Transcript: Community Broadband Bits Episode 167

This is Episode 167 of the Community Broadband Bits Podcast. Chris interviews Joe Knapp and Jeremy Pietzold of Sandy, Oregon on their $60 Gig. Listen to this episode here. Check out our video on SandyNet here.

 

Joe: That’s been really nice for me to know that we’re providing something to the community that’s allowing people to have more flexibility that improves their quality of life.

Lisa: Hello and welcome. You are listening to episode 167 of the Community Broadband Bits Podcast from the Institute for Local Self-Reliance. This is Lisa Gonzalez. Sandy, Oregon in the shadow of Mount Hood and 30 miles from Portland is one of the stars of our new video about its fiber network SandyNet. Two other stars are Chris’ guests this week, city council president Jeremy Pietzold and IT director and SandyNet general director Joe Knapp. Sandy is offering gigabit connectivity to both the residents and businesses for an incredible $60, even beating out Google Fiber in Kansas City for affordability.

People in Sandy are taking advantage of this new publicly owned asset switching over at take rates much higher than anticipated. In this interview, we hear Jeremy and Joe describe how the network is improving life in Sandy and they elaborate on the strategy, the community to its fiber deployment. Sandy, with no electric utility took an incremental approach. Our guests offer advice for other communities who may find themselves considering a similar tactic. Be sure to check out our video, produced in cooperation with Next Century Cities at the Sandy Tag at muninetworks.org. Now, here is Chris talking with Jeremy Pietzold and Joe Knapp.

Chris: Welcome to another edition of the Community Broadband Bits Podcast. I'm Chris Mitchell. Today, I'm talking with Jeremy Pietzold, the city council president of Sandy, Oregon. Welcome to the show.

Jeremy: Hey, thank you.

Chris: We also have Joe Knapp, the IT director and SandyNet general manager. Welcome to the show.

Joe: Thanks, Chris. It’s good to be here.

Chris: I'm glad to have you guys on the show. We’ve been talking for a lot of years and in fact, Joe, I know we’ve had you on in the past and Jeremy, I think we’ve … Did we have you on?

Jeremy: Yes.

Chris: I thought so.

Jeremy: Yeah. I’ve been on the show.

Chris: I'm just very excited because we’ve released this video. The two of you are now rock stars on YouTube as far as I'm concerned. You’ve got this great network that is just coming in to the finishing gates here in terms of the initial deployment. Can you just briefly, Jeremy, give us a little background on Sandy?

Jeremy: Sandy is a town that just celebrated its 100th year as being a municipality. About 11, 12 years ago, the city tried to get broadband internet, actually, DSL at city hall and they weren’t able to do so. It wasn’t available. The outcome of that was that the city council decided to become a municipal ISP with the idea of, if we couldn’t get DSL at city hall, our residents would be frustrated without being able to get broadband at their homes. We started that service with DSL and then transitioned into a wireless ISP and then now, transitioning into fiber.

Chris: We have this great video that the two of you are in that we in Next Century Cities put together, of course, Sandy being one of the charter members, the original members of Next Century Cities that discusses a lot of that history. Joe, can you remind when you became involved with SandyNet?

Joe: I was hired by the city in July of 2007, so I’ve been here just over eight years now. When I came on with the city, it was really when we were starting to transition, as Jeremy mentioned, from DSL to wireless. I managed the deployment of the citywide Wi-Fi network and then kind of in the midst of that, also began exploring the fiber optic network that we were seeking to build and then obviously, have managed that process as we’ve gone through it.

Chris: Joe, I think you were the first real IT person that they brought on. Before that, you had this adventurous city manager who would climb the poles and climb up on the rooftops for the wireless, right?

Joe: Correct, yeah. We had … Our city manager did a lot of troubleshooting and tech support and then we had an intern that was a high school student. The worked as an intern for the city for a few years. They did a lot of that as well. That worked well when the utility was very small. When I came on to the city, we only had about 175 customers. It was a very small niche thing that was happening. Once the Wi-Fi network was really built out was when we really started to blow up. By that time we had that Wi-Fi network completely deployed, we had around 1,300 customers inside the city limits and another 200 outside the city limits on a different system.

Chris: Jeremy, I think one of the really interesting parts of SandyNet has been this incremental strategy of growth. I'm just curious, as an elected official, what are you thinking about when you’re sort of deciding to take another incremental step and how does that differ from deciding to take the step of going citywide all at once, which you ultimately did with the fiber network?

Jeremy: Joe was mentioning about when he started, it six months before that when I got in the city council, I was really focused on like, “Let’s take this next step.” The city manager is kind of doing tech support. We have a high school intern doing tech support for us and helping us. Let’s make that next step and improve what we have and expand it. We only had a few hundred people on it and we wanted to get the entire city on it. We did grow it very slowly in different sections. When we started the Wi-Fi, it wasn’t across the entire city at that time because we just had a little bit of money. I think that’s what we … I had a conversation with the city manager at that time and he shared with me, we look at other cities that had provided free Wi-Fi because we’d contemplated that, "Let's provide free Wi-Fi in the parks and these areas." He says, "Well, look at other cities.

There’s not a way to sustain that." We’re looking at that and going, “You know you’re right.” We want to be sustainable and we don’t want to kick off too much at one time because we had seen that happen before and seen a lot of places where it didn’t work out. Then you got this kind of this black eye for even trying. We were able to slowly grow it year after year. Then it came to a point of when we got to deploying fiber, we had 1,500 wireless customers in our city and we completely cover our entire city. We had everyone in our city participating. Then we decided politically, how can I go and say, “This side of town, let’s try it over here and see if it works. We’ll give you guys gig fiber, but the other side of town, you only get 5 megs of wireless.”

That didn’t seem politically fair. I do like being reelected. We were able to figure out a way that we didn’t do it right away. We had to wait and figure out the financial aspects of it to be able to say, “You know what? It’s financially … also cheaper for us to do the entire city at one time for deploying the fiber.”

Chris: I think that’s actually a really good point because I talk often about some of the benefits of the incremental strategy, but you’re absolutely right in terms of it’s a political question of how to pick the first neighborhoods and then that can be very challenging and it can be certainly very divisive in ways that I certainly understand, elected officials would like to avoid.

Jeremy: I’d like to point out also, Chris. When we did deploy the fiber, Joe had deviated up the city into four quadrants for construction purposes. You got to start somewhere. We built the entire thing in a year. I mean, rally crazy fast was what others might say, in one year, but in that year, you had people that already had it and it was politically challenging too. People were like, “Why aren’t you in my neighborhood over here?” “We’ll be there. Don’t worry.” That was just a one-year span and that was just because of construction. You can only have so many boots on the ground working at a time and yet, one year showed the kind of the political stress or the stress in the fact that, “Why does that section of town have it and my side doesn’t? I have to wait.”

Chris: I think it’s worth making sure people are on the same page and understanding that you’re a city of 10,000 people. You do not have an electric utility and that you’re located between the stunningly beautiful Mount Hood and Portland, Oregon and you’ve got some great visitors there. You got a lot of people that are constantly coming through town and it’s a desirable place to live. Joe, I want to get back to I think how a town without a municipal electric utility does this. There’s just common wisdom that it’s all been impossible. Can you give us some suggestion of how you’ve made it work?

Joe: The key for us is that we had an existing municipal utility, specifically a municipal internet service utility to make this project successful in my mind. We’ve had a lot of cities reaching out to us now asking that very question, “How did you do this and how can we replicate it?” I hesitate to just say, “Run out and build a network,” because the way that we modeled this to make sure that we were going to be okay was based off of our existing penetration of wireless subscribers. We knew, we’ve got 30% of the community already on SandyNet. They already have our Wi-Fi service and we’re simply going to be upgrading them to this fiber service and that existing customer base almost got us to where we needed to be financially to make the model work for fiber.

The big risk was, will any of those customers cancel service because the rates are going to go up so they were paying $25 a month and now, they’re paying $40 or $39.95 specifically.

Chris: They’re getting 100 megabits symmetrical connection for that $40 a month, right?

Joe: Correct. Yes, instead of 5 megs down and 1 meg up. It was a technologically vast leap in performance, but it was still at 15 bucks a month and how are people going to respond to that. Interestingly to date, we have had no cancellations just because of the price increase. What we did, just kind of a side note too is for our existing customers, it was a free upgrade, free installation and the router. Basically, no cost upfront for them to switch to fiber and then we held their Wi-Fi rate for three months. They basically got to try the fiber service. It had no financial impact for three months and then we adjust their up to the 39.95 per month for the 100 megs, or if they choose to go with the gigabit service, it’s 59.95 per month.

So far, we’ve had no one cancel because of that rate increase because the fiber performed so well. Back to your question, I think the key for success for us was that we had this existing customer base. We were able to model and say, “Well, we’re pretty sure we’re going to be able to get this many customers. What’s that going to look like with revenues and cost, et cetera?” We felt pretty confident going in to it that we were going to be able to make a successful run at it. I think the key for other cities that are looking to do this, I think it’s definitely doable, but you’d want to have really good metrics from your community on how interested they are in this type of service. What we found is that people were very interested.

As I mentioned before, we have approximately 60% of the community has requested service. We have a little over 1,500 customers connected and active on the network right now and we’ve got another 500 houses that have fiber on the side of the house that we have yet to connect just because we haven’t had the time to get installers in there so we’re still working through that. What that amounts to basically is we took an extra 30% of the market. We had 30% of the community on our Wi-Fi service and then that grew to nearly 60% when we installed fiber. To me, that was a very interesting metric to say we captured a third of the market nearly from the competition and switched them over just by introducing the fiber service.

Chris: Jeremy, I'm curious, you and I have talked recently about your new business pricing approach. Could you outline that for us briefly? I'm curious if you’re seeing more interests from businesses now that you have what I think or probably the best prices of the nation for business access.

Jeremy: The SandyNet board as well as the city council agreed that they were going to keep the same pricing as what we offer residential. That means a business, whether you’re a coffee shop or a small office building or a larger office building, we would have 39.95 for 100 megs up and down and 59.95 for a gig to your business. The kind of the debate in it, what was being talked about at council at the time of making those determinations were we’re trying to be more business-friendly and why would we want to just raise the price because they were a business versus being a residential user.

We also offer an enterprise type of service that would be dedicated service that you may see for a high end office building or something that wanted something with more than what they offer which is the gig on a PON system.

Chris: What you’re doing is you’re extending a residential type service to the businesses and that’s an incredibly high level service. There are some over subscribing, but people are generally getting the speeds that they’re paying for, but some businesses want a dedicated circuit where they know that no one else is going to be sharing traffic with them and that’s the enterprise type of service that you’re talking about, that often does come with a higher price, right?

Jeremy: Yeah. It would have a higher installation on it as well and a more dedicated hardware and that’s the thing for them, but going back to the businesses, we had a lot of the businesses on our wireless system still. The labor that it takes to maintain a wireless ISP is a lot higher than to maintain in the ground fiber system. We will see a lot more stable connections on the fiber system and a lot less overhead once the system is put in place than we would for the wireless system through our town. We decided, if you’re an existing customer on SandyNet on wireless in the business district, we will just move you over to the fiber for free. If you are new, wanting the service, then we’ll have a $350 installation cost to put in, to get you hooked up to the fiber and then the same monthly rates apply.

There’s still no contracts, it’s just month to month as they want to go and there’s still no bandwidth caps

Chris: I think part of the way that you’re able to make that pencil out financially is by doing some of the work as part of what’s commonly called the Taxing Income and Financing District, but I think you told me there’s a name for it specifically in Oregon that I’ve forgotten.

Jeremy: The Urban Renewal District.

Chris: Right, Urban Renewal District.

Jeremy: We do have an Urban Renewal District and that’s where this is which is our business district and in that, we freeze the tax space and then year after year, as the increase of the property taxes go up, that differential then gets put into a fund, the Urban Renewal District Fund. Then can only be spent with inside the Urban Renewal District to help increase the economic value of that district. I pitched the case saying, “Hey, we’ve been using this for façade programs, street lights and these types of things and we had in the budget for a new stop light,” which is not popular in town because of being on Highway 26 and having a lot of skiers and vacationers going to our town …

Chris: In their cars.

Jeremy: In their cars yeah, backing up, “What do you say to repurpose that money?” In doing so, lobbied for, “This is a great avenue that we could give back to the business owners that they could take advantage of where typically the incentives usually go toward the land owners which may not even live in our state.” The business owners can take advantage of this Urban Renewal Funding basically and bring in the value of their business up and what they can do and save them money as providing a higher class of service and bringing the value of our district up because then, all these businesses throughout town have fiber on their building with the hopes also that we may be able to attract family wage jobs, businesses that will say, “Hey. We love to live in your community, but needed the high speed internet to do whatever we needed it to do. Now that it’s there and it’s very cheap and that’s not a hindrance for us to move to Sandy.”

Chris: One of the things that you talked about in the video that I don’t want to spend time on here because the video covers it very well, is that because you owned your own fiber, you were able to give some strands to the Oregon Department of Transportation and allow them to better manage the traffic signals which then prevents the same number of backups and things like that with so many people traveling through Sandy. I will encourage people to go watch the video to make sure that they see how that helps the quality of life. Joe, I want to turn back to you to get back into a little bit more of the technicals and ask you, we still have this issue of you taking on this task of building a fiber optic network. You’re building it out to just about everyone. You ultimately end up charging less than Google.

I mean, this is an incredible network, but one of the things that you’ve talked about when we’ve talked in the past is how OFS, a company that specializes in helping cities in your situation, how they’ve helped you out, can you tell us about that?

Joe: Yeah. We heavily relied upon OFS Professional Services to design and manage the bulk of the construction repairs on this network. They kind of fell into our lap. I called them at the advice of a sales rep just seeking some modeling and some spreadsheets that I had heard that they may have. What did it cost on average to pass a home with underground fiber construction versus aerial? That’s the kind of idea I was looking for. What we ended up getting from OFS in return to that inquiry was a full turnkey proposal for deployed network in our city which obviously was very interesting to us. Through the project, they were just incredibly helpful.

They had a lot of experience. They’ve got a lot of former FIOS engineers on their team that are very familiar with building fiber optic networks. They’ve got just years of experience doing this and thousands of miles of fiber underground under their belt. They have that level of expertise come in and basically, walk us through this process was just amazingly helpful. We were very involved in the construction process. I’ve learned a ton as we went through this, but to come in to it without their guidance and expertise would have been a very, very different project.

Chris: I think that’s just important for people to have a sense that people sometimes say, “Well, how can the city do this?” The answer is, is often you get help from people that have already done it and have a business that specifically helps to build this sort of thing, which leads me to what I think is an important question which is, now that you’re … It’s probably about five or six years now since you actually began even contemplating the fiber to the home network. What do you know now that you wish you had known then?

Joe: That’s a difficult question because as I said, I have learned a lot. For me, probably the biggest thing that I would do differently, maybe if I attack it from that angle, would be to realize that the impacts that this type of construction has on your residents or your constituents. As we constructed this network, we were pretty much in everyone’s yard. One of the things that I would do differently was way more public outreach and interaction and noticing and just getting the community even more involved and I think that would have made the process go smoother and it probably would have also yielded in a higher take rate in the end for us.

That’s one big takeaway I talk about often is engage the community as much as possible and the more time you spend doing that, I think the better off the project will function and work in the end result. For us, it was the realization that that is time well spent. It sometimes seems like, “We’re not getting the reaction we want to these mailings or hanging flyers on people’s doors.” It’s really time intensive, but the payoff is huge. In addition to that, just lots of little stuff that I’ve learned about project management, construction management. I was fortunate to have our public works director. He’s been with the city for like 26 years or something. He’s managed a lot of public improvement projects with roads and water systems and sewer systems.

Having someone involved in a project that has that level of expertise and how to deal with contractors and how to manage the issues that come up, that was another huge learning area for me that bout six months into it, I really kind of hit full swing and was like, “Okay. I’ve got this figured out now.” That first six month was a massive learning curve to understand how to deal with things as they came up.

Chris: Jeremy, you’ve been certainly very involved in this. Is there anything that you’ve learned along the way from the perspective of someone who’s overseeing the project as an elected official?

Jeremy: Joe had mentioned a little bit, letting our residents know more. Facebook is a funny thing. It can be good or bad. When people our ripping up people’s front yard, the utility easement, and you’ve got to put the conduit in to make it work, but getting out there and jumping on that. I think we did a good job, but I think knowing how the public reacts and on these Facebook groups that are neighborhood watch groups and all these other groups and being part of that so you can jump on that and actually give them factual information, because a lot of times, these groups hear rumors or it’s not quite as factual as it is. Identify that early on, knowing that and being prepared before the project goes.

I never even imagined that we’ll be involved in these Facebook groups about the construction process about, “Hey. They ripped up my yard.” The downside or the bad publicity from that coming from those community in Facebook groups. Before Facebook, in those types of groups, people then really get to you, share that amongst 10,000 people instantly.

Chris: It certainly didn’t grow at a level where someone might put up a post and in three hours, you could have 10 or 15 outraged citizens. It’s far faster that I'm sure you can react to in many cases.

Jeremy: Right, yeah. You’re just getting the publicity in there incorrect and correcting the information I think would be something that would help definitely very politically. The other thing is knowing what we know going back, the amount of money we took out to construct, we were constructing for 35% or 40% take rate, is what we got at financing to prove for, but then, we ended up getting 60% take rate. We were much successful, which is a good thing I guess, but that wasn’t in the budget to add those extra drops to homes that we were anticipating, needing to get additional financing to be able to add the additional drops because we were so popular, but the good thing, they have. It’s also realizing, if we could figured that out and I don’t know how you would have figured that out ahead of time, because as we went and built along, people started signing up at that point.

Chris: There’s something that I’ve seen and I wonder if you think this would solve it was that if community may expect the project is going to cost $15 million, they may get authorization to borrow $20 million and still issue $15 million in bonds and then being able to come back a couple of years later to increase the budget if they need to without having to go through the contentious process then of securing additional approval.

Jeremy: Yeah and I think that would have been a good solution there.

Chris: Let me ask one final question of each of you. I think, Joe, I’ll come to you first. If you can tell me one of your favorite stories about how someone that you know or someone in town has been benefited from the network, what kind of a difference this made in their lives or if they decided to move to town because of it? Just some interesting story about how the network has impacted someone.

Joe: Probably, the biggest one for me is a personal friend that works in the real estate industry and he, on an average day, would go in to his office to work and he would work from home before. He was seeing a customer before; he had our Wi-Fi. It worked well and he would from home part of the time. Once we upgraded him to fiber, he works from home now the majority of the time. He’s at his home office more than he is at his work office. He’s got a better connection at his home office than he does at his official work office which is in the middle of the Portland Metro area.

The impact that that had on a family has been amazing to me to see. Here’s the dad who can stay home with his three children and his wife. Yes, he’s working from home, but at least he’s there for lunch in order to interact with his kids every couple of hours or whatnot, instead of being a 50-minute commute away from his family and not being able to see them from 9 to 5 when he’s out of the house. Not just from that personal friend, but from all sorts of members of the community. I’ve heard that there had been lots of instances where that’s the case. We actually had one customer call us and say, “How fast will the fiber be because my workplace has thresholds on what my home internet connection has to be before I'm allowed to remote in.”

I think their minimum requirement was like they needed a 10 meg connection up and down before they were allowed to work remotely and I was able to kind of check on it and say, “Well, you’ll have ten times that with our lowest package so don’t worry about it.” That’s been really nice for me to know that we’re providing something to the community that’s allowing people to have more flexibility that improves their quality of life.

Chris: Jeremy, do you have any stories that you’d like to share?

Jeremy: We do. We have a business that is in Sandy and I think they have about 60-family wage jobs here in Sandy so they are one our great family business, but with our fiber that we’re able to provide them our gig fiber, they’re also doing backups to a location in Costa Rica and are able to do a row long for outside backup between the two locations. They really are only able to do that because we are able to provide them the bandwidth in a really cheap price, fast enough to be able to do so. Instead of having them to move their data center down into inner Portland or other locations where they might be able to find those sets of speeds, they’re able to do that right out of their office, right in downtown Sandy.

Joe: The interesting thing with that business too is the owner of that business is a native to Costa Rica. They’ve moved up to America. The main reason they wanted that office in Costa Rica is because they travel back and forth a lot and they obviously have a data center and a call center down there as well and they’re providing great jobs in that community as well. To see the impact of the fiber connection has, not only here, but also enabling that business to do something half way around the world is pretty neat.

Chris: Great. Well, thank you so much for coming on the show to tell us more about it and staring in this great video that I'm just waiting for the Oscar nominations to come in. We’ll see what happens there.

Jeremy: Thank you, Chris.

Chris: Absolutely.

Lisa: Be sure to send us your ideas for the show. E-mail us at podcast@muninetworks.org. Follow us on Twitter. Our handle is @communitynets. Thanks again to BKFM-B-Side for their song Raise Your Hands, licensed through Creative Comments and thank you again for listening.

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