in one year, seven months. It would take eight years, 10 months to pay back financing for the project. The -20 year net present value for the entire system would be an estimated $25,667,301.

Under an altered Scenario D, the City would lease out the network for five years to a private company that would offer triple-play services to residents. At the end of the time period, the City would take over.

Several city officials expressed an aversion to city run video services.

“There is not much profit in video,” Gates said. “Provisioners are pretty much naming the price on that.”

“From a business standpoint, providing video is going to cost us more,” [Mayor Greg] Woodyard said. “We’re not going to be able to see a return on that investment.”

An April Tribune article reported on an outreach meeting held by City Commissioners. Brian Inbody, president of local Neosho Community College shared his experience with the network:

“It is as necessary to us as electricity, water and gas,” Inbody said. “We save about $30,000 year over what we were paying through AT&T to provide that service."

Local schools Superintendent James Hardy also spoke to the value of the publicly owned fiber infrastructure:

“If we didn’t have fiber, we couldn’t have school anymore,” Hardy said. “When we’re buying text books and we have text book rotation, half of what we pay for a text book is web-based material. When those teachers turn on their smart boards that are hooked to a computer, everything they are pulling down is off websites, because everything is web-based.”

At the public meeting in April, commissioners addressed concerns about a five percent franchise fee that commenced in December 2013. The network serves public telecommunications and utility operations and now needs relacement equipment. The franchise the fee will cover the costs.

“We were talking about being short money for equipment,” [Senior City Commissioner Tim] Egner said. “We were trying to figure out a way, without raising mill levies, how to come up with this money. With the franchise fee you’re going out over a larger area. You’re going outside the city. With the franchise fee, you can choose how much electricity you use. You can choose how much gas you use.”

The lack of upgrading maintenance has caught up with the city, Egner said.

“When we cut mill levies,” Egner said, “we had to adjust. We had to stop buying things. We stop putting money back for equipment. At some point that catches up with you. So, we had to figure out the best way to do it.”

The working group will meet again later in May to continue the discussion.