Tag Archives: community networks

Be glad the FCC lost its muni broadband bulldozer

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Municipal broadband dodged a bullet when a U.S. appeals court ruled that the Federal Communications Commission can’t tell states that they have to allow cities to build networks and offer service. It seemed like a good idea to many muni advocates at the time (although not me, I’ll immodestly point out) because of all the warm and fuzzy love that the Obama administration was bestowing on the concept.

Had that preemption withstood court challenges, muni broadband would be at the mercy of the current FCC majority, which includes Michael O’Rielly, who recently offered his thoughts to a group of state legislators. After warming up with some rants about socialism and the collapse of the Venezuelan economy, he riffed on muni broadband systems…

What I am unwilling to do and will never support is allowing government-sponsored networks to use their unfair advantages to offer broadband services. Doing so would be the quickest way to destroy the private broadband market and reassure creation of a market monopoly position by these networks. In addition, in instances where they have been attempted, the success rate is highly suspect. Clearly, building and operating a broadband network is the opposite of easy.

The fact that some states in our nation have enacted protections prior to allowing localities to pursue government-sponsored networks should be celebrated, not criticized or attacked. Upon close examination, the protections are, in fact, quite reasonable. They tend to include requirements that potential networks conduct a right-of-first refusal process to see if the private sector is capable and interested in offering service, perform referendums of the local people to determine whether there is a desire to put taxpayer monies at risk, limit the use of cross-subsidies and government advantages to rights-of-way, and present business plans before becoming operational. Far from being radical, these are common sense requirements.

Fortunately, the FCC’s abortive preemption of muni broadband ended up reaffirming state authority over what cities and counties do, including whether or not they can build and operate networks. The flip side of the argument – that maybe the FCC has the power to ban, rather than require, muni broadband – hasn’t been tested. So don’t rest easy. But be glad the courts didn’t agree that the FCC has unmistakably clear authority over what cities can and can’t do with broadband.

Better data would support better muni broadband decisions

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Not suprisingly, the municipal fiber to the home analysis done by the University of Pennsylvania’s Center for Innovation, Technology and Competition, comes to the conclusion that the more successful systems (or, from the study’s glass half empty perspective, the ones that are failing less badly than the others) keep revenue high and costs low. Operating efficiency – the ratio of operating costs to revenue – and revenue per household had a greater impact on near term positive cash flow and long term capital payback than the per household construction costs…

The fact that these regressions yielded statistically significant results based on only 19 or 20 observations is remarkable. These results suggest that the manner in which a municipal fiber project is operated, both in terms or generating revenue and minimizing operating cost, play a more critical role in the success of a municipal fiber project than the upfront capital costs.

One note of caution: although expense versus income and per household construction costs are commonly used measures for evaluating subscription-based business models, such as FTTH, using revenue per total households passed conflates take rate/market share and average revenue per subscriber, two separate and individually important metrics.

The reason for this relatively vague approach is the general lack of transparency on the part of muni FTTH systems. Of the 88 systems identified by the authors, only 20 broke out FTTH results from overall utility financial statements – overwhelmingly, it’s muni electric utilities that are in the business of being Internet service providers. Publicly traded telecoms companies, by contrast, report results using standard benchmarks that allows the public to make apples to apples comparisons and make informed decisions about which ones to invest in. Taxpayers deserve to have the same level of data when they’re called upon to decide whether or not to build a muni FTTH systems in the first place, and subsidise it on an ongoing basis.

Muni FTTH study estimates the cost of local subsidies

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Municipal fiber to the home systems are not money makers, according to a study done by the University of Pennsylvania’s Center for Innovation, Technology and Competition. It started by identifying 88 muni systems in the U.S., and then dove into a top-line financial analysis of the 20 that publish separate separate operating statements – the rest consolidate their FTTH reporting with the results from their muni electric utilities.

According to the authors, less than half are showing positive cash flow and most of the rest aren’t making enough to pay back basic construction costs…

The data contained in this study are sobering. Municipal fiber is not an option for the 86 percent of the country that is not served by a municipal power utility. Of the 20 municipal fiber projects that reported the results of their municipal fiber operations separately, eleven generated negative cash flow. Unless operations improve substantially, these projects cannot continue to operate over the long haul, let alone cover the capital costs needed to establish operations. Of the others, five are projected to take more than 100 years to recover their costs, and two others are projected to take over 60 years. Only two are on track to break even, and one of those is based on a highly urban, business-oriented model that few other cities are likely to be able to replicate, and the other includes data from two years of stronger performance when it offered only DSL service.

The study does a reasonable job of looking at the available data, albeit from the limited perspective of five years of results. The real problem is the lack of detailed financial reporting by muni FTTH systems. Although operating efficiency is identified as an important factor in whether or not the systems with positive cash flow, there’s no easy way to gauge success on the traditional metrics for subscriber-based businesses, such as market share, churn rate, subscriber growth and average revenue per customer. Given the public sector’s typically long term view and investment time frames measured in decades, it would be helpful to be able to get some idea of what operating results might look like another five, ten or more years in the future. The CTIC study takes a snapshot based on five particular years – 2010 through 2014 – which is fine as far as it goes, but it really doesn’t go far enough.

State and federal subsidies were excluded from the analyses, except for a couple of side calculations. The operating losses, in some cases, and the lack of ability to fully repay initial capital costs are, in effect, the local subsidy. The fact that local taxpayers (or utility ratepayers, where the distinction is meaningful) have to support muni FTTH doesn’t necessarily mean those systems are failures. The answer to that questions depends on how long those subsidies will last and whether the local electorate considers them to be acceptable and appropriate, assuming that they were able to make an informed choice, directly or indirectly.

Google lights up muni broadband model in Huntsville

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Three takeaways from Google Fiber’s announcement that it’s now an active tenant on the Huntsville, Alabama municipal fiber network:

  • The customer owns the marketing buzz. Huntsville put up the capital, Google buys access to end users and gets the headlines.
  • Google continues to pull back from the capital intensive business of owning and operating infrastructure.
  • Competition matters.

Google Fiber’s blog post belongs to the happy, happy, joy, joy school of public relations, but also makes it clear that it’s no longer interested in sinking its own capital into broadband infrastructure…

As an enterprising city, Huntsville explored new ways to connect residents and small businesses and is building a municipal fiber network through Huntsville Utilities. Google Fiber is the city’s first tenant and will lease part of the network with a non-exclusive arrangement, which allows other providers to lease fiber from the city as well…

Leasing the infrastructure in Huntsville rather than building from scratch allows us to bring Google Fiber to even more people, and even faster.

The kicker, though, is that Comcast isn’t even pretending to be above the fray. According to a story by Lee Roop on Al.com, Comcast is responding to the competitive threat…

Google Fiber is causing competition. Comcast issued a statement Monday about its own service in Huntsville. “Comcast offers the fastest speeds to the most homes and businesses in Huntsville,” the company said. “Our 10-gigabit fiber network supports Huntsville’s growing business community, and our recently announced 1-gigabit service provides the fastest residential speeds in the marketplace. We’re proud to be a long-time community partner in Huntsville and in all of the markets we serve across Alabama.”

The big question is whether the lease payments from Google will, over time, be enough to keep the Huntsville broadband enterprise in the black. As a muni electric utility, it has a tremendous amount of sunk infrastructure costs it can lean on. But as Provo, Utah and Alameda, California – to name two other muni electric utility examples – winning broadband subscribers and repaying even just the marginal investment isn’t a sure thing.

Competition matters.

Gonzales, California putting broadband into every home, business

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Basic broadband in every home and fast fiber for every business: that’s the goal endorsed on Monday by Gonzales city council members. The plan, as presented by staff, is to issue two requests for proposals.

The residential RFP is ambitious. There are 1,800 homes in Gonzales, which is located in California’s Salinas Valley. The city wants to provide a basic, lifeline-level of service to each one. As the report presented to the council explains

Staff has been exploring the possibility of entering into a bulk services agreement with a qualified Internet service provider (ISP) to deliver a basic level of Internet access to every home in Gonzales. Although this is a novel approach for a City to take, it is a common method of contracting for service in private communities. There are significant differences between the legal, regulatory and market conditions in cities and private communities, but staff has concluded that distributing a Request for Proposals to qualified ISPs, will clarify those issues and should produce legitimate options that can be implemented.

The second RFP would focus on building out fiber infrastructure in the commercial and industrial areas of the city. A recently completed middle mile project, built and owned by Sunesys/Crown Castle and largely paid for by a grant from the California Advanced Services Fund, runs the length of Gonzales, connecting to a Level 3 facility in Soledad to the south and to several long haul routes in Salinas, Watsonville and Santa Cruz to the north. The city is already in the process of building its own connection to this middle mile fiber, which will be one of the assets on the table when the RFPs are issued.

AT&T is the only company currently offering broadband service on a citywide basis, and it reaches most, but not all, homes and businesses. Download speeds range from 3 Mbps to 18 Mbps. The California Public Utilities Commission ordered Charter Communications to begin providing full triple play service to all residential areas by May 2018. That’s the result of a settlement reached between Gonzales and Charter, during the regulatory review of its purchase of Time Warner and Bright House cable systems last year. Commercial and industrial areas aren’t included in the agreement, though.

Naturally, both AT&T and Charter will be invited to submit proposals, along with any other interested ISPs. The two RFPs and more details regarding the financial and technical aspects of the plan are expected to be released later this summer.

City of Gonzales Broadband Infrastructure Strategy Update, 15 May 2017

I’m assisting the City of Gonzales with its broadband initiative and helped with its negotiations with Charter. I am not a disinterested commentator. Take it for what it’s worth.

FCC’s muni broadband distraction shudders to a final stop

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It’s officially over: the Federal Communications Commission does not have the authority to preempt state authority over municipal broadband systems, even when it thinks the way in which that authority is wielded constitutions a barrier to infrastructure investment. The federal appeals court in Cincinnati made that decision in August, in a case brought against the FCC by Tennessee and North Carolina, and issued the final order yesterday. It was a formality that brings the case to an end. It means that no one on the losing side – principally, the FCC and the cities of Chattanooga, Tennessee and Wilson, North Carolina – challenged the decision, either by asking the appeals court to reconsider or by taking it to the supreme court.

It was apparent after the decision came down that there was little appetite for further litigation. FCC chair Tom Wheeler issued a statement that said, in effect, I wanted to make a point and I made it, and I’ll be happy to go on TV and make the point again. The City of Wilson’s response was to cut off fiber to the premise service in Pinetops, a small, neighboring community. North Carolina law prevents Wilson from offering broadband service outside of its city limits but it went ahead anyway with extending its system after the FCC’s preemption in 2015, without waiting for the appeals court’s decision.

Some on the losing side argue that the fight, first at the FCC and then in the appeals court, lays a legal foundation for future efforts and, therefor, was worthwhile. I disagree. Two years of praying for a federal deus ex machina could have been better spent on state level activism. If, say, Chattanooga had directed those resources toward changing Tennessee law, it might have turned a narrow loss at the state capitol earlier this year into a win. Instead, AT&T’s “platoon of lobbyists” carried the day. Grandstanding at the FCC grabs headlines and pads resumes, but it’s hard and anonymous work in the statehouse trenches that wins legislative battles.

Federal reserve urges banks to invest in broadband

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Banks should be in the business of increasing Internet access and use in their communities, according to the Dallas branch of the federal reserve bank. Its white paper, Closing the Digital Divide, is a broadband primer for local bankers and those who would like to work with them. It details how broadband development initiatives can help banks meet obligations for local investment imposed by the federal Community Reinvestment Act.

The white paper makes three useful points. First, any effort to increase broadband use has to start with infrastructure…

In communities with limited broadband infrastructure or no broadband infrastructure, investment in computer access or skills training will not be effective until investment in broadband infrastructure is developed. This is because owning a computer and knowing how to use it effectively are not relevant unless there is a sufficient connection to the internet.

Second, people need incentives to start using broadband in their daily lives, and online banking, particularly for those who have little or no access to financial services now, can be a powerful draw. Giving people computers and having them sit through a class on how to find a website are of little use without an underlying reason to do so.

Finally, the study correctly calls out middle mile infrastructure as a critical piece of the puzzle, and a worthy target for bank-grade loans or other investment. It’s the critical first step in any local broadband infrastructure development effort. Without it, investments in last mile access projects will never reach their potential, if they even survive at all.

The white paper’s major failing is that it gives banks an easy out. Despite the priority it puts on infrastructure investment, it also includes extensive boilerplate language about vague digital outreach programs that banks can slather onto the regulatory compliance reports they’re required to file, instead of getting involved in meaningful projects. Nevertheless, if there’s interest in broadband infrastructure investments, the federal reserve bank’s study is a good starting point.

Closing the Digital Divide: A Framework for Meeting CRA Obligations

Cooperative broadband is rare, but successful in California

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Rural utility cooperatives have gotten a lot of good ink recently, as a possible alternative to investor-owned broadband companies. Although it’s a business model that’s far more common in the U.S. midwest and south, it’s been successful in California too. At least as far it goes – there are only three rural utility co-ops here.

Anza Electric co-op in Riverside County is in the process of building a fiber to the home system using a grant from the California Advanced Services Fund. By FTTH standards, it’s an inexpensive build – about $1,200 per household, total – primarily due to the fact that Anza already owns the necessary poles and conduit.

Plumas-Sierra Electric co-op has subsidiary that’s a wireless Internet service provider serving parts of Plumas and Sierra counties, and a bit of Lassen County. It’s tried for CASF in the past, too, although it ultimately withdrew its application. The third rural California co-op – Surprise Valley in Modoc County – isn’t in the broadband business, but two of three isn’t bad.

Rural utility co-ops are creatures of the federal agriculture department’s Rural Utilities Service (RUS). It’s one of three basic utility business models, the other two being investor owned utilities, like PG&E, and municipal utilities.

The investor owned variety predominates here, but where there are exceptions, California tends toward muni electric utilities – either cities, like Palo Alto or Santa Clara, or special districts, like the Sacramento Municipal Utilities District. Californian muni electric utilities have been largely successful when they’ve dipped a toe in the broadband business, particularly as dark fiber providers, although there is one big exception – Alameda had to sell its cable system at a loss.

Elsewhere in the U.S., there are rural utility co-ops that are in the telephone business. In California, small rural phone companies fill that niche in the eco-system.

The co-op business model has also been used for middle mile projects. Digital 395 is owned by the California Broadband Cooperative and was funded by an ARRA stimulus grant, and there’s another – the Mid-Atlantic Broadband Cooperative – in Virginia, funded by tobacco settlement money. However, those are not the traditional, federal agriculture department sponsored utility co-ops.

The cooperative business model is very effective, when it suits local circumstances. The RUS-backed version, though, isn’t a viable way of creating a competitive service – if there’s an incumbent provider, that option is off the table for all practical purposes.

FCC preemption loss is muni broadband win

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One more vote, and you’re mine.

Waving the magic federal wand and erasing state restrictions on muni broadband seems like a wonderful idea, until the wand waves the other way and muni broadband disappears. That’s why last week’s federal appeals court decision overturning the FCC’s preemption of Tennessee and North Carolina laws limiting muni broadband systems was welcome news.

The current Federal Communications Commission majority tried to preempt the state restrictions during a burst of presidential community broadband populism a year and a half ago. But majorities and popular enthusiasm shift with the political winds. It’s not hard to imagine another president and a different majority lining up with current FCC commissioner Michael O’Rielly, who wrapped up his endorsement of the court’s decision by saying

Contrary to some beliefs, municipal networks are not panaceas to solving any lack of ubiquitous broadband, but instead unfairly distort the marketplace.

It’s no great intellectual leap to reckon a distorted marketplace to be the kind of barrier to infrastructure investment that the FCC is obligated to remove, under the interpretation of federal telecoms law that the appeals court judges rejected last week. Fortunately rejected.

Most states allow cities to operate muni broadband systems with few or no restrictions. Even Tennessee and North Carolina allow it – the beef was about cities offering broadband service beyond their borders.

The restrictions that do exist should go, but the right way to eliminate them is to take the muni broadband battle to state capitols. Telephone and cable company lobbyists are as thick on the ground in Sacramento and Nashville as they are in Washington D.C., but it’s harder for them to hide, and harder for legislators to ignore constituents. Not impossible, but difficult enough to make the fight for community broadband winnable more often than not.

In the long run, last week’s verdict will be a victory.

FCC’s muni preemption attempt looks gone for good

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Wednesday’s appeals court decision that tossed out the Federal Communications Commission’s preemption of state limits on municipal broadband is looking more and more like the final word.

The reaction of those on the losing side of the judge’s decision – the FCC and the cities of Chattanooga, Tennessee and Wilson, North Carolina – can be summed up as disappointed resignation. Lots of sorrow but no fighting words, as in they got it wrong and we’re gonna take it all the way to the supreme court. FCC chairman Tom Wheeler’s press release was typical…

In the end, I believe the Commission’s decision to champion municipal efforts highlighted the benefits of competition and the need of communities to take their broadband futures in their own hands…

Should states seek to repeal their anti-competitive broadband statutes, I will be happy to testify on behalf of better broadband and consumer choice. Should states seek to limit the right of people to act for better broadband, I will be happy to testify on behalf of consumer choice.

Translation: we were out to make a point and we made it, and I’ll be happy to go on TV and make the point again.

I think the FCC will walk away from this one, for two reasons. First, the legal rationale for its attempt at preemption was far fetched – even the federal attorney general wasn’t interested in defending it.

Second, the preemption relied on an expansive interpretation of a particular clause in federal telecoms law – section 706 – that the FCC is also relying on to support its marquee decision to regulate broadband as a common carrier service. The FCC won the first round of appeals against that decision, because it’s standing on much firmer legal ground. Throwing the muni preemption case into the mix – which otherwise isn’t on any legal ground at all – would only weaken its position in the main event.