Tag Archives: community networks

Gonzales requests quotes for universal broadband service

Bringing broadband service into every home has long been a goal of the City of Gonzales, a town of 8,500 residents located in California’s Salinas Valley. Yesterday, the City took a big step in that direction by releasing a Request for Quotes that asks broadband providers to put an offer on the table…

The City wishes to enter into an extended term contract with one Respondent to provide consistent, reliable access to basic internet service to each housing unit and household (collectively, “Residence”) at a fixed monthly cost to the City. In addition to providing internet service, the selected Respondent must provide continuous bilingual support for the residents, including an informational program to help residents adopt the provided internet service. Acceptance of the internet service will not be mandatory for any resident, but the City expects the selected Respondent to facilitate the acceptance of service by City’s residents. The price to be paid for the internet service is also a key factor for the City.

The concept is analogous to the bulk service deals that private communities often make, except in this case it’s a local government and not a homeowners association that’ll be writing the check every month. The project would be similar in scope to a mid-sized private community – the City of Gonzales has about 1,900 households packed into two square miles.

There is one wireline Internet service provider – AT&T – that serves residents, albeit at speeds that sometimes fall below California’s minimum standard. Even the dumbed down minimum standard adopted by the California legislature earlier this year. Charter Communications is expected to begin offering service at higher levels in the next few months. An open access middle mile fiber line, owned by Crown Castle via its acquisition of Sunesys LLC and largely paid for by the California Advanced Services Fund, runs through Gonzales, connecting to Soledad in the south, and Salinas, Watsonville and Santa Cruz to the north.

Incumbents are welcome to provide quotes, as are competitive Internet service providers.

I won’t try to summarise the RFQ. The meat of it runs about four pages and a lot of work, my own included, went into getting the language just right. Written questions regarding the RFQ can be submitted until 16 November 2017. Responses are due on Cyber Monday, 27 November 2017.

Downloads:

Request for Quotes for Bulk Residential Broadband Internet Access Services In the City of Gonzales, California, 7 November 2017 (Word version)
Request for Quotes for Bulk Residential Broadband Internet Access Services In the City of Gonzales, California, 7 November 2017 (PDF version)

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

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.

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.

Gonzales, California putting broadband into every home, business

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

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

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