Last December, we reported on Chanute's decision to move forward with plans for a FTTH network. The community has a fiber and wireless network in place that serves utilities, public facilities such as libraries and schools, and several businesses. The network also provides free Wi-Fi across the community. As we discussed in our 2012 case study, Chanute developed its network incrementally over two decades with no borrowing or bonding.
In a City Commission work session on May 5, officials reviewed several options for an FTTH network. In a nutshell, the City is contemplating their involvement in the operation of the future network.
Utilities Director Larry Gates presented several options, reported the Chanute Tribune. Two choices stood out for the working group members:
Scenario C calls for the build out of city provided fiber optic-to-home broadband internet services. Service drops would only be provided to homes that want the internet services.
Under Scenario C, the initial investment would be about $10,926,842 to build the fiber core. The city would need $9,468,033 in funding to complete the project. The project would become cash-flow positive in two years, one month. It would take five years, nine months to pay back financing for the project. The 20-year net present value for the entire system would be an estimated $40,623,151.
Scenario D calls for a build out of the fiber optic-to-the-home system for private communications companies to pay a fee to the city to lease the network and provide services to residential customers. The city would seek private companies for voice, video and internet services.
Under Scenario D, the initial investment would be about $13,906,416 to complete the build out. The city would need $9,468,033 in funding to complete the project. The project would become cash-flow positive in one year, seven months. It would take eight years, 10 months to pay back financing for the project. The -20 year net present value for the entire system would be an estimated $25,667,301.
Under an altered Scenario D, the City would lease out the network for five years to a private company that would offer triple-play services to residents. At the end of the time period, the City would take over.
Several city officials expressed an aversion to city run video services.
“There is not much profit in video,” Gates said. “Provisioners are pretty much naming the price on that.”
“From a business standpoint, providing video is going to cost us more,” [Mayor Greg] Woodyard said. “We’re not going to be able to see a return on that investment.”
An April Tribune article reported on an outreach meeting held by City Commissioners. Brian Inbody, president of local Neosho Community College shared his experience with the network:
“It is as necessary to us as electricity, water and gas,” Inbody said. “We save about $30,000 year over what we were paying through AT&T to provide that service."
Local schools Superintendent James Hardy also spoke to the value of the publicly owned fiber infrastructure:
“If we didn’t have fiber, we couldn’t have school anymore,” Hardy said. “When we’re buying text books and we have text book rotation, half of what we pay for a text book is web-based material. When those teachers turn on their smart boards that are hooked to a computer, everything they are pulling down is off websites, because everything is web-based.”
At the public meeting in April, commissioners addressed concerns about a five percent franchise fee that commenced in December 2013. The network serves public telecommunications and utility operations and now needs relacement equipment. The franchise the fee will cover the costs.
“We were talking about being short money for equipment,” [Senior City Commissioner Tim] Egner said. “We were trying to figure out a way, without raising mill levies, how to come up with this money. With the franchise fee you’re going out over a larger area. You’re going outside the city. With the franchise fee, you can choose how much electricity you use. You can choose how much gas you use.”
The lack of upgrading maintenance has caught up with the city, Egner said.
“When we cut mill levies,” Egner said, “we had to adjust. We had to stop buying things. We stop putting money back for equipment. At some point that catches up with you. So, we had to figure out the best way to do it.”
The working group will meet again later in May to continue the discussion.