Earlier this spring, Sun Prairie Utilities (SPU) and TDS Telecommunications Corp. signed a letter of intent to transfer ownership of the community’s Fiber-to-the-Home (FTTH) network to TDS. After weighing the pros and cons, the City Council approved the deal by a 4 - 2 vote at an April 11th meeting.
Conversation and Reservations
TDS will pay $2.88 million for the fiber-optic network. The asset has been valued at $2.7 - $2.8 million and the city owes $2.85 million on the network.
The company has agreed to expand the network over the next 30 months and will use customer demand to determine where to deploy new investment. If they don’t begin expansion within 30 months, TDS will pay a $25 per unit penalty to the city.
At least one Alderman felt the penalty was too lenient. “I want this contract to have real consequences if the buildout doesn’t happen like they say it will,” said Mike Jacobs at the April 11th meeting. Jacobs expressed his desire to allow SPU to continue efforts to develop the network, arguing that high-speed Internet access is an essential service like police, fire, and other services the city typically provides. He argued such an asset should not be sold to a company that needs to make profits.
Alder Maureen Crombie also wanted to hold off on approving the transaction. She stated that the Council should wait three weeks to hear residents concerns but other council members disagreed.
Incumbent Charter Communications also opposed the sale, stating that they face unfair competition now because the city will be helping TDS market the FTTH service. Alders responded to Charter’s government affairs manager by reminding him that Sun Prairie had approached the company asking for upgrades but were ignored. They also said that, had Charter offered to purchase the system, Sun Prairie officials would have considered their offer.
Under the agreement, reported the city’s attorney, the city will share revenue with TDS based on penetration rates. As long as subscribership is 25 percent or higher within certain areas, revenue sharing can be up to 7.5 percent. Revenue sharing will occur for the first five years after the transfer of assets. The Asset Purchase Agreement is available online as part of the City Council meeting packet.
TDS says it will continue to offer symmetrical service without data caps, two concerns voiced by current SPU subscribers. The agreement also stipulates that, if an average cost per unit exceeds $2,000 per unit to connect, TDS is not obligated to serve that area of the city. Unfortunately, this approach will allow TDS to serve the most densely populated areas and will not solve the problem of connecting hard to serve neighborhoods.
Sun Prairie developed a FTTH pilot last year and more than 50 percent of households in the service area had requested connections. It was an indication that citywide FTTH would also do well, but community leaders are not comfortable with the $25 million estimate for citywide deployment.
The City Council considers their decision to sell the community asset to TDS as less risky than investing in publicly owned fiber, but they’re really just trading one type of risk for another. TDS can escape its promise to serve the entire community. Sun Prairie has a right of first refusal if TDS decides to sell, but only if the sale would reduce the number of competitors in the community. The right of first refusal only applies to assets from the SPU system; if TDS sells all of its Wisconsin assets, the right of first refusal won’t apply.