Santa Fe's Targeted Fiber Investment - Community Broadband Bits Podcast 152

00:06:

Sean Moody:  We believe, instead of a single wholesale provider in Santa Fe, we believe we will have one, two, three, four, five -- all competing.

00:15:

Lisa Gonzalez:  Hello.  You are listening to the Community Broadband Bits Podcast, from the Institute for Local Self-Reliance.  This is Lisa Gonzalez.

In this interview, Chris talks with Sean Moody, working for the City of Santa Fe as a Special Projects Administrator for the Economic Development Division.  Sean describes Santa Fe's broadband situation, and how rates in nearby Albuquerque are much better, for both businesses and residents.  In order to compete in Santa Fe, both need better prices, faster speeds, and more reliability.  Community leaders believe more competition will naturally improve connectivity in the community.  Sean dissected their problem, and devised a possible solution.  He tells us about Santa Fe's unprecedented approach, as they attempt to create an environment to open up competition, to improve prices for businesses and residents.  Now, here's Chris and Sean Moody, from Santa Fe, New Mexico.

01:09:

Chris Mitchell:  Welcome to another edition of the Community Broadband Bits Podcast.  I'm Chris Mitchell.  And today I'm speaking with Sean Moody, the Special Projects Administrator for the City of Santa Fe and its Economic Development Division.  Welcome to the show.

01:25:

Sean Moody:  Thank you, Chris.  It's good to be here.

01:27:

Chris:  I think you win, for longest title.  I might have been able to shorten it up, but it's quite an impressive title.

01:34:

Sean:  Yeah, well, I started with 007.  But it didn't -- just 007 -- but it didn't take.

01:39:

Chris:  [laughs]  There's high demand for that title, I think.

01:42:

Sean:  [laughs]

01:43:

Chris:  I've driven through Albuquerque.  I was just telling you briefly, before we started.  Just -- we went right through on the Interstate.  But, tell me, is Santa Fe anything like Albuquerque?

01:55:

Sean:  Ah, it has a lot of the same excellence.  But it's actually -- the geography's really different.  We're -- heading from Albuquerque -- and I'm telling all of your audience -- if you're passing through, east to west on route 66 or I-40, you will NOT have any idea what's north of you.  And it's spectacular.  There -- it's mountains.  And deep gorge -- the Rio Grande deep gorge.  And the grasslands to the east.  It's utterly spectacular.  I've been here for about 20 years.

02:21:

Chris:  We -- when I was there, it was a personal vacation.  And I do remember the stunning physical beauty as we were driving through many areas of New Mexico.  But we were -- we had just had a big fight, on this road trip we were having.  And so, you know, I want to go back with a clean mind I think.

02:40:

Sean:  Come back.  Come back.  And I'd suggest to any of your listeners, come through here.  It's really beautiful.

02:46:

Chris:  So, let's jump in.  You're -- the City of Santa Fe is doing something that's somewhat novel, and quite interesting.  But why don't we start with you describing why the city felt that it had to take any action when it comes to broadband access in the community.

03:03:

Sean:  It's probably similar to what many cities and towns are dealing with, that was really driven by the business community -- that getting very high speed connections was crazy-expensive.  And having it set up on the ground, very, very few places in this small city where you can have it already set -- find already set up.  So you'd be paying -- if you're a small business or startup, full capital cost of a build-out from the incumbent telephone company -- or, now, from the incumbent cable TV company.  So that was the perception.  It was driven by the business community, out of frustration of connection.

03:42:

Chris:  And I understand that the -- that you knew that the connections were better just down the road, in Albuquerque.

03:49:

Sean:  Yeah.  I came in -- I actually came in cold, from a different -- sort of a different background, developing projects.  Real estate projects.  So, coming in cold, and tracking down every bit of prevailing wisdom about the problem the city -- we're facing with the Internet.  I wanted to know, what's normal, or what our neighbor has.  And, actually, in the end, I used, as a baseline, the Ookla index data, which your listeners probably know about.  But, self-reported speed and price data.  And what I found is that, on the ground that the median subscription prices were just the same.  And I think they're just the same around the country.  It's about 50 -- 40 or 50 bucks -- is what people typically pay.  And the difference was, in experienced Internet is that, in Albuquerque, the median experienced feed was 10 megabits down, and in Santa Fe, it's 5.  So, same price, half the speed.

04:51:

Chris:  So, one of the interesting things, I think, as you investigated it, was that this wasn't necessarily a last-mile problem.  And, in thinking about the service providers, you've found that, I think, even independent service providers that were not one of the incumbent telephone or cable companies, they had this common problem.  What was that?

05:13:

Sean:  Looking first at what seemed to be every indication from every source, was that it was this last-mile, the distribution within the city.  Um, what I found here -- and a lot of small cities that are considered "well-served" by the FCC.  But the price was still high.  So, looking further at what's the difference -- I just chose Albuquerque, but then I checked against other cities.  Cities like Albuquerque, and cities like Santa Fe here, essentially differ by their proximity to the Internet backbone, that is, the peered backbone of the Internet, where, if you can plug into that peered part of the network, you're good to go; you can circle the globe.

05:55:

Chris:  Right.  These are -- and these are often places where there's a lot of choice, I think.  You know, if you can get to that point, you might have a choice between Level 3, AT&T, Verizon, Cogent -- all kinds of different providers that usually aren't doing last-mile in a given town.

06:11:

Sean:  That's exactly right.  Yeah.  So, it's -- So, Albuquerque has ports exactly owned by Cogent, Level 3, Zayo, AT&T -- on and on -- CenturyLink.  Anybody who is peered will have a presence in a major city on the backbone.  So, a city like Albuquerque was -- it's a quite a bit larger city, but it turns out scale wasn't a factor.  We're a city of about -- a city, per se, of about 75,000, and our little metro region's about 150,000.  So, a very typical small city, that is remote, by 60 miles, from the nearest location for a choice of Internet ports.  We're strung out, and served currently on that 60 mile distance by a single pipe.  It's owned by the incumbent phone carrier -- legacy from the Ma Bell days.  And, unlike the service within town, which is regulated by franchise and by state law and federal law, the link between the City of Santa Fe and the City of Albuquerque is unregulated, and, as it turned out, uncompetitive.  There's no other way out.  There's a redundant path, but also owned by the same incumbent phone carrier.

That was the distinct condition between the City of Santa Fe and the City of Albuquerque.  Many, many other things similar.  You could say, a very small effect of scale.  It wasn't because Albuquerque was a big city that it gets faster Internet.  The singular difference is, whether all the providers in Albuquerque have direct access to a choice of backbone ports, compared to places like Santa Fe.

07:46:

Chris:  Right.  I mean, this is generally a problem we think of in very rural towns that might have 5,000 or 10,000 people, where you might only have one choice to get, you know, from maybe 100 miles away from Minneapolis to be able to get into Minneapolis, to get that choice in providers.  But it's kind of surprising that you have such a sizable city that just really doesn't have that choice.  But I would guess there's others in your shoes as well.

08:12:

Sean:  So, in the East, the sort of peered network built and built and built and built.  It's not uniform.  It doesn't cover every city and town.  But being in the grid of the peered part of the backbone means that providers are swapping transports.  So, getting to a number of competitive ports would always be an issue.  But the fact is that the East Coast and the Eastern Seaboard is better served than the West.  And I think the geography -- here, the geography of New Mexico and the West comes into play.  Because we have massive mountain ranges and great, deep valleys, and very scattered, sparse populations -- some rural, and now lots of small towns.  We're at the very end of the King's Road leading up from Mexico City from the old days.  And the result, in terms of the Internet backbone, is, it just gets this far.  North of Santa Fe is a great big region of progressively more rural and, frankly, impoverished land.  And it just makes it this far, too, the peered part of the Internet.  And that will be typical for the West.

09:18:

Chris:  I think, when I was speaking with Virgil Turner from Montrose, I think I had mentioned that it seems that the more beautiful an area is -- the more people might want to vacation there -- the harder it is to build Internet infrastructure.  Just as a general rule.

09:34:

Sean:  Yeah, we -- I mean, the first settlers of New Mexico were trying to get away from an Inquisition and a church and a king.  This is the place where people go to get away.  Always has been.  It's why I'm here.  It's why a lot of people who love this place come here.

09:49:

Chris:  Right.

09:49:

Sean:  Not that my -- I'm more afraid of my background catching up with me, but ...

09:54:

Chris:  [laughs]  Yes.  That's why we're using your assumed name.  [laughs]

09:57:

Sean:  Fake 007.  Yeah, that's right.  Thank you.

10:00:

Chris:  Finding yourself in this situation, what did you decide to do about it?

10:04:

Sean:  City Council had allocated a million dollars with the sketchiest of conceptual -- solves the problem.  We tried to focus primarily on working backwards, again, from needs.  The needs of the business community, and particularly entrepreneurial-class, who could develop great ideas with high speeds but were inhibited without them.  Considering a -- the goals of the city -- City Council -- to make the Santa Fe more viable, particularly for tech startups and knowledge-based industries.  Not for the likes of data centers.  Not something that is strictly a technological element, but for the development of knowledge.  Getting into the range where wireline service was limited, and where very much higher speeds would be needed.  That was the starting point.  How do we get that?  Working backwards to a solution.  Beginning to realize that that lack of competition in what, from the point of view of a retail provider in Santa Fe, is their wholesale connection.  Creating competition in that.

And what it started with is, the telephone company central office is the center -- de facto center -- of all of the architectures of Santa Fe, for Internet.  Whether it's the cable company -- cable TV company -- or all of the DSL providers, including the telephone company, the cell phone providers, or the fixed wireless providers, they all are paying to get out of town by way of the incumbent phone carrier.  Their signal passes through the central office -- through typically an Ethernet connection from their offices to central office, and from the central office to the Internet backbone in Albuquerque.  That's the route it takes.  So --  And, typically, the incumbent in Santa Fe -- CenturyLink -- would sell to providers a single lump sum.  They would break it out into the elements, but it was a single lump sum.  And it was, frankly, the only choice.  So, if you're Comcast, you have a price offer, presumably, for Ethernet from the Comcast hub into the CO -- central office -- and then from the central office out to the Internet, and access to the Internet, all provided by CenturyLink.

So -- single network, tier 1 provider, great service, and one "low, low" price.  What I saw as being a difficulty is going around that in any fashion.  So I thought, for a provider -- whether you're a cell phone company or a local mom-and-pop, or even Comcast, it would be convenient not to have to go right into the CO.  And it would be convenient not to have to buy Internet from a single provi- -- a single unregulated provider.  In other words, a stand-alone colocation facility that is connected back into that telephone company network, that Ethernet hub.

13:02:

Chris:  In Santa Fe.

13:03:

Sean:  Yeah.  The early scope of the work was to create a colocation, and to connect it back into the CO, and then to find other paths out of town.  And there were a couple of dark fiber points of presence that had never had any business on them.  One is now -- through iterations of purchasing -- is now, today, owned by Level 3.  And another -- again, by layers of purchases, from the -- dating back to the 1980s -- another on the dark fiber -- owned by Zayo.  So, a couple of companies that would do business if they could.

So my project was really pretty dirt-simple at first -- which is about two miles of fiber, connecting from inside the central -- telephone central office out to the point of presence, with a couple of dark fiber strands coming out of the ground.  And it happens to be along the railroad track, in a so-called fiber "hut."  In every city, you will see them.  And then, somewhere along the two miles, putting in a colo facility.  That was our first pass.

So, that would have taken care of part of the problem, where we've gotten a couple more tier 1 carriers able to offer backhaul services -- wholesale backhaul services -- to any provider.  And they also -- those two carriers, presumably -- would have had an interest in developing some finished-service contracts of their own.  They -- both Level 3 and Zayo -- will take big anchor customers when they can find them.

So, that was the project.  I have a colleague who works for the state.  And he found out about my project.  And he had a problem, on his hands -- which -- he operates a really beautiful data center that the state owns and operates.  Its long-term intention is to be the nerve center for essentially a statewide Ethernet network that would serve all the state agencies, into remote locations, and also serve as -- in the Homeland Security capacity, and disaster response.  Beautiful facility.  In Santa Fe.  Physically separated from its main clients, which are housed in and around the state capitol complex downtown.  Physically separated by about two miles.  And -- guess what -- right along the path I was building.  So --

15:17:

Chris:  [laughs]  That's fortuitous.

15:19:

Sean:  And the state needed a connection.  So the state came to me and asked --  You're building; could you give us some fibers?  We've acquired capacity up and down the center of New Mexico, from Santa Fe, by way of Albuquerque, to Las Cruces.  We own that.  For the -- historically good opportunity to buy into some dark fiber during the unraveling of the '80s -- 1980s -- fiber build-out -- global fiber build-out.  They'd acquired some of that, and had underutilized -- they -- really hadn't any use.  So, in exchange for the connection that he gave me to Albuquerque, I gave him fibers into town, into the place he needed most.  Great deal!  And, as it evolved, into his fantastic data center, became a great alternative to a build-it-yourself colo.

So, Santa Fe, for a million dollars, almost by accident, got a connection from the de facto hub of all of the Ethernet architecture in Santa Fe down to a variety of ports on the peered backbone of the Internet.

16:21:

Chris:  And that's something that any traffic can flow over.  You did- -- it's not just a matter of just the city's traffic.  But, you know, businesses could use that, and others could use that as well, right?

16:31:

Sean:  Yeah.  It's actually geared just for the businesses.  But, obviously, there are benefits to all.  In fact, the -- one of the nice features is, yes, the city, as an institution, and the county, and other institutions can use this.  The project we're developing will be a wholesale-only business.  And it will be open access.  But another beneficiary of getting to the point where very high-speed service could be viable from a number of providers, using this network -- that is, creating an alternative wholesale route back to Albuquerque, to the worldwide web, is the typical user.  All the people of Santa Fe using Internet get it from all different sources -- Comcast cable company, CenturyLink phone, all of the DSL providers, all of the cell phone LTE providers, and any fixed wireless providers.  All of the users of all of the ways to get Internet will find a benefit.

And the benefit is -- typical price offer from the incumbent phone company -- transport alone from the Santa Fe CO into their port in Albuquerque, which lives in their Albuquerque CO, is between 10 and 15 dollars a megabit [per second per month?], wholesale.  I can get competitive pricing for about a dollar, a dollar fifty, in Albuquerque.

17:51:

Chris:  I was going to say, that seems like about a ten-time mark-up.

17:54:

Sean:  That's exactly right.  That's about the cost.  Now here's where it plays.  On a typical user -- residents or small business -- can get by on 3 or 5 megabits ...

18:03:

Chris:  Oh, speak for yourself!  [laughs]

18:05:

Sean:  Basically, I will.  I'll speak for myself.  You know, lonesome guy, with a cell phone to live on.  5 megabits.  So, 5 megabits is a typical subscription speed here in Santa Fe.  Typically, you pay 40 bucks or 50 bucks, and you get about 4 or 5.  The wholesale purchase on the part of the provider -- retail provider is buying Internet to provide that service, and it winds up, for the 5-megabit level of service, it’s only about 10 percent of their cost structure.  So, looking inside a financial pro-forma of a typical retail provider, you'll see, their wholesale purchase is less than 10 percent of their whole cost structure.

18:41:

Chris:  Right.  That's what we've seen elsewhere as well.

19:43:

Sean:  Yeah.  And a typical user then.  And why Santa Fe 5?  Why Albuquerque 10?  It's that the small bit of a, particularly, small provider's whole business plan, where they can affect their own marginal costs.  This is my analysis of their psychology -- is, all the other bits -- all the customer service bits and blah, blah, blah -- all the fixed costs they have -- they really are fixed.  They really don't get to play much with them without having a direct effect on whether a customer wants to do business with you.  The bit they can know is that speed bit.  So their first level of offering will be just what people like me are OK with.  I'm OK with 3 to 5.  I'm fine with that.  So that's the level of service.  And, typically, across the city, most people are, like, well, I'll take that because it's less -- it's the cheapest offering.  On both parts.  But really, the offer, the provider cranks down their buy -- their wholesale buy -- to the point where it is satisfactory to customers at the lowest level of service.

That's true everywhere.  Think about the marginal -- the choice in the margin for the small business in Albuquerque, the small provider in Albuquerque, the small provider in Santa Fe.  The small provider in Albuquerque would have the same choice, but it's so little, it becomes 1 percent of their costs.  Do we pay 1 percent or half a percent of our whole cost structure for essentially what unfolds at 10 megabit service versus 5?  They're competing on speed.  Their lowest level of service is 10.  The lowest level of service in Santa Fe is 5.  And that is a part of the explanation.  From the point of view of the small provider, which is the only kind of provider that can really change a market, they can make a choice.  We're going to deliver a lowest level of speed of 10, or a lowest level of service of 5.  And in the cities where Internet is cheap -- wholesale Internet is cheap -- Albuquerque is a great example -- the lowest level of service is around 10.  And all the other -- all the rest of us, it's down around 5.  So, lowest level of service that customers could use, and, really, a choice the providers make.

But the real difference -- the swing -- and what the project was targeted at to begin with -- is in the high-speed users.  When you're buying 100 megabit service, or 200 megabit service, and the -- up and down -- symmetric -- there are a number of companies in Santa Fe that are -- the film production and post-production that Santa Fe has, pharmaceutical, data mining, startups.  Santa Fe has a brain trust that's off the charts, in terms of developing new ways of looking at what we call self-organizing systems, which could have real-time data feeds coming in and out of Santa Fe, where knowledge is gained in the flow of the data.  And I don't mean NSA.  I mean useful knowledge about disaster recovery and -- ten other things -- really brilliant people here.  When a startup from that community goes to buy 200 megabit service, first of all they're going to run into a couple of problems.  First is, is it available there?  Do they have to pay a capital cost?  That's a problem that I'm not going to solve directly.  But the next level is, they're paying, on a 200 megabit service, all of a sudden, it's a HUGE part of their provider's cost structure.  And the cost gets passed right along to the user.  For symmetric 200, they're up in the $1500-$2000 a month range.  And, in Santa Fe, that's quite a bit more than a startup would pay for RENT.  So, a rent consideration, whether locating in Santa Fe or choosing a location within Santa Fe, will be driven more by their Internet availability than it will be by the rent factor.  It just drives decision making.  And that was precisely what we were trying to address.

22:34:

Chris:  Excellent!  So, basically, you have a situation where -- a partnership of effect -- between the City of Santa Fe and the state, with its fiber, has helped to enable -- now, ideally -- these smaller ISPs to be able to build out and connect your highest-end businesses, your -- or, your highest knowledge end -- you know, the ones that need the higher-capacity network services.  Did I get that right?

23:01:

Sean:  Exactly right.  Yup.  And the way that it will work is, we'll light the thing up.  It should be done in about 8 weeks.  We're really soliciting business interest.  We will bring some tier 1 carriers in -- Level 3 and Zayo and Cogent now are interested.  They can come up into this data center in Santa Fe and begin offering wholesale service, where you plug in and you're in their network.  And there's a fourth company -- a rural telephone company came in recently with a stand-alone pipe from Clovis, New Mexico.  This is called Plateau Communications.  They cover eastern New Mexico in fiber, mostly on Rural Utility Service capital builds and, recently, coming to Santa Fe on the BTOP build.  Got to Santa Fe with the end of their network.  So it passes back all the way to Clovis, and to the worldwide web that way.  So there will be --  And that showed up when I was developing this project.  So, there will be, we believe, instead of a single wholesale provider in Santa Fe, we believe we will have one, two, three, four, five -- all competing.  And, among them, with different business models, which is key.  It isn't so much getting a number of providers.  As you know, Chris.  It isn't the count of providers, or the technology of the providers, it's also the business model of the providers really.  To destabilize a place, a market, what's important is that the models by which the various providers can move, to make their money, really should be distinct, too.  That's when an ossified price structure, or, in my case, speed structure begins to unravel.

24:40:

Chris:  Excellent!  Well, thank you for coming on and telling us more about this somewhat unique approach, to my knowledge, in terms of how you've taken a big bite out of the problem.

24:51:

Lisa:  Send us your ideas for the show.  E-mail us at podcast@muninetworks.org .  Remember to like us on Facebook, and follow us on Twitter.  We are @communitynets .  Thank you to Persson for the song, "Blues walk," licensed through Creative Commons.  And thank you for listening.  Have a great day.