Transcript: Community Broadband Bits Episode 237

This is the transcript for episode 237 of the Community Broadband Bits podcast. Joining the show from Washington state's Kitsap Public Utility District are General Manager Bob Hunter and Superintendent of Telecom Paul Avis. Listen to this episode here.

Bob Hunter: There's just not high enough densities in the rural area to make it cost benefit as a business model from a private side.

Lisa Gonzalez: This is episode 237 of the Community Broadband Bits Podcast from the Institute for Local Self-Reliance. I'm Lisa Gonzalez. This week, Christopher is joined by Bob Hunter, General Manager of the Kitsap Public Utility district in the state of Washington, and also the organization's Superintendent of Telecom, Paul Avis. Bob, Paul, and Christopher discuss how the KPUD is responding to requests from local residents and businesses, and starting to offer connectivity over its open access network. They discuss the financing used to bring the infrastructure to people in areas where national companies can't justify more investment. In Kitsap, it's becoming another utility supplied by the KPUD.

Chris Mitchell: Hey folks, this is Chris Mitchell, the host of Community Broadband Bits, and I just wanted to ask you if you could do us a real big favor, to help us spread this show around. That's to jump on iTunes, or Stitcher, wherever you found this show, and give us a rating, give us a little review. Particularly if you like it. If you don't like it so much, then maybe don't do that, but if you're enjoying the show, please give us a rating and help us to build the audience a bit. Thanks.

Lisa Gonzalez: Now, here's Christopher talking with Bob Hunter, General Manager, and Paul Avis, Superintendent of Telecom, from the Kitsap Public Utility District in the state of Washington.

Chris Mitchell: Welcome to another edition of the Community Broadband Bits Podcast. I'm Chris Mitchell with the Institute for Local Self-Reliance, and today I'm speaking with two really funny fellows from Kitsap Public Utility District. Let me start by introducing Bob Hunter, the general manager of the Kitsap Public Utility District in Washington state. Welcome to the show.

Bob Hunter: Thank you.

Chris Mitchell: I'd also like to introduce superintendent of telecom at the KPUD, Paul Avis. Welcome to the show.

Paul Avis: Hey, thanks for having me, Chris.

Chris Mitchell: I don't want to set up any expectations, but I'm going to, because it's my prerogative. That's just, I think I laughed a little bit more in the preliminary setup for this show than I had did for most of the interviews, so I'm expecting a joke a minute. I'm curious if we could start with Bob Hunter with a little description of what Kitsap is like.

Bob Hunter: Kitsap is almost a bedroom neighborhood to Seattle and Tacoma area. It's located right in the middle of the Puget Sound. We're a ferry boat ride away from Downtown Seattle, which gets us the best of both worlds. It is a fast-growing community, currently has about 250,000 people. The plan in the next 15 years is to add another 100,000.

Chris Mitchell: Tell us a little bit about the utility district. I think a lot of my listeners are maybe thinking that all utility districts in Washington do electricity.

Bob Hunter: Right. In the case of Kitsap, there are 28 public utility districts throughout the state of Washington. That means they're owned by the public, and we are non-profits. In the case of Kitsap, Kitsap PUD primarily got into the business to do water, water resources. In the case of Kitsap County, we are basically an island, so what lands on Kitsap County is in the form of rain, is what we have is drinking water. Primarily, that was our goal. We've since moved into telecommunications as well as sewer. For Kitsap PUD as a whole, we've seen a real need for broadband expansion, and it really comes from the people. It's not something that the commission here, or even the management here, decided they wanted to do one day. It was our public that was pushing us in this direction.

Chris Mitchell: I think this is something we're going to be talking about, but it's actually really interesting in that the public can make demands of you, in ways that they can't always with others. Turning to Paul, you're Superintendent of Telecom. Tell us a little bit about how the Kitsap Public Utility District got into thinking about telecommunications.

Paul Avis: What most people don't quite realize, or even remember, it's funny when we talk back. For me, I think of 2000 as being, "Just a couple years back," but I guess it was a ways back. Kitsap County was sort of anomalous, in that we were actually split up by three long distance areas. Now, it's a great place to build a shop. There's a lot of awesome real estate up north, and there's some great places to set up an office down in the south end of the county. The problem is you'd have businesses coming in, and we're actually enticing them with all this awesome real estate, and very affordable prices, and things like that, and the power is great here, but then when it actually gets to communication, you would have your office attempting to communicate with your shop at the north part of the county, you would be paying two different long distance fees to make that call every time. What actually happened was we were driving businesses away, because they were saying, "This is just ridiculous, for living no more than five or 10 miles away from my shop, I'm actually paying a ridiculous amount for communication." At that same time, fast forward into the 2001, 2002, we all sort of realized, in Washington, the PUDs could have the authority to use right-of-ways and excess capacity, and all the things that come together to provide utilities, as saying, "Yeah, let's do this. Let's actually get into telecom." For Washington state, we kind of just rode the coattails, a little bit, of what all the other PUDs were doing. Specifically for Kitsap, that was our main focus. When you look at a map, our original build, we called it the Figure Eight, it was actually just two rings, that sort of connected at the middle, and that's what they're really doing, is they're providing the link from north all the way to south. Typically, what we had done is really plan on hitting the governmental agencies, and the schools, and that kind of thing first.

Chris Mitchell: I'm always curious how that gets started in the sense that, did you connect the schools? Was their a cost savings? Was there just a better connectivity you could offer, or the other public anchor institutions? What led to those connections?

Paul Avis: It was better connectivity more than anything. This was something that we've always sort of maintained as a standard. It's not that we're trying to run any private service providers out. We're not trying to do anything like that, and in most cases, we weren't saving anybody any money. If you look at just their monthly bill, "I'm paying for ..." Like a school district, for instance, would be paying for shotgunning T1s, which for the listeners out there, it would be saying, "Hey, I'm going to just have a T1, and I'm going to buy another T1, maybe even a third or fourth just T1 line, and then use that for my connectivity, because there's no other option here." They would do that. Well, what they were paying for all of those T1 connections was pretty much equivalent for what we would say, "Well, that's 100 meg connection, we would just provide that to you over the fiber line," and the pricing is actually not going to really be much cheaper. It might even be a little more, but the bandwidth you're getting is easily 20 times more than what you're actually getting right now.

Chris Mitchell: Right, and presumably reliability and all kinds of other benefits on top of it.

Paul Avis: Well that too. As you mentioned earlier, I think that was a really good point. We have a board of commissioners, and they are our leaders, and they are elected. You can pick up the phone and call somebody from another state, who's actually answering to a manager who then eventually answers to some shareholders or something like that. We answer directly to a board of commissioners, so when someone has a problem at a school district, they typically have a number for their district representative, as far as the person that sits on the board here, and that immediately gets our attention. That's usually a direct phone call to me.

Chris Mitchell: I'll come back to you, Bob, because you mentioned how local residents and businesses were asking for better options. I think it's interesting that the story I saw comes from Lookout Lane, which seems like the setting in a comic book. Maybe Peter Parker was growing up on Lookout Lane or something. Could you tell us a little bit about how Lookout Lane figures into your fiber-optic services?

Bob Hunter: This was a push from the people again. A local utility district, and just for your listeners, some of them may understand what a ULID or an LID is, and then we call it an LUD. They're all the same. ULIDs are from cities, LIDs are from special purpose districts, like water districts, and LUDs are PUDs, but they're exactly the same.

Chris Mitchell: Those are acronyms that have to do with utility district or improvement district, that's what the D is, or the U, or the I, and the L is usually local.

Bob Hunter: Exactly, yeah.

Chris Mitchell: Just to make sure people caught that.

Bob Hunter: I'll try to not use so many acronyms. The whole utility business is all about acronyms. That being said, Kitsap PUD has done many local utility districts, primarily water. Now all of a sudden we have these telecom LUDs, and we were really surprised. I had said at the beginning of this whole discussion, when the public came to us and started talking about it, we thought, "This won't ever really happen. It's just a discussion. It's just a topic." What happened in this case, and Lookout Lane is a good example, this is a group of homeowners that, they're all neighbors, and that have DSL service that's just inadequate. Many of them would like to telecommute. Many of them would like just to use the Internet regularly, and they were having issues. They engaged with the PUD, and the way a local utility district happens, actually there are some laws that prohibit us from actually going out and trying to push LUDs. It has to come from the people. The LUD came along, and basically, they requested to meet with staff here. It was actually Paul Avis and a person from NoaNet, that we're affiliated with, Angela Bennett, they both got together, met with this community, explained to them what an LUD was, how it happens, and it went from there.

Chris Mitchell: Great. Paul, let me just throw in that NoaNet is the Northwest Open Access Network, and my listeners should know that because I've done several great interviews talking with folks from there. Just want to make sure people remember that, and NoaNet supports all the public utility districts, or most of the public utility districts across the state. Paul, tell us a little bit more about Lookout Lane.

Paul Avis: Yeah. We were invited to talk there, and we had some great discussions with them. Really, part of the whole beginning of this process was kind of learning what their needs were, and really, every time we talk about this I really want to bring home the fact that it's an education process. I want to make sure that everyone goes in with eyes wide open, because when we're talking about something like this, we're really talking about someone making a multi-decade investment, so you sort of have to really give it the honor that it deserves, when you start talking about things like that. In the moment, you start saying, and again, to kind of go into what an LUD is, we're really saying, "Hey, are you willing to increase your property tax," and right off the bat, what I would expect is for people to just run me out of their house if I said something like that in a meeting, but these people were very receptive to that, and they really realized where they were at. They did educate themselves kind of beforehand, so that made this process pretty easy. Anyway, back on point, to go into where we started out, yeah, they had a problem there. The DSL service was inadequate for those that even had it. Some of them couldn't even get it. This is a little tangent here, but to go into the reason why this is happening right now, is that the current provider in the area has used the phrase, "Permanent exhaustion," and really what it is it's aggregation to the point of oblivion basically. If you have a box, from that box it serves multiple houses, you're all sharing that line. We all know that, we all have accepted the fact that, yeah, at certain times of the day, my service will be slower because everybody's on, everybody's trying to watch Netflix. It gets to a certain point though, if you have 20 people on there that's acceptable. If you have 4000 people on there, that becomes incredibly unacceptable at that point.

Chris Mitchell: There's often a physical limit as to the number of ports that are supported right? It's not like you can just add new boxes on. That takes new investment.

Paul Avis: Absolutely, and it does take new investment, and again, I'm not trying to bash the ISP at all, because I would understand it too, and this is really the fundamental difference of how we would view telecom service as a utility, compared to how a private entity would view telecom service, as a business. Yeah, you're exactly right, you have a physical limitation, well you're going to sell up until the edge of that, and maybe even beyond if you can get away with it. You will split as much as you can and try and get that profit, because that's really how you're growing your network is by that profit and that subsidizing. What's happened is it's to the point where it's unacceptable for everybody, so to alleviate that, if you're in a home, for example, you are on a DSL line, you move away, the first thing you're going to do is cut your utilities and your communication expense. You're going to say, "Yeah, my contract's over, I'm moving away, I'm leaving." You're still in the service area of that service provider, so if you're moving in, now, to the home, you're the new buyer and you're moving into that home, the first thing you do is you call up the ISP and you say, "Hey, I'd love service." They're going to tell you, "Sorry, it's not available in your area," even though you are actually in the service area. They're not going to give it to you, because what they've done is they've reclaimed, basically, that one point is alleviating the pressure on their network to the point where they're just going to say, "No, it's not available anymore," until they can get back to an acceptable level. That is incredibly frustrating, and you can imagine moving into a home and basically having the rug pulled out from under you, and that's what's happened here, and that's why we were asked to step in.

Chris Mitchell: That's what I want to get to, because if I understand it correctly, under the law, you're not necessarily being asked to step in where you'd have a choice. It's demanded that you step in. You don't really have a full choice once the citizens have voted. Am in understanding that right?

Paul Avis: You're absolutely right. It's a petition, to the PUDs board. Once petitioned, and it's basically the smallest margin you can think of for majority. It's 50 percent plus one, and actually, the board has to act, I believe at 10 percent. Bob, correct me if I'm wrong.

Bob Hunter: Yeah, by a petition of 10 percent, the board has to legally act, if it's 50 plus one, the board has to move forward, unless it's financially non-viable.

Chris Mitchell: When you say, "Has to act," would you interpret that as you have to consider it, and look at the costs, and that sort of thing?

Bob Hunter: Yeah. In some cases, you could get something less than 50 percent petition. It could be a sewer system, I would say this is more of the real example of that, where you're saying, "Environmentally, this is a hazard. We need to do something," and they could proceed forward, and assess all 100 percent of the properties. Remember, they're elected though, and they're elected by the people, so they're very cautious when they do that. You'll get a disgruntled person out there that will decide, "I'm going to run for a board seat," because they don't like what they're doing. That is the balance. That is the public effort. That is why we are what we are. In that case, 50 plus one, we have to move forward, meaning that we can't say no, unless it's financially not viable.

Chris Mitchell: Now, one of the things that I'm curious about is you mentioned that for a sewer system, 50 plus one can decide to make that happen, then 100 percent of the people have to partake in it. Do 100 percent of people have to partake in the fiber-optic local utility district?

Bob Hunter: What we've done is, the answer is yes, 100 percent of the properties have to be in the LUD. It's a physical boundary, a geographical boundary that we use. However, that being said, we've developed a formula, in which we will allow a certain percentage of them to not participate. That's really based on -- You could have people that just don't have the Internet, don't want it, that's why they live there, that's their intention, so we do have a hard time swallowing the idea that we're going to jam it down their throat when it comes to broadband. In the case of Lookout Lane, it was one customer that decided they really didn't want to be part of it. I will say, once the project's done, now they want to be part of it. They just didn't believe it. Here's the deal. We're the government. We have this deal for you. Most people don't believe that. They're saying, "Yeah right, I've heard that before," but once we've done it, and everybody's happy with it, ecstatic about it, then it takes off. There's another LUD we're in the process of right now, where the next neighborhood over said, "Hey wait a minute, we want that." In this case, we do. In the very next neighborhood over, there's three people that don't want to be part of it. In that case what we will do is zero assessment. Our staff here is what got it said, we're going to sell that connection in the next 10 years. We know the next people that move in will buy it, because that's their only option in this case. It's a good option, because what we actually do is provide an open access network, so there's multiple providers on it.

Chris Mitchell: I just wanted to flesh that out the rest of the way, and Paul I'll bring this back to you. When a person decides not to participate in later changes their mind, I'm sure they don't get a free ride. They pay the same as the rest of their neighbors, I'm imagining.

Paul Avis: You know, it's probably actually more, unfortunately.

Chris Mitchell: That's fair.

Paul Avis: The problem is -- It is fair, but at the same time, I'm in the business of providing the utility to the people, so whatever my ego would say or something like that, I would always have to say, "I'm still going to try to do everything I can, creatively, to help that person connect," but no, when you want to break down the math, they're going to have to actually pay for the contractor to come back out. It's cheaper, obviously, for the contractor to do all of the homes at one time, which is what they did for all of the other homes. They had put the conduit in the street, they run it all the way to the home and stuff like that. The crew's already out there, they're already out flagging and everything they need to do. Now, they have to come back out, as basically a separate job, to connect this person, so we have already assessed the home for the footage, basically, on the front of their property. There's no way you can't be assessed for that. We did the work. It has increased the value, but now we actually have to go back onto their property, so that's going to be an added piece of construction. Really, even if I was going to say, "Yeah, you know what, yeah we can probably do it for a little cheaper," whatever the contractor came back with and said, "Well, you know, we don't have to charge them this" Even assuming that, which again, I'll tell you isn't the case, they still have lost the financing model, which is really the main reason of doing an LUD is the PUD, that's our only tool in the toolbox for financing. I could never tell you, "Well no problem. You can just pay me back over 20 years." No, it has to be attached to the property, as an LUD is. The problem is, as these other people will slowly pay this off over time, unfortunately, this homeowner's going to have to write a check, and say, "Hey, here you go. I want in now." That's really the killer, there.

Chris Mitchell: I'm going to guess that's a low four figure check, maybe a few thousand dollars?

Paul Avis: Yeah, probably more than that actually.

Chris Mitchell: Wow. It'd obviously vary from community, but it could be over $10,000 depending on the property is what you're saying?

Paul Avis: It could be. It won't be, but it could be. We'll say, yeah, anywhere between three and 10,000. It will be that. The reasoning behind that is it's underground. Once you go underground, it's a whole different ballgame. It's very expensive. I would say that the number we use to do what I would call a desktop estimate, in other words if you want me to do a five minute estimate to your house just to see if it's even viable, the number I use is $30 a foot. If you can imagine that and extrapolate that on homes on acreage, that adds up very quickly.

Chris Mitchell: I'm curious if either one of you has any sense of how it's impacted property values, or if it's too early to assess that.

Paul Avis: I think it's a little too early. Having talked to a couple different assessors, and some real estate agents myself, it's more of a theoretical, or what the expected. It could be as high as five percent. I've even heard higher numbers than that. The term that's parlayed around is gigabit, we live in a gigabit community. I hear that quite a bit. The problem is if you're in the one house that's not the gigabit part of the gigabit community, you're actually sort of decreasing the value. That's sort of why it's hard for me to say, "Oh, it's a three and five percent increase," something like that. It's kind of that, but it's also kind of the fact that you're devaluing, maybe, the home that doesn't have it. All of your neighbors have fiber except you? That's going to affect the sale. That's kind of where we're at now.

Chris Mitchell: Right, rather than increasing the value of the other homes, it just becomes the expected for people that --

Paul Avis: Right. That's obviously right. You sort of have the exact reason why they got ... It's sort of this cyclic thing. You have the exact reason why some people wanted to do this so bad, as you move into a quote unquote "Gigabit community," that's what you're expecting to have.

Chris Mitchell: Bob, I'm curious, given that you provide some kind of water service to probably everyone in Kitsap, and fiber to some, is fiber increasingly a main driver of interactions of people with the utility? Which is to say, are people kind of like, "Yeah, water, whatever. Talk about fiber."

Bob Hunter: You got it exactly right. This is the topic, even though there was a time that -- I'm the guy that says, "You need water to live," but the majority of people out there, this is what they want to talk about. This is what they want brought to their house. Broadband, it's an us and them.

Chris Mitchell: You need a gigabit to want to live, or to enjoy living.

Bob Hunter: Right.

Paul Avis: Some of us, it's not an option, Bob. I've got to have that to live. I'm going to say that right now.

Bob Hunter: Right. What we really have here in Kitsap is we have the more rural that basically don't have access. You have, then, the more urban area that has plenty of access. What we're seeing with the local providers, which is kind of crazy, is that they're willing to reinvest into the urban area before they're even to invest anything into the rural area. I will say, in the issue of Lookout Lane, we've met with the local provider. Paul and I both met with them, sat down with their execs. Basically, they acquired these really poor DSL systems in an acquisition of another utility. It would seem as there's no intention of ever solving that, from their perspective, and I would tell you that, again, I believe they're applauding the PUDs effort to serve them, because then it goes away. It's no longer their problem. There's just not high enough densities in the rural area to make it cost benefit as a business model from a private side. Another thing I would add to this LUD process is this community itself met with ISPs that are on our network and did their own math, and said, "Hey, the assessment over 20 years, plus the cost that we're going to pay the ISP," is equivalent to what they're currently paying for DSL, and they get gigabit speed compared to their --

Paul Avis: Quarter of a meg, probably.

Bob Hunter: Yeah. That's what's really pushed this effort here. We have local school districts, that they're expecting their kids to start doing homework on the Internet, where kids are having to come from the rural area to go sit in the mall to do their homework, because this is the way it works today, and this is just not adequate for the community.

Chris Mitchell: Right. I wanted to just check in, Paul, with you're using the Service Zone software, which provides some tools so that you can do some mapping and help people sort of self-identify as being interested in getting fiber. Could you just tell us a little bit about it? In particular, I'd be really interested if there's any surprising results in using that.

Paul Avis: One of the surprising things that we've seen is the dense areas, in other words we call them hot spots. We see areas that people are going onto the survey and saying, "Yeah, I really do want public fiber," they're actually places that I would consider are not underserved, if you'll pardon the double negative there. They are served, and maybe even by two service providers.

Chris Mitchell: They may have cable and DSL is what you're saying?

Paul Avis: That's correct. They've already got -- They're not underserved, and that's kind of my mantra is, "We really want to get to these underserved," just like what Bob said. We're trying to help these people out who just have no options. These people do have options. They've already got it. Those are the people that are filling out this survey, and it's very interesting. It's one of those things -- It's led us to actually open up conversations with the incumbent ISPs and say, "What can we do, maybe is there a partnership we can do here? Is there something we can do to maybe solve this issue." There are people that already have the service, but are just unhappy with it. They don't feel like it's adequate. It goes right back to what Bob says. It's easy for someone to justify to a shareholders, upgrading service in King County or Downtown Seattle or something like that. It is the most bang for your buck, you're going to get thousands of people with a minimum investment, whereas here, you're going to be spending half a million dollars to get 400 people upgraded. That just doesn't pencil out, so I get it, I understand how it's a hard sell, but that's sort of where we're at. When you ask me what the surprising data is, I'd say that's probably the most surprising data that we've seen.

Chris Mitchell: Great. Well, this has been really helpful, and I'm really appreciative of you explaining to us some of the local improvement district or the utility district models, because we have not talked about it very much on this show before. I think it's something we're going to see a lot more of. Let me just ask if there's any closing comments you'd like to make before we end the show.

Paul Avis: For people like me and Bob, who alluded to this earlier, that we have come into the mindset that it's a utility. We're there, it's already past that. We need to think of it as a utility. It's exactly where we were 60, maybe 70 years ago with electricity. When we think about it, we think, "Oh, how quaint that people could even believe, 'Eh, we really don't need electricity that much.'" I think that's what we will look back on in 70 years at this period, too, in Kitsap county. I think what that means is the good and the bad. Think about how your utilities are served right now. Think about how your billed for your utilities, how that all comes to play, and really think about it though. Do your electric rates go down every year? Are they steady? Do they go up? What does it cost to install that kind of thing to your house? That's really what it means to treat it as a utility. There's good, too, the service and all that things, but I think it's time to start, as a people, as a public, the people who are at the end of it, to just change our mindset, and once we all accept that, it will really push the ball forward and help us to all get the telecom as a utility in this county.

Chris Mitchell: Thanks Paul. Bob, do you have any parting comments?

Bob Hunter: Most recently, what's going around, at least here in Washington State, is to get PUDs retail authority. Currently we have wholesale authority, but it should be known that PUDs want retail authority, purely so that we can access funding to build to rural areas. Currently, that's not possible under a wholesale contract, and also in the event that we want to be able to support customers directly in the event of an ISP failing, or going under or being purchased out. That's really the two main reasons. The PUDs models are really an open access network. Even though you'll hear this retail piece, the open access is the key, and that's the goal. That's true competition, we'll provide the utility, as Paul was saying. We'll provide the infrastructure, and we have multiple providers for people to choose from. You can have someone that is very technology-savvy, and they'll just go for the lowest cost because they need no support. Those people that want support, that want service, they can buy that. They can pay more to get that. That's the key. That's what will propel us forward, and I think lots of times, the attack on us publics comes under as though we're trying to create a monopoly. No, we're trying to provide more competition.

Chris Mitchell: Yeah, no I'm really glad you made that point, and I think it is really important to recognize that in so limiting what public utilities can do, you're limiting financial models, you're increasing risk, frankly, in a number of these edge conditions. It's frustrating that it is the people that have no choices that are the ones being left out. Thank you both for coming on and telling us more about what's going on in Lookout Lane in the comic book world. I wish you both great luck.

Bob Hunter: Thank you.

Paul Avis: Thank you very much Chris.

Lisa Gonzalez: That was Christopher with Bob Hunter, General Manager, and Paul Avis, Superintendent of Telecom, from the Kitsap Public Utility District in Washington State. Check out MuniNetworks.org for more on the Lookout Lane project, and for more stories on the KPUD. We have transcripts for this and other Community Broadband Bits Podcasts available at MuniNetworks.org/broadbandbits. Email us at podcast@MuniNetworks.org with your ideas for the show. Follow Chris on Twitter, his handle is @CommunityNets. Follow muninetworks.org stories on Twitter where the handle is @MuniNetworks. Subscribe to this podcast and all of the podcasts in the ILSR family on iTunes, Stitcher, or wherever else you get your podcasts. Please take a moment to rate the show. We'd like to reach out to more people and the more stars the better. Never miss out on our original research by also subscribing to our monthly newsletter at ILSR.org. Thank you to Admiral Bob for the song Turbo Tornado, licensed through Creative Commons, and thanks for listening to episode 237 of the Community Broadband Bits Podcast.

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