Tag Archives: fiber market study

Salinas targets Ag Tech Corridor, downtown with broadband RFP

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The City of Salinas has officially released a request for proposal, looking for telecommunications companies that are interested in using its municipal conduit system and other local assets to build out a high speed broadband system in key commercial and industrial areas…

The City of Salinas owns a total of 16,000 feet of telecommunications conduit that is available for use (see above referenced study) by respondents. Approximately 5,400 feet is in the core downtown business district, 1,600 feet in or near the planned Agricultural Technology Corridor and another 9,000 feet in an unincorporated area southwest of the city. Over the next ten years, the City plans to build an additional 108,000 feet of conduit, with construction in key areas – downtown, the Agricultural Technology Corridor, Alisal Marketplace and new developments in north Salinas – planned to be completed in two to five years. In addition, the City has an ongoing policy of installing telecommunications conduit in excavations in the public right of way and in other public works projects.

The information requested in the RFP is relatively top level – the objective is to get sufficient information about technical and business plans without putting too much of a burden on respondents.

The project is the result of a broadband study and plan I developed for Salinas last year. The Salinas City Council adopted it on 15 December 2015. It leverages several long haul fiber optic lines that run through the city already, and one that’s under construction by Sunesys LLC. Funded by a California Advanced Services Fund grant and available on a open access basis for a fixed price of $8.50 per mile per month, the Sunesys line will connect Salinas to Silicon Valley via Santa Cruz, as well as linking to major fiber access point locally and in Soledad, and providing in-town connections.

Written questions are due on 10 February 2016, there will be a pre-proposal meeting on 9 March 2016 and responses are due on 21 March 2016.

Request for proposal, Salinas Broadband Project, 25 January 2016
City of Salinas Preliminary Broadband Plan, 1 September 2015
Salinas City Council staff report, commercial broadband infrastructure, 15 December 2015
Salinas Broadband Project KML files

Salinas pursues fast broadband to build ag tech corridor

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With big and small agricultural companies expanding in downtown Salinas and the southeast area of the city earmarked as an Ag Tech Corridor, the need for better broadband infrastructure is becoming critical. Yesterday, the Salinas City Council voted to ask for proposals from potential private sector partners who are interested in using city assets to build out high capacity networks.

Tellus Venture Associates recently completed a study for the City of Salinas that evaluated existing infrastructure and examined options for improving it. Key findings of the study – which formed the basis for the council’s decision – include…

  • Generally broadband infrastructure in the City of Salinas is average, as compared to California as a whole, and above average compared to other communities in Monterey County. AT&T and Comcast offer broadband service to nearly all homes and businesses in Salinas, on generally the same terms and at the same service level as elsewhere in California. Broadband providers that specialize in serving business customers are also present in Salinas, although not on a widespread basis.
  • Despite this focus, data provided by AT&T and Comcast to the California Public Utilities Commission indicates that the underlying broadband infrastructure in commercial and industrial areas of Salinas, and in the southeast area in particular, is substandard.
  • Salinas is served by several fiber optic routes that provide connections to major Internet exchanges in the San Francisco Bay Area and southern California, and, in some cases, are capable of providing local service directly to locations within the city.
  • The City of Salinas owns approximately 16,000 feet of conduit that is available to support construction of additional fiber optic networks, and has plans to build 108,000 feet of additional conduit in the next few years.

The next step is for the City of Salinas to issue a request for proposals from interested and qualified companies for using the existing and planned fiber lines traversing the city and city-owned conduit and other resources to build out broadband infrastructure in the downtown and Ag Tech Corridor areas. The council approved a draft RFP, and the final version should be released soon. More on that later.

City of Salinas preliminary broadband plan
Draft request for proposal
Staff report on Salinas commercial broadband infrastructure, 15 December 2015

Metro broadband: without the political cards, you’re not playing with a full deck

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Political value: the need for speed at the San Leandro public library.

There’s an argument to the effect that the prices charged for broadband service by telcos and cable companies in urban areas are higher than necessary to provide that service and make a reasonable profit.

It’s not crazy talk. You can make a case that more densely populated areas have lower per household costs – opex and capex – and that more affluent areas have higher profit margins. There are counter arguments too, not least of which is that telecoms network costs should be spread across all users. Personally, I favor the whole system approach – the more people reached, the more valuable the network – but the marginal cost approach has valid uses.

However, it doesn’t follow that an independent competitor in a metropolitan area will be able to charge less for equivalent service or the same for better service. The telecoms business has huge economies of scale: fixed operating costs are high relative to variable costs and large purchases by big companies bring hefty discounts. Particularly for television programming. A local competitor operates at a significant cost disadvantage.

A significant fraction (30%? 40%?) of households passed have to be willing to pay more ($50 per month more is a good placeholder) to either incentivize an incumbent to bring in fiber or support the operating cost and capital requirements of an independent system. The market research I’ve seen says that’s not happening.

People may value significantly better broadband services highly in many senses of the word, but not economically. At least not to the extent that an independent, privately financed metro scale FTTH overbuild in a competitive market is economically sustainable. Not yet.

Something else has to be on the table for an independent FTTH overbuild to work. Construction and operating subsidies, (significantly) below market rate financing, publicly owned assets are examples. In other words, you’re adding political value to whatever economic value is present in order to make a business case.

Whether the political value exists is a legitimate topic for debate, and some communities or state and federal policy makers might conclude that it is. The California Advanced Services Fund (CASF) is one example of policy-driven broadband investment. Leveraging a public owned electric utility, such as in Chattanooga (FTTH) or Palo Alto (dark fiber), is another. So is partnering up public assets and private investment, as in San Leandro. And there are more. And there are counter-examples too.

Claims made by some that ordinary metro FTTH overbuilds are self sustaining investments with no risk to taxpayers are at best distractions. For now, it is as much a political question as an economic one. Debate should be encouraged.

The problem with FTTH is there’s no problem

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It’s not about finding a mass market solution. It’s about finding a sufficiently acute mass market problem.

The struggle to develop a general fiber-to-the-home (FTTH) or premises (FTTP) business model for city-wide deployments doesn’t result from a market failure. Quite the contrary. It’s evidence that the laws of supply and demand are in full effect.


Demand, meet supply.

People generally get the broadband service someone else – a business or government agency mostly – is willing to give them for the price they’re willing to pay. FTTH market research tracks closely with actual results. If you ask consumers if they’d like faster broadband, they say yes (who wouldn’t?). But when you test price points, they’re generally pleased with what they’re paying now and don’t perceive enough additional value from higher speeds to motivate them to pay more.

From the point of view of a city or other prospective overbuilder, it’s a competitive market. AT&T, Comcast and the rest do a fair job most days meeting most customer expectations. They leverage that complacency to fiercely defend their turf. Successfully, for the most part.

Cities are good at filling broadband infrastructure gaps where immediate economic demand exists, either directly or by bringing a private partner to the table. Lit San Leandro, Palo Alto’s dark fiber and Mountain View’s WiFi system are good examples. But those are specific solutions in largely unique business circumstances that also suit the particular political character of each city.

There won’t be a market-driven case for FTTH until a sizable fraction of the residents and small business owners in a community have a problem that 1. they’re willing to pay an extra, say, $50 a month to fix, and 2. can’t be solved to their satisfaction by existing technology and service providers.

Adding institutional IT budgets to the kitty is not as helpful as some FTTH backers, such as Gigabit Squared, think. An organization with an IT budget hefty enough to make a difference is really looking for wholesale service. Big IT systems need big pipes and budget accordingly. That’s helpful, maybe decisive, for funding a middle mile project, and there are examples where it’s done the trick.

You need a significant fraction of the available homes and businesses ready to spend more now, to tip the balance for an FTTH business case. Until the economic demand (i.e. marginal willingness to pay) develops, the Gigabit Squared model will only work if it leverages political demand: grants, direct tax money, cross-subsidies from other municipal utilities or other public support, in healthy quantities.

Gigabit Seattle’s financial vehicle is still a concept car

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Car of the Future as conceived by Studebaker's Director of Styling, Raymond Loewy, in the August 1950 issue of Science and Mechanics. Loewy wrote about the new styling for tomorrow's rocket age population. Via Wikimedia Commons.
Thanks for the down payment. Just need to find someone to co-sign the loan.

“Gigabit Squared is providing the capital, although details of the financing model aren’t clear,” wrote Stacey Higginbotham in a story for GigaOM following Gigabit Squared’s announcement last May that it had formed a partnership with Gig.U and was bringing $200 million to the table to fund fiber networks in as many as six cities.

The financing model was equally unclear last week when the City of Seattle and the University of Washington blessed a plan by Gigabit Squared to build a demonstration fiber-to-the-premises network in 12 Seattle neighborhoods. No cash is committed or, according to the City of Seattle, even contemplated.

Higginbotham aside, most of what’s been written about the $200 million fund is uncritical and assumes it’s a done deal. Not so. Gigabit Squared’s public statements are nuanced, to put it gently.

In the 23 May 2012 announcement, president Mark Ansboury didn’t say he had the cash in hand. “We intend to make available $200 million in investment capital,” he said. His words speak to plans, not accomplishments.

The next day, Ansboury expanded on his funding strategy in an interview with industry blogger and consultant Craig Settles.

“Our initial commitment of $200 million is based on the combination of some equity and leveraged financing. Each of our deals will be different,” Ansboury said. “So how much equity versus how much financing we’re going to do are going to be really dependent on the mix of what a community brings to the table: how much in kind, how much support and the things we need to do.”

Translation: we don’t have the money yet, but we think we can find it if the locals put enough on the table.

“It was the idea that a community has underutilized assets,” Ansboury explained. “That a community has a certain pent up service demand, that the community has the capability to aggregate capacity and demonstrate the need and value for broadband. In doing that, then you can create the financial vehicles. You don’t care if its public, private, grant…you can create the vehicle that justifies the value proposition for bringing that kind of capital to the table to help build out out the network.”

Translation: give us your dark fiber and city, county, school district and university IT budgets, wheedle some pork out of the feds and the state and have residents sign pledges (with maybe, say, a $100 deposit) to pay for installation and subscribe to service. We’ll get back to you.

His financial model assumes that if community demand can be demonstrated and big users, particularly government and educational organizations, commit future budget dollars, plus whatever broadband assets and grant money they can find, then that’ll be a sufficient guarantee for private investment and bonds, bank loans or vendor financing.

That puts the Seattle announcement in a clearer context. “The City, the University and Gigabit Squared have signed a Memorandum of Understanding and a Letter of Intent that allows Gigabit Squared to begin raising the capital needed,” the joint press release read.

There’s the demonstration of demand. Now it’s time to show that the financial vehicle has wheels.

Seattle passes the fiber (50 mega) buck

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The unveiling of Gigabit Seattle yesterday is just the first step on a long road to building a fiber to the premises (FTTP) service for residents. The City of Seattle and the University of Washington have endorsed a plan by a consulting firm – Gigabit Squared – to “begin raising the capital needed” for a demonstration project.

Gigabit Seattle coverage

It’s not small change. The 200 miles of fiber needed to reach 50,000 homes and businesses in 12 neighborhoods will cost something like $50 million to install and light up. In round numbers, the Seattle demo looks remarkably similar to plans for building an FTTP network in Palo Alto: similar mileage, existing city-owned dark fiber network, urban terrain, prevailing wage rules, environmental standards and university-leaning demographics. Depending on the assumptions made, construction costs would be around the $40 to $60 million range.

I did an extensive analysis of the costs, potential revenue and overall FTTP business case for the City of Palo Alto earlier this year. Specifically, I looked at whether or not it could be built and operated solely on the basis of subscriber revenue, including up front charges. The short answer is no. The long answer is hell no.

On the other hand, if you build it with money that doesn’t need to be paid back for a couple of generations, then it’s possible. Not certain, though. Depending on the assumptions, such a network might generate enough revenue to pay operating costs. Or might not.

Either way, the City of Seattle won’t be picking up the tab. “The City’s only costs are for existing staff,” says the FAQ on the City’s website. “There is no additional City money going into this project, and there is no risk to the taxpayer.”

In fact, the City of Seattle is expecting to be paid for the dark fiber it’ll be contributing. It’s up to Gigabit Squared to find the money. And as Esme Vos points out, “they are an engineering and consulting firm, not a traditional ISP” with a track record to show investors and cash flow to smooth out the bumps.

So far, the only source mentioned is a $200 million kitty that gigabit Squared says it has raised in partnership with Gig.U, a consortium of U.S. universities. Gig.U is led by former FCC staffer Blair Levin, who headed up development of the National Broadband Plan. That money is intended to be split amongst at least six projects, of which Seattle is the second announced (first was Chicago).

Even though details on the cash are vague, Gigabit Seattle has surprisingly firm plans. Initial engineering work is scheduled to begin in the next two or three months, with project completion by the end of 2014.

That’s for the demo project, which will only reach 12 Seattle neighborhoods out of more than 100. According to the city’s FAQ, Gigabit Seattle has set a benchmark of a 15% take rate. Once 15% of the potential subscribers in the first 12 neighborhoods sign up for service, the network will be rolled out to the rest of the city in phases. That’s not an impossible figure to hit. Palo Alto’s research shows there’s a fair chance of getting to 15% even with a $100 per month price tag.

But first they need to find the cash to build it, and it won’t be easy if they have to show a plausible timeframe for an investment grade return on investment.

EDA opens new source for broadband funding with $2 million for San Leandro conduit

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The City of San Leandro will fill in key gaps in broadband availability in industrial and commercial areas, thanks to a $2.1 million grant from the U.S. Economic Development Administration. The press release is here.

As far as we can tell, this award is the first ever given by EDA for a community broadband project, with credit largely due to the City’s economic and business development staff. They worked closely with the EDA to develop the innovative framework required and to meet the stringent requirements of the program. Tellus Venture Associates assisted staff during the process.

The money comes from EDA’s Public Works Economic Development Assistance program. It will pay for 7.5 miles of conduit, which will be connected to the City’s existing infrastructure. The new conduit will make it possible for Lit San Leandro, a privately funded fiber optic system, to extend the reach of its 11 mile network to more than 18 miles. The work is expected to be completed within a year.

Lit San Leandro, the brainchild of Dr. Pat Kennedy, the CEO of San Leandro-based OSIsoft, offers dark fiber and lit broadband services up to 10 Gbps to businesses along the existing route. The City and Lit San Leandro are working in partnership, with the City leasing conduit to the venture.

Thanks to this project, San Leandro is home to the fastest library in California. The main library is connected to the Lit San Leandro network and has clocked speeds in excess of 300 Mbps. It can do even better – right now, the limitation comes from the ability of computers to handle high data speeds, not from the network itself.

The new conduit will largely complete the job of making 21st Century broadband available to San Leandro’s industrial land. The three areas targeted – Doolittle/Adams, Marina/Catalina, Alvarado/Teagarden – were identified in a study conducted by Tellus Venture Associates, which has served as a consultant to the City throughout the negotiation and implementation phases of the Lit San Leandro project.

The study resulted in the approval by the San Leandro City Council last month of a strategic plan for commercial and industrial broadband development. Other action items identified include bringing additional fiber and wireless access to Downtown San Leandro, offering business assistance grants for broadband projects and adopting broadband-friendly planning, public works and community development policies.

Learn more by watching the San Leandro “Get Connected!” video.

Industrial and commercial broadband action plan, strategy adopted by San Leandro City Council

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Seven action plan recommendations and an overall commercial broadband strategy were unanimously adopted last night by the San Leandro City Council. The goal is to bring new jobs, businesses and shoppers into the City’s industrial and commercial areas by developing better broadband infrastructure and availability, and encouraging companies and consumers to take advantage of it.

The strategic vision and specific recommendations were developed by Tellus Venture Associates, working closely with City staff. Businesspeople, major employers, property owners, school officials and the general public were involved throughout the process, participating in online surveys, workshops, one-on-one meetings and other events.

The action items approved last night for implementation are:

1. Formalize and promote existing broadband-friendly practices.
2. Make broadband a standard planning review criterion.
3. Adopt a comprehensive open trench policy.
4. Pursue opportunities for lateral connections to major fiber routes.
5. Support Lit San Leandro on a nondiscriminatory basis.
6. Develop WiFi hotspots in Downtown San Leandro.
7. Support business connections to broadband service.

The City Council immediately followed adoption of the plan with approval for the Broadband Connection Business Incentive Program, which provides local businesses with assistance in connecting to high speed Internet service. The City will continue work on a formal open trench policy and is pursuing grants to fund the construction of lateral fiber connections to Lit San Leandro and other major trunk lines.

Tellus Venture Associates has advised the City of San Leandro throughout its broadband planning process. In addition to developing the commercial broadband strategy adopted last night, Tellus Venture Associates represented the City in negotiating an agreement with Pat Kennedy, a local entrepreneur, for the construction of an 11-mile dark fiber route through the City’s commercial and industrial areas, leading to the launch of Lit San Leandro.

Download the City of San Leandro’s commercial broadband strategic plan

Download the City staff report and action items for the 17 September 2012 city council meeting

Chattanooga fiber success punctures Gigabit hype

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In Chattanooga, Tennessee, electric power is provided by EPB, a municipal utility company that is also in the fiber optic business. EPB claims that anyone in its 600 square mile footprint can get a 1 Gigabit connection to a home or business. The cost is $350 per month.

Word is that thirty four subscribers, out of about 150,000 passed, have opted for 1 Gig. There’s been a lot of handwringing about this supposedly low take rate, with a lot of criticism directed at the price.

Bunk.

It’s a bargain, and thirty four subs is a great result. Better than you’d expect in Silicon Valley.

You can get unshared, bi-directional 1 gig for, say, $500 per month if you plug directly into a Tier 1 provider in Silicon Valley. Getting to that Tier 1 router costs a lot more than that – hundreds or thousands per month. Technically it’s better quality of service than the burstable 1 Gig you’d expect from an ISP, but for home users and nearly all businesses there’s no practical difference.

There are relatively few businesses that can truly use, let alone need, a fulltime Gig of Internet bandwidth right now. And no consumers. Having a service that’s burstable to 1 Gig can be fun, and at $350 per month a screaming bargain, but it’s like owning a Lamborghini: you’re not doing it because you want to get to the supermarket faster.

Even HD video service via a last mile fiber connection to a local server doesn’t need a Gig. It doesn’t even need 100 Megs. Business and consumer interest in high speed connections drops off dramatically once you get much past 10 Megs, if there’s a marginal cost involved. Chattanooga is certainly showing the case for fiber service at a lower speed: 37,000 customers have signed on for consumer-grade packages.

In Silicon Valley, there are fewer than 100 commercial customers, total, on the municipal dark fiber networks. Granted, some of those customers are themselves resellers who serve many businesses, but that’s the point: businesses buy only as much as they need. Other than telecoms, data center or Googlesque companies, few, if any, need Gigabit class service.

It’s hard to see this demand case changing much in the next five to ten years, but regardless, so long as the glass is there and the electronics are configurable and/or upgradeable to 1 Gig, you have everything you need.

If the Chattanooga folks have 34 users willing to pay $350 per month for a theoretical Gig, they are doing very, very well. For themselves and for their customers.

San Leandro beats Google’s Kansas City broadband speeds

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Press release from the City of San Leandro:

San Leandro, Not Google, Is Writing The Next Chapter Of The Internet


Source: Lit San Leandro

“As Google attempts to grab the headlines with its announcement tomorrow of a fiber initiative for Kansas City that will offer users connection speeds of up to 1 gigabit per second, Mayor Stephen Cassidy of San Leandro announced that San Leandro is staking its claim as the fastest city in the nation. San Leandro’s fiber loop, known as Lit San Leandro, became operational earlier this year, offering connection speeds of up to 10 gigabits per second. This is 2,000 times faster than the average U.S. connection and ten times faster than the Google fiber network planned for Kansas City. Moreover, the network will soon support ramping up the connectivity to 100 gigabits per second for businesses needing an even greater connection.”

Less than a year after the City Council approved the project, Lit San Leandro is delivering on its promise of providing fast, fiber optic broadband connections to local businesses.

More information about the partnership with Lit San Leandro is available here. Tellus Venture Associates assisted the City in negotiating and implementing the agreement with Lit San Leandro, and is currently completing a strategic commercial broadband plan for consideration by the city council.