Blog Post

Success in public-owned broadband: It’s about Main St., not Wall St.

Comcast just doubled its broadband speeds in the entire state of Colorado — but without raising rates. Longmont, Colorado’s network take rate after one week of signing up subscribers exceeded its projections for the first year. Thomasville, Georgia’s municipal network, started in 1999, generates so much money that it helped eliminate constituents’ taxes.

As surely as there are death and Kim Kardashian memes, incumbent-led critics will claim all public-owned broadband networks are failures that put taxpayer dollars at risk. From a similar bottle of fine whine, they’ll protest that public networks are overwhelmingly unfair competition. Promoting these contradicting myths has led to 20 states with laws restricting these networks.

The market (community constituents) determines success

Public network failures are greatly exaggerated by critics who misinterpret what exactly community broadband success is. Giant providers want us to believe that the only measures of success are huge profit margins, quick payback for network buildout costs and well-compensated stockholders.

The taxpayers for whom these networks are built to serve, often at little or no risk to tax dollars, have a very different yardstick for measuring success. In interviews with dozens of managers of citywide networks, the question is being asked: what goals did they have initially that justified the investment in the network? They also are asked to rate their success at reaching these goals.

“The network breaks even at about $1.1 million in annual revenue,” said Konrad Bolowich, assistant city manager for Loma Linda, California. “The network is directly responsible for bringing two hotels to town that generate around $600,000 per year in various taxes. It also was the hook for convincing the government to build a VA clinic here that created 1,500 jobs and generates over $500,000 annually in property taxes. So if just one clinic worker eats at a restaurant and produces $1 in revenue to the city, that’s an extra dollar the network has earned the city.”

Longmont passed a $45.3 million bond referendum in 2013 to fund its public utility’s network. In the first week after launch, on the strength of one marketing letter, 20 percent of residents in the first fiber zone of 500 homes signed up. The business plan had called for a 20 percent take rate – but not until the end of 2015!

The Benton County, Washington Public Utility District invested $8.5 million over five years to build a network, with the primary initial goal being “simply to bridge the digital divide in our community. Our core objective to build out to schools and other community partners was met.”

Thomasville, Georgia mayor Max Beverly reported that its network now generates $2 million a year for city coffers. This enabled the city in 2012 to eliminate taxes. “We provide all of our city services without needing tax dollars because we generate our revenues internally within the various agencies that pays for everything.”

Twenty years ago, the Los Angeles Department of Water and Power invested between $20 and $25 million for a fiber network to support the power grid. Years later, LADWP built out the network to provide service to businesses and other constituents, a venture that earns about $6.5 million annually, which offsets network expansion costs. The network also fosters competition among broadband providers that benefits LA businesses.

Wilson, North Carolina, which has petitioned the FCC to get relief from that state’s anti-municipal network law, invested $28 million to build a network with three primary goals: Supporting the economic health of the community, enhancing the quality of life for citizens and improving delivery of city services. Wilson reports the significant accomplishment of all three goals, and annual revenues are sufficient to pay off the outstanding debt by 2023.

Murray Electric System in Murray, Kentucky, had two main goals. It wanted to enhance its electric infrastructure, and the community wanted competition to force more TV channels, better internet and better customer service. Incumbents increased internet speeds before the network buildout even began, MES has over 60 percent cable penetration, customer satisfaction is high and MES was cash flow–positive within five years of launch.

Forget the myth. Just the facts, ma’am

Reviewing the data gathered so far reveals an interesting set of facts (data will continue to be gathered from public network managers until November 21).

  • The first goal of many networks is to reduce operating costs for municipalities and public utilities.
  • Retaining communities’ major employers and attracting new employers is the first or second goal for these networks.
  • Most communities report success in meeting one or both goals, thus justifying the networks’ costs.
  • Networks built with the initial goal of meeting municipal or utility broadband needs draw from capital funds or bond measures that minimize risk to taxpayers:How network funded
  • Quite a few networks, such as those in Santa Monica and Burbank, California; Danville, Virginia; and Mount Vernon, Washington, make a gross profit on their networks even with just four to six new business subscribers a month.
  • Cities typically carry debt for infrastructure projects that impact the public good. Broadband projects carrying 20- or 25-year debt obligations that are being repaid on schedule while delivering a public good are successful projects:

Debt repaid

[company]Comcast[/company]’s latest action in Colorado, inspired by 11 communities in a year passing ballot measures to pursue public broadband, boosts the argument that these networks are successful even before they are built. Just a credible threat of public networks coming online miraculously motivates incumbents to race to promise faster, better broadband to communities they previously ignored.

Incumbent-influenced public-broadband restrictions were put in place in 20 states through decisions justified largely by the myth that most of these networks fail. However, nearly 400 citywide and partial-reach public networks exist, and nearly all the markets deem them successful by communities’ measure of success. Since success breeds success, many feel it’s time to eliminate state barriers to broadband.

Craig Settles is a consultant who helps organizations develop broadband strategies, host of radio talk show Gigabit Nation and a broadband industry analyst. Follow him on Twitter @cjsettles or via his blog.

6 Responses to “Success in public-owned broadband: It’s about Main St., not Wall St.”

  1. Lance Douglas

    Nice article, Craig. Very well written and to the point. Muni networks are about citizens, not customers, which requires completely different metrics on deployment and revenue potential. On one side, a muni could claim a captive market, on the other, an invitation for a market disruptor and innovation; I prefer the latter.

    It is important for readers to realize that Municipal FTTH is an infrastructure initiative, like roads, clean water, sewer, gas, and power. The stability in those services enables a community to retain & attract companies, jobs, and residents. Municipalities are infrastructure-as-a-service as their core business, and their standard payback period is 10, 20, and 30 years (sometimes 40), so those same metrics shouldn’t remotely concern anyone.

    Where I find it get’s tricky with Municipalities and FTTH is regarding the actual retail service provider space. Are municipalities looking to create a new monopoly all their own for non-tax-based revenue , or are they enabling their communications market to retain and attract tax-revenue through growth and innovation of the market players?

    It is great to see the dollars being raised to build the networks locally; and the 20% first-pass take-rate mentioned is indeed a good step forward; but we need to see that culture-of-use swing from early-adoption to full-on demand. I truly believe in, and witness daily, the need for 1 Gigabit services in the home, the office, and the municipal comms/sensory-networks, but we haven’t see people catch-on to understand just how much of a burden they carry on the backs of the slow sub-100Mbps connections they have today. They really are physical, mental, and quality-of-life burdens, not just the old boring claims of productivity and efficiency.

    Of course we have some culture-of-use answers at Lightcore Group, but not trying to hijack your story, I think we need to see some municipal funding go to the promoting of the networks’ usage to the degree that it is inconvenient to not take the FTTH service.

    Perhaps we need to do a road-show together early in the year, Craig.

  2. I agree the story is a mess. Most of the numbers are useless without a comparison to what could be achieved w/o a local gov ISP monopoly. Starting off by telling me how long it takes to recoup your investment is a bad metric made me suspicious from the start. It matters. It always matters. It matters because that is at least as long as the network will stagnate, in fact it will stagnate until it has made enough money to pay for a new upgrade. So in perspective a network built in 1990 or 1995 would just be starting to have paid for itself now. It couldn’t upgrade yet- that would take money- it’s upgrade fund would just no longer be negative. Show me the things that matter, things like how many places have tried it, and in what year. Average speed, price, standard deviation, failure rate do they have peering agreements setup with the likes of netflix? What is the uptime. And show me the same stats for comparable cities which didn’t go gov run. Show me those stats over time. e.g. if it takes 20 years to pay back, maybe the 1st years looks better, in fact there would be a serious problem if it *wasn’t*, but how about 5, 10, 15 years out, when it is still a long ways off from paying back the investment but hasn’t been able to upgrade.

  3. Luckily there are summaries of those various other communities that have taken it upon themselves to get bandwidth for their citizens delivers on the headline’s promise. Didn’t mean to jumble things up with the Comcast mention, but since all of those communities in Colorado passing ballot measures to take back their broadband authority forced a major concession by Comcast, it seemed to fit the main message in a quirky little way.

  4. Rob Williams

    This story is a jumble. What is it saying? I thought it was going to be about how municipalities have taken it upon themselves to get bandwidth for the citizens instead of being preyed upon by the telcos, but instead it talks about how Comcast made more money in CO and the power and water utility in LA found a way to make money on bandwidth too.. ??

    • Rafiki Cai

      You didn’t read coherently (apparently). The vast majority of the article ‘was’ about municipal networks faring well. It said nothing about Comcast making more money,especially since they didn’t even raise their rates.