Exclusives, Featured, Municipal Broadband, Original Report, Politics, Sherrie Peif

DU Professor: Municipal Broadband experiments failing nationwide

(Editors Note: Complete Colorado has been investigating issues around municipal broadband for the past year. Those stories can be found here.)

DENVER — As more and more Colorado communities move toward forming their own municipal broadband networks, more and more evidence is surfacing that cities across the US who ventured into the highly competitive market are failing.

University of Denver Professor of Finance, Ronald Rizzuto, has been a telecommunications consultant for more than three decades. He is considered an expert on municipal broadband. Rizzuto recently finished investigating dozens of cities and towns across the U.S. that entered the broadband market, in many cases, more than a decade ago.

In an interview with Complete Colorado, Rizzuto said what he found didn’t surprise him. Most of the communities have either sold their broadband enterprise or are failing and looking for a way out.

More than 200 communities nationwide currently offer municipal broadband, but only a small percentage of them have been successful, Rizzuto said, and in those instances, specific rare circumstances applied.

“Penetrations are usually in the 30-40 percent,” Rizzuto said. “Very seldom do you see something that has blown it out of the park. There are some that have been at it for 10 years and they are barely at 20 percent.”

Two communities — Longmont, Colo. (population 95,000) And Cedar Falls, Iowa (population 42,000) with penetrations around 50 percent and 68 percent, respectively, Rizzuto said, are doing well, but are not the norm because the circumstances surrounding their start-up can not be duplicated.

In Longmont’s situation, much of the infrastructure was already in place. The amount it had to borrow ($45 million initially) was more than two-thirds less than Fort Collins ($145 million) and half that of Loveland ($95 million).

With Cedar Falls, there was little competition already, the rural community was the perfect example of what the Federal Communications Commission (FCC) was referring to when it began to adopt its National Broadband Plan in 2009-10.

The congressional directive to the FCC then was to ensure every American has access to broadband capability, and in doing so the FCC concluded that there were four ways the government could influence robust broadband:

  1. Design new policies that would result in maximizing “consumer welfare, innovation, and investment.”
  2. Ensure efficient allocation and management of its assets such as radio waves, “poles, and rights-of-way, to encourage network upgrades and competitive entry.”
  3. Reforms that would “support deployment of broadband and voice in high-cost areas; and ensure that low-income Americans can afford broadband.”
  4. “Reform laws, policies, standards and incentives to maximize the benefits of broadband in sectors government influences significantly, such as public education, health care and government operations.”

Longmont’s success to date is also due in part to little resistance from existing providers. Comcast and Century Link didn’t launch a large opposition in the way of competitive prices until recently. In the five years since NextLight launched, however, that changed, and as a result of increased competition from Comcast, the city has increased its price by 40 percent from $49.95 to $70 per month for new customers.

In addition to lowering its prices in Longmont — where proponents argue private-industry price came down because of the competition from NextLight — Comcast now offers its gigabyte service at the same price across Northern Colorado. That marketing plan leaves little room for further decreases in other areas launching municipal broadband, Rizzuto said.

In fact, that scenario is evidence supporting why the FCC encouraging municipal broadband only under certain conditions was proper.

In its publication “Connecting America” the FCC says Congress should allow governments to build its own broadband networks. However, it specifically says: “Local entities typically decide to offer services when no providers exist that meet local needs. These local entities do so only after trying to work with established carriers to meet local needs.”

The FCC further says: “Municipal broadband has risks. Municipally financed service may discourage investment by private companies. Before embarking on any type of broadband buildout, whether wired or wireless, towns and cities should try to attract private sector broadband investment.”

Yet, many municipalities across the U.S. are finding themselves deep in debt and no way out except to take huge losses by selling off infrastructure.

Lake County, Minn. lost more than $40 million in taxpayer funds when its experiment with broadband ended badly.

In 2017, the county accepted a deferral agreement with the Department of Agriculture’s Rural Utility Service, which had issued nearly $60 million in federal loans and another $10 million in federal grants to start up the broadband system. The condition of the deferral was that it sell its infrastructure and connections to a private company. In the end, the federal government agreed the remaining $48.5 million owed was considered satisfied with an $8.5 million sale to Pinpoint Holdings, Inc.

Lake County is only one example of the dozens of nationwide failures the project Rizzuto is working on has pointed out.

The future doesn’t look much brighter, he said, as the cost to implement the enterprises increases and technology changes more rapidly than government-run broadband can keep up.

Last year, the Internet & Television Association and others including industry cable giants Comcast, Charter, Cox, and MediaCom announced plans to begin launching 10 gigs of service.

Jon Lehmann, Comcast Sr. Director of Government and Regulatory Affairs for the Mountain West Region, recently confirmed that. Lehmann told a Greeley focus group looking into municipal broadband in that community that Comcast can deliver 6 gig service across Greeley already, and is near 10 gig capability.

According to an article in USA Today, Intel is scheduled to roll out consumer products that can accommodate the 10-gig of up and down speeds. Field trials are scheduled for this year with a full release planned for 2021 and 2022.

Additionally, the article points out that 10G can be implemented by these companies with the current fiber in place. Operators won’t have to open up the streets again to launch the new speeds.

And companies such as Comcast and Verizon have repeatedly said they will not lease fiber from municipalities.

We use our own system,” Lehmann said. “And there are very good reasons for that.”

Lehmann said Comcast wants control over security and safety.

“In an open access system, if there are seven providers using the same line, and one provider gets 8,000 or 500 new customers overnight and drops it on the line, everybody slows down, we’ll get complaints, and we don’t know what happened, and we don’t know how to fix it,” he said. “On the privacy side, there are thousands and thousands of hackers, when we own our own line our own system, we have tens of thousands of employees focused on security, protecting our network, protecting people’s data. We do not sell our customer’s information. We don’t track what a customer does online. We don’t even have that information.”

Rizzuto is working closely with Complete Colorado to track the continuing financials of Longmont’s NextLight and keep an eye on the progress of Fort Collins’ expected launch of Connexion.

Complete Colorado is awaiting more documents requested through the Colorado Open Records Act.

The report Rizzuto and others have spent months developing for the Taxpayers Protection Alliance Foundation that will update the original 2017 report is expected to be published later this month or early March.

“Hopefully when people see these penetration numbers — nobody’s knocking it out of the park — they will understand the risk,” Rizzuto said.

 

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