Google Fiber’s Utah expansion appears limited to Salt Lake City and, maybe, some surrounding areas. In its announcement and press event on Wednesday, the Google team talked about “metro area—Salt Lake City”, but the emphasis was on the city proper.
One of the cities that opted out, Orem, is apparently feeling pressure to change its mind. According to a story in the Orem Daily Herald, some see a connection between the opt-out and the Utopia board’s reluctance to expand…
Councilwoman Margaret Black posed the question that most council members were thinking.
“Are we getting the short end of the stick because we opted out of Macquarie?” asked Black, referring to Macquarie Capital Group, the investment company looking to negotiate a contract with UTOPIA for buildout of the fiber network.
“There is a concern that Orem is unpredictable and not easy to work with,” [city manager Jamie] Davidson said. “It’s concerning to me to see new options entering the market with a stranded investment for the future.”
“Now, another city in the Silicon Slopes is poised to show the world what’s possible with gigabit Internet. Today, we’re ready to bring Google Fiber to one more metro area—Salt Lake City”.
…It’s a logical expansion out of its nearby Provo base. One question to be answered: does the expansion into the metro area include the Utopia systems? The eleven cities covered by that muni fiber to the home project have been looking for a bail out, with six deciding to move forward with a everyone pays, everyone gets plan developed by by Macquarie Capital.
…officials gave only generic detail on what’s coming as a huge opportunity involving a major company mirroring Google’s involvement with Utah County.
They’re referring to Google’s take over of the municipal FTTH system in Provo, earlier this year. Talks regarding the possible buyout are cloaked in secrecy. That’s common – often legally required – practice in the private sector, but it’s raised a predictable storm of protests in a public sector context. There are 11 cities that are paying members of the Utopia project, and those officials were required to sign a non-disclosure agreement. Again, controversial for elected representatives but course of business for a corporation (Silicon Valley lore would have you believe that mutual NDAs are a romantic prelude to a first date).
A private sector rescue would take at least some of the burden off of local taxpayers, who are backing the money borrowed to pay for building and, so far, operating the system. Utopia’s business case is a wreck up to this point, with take rates apparently somewhere around 20% and an open access structure that makes it difficult for service providers to take advantage of economies of scale.
The suitor might or might not be Google. Those briefed on the bid would only say it involves an “Internet giant”. Which could be Google or one of its rivals, either a major player from the content and services side of the industry or an incumbent telecoms company that figures the best defence is a good offence.
[The sign up] process is slightly different for those of you who live in apartment buildings or condos (what we call “Multi-Dwelling Units,” or MDUs). Since we need to bring Fiber to the entire building, the process takes a little longer. We are starting the conversations with landlords and property owners across the city. If you live in a building with 9 or more units, get in touch with your landlord and (1) tell them that you want Google Fiber, and (2) ask them to fill out this form. A member of our local Provo Fiber team will contact your landlord to discuss next steps on how to bring gigabit speed to your unit.
There’s a link that leads to an online interest form that asks landlords how many properties and units they have in Provo, and whether it’s apartments, condos or student housing. It doesn’t explain costs or offer to discuss terms. It simply concludes with the question:
What billing methods would you be able to conduct for the construction fee? EFT, Credit Card, Check?
Judging by the lack of ripples in cyberspace, the upcoming $45 million broadband bond election in Longmont, Colorado is not generating a boisterous debate. Granted, it’s difficult to gauge Rocky Mountain political temperatures from beachside in California, but signs of passion, pro or con, are few.
Are my electric rates expected to increase to repay this bond? No. Although the bonds are backed by the LPC enterprise fund in order to obtain favorable interest rates, the electric and broadband operations are independent from an accounting perspective. The broadband feasibility study shows solid financial viability and that broadband revenues will be sufficient to cover all of the costs associated with providing the broadband services.
The city gets “favorable interest rates” because bonds backed only by broadband revenue are reckoned to be particularly risky, with interest rates running two to three times higher. As residents of Provo discovered, broadband bond payments backed by electric service revenue do end up on electric bills when the business model turns sour, even if Google steps in and buys what’s left. The city has kept the details of its feasibility study under wraps, but the summary presentation it released appears to rely on optimistic take rate assumptions with no provision for the inevitable competitive backlash from Comcast and CenturyLink, the same two major incumbents that successfully contested Provo’s system in the marketplace.
“In Kansas City, my crews don’t wait for inspectors, the inspectors wait for them”, said Milo Medin, the head of Google Fiber. “We work with communities that make it easy for us. if you make it hard on us, enjoy your cable connection.”
Medin spoke last week to organisations funded by the California Emerging Technology Fund at a meeting hosted by Google in Mountain View. His message was that upgrading broadband infrastructure, improving service and lowering costs is an economic driver that should be proactively supported by policy makers and public agencies. “Cities and states can have policies that make building easier or harder”, he said.
Another example he cited is Austin, Texas, where the city says it’s adding ten new staffers to the permitting department to handle the expected flood of paperwork as Google’s fiber build out ramps up there.
The City of Provo in Utah certainly made it easier for Google to offer service, turning over ownership of a city-built but still incomplete fiber-to-the-home service for nearly nothing. Medin said Google Fiber’s first official customer in Provo was hooked up last week, as the transition from city ownership continues. The company is also opening a storefront Fiber Space in Provo, where curious customers can come and see what a gigabit connection would do for them.
One thing it’s already doing for people in Provo is lowering Internet pricing all around, as competition heads towards a boil. According to Medin, Comcast is offering 250 Mbps down/50 Mbps up for $70 per month and 105 Mbps triple play for $120 per month, matching Google’s price points if not its gigabit.
“Do any of you have a cable operator offering that in your area?” he asked.
I spoke with one of their sales guys who confirmed that Comcast will be offering a package of 250Mbps/50Mbps for $70 starting in September, but only in Provo. (Sorry, everywhere else.) This is in direct response to Google Fiber coming to town and will include a new modem with a built-in 802.11ac router to take advantage of the speed bump.
Whether 250 Mbps for $70 comes true or not, Comcast has already turned up the competitive pressure in Provo, meeting Google Fiber head on. Last month, it floated a $120 package that combined a solid TV package and 105 Mbps Internet with a choice of either telephone or home security service. That’s Google’s price point for just a decent enough TV package and a gig of Internet.
Comcast clearly wants to lock customers into multi-year contracts before Google has a chance to fire up its service in Provo. But throwing voice or home security onto the table is enough to kill the gigabit buzz. Whether it’s 105 or 250 megs, let along a gig, it’s more than the vast majority of households need, want or use right now. Trading bandwidth you don’t use for phone or security service is a no brainer.
Google has the speed, flexibility and resources to whack Comcast, if it wants. No need to waste tears.
Muni and small independent networks, though, that have gone up against Comcast’s total war and big lie tactics haven’t done as well. Comcast can afford to bleed profusely in a handful of its markets, if it means warning off risk averse competitors. The only choice left to the community networks it targets is whether to stand their ground and die quickly, or back down and strangle slowly.
As Google Fiber takes the reins in Provo, Utah, the city council in Longmont, Colorado is heading to the ballot box to, essentially, ask voters if they want to follow the same path. At least as far as using city electric bills as collateral.
The Longmont council voted in May to move ahead with plans to build a fiber-to-the-home system, leveraging an existing – and successful – municipal dark fiber business. Last week, council members looked at the available financing options. They could have decided to try to self-fund the project out of current dark fiber profits – about a quarter million dollars a year – but with construction costs estimated in the $35 to $40 million range and early FTTH operating losses a certainty, it would have taken a long, long time to complete the project.
So they decided to borrow the money – $44 million including interest and overhead – hoping that the FTTH system will generate enough cash flow to pay it back, but planning to pay with revenue from the city-owned electric utility if it doesn’t. Voters have to approve, and sometime this month the city council will set a date for an election. There’s already a city election scheduled for November, so that’s a possibility.
When Provo built its FTTH project, it also backed its bonds with its municipal electric utility. FTTH revenue fell far short of making the payments, so now Provo residents have an extra $5.35 per month tacked on to their electric bills, whether they use the system or not. Even that wasn’t enough to keep the system afloat, so Provo City sold it to Google for a couple of bucks.
Provo was lucky to have the Google option available, else the monthly tab would likely have gone higher. As it should be, it’ll be up to Longmont voters to decide if they want to make the same entrepreneurial gamble with their own electric rates.
Google got the system in exchange for a token payment and a promise to finish building out the FTTH system to everyone in the city, and provide free service for seven years at something like 5 Mbps to any resident that pays a $30 installation fee. Except for the lower installation fee ($30 versus $300), it’s the same pricing as on offer in Kansas City, including a gigabit option at $70 per month, or $120 with television service.
Except it’s not really a lower installation fee. Because Provo City is still on the hook for bond payments, residents will have to pay a $5.35 monthly fee to the City-owned electric utility during that time. Figured on a flat basis, the total tab for a household over the seven years is $450, plus the $30 installation charge, for a total of $480.
But figured from a consumer finance perspective, Provo comes out closer to even with Kansas City. Paying $300 upfront comes out about the same as making a $30 down payment and then paying off the $270 balance over seven years (at $5.35 per month) with a credit card-like interest rate of 16% annually. Google is getting the existing infrastructure and business instead of the monthly payments, but the value proposition is roughly equivalent.
It’s also picking up a $20 million to $30 million tab to finish extending the network to all Provo homes and paying for some other extras. And Google has to fully commit its mojo to boost take rates from the current 15–20% of households range to something more sustainable, likely in the neighborhood of 30–40%. It seems a fair deal for all, and a free ride for none.
The Longmont, Colorado city council settled for a staff report and a powerpoint presentation that summarized the results of a feasibility study, before voting unanimously to take the next step toward building a municipal fiber-to-the-home system. The nitty-gritty details – business model, raw research data, quantitative analysis and the like – are being kept out of the public domain for now.
The report asked the city council to allow staff to continue moving ahead with work on the project, and in particular to give the city’s finance director permission to develop a financing plan, based on various debt options. The bottom line, according to staff, is that…
Debt service repayment will come from the broadband services revenues. Details on financing will be presented at a future council meeting.
In other words, the assumption going forward is that once the system is up and running in something like three years, it will generate enough operating profit to repay the debt incurred to build it. Other municipal FTTH and cable systems – including Provo City and Utopia in Utah and Alameda in California – have gone ahead on that assumption but did not attract sufficient subscribers. The Utah projects have market penetration in the 15% to 20% range, while in Alameda the city’s share went as high as 30%, before slipping back due to intense competition. Longmont is counting on a 36% take-rate.
Three debt options are on the table: lease-back financing secured by city property, bonds backed by revenue from the city’s electric utility or bonds backed by sales tax receipts. If Longmont’s FTTH financial projections are correct, the system will be self supporting. If not, lenders will get any revenue or property offered as collateral.