Like you, I’m excited by the possibilities that faster, widely available, affordable high-speed Internet could create for our community. Having spent seven years researching, developing and launching new telecommunications services that generated $15 million annually, and managing existing services worth over $90 million in annual revenue, I learned how to quickly assess new ideas to see if they were viable and worth pursuing.
Respectfully, I encourage you, Redding Electric Utility (REU) leaders, and City Council members to thoughtfully answer these questions to assess whether the construction and operation of a municipal-owned fiber optic network is a wise use of funds.
I’ll share my thoughts along the way.
What will it cost to build and operate?
Electric Power Board (EPB) in Chattanooga, TN is the poster child for municipal broadband networks. When EPB’s fiber optic network was completed in 2011, it had invested more than $330 million to build it. A federal stimulus grant covered $111 million of that cost. The other $220+ million was obtained by selling bonds to investors, meaning Chattanooga taxpayers are responsible for interest and principal payments on the debt. While Redding is about half the size of Chattanooga, the investment would be significant. Can the City take on such debt and remain healthy while paying down nearly $300 million in unfunded pension liabilities?
Ongoing expenses must also be considered – the cost of the people, processes, systems, equipment, training, and tools needed to operate and maintain the network. It costs money to advertise and sell to customers, install equipment and wiring at customer locations, provide technical support and customer service, generate bills and collect payment, and remain in compliance with laws and regulations.
What are the risks?
In 2004, Provo, Utah, sold $39 million in bonds to build out its own fiber optic network. In 2011, to keep it operating, the city began charging an extra $5.35 per month on electric bills. In 2013, Google purchased Provo’s network for $1.
On 8/15/16, the Wall Street Journal reported Google Fiber suspended projects in San Jose, California and Portland, Oregon, because initial roll-outs were more expensive and time-consuming than anticipated. According to the article, “the company is trying to cut costs and accelerate its expansion elsewhere by leasing existing fiber or asking cities or power companies to build the networks instead of building its own.”
If the network is more expensive to build out, maintain, and operate than expected, and/or if businesses and consumers don’t subscribe as quickly as hoped, we taxpayers will bear the burden.
Should the City compete with the private sector?
You might argue REU’s rates versus PG&E are an example of why government should compete with the private sector; yet you must consider two things: (i) government can create advantages for itself that companies cannot replicate, such as the use of grant money (if available) to pay for construction of the network, and (ii) what impacts such competition would have on local employers such as ATT, Charter, and local Internet Service Providers.
Is there a better way?
The most prudent approach is to explore the advantages of alternative strategies and technologies. For instance, the City could pursue a strategy such as the one developed by Santa Cruz County in 2014. The Board of Supervisors made it faster, easier and less expensive for telecommunications companies to bring high speed Internet to the community. They developed a broadband master plan, implemented a ‘dig once’ policy, and streamlined the regulatory permit process. As a result, Cruzio, a local Internet Service Provider, built its own fiber optic network offering high speed Internet service to customers in Santa Cruz, and Comcast increased the speeds offered to consumers in the county without raising prices.
An alternative technology to consider is wireless. Wireless networks can be less costly and less time-consuming to deploy than fiber optic networks. They can deliver high speed internet connections up to a gigabit per second, which is comparable to the speed delivered via fiber. Even Google Fiber is evaluating wireless as an alternative to fiber-to-the-home/business connections, shouldn’t we consider it as well?
We can all agree better broadband could help stimulate our economy. I can’t help but wonder if our city would be better served by choosing to engage, rather than compete, with telecommunications companies to deliver faster, more widely available, more affordable high speed Internet.
