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.