Tag Archives: municipal broadband

Competition will make or, likely, break Pacific Grove muni FTTH business model

by Steve Blum • , , ,

The business case for a muni fiber-to-the-home play is the number one worry as the Pacific Grove city council considers whether to pay SiFi Networks about a million dollars a year for the next 30 years to build and operate a system.

At its meeting on Wednesday evening, the council heard a presentation from Lee Afflerbach, principal engineer with CTC Consulting, who was asked to evaluate the technology. The questions afterward, though, were all about the business model: would the system make enough money to pay the lease, or would taxpayers be on the hook?

“We have not been engaged to look at the business plan yet”, Afflerbach replied. That said, he talked about muni FTTH projects he’s worked on, saying that the successes he’s seen have been in rural areas with no cable operator, and where the local agency involved already runs an electric utility or similar. Even getting to 30% penetration – SiFi says it needs at least 38% – is difficult when there are already two competitors in the market.

“Where this has been most successful is where there’s only one [competitor] and there’s a successful utility operator”, Afflerbach said. “You don’t have [utility] infrastructure, you don’t have a utility”.

The problem is compounded by the fact that Pacific Grove is served by AT&T and Comcast, which will respond aggressively.

“They are very proficient at changing their rates and such. Predatory is the word, I think”, Afflerbach said. When a small city takes on Comcast or AT&T, the disparity in resources and aggressiveness can be fatal. “It’s sorta like infinity versus zero. Your odds aren’t very good on that”.

There are other factors that, on the surface at least, don’t tend to work in Pacific Grove’s favor. Thirty percent or a little more – call it a third – of households are second homes, and the demographics of the other two-thirds skew older.

The next step is for city staff to dive deeper into SiFi’s proposal; that process was expected to begin the next day.

Muni FTTH pitch in Pacific Grove goes from no cost, no risk to pay us $1 million a year

by Steve Blum • , , ,

Bawtree-Jobson in Pacific Grove yesterday.

A fiber to the home plan for the Monterey Peninsula city of Pacific Grove has transformed from a commercial business venture into an appeal for public money. SiFi Networks, a British company with a corporate heritage of real estate development, began last year by putting a simple proposition in front of several Californian cities: give us unlimited access to your streets, sidewalks and, yes, sewers and we’ll build fiber to every home and business in town.

Like Macquarie’s offer for Utah’s Utopia system, SiFi’s business model is to take a low risk middle position in the deal and flip it to institutional investors. Initially, the risk would have been offset by signing long term operating agreements with incumbent cable and telephone companies. But as company CEO Ben Bawtree-Jobson said with classic English understatement yesterday, “there’s been some kick back from those tier one service providers”.

In other words, Comcast and AT&T said no. Which was completely predictable: their business model is 180-degrees away from buying a ride on someone else’s fiber.

Equally predictable, the next step was for SiFi to go back to the city and ask it to finance the deal and take on the risk. With all due humility – oh, okay, with barely sufferable smugness – I’ll take credit for making those predictions last year when a couple of other cities hired me to evaluate SiFi’s offer. Not preternatural clairvoyance on my part – pretty much anyone who understands the business made the same call.

Bawtree-Jobson laid out the new deal:

  • SiFi builds the network for $15 million and Pacific Grove leases it for 30 years at a price in the $1 million a year range (ramps to $852,000 in year 3 with cost of living increases after that).
  • Third party ISPs resell services, with a residential gigabit pegged at $90 a month.
  • If the system hits a 38% take rate in five years, it’ll pay for itself. If it doesn’t, taxpayers pick up the difference.

In very round numbers, each of the 8,000 or so homes and businesses in Pacific Grove would be on the hook for a bit over $100 a year. Call it $10 a month. That’s just for the lease payments if things don’t work as planned. Service is extra. So is the added cost of maintaining 60-plus miles of microtenched streets.

Thirty-eight percent is optimistic for a system starting from zero in a market dominated by AT&T and Comcast. Even more so in an ageing resort town with a high proportion of second homes. On the other hand, the cost – at about $2,000 per premise, assuming the estimate is good – is reasonable. At least from a broadband development perspective. Whether the same is true from Pacific Grove’s perspective is a question for the city council to answer next week.

Mayors like and loath FCC broadband rules

by Steve Blum • , ,

By David Ball (Original work) [GFDL (https://www.gnu.org/copyleft/fdl.html), CC-BY-SA-3.0 (https://creativecommons.org/licenses/by-sa/3.0/) or CC BY 2.5 (https://creativecommons.org/licenses/by/2.5)], via Wikimedia Commons

Mayors in U.S. cities want the federal government’s help to maintain their cities’ authority to build and operate municipal broadband systems (h/t to the Baller-Herbst list for the pointer). At least, the U.S. conference of mayors does, voting to approve a resolution that calls out Federal Communications Commission chairman Tom Wheeler’s move to preempt state-imposed restrictions on municipal broadband systems and urges congress and the president to follow his lead

Now, therefore, be it resolved, that the United States Conference of Mayors applauds the FCC, under the leadership of Chairman Tom Wheeler, for preempting state barriers to municipal broadband service, which have served as a significant limitation to competition in the provision of Internet access; and

Be it further resolved, that The United States Conference of Mayors encourages Congress and the Administration to pursue all legislative and regulatory avenues to allow cities and communities maximum flexibility in constructing their own broadband networks.

The mayors want the FCC to expand lifeline subsidies to include broadband service – something that’s already under consideration. They also want it to reverse course and allow cities to collect cable franchise fees without factoring in the value of other benefits like public access channels. And extract those bennies without exempting Internet – over the top – video providers from the tender mercies of municipal regulation. All that without a hint of irony in also proclaiming that “the Internet has existed based on principles of freedom and openness, core values that have made it the most powerful communication medium ever known”.

None of the broadband positions taken by the conference are anything but conventional wisdom for cities, and those were just four amongst 84 approved resolutions, including one thanking their host, San Francisco mayor Ed Lee.

CPUC expands broadband subsidy eligibility, toughens requirements

by Steve Blum • , , , , ,

It got a little harder to clear the bar today.

Local governments and independent Internet service providers can apply for broadband infrastructure construction subsidies from the California Advanced Services Fund (CASF), under new rules approved this morning by the California Public Utilities Commission.

There are pluses and minuses in the decision. On the whole, the commission is requiring these newly eligible application to meet requirements that are very similar to those imposed on regulated telephone companies, but without granting the same operational privileges – pole attachment and interconnection rights, for example. On the other hand, ISPs and local governments don’t have the burdens of complying with all the regulatory overhead – including allowing other carriers access to some of their own facilities – that goes hand in hand with that.

Today’s commission decision…

  • Requires local governments and independent ISPs buy performance bonds to guarantee any project that CASF funds.
  • Requires start-up companies (i.e. any provider that hasn’t been in the broadband business for at least a year) to have access to cash in the amount of 10% of a project’s cost, up to $100,000, a provision added in yesterday when the final draft was released.
  • Requires them to agree to be bound by CPUC rules and subject to its penalties if they don’t comply with the terms of a grant or loan.
  • Doesn’t differentiate between local governments and private companies in setting requirements, and doesn’t address the issues raised in that regard by The Utility Reform Network last month.
  • Adds back in a previously deleted requirement that satellite-based applicants “prove functionality”.

There’s still work to be done, though, before the commission can start taking CASF project proposals from non-traditional applicants, including how to implement a right of first refusal given to incumbents by the state legislature last year and figure out how to parse the additional restrictions that were placed on local government. That’s scheduled to be done sometime this summer.

FCC chair’s muni shout out is just a first step on a hard road

by Steve Blum • , , , ,

Unmistakably, if not perfectly, clear.

FCC chairmanTom Wheeler stirred up a lot of excitement yesterday when he floated the idea of encouraging municipal broadband as a way of increasing telecommunications market competition…

The Commission will look for opportunities to enhance Internet access competition. One obvious candidate for close examination was raised…namely legal restrictions on the ability of cities and towns to offer broadband services to consumers in their communities.

He’s absolutely right that cities and other public agencies can create competition for incumbent telecommunications providers. That’s the reason that California cable companies lobbied so hard (and largely successfully) last year to keep state broadband infrastructure subsidies out of the hands of cities. Even the threat of municipal competition can provoke defensive investments in upgrades by incumbents, which they would rather not do.

But I’m not excited yet. I take Wheeler’s statement at face value: saying muni broadband restrictions are a “candidate for close examination” is not the same thing as declaring war on states that impose them. If that’s his goal, then Wheeler has a lot of rocky legal ground to cross first.

Top of the list is a U.S. Supreme Court ruling from 2004 that said federal law doesn’t require the FCC to police state restrictions on muni broadband. That’s not the same thing as saying the FCC can’t step in if it chooses to, but as Jim Baller, a recognised expert in muni broadband law, noted, the court was “applying its traditional rule of statutory construction that federal statutes cannot be read to preempt a fundamental state power unless Congress makes it its intent unmistakabl[y] clear”.

The fundamental state power at stake is the ability to choose what local governments can and can’t do. That’s not an absolute right, but without “unmistakably clear” permission from congress, Wheeler will have a steep uphill fight if he actually wants to pre-empt a state’s authority to restrict or empower the cities under its control.

Private sector rules applied to municipal broadband subsidies in California

by Steve Blum • , , , , , ,

An entity that is not a telephone corporation.

Local governments will have to meet the same requirements as independent, private sector Internet service providers in order to qualify for broadband infrastructure subsidies from the California Public Utilities Commission. That’s the implication of a ruling issued by CPUC president Michael Peevey last week. Those requirements could include performance bonds and penalties for failing to meet conditions the commission might put on subsidised projects or for not complying with its regulations.

Earlier this month, Peevey released a draft of a proposed decision that would expand eligibility for grants and loans from the California Advanced Services Fund, in keeping with a law – senate bill 740 – passed by the state legislature last year. SB 740 allowed ISPs to apply for CASF subsidies under tighter restrictions than traditional, regulated telephone companies. It also allowed local government agencies to apply, but under ever more limited conditions. The draft decision said the question of how to deal with local agencies would be left for later. Later is now.

Last week’s ruling lumps local agencies and ISPs together as “entities that are not a telephone corporation”, making no allowance for the differences between public and private sector broadband providers. The additional restrictions that the legislature placed on local agencies will be dealt with as scheduling problems and as a higher bar that needs to be cleared during staff review of applications.

In effect, the CPUC is telling cities, counties and other local agencies that if they want money from the commission, they’ll have to play by the same rules as private sector applicants. That makes a certain amount of sense from the commission’s point of view: it has no legal jurisdiction over local government – its job is to regulated privately owned utilities – and it’s not willing to simply hand over money without accountability. It could be a problem for local governments – which are likewise reluctant to surrender authority – but that’s a question for later (and largely for lawyers).

As a practical matter, the question is irrelevant for most, if not all, Californian cities, because they can only get subsidies for completely unserved homes and businesses. No middle mile facilities, no projects that include areas where anything better than dial-up is available (excepting satellite, but including mobile service). The few places like that in the state are in remote, unincorporated areas. There are exceptions, but not many – possibly, none – that can support economically viable projects unless a city is otherwise in the broadband business.

The CPUC could vote on the new rules as early as its 5 February 2014 meeting. Even so, it could be 2015 before new grant applications are accepted.

Watsonville growing economy and cash with muni dark fiber

“We want to be able to service other business”, said Bob Berry, public works project manager for the City of Watsonville. “We think we want to turn this into an enterprise fund”.

The city is installing dark fiber between key public buildings and, incidentally, through core business areas of Watsonville. The project was launched after Charter Communications raised the price it was charging for similar connections from free to $150,000 a year, a move made possible by its shift from local to statewide cable franchising. Besides supporting the city’s internal network, plans are in the works to generate revenue – and stimulate local businesses – by leasing dark fiber and conduit space to interested service providers.

The first phase of the project involves stitching together existing city-owned conduit. Because Watsonville began specifically identifying and routinely mapping potential broadband assets, such as traffic signal conduit, several years ago, building a 4-mile fiber network only required installing about a mile of new underground duct work. The work will cost about $200,000, less than the $300,000 that the city originally estimated. It’ll begin in January.

Berry was speaking at a broadband deployment workshop organised by the Central Coast Broadband Consortium (CCBC) earlier this month. Public works professionals from other Monterey Bay area cities and executives from local Internet service providers quizzed him on construction details and operational plans. Particularly interesting to the ISPs was the decision to put fiber access points every three hundred feet, at least along the new sections of the route. The closer together those points are, the less it’ll cost, on average, to hook up businesses along the way.

Watsonville is a city of about 50,000 people in southern Santa Cruz County. Its neighbor to the north, the City of Santa Cruz, isn’t much bigger but there’s a whopping difference in median household income: $63,000 versus $46,000 in Watsonville. Improving broadband infrastructure – for business and government – is a high priority and seen as a critical resource for closing that gap. The City of Watsonville has been an entrepreneurial broadband champion, serving as the lead agency for the CCBC and developing a broadband mapping and analysis center that serves the region.

Muni WiFi still has utility, and at least two utilities

Originally, it was just the poles in Chaska that had a retro look.

The first generation of municipal wireless providers is mostly gone, as fiber takes precedence and mobile networks grow. One of the survivors deserves particular mention: the City of Chaska, Minnesota.

I visited Chaska several times in the course of building and running a similar WiFi-based broadband utility in Lompoc, California. Chaska’s project led ours by a few months and the lessons learned there saved us time, money and a lot of trouble. Not that we didn’t make plenty of our own mistakes learning opportunities.

Chaska used the original Tropos mesh WiFi network technology to blast a signal throughout the city, with the expectation of serving people inside their homes and businesses. It was a logical upgrade to the existing dial-up service the city offered to residents.

With no DSL or cable modem service – a common situation ten years ago – the kilobit-class service WiFi could deliver over a wide area was a killer advantage. By building on its existing dial-up base, Chaska.net grew to more than two thousand paid subscribers, which represented about a quarter of the city’s households. We never came close to that take-rate in Lompoc, and I don’t know of any muni WiFi system that did.

As wired and mobile infrastructure was built out in cities and WiFi’s serious limitations as a carrier-class technology became clear, muni wireless turned into an amenity for most people, although it remains a lifeline for some. Unlike most of their contemporaries, both Chaska and Lompoc are 1. still in business and 2. charge a fee for service. Maybe not for much longer, though.

With the subscriber count at a still impressive 1,400, Chaska has to choose between a multi-million upgrade or pulling back. Maybe even shut down WiFi service altogether. But it’ll still be in a broadband business it pioneered: it was running a muni fiber network before fiber was cool, and that’s going strong.


Gigabit Seattle raising FTTH attention but not cash

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.

Real world planning brings real free WiFi to Santa Clara

by Steve Blum • , , , ,

Free WiFi coverage in most of Santa Clara.

It’s a beautiful thing when the pieces fall into place and a city can maximize the value of past investments and decisions. Particularly when it means better and cheaper broadband service.

Santa Clara is rolling out an elegant solution for universal Internet access. The city owns and operates its own electric utility, and put in a fiber optic network to support it. The fiber’s reach is limited – it’s definitely not FTTH scale – but it’s enough to make broadband connectivity relatively easy throughout the city and keep the cost of Internet bandwidth down.

Along the way, the city picked up the remnants of a failed private WiFi service provider – MetroFi – and started installing smart meters for electricity customers. Which need to be networked.

So Silicon Valley Power, as the municipal electric utility is called, tied everything together to provide near-ubiquitous WiFi coverage and opened it up for free. Just a week into it, 3,000 people a day are connecting, according to the San Jose Mercury News.

Connection speeds are email-grade and security is minimal, but hey, it’s free. The public WiFi service as such won’t pay for itself. It’s not exactly being subsidized by the electric utility, since there’s little extra cost involved in letting public Internet access ride on the back of system that’s otherwise needed for operations.

An uncommon set of circumstances make it possible: a municipal electric utility and fiber optic backbone, a previous metro-scale WiFi system, and a smart meter upgrade. It’s definitely not a model for the majority of cities to follow, except in the sense that most have assets and resources that might help build better broadband, in one form or another. Palo Alto has a municipal electric utility and backbone fiber too, and is looking at WiFi options. San Leandro leveraged traffic signal conduit to jump start a commercial dark fiber network.

Santa Clara built a municipal broadband system by balancing the specific needs and wants of the community with available resources and realistic expectations. No hype, no drama. It’s an example to remember.