Tag Archives: tacoma

Tacoma moves from courtship to consumation of deal to sell muni broadband system. Maybe

by Steve Blum • , , ,

Good to be the king

The Tacoma city council unanimously approved a plan to lease its municipal cable system, called Click, to a relatively small local Internet service provider. After years of study and negotiation, the choice came down to turning over the struggling system to one of two locally based companies: Wave Broadband, which has a growing footprint of cable and telecoms operations in California, Oregon and Washington, and Rainier Connect, which operates primarily as a reseller in the Tacoma area.

The winner, according to staff, the Tacoma public utilities board and CTC, a consulting firm, was Rainier. The Tacoma city council agreed, and passed a resolution authorising formal contract negotiations with Rainier. The final agreement is expected to be completed by the end of June.

Or not.

Based on what I’ve been reading, which I’ll cheerfully admit is only what’s been made public and doesn’t offer much of a peek behind the scenes, there’s a good chance the deal with Rainier could collapse as the city does its due diligence research and tries to craft an agreement that will withstand full financial scrutiny.

The council resolution contains a helpful table that outlines the differences between the proposals made by Rainier and Wave. Overall, Rainier simply promises to give the city more – more money, more control, more perks – but, according to the CTC report, only appears “to have the capability to scale up operations to meet its proposed obligations” which are considerably greater than the promises made by Wave, which already operates at the necessary scale.

Wave vs rainier 26mar2019

A key difference is the annual lease payment. Wave proposed paying $1 million a year, while Rainier offered an annual payment that begins at $2.5 million and grows to $3 million in year five. Both companies say they’ll upgrade the system to gigabit capacity but, here too, Rainier makes the bolder promise.

To meet these commitments, both companies need access to capital to cover upgrade costs and to finance lease payments to the city, while they turn around a business that’s in the red and make it profitable enough to stand on its own in a three-way competition with Comcast and CenturyLink. It’ll be up to city staff and outside financial advisors to dive into the numbers and decide whether 1. Rainier’s offer is based on a plausible business case and 2. if Rainier has the assets, management and credibility necessary to convince lenders and investors to carry its losses while it tries to execute it.

Wave already competes as the third wireline provider in other communities, and has a bigger balance sheet than Rainier. Despite being headquartered in the Puget Sound area, it’s not locally owned – its corporate parent is a private equity company that paid $2.4 billion for it last year – so its less generous offer might be the result of higher internal return on investment requirements and/or debt servicing needs. But it could also reflect hard won experience over small business hope. The City of Tacoma has until the end of the month to figure out which it is.

More documents regarding the City of Tacoma and Click are here, and more blog posts are here.

Tacoma weighs risk and reward with list of muni broadband suitors down to two

by Steve Blum • , , ,

The City of Tacoma has narrowed the list of possible buyers of its municipal cable system – aka Click – down to two local companies, Wave Broadband and Rainier Connect. A year ago, the city issued a request for information and qualifications and received responses from five companies. Only two initially met the city’s specifications – Wave and Yomura Fiber – but subsequent talks convinced Rainier to take on more risk, and led to Yomura’s exit, due to ownership concerns. Click is operated by, and operationally integrated with, the city’s municipal electric utility, which has a different set of federal rules to follow.

CTC Technology and Energy, an east coast consulting firm, helped evaluate the proposals and is recommending that the city go with Rainier, largely because it’s offering to lease the system for $2.5 million to $3 million per year, while Wave is only offering $1 million a year. But, CTC’s report acknowledges, Rainier is a riskier partner…

Wave is a large, private equity-backed, enterprise that is part of the sixth-largest broadband company in the United States. As such, it should easily be able to scale to meet the obligations contemplated in the term sheet and thus represents a very low risk proposition for the partnership.

Rainier Connect is a smaller, family-owned enterprise with far less scale and resources, and thus entails some more risk for TPU and the City than would a partnership with Wave. Rainier Connect does appear to have the capability to scale up operations to meet its proposed obligations.

Wave also has considerable experience building and operating broadband systems as the third player in markets with incumbent telephone and cable companies. Rainier doesn’t appear to have much, if any, experience as a facilities-based wireline cable company or Internet service provider.

Both companies promised to abide by network neutrality principles, and to offer discounted service to low income households, as required by the city. But they fudged on open access commitments.

As CTC’s analysis put it, both companies “will provide wholesale services consistent with its practices and policies in other markets”. Which really means that the access available to third party Internet service providers won’t be so open – in this case, probably a good thing because Click already competes with Comcast and CenturyLink in Tacoma. Forcing a private operator to cede space to other competitors on an unrestricted basis could very well lead to the kind of business case death spiral the Utopia project in Utah found itself in.

For now, the city is taking public comment before making a final choice.

City of Tacoma fact sheet, Click private/public partnership, 5 March 2019
CTC presentation, Click private/public partnership, 5 March 2019
CTC report, Rainier and Wave term sheets, 5 March 2019
CTC summary, Rainier and Wave term sheets, 5 March 2019
Rainier Connect, Click term sheet, 5 March 2019
Wave Broadband, Click term sheet, 5 March 2019

More documents regarding the City of Tacoma and Click are here, and more blog posts are here.

Teetering Tacoma muni cable system finds five potential partners

by Steve Blum • , , ,

Five companies are bidding to partner up with the City of Tacoma to help run its municipal cable system, which offers Internet and video services. The city issued a request for information and qualifications in March, and received five responses, according to a story by Candice Ruud in the Tacoma News Tribune (h/t to the BSL List for the pointer)…

One of the parties that’s interested in being a part of the future of Click Cable TV is Wave Broadband, the same company whose 2015 offer to lease Click for 40 years sparked a local political movement to keep the municipally-owned network in public hands…

Wave responded to the call and said it seeks long-term use of the Click network in exchange for compensating [the City of Tacoma’s municipal utility operation] with leasing fees, network upgrades and performance guarantees.

Local internet service providers Rainier Connect and Advanced Stream, both of which currently lease space on the Click network, submitted responses. European-based Yomura Fiber and relative newcomer Wyyerd also expressed interest in taking over Click’s operations.

According to the article, the two smaller, local ISPs – Rainier Connect and Advanced Stream – don’t appear to have the financial horsepower to meet the city’s requirements. Wave, which is also based in the Puget Sound area, and the two outside companies seem to have more financial and operational heft behind them.

The Click system needs financial help. It’s a 1990s cable system, mostly limited to 750 MHz of analog bandwidth, with an average node size of 1,200 homes. Click needs a big injection of cash to upgrade its infrastructure to support current, industry standard service levels, and stem its losses.

All of the five companies said they would meet the city’s 12 policy goals, which include adhering to network neutrality principles and running the system on an open access basis, maintaining public ownership and “maintaining financial stability”.

You can download the five responses here.

Tacoma seeks private sector help for its city-owned cable system

by Steve Blum • , ,

The City of Tacoma wants to hang on to its municipal cable system, but it’s looking for someone else to come in and run it. It posted a request for information and qualifications (RFI), asking private sector companies to propose business models.

Examples given include leasing out the system as a whole to an operator, bringing in a company to manage it or running it as an open access system, where competing retail providers would buy wholesale capacity from the system and take responsibility for selling it to customers. Click already runs its Internet service business on an open access basis, but sells video service directly to subscribers.

There are strings attached…

The City seeks a Provider interested in expanding the existing customer base, advancing broadband connectivity services to residents and businesses in the community, upgrading the network as required, providing operational support, and supporting the 12 critical community policy goals defined in Section II. The Partnership Arrangement could be a lease of the HFC network assets described herein, a management contract pursuant to which the Provider operates such assets, a partnership of another form with respect to such assets, or any other contractual arrangement that satisfies the City’s objectives.

Those 12 policy goals include maintaining public ownership, running an open access network and abiding by network neutrality principles, particularly no paid prioritisation. That would seem to rule out a major incumbent, such as Comcast or CenturyLink, since all three of those restrictions run counter to their core business models. Wave, which is much smaller nationally but calls Puget Sound home, might find the flexibility to qualify, though.

The Click system needs an upgrade, but in its current condition the system can’t support it on its own. Most of it is limited to 750 MHz of analog bandwidth – not bad when it was built in the 1990s, but not so impressive nowadays when the standard is 1 GHz or better – and the average node serves 1,200 homes, which is a critical bottleneck when it comes to delivering high speed Internet service.

Responses are due on 27 April 2018.

Request for information and qualifications for partnership arrangements for Tacoma Power’s Click network, 23 March 2018.

Tacoma muni fiber upgrade will need city subsidies, and that’s the optimistic case

by Steve Blum • , ,

If the City of Tacoma wants to hang on to control of its municipal cable system, adding broadband to the service – as the city council voted to do – won’t be enough to pay the bills. Financial help from the city will be needed to upgrade the system to gigabit capacity, according to a presentation prepared by a consultant for the Tacoma public utility board, which shares oversight responsibilities with the council.

The plan – called the “All-In Retail Option” – would have the city reject offers made by local companies to lease the system, called Click, and take over operations, and instead take over the broadband business other private ISPs run via re-sold wholesale access. Internet speeds would be boosted to a gigabit and a triple play bundle would be developed. That costs money, though, and the presentation concludes that “based on legal and financial advice, do not believe it is responsible or prudent for Tacoma Power to consider”, but the upgrade “could be financed by General Government”.

Even then, the system would need a complete makeover. Union contracts – which boost costs above comparable systems – would have to renegotiated, head count would have to be cut and subsidies – from the city or electric ratepayers (it’s run by the muni electric utility) – would still be necessary until breakeven is reach. And that’s the best case scenario, which assumes the system will double its broadband subscriber count.

Acting against those assumptions is increased competition. Comcast is in the market, and CenturyLink is already exploring its own fiber upgrade. According to the presentation, CenturyLink has approached the utility department about hanging fiber on city poles. “As a new triple play provider, and one with a gigabit network, they will significantly impact Click!’s future success”, it reads.

Even so, the Tacoma city council gave utility staff until April to come up with a business plan to make it all work. It’ll be interesting to see if the council still wants to go “all in” once it knows what the stakes will be.

Tacoma city council votes to double down on muni broadband

by Steve Blum • , ,

Go, but try to keep it in the city.

Tacoma’s municipal cable system will remain city owned and operated, at least for the foreseeable future. The Tacoma city council voted to reject offers made by locally-based broadband companies to lease the system, invest money in upgrades and operate it as a private business. Instead, the council told the city’s municipal electric utility, which runs the system, to come back with a business plan for keeping it in public hands by next April.

That plan is supposed to include Internet service. The system, called Click, delivers broadband to users, but it’s via private companies that re-sell wholesale access. The Tacoma council wants Click to bring everything in house, in the hope that broadband will improve the business case to at least breakeven.

As it is, the cable system is losing money and the city’s many electric customers are picking up the tab for the relatively few cable and broadband subscribers, according a memo prepared by the head of the muni utility department

Due to unanticipated evolution in power utility metering technology and in telecommunications technology and the CATV and broadband marketplace, Click! is now costing electric ratepayers approximately $5.5 – 7.5 million per year more than it is collecting for its services. The 1997 Business Plan is no longer viable and offers no financial value to Power or the electric ratepayers.

In other words, the electric utility doesn’t need an in house telecoms system to manage itself, and Click isn’t paying its own way. Another problem is the upgrades the system will need to remain competitive against Comcast and CenturyLink. Rising programming costs and a slowly deteriorating competitive position make continued city ownership difficult without subsidies of some kind. But the Tacoma city council wants to give it try.

Muni HFC broadband subsidy lands on Tacoma electric bills

by Steve Blum • , ,

The meter is running.

Tacoma’s municipal electric system customers are paying more than three bucks a month to keep the city’s ageing broadband system running, whether they buy service from it or not. The municipal hybrid fiber cable TV system, which also supports Internet service, is reckoned to be losing $9.5 million year, according to a story by Kate Martin in the Tacoma News Tribune

[Tacoma Public Utilities] bosses have said that anything Click cannot pay will be borne by Tacoma Power customers, not all of whom can buy Click cable or Internet service. The subsidy represents about 2.5 percent to 3 percent of a power customer’s monthly bill, or about $3.20 to $3.84 on the $128 monthly bill of a typical residential customer with electric heat, Gaines has said.

That subsidy – and the prospect of even greater losses as the system receives needed upgrades – is what’s driving the city to entertain purchase offers from Wave Broadband and a local ISP. The original assumptions, made back in 1997, about the cable TV business and the need for electric utilities to build out data networks no longer obtain, according to a presentation made to the TPU board

The original vision for Click was optimistic, placed emphasis on cable TV, and committed to an unsustainable hybrid business model. The hybrid business model has not been able to withstand business environment and consumer consumption changes. A wired network is no longer needed to support [automatic meter reading] as the industry shifted to wireless, as will Tacoma Power…Under the current business model, Click revenues do not cover the cost of Click services whether factoring in debt service or not.

The system is already losing subscribers: 19,000 now versus 25,000 five years ago. Tacoma has 170,000 electric customers. Say they’re paying an average of $3.50 a month to keep Click in business. To get the same amount of money from Click’s subscriber base, cable bills would have to go up by more than $30 a month. That’s not going to work.

Tacoma gets a competing offer for its muni broadband system

by Steve Blum • , ,

Another company has joined the bidding to take over the City of Tacoma’s ageing cable TV and broadband system, aka Click. Rainier Connect, a local cable, telephone and broadband company, says it’ll more or less match the terms offered by Wave Broadband and add a sweetener for Tacoma Public Schools.

Tacoma’s muni system is losing $9 million a year, according to recent reports and will also need extensive upgrade work. Wave stepped in with a proposal to pay the city $2 million a year for 40 or more years, and also invest an additional $1.5 million annually in plant upgrades.

Rainier is one of three ISPs that resell broadband capacity bought on a wholesale basis from Click, so it knows both the system and the local market. The sweetener is a program it’s setting up with Tacoma schools that would offer free – and adult content-filtered – Internet service to families on a subsidised lunch program. The offer sheet says Rainier is committing $500,000 a year to that effort, although it’s not clear how much of that is actual cash out of pocket and how much is reassigned costs for in-kind support.

There are advantages to working with a locally owned company with a 100-year history, although Wave’s headquarters are just up the road in Kirkland. For both companies, the questions will – or at least should – be whether they have deep enough pockets to keep their financial commitments, even if costs are higher or the take rate is lower than expected. That inability to ride out unexpected bad times is what did in Provo’s muni FTTH system.

Tacoma considers a private bailout plan for muni broadband system

by Steve Blum • , ,

Local choice is not a free ride.

The City of Tacoma might back out of the cable TV and broadband business, and lease its municipal cable system to a private operator for 40 years (h/t to the Baller-Herbst list for the pointer).

The muni system – branded Click – was built on the back of a fiber optic network originally installed to support the city-owned electric utility. It competes against Comcast and CenturyLink, which is a benefit to local residents in the sense that they have a third option and a source of pressure on what would otherwise be cable and telephone monopolies. But it comes at a price: the electric utility is subsidising the broadband and video operation to the tune of $9 million a year according to the most recent articles.

A few months ago, the annual loss was pegged at $3 million – I’m not sure where the discrepancy lies, but accounting for cross subsidies between an electric utility and a co-owned and operated broadband system is an art, not a science.

Wave Broadband is offering to lease the system for $2 million a year, with another $1.5 million a year pledged for investment. Wave, and its sister company Astound, have experience in the overbuild business, operating systems in the San Francisco Bay Area that also compete with Comcast, as well as AT&T. It promises to upgrade at least some customers to what it calls a “Gigabit broadband service”.

The decision is up to the Tacoma city council. Some members have expressed serious reservations about turing Click over to a private operator, but current losses combined with increasing television programming costs and the need to keep investing in system upgrades makes an exit strategy of some kind increasingly attractive.

Tacoma loses money on muni cable, won’t go all in on broadband to make up the difference

by Steve Blum • ,

Tacoma, Washington has a municipal broadband network that started out offering cable television service and then later added broadband. The system grew out of a fiber network that was originally installed to support the city-owned electric utility.

Called Click, the hybrid fiber-coax system was upgraded to DOCSIS 3 standards a couple of years ago. It competes with Comcast head-on, and with CenturyLink in the broadband space. Like any small cable system, Click has struggled with increasing programming costs. But since it’s run by a public agency, its ability to raise subscription rates are constrained by political factors as well as economic ones.

Overall, the system has lost money, something like $2 million a year according to a presentation prepared a couple of years ago when the city council was considering a rate increase. A recent article in the Tacoma News Tribune by Sean Robinson confirms that trend continues, with electric customers picking up the short fall…

Some of Click’s fiscal woes are structural, [public utility director Bill Gaines] said: As a public entity, Click is bound by union contracts and personnel expenses that private outfits don’t face. Lacking Comcast’s massive market share, Click has a tougher time negotiating programming rates.

In the big-picture sense, the $353 million utility can easily absorb the cable expense overruns with minimal impact on electrical ratepayers — the subsidy amounts to slivers of fractions of pennies on the dollar — but it’s still bad business.

“Right now, this thing (Click) is being subsidized to a degree by the electric power customers because it’s not recovering all of its costs,” Gaines said. “That will get worse over time, and that’s really not fair. It’s not fair to the electric power customers — so we’re trying to get out of that box.”

According to the article, it’s the cable TV side of the business that’s losing money; broadband is said to profitable, at least on an operating basis. But it wouldn’t be a money maker if TV service was axed: broadband cash flow alone won’t cover fixed expenses.

One option that’s being considered is selling the system off and getting out the business completely. Another is to double down on broadband.

Like other publicly owned power systems in Washington state, Tacoma runs an open access network. It sells broadband connections to private ISPs at wholesale rates, which in turn set their own prices and re-sell to consumers. It’s similar to how the Provo, Utah system was run before it was sold to Google for $1, because the revenue generated couldn’t keep up with operating expenses and bond repayments.

To claim the full share of Internet revenue, Click would have to start competing with ISPs at the consumer level, as it already does for commercial and industrial-grade accounts. Not surprisingly, the idea has generated considerable push back from those ISPs, which has been sufficient to stall the idea.

For now, Click remains in a holding pattern, while city officials consider their options.