For the second week in row, our staff has felt compelled to address a misleading report about municipal networks. In order to correct the errors and incorrect assumptions in yet another anti-muni publication, we’ve worked with Next Century Cities to publish Correcting Community Fiber Fallacies: Yoo Discredits U Penn, Not Municipal Networks.

Skewed Data = Skewed Results

Professor Christopher S. Yoo and Timothy Pfenninger from the Center for Technology, Innovation and Competition (CTIC) at the University of Pennsylvania Law School recently released "Municipal Fiber in the United States: An Empirical Assessment of Financial Performance." The report attempts to analyze the financial future of several citywide Fiber-to-the-Home (FTTH) municipal networks in the U.S. by applying a Net Present Value (NPV) calculation approach. They applied their method to some well-known networks, including Chattanooga's EPB Fiber Optics; Greenlight in Wilson, North Carolina; and Lafayette, Louisiana's LUS Fiber. Unfortunately, their initial data was flawed and incomplete, which yielded a report fraught with credibility issues.

So Many Problems 

In addition to compromising data validity, the authors of the study didn’t consider the wider context of municipal networks, which goes beyond the purpose of NPV, which is determining the promise of a financial investment.

Some of the more expansive problems with this report (from our Executive Summary):

S&P Global Market Intelligence - May 26, 2017

Hard Data on Municipal Broadband Networks

Written by Sarah Barry James

There is a dearth of good data around municipal broadband networks, and the data that is available raises some tough questions.

A new study from University of Pennsylvania Law School Professor Christopher Yoo and co-author Timothy Pfenninger, a law student, identified 88 municipal fiber projects across the country, 20 of which report the financial results of their broadband operations separately from the results of their electric power operations. Municipal broadband networks are owned and operated by localities, often in connection with the local utility.

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Yet Christopher Mitchell, director of the Community Broadband Networks Initiative at the Institute for Local Self-Reliance, argued that Yoo's study did not present an entirely accurate or up-to-date picture of U.S. municipal networks.

"When I looked at the 20 communities that he studied — and his methodology for picking those is totally reasonable and he did not cherry pick them — I was not surprised at his results because many of those networks are either in very small communities … and the others were often in the early years of a buildout during a period of deep recession," Mitchell said.

As an example, Mitchell pointed to Electric Power Board's municipal broadband network in Chattanooga, Tenn. — one of the five networks Yoo identified as having positive cash flow but at such a low level that it would take more than 100 years to recover project costs.

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In fact, without the revenue generated by the fiber-optics business, EPB estimated it would have had to raise electric rates by 7% this year.

According to Mitchell, Yoo's study captured the Chattanooga network when it was still "small and growing," but misses "what's going to happen for the rest of the life of the network, which I think is the more important part."

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Telecompetitor - May 25, 2017

Municipal broadband networks do not have a strong financial track record, according to an analysis conducted by the University of Pennsylvania’s Center for Technology, Innovation and Competition. The municipal broadband financial analysis, which looked at 20 municipal fiber projects, found that only nine were cash-flow positive and that of those, seven would need more than 60 years to break even.

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An Opposing View

Municipal network advocate Christopher Mitchell, director of the Community Broadband Networks Initiative at the Institute for Local Self-Reliance, pointed to several flaws in the Penn Law municipal broadband financial analysis.

He noted, for example that a substantial portion of the 20 networks studied were “early in the process and very small.” He also argued that the 2010-2014 study period may have biased the results, as that period included a recession and subscribership for some of the networks has increased substantially since 2014. He noted, for example, that EPB’s broadband network in Chattanooga had about 50,000 to 55,000 subscribers in 2014 but has now hit the 90,000 mark.

The Penn Law authors’ approach was “not the proper way to measure these networks,” said Mitchell in a phone call with Telecompetitor. The analysis “doesn’t take into account jobs created or the impact on the municipal budget,” he said.

He argued, for example, that a municipality that previously paid $1 million annually for connectivity might instead pay itself $500,000 for connectivity on the municipal network.

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Read the full story here.

Indianola Municipal Utilities (IMU) in Iowa finalized its business plan for citywide Fiber-to-the-Home (FTTH) service earlier this month. The decision marks a shift in how residents receive services in the community; IMU will take over from current partner Mahaska Communications Group (MCG) and expand to offer triple-play citywide.

Up To Now

Indianola created its municipally owned broadband utility back in 1997 and invested in fiber-optic backbone infrastructure a year later. They used the investment to backhaul fixed wireless service beginning in 2002 and by 2006 had developed a partnership with MCG. Expanding fiber to residents didn’t start until 2010 and two years later, MCG began offering triple-play services within certain areas of the city. Last year, the community commissioned a feasibility study to examine the possibility of using existing fiber resources to all premises in Indianola.

Under the current agreement between IMU and MCG, wholesale rates for residential connections are $30 per month and $100 per month for commercial connections. The feasibility study determined that the current rates “did not support expansion” to the entire Indianola community.

Trustees Say OK

Under the business plan approved by the Trustees at the May 8th meeting, IMU will step into MCG’s shoes and will buy out MCG’s existing 596 customers. IMU will be the FTTH retail services provider, offering triple-play of Internet access, VoIP, and IPTV. The network will work with Cedar Falls Utilities (CFU) on video services, connecting at the Des Moines regional data facility in order to reach them. IMU will have the opportunity to tap into about 7,350 potential residents and businesses in addition to MCG’s current customers.

The plan for expansion divides the city into 26 service areas but subscribers need to sign up early in order for the utility to connect their home. People who participate in early sign up will all have services activated at the same time. IMU has proposed rates for different services including:

I have been a Google Fiber supporter, believing that Google's investments and policy goals would move the United States forward, away from the monopolies of entrenched incumbents. When others claimed that Google was abandoning fiber, I argued that Google had not yet decided... it was arguing internally about the right path. 

But now I think it is pretty clear that Google is done with significant fiber investment, particularly for single family residential homes. I have strong doubts that Google will continue with the Huntsville-type approaches of leasing dark fiber, but I hope that will continue.

Google's decision to pursue other, likely more lucrative investments like AI and autonomous driving may be more profitable, but it is certainly disappointing for those of us working to ensure everyone has high quality Internet access.

It is important to note that companies like US Internet, Ting, and Sonic, among others have establishing strong businesses competing against the biggest telephone and cable companies. Google's exit is not evidence that ISPs cannot do well. It is evidence that Google has other opportunities and that its large scale focus on building its own fiber had too slow of a return for its Silicon Valley expectations.

This brings me to something I wrote 5 years ago, not actually expecting that Google would give up after only 5 years. 

If I were moving south of Minnesota in the near future, it would be to Chattanooga or Lafayette, not Kansas City. Who knows what Google will be doing in 5 years? We know exactly what EPB and LUS will be doing.

Wow. I think Kansas City is definitely better off for having worked with Google to enable that network. But there is no doubt in my mind that local investments are a better bet than hoping some distant company will save your community. I think this article understates Google's impact in KC significantly, but we are once again reminded that there is much more to benefiting from a network than simply laying fiber.

Last spring, the BT Advisory Board (BTAB) released a report that recommended the city of Burlington, Vermont, try to find a buyer with local ties to purchase its network with the troubled past. As the deadline draws near and the city seeks out the right entity to take the reigns, the community holds on to that goal. Keep BT Local!, the local organization that has been working since 2012 to turn the network into a cooperative, has announced that it will make an offer on the network.

According to Seven Days:

Alan Matson, vice chair of Keep BT Local, said the local co-op will put forward an offer for the utility. The member-funded effort likely won’t put forward as substantial an offer as a private tech company would, Matson acknowledged. Still, he said, “We hope to be one of the finalists in July.”

Matt Cropp, a member of Keep BT Local, said the co-op model would “build broad-based community wealth” and urged Burlingtonians to pitch in. He said he was willing to commit a portion of his retirement savings to the cause. 

Matson and Cropp were among a group of citizens who attended a public meeting with Advisory Board members to discuss options and offer advice on choosing a buyer. As expected, many of the attendees described the network as a valuable public asset and expressed concern that it not fall into the hands of a large, absentee telecommunications conglomerate such as Comcast. 

Choosing Finalists

This is the transcript for episode 230 of the Community Broadband Bits Podcast. Harold DePriest of Chattanooga, Tennessee, describes his role in building the fiber network in the city. This is an in-depth interview of over an hour in length. Listen to this episode here.

Harold DePriest: This fiber system will help our community have the kind of jobs that will let our children and grand children stay here and work if they want to. That is the biggest thing that has happened.

Lisa Gonzalez: This is episode 230 of the community broadband bits podcast from the Institute for Local Self-Reliance. I'm Lisa Gonzalez. Chattanooga, Tennessee has been profiled in dozens of media outlets. It's a community reborn from one of the dirtiest cities in America, to what is now an economic development powerhouse. The city's publicly owned fiber optic network provides high quality connectivity that attracts businesses and entrepreneurs, but getting to where they are today did not happen overnight. In this episode, Chris has an in depth conversation with Harold DePriest, one of the men behind bringing fiber optics to Chattanooga. He's retired now, but as president and CEO of the electric power board, he was involved from the beginning. Harold describes how the electric power board made changes both inside and out, and went from being just another electric utility, to one that's considered one of the best in customer service in the country. The interview is longer than our typical podcast, but we think it's worth is. Now here are Chris and Harold DePriest, former CEO and president of the electric power board in Chattanooga, Tennessee.

Christopher Mitchell: Welcome to a community broadband bits discussion. A long form discussion, a little bit different from what we normally do, with someone that I have a tremendous amount of respect for, Harold DePriest. Welcome to the show.

Harold DePriest: Thank you. It's good to be with you Chris.