What is Needed for Successful Municipal Broadband Internet Service? (Part 1)

Technologists weighed in on the conditions necessary for successful municipal broadband Internet service provision and operation.

The following question about municipal broadband was posted on Quora:

“What conditions in law, area to be served, organization, and community support are necessary for successful municipal broadband Internet service provision and operation? Some cities operate dark fiber networks (cf. Stokab A/B in Stockholm, Sweden), others operate their own Cable provider Internet (cf. San Bruno, CA; see San Bruno Cable TV). What conditions did these cities set for success of Municipal Broadband?”

K. Scott Helms, Momentum Telecomm, answered February 27, 2015:

I’ve been involved in lots of muni broadband projects, including one of the ones listed in the question.  It’s certainly a mixed bag in terms of how they define success, but I commonly see a few things in systems that last:

  1. Services to the city and other public institutions.  This is one of the prime reasons cities get involved in the broadband business.  The cost to get city hall, libraries, the police department, and other buildings connected can be expensive and providing those services to themselves has been a key component in every successful muni system I’ve seen.
  2. Services to residents.  The second most common reasons cities get involved is because citizens are complaining that there isn’t access or it’s some combination of too slow and too expensive.
  3. Make a profit.  Often the goal for the city is not to make money, but instead to break even on the operation.  I advise against this approach, since it often causes the city to price the product too low to be sustainable.  Every successful muni deployment I know of tries to have a profitable operation, even if it’s not to the same profit margin that a private company might go after.
  4. You can’t cover or please everyone.  This one is really really hard for cities.  You will invariably find there are people who aren’t happy with the service and/or can’t get coverage.  City boundaries aren’t laid out with broadband plants in mind and because it costs money to provide coverage you _must_ do a ROI estimate for every area you build in.
  5. Open access is nice on paper, but is really hard and costs more. I worked with a mostly successful muni who had to do open access because of pressure from some vocal businesses in the area.  The deployment cost about 30% more than it would have otherwise and the ongoing costs were also significantly higher.  There was also about a 6 month period where we had to work with a major equipment vendor to get open access working correctly on their DOCSIS CMTS.
  6. Don’t go it alone.  As Stan Hanks indicates most cities do _not_ have employees with the needed skills sets nor can they easily attract them.  There are several companies that can offer various levels of assistance and with a very few exceptions the successful muni networks I know of use them to one degree or another.  I will note, that there are cities that do it completely on their own, but in the two cases I have personal knowledge of it’s because of nearly unique individuals.  In one case a city has access to free assistance from a senior engineer at a major networking equipment manufacturer who helps them for free and in the other a city employee was formerly a senior employee at a major cable company in their technology group.

Sean Stokes, Principal at Baller Herbst Stokes and Lide, answered March 4, 2015:

I have been involved in municipal broadband for over twenty years, and have been involved in most of the key federal and state legislative and judicial battles involving state barriers to public entry, including being part of the legal team that represented the cities of Chattanooga and Wilson, NC before the FCC in last week’s Commission decision to preempt state law restrictions on municipal broadband in Tennessee and North Carolina.

Legal Environment

An optimum legal environment is one that allows a local governmental entity to engage in the full range of communications services that it desires to provide – voice, video and data services.  While not all municipalities   will want to provide all of these services, they should have the flexibility to provide all of the services that the community deem necessary and appropriate to meet the community’s specific needs and to ensure the financial viability of the network.

Similarly, a municipality should be able to provide services at the level that makes sense for its needs – as opposed to being subject  to artificially imposed constraints, such as being required to operate on a wholesale-only basis.  While wholesale service may or may not make sense, this should be determined by the specific facts, needs and desires of the community, as well as the ability to adjust its business plan based on changing circumstances.

Most entry issues arise at the state and local level as opposed to the federal law.  While there may be a number of compliance and regulatory issues at the federal level, entrance for most service is relatively straight forward at the federal level.

In the US, federal law encourages local governments to provide communications services of all kinds, but it does not affirmatively empower them to do so.  For enabling authority, a local government must look to state and local law.  Local governments are not considered independent entities but are treated as political subdivisions and agencies of convenience through which their states carry out their responsibilities.  As such, local governments are deemed to have only such powers as their States give them, either explicitly or implicitly, in the state constitution or in acts of the state legislature.

Moreover, a grant of authority to provide one kind of service may stop short of a grant of authority to provide other kinds of services.  For example, in City of Bristol v. Earley, 145 F.Supp.2d 741, 745 (W.D. Va. 2001), the federal district court found that the City of Bristol, Virginia, had authority to provide “telecommunications services” under a State law that authorized localities to provide “public utilities.”  A year later, the same court found that Bristol did not have authority to provide “cable services” because the term “public utilities,” as strictly construed under the Virginia’s law did not encompass “cable services.”  Marcus Cable Associates, L.L.C. v. City of Bristol, 237 F.Supp.2d 675, 678-79 (W.D. VA 2002).

Since the federal Telecommunications Act of 1996 was signed into law, incumbent local exchange carriers and cable operators have increasingly pursued the enactment of state barriers to municipal entry State Statutory Barriers to Public Broadband Initiatives – Baller Herbst Stokes & Lide, PC

Many of these laws impose a range of substantive and procedural requirements that would be difficult, if not impossible, for any entity to meet, whether public or private.  For example, some of these laws require local governments to impute phantom costs into their rates, thus raising prices to non-competitive levels.  The process of imputing costs is also highly subjective and inexact, thus paving the way for endless protracted disputes.    Other restrictions include, requiring public entities to show that their projects would be cash-flow positive within the first year of operation – a requirement that no capital-intensive project could meet, still others require public entities  to only engage in wholesale activities.

Having A Municipal Electric Utility Helps

While by no means a requirement for success, communities that own their own municipal electric utility have a number of inherent advantages in optimizing the success of a municipal network.  In addition to fundamental familiarity with running a proprietary activity (as opposed to governmental), municipal electric utilities own poles ducts and conduits, and often already operate fiber and communications networks to meet their electric service requirements.

Also, these communities already have had the experience of deciding to provide a service for themselves.  Many of these electric utilities developed in communities that were literally left in the dark as private-sector electric companies pursued more lucrative opportunities in larger population centers.  Residents of these unserved or underserved communities banded together to create their own power systems, in recognition that electrification was critical to their economic development, educational opportunity, and quality of life.  Public power systems also emerged in several large cities – including Cleveland, Jacksonville, Los Angeles, Memphis, Nashville, San Antonio, Seattle and Tacoma – where residents believed that competition was necessary to obtain lower prices, higher quality of service, or both.

The patterns that marked the evolution of the electric power industry are now repeating themselves in the communications industry.  As incumbent private communications providers focus on large population centers, many smaller communities are at risk of falling behind in obtaining the full benefits of the Information Age.

In response many of these same communities that formed electric utilities last century are now facilitating the development of ultra-high speed broadband communications networks in their communities.

Google Fiber Launches Gigabit Broadband in Seattle

Types of Services and Business Models

There are a wide range of possible service offerings, from relatively passive dark fiber leasing to, wholesale transport, to the provision of lit services to the end-user customer.  There are also a range of business models such as serving government and community anchor institutions or full blown retail services. Generally the risk, expense and reward potentials go up as an entity moves along the food chain.

Often communities take an incremental approach building out where they have internal operational needs and anchor facilities, extending from there both in terms of infrastructure and the range of services offered. Others communities plan to build out the community from the beginning. There is no one-size, fits all, approach, nor is it a static model.

The decision of what services to provide (and indeed whether to provide them at all), and how to provide them, including the extent of public private partnerships should be individually determined by each community, based on its specific facts, resources and circumstances based on their own feasibility studies, and the legal, political environment. Beware of cut and paste power point consultants hawking a particular business model.

I can’t speak to the experiences of the other commenters as to the reported problems that they have experienced with community broadband systems.  While there have certainly been some stumbles among a few municipal networks, these projects collectively amount to only a tiny fraction of the nearly 400 municipal broadband projects operating in the United States today, including 89 fiber-to-the-home projects community broadband networks.  Of the 400, several have been spectacularly successful by any measure, and most are at least breaking even.  That is significant because the mission of public broadband projects is not to earn high short-term profits for distant shareholders, as private networks must, but to cover their costs while providing the community the highest possible quality of service at the lowest possible price, based on their specific needs.

While opponents of municipal broadband often talk about tax payers being on the hook, the reality is that most community broadband networks in the U.S. do not utilize taxpayer funding. Instead these networks often utilize revenue bonds or certificates of participation funding.

Moreover, community broadband networks routinely make payments to the city in lieu of taxes that often exceed the tax payments by private providers.  In 2013 the city of Thomasville, GA cut its local taxes in part because of the success of its municipal broadband network. Thomasville Removes Local Tax, Citing Strong Broadband Revenues

In Chattanooga the success of its broadband network has helped keep its electric rates down and has contributed to an upgrade of its bond rating. Not to mention, the millions of dollars that communities save by cutting the reliance on leased circuits for government departments in favor of utilizing their own broadband networks that provide superior service at a fraction of the cost.

A key motivator for many community broadband efforts is economic development — both to retain existing businesses and to attract new ones.“Economic Development: The Killer App for Local Fiber Networks,” Broadband Communities Magazine, Nov-Dec 2014 – Baller Herbst Stokes & Lide, PC

A recent article in the New Republic detailed some of the successes that community broadband networks have had in contributing to the communities attracting new businesses. “Online travel company Expedia recently moved a major call center to Springfield, Missouri, a city with community broadband, creating 900 jobs. Chattanooga cites its gigabit service as crucial to attracting an Amazon distribution center and a Volkswagen auto assembly plant. Lafayette, Louisiana is being called the Silicon Bayou, bringing in multiple tech firms on the promise of its 21st-century digital infrastructure.”  The Most Important Decision the FCC Made Last Week Wasn’t on Net Neutrality

Some common traits shared among  successful community broadband projects is that they

  • Treat the activity as a business,
  • Conduct detailed feasibility models involving everything from engineering and operational issues to financing, marketing and revenue requirements, and then constantly
  • Re-evaluate those plans as conditions warrant.

Successful community broadband networks share and exchange information with other such networks to find out what works and does not work.

Community leaders and businesses need to be involved at the front end.

Interestingly, despite the caricature by opponents of municipal broadband as a form of creeping socialism, many of the more high profile and successful municipal broadband networks are in relatively conservative areas of the country, such as Lafayette, LA or Chattanooga, TN.  In these areas the communities got the support of the chamber of commerce and key business stakeholders who understand the critical need for broadband capabilities.

Successful community broadband networks need to have well qualified people on staff and they need to take the time to attract and or train them, or partner with firms that can provide those capabilities. I can’t speak to the experience of other commenters, but the folks I have seen at municipal broadband networks can stand toe-to-toe with their private counterparts. I know of municipal FTTH network engineers that Google Fiber has poached.

Also, by and large this aint rocket science.  Billy Ray, the head of Glasgow Utilities, one of the first community broadband networks in the county, likes to tell how they watched the local cable employees going in and out of work and realized that they put their pants on like anyone else. He and his team then proceeded to provide cable and broadband services and eat the local cable operator’s lunch. His network has now been around for 30 years.

Keep in mind that it was municipal systems, and not private entities, that deployed the first city-wide fiber networks.

Moreover, while it is fun to compare municipal customer service to the local DMV, the fact is that municipal utilities on average have a far higher customer satisfaction levels than their private sector counterparts – and have a far better level of local accountability than the average Comcast customer representative.

Successful community networks need to be careful not to suggest that there is a battle of public versus private, but instead recognize the value of public/private partnering, and work with industry to mutually enhance their capabilities and opportunities.

Municipal broadband is not for the faint of heart.

Successful community networks hope for the best and plan for the worst.  In particular, communities contemplating a municipal broadband network should anticipate aggressive legal and political challenges, competitive responses and anticompetitive practices by opponents, particularly by the incumbent providers and their trade associations, think tanks and politicians.

As if the legislative barriers discussed above were not enough to discourage local governments in the affected states from pursuing public communications initiatives, the established carriers have routinely used litigation or threats of litigation to intimidate local governments into foregoing or abandoning such initiatives.

For example, Bristol, Virginia; Cedar Falls, Iowa; Chattanooga, Tennessee; Glasgow, Kentucky; Hawarden, Iowa; Lafayette, Louisiana; Laurinburg, North Carolina; Monticello, Minnesota; Morganton, North Carolina; Niceville, Florida; North Kansas City, Missouri; Portland, Oregon; Reedsburg, Wisconsin; Truckee-Donner, California; the UTOPIA project, Utah; and numerous other local governments have all had to waste countless hours and dollars on disruptive litigation before the courts, public service commissions, bond commissions, and other agencies. While the carriers have lost the great majority of these cases, they have nevertheless benefitted from them in other ways – e.g., by driving up the costs of public communications initiatives and thus making them less effective competitors, and by deterring untold numbers of communities from engaging in similar projects for fear of being dragged into similar litigation, however frivolous the claims may be.

Read more answers:

The 6 Hurdles Facing Your Municipal Broadband Project

Learn about other legal roadblocks to expanding municipal broadband:

Mayors React to U.S. Court of Appeals Broadband Decision

 

About the author

EfficientGov Staff

EfficientGov is an independent information service providing innovative solutions to fiscal and operational challenges facing cities and towns around the world.