Exclusives, Featured, Greeley, Longmont, Municipal Broadband, Original Report, Sherrie Peif

Municipal Broadband taking many forms in Colorado; mixed results make investment risky

LINCOLN, NE — While opponents of municipal broadband continue to provide evidence why governments shouldn’t be competing with private industry in providing Internet, a Nebraska-based company, Allo Communications, is making a name for itself offering tailor-made packages to the Colorado towns and cities that continue to push forward.

Broadband service in Colorado has changed shape over the past few years in part to a growing, but unproven, public perception that municipalities can supply a superior service at a lesser cost. Voters have approved millions in new debt to take on a decades-old private industry based on the idea that government-run internet service will be faster, more reliable and cheaper. Voters are told the economic development of the city will improve, and that the city will be able to partner with its anchor institutions to offer super-fast speeds and improve their services.

For some communities, such as Longmont, Fort Collins and Loveland, the answer has been to go it alone by developing, installing and operating a new utility all on their own, using other city-run utilities to back the multi-million dollar investments. Those communities all operate their own electric utility, so their municipal broadband bonds are guaranteed against their electric enterprise fund. If the broadband venture fails, electric customers will see their rates increase.

Others such as Fort Morgan and Breckenridge are using private/public partnerships, where the city lays the infrastructure and then leases it over a period of time to a private company.

Still others — such as the small northern Colorado town of Eaton — are getting involved with code changes, loosening up regulations and leasing electric poles to companies like Allo Communications, so they can more easily create a network that they believe will increase competition with existing private companies such as Comcast and Century Link.

University of Denver finance professor Ron Rizzuto said that, nationwide, while some communities have succeeded, most have failed because they find they cannot compete for the long haul.

Rizzuto has studied and consulted with the telecommunications industry for more than 30 years. He is currently investigating 30 municipalities nationwide that have invested in broadband, compiling a database profiling their successes and losses.

Rizzuto said his investigation to this point has produced no evidence that municipal broadband creates healthy competition, in fact, he said the opposite is true.

Salisbury, N.C. for example, Rizzuto said, had great penetration, but after 10 years, sold it off because they weren’t making money. Another example is Groton, Conn., which got caught between AT&T and Comcast.

“They were giving it away,” Rizzuto said. “Some of these communities got caught in a competitive war and had to cash in their chips and get out. Eventually, they got squeezed out of the process as opposed to making the business much more competitive.”

Longmont’s NextLight is celebrating its five-year anniversary, but the jury is still out. It is one of the communities Rizzuto is focused on following. While supporters say it has been a blessing, those opposed point to what they say is evidence the utility is struggling, such as low take rates among new clients who didn’t sign on during the “charter member” pricing phase. High disconnect numbers and low business signups have also been reported.

Rizzuto said Longmont’s NextLight has been successful so far because initially it was not in a competitive fight and it had most of the mechanisms in place, unlike other Colorado communities that are trying to replicate the front range community.

“Longmont is probably more successful because Century Link and Comcast didn’t come after them right away,” Rizzuto said. “There was a window there they could get started, and they were pretty shrewd about the pricing.”

But there were other reasons that may keep Longmont successful, such as most of its infrastructure was in place before venturing into the broadband business. The city bonded only a fraction of what other communities are taking on — $45 million in the beginning to finish laying enough conduit and fiber to cover the city. Longmont eventually borrowed another $7 million, but the total risk to taxpayers pales compared to Fort Collins, which bonded $145 million

Loveland is the only community so far that chose to venture into the new enterprise without voter consent. having bonded $100 million without taking it to the ballot because of a loophole in Colorado’s laws, saying timing was too important to risk waiting any longer.

But the timing may be too late.  Rizzuto’s full report is due out early 2020, but overall, he said very few communities that took on municipal broadband have been successful long term. Yet many communities continue to investigate the options after a 2005 bill passed out of the Colorado Legislature, opening the doors for government-run broadband.

The bill, Senate Bill 05-152, was initially designed to allow rural communities to offer their residents options for high-speed internet because many traditional private companies didn’t see value in the investment.

Eaton Mayor Kevin Ross, says his community is currently in discussion with Allo for that very reason, but it is highly unlikely Eaton will put money on the table or lay the infrastructure itself.  Rather, Eaton will likely change codes and loosen some regulations to allow Allo to lay its own fiber and utilize town electric poles to offer its service to Eaton residents.

“I’m not a big one on taking on debt,” Ross said. “So I don’t think that’s going to be an option. I don’t get this push for a municipality to take on being an (Internet Service Provider). You’re telling me you have more knowledge in the marketplace than a company that’s been doing it for decades. And what business has government ever ran more efficiently than private enterprise?”

Greeley is also in the process of determining if municipal broadband is an option.  Without a city-ran utility to back the bonds necessary, Greeley’s investment could be the riskiest of all the communities if it chooses to do it on its own. Even laying the infrastructure in a private-public partnership with Allo could cost hundreds of millions.

Those in favor of this type of investment say it keeps the city out of a business they know little about and lets the experts manage the operations. Those opposed say it gives government too much power by letting them pick winners and losers in a private sector industry.

Complete Colorado went to eastern Nebraska and Western Iowa to look at how Allo has performed in those communities. Over the next few weeks and months, we will look at the pros and cons of public-private partnerships.

 

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