The following stories have been tagged partnership ← Back to All Tags

Public Private Partnerships: A Reality Check

When Westminster, a community of 18,000 in rural Maryland, found itself with poor Internet access that incumbents refused to improve, it decided to join the ranks of a growing trend: public-private-partnerships between local governments and private companies to invest in next-generation Internet access. They are now working with Ting - one of a growing number of private sector firms seeking partnerships with cities – though how partnerships are structured varies significantly across communities.

In building an infrastructure intended to serve the community for decades, city leaders knew Westminster should retain ownership of the network to ensure it would remain locally accountable. Ting is leasing fiber on the network and providing Internet services to the community with plans to offer some type of video in the near future. The public-private-partnership (or “P3”) includes a temporary exclusivity arrangement for two years or when a minimum number of subscriptions are activated. Westminster will then have the ability to open up its network to other providers in an open access arrangement. 

Communities are realizing that if they want better connectivity, they need to take matters into their own hands. As local leaders wade through the complex process of planning, financing, and deploying Internet network infrastructure, P3s are becoming more common. Communities with little or no experience in managing fiber optic networks may assume that P3s are safer or easier. That may be true or not depending on the specific P3 approach; the data is only starting to come in. P3s have been relatively rare compared to the hundreds of local governments that have chosen to build their own networks in recent decades.

Partnerships will continue playing a larger role  when improving local connectivity but this area is still maturing – there are already a few examples of successful P3s though many will also recall the failed Gigabit Squared P3 approach

P3s are more established in municipal public works projects involving other areas of infrastructure. A November 2013 Governing article by Ryan Holeywell examined the pros and cons of transportation P3s. Many of the lessons apply to other areas of the economy, including efforts to improve Internet access. 

Considering Incentives

Different incentives motivate public and private entities, creating potential challenges implementing P3 projects. Maximizing public benefits is not necessarily counter to ensuring a profit for a partner, but the two goals can be in conflict. An observation from Joshua Schank of the Eno Center in the Governing article hit the mark regarding the incentive imbalance:

Urbana Champaign Logo

The problem, he says, is that the private sector comes to the negotiating table with less to lose than the government, and it is also more willing to walk away. 

Often private partners hold a significant advantage and a willingness to walk away simply because local communities have a critical need with few options. They may feel compelled to make unnecessary sacrifices to expedite the project. For example, Princeton, Massachusetts, had entered into a Memorandum of Understanding with partner Matrix Design to deploy a fiber network. Matrix would have retained control of the network for 20 years if the plan had proceeded. The P3 fell apart when the town discovered relinquishing ownership of the infrastructure jeopardized their grant eligibility.

The P3 between UC2B and iTV3 in Illinois’ Urbana-Champaign region explicitly considers current and future control of the network. UC2B received stimulus funds as part of the American Recovery and Reinvestment Act to deploy fiber infrastructure. In 2014, it entered in to an agreement with the Illinois ISP to provide last-mile services over the network. As part of their agreement, UC2B will have the option to purchase any equipment and infrastructure deployed by iTV3 if the two agree to part ways in the future. This provision helps ensure a smooth transition if there is a new provider and gives UC2B the opportunity to control that transition or step back into the role of provider. In short, they have a say in the future of their network whereas other P3s may give sole discretion to the private partner over how the network is managed or who operates it in the future.

Risks in All Directions

Perhaps the greatest attraction for P3s, whether in transportation or broadband, is the desire for elected officials to avoid paying for a project or at least transfer some risk. 

“Politicians are at the point where people are crying out for enhancements to infrastructure, but they don’t want to hear any proposals for new public revenues,” says Phineas Baxandall, a senior budget policy analyst at the nonprofit U.S. PIRG. “So anything that makes it sound like the money’s coming out of thin air is a win-win.”

“It’s perceived as free money,” says [Robert] Puentes of the Brookings Institution. “That perception has to be dealt with,” largely because, Puentes and others say, the capital often comes at a cost that can exceed the expense of typical municipal borrowing.

As Robert Heinlein was fond of writing, there ain't no such thing as a free lunch. These projects require a lot of capital and the private sector will not incur risk without charging for it. A project that seems to good to be true probably is. 

Traditionally, the public sector designs and engineers a project that private sector firms then bid to complete parts of the project. (This is a needed reminder that even purely “public” projects have strong private sector involvement.) P3s come in a variety of flavors, including those in which a private partner handles all phases with little or no competitive bidding. Often that private entity contributes financially to the project as part of the agreement. This transfer of responsibility and potential transfer of risk seems attractive but:

Julie Roin, a University of Chicago law professor, also questions whether the “risk transfer” argument carries any weight. Ostensibly, for the private sector to turn a profit, a deal only makes sense if the government overestimates its risk and underestimates the project’s revenue potential. “It’s not as if any investor is going to accept risk without demanding compensation,” Roin says. “You’re just paying for the risk in a different way.”

The Congressional Budget Office, has determined that, when there is an improvement in cost or speed associated with a transportation project from a P3, the improvements are negligible [PDF of the 2012 report]. In short, some of the widely touted benefits from P3 approaches appear to be overstated or a manifestation of a preference for hiding risk rather than dealing honestly with it.

In many cases, powerful corporations lobby heavily in their own narrow interest against public projects whereas few have a strong direct interest in defending government. From the Governing article:

There’s a growing cadre of academics, activists, and state and federal auditors who question these public-private deals, but their voices aren’t always heard. At that Senate hearing, for instance, none of those dissenting views was represented on the panel. Nor did the hearing highlight what the governments’ own accountants say about P3s—namely that they are unlikely to solve the country’s infrastructure funding gap and, in some cases, may carry risks for state and local governments. “Whenever I see advocacy [for P3s], I look for real economic analysis that justifies privatization,” Cate Long, a municipal finance blogger for Reuters, recently wrote. “It’s never there.”

Congressional Budget Office

In Anoka County, Minnesota, a P3 arrangement limits the county's use of its own fibers on the network to only noncommercial uses. As a result, the County does not have the ability to fully use its own network, built largely with a broadband stimulus award, for economic development. It expected its partner to do more to encourage economic development, but the County apparently did not realize that its partner did not have expertise in that field. A company may be great at operating an advanced network but may not have any interest in the work of luring a potential future client to the county. A lesson from Anoka is that a P3 may require doing even more due diligence than building a municipal network. Read more about Anoka County's project in our 2014 report on 12 local government-led approaches in Minnesota.

Governing touched on a similar, albeit more extreme, situation in its reporting of a P3 transportation project in California:

When the government wanted to expand parts of the roadway to alleviate congestion, it was blocked by a “non-compete” clause in the 35-year contract. Following litigation, the government ultimately bought out the private partner. Just seven years after the express lanes opened, the county’s transportation authority paid $207.5 million for the $130 million project. That’s a worst-case scenario, of course. Those who study P3s say governments have learned their lesson about non-compete clauses. But “compensation” or “stabilization” clauses—in which governments owe the contractor money for taking actions that could reduce toll revenue—continue.

None of these criticisms are meant to suggest that P3s are unwarranted or inherently bad. Rather, we remain concerned that P3s are sometimes elevated as the ideal solution to all investment needs merely because the term public-private-partnership suggests that everyone is working together in harmony. Harmony isn’t easy. However, we firmly believe we will continue learning from previous efforts and improving on the P3 model. In the meantime, no one should assume that P3s are easier or less risky than a municipal network.

P3s and Opposition

Even though the FCC has begun to chip away at state barriers in Tennessee and North Carolina, these barriers persist in many states. Some of those restrictions prevent a local government from working with a private partner or at the very least, restrict the type of partnership available.

Unlike roads, community broadband projects are often the target of threatened incumbents or their lobbyist organizations. If a local community and a private firm work together, they may soften the ire of the mega corporate providers who cry foul at the prospect of a municipal broadband network. Communities working with a private sector firm may be more resistant to claims that the investment plan is somehow anti-business or anti-private-sector.

Conclusion

Some communities are too intimidated to take on the challenge of offering a service directly in competition with big providers like Comcast. They would greatly prefer to focus on the infrastructure side of the equation while a trusted partner focused on advertising and provisioning the services (which tend to evolve more rapidly).  If P3s allow local governments to achieve their goals without directly competing against a big cable company (as Westminster – Ting seems to), we will see many more of these approaches. However, that also depends on having a trusted partner working with the community.

Carl Junction
When Internet access is poor in a town of 7,500, it is not easy to get the attention of AT&T or Mediacom. It is also not easy to fund an estimated $5 million fiber project in a fiscally conservative community, even when the majority of residents need better connectivity. In Carl Junction, Missouri, local leaders are partnering with a local private ISP to offer high capacity LTE wireless Internet access for residents and businesses if enough people pre-subscribe. The town will purchase the equipment and provide locations for installation. In exchange, their partner will perform all installation and management of the network; the town will also share in revenue beyond a 10 percent take rate and will also receive free public Wi-Fi.  Carl Junction’s partnership is one of many approaches that show how these partnerships have varying levels of risk and reward.

P3s may be the best solution for some communities, but they are not a guaranteed superior approach to a project owned and operated by local governments. Some of the most celebrated networks in this country, including Wilson, Lafayette, and Chattanooga, are not structured as P3s. The Governing article ends on this reminder:

“It’s a tool that can be valuable but needs to be used very carefully and with a complete understanding,” says Bob Ward, New York’s deputy comptroller for budget and policy analysis. He notes that public-private partnerships aren’t the only way to do big projects. “We went to the moon without a P3.”

P3s will continue to evolve and improve. We truly hope to see more ISPs emerging as viable and trusted partners for cities that want to focus only on infrastructure without having to get involved in service provision. Not as a replacement for other municipal approaches but as yet another group of models that communities can evaluate for their unique situation.

Small Texas Town Don't Need No Stinkin' CenturyLink

The people in Kemp, population 1,100, have officially said "adios" to CenturyLink and now give their business to a local wireless provider, reports Government Technology. According to the article, the community grew tired of slipshod service and repeated service interruptions:

At one point, the city lost its Internet connection for five days. “That was the last straw because that was detrimental to us, because we depend on the Internet so much more, especially with our phone system," said [City Administrator Regina] Kiser. "We had just gone with the voice over IP [Internet protocol] when our system went down for five days, so you try to call city hall about various things, including the police department, and there was no phone. So, that was horrible.”

After a year of requests from the municipality for better service went unheeded, government officials decided it was time to make some changes:

“If you’re a government entity and you call in, they send you into cyberspace somewhere and your phone just rings and rings and rings, and I guess there’s just not any commission to be made on cities from what I’m understanding,” Kiser said. “This problem’s been going on for about a year, as far as not having the power we need to run our court program. So we tried, but it was just impossible to deal with CenturyLink.”

Kemp now works with One Ring Networks, where they receive service for a rate of $450 per month. There was no installation charge and in exchange, One Ring Networks is able to expand its network in the community. It now has the opportunity to sell service to residents and businesses in Kemp.

Unlike the typical "up to" speeds the big incumbents offer, One Ring Networks claims it "carves out" 5 Mbps download and upload for each subscriber, says Kris Maher from One Ring Networks:

“With the other carriers, that 10 Mbps by whatever is a best effort service, which means it can go up to 10 Mbps, but 10 Mbps isn’t guaranteed. Ours is right at 5 and it’s always going to be at 5, no matter who else is on our network.”

Kiser notes that residents are happy with their new provider and that, despite a brief delay caused by inclement weather, the upgrade was a simple task:

“CenturyLink’s been the only game in town for so long, they took advantage of the situation and they’re probably freaking out now that they have some competition for the first time,” Kiser said.

Locals Celebrate iTV-3 and UC2B Expansion in Champaign-Urbana

The expansion in Champaign-Urbana has begun! On May 8th, iTV-3 held a ribbon cutting to celebrate the start of its plan to bring fiber to the homes of neighborhoods that sign up for service. IllinoisHomePage.net reported on the event with the video below.

An April press release announced the celebration that kicked off efforts to meet iTV-3's ultimate goal:

This will enable iTV-3 to expand the network and provide Gigabit service to more than 250,000 homes including 45,000 households and businesses in the Champaign-Urbana area. 

The company has promised to expand to neighborhoods where they achieve a 50 percent commitment. 

Earlier this year, the ISP increased speeds for free in order to offer service that meets the minimum speeds as revised by the FCC. The lowest tier available from iTV-3 via the UC2B network is now 30 Mbps. All speeds are symmetrical.

The UC2B partnership with iTV-3 has been heralded by public leaders. UC2B's private sector partner, iTV-3 is an Illinois company with a track record of business decisions that support local communities. Their agreement is structured in such a way that will protect the UC2B nonprofit and subscribers in the future. At the event, a representative from iTV-3 briefly described the company's approach to the communities it serves:

"We own and operate the Family Video stores nationwide as well, and for us, we've always enjoyed being part of the community and this in and of itself is a community wide effort," said Trevor Rice, who is the marketing director for iTV-3. "Without the community's involvement, we're not going to be able to expand." 

 

Bozeman City Commission Votes to Create Nonprofit Bozeman Fiber

When we last checked in on Bozeman, the City Commission had approved a Technology Master Plan. In order to implement that plan, the same body voted unanimously on May 4th to create the nonprofit Bozeman Fiber to manage the network, reports the Bozeman Daily Chronicle.

The organization's board will consist of 7 members, including 1 from the city. Members from the public and private sectors will also be on the board, which will function independently from the City. The business community is especially excited about the project. From the article:

Several members of the public, many representing business groups like the Montana Photonics Industry Alliance and Bozeman Chamber of Commerce, urged commissioners to move forward with the project. No one voiced opposition.

“This is putting in critical infrastructure,” said Matt Johnson of First Interstate Bank. “It’s one of the best collaborative projects I’ve been a part of.”

Learn more about the project from our interview with several people working on the project in episode #142 of the Community Broadband Bits podcast.

Princeton, Mass, Setback in Muni Fiber Quest

Folks in Princeton, Massachusetts have anxiously awaited better broadband for about two years as community leaders explored ways to deploy fiber in the community. According to the Telegram, the wait will be even longer than expected. The tentative deal between Princeton and Matrix Design Group for a public private partnership is over.

As we reported last December, 90 percent of voters attending a special town meeting approved a measure to borrow funds to get deployment started. Princeton planned to use $1.2 million for make-ready measures to pave the way for Matrix to install its FTTH network. The town would not have to pay any more to construct the network, but they would be sacrificing control over the infrastructure.

Apparently, it is this lack of control that soured the proposed deal. From the Telegram article:

But while the town authorized borrowing the money, the broadband light plant commissioners could not secure authorization from bond counsel to borrow the money without an operating agreement that said the town had control over the design, construction, operation, maintenance and pricing of the network.

In a Princeton press release [PDF]:

“Matrix, citing its business model, was not willing to discuss or negotiate its position of network control for a period of 20 years before turning it over to us,”[said Stan Moss, Princeton Selectman and one of the leaders of the initiative].

As part of the agreement between Princeton and Matrix, the city would have obtained control and ownership of the network after 20 years.

Another wrinkle in the plan appeared when Princeton learned that they would not qualify for grant money available from the Massachusetts Broadband Institute (MBI). The organization is handling distribution of state and federal funds to assist in local deployments. Handing over control of the network to a private party in such a fashion is against the criteria established for grant eligibility.

The Princeton Broadband Committee will petition bond counsel to move forward to approve $1.2 million so the community can continue with make-ready plans. In the mean time, Princeton will get back out there and seek another partner.

While we are sympathetic to the people in Princeton who must wait longer to get fast, affordable, reliable broadband, we are somewhat relieved they have another chance to develop a partnership with more local control. The community may have felt protected because they were not investing in the full cost of a network, but without ownership the community would be unable to ensure it had the level of service it will need.

Huntington Determined to Bring Fiber to Town

Community leaders from Huntington, West Virginia, are the latest to announce they are determined to bring publicly owned infrastructure to town. The Charleston Daily Mail reported in April that Mayor Steve Williams described fiber as a "game-changer" for the city and is determined to find a way to bring it to Huntington.

From the article:

“This is something we need to have to compete at the level we expect to compete at in the city,” Williams said. “This is necessary for us to have Huntington transformed and frankly, to show that this can transform the region for the next 25 years. We intend to do this. What we have to determine is how do we use this study to define how we can get there. That’s what we’re in the midst of assessing right now.”

Huntington received a grant from the West Virginia Broadband Deployment Council in 2014 that it used to conduct a feasibility study. The study estimated that the cost of a network would be approximately $25 million. The city considers the study a working document and is currently seeking out grant funding to move forward. They aim to bring gigabit Internet access to Huntington for $70 per month for residents and $100 per month for businesses.

Like many other moderately sized communities, Huntington wants to capitalize on the higher quality of life attributed to small town life coupled with a high capacity next-generation network. Huntington's population is around 50,000 but it is also part of the larger Huntington-Charleston metro area of about 365,000.

Williams said the city is looking into the feasibility of forming a public-private partnership to develop the fiber network. Williams said it would be cost-prohibitive for the city to build and manage the network itself, but a public-private partnership would allow the city to retain ownership over the fiber while letting an outside company sell the service itself.

No matter how the city decides to approach building the network, Williams said it will happen.

Video Available: Connecticut Gigabit State Event

On May 5th, Christopher participated in a panel conversation presented by the City of New Haven and the Connecticut Office of Consumer Counsel. Video of the event, Moving Towards A Gigabit State: Planning & Financing Municipal Ultra-High-Speed Internet Fiber Networks Through Public-Private Partnerships, is now available.

You can watch it from the Connecticut Network website. The final panel has, in order of appearance, Bill Vallee, Joanne Hovis, Christopher, Monica Webb, and Jim Baller. It begins around 3:18 and Christopher begins his presentation at 3:36. The entire video is approximately 4 hours, 30 minutes.

The event included a number of experts from the industry. From the event announcement:

A conversation on the “Nuts and Bolts” of Internet Fiber Networks targeting municipal officials and other public officials to provide information for municipalities interested in creating ultra-high-speed networks. The networks would be created via public-private partnerships through Connecticut to enable innovations in areas such as health care, education, business development and jobs creation, and public safety.

ECFiber Adds 1,000th Customer; Continues to Expand in Vermont

In April, ECFiber connected it 1,000th customer in Thetford Hill. Users at the First Congregational Church, described as the oldest meeting house in the state, have nothing but kudos for ECFiber and their new high-speed symmetrical Internet access. From the press release [PDF]:

“The service has been great so far,” said David Hooke, Chair of the Board of Trustees, “and we really appreciate that ECFiber is a community owned organization committed to bringing state of the art connectivity to rural east central Vermont. This will be a boon for the whole region.”

To celebrate the milestone, ECFiber Chairman Irv Thomae presented a special certificate to the Church.

This is just the latest accomplishment as ECFiber expands across Vermont. The consortium of 24 towns continues to obtain financing one expansion at a time. According to another press release [PDF], the community owned network just added an expansion to encompass the towns of Chelsea and Tunbridge. This will allow 80 more rural household to subscribe; more will soon be on the way:

“This is the first of several expansions we’ll be opening this summer,” said Irv Thomae, Chairman of ECFiber and Governing Board delegate from Norwich. “We’re pleased that more residents in this area are now able to enjoy the benefits of locally grown, full time, state-of-the-art real broadband.”

Read our previous coverage of EC Fiber here.

UPDATE: Today, ECFiber announced that it is now offering free bandwidth upgrades to local schools, public institutions, and libraries. The announcement, another example of a publicly owned network going the extra mile to improve the quality of life in the community, is published in VermontBiz. From the announcement:

“Thanks to our high speed infrastructure and state-funded dark fiber and grants that have helped interconnect many of our hubs, ECFiber has excess bandwidth (particularly during daytime hours) and we are pleased to be able to offer it to all these institutions, many of which operate under tight budget constraints,” said Irv Thomae, Chairman of ECFiber and Governing Board delegate from Norwich. “Although 400 Mbps is currently the fastest speed we offer, we hope to be able to continue to provide these institutions the fastest speed we offer in the future.  We hope to provide 1 Gigabit per second speeds within one year.” 

Grants are from the Vermont Department of Public Services Connectivity Initiative and will help to connect even more schools and libraries.

Gigabit Cities Live in Atlanta on May 13th and 14th

On May 13th and 14th get y'allselves to Altanta to attend Gigabit Cities Live 2015. The event will bring together members from the public, private, and non-profit sectors to explore how gigabit networks are changing local communities. 

From the event summary:

Gigabit Cities Live 2015 will deliver a highly ‘immersive’ experience for attendees, exploring everything from the infrastructure required to deploy ultra-high-speed networks to the applications these networks are enabling to how gigabit networks will transform communities.

... Meet decision-makers from all aspects of the Gigabit Cities ecosystem – from service providers to urban leaders to technology vendors to applications developers and more – to learn about different approaches and business models for gigabit network success.

Hear thought leaders, see new products and services and learn from peers and solutions providers, all under one roof.

Chris will participate in a panel discussion, Open Access and the Future, on the morning of Thursday the 14th, time to be determined.

This panel session focuses on Open Access broadband networks, the provision of infrastructure to competing carriers that serve end users. Open Access is one of the most talked-about concepts in the broadband and gigabit city community today. Panelists will provide insight into open access models and the treatment of passive broadband infrastructure as a mechanism to encourage competition on the local level, and spur economic investment and development.  This includes successful public-private partnership structures, various models of open access including structural separation and the results of early Open Access network developments in North America. Does Open Access ultimately deliver a vibrant, competitive marketplace for broadband access?

The full agenda, still being refined, is available online. You can also register online; the event will be held at the Westin Peachtree. Use the discount code "ILSR" and you will not have to pay the conference registration fee if you are attending as a normal attendee. Vendors will get a discount from the registration.

Light Reading, which is running the event, has secured a special rate for rooms at the Westin. Hurry though! Those rooms are nearly filled and the discount will expire very soon. 

Gilberts Voters Say No to Tax Increase for Muni

On April 7th, voters in Glberts, Illinois, chose not to raise taxes to deploy a municipal fiber network, reports the Daily Herald. According to the article, 81 percent of ballots cast voted against the proposal. Voter turnout was low, with only 682 ballots cast out of 4,002 registered voters in town.

As we reported last month, local developer Troy Mertz plans to deploy fiber to each structure in a new housing development, The Conservancy. His fiber company will also install fiber to nearby municipal and public safety buildings and the Gilberts Elementary School. The plan was to issue General Obligation (GO) bonds to finance a publicly owned network throughout the rest of the community. The proposal would have raised taxes approximately 1.8 percent or $150 per year on properties with a market value of $250,000.

For the developer the plan will remain the same:

Mertz still plans to go ahead and connect The Conservancy's planned fiber optic network to municipal and public safety buildings plus Gilberts Elementary School, saying it was built into his development plans.

"The goal of village was always to getting fiber to our industrial areas," said Gilberts Village President Rick Zirk. "As a community, we asked the rest of the village, 'Do you want the same service and the same options that the new part of town and the industrial park?' And it seems that they don't want to pay for it."

There is a definite lesson here for any other communities considering a similar plan - educate the voters and make sure they are excited about it! From what we can tell, there was little effort to make people aware of the plan and the turnout for the vote suggests that no one was particularly excited to make it happen.