Tag Archives: muni broadband

New Benicia broadband RFP comes with money on the table

The City of Benicia is taking another try at priming the pump for upgraded industrial and commercial class broadband infrastructure and service. A request for proposals was posted this week, backed by up to $750,000 of city money. The objectives include…

  • Specific service proposals for the Benicia Industrial Park and the adjacent Arsenal area, which, among other things, is being developed as a home for high tech start-ups.
  • Generally, improving availability of high quality managed services and unbundled network elements, such as dark fiber, throughout the City.
  • Options for meeting the connectivity needs of the City’s internal IT network.
  • Free public WiFi access, particularly in commercial and industrial areas.
  • A more competitive market for broadband service in Benicia.

The City isn’t necessarily looking for a single provider that can achieve all of its objectives and is leaving the door open to working with two or more companies, if that seems to be the better course. The RFP is designed to encourage responses from as many qualified companies as possible – a maximum length of 10 pages is specified for the proposal, not counting any back-up material that might be included in an appendix, although additional information may be requested during the evaluation process.

There’s no particular business or partnership model specified, although the City took care to highlight, in bold letters, that “its preference is for a model that minimizes the City’s ongoing role in the project while ensuring that sufficient public benefits are generated by its investment, including, particularly, achievement of its economic development goals“.

An earlier RFP, issued in 2013, was focused on just the Benicia Industrial Park and Arsenal area. More information about it, including the research reports that backed it up, can be found here. The 2013 RFP resulted in an agreement with Lit San Leandro to build a network, but changes at the company took it in a different direction and a contract was never executed.

The deadline for proposals is 22 September 2017, with any written questions due by 8 September 2017.

Download:

Request for Proposal, Benicia Industrial and Commercial Broadband Project, 21 August 2017

Full disclosure: I’m a consultant to the City of Benicia and assisted with preparation of the RFP. I’m not a neutral commentator; take it for what it’s worth.

Rural Michigan voters approve higher taxes for faster broadband

Voters in a Michigan town overwhelmingly approved adding about $22 a month to their tax bills, in order to pay for the construction costs of a municipal fiber to the home system. Lyndon Township is in a rural area of southern Michigan, where broadband service is described by a local news site as “almost entirely lacking” (h/t to MuniNetworks.org for the pointer). According to a story in the Chelsea Update by Lisa Allmendinger, the vote was 66% to 34% in favor of the property tax hike

Based on currently available taxable valuation data for Lyndon Township, the average cost per property owner for this construction will be about $21.92 per month. Estimated costs for basic internet access will be between $35-45 per month. This internet service will provide a basic speed of 100Mb, with no caps on data usage, with 1Gb (gigabit) speeds available for about $60-70 per month.

The average combined cost of the millage for infrastructure and monthly fee for basic service will be between $57-67 per month.

On the face of it, this muni FTTH project is credible. It’s small town – about 900 homes – and a small system, which means even a small disconnect between the business plan and reality can have big consequences for taxpayers. But the $22 per month tax hit is in the same ballpark as estimates elsewhere, including in San Francisco and for the Utopia project in Utah. It’s estimated to be a $7 million project, in other words right around $8,000 per household, which is a realistic figure for a rural build. If there are cost overruns or take rates don’t match projections, taxes might go up, but probably not by a huge amount.

It’s an honest approach to municipal FTTH financing. Instead of pie-in-the-sky promises, a realistic price was presented to voters and they agreed to pay it.

Be glad the FCC lost its muni broadband bulldozer

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.

Consider who pays for broadband studies, but don’t stop there


Gamblers or exiled royalty?

I’ve commented on a couple of university studies recently, one critical of municipal broadband’s business model and the other ripping AT&T’s infrastructure upgrade redlining in California. In neither case did I write about who picked up the tab for the work. That’s because I thought that both analyses stood on their own. But it’s a fair question to ask and, for the muni broadband study at least, it’s a significant one because the source of the money was the primary basis for challenging the work.

The AT&T study was done by U.C. Berkeley’s Haas Institute for a Fair and Inclusive Society, but was largely paid for by the Communications Workers of America, which is the primary union representing the company’s employees. And which was in the middle of a major contract dispute at the time.

The University of Pennsylvania’s report was published by its Center for Innovation, Technology and Competition, which gets its funding from several self-interested contributors, such as AT&T, Comcast, Verizon and lobbying fronts for the cable and mobile industries. But there’s also representation on the list from players who often end up on the other side of the table, including Facebook, Microsoft and the Internet Society.

But that’s the way the system works in academia, as The Economist notes

Derek Bok, a former president of Harvard, once observed that “universities share one characteristic with compulsive gamblers and exiled royalty: there is never enough money to satisfy their desires.” This is a bit hard on compulsive gamblers and exiled royals.

The way to challenge an analysis done by a reputable institution – and I’m not generally including Washington think tanks in that category – is on the basis of the methodology and data used. In both studies, the method was solid. I can’t fault the Haas Institute’s work – they ran the same kind of analysis on CPUC and FCC data that I regularly do, and came to very similar conclusions. Likewise, there was no reason to fault the methodology in the Pennsylvania report. It was pretty basic comparative analysis of financial results.

There were problems with the data in both studies, but that’s not the fault of the authors. Muni fiber to the home results are not published with the same rigor as those from publicly traded companies, if they’re published at all. The CPUC data that the Haas study looked at is only so granular – it gives a pixelated view of broadband availability at the census block level, but no better.

Better data would support better muni broadband decisions

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

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

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

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.

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

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.