Municipal Broadband: Who Pays the Bill?

Municipal Broadband: Who Pays the Bill?

Post ID: 40312 | POSTED ON: Aug 27, 2013

NEW YORK — I was a guest recently on an Internet radio talk show, “Gigabit Nation,” hosted by the municipal network specialist Craig Settles.  Craig was pressing me for an answer to a question:  How valuable is broadband infrastructure to a city, town or region?  How can a local government justify investing in a communications network? 

It’s a respectable issue and I tried my best to address it – and suddenly I found myself saying something I didn’t expect.  “It’s not the right question,” I told him.  “Seriously now, everybody who has ever used broadband at work, education or just for entertainment knows how valuable it is.   It connects you to resources that are literally global in dimension.  We’re not talking about whether or not it’s valuable.  We’re talking about who is going to pay for it.”

I find that a lot of discussions in the world – particularly in the American part of the world – come down to that essential question.  We know we want it; we just wish somebody else would pay the bill. 

To all of that, you may well have a question.  And that question is – really?  Is this thing that people use for posting cute cat videos on FaceBook really all that important?  If my community does not have a strong level of broadband, does it really matter? 

Not according to Maryland State Senator Catherine Pugh.  In an August 15 editorial in The Baltimore Sun, she wrote, “For the most part, municipally-built broadband networks have the economic chips stacked against them and, where tried, have saddled local taxpayers with a mountain of debt and half-built networks that are then sold at fire-sale prices to vulture investors.”

The truly interesting thing about Senator Pugh’s editorial is how thoroughly it blasts a global movement based on a couple of bone-headed mistakes.  She cites Provo, Utah, where taxpayers spent $40 million to build a small network that the city was forced to sell for $1 just to unload it.  Poor business planning had underestimated the long-term costs of operation and upgrade.

I say, why stop with a city in Utah?  Heck, Utah’s statewide Utopia fiber network is also in trouble.   Alberta’s Supernet is grossly underutilized.  The municipal network projects of Philadelphia, San Francisco, Chicago and St. Louis went down in flames long ago. In each case, one can point to the bone-head stuff: for political reasons, both Utopia and Supernet established rules that made it very hard to add users.  Cities wanted their networks built for free or listened to absurd promises without putting time and effort into a business case.  But there are very successful municipal networks that pay their own way. 


Paying Their Way

In Chattanooga, Tennessee, the municipal utility built a fiber-to-the-premise network to enable advanced smart grid solutions. Savings from the smart grid justified the network – the utility then went ahead with a 1 Giga bit/second broadband offer to add some sizzle to the business plan.  This Intelligent Community Forum Top7 Community made headlines worldwide in 2012 by launching a competition called Gig University to search for consumer and business applications that actually require such massive bandwidth.  We don’t yet know what they are – but we know they are coming.

In Parkland County, Alberta, the government has capitalized a network of interconnected wireless towers.  ISPs and business networking companies are taking advantage of the low start-up costs this infrastructure offers to deploy services in low-density areas that would otherwise be served only with dial-up. 

In Dublin, Ohio, the municipality started building a conduit network right after the 1996 liberalization of telecom to attract fiber carriers to this suburb of Columbus, Ohio.   Through a subsequent public-private partnership, the city created the DubLink network to connect city facilities and replace service from the telephone company,.  The city delivers no services except for government use, and leases conduit space or dark fiber to carriers. 

For Dublin, another Top7 Intelligent Community, the revenue from the network is far less interesting than the economic development opportunities it creates.  As Dublin installed more and more fiber in its conduits, it began doing capacity-sharing deals with other public and public-private entities. DubLink now interconnects with Columbus FiberNet, which reaches the state capital and four other cities in the metro area.  It partners with the Ohio Supercomputer Center (OSC), carrying some of the traffic on OSC's 1,600-mile fiber backbone.  In return, the OSC and Dublin joined forces to create the Central Ohio Research Network (CORN), a fiber infrastructure connecting governments, schools and businesses to Ohio colleges, universities, research institutes and Federal labs. 

The great granddaddy of municipal networks is Stokab, a city-owned company in Stockholm, Sweden.   It was launched in 1994 and laid a conduit network full of dark fiber and leases the fiber as a managed service to telecom providers.  When network construction began, Stockholm had three competing telecom providers.  By 2009 there were more than 90 and that year the Intelligent Community Forum named the city the World’s Intelligent Community of the Year.

This year, a research company called Acreo Swedish published an economic impact study on the 20-year Stokab experiment.  The analysts pegged the impact at 16 billion Swedish Krona, which is US$2.5 billion, from the following sources:

  • 31% Business growth and job creation due to the network
  • 25% Capital investment in the network plus accumulated profits
  • 20% Supplier spending on network construction and maintenance
  • 15% Network investments by property owners, increased property values and rental revenue
  • 8% Cost savings to government

Stockholm is known for its Kista Science City, where more than 1,000 ICT companies employ 24,000 people.  According to the report, science parks like Kista “would probably not have developed into the success they are today” without Stokab.

And for all the foes of big government boondoggles out there: Stokab was built without tax funds and was financed by loans and subsequent revenue.     


Getting the Essentials Right

So, what is the correct answer to the correct question: “How do we pay for it?”  Learning from communities around the world, there are some essentials:.

             – Start small and focus on payback in the short term.  For most municipalities, building a network to meet public-sector needs – communications, education, public safety, training – is practically a no-brainer.  Your municipality is probably writing checks every month to one or more private telecommunications carriers.  The overwhelming experience of cities is that they can build their own, gain enormous improvements in quality right away, and achieve payback in a few years.  In Westchester County, New York, a former County Executive whom critics liked to dismiss as “George Jetson” for his ahead-of-their-time ideas, persuaded cities, towns, school districts and water districts to redirect their $50 million in annual telecom spending to the regional cable TV company.  That company built them a fiber network collateralized by the assured revenue stream, which now includes more than 3,500 organizations.

            – Scale according to need – and political support.  Building a network to serve government’s own needs is the easy part.  Once you extend service beyond the government customer, you need to proceed with care to make sure you are serving real customers who will pay their way, and that there is political support in the community.  The exact steps you take depend on the regulatory environment and degree of public support.  Many municipal networks begin by extending service to industrial and office parks and standalone buildings.  By the time a government-only network is up and running, those customers are usually clamoring for an alternative to their incumbent providers, and there are fewer regulatory roadblocks to serving industrial customers.  In other cases, cities like Dublin choose to build conduit out along their rights of way and sometimes to install dark fiber, which they can lease to a customer or local network company that wants to run it as its own private property.  It takes a lot of political support to go the whole way: delivering voice, Internet and video services to residential customers.  The City of Bristol, Virginia took that route through its municipal utility and wound up paying $2.5 million in legal fees to ultimately win the right to compete.  The gamble turned out to be worth it, as the utility achieved a high market penetration and breakeven in a few short years, while saving residents and businesses an estimated $10 million over seven years.    

            – Infrastructure and service are not the same.  Traditional telecom companies build and operate their own infrastructure and deliver all services over it.  But there is absolutely no reason a municipal network has to do the same. The success of Stokab was based on its open-access model, in which the company built and operates the infrastructure but relies on competitive providers to deliver all services.   The traditional argument against municipal networks is that local governments don’t know how to run telephone companies.  True for the most part – but they are among the world’s leading experts at building and running infrastructure.  In the digital age, the difference between an intersection or sewer line and their broadband equivalent is becoming small. 

The next time you read a blanket statement about municipal networks – they are the answer to all a city’s woes, or, they are a guaranteed disaster – consider that all such statements are absurd.  In a global economy where industries are being born, reshaped, threatened or upended by the Internet, access to broadband has enormous value at the local level.  The municipal network movement is introducing new ways to pay the bill so the real discussion should be entirely about how to get it done.


Robert Bell is co-founder of the Intelligent Community Forum, a think tank that studies and promotes the best practices of the world's Intelligent Communities as they adapt to the demands and seize the opportunities presented by information and communications technology.  He can be reached through the ICF Web site www.intelligentcommunity.org.  




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