FORT COLLINS — While communities across Colorado continue to discuss municipal broadband networks, much can be learned about whether it is a good investment just looking at one Northern Colorado city that continues to have hiccups.
Fort Collins’ recent release of its Connexion 2nd quarter 2020 report shows a grim start to what community leaders had hoped would rival the success of their neighbor to the south, Longmont, when it launched NextLight more than five years ago.
With slightly less than one-half of the construction budget spent, Connexion’s operating revenues are already $1.5 million in the red. In fact, without its investment income, the city-owned system it is nearly $200,000 in the red in over-all net operations.
This is the second consecutive quarterly report with grim numbers for Connexion. First quarter 2020, which covered pre-COVID lockdowns, also showed negative operating revenues totaling $376,000. Investment income then exceeded $3.6 million. That too is down in the second quarter to just more than $1 million, which officials attribute to construction spending. About $8 million has been spent in capital investment since the first quarter report was released in April.
Erin Shanley, broadband marketing manager for Connexion said there are no concerns investment income will be needed to keep Connexion in the black. Shanley said investment income naturally decreases as buildout increases.
“Investment income is the earnings on bond proceeds,” Shanley said. “As the bonds proceeds are spent during construction, less is invested resulting in less investment earnings.”
The report attributes the slower rollout to the Connexion team’s intentional controlled launch release to ensure processes and procedures were in place. The report also blames “delays with the back-office system delivery, a historically difficult winter for Fort Collins and the COVID-19 outbreak” for the slow start.
However, the need for internet and high speed broadband access a result of COVID-19 should have led to a more aggressive sign up, some say, adding concerns that private industry has tied residents into long-term contracts will keep Connexion from getting the share of the market it needs to just break even.
“There is no concern regarding contracts due to COVID-19,” Shanley said. “In fact, we are releasing new neighborhoods weekly and signing up new customers daily.”
Consistent information from the city confirming those sign ups is hard to obtain, however, because officials claim as proprietary such things as subscription and take rates and when and in what neighborhoods the service becomes available.
Fort Collins officials use the proprietary excuse as just cause for executive sessions and a lack of transparency. The first quarter report was released late and only after pressure from the community and local newspaper.
It was in that first quarter report that staff promised “more aggressive marketing and community engagement now that we’re confident we can deliver a highly reliable product with a quality customer experience,” adding they had CDC guidelines and procedures in place to continue construction during COVID-19 lockdowns. “Connexion’s number one priority is always the health, safety and well-being of our employees, subcontractor partners and our customers … has established policies and procedures to safely operate during these extraordinary circumstances and minimize the risk …”
Despite that, operating revenue increased by just $175,000 compared to its projected increase of $1.4 million during that three-month period,with nearly 84 percent of the cash flow coming from investment income and unspent bond proceeds.
With winter coming soon, Sarah Hunt of Hunt Public Policy said she doesn’t see it getting any better, especially as internet giants Comcast and Century link increase their presence at lower costs and with 5G just around the corner.
“Connexion’s first quarterly report showed their revenue expectations fell short by $376,000, and they blamed it on a difficult winter,” said Hunt, who led the opposition to municipal broadband in Fort Collins in 2017. “But at a time when internet connection is critical for all of us, rather than making up for lost ground, Connexion fell short by another $1.6 million in their next quarterly report. Either people don’t want the service or Connexion can’t provide it, or both. Either way, this experiment is failing, and the city should pull the plug now before all of us have to pay for the additional millions of dollars lost.”
As Colorado prepares for winter again, it is unclear where this leaves Fort Collins in its rollout, but Shanley said the city is hopeful this winter will be different.
“We learned a lot during the historically difficult winter in Fort Collins,” Shanley said. “Thankfully current forecasts do not indicate another one this year, so we do not anticipate a repeat.”
Fort Collins’ struggles are not isolated, as reports are showing municipal broadband ventures quickly failing nationwide.
A University of Pennsylvania Law School study based on a financial analysis of five years of official data found that “11 out of the 20 fiber networks assessed do not generate enough cash to cover their current operating costs and only two out of the 20 are on track to recover their total project costs during their 30-40 years of expected useful life.”
Other findings included:
- Eleven of the 20 projects are cash-flow negative.
- Five of the nine projects that are cash-flow positive have returns so small the researchers believe it would take more than a century to recover total project costs.
- Two of the nine projects that are cash-flow positive have a recovery period of 61-65 years — which is beyond the expected useful life of a fiber network — with only two of the 20 projects expected to cover their project costs during the useful life of the networks.
Fort Collins residents need to pay back about $245 million in debt, including interest, and about 30 percent of the community needs to subscribe just to break even. Officials maintain they are only in year two of a five-year buildout; however, according to public records obtained by Complete Colorado, only a fraction of the homes needed have actually subscribed, and the rate of increase in installations would need to jump exponentially from approximately a dozen per week to nearly a dozen per day.
That’s not good enough for residents like Julie Harms, who said in an opinion piece in the Fort Collins Coloradoan that city leaders should consider cutting the cord before the losses get any larger.
“At a time when students need to learn from home and adults need to work from home because of the pandemic, Connexion is unavailable to the vast majority of Fort Collins residents,” writes Harms.
With budget crunches because of COVID-19 also hitting most municipalities hard, the impact may be even greater for Connexion as Fort Collins is looking to cut more than $13 million from its 2021 budget and sales tax revenue is expected to drop by about 9% in 2020.
All considered, if Connexion fails — or even slows considerably — electricity consumers will be forced to pay back the debt via increased electric rates, regardless of whether they were broadband subscribers.
“Can we really afford to continue down this path of huge public expenditures for broadband at a time when more and more competitively priced private sector solutions are available to local homes?” Harms continues.
Overall, Shanley said Connexion officials have no concern they will be able to deliver what was promised.
“The original business plan included an aggressive launch schedule,” Shanley said. “We intentionally used a controlled release approach for launch to ensure processes and procedures were in place before full ramp up. This resulted in operating revenues being below what was originally predicted. We remain confident we can complete the build within the scheduled time frame and within the capital budget estimated in the business plan.”