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Big City Community Networks: Lessons from Seattle and Gigabit Squared

A few weeks ago, a Geekwire interview with outgoing Seattle Mayor Mike McGinn announced that the Gigabit Squared project there was in jeopardy. Gigabit Squared has had difficulty raising all the necessary capital for its project, building Fiber-to-the-Home to several neighborhoods in part by using City owned fiber to reduce the cost of building its trunk lines.

There are a number of important lessons, none of them new, that we should take away from this disappointing news. This is the first of a series of posts on the subject.

But first, some facts. Gigabit Squared is continuing to work on projects in Chicago and Gainsville, Florida. There has been a shake-up at the company among founders and it is not clear what it will do next. Gigabit Squared was not the only vendor responding to Seattle's RFP, just the highest profile one.

Gigabit Squared hoped to raise some $20 million for its Seattle project (for which the website is still live). The original announcement suggested twelve neighborhoods with at least 50,000 households and businesses would be connected. The project is not officially dead, but few have high hopes for it given the change in mayor and many challenges thus far.

The first lesson to draw from this is what we say repeatedly: the broadband market is seriously broken and there is no panacea to fix it. The big cable firms, while beating up on DSL, refuse to compete with each other. They are protected by a moat made up of advantages over potential competitors that includes vast economies of scale allowing them to pay less for advertising, content, and equipment; large existing networks already amortized; vast capacity for predatory pricing by cross-subsidizing from non-competitive areas; and much more.

So if you are an investor with $20 million in cash lying around, why would you ever want to bet against Comcast - especially by investing in an unknown entity that cannot withstand a multi-year price war? You wouldn't and they generally don't. The private sector invests for a return and overbuilding Comcast with fiber almost certainly requires many years before breaking even. In fact, Wall Street loves Comcast's position, as penned in an investor love letter on SeekingAlpha:

We're big fans of the firm's Video and High-Speed Internet businesses because both are either monopolies or duopolies in their respective markets.

Seattle Conduit

Seattle has done what we believe many communities should be doing - investing in conduit and fiber that it can use internally and lease out to other entities. This is a good idea, but should not be oversold - these kinds of conduit and fiber projects are typically deploying among major corridors, where the fiber trunk lines are needed. But networks require far more investment in the distribution part of the network, which runs down each street to connect subscribers. With this heavy investment comes the modern day reality that whoever owns the distribution network owns the subscriber - that owner decides who subscribers can take service from. (We have more conduit tips from previous Seattle coverage.)

Additionally, different conduit and fiber segments may be owned by various entities, including different departments within a city. This may introduce administrative delays in leasing it, suggesting that local governments should devise a way of dealing with it before a network is actually being deployed.

Even if a city wanted to lay conduit everywhere for the entire network (trunk and distribution), it would need to have a network design first. Different companies build different networks that require different layouts for fiber, huts, vaults, etc. Some networks may use far more fiber than other designs depending on the network architect preference. The result is a limit on just how much conduit can/should be deployed with the hope of enticing an independent ISP to build in the community.

In deciding the size of conduit and where to lay it, different types of fiber network approaches are either enabled or disabled (e.g. GPON vs Active Ethernet). In turn, that can limit who is willing to build a fiber network in the community. The same can be true of aerial fiber, attached to utility poles.

Investing in conduit and/or fiber along major corridors may go a long way to connect local businesses and some residents but almost certainly will not change the calculations for whether another company can suddenly compete against a massive firm like Comcast.

And paradoxically, beginning to connect some businesses with fiber and a private partner could make a citywide system less feasible. The firms that are prepared to meet the needs of local businesses may not have the capacity nor inclination to connect everyone. But without the high margin business customers among neighborhoods, a firm that wants to connect neighbors may struggle to build a successful business plan. Additionally, some firms may only be interested in serving high end neighborhoods rather than low income areas.

Community BB Logo

This is a major consideration in our continued advocacy for community owned networks. They have an interest in connecting businesses as the first step in connecting the entire community. An independent ISP may only find it profitable to focus on the businesses, though some ISPs share our values of ensuring everyone has access.

In the first Geekwire interview, Mayor McGinn returned to his original position when campaigning - that the City itself should be playing a larger role and investing its own resources rather than pinning its hopes on distant firms.

McGinn noted that “we haven’t given up on the private sector,” but said that if he were continuing as mayor, he’d start garnering political support to build a municipal fiber utility. That’s actually something the mayor considered back in 2010, after a consultant recommended that the City find a way to build an open-access fiber-to-the-premises communication infrastructure to meet Seattle's goals and objectives.

A feasibility study looking at one particular way of building an open access fiber network put the cost at $700-$800 million. However, there were other alternatives that they did not pursue, opting instead for a far less risky (and with far less payoff) public-private-partnership with Gigabit Squared.

Over the next few days, I will explore other lessons. A review of lessons from today:

  • Comcast and other cable companies have tremendous advantages that other would-be competitors in the private sector will generally fail to overcome
  • City owned conduit and fiber helps to encourage competition but is subject to significant limitations
  • Communities should invest in conduit in conjunction with other capital projects but should not inadvertantly weaken the business case for universal access

Update: The Gigabit Squared deal with Seattle is officially dead. Part II of this series is available here.

A Look at Mediacom Propaganda in Emmetsburg, Iowa

Earlier this month, a majority of voters in Emmetsburg supported a proposal to issue bonds to build a fiber network. Nevertheless, the measure failed because Iowa requires a 60% majority when general obligation bonds fund all or part of a proposed project.

Years ago, the community voted to establish a municipal cable communications or television system. Emmetsburg leaders feel the time is right to realize the community vision. The proposed project would have used revenue bonds in addition to general obligation bonds.

We reported on Mediacoms' efforts to derail the vote with misleading lit drops across the community and we recently received new details on Mediacom's propaganda. The literature does not contain a "Vote No" statement, which may have allowed Medicom to avoid reporting it as an election expense.

Both pieces read like a talking point primer for industry executives. The letter from Senior Vice President Dan Templin, suggests that Mediacom is already operating gigabit service over fiber in Emmetsburg and that they intend to expand that service to business clients. The letter does not suggest that their gigabit service is affordable or reliable, neither of which are terms commonly used to describe Mediacom's services.

Mediacom was ranked last in a 2012 Consumer Report survey of 50,000 people. He, or rather his legal and marketing team, suggests the people of Emmetsburg and Mediacom "work together to leverage our [Mediacom's] investment." The people of Emmetsburg can begin working with Mediacom to "leverage" that investment by sending an email to a vague "info" email address. 

Mediacom also wrote a letter from Delbert Witzke, a Mediacom employee and local resident. It contains the classic anti-muni talking points used by these big companies headquartered far from the communities where they want to preserve their monopoly. The letter aims to inflame fears of local taxes increasing and misleads readers by implying by citing an irrelevant FCC statistic (which itself is also quite flawed).

In our experience talking with people about their cable companies, few people are so consistently critical and vehement as those stuck with Mediacom. However, enough people were swayed by Mediacom's campaign against competition in Emmetsburg to at least slow the prospect of a new network there.

Public vs. Private: Consider the Fire Department

One could say that the expansion of the Fire Department takes jobs away from undertakers, furniture salesmen and carpenters in Paducah, but most believe this to be a worthy trade off.

Free People vs. Private Monopoly

A free people cannot permanently submit to the private monopoly of a necessity of life.

Thomasville Removes Local Tax, Citing Strong Broadband Revenues

Thomasville is one of six cities served by Community Network Services (CNS) in rural southwest Georgia. We’ve covered Thomasville and CNS in the past, highlighting the benefits of reliable high-speed broadband in these remote rural communities. But one benefit we haven’t covered yet is quite remarkable - Thomasville residents have been paying zero fire tax thanks in large part to revenues from CNS. The City’s fire tax first hit zero in 2012 and was recently maintained there by a Thomasville City Council vote in September.

Thomasville feeds its General Fund with net income (what the private sector would call profit) from its utility services. For 2013, this net income is estimated to reach $8.5 million. What’s more, Thomasville residents enjoy utility prices below the state average. So nobody can complain the City is taking advantage of utility customers by charging excessive rates.

According to a recent Public Service Commission survey, Thomasville residents pay $3.32 per month below the state average per 1,000 kilowatt hours of electricity. And CNS customers who bundle services see annual savings of up to $420. It’s a true win-win - residents get affordable utilities and the City applies the net income to running public services like the police and fire departments, lowering property taxes in the process.

The result is millions in tax savings for Thomasville residents since 2009, when the City set its sights on phasing out the fire tax. In that year, the City collected $1.7-million in fire taxes. In 2010, the City dropped the rate to bring in $995,000. And in 2011, the last year a fire tax was levied, $610,000 was taxed. Based on the 2009 fire tax collection, Thomasville residents have been spared almost $5.2-million in fire taxes since 2010. Speaking about the zero fire tax accomplishment in 2012, Thomasville Mayor, Max Beverly, said “Without the City's enterprise funds like Electric and CNS, we would not have been able to meet this goal.”

CNS is remarkable for another reason. It represents a high degree of collaboration among multiple cities in different counties - a model which could help more rural communities build successful networks. Thomasville could have built a network on its own, but it saw greater benefit in combining forces with nearby municipalities, despite the extra coordination effort involved. The added scale and cost sharing afforded by this model likely played a big role in the benefits Thomasville has reaped from CNS. Rural communities, take note.

Responding to "Crazy Talk" Volume 4 - Community Broadband Bits Episode #72

We are back with the fourth volume of our responding to "Crazy Talk" theme on the Community Broadband Bits podcast. The source of this week's crazy talk is a public relations executive for Time Warner Cable, following an interview I did on WUNC in North Carolina.

Lisa Gonzalez, myself, and our colleague John Farrell react to some of the claims made to discuss what you should know about community owned networks and broadband policy more generally.

We talk about misleading statistics, lies about how local governments fund networks, and whether Time Warner Cable or local utilities pay more in taxes.

Read the transcript of this episode here.

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 23 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.

Find more episodes in our podcast index.

Thanks to Mudhoney for the music, licensed using Creative Commons.

Longmont Referendum: Haven't We Been Here Before?

November 5th probably seems like deja vu for the people of Longmont, Colorado. For the third time, the voters will respond to a ballot question that will impact their community's connectivity. Past referendums addressed whether or not the community could use its fiber ring for connecting businesses and residents.

They now have that authority. This year the question will be "when?"

Local incumbent providers grossly outspent municipal network supporters in 2009 and in 2011 with astroturf campaigns against referendums. Nevertheless, voters decided in 2011 to grant the local utility permission to use existing fiber resources to bring connectivity to businesses and residents. 

Since then, Longmont Power and Communications (LPC) began a slow build-out of fiber to businesses and homes within 500 feet of the existing loop. Local businesses, frustrated with poor service from Comcast and CenturyLink, jumped at the opportunity to have real high-speed connections. With a long list of businesses in queue for their connections, the City Council voted to use LPC reserve funds to connect businesses and residents to the loop. Clearly, the people of Longmont were ready for something better than the existing incumbent services.

Local blogger Steve Elliott connected to the service in September. To satisfy his curiosity, he ran speed tests immediately before and after he transitioned from Comcast service.

Comcast timed in at 26.08 Mbps download and 5.76 Mbps upload. LPC provided 89.99 Mbps download and 62.01 Mbps upload

From his post:

I also timed downloading movies on Netflix on my TV. Before, I could run upstairs, get an adult beverage and be back in my chair before the movie loaded. Now – if it takes 10 seconds – it’s a really long movie. 

Thumbnail of comic strip

After a month with LPC fiber and new computer system, Elliott ran more speed tests. Results topped out at 739.66 Mbps download and 534.75 upload for LPC Fiber.

Elliott also compared prices:

Comcast: $71.95 per month ($863.40 per year)

LPC Fiber $49.95 per month ($599.40 per year)

We compared Comcast to Longmont fiber in this entertaining comic strip.

Elliott is not the only Longmont resident who wants to connect to LPC fiber. Calls to "get it done" from residents and businesses did not fall on deaf ears at the May Longmont City Council meeting. The Council voted unanimously to bring fiber to every resident and business that wants it. Next, community leaders and LPC investigated financing. The reserve fund, developed from years of dark fiber lease revenue, could pay for the expansion but the project would drag out over a decade.

Rather than see the project finished in more than ten years, the community can become entirely connected within three years with a $44 million revenue bond issue. LPC will use $35.4 million as capital to build out the network and the remaining as reserve for debt-service. State legislation sponsored by USWest from 2005 imposed the referendum requirement on local communities; the voters must decide. USWest became Qwest became CenturyLink.

The Times-Call reproduced the 2B Ballot Question language:

"Without raising taxes, shall city of Longmont debt be increased in an amount not to exceed $45,300,000 by the issuance of revenue bonds for the purpose of financing fiber optic system capital improvements to provide high-speed broadband service, including but not limited to internet, voice and video services; and shall the bonds be paid solely from the city's electric and broadband utility enterprise revenues and be sold in one series or more at a price above, below or equal to the principal amount of such Bonds and with such terms and conditions, including provisions for redemption prior to maturity with or without payment of a premium of not more than 3%, as the city council may determine?"

Friends of Fiber in Longmont

Unlike past referendums, gigantic telecom providers have not spent large amounts of cash to fuel misinformation campaigns this time. Local citizen group, Friends of Fiber, is prepared to face-off against Comcast and CenturyLink. From a Times-Call article:

"It's as baffling to us as it is to you," said Scott Converse of the pro-2B group Friends of Fiber, which had been expecting to see another large push by the telecom companies. So far, he said, the only "anti" activity anyone in the group had seen was a telephone poll in September by Frederick Poll, a Virginia-based firm.

"We're wondering if maybe there's going to be a push near the end," Converse said. "I can't imagine why they're waiting."

The silence is welcome but a little eerie.

The City provides a PDF brochure on Ballot Question 2B that addresses many common questions. For more about the measure and the benefits springing from the network, listen to Chris' interviews with LPC's Vince Jordan. In the Broadband Bits podcast, Episode #10, Jordan describes the challenges LPC Fiber faced. Episode #68 deals with the upcoming referendum. Chris talks with Jordan and George Oliver from Friends of Fiber.

Update: In a letter to the editor, George Oliver wrote:

We have been providing our own electricity for more than 100 years and our rates are among the lowest in the nation. The same will be true if we expand our own fiber network. Because Longmont Power & Communications is a not-for-profit agency of the city, our low rates and network availability will help to retain and attract businesses to our city. This is the kind of visionary investment that will pay big dividends down the road.

WUNC Radio Show Explores Muni Network Restrictions in North Carolina

WUNC, a public radio station out of Chapel Hill in North Carolina, covered community owned networks and broadband availability on its recent "State of Things" midday program. I was a guest along with a local resident and a public relations executive from Time Warner Cable to discuss North Carolina's broadband compared to other states and its law that effectively bans local governments from building networks.

The discussion is good, though I certaily could have done a better job. Ultimately I thought the host did a good job of bringing in each guest to make their points, though Time Warner Cable was totally unprepared to talk about how North Carolina can expand access. Instead, they talked about the cable giant's requirements to invest in networks in rural areas.

We are going to follow up on these points but for now wanted to make sure you have a chance to listen to the show. Our coverage of the bill discussed in the radio show is available here.

New Comic: Longmont Fiber Crushes Comcast's Cable Outhouse

Longmont Power and Communications, a city-owned utility north of Denver in Colorado, is slowly rolling out a FTTH network to local businesses and residents that are in close proximity to its existing fiber loop. They are offering a symmetrical gigabit of Internet access for just $50/month.

Longmont Fiber Comic Strip

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The local newspaper notes that some local businesses have already signed on, including a clinic:

Jurey said the city's network is three times faster than the speeds the clinic got before at a cost savings of $1,600 a month.

On November 5, citizens will decide a referendum on whether to expedite the building by issuing revenue bonds without increasing local taxes. A brochure explaining pro and con is available here [pdf]. Approving the bonds means building the network to everyone in a few years while not approving it will mean building the network over several decades.

We recently did a podcast with Longmont Power and Communications Broadband Services Manager Vince Jordan and a local citizen campaigning for the referendum. Listen to that show here.

Read the rest of our coverage about Longmont here.

Franklin County, Alabama, Task Force Investigates Internet Options

In a reminder of just how poor telecommunications can be in this country, Franklin County in rural northwest Alabama has formed a Task Force to investigate how it can get something better than dialup.

“The Internet has become an important as having electricity and water,” said Cole, an extension agent in Franklin County. “For our businesses to attract customers and to attract other businesses to come in here, we have to have broadband Internet access.”

But it turns out that they don't even have access to modern telephones in some instances:

Some Franklin County residents have access to dial-up Internet, which is slower than broadband high-speed Internet service. However, some Franklin residents still have a “party line” for phone service.

Who has refused to invest in these exchanges? AT&T is the major provider in the area (followed by CenturyLink) and it came to a Task Force meeting to talk about what "needs to be done to bring high-speed Internet to the county."

Unfortunately the report doesn't note what the ideas were but we would be surprised to learn it doesn't involve some form of federal or local subsidy to get AT&T to invest in this area. There is not much profit to be made, so AT&T is more likely to push these people into expensive 4G LTE wireless solutions than anything that would compete with modern connections.

This is not the first such meeting - as noted by a previous article:

Commission Chairman Barry Moore said meetings were previously held to discuss the lack of high-speed Internet, but nothing materialized.

When it comes to local governments solving their problems by investing in themselves, AT&T falls over itself to stop them - even if it means an area will remain unserved.

We read of a conservative Republican holding out hope for federal grants to subsidize such a project.

In addition, Kreg Kennedy, a district field representative for U.S. Rep Robert Aderholt, R-Haleyville, discussed the possibility of federal grants to help get the project underway.

It is a fascinating situation when AT&T angling for taxpayer money from the federal government is seen by many as the "private sector" in action while local governments building networks without any use of taxpayer dollars (as the vast majority are) is cast as an illegitimate intervention in the sacred market.

Solving problems locally whenever possible is a wiser decision. When it comes to better access to the Internet, local governments should be investing in their own community, not trying to bribe companies to expand that have a history of terrible customer service and reluctance to invest in next-generation networks.

If Franklin County really wants to solve its problem, it should look to the community networks in Tennessee or the new network in Opelika, Alabama.