Tag Archives: gigabit squared

Illinois says Gigabit Squared lied repeatedly, wants $2 million back

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Once upon a time, it was strictly formal dress for sunrise.

The company that sold magically cheap fiber and a business case built on fairy dust to Seattle, then left town owing fifty grand is in even bigger trouble in Chicago. The state of Illinois gave Gigabit Squared a $2 million grant to deploy “ultra high speed” Internet access on the city’s south side and, to say the least, isn’t seeing results, according to a story in the Chicago Sun-Times (h/t to the Baller-Herbst list for the pointer)…

Gigabit Squared, a Cincinnati-based company that last May touted the high-speed project in nine South Side communities, “has lied repeatedly” about its intentions and may have spent only $250,000 of the grant money for legitimate purposes, said David Roeder, spokesman for the Illinois Department of Commerce and Economic Opportunity, which issued the grant.

To clear the air the state is inviting Gigabit Squared to an “informal hearing”, which in Chicago-speak is the semantic equivalent of a casual firing squad. The company has until 10 April to RSVP. So far, no direct reply, but the Sun-Times article includes a statement from Gigabit Squared that’s a wonderful mix of disingenuity and bewilderment. Translation: the dog ate the paperwork.

I’m not close enough to either the Seattle or the Chicago project to speculate on whether the failures were the product of ignorant and incompetent management or premeditated fraud or something else. Whatever the reason, the result is a couple of bloody black eyes for legitimate municipal broadband advocates, which is not helpful to our cause. My advice to cities approached by broadband rainmakers beating a drum: if it sounds too good to be true, it is.

Mayor closes the curtain on Gigabit Seattle’s political theater

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Running with the bull.

Gigabit Seattle will quickly fade away in the new year, judging by the lost faith of its most prominent cheerleader, outgoing mayor Mike McGinn. In an interview with GeekWire, McGinn expressed the sort of caring doubt politicians use to distance themselves from, say, a blood relative who’s been busted for indecent familiarity with farm animals for the third time…

“We’re now a year into it and the question is, will it work or not?” McGinn said inside his office at City Hall. He acknowledged that he’s ”very concerned it’s not going to work.”

Elected four years ago on a platform that included broadband for all, McGinn was unable to gain traction for a municipally owned fiber-to-the-home system. Last December, with less than year to go before his reelection contest, he threw a Hail Mary press conference with the University of Washington and a crew of former apparatchiks who were long on talk but short on money and experience.

They promised a pay-as-you-go network, that would begin with 12 pilot neighborhoods and then build out to the rest of the city, at “no risk to the taxpayer”. As I wrote at the time, the short answer as to whether that’s credible is no. The long answer is hell no.

The Seattle mayoral campaign heated up over the summer and the evident emptiness of McGinn’s FTTH promise became an issue. The only fundraising success that Gigabit Seattle, or its parent company, Gigabit Squared, achieved was to motivate Comcast to give $12,000 to challenger and eventual winner, state senator Ed Murray.

Those involved might have sincerely believed they could pull it off. But looking back over the past year, there’s little to distinguish Gigabit Seattle from a cynical political stunt.

Slow broadband a drag on Seattle mayor’s re-election campaign

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I’ll have what she’s having.

Seattle mayor Mike McGinn is running for re-election and the editorial page of the Seattle Times, which has never particularly cared for him, is homing in on his failure to build fiber to every home and business in the city…

With a campaign pledge of broadband Internet for all, Mike McGinn promised big, delivered small, and hopes voters won’t notice the difference.

KUOW-FM, Seattle’s University of Washington-owned NPR powerhouse, reached a similar conclusion, although in a better researched and more nuanced way

When Mike McGinn ran for mayor in 2009, he campaigned on the promise of high-speed internet for all of Seattle. But once elected, he struggled to implement anything close to that. Four years later McGinn still presides over a city of internet haves and have-nots.

The article goes on to talk about what is working and what isn’t. Comcast gets a nod for upgrading at least some of the region to the theoretical 105 Mbps max it offers in other markets. CenturyLink hasn’t done as much, a problem it blames on neighborhood opposition to equipment cabinets on sidewalks.

The real “haves” in the KUOW story are the residents of more than fifty buildings that CondoInternet, a local company, serves. Its business model looks pretty straightforward: plumb a sufficiently large or affluent property with ethernet and hook it up to fiber or wireless backhaul, something its parent company, Spectrum Networks, also does for commercial customers in the Seattle area.

Speeds promised range from 100 Mbps ($60/month) to a gigabit ($120). No performance tests were mentioned, but neither were any complaints. It’s an apparently successful example of the fiber-to-the-basement business model I looked at in a study for the City of Palo Alto a couple of years ago.

McGinn’s latest broadband initiative, Gigabit Seattle, isn’t doing much besides turning up the volume on its marketing machine. All the “have nots” can do is hope it’s designed to outlive Seattle’s campaign season.

Gigabit Seattle raising FTTH attention but not cash

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Adding lift to a trial balloon.

The Gigabit Seattle team is trying to tap into Google Fiber’s buzz by releasing a fiber-to-the-home pricing plan that sounds a lot like what’s on offer in Kansas City, albeit for a few dollars more and with a little less freebie time. Otherwise, there’s been precious little in the way of specific information about the project since it was announced six months ago.

What I wrote then is true today: Gigabit Seattle’s financial vehicle is still a concept car. Zero private sector investors or lenders have been announced, and actual public sector contributions are minuscule.

Service is supposed to begin somewhere in Seattle “in early 2014”. The roadmap outlined in December had the project starting out in a dozen demonstration neighborhoods. No particular construction timetable has been set, even though engineering work was supposed to be well along by now. The latest announcement said that the project team will let residents know next month how they can sign up. Previously, they said that they’ll prioritise neighborhoods on the basis of pre-commitments, again similar to Google Fiber, with a 15% take rate being mentioned as a threshold for moving ahead in a given area.

It’s also unclear exactly who will be building, owning and operating Gigabit Seattle. The company behind it – Gigabit Squared – now describes itself as a “a digital economic development corporation specializing in the planning, implementation and rollout of IT-enabled infrastructure in core markets”. Not a telecoms company, in other words.

Although Gigabit Squared’s CEO says it will own its own projects, it doesn’t have any track record or significant, visible assets yet. Judging by the few financial details discussed so far, it doesn’t have a firm grasp on how much it costs to build an urban FTTH system and the operational telecoms experience of its principals appears slim.

Gigabit Seattle might be able to evoke Google’s business model in a press release, but it’s still a long way from raising the money to pay for it.

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.