[1st-mile-nm] TelephonyOnline re. muni fiber

[Carroll Cagle]

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Muni fiber networks bounce back


Aug 25, 2008

 

By Carol Wilson

Telephony Online 

Despite some high-profile failures, the deep-seated need for broadband keeps
municipalities on the fiber-to-the-home-track.

The headlines surrounding municipally funded telecom networks have been
dominated by bad news this year. 

In addition to the outright collapse of muni Wi-Fi networks, there have been
notable failures in the muni fiber market as well, namely the iProvo
network, sold to Broadweave earlier this year, and Utopia, a network linking
multiple municipalities that has struggled to sign up customers. A multicity
fiber network in northeastern Minnesota that had been under study for years
also was scrapped recently. 

Anyone who thinks the municipal broadband market is headed south, however,
needs to take a closer look. For every visible failure, there are multiple
other cities, towns and villages either building or looking to build their
own fiber-to-the-home (FTTH) networks, for the simple reason that they want
broadband facilities they can't convince their local telco and cable
incumbents to build. 

These projects are being fueled by the falling cost of FTTH technology and
the growing experience in deploying systems, due in no small part to the
massive effort Verizon has launched, as well as that of other telcos. It is
supremely ironic that one of the nation's more visible and contentious muni
fiber projects, involving the city-owned Lafayette Utilities System in
Lafayette, La., is now reaping the benefits of delays to its FTTH
construction caused by lawsuits and legal actions launched by incumbent
cable and telco operators. 

"Not only is the technology cheaper than what we would have deployed, it's
better," said Terry Huvall, director for LUS. "We are using [Gigabit passive
optical networks], not [broadband PON]." 

In addition, in a few cases states are getting in on the act. North
Carolina's e-NC Authority is seeking ways to stimulate broadband initiatives
in rural areas of that state, while Massachusetts just passed a bill to
create a Broadband Institute, using $40 million in state funding to bring
broadband to western areas of the state still served only by dial-up. 

What's different about today's municipal networks is that, while still
intended to solve the problem of broadband access, they are more practically
grounded in market realities. 

"I would say that in the last few years, literally three, it's really gone
through a flat period, whereby people have tried to evaluate a way forward,"
said Tim Scott, director of sales for North America for PacketFront, a
company that assists in developing, designing and operating open-access
fiber networks for municipalities. "There were a couple of early adopters
who started early in 2000 and ran into some difficulties. It was an early
time from a technology perspective; prices were higher so the business case
was tougher. We've seen a little bit of turn now. People are starting to
understand some of the lessons learned. They got more into a business mode
where they put more time into planning, so new muni nets are technically
viable, commercially viable, funded correctly and have a realistic business
model." 

One other definite trend is that the municipalities themselves are biting
the bullet and becoming service providers - something many of them avoided
either for regulatory or business reasons. The notion of building a fiber
optic network using municipally backed bonds and then serving only as a
wholesaler now is generally viewed as a very tough row to hoe. 

"If you look at the municipal fiber projects that succeed and what
characteristics are inherent to those projects, one salient fact is that the
projects provide retail services directly and are not a wholesale-only
network," said Timothy Nulty, the man who helped Burlington Telecom bring
fiber to that Vermont community and is now president of ValleyFiber, which
is bringing FTTH to a consortium of 25 rural Vermont communities. 

Networks such as iProvo and Utopia found it hard to attract service
providers, and without services, customers just weren't interested. A Utah
state law, passed after those two fiber projects were in discussion,
prohibits municipally owned networks from selling retail services. 

"What happened in Utah is something we have been talking about for years -
the state law that effectively prohibits retail service is, in my view, a
very substantial part of what is wrong with the environment in Utah and
particularly iProvo," said Jim Baller, attorney with Baller & Herbst, which
represents municipalities and has done research for e-NC Alliance, among
others. "If applications are slow to evolve - and they have been - service
providers are left competing with incumbents on traditional services, where
they have no advantages." 

In Washington state, the Grant County Public Utilities Department, another
FTTH pioneer, still is operating a wholesale-only network in accordance with
state law there, although it came under criticism and went through a
management change over the $400 million price tag of that network. Partially
in response to that criticism, the Grant County PUD halted its network
expansion in 2004, after four years of construction had connected about
11,000 homes - or one-third of the anticipated homes - said Sarah Morford,
spokeswoman for PUD. After extensive review and exploration of other
technology options, the Grant County PUD commissioners voted in March to
press forward, citing public support for its fiber network. Over the next
five years, Grant County plans to expand the network to reach 80% of
residents and 95% of businesses, or about 3000 homes and business per year. 


Many Models


Calling Grant County the exception to the wholesale rule isn't really
accurate, however, because there really aren't rules associated with
municipal broadband, Baller said. 

"There's no one thing called municipal broadband," he said. "It's a lot of
different things that have different trajectories and different histories.
We did see a little lull in movement into the fiber arena, but there is a
lot more interest now. 

PacketFront's Scott agreed. "There are more choices today," he said. "A
municipality can look for public/private partnerships, third-party operators
and service providers to come and offer services." 

One of the popular models is for municipally owned utility companies - many
of which were created to bring electricity to towns in which large incumbent
utility companies weren't interested - to build FTTH networks that privately
owned incumbents can't cost-justify. 

In Chattanooga, Tenn., for instance, the municipally owned utility, EPB, is
economically justifying its fiber build on the basis of creating a "smart
grid" that will enable the company to reduce energy consumption and lower
the cost of power it buys from the Tennessee Valley Authority. The plan is
to reach 80% of the 167,000 homes in the 600-square-mile service area in the
first three years and then reach more rural homes in the last two years of
the five-year buildout. 

It's really a win-win," said Kate Espeseth, vice president of EPB's
communications system. "Not only do we enhance the electric services, there
has also been a tremendous amount of support for choices for advanced
communications as well. The way it is set up financially, the communications
division will pay something similar to a lease fee to the electric division
for use of the network. We will pay our fair share; there is no subsidy." 

The smart grid will allow consumers to remotely monitor their usage and will
enable EPB to remotely read meters as well. "It gives customers the ability
to see their electric bill real-time or usage real-time," Espeseth said.
"And we can provide energy management applications to enable them to reduce
consumption during the times during the day when power is more expensive." 

Billy Ray, CEO of the Glasgow Electric Plant Board of Glasgow, Ky., which
built the nation's first municipally owned broadband network, is now
publicly arguing that instead of spending $18 billion to build nuclear power
generators to meet future electric demand, the TVA should build FTTH
networks to 9 million homes at $2000 each and use those connections to
manage in-home electrical use in a way that would reduce demand and render
new nuclear plants unnecessary. 

In Lafayette, the LUS network is under construction and expects to turn up
its first customer in January 2009, Huvall said. "Our plans are still to
serve the entire city of Lafayette, putting fiber along every street and
alley," he said. "After that, the only thing left to be done is when the
subscriber will contact us and we will run the line to them." 

Both LUS and EPB plan to offer their own triple-play services, although the
Chattanooga utility isn't opposed to wholesaling its network as well if a
service provider comes along to compete, Espeseth said. 

Bristol Virginia Utilities began offering triple-play services on its
OptiNet network in 2003, after considerable challenges from anti-muni
broadband forces that, among other things, forced a state law requiring open
access for those networks. But while OptiNet has offered open access from
the outset, it has had very few takers. "Most of what we wholesale is
backbone network," said Wes Rosenbalm, president and CEO of BVU. "It's not
down to the [optical network terminal] on the side of the home. We tried to
find companies to [offer retail services] early on and couldn't." 

The Burlington Telecom network is similarly disposed to providing open
access, Nulty said, but he doesn't believe there will be takers. "Open
access is a philosophical or policy matter which I happen to believe in," he
said. "But open access is a bit of a red herring. If you are a municipality
and you are providing services directly to the customer - triple-play
services - no major provider of triple play is going to try to come in and
beat you for your citizens. I couldn't pay Time Warner enough to use our
network. Unless you are so awful that people are itching to get away from
your services, the idea that major providers are going to use your network
doesn't make sense." 

The wholesale model is working in Europe, Scott said. The Swedish city of
Vasteras, for example, teamed up with Malar Energy to build an FTTH network
that was intended to be open-access from the outset. "They realized they
hadn't done all that early marketing to make this work, so they decided to
be an ISP for the first year," he said. "Once they were able to show them
the benefits of being on fiber, of a 100-megabit connection, they could
encourage private companies to come on board, and today it is a perfect
success, with 22 service providers." 

PacketFront also encourages municipalities to consider public/private
partnerships and options such as working with a local service provider to
build or operate a network, Scott said. 

"In the old days, the city was taking all the capital risk, doing the
bonding, and we firmly believe there are a lot more different choices, from
municipal leases to public/private partnerships to 100% privately funded,"
Scott said. "It is not necessary that the city has to take the full risk." 

Berkshire Connect is a volunteer group that initially worked to bring
affordable connections to businesses in western Massachusetts by aggregating
demand to make it more appealing to private service providers, said Dan
Dubendorf, a local attorney who heads the group. 

"I have never wanted to fight with the provider community; I have always
said we need to find ways to alter the capital equation - if they can earn a
return, then they'll invest," he said. 

After months of "going to a lot of meetings, eating a lot of bad chicken
dinners," Dubendorf and Berkshire Connect were able to pull together local
hospitals, colleges, businesses and other institutions into a buying group
that lured Global Crossing into the area with a broadband wireless solution.


Finding a residential option for an area that includes 32 towns with nothing
but dial-up access proved thornier, which is why even a public funding
skeptic such as Dubendorf welcomed the $40 million the state of
Massachusetts is now willing to pay. 

 "The $40 million will come to a quasi-public institute - the Broadband
Institute - which has the ability to do things that a line agency could not
in terms of interacting with the private sector," Dubendorf said. "We will
find places to invest at places where public dollars can be spent and not
have to be replaced every three years." 

Bristol, Burlington and others are paying their way by selling triple-play
services to residents and showing a local economic payoff. Bristol's OptiNet
has a 65% penetration rate, or about 9000 customers, who pay about $10 less
per month than the local cable rates for basic cable. BVU estimates its
business and residential customers have collectively saved more than $9.7
million between 2005 and 2008 over what they would have had to pay
incumbents. 

But the bigger payoff is in economic development, Rosenbalm said. BVU's
800-mile fiber network, some of it built in partnership with the Cumberland
Plateau Co. - a company 50% owned by BVU - has helped lure two major new
employers to the region, bringing 700 new jobs. Defense contractor Northrop
Grumman came in 2005 with 400 jobs and specifically cited BVU's available
infrastructure as a key reason for the decision to put its new facility in
Russell County, Va. CGI, an IT and business process services firm, opened
its new facility in late 2007, also in Russell County, and is served by CPC
Optinet, the BVU partnership. 

"We had two very good success stories that happened with Northrop Grumman
and CGI, which brought in 700 new jobs with average salaries of $50,000,"
Rosenbalm said. "The average salary here is $24,000 to $27,000. And we have
a couple other deals we are looking at internally." 

The BVU network's success is particularly significant because Bristol was in
bad financial straits before it was built, Baller said. "All of its major
industries were cratering at the same time; downtown was boarded up," he
said. "Think what it means in a town of 18,000 to see 750 to 1000
high-paying jobs move in, paying twice the local salaries. Think of what
that does to a community where each of those jobs generates income that is
buying soccer cleats and haircuts and building materials and homes, pushing
property values up, raising the tax bases, generating dollars spent in the
local economy so someone else has a dollar." 

Jobs, health care and education; retaining young people; and improving
quality of life are all goals of municipal networks. Burlington Telecom now
has about 5000 customers and is looking at full profitability by early 2009,
Nulty said, but it also is able to do things with its video offering that
local cable can't. 

"For example, Burlington Telecom's network has capacity for 100,000 cable TV
channels," Nulty said. "We can and do sell a channel for $65 a month. If you
try to go to Comcast and buy a commercial channel, it costs $6500 a month if
you can get it, which you mostly can't. We can provide it at 1% of their
costs for commercial uses. At anything that remotely smells of public
service, we give [the channel] away because it costs us $4 a month, fully
allocated." 

Burlington's thriving arts community wasn't certain what to do with
virtually unlimited cable TV capacity at first, so it took some promotion on
the part of Burlington Telecom, but there are now local plays, concerts,
debates, sporting events and more on view, along with a classified ad
business from a local newspaper. A telemedicine application also is in trial
that links shut-ins to their doctors via video and home sensors. 


The Challenges


Everyone involved with building municipal networks readily agreed that the
process of getting a muni network up and running is not for the faint of
heart. There are still ongoing critics of the process, such as the Heartland
Foundation, that say cities don't have the expertise to run telecom networks
cost-effectively. And virtually every successful muni fiber operator
interviewed for this article admitted some early mistakes. 

"This is not a game; you need to decide whether you are going to do it or
not do it because if you don't fully do it, you will suffer the
consequences," said BVU's Rosenbalm, whose company now sells its consulting
services to other municipalities. "It is not for everyone." 

The first major challenge muni broadband networks face is opposition from
incumbents, both in the form of lawsuits and efforts to pass laws at the
state level to limit or even prohibit municipalities from owning, operating
or providing services over their own networks. A local referendum gave
Monticello, Minn., a 74% approval rating for a city-owned FTTH network, but
plans to issue the revenue-generation bonds to pay for the system are on
hold because TDS Telecom filed a suit claiming the network violates state
laws. The Tennessee Cable TV Association is appealing the dismissal of its
lawsuit to halt the Chattanooga EPB network. 

Lawsuits mean delays, which can be costly, although not all delays translate
into lost capital, as LUS found out in Lafayette. Still, Huvall believes the
hassle is discouraging to some cities that might otherwise consider building
their own networks. 

"I think there would be a lot more municipalities doing this if it weren't
for the fear tactics of going through lawsuits and delays that incumbents
throw up against you," Huvall said. 

LUS did lose out on a source of video content. The utility had planned to
join the National Cable Television Cooperative to purchase its content, but
the NCTC declared a moratorium on members during the period when LUS was
fighting in court, and the utility has had to buy its content from
individual providers at a higher cost. 

"The positive side of that is that we now have our own relationship with
those content providers, and we will still be able to meet our commitments,
in terms of the price of our service," Huvall said. 

Baller sees a reversal in the legal trend that favors municipalities, citing
recent success in fighting state laws designed to limit what can be done. 

"Take a look at the biggest battle we had within North Carolina [in 2007],"
Baller said. "The kinds of people who line up in support of municipalities -
Googles, Alcatels, Intels - everyone saying these restrictions make no
sense, they are not good for our communities, the states or our country." 

According to Joe Savage, president of the Fiber to the Home Council, there
are 14 states where laws either prohibit or limit muni networks. "Lately
there are three or four states that have tried and failed," he said. "I
think we'll see some states begin to roll back these restrictions." 

A national Community Broadband Act failed in 2007 at the federal level, but
U.S. Rep. Edward Markey (D-Mass.) introduced similar provisions as part of a
2008 bill that also seeks to unlock cell phones from specific mobile
networks. 

As more cities get more experience and that experience is shared, municipal
networks will become more common in the U.S., as they already are in Europe,
Scott said. 

"I believe that some of these challenges over the last few years - there are
great lessons to be learned there," he said. "There will always be mistakes
to be made, but as long as new initiatives learn from these, the future of
municipal broadband looks pretty good." 

 

 

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