[1st-mile-nm] Palo Alto Fiber Project: Update

[Richard Lowenberg]

Here's a good report on the Palo Alto fiber project, which is an important
municipal example to keep an eye on.   rl

http://www.mercurynews.com/columns/ci_10795820

Palo Alto fiber-optic project is the right kind of economic development

By Chris O'Brien, Mercury News
10/24/2008

In a time of severe belt tightening and modest thinking, the city of Palo Alto
is about to make an ambitious bet on its future. But in a neat twist, it won't
have to ante up a dime.

The city is negotiating a deal with a consortium of tech companies to build out
an ultra-high-speed broadband network that would deliver blazing fast
100-megabit-per-second connections to every home and business in Palo Alto.
That's about 10 times as fast as what people typically receive through their
cable or DSL modems.

More important, it's just the kind of creative, innovative approach toward
economic development worthy of Silicon Valley.

"There's a vision that you're entering into the real 21st century with this kind
of capacity," said Joe Saccio, Palo Alto's deputy director for administrative
services. "It's an economic tool and, hopefully, it can create new kinds of
jobs and allow new applications and new software for consumers."

It hasn't been easy to get to this point. And there's still a chance that the
project might not succeed. But if it does, Palo Alto will get to boast to all
its valley neighbors that it wears the crown of connectivity. And I'll bet it
will only become more of a magnet for start-ups and bigger companies who want
to experiment with new online services.

While this project has been a big deal in Palo Alto, it hasn't gotten much
attention around the rest of the region. So here's a little background.

Palo Alto originally built a fiber-optic backbone in 1996. It's one of just a
few dozen municipalities across the country to undertake such a project known
as "fiber to the premises" or FTTP. Such projects aren't popular with the local
cable companies and DSL companies.

Andrew Johnson, a Comcast spokesman, noted that his company competes hard for
customers and continues to invest in upgrades to its network. However, it has
some concerns about the fairness of competing against the Palo Alto network.

"The latest version of the Palo Alto fiber-to-the-home plan is being positioned
as a wholesale open network, but the operation appears to put our regulators in
the dual role of being both regulator and competitor," Johnson wrote in an
e-mail. "This structure does not create a level playing field."

In the case of Palo Alto, the city currently manages the backbone, and if you
want to use it, you have to pay to have a line run from the ring to your house
or business. That's not cheap, in case you're curious.

The city also uses it for such things as running its traffic lights and its own
computer networks. The project is operated outside the city's budget under the
name of the Dark Fiber Fund. The fund takes in $2.6 million each year from
private licensees and other town agencies that use the network, which more than
covers the $1.6 million it costs each year to operate.

So far, so good. Right?

The problem was that the city council intended this to benefit everyone. And so
in 2005, the council directed the city's staff to figure out how to make that
happen. And just to make things interesting, the council set a few rules: No
taxpayer funds could be used, no money could be borrowed, no bonds could be
issued.

Ongoing negotiations

So it's taken some time. But there was a breakthrough this year when a Canadian
company called Axia agreed to join a consortium of two other companies to bid
on the project: PacketFront and 180 Connect. Axia offered to commit $30 million
to building out the network.

Palo Alto's city council has instructed staff to try to reach an agreement, and
negotiations are still in progress.

If approved, the consortium would run the network as a wholesale operation, and
third parties would come in, lease space on the network, and sell services
directly to consumers and businesses.

The city council envisions the new broadband network enabling all sorts of new
services for businesses and consumers, such as automated meter reading services
for energy savings, or more robust video services like 3-D high-definition TV.

So what's in it for the consortium members?

The consortium would get to manage the network and keep the profits. And it
would also get access to a portion of the network at a deep discount to use as
it wishes. In addition, according to a letter Axia sent the city earlier this
year, the strong demand and community support make it confident it can turn a
profit. And it hopes the success of the project can be used as a showcase to
convince other communities to build their own networks.

So what could go wrong? Plenty.

For some perspective on the challenges, I chatted earlier this month with Steve
Christensen, chief executive of Broadweave Networks, a broadband company that
recently bought a fiber-optic network from the city of Provo, Utah, because it
was losing money.

Provo's mistakes

Christensen said the biggest problem in Provo was the split between the
wholesale operator (the city) and the private service providers who sold
service to homes and businesses. When something went wrong, customers were
confused and frustrated about whom to call to fix things, make changes and
handle other questions.

When looking at Palo Alto's plan, Christensen said he liked the fact the city
wanted to build an open network, something that would help it adapt to
technology changes and make sure it could buy equipment from different vendors
to keep a lid on prices. And the fact that the city isn't putting in its own
money and has the right to buy back the network for $1 in 25 years is also a
good safeguard.

Still, I wondered whether Palo Alto customers would, like those in Provo, be
confused by the fact that there would still be wholesalers and service
providers.

When I asked Saccio about this, he said any agreement with the consortium would
likely include benchmarks for customer service. He didn't seem too concerned
that this would be an issue. Let's hope that confidence is warranted. The three
companies actually putting up the cash apparently think it is.

Kudos to the Palo Alto City Council and staff for pushing this stone uphill. And
here's hoping other local governments will figure out innovative approaches to
economic development.



-- 
Richard Lowenberg
1st-Mile Institute
P.O. Box 8001, Santa Fe, NM 87504
505-989-9110;   505-603-5200 cell
rl at 1st-mile.com  www.1st-mile.com

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