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:
- 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:
[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.