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Local Media Sees Need for Municipal Network in Olympia, Washington

Local news editors seem inspired by the current network neutrality debate at the FCC. Newsrooms considering the prospect of paid prioritization are reassessing the value of municipal networks.

Not long ago, the Olympian ran an editorial offering the basics of municipal networks. Editors mentioned NoaNet, the statewide fiber project that brings access to a series of community anchor insitutions and approximately 260,000 people. The piece also acknowledges that port authorities and some Public Utility Districts (PUDs) offer fiber connections in several regions of the state. We have reported on a number of them, including Benton, Okanogan, and Chelan.

The editorial points out that the cities of Lacey, Olympia, and Tumwater have fiber and conduit they use for government operations. The cities share the fiber and conduit with the state Department of Transportation. The Olympian also notes that if a city wants to provide telecommunications services, its location is critical:

Republican Sen. Trent Lott championed a 1996 bill that prohibited states from blocking any entity that provides telecommunications services. Despite that far-sighted bill, big provider lobbyists have persuaded 20 states to pass legislation making open access difficult. 

As suggested by other editors, The Olympian advocates for a municipal approach to curtail damage that will result if network neutrality disappears:

If approved, individual consumers in the South Sound and other U.S. communities can expect slower speeds for smaller services, nonprofits and independent content creators. Why pay for the “HOT” lane, unless traffic is backed up on the main line?

...

If the FCC votes to effectively end net neutrality, residents of the South Sound do have a potential alternative that is gaining traction elsewhere: turning to local Internet service providers who ride on municipally-owned fiber optic networks.

Paid prioritization and the proposed Comcast Time Warner Cable merger may result in further degredation of broadband in American. On the bright side, more people realize that municipal networks are a better option.

The Challenge of Open Access - Lessons Learned Part III

To finalize our series on reflections from Seattle and Gigabit Squared, I discuss open access networks and how the requirement that a network directly pay all its costs effectively dooms it in the U.S. Read part one here and part two here. I started this series because I felt that the Gigabit Squared failure in Seattle revealed some important truths that can be glossed over in our rush to expand access to fast, affordable, and reliable Internet connections.

The benefits of public-private-partnerships in these networks have often been overstated while the risks and challenges have been understated. We have seen them work and believe communities should continue to seek them where appropriate, but they should not be rushed into because they are less controversial than other solutions.

Sometimes we have to stop and remember that we will live for decades with the choices we make now. It was true when communities starting building their own electrical networks and is still true today. I hope the series has provided some context of how challenging it can be without removing all hope that we can stop Comcast, AT&T, and others from monopolizing our access to the Internet.

In this final piece, I want to turn to a different form of partnership - the open access network. I think it follows naturally as many in Seattle and other large cities would be more likely to invest in publicly owned fiber networks if they did not have to offer services - that being the most competitive, entreprenuerial, and difficult aspect of modern fiber networks.

Chattanooga construction

The desire to focus on long term investments rather than rapidly evolving services is a natural reaction given the historic role of local governments in long term infrastructure investments. Fiber certainly fits in that description and as many have noted, the comparison to roads is apt. An open access fiber network allows many businesses to reach end users just as roads allow Fedex, UPS, and even the Post Office, to compete on a level playing field.

In an open access approach, the local government would build the network out to connect all residents and businesses but not directly deliver services. Instead, multiple independent Internet Service Providers (ISPs) would compete on the network for business, ideally specializing in different niches - some providing great video game optimizations and others focusing on meeting small business needs.

Unfortunately, there are reasons we have not seen this approach gain widespread traction. The model is more difficult than is readily apparent.

A large part of the difficulty comes from incumbent providers that refuse to use the fiber network. The cable and the telephone companies claim that they don't want to abandon their assets, but that is not the main reason they have refused to participate in these networks. The big cable and telephone companies know that they have terrible reputations and would be slaughtered in a competitive market - so they put great effort in ensuring that they face as little competition as possible. Allowing the open access market to develop would all but ensure mighty Comcast would have to compete against local providers that offer much better customer service, lower prices, and more.

From an economic perspective, an ideal open access network would be one physical fiber network on which all ISPs compete. With a take rate over 80 percent, the revenue would likely be sufficient to pay the costs of building the network, operating costs, AND the ISP costs. But because the cable and telephone companies have fought against open access, subscribers are often split among three different physical infrastructures (cable, copper telephone lines, and the fiber network), generating too little revenue to pay the costs of building the fiber network.

If a major metro area does a feasibility study to build a citywide open access network fiber, it will find that the network will almost certainly not pay for itself using a conventional private sector accounting system. The interest on the debt required to build the network accrues faster than revenue. Of course, the roads and bridges don't pay for themselves via user fees either, but we still invest in them.

Community BB Logo

In a recent podcast, we discuss how over the first five years, a network can save more in aggregate for the community that it costs to build. But those benefits acrue individually to households. Thus far, very few communities have used this approach - to raise monthly taxes by $3 to save $10 on household telecom bills, for instance. Leverett is a rare example of this approach.

That does leave another option - building an open access network incrementally, as Danville has done in Virginia and Palm Coast FiberNet in Florida, among others. This is a viable option for just about any community but comes with the difficult reality that connecting everyone could take decades. And there are still other gotchas.

Some communities that wanted to build an open access network have found it can be challenging to find service providers that will operate on the network. Sometimes a local ISP can step up, as in Danville and in other cases, but not always. Until a network has thousands of potential subscribers, ISPs may not be interested in offering services. But incremental approaches will often start with just tens or hundreds of subscribers.

We have written elsewhere of how important it is to have at least one strong, trusted provider on the network. An important lesson from Provo, among other places, is the difficulty in recovering once a network has a bad reputation. A bad provider can ruin the name of a perfectly good network, especially as most people will not know whether to attribute any problems to the physical network or ISP.

UTOPIA Logo

All of that said, open access offers a tremendous promise. Networks like UTOPIA and Chelan PUD (Washington) have been unable to pay the capital cost of building the network solely from revenues but offer some of the fastest speeds in the nation at a fraction of the price we pay elsewhere. I recall the testimony of a local business to the Utah Legislature who basically said, "Yeah, my taxes went up a little -- but my monthly telecom bill went down a lot."

Nonetheless, nearly every municipal fiber network has been built and financed with the expectation that it would pay for itself - generally breaking even years after the high upfront investments have been made. Each community should be free to choose what expectations it has in building the network it needs to ensure a vibrant economy and high quality of life for everyone. Our role has been to help them understand that choice and push back on those who want to take it away. I hope this series helps in that effort.

Many of the municipal fiber networks that now directly provide services started with a hope of working with a local partner or building an open access network. As they considered their options, they found they effectively had to choose between doing nothing and venturing into a very challenging business.

There are few easy answers for communities stuck with subpar Internet access, or even for those that regard "par" as unacceptable. When Lafayette Mayor Joey Durel was presented with the idea of a municipal fiber network shortly after taking office, he was skeptical. But he ultimately decided they should examine it - saying "shame on us" if they didn't at least see what they could do. Maybe they would hit a brick wall... or maybe they would build one of the most impressive broadband networks in the country. That was good advice.

No one solution works for every community. Thus our guiding philosophy: communities should be free to choose for themselves the solution they prefer.

Construction photo courtesy of Chattanooga Electric Power Board

Jim Baller on the History of Municipal Networks, Part II on Community Broadband Bits Podcast

Jim Baller is back again for the second show in our series on the history of municipal broadband networks. He is the President of the Baller Herbst Law Group in Washington, DC, and a long time advocate for both community owned networks specifically and better access to the Internet for all more generally.

We kicked this history series off on Episode 57 where we talked about some of the early community cable networks and how federal law came to allow states to preempt local authority.

In this episode, we talk about the early FTTH networks in Chelan, Washingon; Bristol, Virginia; Kutztown, Pennsylvania; and Dalton, Georgia. We also talk about how the states began restricting local investments, particularly in Pennsylvania under pressure from Verizon.

We will continue the series in subsequent episodes. We want your feedback and suggestions for the show - please e-mail us or leave a comment below. Also, feel free to suggest other guests, topics, or questions you want us to address.

This show is 18 minutes long and can be played below on this page or subscribe via iTunes or via the tool of your choice using this feed.

Listen to previous episodes here. You can can download this Mp3 file directly from here.

Thanks to Break the Bans for the music, licensed using Creative Commons.

Chelan Public Utility District To Restore Fiber After Storm Damage

In the week before Christmas, Mother Nature sent a powerful winter storm to Chelan County in Washington. Hundreds of trees along the south shore of Lake Wenatchee came down, causing extensive electrical and fiber outages. According to the Chelan PUD, most electrical customers have had power restored, but Internet, phone, and TV services dependent on the fiber are still out.

Readers will remember that the PUD held a series of community meetings this past summer to get public input on the future of the fiber optic network. The network suffers from heavy internal debt and, while customers appreciate the service, most opposed increasing electric rates to build out to reach more cusomters. The PUD decided to keep the network as is with no major expansion.

Following the storm, the PUD announced that it would not rebuild the fiber network due to the heavy replacement cost of up to $750,000. Officials planned to replace the fiber line with a wireless network that would cost between $175,000 and $225,000. Only a small percentage of the homes on the lake's south shore are occupied year round.

According to Christine Pratt of the Wenatchee World, the decision rankled residents who have come to depend on the fiber for more than just email. There are more than just a few property owners who run businesses out of their homes. The wireless option was not well received:

“A lot of people up here think that we’ve been thrown under the bus,” says longtime resident George Wilson, one of many south-shore residents who lobbied for years to get the PUD to put the fiber in. “I’ve never, ever seen a utility just walk away from an established, essential service. Wireless is a huge step backward.”

...

Bob Hooson runs an employment recruiting businesses from May to October from his Lake Wenatchee home. He spends winters working in California.

"I'm on the Internet all day," he said. "Our business requires pulling a lot of resumes down off the Internet and communicating with a lot of people at once. I'd be dead in the water without it. We have built our business based on the fact that we have fiber technology available to us. Wireless is not fast enough."

"I just hope they make it right," says Dr. Gary Bell, a Seattle dentist with strong Wenatchee ties who does contract forensic work over the Internet from his lake home. ... "I've never heard of the PUD coming in, giving service and then taking it away. It totally changes our life here. I think we deserve the services as much as anyone. We're ratepayers, too."

After further consideration and public input, the Chelan County PUD has decided to scrap the wireless plan and rebuild the fiber network. The PUD announced the reversal on its website just days after its announcement to put in wireless. Citing the tree-filled terrain, the needs of customers, and the time needed for an assessment on a wireless network, the PUD decided the fiber was just too crucial to the area.

As the Chelan County PUD has no legal obligation to restore the fiber, you have to wonder what a national provider would have decided to do. As with prior decisions, the Chelan PUD took the desires of its customers into account. The decision to restore service was made based on what is best for the community, not because it served the short term interest of shareholders.

Like other local community owned networks across the country, Chelan customers' have the advantage of receiving service from an agency that is accountable to the people it serves.

Chelan Will Keep Its Network As Is

As we reported in March, the Chelan County, Washington PUD was seeking input from the customer-owners of their open access fiber optic network to decide what the future would hold. The PUD had considered three options and presented them to the public:

    •    sell the network
    •    maintain ownership of the network, but improve operations and curb expansion until it is self-sustaining over time
    •    continue expanding the network, paying for the expansion by increasing electric rates

After requesting public comment through outreach and community meetings to present information and hear public opinion, the Chelan PUD General Manager John Janney released the recommendation to the PUD Commissioners at an April 9th special meeting. From the press release:

After feedback from customer-owners and extensive analysis around potential alternatives, costs and benefits, General Manager John Janney recommended Monday night that Chelan County PUD continue operating its fiber-optic network and take steps to put it on more stable financial footing before considering any further expansion to unserved areas. The network now offers access to about 70 percent of the county.

On April 16th, the Commission endorsed the recommendation. From the press release:

"It's a way forward," said Commissioner Dennis Bolz in speaking in support of the resolution that outlines steps to be taken to move the fiber system toward being self-sustaining and ending its reliance on dollars from the PUD's overall electrical system. He likened it to commencement that many seniors regard as the end to their high school days but which is really the beginning of their adult lives.

While most customer-owners who expressed themselves showed concern about raising electric rates, they also appreciate the value of the network and want to continue local control. According to Janney, for several years now customers have expressed their desire to protect low electric rates and see self-sufficiency in PUD services that are non-electric. Developing five-year business plans for water, wastewater, and fiber optic services remain one of the priorities in moving each system to long-term financial and operational sustainability.

Significant losses and internal debt must be tackled:

The fiber network now loses about $8 million a year, and impacts from investing nearly $120 million in the system so far will be felt by PUD electric customers for many years. After determining that the fiber network could never repay a $99 million internal loan from the PUD’s electric system, Janney’s recommendation included writing off the loan and treating the investment as a sunk cost. He said that should be contingent on implementing stringent financial policies for the fiber network from this point forward in order to avoid digging another financial hole for the PUD.

Consultants have offered several recommendations that Janney believes should be incorporated. Apparently, there are approximately 8,000 premises, business and residential, where service could extend at relatively low cost, but are not currently served. Part of the recommendations include encouraging ISPs to reach out and service those potential subscribers.

Janney referred to the Chelan PUD 2010 strategic plan as a source of guidance for his recommendation. The plan was developed through public input and created clear financial goals developed for the long-term success of the PUD and its services. So far that plan is working, as evidenced by elimination of a 9% surcharge on electric rates.

The endorsement means that the remaining 30% of the county will not see expansion until the network is on better financial footing. Also from the April 16th press release:

Commission President Norm Gutzwiler said he thought long and hard about selling the system but endorsed this recommendation because it tries to meet the needs of many people. He called turning down the federal grant for expanding the system last year a “blessing in disguise” because it required in-depth financial analysis that led PUD managers to realize cost estimates needed a better look and that led to a new overall strategic plan.

While the network will not be expanding anytime soon, this decision will help the PUD set goals for the future. Now that the PUD has a long term vision, details can be determined on how to achieve a self sustaining community owned network.

Radio Interview about Rural Broadband in Washington

Christopher Mitchell spoke with Gavin Dahl about community broadband on KYRS, a community radio station in Spokane, Washington, on April 11. The discussion touched on legislation in Washington that could have encouraged rural broadband deployment by area public utility districts and why the private sector is not getting the job done.

We also discussed the role of federal policy and what some communities have done elsewhere to build next generation networks.

Chelan PUD Asks the People What the Future Holds for Their Fiber-Optic Network

Chelan PUD is asking the people of their rural community whether they “love” or “just like” their beleaguered and pioneering fiber-optic network. At a series of public input meetings to be held across the county over the next month, residents will have the chance to hear opinions from business, economic, and marketing consultants, as well as express their devotion, or lack thereof, to the network. The future of the network is in question and the Chelan PUD needs to hear from its owners.

At the first meeting, on February 28th, most residents of Chelan County said that having a locally owned and controlled network available to them was a priority. Consultants hired by the PUD said the fiber-optic network could be self-sustaining in the long term with changes in business planning. Recommendations included writing off internal debt, more aggressive marketing efforts to existing and ready locations, and collaborating with ISPs to obtain more subscribers in the open access network. Yes, the PUD Fiber-optic network has had its problems, including high installation costs due to the landscape and lack of conduit, changes in PUD leadership, and incompatible existing residential technology. Nevertheless, experts and the local community appear patient and cautiously optimistic. More meetings will follow; the next is scheduled for March 19th.

Providers lease from the PUD (state law prohibits them from competing directly with retail services) and proceeds from wholesale electricity sales have allowed the network to continue expanding. As we have reported in the past, the PUD is an open access network and while it has not been able to pay down its debt, and has had some difficulties, the PUD network has recognized value in the community, as evidenced at this first meeting. It certainly beats not having access to the essential infrastructure necessary to succeed in the modern economy.

John Tomkins, a Plain resident wants fiber, if it comes to his area. “Business is going to go where they can get a high-speed network. Let’s give our county the opportunity to grow.”

Chelan PUD is finding creative ways to capitalize on their community investment. Most recently, with an agreement with local NoaNet to string fiber between four Verizon cell phone towers and to the PUD’s network. The PUD will own the network, designed to increase “4G” network speeds. Some question whether or not the PUD may be taking a gamble at losing some fiber-optics subscribers to the increased wireless capacity. Possibly, but the Chelan PUD knows that local customers like their speed and indications are that the 4G service would be significantly more expensive than services from the publicly owned network and would involve severe data caps from Verizon.

We encourage others to take a look at Chelan, where the community is having an adult conversation about what infrastructure they need to thrive and how they should go about building it. They know the value of self-determination and its value beyond a simple profit/loss statement.

Legislation Alert: Washington Considers Community Broadband Bill

Last year we noted that a bill to expand local authority to invest in publicly owned broadband networks would return in 2012. HB 1711 is in Committee and causing a bit of a stir. "A bit of a stir" is good -- such a reaction means it has a chance at passing and giving Washington's residents a greater opportunity to have fast, affordable, and reliable access to the Internet.

Washington's law presently allows Public Utility Districts to build fiber-optic networks but they cannot offer retail services. They are limited to providing wholesale services only -- working with independent service providers to bring telecom services to the public.

Unfortunately, this approach can be financially debilitating, particularly in rural areas. Building next generation networks in very low density areas is hard enough without being forced to split the revenues with third parties.

Last year, House Bill 2601 created a study to examine telecommunications reform, including the possibilty of municipality and public utility district provisioning. The University of Washington School of Law examined the issues and released a report [pdf] that recognizes the important role public sector investments can play:

U Washington Law School

Broadband infrastructure is this century’s interstate highway system: a public investment in an infrastructure that will rapidly connect Washington’s citizens statewide, nationally, and internationally; fuelling growth, competition, and innovation. Like highway access, the path to universal broadband access varies with the needs of the local community.

Our primary goal is to expand broadband access. We believe allowing municipalities and PUDs to provide broadband services addresses the most significant hurdles to broadband expansion: the high cost of infrastructure. In conjunction with a state USF, PUDs and municipalities are well placed to address the needs of their consumers.

A secondary goal is to promote a competitive marketplace. We believe that empowering PUDs and municipalities will spur competition which will drive innovation and improved service.

The analysis recognized the weakness of those arguing that only the private sector should be allowed to build this essential infrastructure:

To be successful private providers need to be able to generate profit for their shareholders. However, when an effective competitive marketplace does not exist, private providers only have a weak incentive to expand access to broadband services. In fact, the scarcity of service justifies the collection of high rates from users. In Washington’s urban areas, the barriers to entry are so high that incumbent providers have little trouble keeping new providers from entering the marketplace. Qwest (soon to be CenturyLink) and Comcast, merely vie for existing users, rather than expanding the overall number of ratepayers. In contrast Washington’s rural areas are characterized by low population density and large geographical distances between communities. The lack of concentrated business consumers in a given area translates into weak or non-existent business case for providers to build broadband infrastructure in rural areas. Arguably, rural areas are poised to reap the biggest rewards from broadband expansion, quickly integrating communities into existing networks of private and public service.

Chelan PUD

Not all public utility districts are pushing for this law to be changed. I asked the Chelan Public Utility District (one of the oldest and largest public services providers in the state, which we have previously covered here) about their position on the legislation. Chelan is not interested in offering retail services but does not oppose changes that would allow other PUDs to do so. They rightly oppose any law that would require PUDs to offer retail services -- something with which we strongly agree. State legislatures should not be telling communities what business model they have to use.

Getting back to HB 1711, it is presently in the Technology, Energy, and Communications Committee. The bill's author, Representative John McCoy has taken the arguments of opponents into account by limiting the impacted public utility districts to those in a county with 300,000 people or fewer. To build a network and offer retail services, a public utility district (or rural port district) would have to gain the approval of its governing board after a public meeting and be subject to state regulation for the services it offers.

The original bill also granted the authority to municipalities to build retail networks -- a right that munis appear to have presently but it is not clear (inviting expensive litigation from big anti-competitive providers). That provision has been removed from the present bill.

Opposition

The bill's opponents may be separated into two groups. The first is the usual gang of big, absentee corporations like CenturyLink, Frontier, and Comcast that typically oppose any legislation that could create competition to their services. They have a ton of lobbying power and very little desire or capacity to solve the rural broadband problem in Washington state.

The second group is more interesting. It is a collection of local businesses that are actually rooted in the community. Many are ISPs that operate on existing wholesale-only networks owned by public utility districts. They are afraid of either being kicked off the network or having to compete against the PUD itself in provisioning services. These are certainly legitimate fears.

Unfortunately, the small providers are also limited in the capacity to build the necessary networks needed to bring modern connections to everyone in the state. Offering service on an existing PUD network requires far less capital than building their own network. If the state wants to move toward a Washington where all residents and businesses have fast, affordable, and reliable access to the Internet, it has to risk upsetting the small ISPs. They do not have the capacity to connect rural Washington; the public utility districts and local governments have not just the capacity, but also the responsibility. It is time for the state to stop making it all but impossible for them to do so.

Get Involved

Local communities must have the freedom to build the networks they need without interference from federal or state capitals. Quoting from the Federal Communication Commissions' National Broadband Plan: "Congress should make it clear that Tribal, state, regional, and local governments can build broadband networks."

This bill will not succeed without a grassroots effort. People in Washington should contact their representatives (you can find them here), particularly those on the Committee:

make-the-call.jpg

Representative Room Phone
McCoy, John (D) Chair LEG 132A (360) 786-7864
Eddy, Deb (D) Vice Chair LEG 132D (360) 786-7848
Crouse, Larry (R) * LEG 425A (360) 786-7820
Short, Shelly (R) ** JLOB 436 (360) 786-7908
Anderson, Glenn (R) LEG 122A (360) 786-7876
Billig, Andy (D) LEG 122H (360) 786-7888
Carlyle, Reuven (D) JLOB 325 (360) 786-7814
Dahlquist, Cathy (R) JLOB 426 (360) 786-7846
Haler, Larry (R) LEG 122D (360) 786-7986
Harris, Paul (R) JLOB 427 (360) 786-7976
Hasegawa, Bob (D) JLOB 322 (360) 786-7862
Hudgins, Zack (D) LEG 438A (360) 786-7956
Kelley, Troy (D) JLOB 334 (360) 786-7890
Kristiansen, Dan (R) LEG 427A (360) 786-7967
Liias, Marko (D) JLOB 414 (360) 786-7972
McCune, Jim (R) JLOB 405 (360) 786-7824
Morris, Jeff (D) LEG 436A (360) 786-7970
Nealey, Terry (R) JLOB 404 (360) 786-7828
Wylie, Sharon (D) JLOB 417 (360) 786-7924

Former FCC Commissioner Copps recently said, "So it is regrettable that some states are considering, and even passing, legislation that could hinder local solutions to bring the benefits of broadband to their communities. It's exactly the wrong way to go."

Washington is smart to expand local authority in this matter. Local citizens are the best judge of whether a network is necessary and desirable as well as the most responsible business model.

Chelan PUD in Washington Reconsiders Broadband Stimulus Grant

For the last 6 weeks in Chelan, Washington, the Public Utility District has had to make some hard decisions regarding expanding its rural FTTH network using a broadband stimulus award from the federal government. Chelan was an early pioneer of rural FTTH, operating a network that serves over 2/3 of a rugged county that offers great rock climbing and hiking opportunities (I checked it out personally).

As we reported last year, Chelan's citizens had strongly supported accepting the stimulus award and paying for their required match by modestly increasing electrical rates (which are among the least expensive in the nation).

At that time, the PUD believed its network passed over 80% of the county. But after reassessing their coverage and changing the leadership of the group in charge of the fiber-optic aspect of the utility, they found the network passed closer to 70% of the population. They also re-examined assumptions about the cost of expanding the network's reach:

The PUD’s financial review resulted in a series of revised statistics that PUD engineers presented to commissioners Monday.
Of the county’s 43,000 premises — mostly homes and businesses — 30,000 have access to fiber.

Some 6,000 don’t have access because they live in areas where hookups are more costly, despite their often urban settings.

In these areas, the cables that supply electricity are buried directly in the ground. Fiber hookups require costly trenching and installing conduit.

Another 7,000 premises don’t have access because they’re very rural. Fiber access to all but the most rural of these locations will be funded jointly by a $25 million federal stimulus grant and PUD matching funds of about $8 million.

Of the 30,000 with access, some 37% are taking a service (though they have to subscribe through independent service providers that contract with Chelan PUD due to Washington State law denying the opportunity for PUDs to offer retail services on their own network. Nonetheless, they are signing up 100 new customers per month.

The problem is that some of the new connections are in high cost areas (whether due to distance or underground utilities). So the PUD began considering an approach that would cap their cost while giving the potential subscriber different options to connect:

Under conditions of a recommended Line Extension Policy presented Monday, the PUD would continue making connections, at no additional cost to end-users, if they are estimated to cost the PUD less than $1,500. Any connection costing more than that would require the customer to pay the balance under arrangements to be made with a service provider – if the customer wishes. Without cost-sharing, no fiber connection would be made where costs are higher than $1,500.

In presenting the policy to the board for consideration before a vote next Monday, PUD General Manager John Janney said that for every dollar invested in the fiber network by the PUD, it loses 7 cents – something that needs to change. The PUD is evaluating the entire fiber-optic program to develop a new long-term strategy that is expected to be finished before the end of the year. In the meantime, Janney said the Line Extension Policy would allow work to continue on connections and give end-users a way to contribute to paying higher costs if they wish. The policy would protect the PUD in line with its new financial principles and still give end-users a voluntary option for a fiber connection.

The independent ISPs were not thrilled at the prospect of having to play a role in connecting these higher-cost subscribers:

Representatives from service providers LocalTel and Genext said they support the PUD's focus on controlling costs, but they aren't eager to develop procedures and hire staff to oversee and manage line extension requests, according to a press release from the district.

Both LocalTel and Genext said they would prefer that the district budget an amount each year to allow as many connections as possible at an average cost of $1,500 and hold to that spending limit, if necessary. They also said they look forward to seeing clear long-term goals from the district for the fiber program, the release said.

Of course, as the ISPs share none of the risk or costs in expanding the network to higher cost areas, their opinions may not carry much weight in the decision. Unfortunately, it seems the PUD is stuck forcing the ISPs to get involved due to the wording of the state law restricting PUD authority to offer retail services -- as noted in this story about the new policy:

A big difference with the fiber line extension policy is that the arrangements have to be made through a service provider - one of the retail firms that actually provide telephone, Internet or television service to the end-user over the fiber line. The district is only authorized to provide wholesale fiber services.

This line extension policy, which we wrote up here, gives more choices to households in high cost-to-connect areas:

Potential end-users of fiber services can also reduce costs by doing trenching or conduit work themselves, subject to PUD inspection before the final connection gets made. The procedures are now spelled out in the Line Extension Policy, matching options that have long been available for water, sewer and electrical connections. The big difference with the fiber Line Extension Policy is that the arrangements have to be made through a service provider - one of the retail firms that actually provide telephone, Internet or television service to the end-user over the fiber line. The PUD is only authorized to provide wholesale fiber services.

Armed with the new numbers regarding costs to expand the network, a number of officials became concerned about their obligations under the broadband stimulus rules and began considering whether they wanted to back out of the arrangement.

The network has cost $110 million to build, mostly debt financed, and has ongoing operating losses, not a major surprise given its rural territory and inability to offer retail services directly due to the state law. The network will likely never break even on spreadsheets, but residents and local businesses clearly saw it is a wise investment in their continuing support for its expansion. The benefits of robust, locally accountable broadband infrastructure go far beyond what is measured by those focusing intently on simply whether the utility is losing money or making money on the service. Benefits (including lower rates that keep more money in the community from incumbent providers like Charter and Frontier) from opportunities in education, health care and economic development are significant and must be balanced against the strictly financial metric of success.

Examining the situation, the Wenatchee World called for considered reflection in the decision of whether to proceed with the stimulus award:

It is not that the fiber optic network is not good. It is wonderful for those who have access. It is not that extending it to the rest of the county is wrong. If analysis shows the burden is close to tolerable it is the right thing to do. But there must be a lid on how much we can spend to subsidize ourselves. You don’t get $25 million every day, but there are times when you can’t afford all that free money.

A few days ago, the PUD decided to withdraw from the broadband stimulus grant:

Citing revised buildout costs that exceed original estimates by $20 million to $34 million, PUD General Manager John Janney told commissioners Monday that “the only viable option” was to decline the grant and discontinue a 2 percent electric rate increase to help fund the project.
Commissioners, who’d approved accepting the grant in August, were tipped late last week to the revised cost estimates and Janney’s decision. They unanimously agreed.

This seems like a wise decision given their present situation. Trying to make the project work on within the original flawed parameters with the contractual deadline could have ended quite poorly. It is better for the PUD to move forward as it feels comfortable, even if it means having less financial support from the federal government to do so. They are going to continue exploring opportunities to expand the network on their own terms:

Janney said the district hopes to pursue a long term fiber strategy by the end of the year and possible pursue other types of technology to make high speed internet available to more of Chelan County residents.

Rural Washington Network, Chelan PUD, Increases Speeds and Expands

The Chelan Public Utility District in Washington state is upgrading network capacity as it starts expanding the network following its broadband stimulus award. We previously covered their consideration of whether to expand from passing 80% of the territory to 98%.

Chelan is one of the most rural publicly owned fiber networks as well as one of the oldest ones. In a rarity, it looks likely to run in the red permanently (the pains of rural, mountain terrain) with the support of most ratepayers. These ratepayers recognize the many benefits of having the network outweigh its inability to entirely pay for itself. The utility also runs a sewer project that is subsidized by wholesale electricity sales. Though some areas in Chelan are served by Charter and Frontier, the more remote folks would have no broadband access if not for the PUD.

With the planned upgrades in 2011, Chelan's open access services will offer far faster speeds than available from the cable and DSL providers. Under Washington law, the PUDs cannot sell telecommunications services directly to customer. The PUD builds the network infrastructure and allows independent service providers to lease access while competing with each other for subscribers. Though this is a great approach for creating a competitive broadband market, it has proved difficult to finance (if one believes this essential infrastructure should not be subsidized as roads are).

When the PUD considered whether to pursue the expansion (meaning taking a federal grant covering 75% of the costs and agreeing to run the network for 22 years), it asked the ratepayers for feedback:

Sixty-four percent of 450 randomly chosen Chelan County registered voters who were part of phone survey in August said they favor taking the grant and completing the buildout, even if it means their electric bills will go up by as much as 3 percent — about $1.50 more on a $50 per month power bill.

On November 9, PUD Commissioners approved the rate increase.

Chelan's service providers currently offer connections of 6Mbps/384kbps or 12 Mbps/384kbps. As with other early BPON networks, the speeds were asymmetrical. While other community fiber networks have upgraded to offer much faster symmetrical speeds, Chelan has opted to continue a heavily asymmetric offering.

They will continue the 6Mbps option (for service providers who are not ready to upgrade their equipment to offer faster speeds) while adding a 25/2 and 100/100 option. They are also adding a 1 Gbps commercial option.

Frontier and Charter advertise maximum connections at 7/.768 and 25/3 respectively.

Service providers on the network will have to pay higher rates to continue using the network, though they also will get a discount from the PUD when they sign up customers for more than one service (bundling).

Providers will have to pay an extra $4 per customer while the bundling discount will be $2 or $3.

Service providers will have to pay Chelan $22.35 for a 100Mbps connection to a customer and $19.35 for either a 25/2 or 6/.384 connection.

However, there are some complications (detailed in this article toward the end) -- because Chelan was such a pioneer of this technology, the earliest subscribers will have to wait longer to access faster connections.