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Creative Financing for Broadband Infrastructure

- November 20, 2012 - 4 Comments

By Howard Baldwin, Contributing Columnist

One of the challenging issues about deploying broadband – so they say – is the cost. Access rights. Construction. Lawsuits. All have an effect on time and resources. That’s why it was particularly startling when I started finding references to communities that had found ways to deploy broadband using creative financing and cost structures.

For instance, as noted in Laying Fiber: Creative Broadband Installations, the city of Santa Monica used federal stimulus funds and then partnered with other telecommunications companies. As Broadband Communities’ article Santa Monica City Net: How to Grow a Network notes, the city leased a fiber network from a local cable TV operator.

“By operating the network instead of purchasing bandwidth, the city, school district and college reduced their combined telecom costs to $700,000 from $1.1 million. Within a few years, the annual savings grew to $500,000.”

The article adds:

“City Net’s revenue from current business customers totals about $300,000 per year, enough to fund network operations and maintenance and to support an extensive system of free Wi-Fi hot spots throughout the city. … The city also has $190,000 of its capital funds remaining, which it uses as a revolving capital improvement project account. This account funds construction for network expansion, which is repaid by customers as the network is extended to their premises.”

Nor is Santa Monica alone. Pick a state, find a story:

Kansas. The city of Chanute also deployed a broadband network recently. As this October 22, 2012 Daily Yonder article notes, the network cost $2 million, but more than pays for itself. “[I]n addition to funding more incremental expansions and its operational costs, a percentage of its annual gross revenue goes into Chanute’s general fund. With the economic, educational, and cost-savings benefits, and additional potential uses for the network in the future, community leaders consider the funding a smart investment.”

Ohio. Geauga County deployed high-speed wireless broadband recently and “didn’t send a dime,” according to a country administrator quoted in this October 21, 2012 News-Herald story. The story adds, “A wireless Internet transmitter was placed on a public safety radio tower on Rapids Road near Route 422. To help [wireless provider] CUE Band with the costs of installing the transmitters, the county is allowing the company to use the towers for a year rent-free, [county administrator] Lair said. More than 650 homes and businesses can now subscribe to high-speed Internet, and 400 of those locations previously had no Internet access.”

Louisiana. According to this story on Huffington Post by Lafayette mayor Joey Durel, The Power And Promise Of Local Government, the city deployed a $125 million fiber-optic network providing free 100mbps for subscribers. “This project was done entrepreneurially, without taxes or grants. It must survive strictly by competing with a good (better) product for our citizens.”

An excellent resource for stories like these is the Minneapolis-based Institute for Local Self-Reliance. Christopher Mitchell (who wrote the Daily Yonder story cited above) is its director of the “telecommunications as commons” initiative, which focus on telecom as a public utility that should be made available to all. He describes ISLR as “a 40-year-old non-profit focused on changing policy so decisions are made by the people affected by them.”

I asked Mitchell what cities like Santa Monica and others have in common, and he cited three key elements. First, there has to be a person in the CIO position who “has a sense of the importance of networks and the importance of having them be cost-effective.”

Second – and this is harder to replicate – there’s usually a municipally owned utility. But the two elements have to work together. “There are 2,000 publicly owned electric utilities in the U.S.,” says Mitchell, “but less than 10 percent have fiber-to-the-home networks.”

Interestingly, this is a situation where smaller municipalities have an advantage. Most of the networks, Mitchell noted, have been financed by bonds backed by the utility, rather than by the recent economic stimulus. That’s easier to do in a smaller municipality because “there is more trust when there is a local entity. They know their city managers and their city council.”

Most of the cities that have been able to deploy broadband with such bonds have had population of less than 25,000 people; only three have more than 100,000 people.

The third element to success, in Mitchell’s eyes, is something any municipality can do: draft a progressive plan of action. “Santa Monica developed a plan and then found cost-effective ways of getting conduit in the ground. Other people are thinking of getting conduit in the ground first. You have to determine what kind of conduit, how much, and where it goes. We’ll see more cities using Santa Monica’s approach of developing a plan, and then slowly expanding on a cost-effective basis.”

What other municipalities – big and small – can take from these stories is a sense of optimism. It’s not a matter of size — it’s a matter of creativity. It’s not a matter of money — it’s a matter of commitment. Most communities have a business or a campus or an industrial park in need of broadband that can provide the stake in the ground for building out a network that serves the community. Find it and start digging.

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  1. @David Deans, Yes, you hit the point.

  2. Yes, you hit the point.

  3. The following are my own opinion. Two major setbacks affecting deployment of city wide broadband internet facilities is the (a) awareness and (b) culture at the leadership level of cities. Cities that had achieved this fit in the past and present consider broadband internet facilities as a necessary utility rather than a luxury. In other words, the leadership is connected to its people. In order to break this negative leadership culture towards city wide broadband internet facilities or services, the idea need to be sold at the leadership level with adequate business case. In order to sell this idea successfully, a private sector or public driven discussion or debate needs to be fostered with key players including public sector / government, private sector, and public well represented. With continuous and ongoing debate, the idea of broadband internet facilities as a necessity (utility) will be adequately addressed. Quarters that initially rejected broadband-as-a-utility undoubtedly will gradually embrace it. Cost, ownership, access control and other seemingly huge obstacles will succumb to the will power of a determined leadership.

    • @Peter, thanks for sharing your point of view. Agreed, informed leadership is a key to success. In a previous role, leading an incumbent telecom service provider's public sector account team, I've encountered some of the setbacks that you mention. The solution, in my opinion, is not to assume awareness or subject matter knowledge when discussing these issues with elected (i.e. city council members) and appointed (i.e. city manager) municipal officials. Also, explaining -- in detail, if required -- how the infrastructure directly benefits the various constituent clusters in the community is of paramount importance. Perhaps others have had similar experiences, given the same scenario.