Tag Archives: muni broadband

California muni broadband battle continues, with or without federal advice

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Even if it’s adopted as is – and it’s as likely to get worse as it is to get better – a wish list of muni-stomping broadband policy drafted by a Federal Communications Commission advisory group, and echoed by the FCC majority, probably won’t have much impact in California.

That’s not necessarily good news for Californian cities and counties, though. One of the recommendations – grant cable franchises on a statewide basis with an impossibly light and delicate regulatory touch – has been law here for more than ten years. Cable companies pushed through the Digital Infrastructure and Video Competition Act (DIVCA) in 2006 and now answer to no one.

Local control over permits for wireless facilities – on private property or in the public right of way – has been steadily eroding and mobile carriers, as well as telephone and cable companies, continue to keep the pressure on in Sacramento. They’ll be back next year looking for on-demand access to city and county owned assets, such as light poles or land, at below market rental rates. Senate bill 649, which was passed by the legislature this year but was vetoed by governor Brown, would have done all that. Brown wasn’t fundamentally opposed to the idea, he just thought the bill went a bit too far. That’s an open invitation to try again, with some of the rough edges sanded off.

The third major recommendation was to kill muni broadband systems, and give away muni fiber to incumbents so they wouldn’t suffer the horrible pain of competition. That would be difficult in California. The California constitution gives cities, particularly charter cities, a considerable degree of autonomy. Even though full service muni broadband systems are relatively rare here, they do exist. And the number of muni dark fiber systems is growing. Trying to claw back that authority would be difficult, legally and politically.

But that doesn’t mean they won’t try.

State lawmakers should exorcise muni broadband evil, federal advisors say

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Stomp on cities. Boiled down, that’s the conclusion of a group advising the Federal Communications Commission on what states ought to be doing to promote broadband deployment. The FCC formed the Broadband Development Advisory Committee earlier this year, which is top heavy with lobbyists and others from big and mid-sized telecoms companies, very weak on local or state government representation and devoid of any municipal broadband experience. The committee spun off five working groups, including one tasked with writing model laws for states to adopt or, potentially, for the FCC to impose through its assumed preemption powers.

The result is a wish list that might have been – and probably was – written by lobbyists from big cable, telephone and mobile companies, and includes…

  • Statewide cable franchising. California adopted this approach more than ten years ago, when the Digital Infrastructure and Video Competition Act (DIVCA) was passed. Instead of negotiating for franchise rights on a city by city, county by county basis, cable companies get blanket permission to operate from the California Public Utilities Commission, which has virtually no discretion or oversight authority. It simply hands out full or partial statewide franchises and hopes for the best. In some ways DIVCA has reduced barriers to broadband deployment, but it has also given cable companies free rein to cherry pick high revenue service areas, ignore regulatory standards imposed on other telecoms companies and otherwise use its position as the sole provider of advanced service – 25 Mbps down/3 Mbps up – to extract monopoly rents from consumers and businesses alike.
  • Eliminate municipal broadband service. The group’s draft takes a convoluted path, but the destination is clear: keep cities out of the broadband business. The general advice to local governments is to butt out of broadband issues, but if they are determined to do something anyway, they should give money, real estate and other assets to incumbents and trust that all will be right. Owning and operating a broadband system is a city’s last resort, and only allowable if it can be shown that every other possibility has been exhausted – in other words, only if incumbent cable and phone companies meekly concede their turf. Good luck with that. As a kicker, if a city or county owns dark fiber – not uncommon in California – it wouldn’t be able to keep it. At least not for anything beyond its own “reasonably anticipated” needs. Any spare municipal fiber capacity could be claimed, at will, by a private broadband provider for a pitifully low price.
  • Preempt local ownership and oversight of poles and other wireless assets. This one is no surprise to anyone who’s been following the money the wireless policy debate in Sacramento. The group’s draft tracks very closely with California senate bill 649, which was vetoed by governor Brown last month. Discretion regarding installation of most wireless facilities on private property and in the public right of way would be eliminated and, as with dark fiber, telecoms companies could make free use publicly owned property, such as streetlights, at rental rates far below market value.

The FCC’s model state code working group is expected to finalise its recommended policy in January. After that, expect the political money men to pressure the FCC to impose as much of it as it can on a federal preemption basis, and then deploy to state capitols to mop up what’s left.

FCC broadband committee offers letter to Santa deployment advice

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There was a mix of good and awful policy on the table last Thursday as the Federal Communication Commission’s broadband deployment advisory committee (BDAC) heard from its five working groups. The BDAC was created by Ajit Pai shortly after he got the nod to be Donald Trump’s FCC chairman. Its job is to offer advice on how to speed up broadband deployment by breaking down legal, regulatory and bureaucratic barriers. Although there are nuggets of sound policy to be found, what it came up with mostly reads like wish lists written by telecoms lobbyists.

The committee and working groups membership is top heavy with big (and mid sized) telecoms companies and their lobbyists, but there are some bright lights as well. Cities are represented, but by policy-level people, not by people with muni broadband or other industry expertise.

And it shows.

The five working groups dealt with competitive access to broadband infrastructure, model code for municipalities, model code for states, removing state and local regulatory barriers and streamlining federal siting. The results are, to put it kindly, uneven.

The worst showing was from the model code for states group. It pretty much wants to ban municipal broadband ventures, although instead of coming out and saying so, it recommends first running projects through a gauntlet of preferred options, including subsidising incumbents. Few muni broadband proposals would survive it. The state model code group also recommends preempting local ownership of broadband-relevant assets, including dark fiber. If a city owns dark fiber or light poles, private companies could commandeer them at will for a price far below market value.

The muni code group, on the other hand, had some worthy ideas about streamlining permit processes and, contrary to the state group, recommended local governments should maintain control of municipal property.

The working group looking at state and local regulatory barriers produced a lengthy indictment of the sins committed against broadband and wireless companies, and took an analytical, but sympathetic, look at federal preemption of pretty much anything that might upset a telecoms lobbyist.

There are many recommendations for streamlining federal processes, but the P word – preemption – didn’t come up. That would be unneighborly, I suppose. The group looking at competitive access focused primarily on pole attachment issues, with one touch make ready rules at the top of the list.

A few recommendations, mostly preliminary, were adopted by the full committee, with the meat of the proposals expected to get a full review in January. What happens after that – or even, before – is unclear, although if the the effusive reaction of commissioner Michael O’Rielly is any indication, the FCC majority will cherry pick the policy bits that support the positions they’ve espoused all along, and run with them.

New Benicia broadband RFP comes with money on the table

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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

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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

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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.

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

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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

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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.