Tag Archives: muni 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.

Muni ISPs are as common a carrier as any other

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Buried within a half million comments about common carrier regulation of broadband service, in the midst of a system crash brought about, or not, by a John Oliver rant, is a letter from 19 municipal (to one degree or another) Internet service providers supporting the Federal Communications Commission’s current effort to roll those rules back.

In what must have been an epic, nay, herculean, speed reading session, FCC chair Ajit Pai came across those comments and felt compelled to issue a press release trumpeting the blindingly obvious conclusion that, hey, these guys agree with me so they must be pretty smart. I hope he lets his sidekick, Michael “what I am unwilling to do and will never support is allowing government-sponsored networks” O’Rielly, in on his eureka moment.

The muni ISPs make a couple of points in their letter: imposed service standards are a burden for small providers and munis don’t really need regulation since they’re directly answerable to elected officials.

Our customers have choices and can opt for another provider if we degrade their Internet experience. Moreover, because we are effectively owned by our customers and responsive to them politically, we make sure their interests are the primary drivers of our businesses. We always provide our customers with unfettered access to legal content on the Internet. We never block, throttle, or impair our customers’ traffic nor engage in paid prioritization. We have always said we would adhere to any such principles adopted by the Commission, as we have been doing since the Commission first articulated its Internet Policy principles in 2005. Yet, the Commission ignored the evidence, and imposed the straight-jacket of utility regulation, subjecting us to the constant threat that the Commission or some other party may bring an enforcement action based on the “unknown and unknowable” general conduct standard.

There is truth in their arguments. But there’s also a generous helping of disingenuousness. For example, several of the ISPs are affiliated with muni electric utilities. Being small or governed by a city council does not exempt electric utilities from Federal Energy Regulatory Commission standards or from complying with California Public Utilities Commission safety rules regarding jointly owned utility poles. And they know it.

Munis properly have latitude that privately owned utilities do not enjoy. City councils are rightly reckoned to be at least as good as the CPUC at setting electric rates and protecting consumer interests. But it isn’t a total exemption from oversight. Nor is simply being small. The federal and state rules for small rural telcos are different than those for AT&T and Frontier, but there are rules they must follow nevertheless.

Common carriers and other public utilities are subject to a complicated web of federal, state and local regulation. Dealing with it is just part of the job.

Broadband, conduit bills left stranded in Washington, D.C.

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The 114th congress ended with a stack of unfinished broadband business. The most consequential might be the failure to confirm Jessica Rosenworcel for a new term on the Federal Communications Commission, but buried in the wreckage of more than a dozen broadband-related bills are hints of what to expect from the new congress and the new administration next year.

The one major bill with a chance to pass muster with lawmakers as well as the white house was the Mobile Now act. There was bipartisan support for its primary objective of transferring more spectrum from government departments to mobile and other wireless broadband uses. But the same political arm wrestling that fatally stalled Rosenworcel’s nomination also stalled the Mobile Now bill and it died on the U.S. senate floor.

Bills that would have kneecapped the FCC’s regulation of broadband as a common carrier service and widened the loopholes in ISP transparency rules – HR 2666 and HR 4596 respectively – also withered away from neglect in the senate. Dig once bills, that would have promoted conduit installation in federal highway projects, also proved unpopular with parallel house and senate bills dying without a vote. The Mobile Now act also had such language at once point, but it didn’t survive the trip through the committee process.

Duelling municipal broadband measures fought to a standstill. Two bills that would have restricted state governments’ power to ban muni broadband, including HR 6013 by Silicon Valley representative Anna Eshoo, and two bills that would have baked that authority into federal law never even got to a vote in their first committee stop, let alone to a full floor vote.

No one is talking publicly about reintroducing any of these bills next year, but if you’re trying to handicap the early odds, party affiliation is the best clue as to what to expect. The bills that would have peeled back FCC broadband regulations and affirmed the right of states to regulate what cities do came from republicans, while those that would have given cities more independence and opened up competitive opportunities by putting conduit into road projects were authored by democrats. Even if the former had been passed by congress, a presidential veto was certain. And the latter never stood a chance.

Next year, though, republicans will control both branches and the FCC. Odds of a pruning – if not a wholesale weed-whacking – of federal broadband rules are high. Bills with bipartisan support, such as Mobile Now, are also good candidates for enactment. On the other hand, don’t expect much in the way of dig once legislation or federal preemption of state laws restricting muni broadband.

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.

Bill introduced in congress would ban state limits on local broadband service

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With two weeks to go before the U.S. congress takes a pre-election break, progress on broadband-related bills appears to be as bogged down as it was in the California legislature’s recently concluded session. That’s not stopping Silicon Valley representative Anna Eshoo from throwing another community broadband bill into the hopper, though.

House resolution 6013 would, in effect, overturn a federal appeals court ruling that said the Federal Communications Commission can’t preempt a state’s ability to restrict municipal broadband projects. The judges decided that congress never gave the FCC unmistakably clear authority to override a state’s traditional power over local – subsidiary – governments. So Eshoo’s draft bill attempts to be unmistakably clear

No State statute, regulation, or other State legal requirement may prohibit or have the effect of prohibiting any public provider from providing, to any person or any public or private entity, advanced telecommunications capability or any service that utilizes the advanced telecommunications capability provided by such provider.

As I read it, though, the bill runs into a problem when it defines “public provider” as

A State or political subdivision thereof, any agency, authority, or instrumentality of a State or political subdivision thereof, or an Indian tribe…that provides advanced telecommunications capability, or any service that utilizes such advanced telecommunications capability, to any person or public or private entity.

That’s very broad language, and will either kill the bill completely or be severely trimmed back. It’s one thing to say that a state can’t keep a municipal broadband utility from serving another, nearby city. It’s quite another to say, for example, that the coastal commission’s IT department can build a fiber to the home system on its own whim.

The bill isn’t destined to make it into law. It’s a policy statement by Eshoo, who is up for reelection in November, as was her earlier bill to impose dig once obligations on federal highway projects. That bill is in deep freeze now, but it succeeded in crafting language that found its way into other proposed laws. Congress hasn’t passed any of those bills yet, but there’s still ample time left on the clock.

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.

FCC can’t preempt state limits on muni broadband, appeals court rules

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Park the bulldozer.

Congress did not give the Federal Communications Commission the authority to override state government-imposed limits on expansion by municipal broadband systems. That’s the simple and – as far as it goes – unanimous opinion of three federal appeals court judges who overturned the FCC’s preemption of muni broadband restrictions in Tennessee and North Carolina.

In general, a state has complete authority to determine what cities and counties can do, within the limits of the law. Local governments “are nothing more than that state’s ‘convenient agencies,'” as this morning’s decision put it. If a federal regulatory agency, like the Federal Communications Commission, wants to interfere in that relationship, it needs a “clear statement” from congress giving it that power.

As they clearly signalled they might during oral arguments in March, the judges ruled that the FCC wasn’t exercising its regulatory powers when it threw out Tennessee’s and North Carolina’s restrictions on muni broadband system expansion. Neither the states nor Chattanooga and Wilson – the two cities involved – are required by federal law to extend broadband service beyond their boundaries. As with private broadband companies, the choice to expand or not is left up to the provider. The question was, as one judge put it, who decides?

Federal courts have said over and over: states can decide or can pass the decision along to local governments. When congress has the authority to override those decisions and it wants to delegate that power to federal agencies, it has to make its intent unmistakably clear.

The FCC claimed that a general statement in the 1996 telecommunications act – the much invoked section 706 – instructing it to “remove barriers to infrastructure investment” gave it the specific authority to preempt the state-level restrictions that Tennessee and North Carolina place on municipal broadband. The judges said made their own clear statement and said that’s wrong…

This preemption by the FCC of the allocation of power between a state and its subdivisions requires at least a clear statement in the authorizing federal legislation. The FCC relies upon [section] 706 of the Telecommunications Act of 1996 for the authority to preempt in this case, but that statute falls far short of such a clear statement. The preemption order must accordingly be reversed.

One judge disagreed with one of the conclusions in the opinion, regarding North Carolina’s muni broadband rate regulations, but her dissent re-affirmed the final ruling: the FCC doesn’t have the authority to preempt otherwise legal state decisions regarding municipal broadband.

During oral arguments, the FCC hinted that it might appeal an unfavorable result to the supreme court. It can also ask the appeals court to reconsider today’s decision. But the FCC would be on its own – it doesn’t even have the support of the U.S. attorney general’s office.

As it stands right now, state restrictions are on muni broadband systems are back in effect in Tennessee and North Carolina. There is little chance that further appeals will change that fact.

Federal appeals court opinion reversing FCC municipal broadband preemption