Transcript: Community Broadband Bits Episode 259

This is the transcript for episode 259 of the Community Broadband Bits Podcast. Christopher Mitchell discusses Ammon, Idaho, with Ammon Technology Director Bruce Patterson and Strategic Networks Group's Michael Curri. Listen to this episode here. 

 

Christopher Mitchell: As they understand the model, and that's the key. As they understand the model, they start to understand how to leverage the infrastructure in a way that works for them and their business model.

Lisa Gonzalez: This is episode 259 of the Community Broadband Bits Podcast from the Institute for Local Self-Reliance, I'm Lisa Gonzales. We've been following Ammon, Idaho for some time now, having written numerous stories and producing a video about the Ammon Model. The community is continuing to grow their open access network and also reap the benefits of the public investment. This week, Christopher talks with Bruce Patterson from Ammon and Michael Curri from Strategic Networks Group to offer more details about Ammon's network. In addition to sharing details about community savings and benefits to both residents and businesses, we learn more about the Ammon Model and how it works for subscribers. Before we get started, we want to remind you that this commercial free podcast isn't free to produce. Take a minute to contribute at ilsr.org. If you're already a contributor, thanks. Now, here's Christopher, Bruce, and Michael with more information on the Ammon Model.

Christopher Mitchell: Welcome to another addition of the Community Broadband Bits Podcast. I'm Chris Mitchell, and I'm back with two well known guests to long time listeners of our show. We're going to start with Bruce Patterson, the technology director for the city of Ammon in Idaho. Welcome back.

Bruce Patterson: Thank you, Chris. Happy to be here.

Christopher Mitchell: And we also have Michael Curri, the president of the Strategic Networks Group with just a lot of analysis of various broadband networks. Welcome back.

Michael Curri: Hi, Chris. Thanks. Great to be here.

Christopher Mitchell: So, I think we're going to start with a brief background to remind people what both of these folks are up to, and then we're going to talk about a really interesting study that looks at Ammon and the benefits to the community from the network. But Bruce, let's start with you. Can you just give us a very brief overview of what Ammon is doing for people that might not have listened to all the times you've been on this show in the past?

Bruce Patterson: Primarily, we started to install fiber infrastructure back in 2010, 2011 and it was mostly to serve the city. And so that fiber was terminated in city properties and it started to deliver city services and it improved our economy and I'm sure we'll spend a little bit of time talking about that. But today we leverage that to provide fiber connectivity to businesses and residents. In fact, we're in the middle of our first local improvement district. Which is really a funding mechanism we're using to deliver fiber to the home, to some neighborhoods in Ammon. And, at this point, we're about half way through that first LID and we have around 100 or just over 100 homes connected and turned up. And we predict we'll have this first LID completed this fall and should have close to 300 homes online.

Christopher Mitchell: And, just for people that remember, Ammon is a small community. It's part of the -- it's right next to Idaho Falls, which is a larger part of the metro there in east Idaho. And you have cable, you have DSL. It's not like you had nothing. You're kind of, basically, making sure that you have the top-notch technology available.

Bruce Patterson: That's right and we're also open access. So, the city actually doesn't deliver any retail services at all. We're just really the road that's used by the providers, and we're happy to have a total of six today. We're bringing on two more as we speak and of those, we've got three that are working to get to the residents and another one interested. So, the choice is provided on our network by having choices and services and providers.

Christopher Mitchell: And, what's happening in the fall?

Bruce Patterson: We're kind of penciling in October fifth. We're going to hold our official launch. So, it'll be the official launch of the Ammon Fiber Network and we're going to try and get as many people from the region and in fact, across the country to come so we can help them to understand what it is we've actually done here in Ammon.

Christopher Mitchell: Well I'm excited to be there. I will be there. And I hope that when people hear what we're about to talk about they'll be more interested in coming as well. Mike, tell us a little bit about the Strategic Networks Group.

Michael Curri: Chris, well, what we do is look at the economic impact and the community benefits of broadband investments. I started this, working on this field in '95. And even back then people knew that Internet and broadband was important, but there wasn't the funding to invest. And so how do you show that return on investment, whether it's a private sector case or a community benefit investment case? So that's what we've done over the last number of years. Once you have it, what do you do with it so you can realize those in business growth and community benefits? Of that of the promise of broadband? It's why people invest in it.

Christopher Mitchell: And how did you get involved with Ammon, then?

Michael Curri: Bit of an interesting story. But I was preparing to present at the Oregon Broadband Advisory Council and in this path, when I was looking at -- they had a lot of unserved and underserved areas. I was introduced to Bruce back in January of this year. And, as I understood the -- got to know the Ammon story better, we started, Bruce and I started working together and documenting what are the municipal cost reductions? The consumer/subscriber savings and economic benefits of what Ammon has done? It's been an interesting path and some really interesting findings. Basically that's say, communities and regions, you can self-finance this if you take a longer-term view of it and you look at it as a community investment.

Christopher Mitchell: So let's dig into the findings. What did you find that you think is really interesting?

Michael Curri: The basis of what motivated the investment was connecting the municipal offices and school districts, and so forth. Municipal facilities. And we found that they are realizing 70 thousand dollars a year in cost savings. And that represents 1.8 million dollars over 25 years, which was the period that when Bruce proposed the investment, that that would be the pay back period. And there was a bit of an ah-ha moment when Bruce and I were working the numbers and we came up with the 69,628 dollars in annual cost savings. And Bruce, you step in here, but you said, "Wow, that's actually paying that back in less time than we had expected."

Bruce Patterson: Yeah, that's absolutely true. It was kind of an ah-ha moment, because one thing is government, that we're good at, is we document everything we do but we don't necessarily revisit those figures and try and correlate them. And so Michael was really great at that. He had to press me sometimes and say, "Can you give me this data?" or, "Can you get me this data?" And we worked through those figures and then as he started to correlate them and pull them together we knew there was cost savings. I mean, that was the fundamental reason we embarked on putting our own infrastructure in was, it was a fixed up-front cost. It reduced our ongoing operational costs, and we got out of outsourcing to multiple providers connectivity, actually improved our operations, reduced the man hours we were spending. So it takes a lot of work to actually go in and start to answer those questions. How much time are we saving? What's that equate to in money? And what are we saving in services that we are paying somebody else for? What does it actually cost us to operate this? And what's the difference between those two numbers? So I appreciate Michael's help cause I don't think we would have got to that point without his analysis.

Christopher Mitchell: And so, to be clear of what that number is, is 70 thousand dollars per year. This is basically what you would have been paying or were paying in the past for connectivity, and now you compare that to the cost of doing your own network and running this and having to take management and everything else, so all of those costs. And you're saving money after you compare those two.

Michael Curri: First of all, it's made up of telecommunications: phone and Internet. And there's what they were paying before for all the municipal buildings and c`onnecting the facilities and there's also cost avoidance because I think the impetus for all of this, Bruce described it. They had a new public works building that was built and to connect it the first incumbent that was approached said, "We're not going to do a fiber connection to that," and the other one said, "It's going to be 80 thousand dollars up front and 25 hundred dollars a month on an ongoing basis. That's a huge expense over a period of time. What can we do with that kind of investment?"

Bruce Patterson: That's correct. And that was probably the turning point that forced us to take a look at what could we build it for ourselves. And interestingly enough it was literally a fourth the cost. So when you look at that 80 thousand dollar price tag, that's because in order for any incumbent carrier to take you into their fiber network they have to extend their existing network and they will take that back to where they have a switch location. Well, the switch location for this incumbent provider was actually further away from the buildings that we were trying to connect than they were from each other. So our distance was greatly reduced by just simply connecting the two buildings. And we didn't frankly care about joining a wider network as it were. We were interested in private network service between the two buildings. So it really just made sense for us. We built it ourselves and frankly it doesn't cost us anywhere near 25 hundred dollars a month to operate it. And we started to operate it at one gig. That actual 25 hundred dollars a month was the price for a 100 meg connection at the time. Now, this does go back a number of years, so in all fairness as we start to talk through these numbers we always have to remember that the numbers we have are a snapshot in time. We've seen that prices drop, bandwidth goes up, but still when any business entity including a municipality has to make a business decision, you have to act on the numbers you have on your fingertips at the time. And as we looked at it it was pretty clear to us that it was better for us to invest, put that connectivity in ourselves, and start to operate it. And then as we did that, we knew we would have access capacity. And that's where the genesis of this idea of, how could we use this for the community, because in reality the community has helped to put this backbone in.

Christopher Mitchell: In just a brief follow-up, Bruce, I'm curious because I've had this conversation with some other cities and school districts that have built their own networks. Some people might assume it's harder and more work when you own the network and you have to manage it. When I've talked to folks they've actually suggested that in many ways it's easier because if something goes wrong they know how to fix it. They don't get stuck on hold with some large company in a data center somewhere, and waiting for them to figure it out.

Bruce Patterson: That's very true. I think the reality is it's as complicated as you want to make it. And that might sound a little over-simplistic, but I think it's a fundamental basic truth about it because most cities have a public works department and those people, they go out and they dig in the dirt, and they do locates, and they repair lines. Is there a little bit of a different skill set? Yes there is. But if you're focused on the infrastructure most cities already have the greatest percentage of the tools they'll need. They may have to add some extra skillsets but they're already engaged in that work. They already work in the right-of-way, it's already their right-of-way, and so for that reason, that isn't a heavy lift. And then you've got to just look inside and ask yourself what your technical skillset is. And again it might be slightly different, but most cities operate an enterprise network and frankly, as everything moves to Internet, everything moves to IP networks, again, that skillset I would predict most cities have in their wheelhouse.

Christopher Mitchell: Great, well, the reason I wanted to bring that up was just to note that these monetary assessments, the kind of thing that SNG really specializes in digging out these hard savings, that's not the total savings. There's other benefits as well that I just want to make sure we get on the record. Now, Michael, I'm curious, what else you found, particularly maybe for subscribers. What kind of benefits did you find for them?

Michael Curri: In essence, saving. 80 percent of them were saving 70 dollars a month.

Christopher Mitchell: Wow. Wow. 70 dollars a month.

Michael Curri: And getting better Internet, yeah. 80 percent of them were getting 100 down free up. With being connected to the Ammon network, the infrastructure was covered, the operations and maintenance was covered. Seven dollars each. And then they could choose what broadband service from the various providers. And Bruce did mention at the beginning of this podcast they've already got a number on and more coming on board. And so for the best deal that they had when we did this, was 75 down, 75 negative bits per second up, for $19.99, which came out to just under 55 dollars. When you add that all up the subscriber benefits, it's pretty significant and it comes out to 31 million dollars over the 25 years.

Christopher Mitchell: Just to make sure people are clear, because we didn't go over this in this call, but the way the network works is you pay a service provider this 20 dollars per month for the low-cost package, which is faster than I'm certainly getting at a comparable price. And then you're also paying the city for maintenance of the fiber, which is $16.50 per month, and then you're also paying -- most homes opt to do an assessment for the one-time cost of connecting the fiber to their home. And so those are three different costs that are paid. Two of them are ongoing forever and those are the maintenance and then the ISP cost. And then once the physical infrastructure is paid off that charge would drop away. But you're summing those together and you have 55 dollars.

Michael Curri: That's right. That's right, and I think the LID1 was 700 thousand dollars for 230 households, which worked out to about 3000 dollars per property, and people will balk at that. That's been amortized over the twenty years to 17 dollars a month. Adding those together, hard connection to the home, the operations and maintenance and the broadband service, they total 55 dollars a month, which is 70 dollars less than the 120 they would otherwise be paying. So that was a big boost to these people who signed up for it. And then if they can realize those kind of savings and have improved service, why not? And so to us what became really interesting about the Ammon Model is that first of all you've got the network with all the municipal buildings and facilities and even the school board. So just to recap, the telecommunication Internet costs reductions for the municipal properties was 991 thousand dollars over the 25 years. The cost avoidance of that new municipal building being connected as we discussed earlier, was 830 thousand dollars. So 1.8. The school district for the three schools that were connected, and there's 12 more that are in the process of being added, but just for those three schools that were connected it's two million dollars. So the network which was a million dollars was paid for by the municipal cost reductions. The school district benefits and then the subscribers are benefiting significantly each month.

Christopher Mitchell: When you total all that up, which you did, you have a town of 15 thousand people and they're saving, you're predicting, more than a million dollars per year over the next 25 years.

Michael Curri: Yeah, it's remarkable. That's why I think it's so important to share this story. Communities and regions that know they need it, I mean, they may not understand it technologically but they know that they need it. If you take a longer-term view of this: 20, 25 years. If you look at it as -- the same way you look at clean water, as roads, as electricity, and we have models for that. Now you're talking about broadband as an essential service. Well, what does that now enable you to do? And I think Ammon is a good case example of, "Here's what you can do." It's a sustainable debt in that way. They pay for it though their reserves, but it's a sustainable debt that is for the vitality of the community because if you don't have it how do you expect to keep the businesses that you have let alone attract ones. I've talked to a community last week that kids can't even do their homework because it's mostly online. How do you expect to keep those families? And so this is essential for the vitality and you can do it in a way that minimizes risk.

Christopher Mitchell: So I think our last bullet point is on economic development. How it impacts businesses, and Bruce, maybe you can kick this off by just reminding us how it is that businesses are presently connected because your first local improvement district doesn't have any businesses in it but you've connected a number of businesses and it sounds like your second local improvement district will have businesses. So if I'm a business, what are my options?

Bruce Patterson: We actually operate two models today. We have a model that goes to the businesses and a little bit different economic model for the residents. We see in the future that it will all be one model. But let me explain to you what I'm saying when I say we have two models. For the residents we maintain a portal process where there are pre-packaged Internet services and other services that they can choose from. And through that website they can then filter the bandwidth they want, or the price they want to pay, or the particular providers that they like, and it will actually present them with all their choices. It's an automated system. They click subscribe, they get that service. For a businesses that doesn't make sense for us today because a business is fairly specific. It wants a certain number of phones and extensions. And it may want very specific bandwidth. So for businesses they approach the city and say they'd like to come onto the fiber system. We build an extension to them and then they have their choice of the six different providers that provide business services. So then they can call them, shop each and every one of them, figure out which one has the package they want, which one has the services they want at the best price, and they make an agreement with that provider. We charge that provider a flat monthly rate of 35 dollars a month for a gigabit connection to that business. So we actually get paid by the provider in that business environment. That's a little bit different because in the residential section as you discussed there are three buckets. There is paying for the installation, which goes on the property, there's paying the city to maintain and operate the fiber, and then they make their deal directly with the service provider which allows them no contracts, the ability to change at any time, and do those types of things. So it's just slightly different for the businesses today, but, as Michael noted, they do get services at quite a bit lower cost than what is available to them across from the incumbents. And we've seen price adjustments on the part of the incumbents and others as they come into Ammon now, to compete with us, which really just improves the options for everybody.

Christopher Mitchell: I want to come back to that in a second, with you, Mike, and then those savings, but first, so, the amount you're charging the providers to use this line it seems when you look at how much that cost would be in other cities, ludicrously small, which to me suggest that the city of Ammon is really prioritizing, making sure that businesses are well connected. Is that kind of your focus? You're not trying to recover everything as fast as possible. It seems like you just really want to benefit local businesses.

Bruce Patterson: That's right. I mean, it's really about what our incentives are and our incentives here are to break even. And we've already figured that we've broken even on the bulk of the investment just from the savings to the city. The city has no incentive to go and make money off of this so we just really want to leverage what we have and as long as a business or a resident comes in and they pay for the extension, which is what we require, we have no investment to bring them on. They've invested. So all we're really going to do is take over maintenance and operation of their extension that they paid for, so the service we render is we will take over maintenance and operation to care for that fiber line that they've put in and we're going to do that at the cost that it costs us to maintain and operate it, which involves locates or repairs. That resident or that business then receives the value for their investment, not the city. And we feel like that's an important distinction.

Christopher Mitchell: And I think this is just the right time to mention the THRIVE, which is another part of your effort to really make sure that you're open for business in some ways. What's happening there?

Bruce Patterson: So for those that are a little bit more technical we offer a software defined network, which means that all of our connectivity is controlled by, in software, which really is how we manage a portal system that allows the end user to provision his own services, and as part of that we have a number of servers, we have some hardware assets. Think of the Amazon cloud, Christopher, you go to Amazon and you get a certain amount of technical resources and you can spin up some kind of technical service or application and then start to sell that across the Internet whether it's on the android platform or the IOS platform, doesn't matter. So Ammon THRIVE is our effort at that. So that's a local effort. We have residents with gigabit connectivity. We have businesses with gigabit connectivity. And what we're saying is if you're a researcher or a developer we're going to give you free service. And that free service can be cloud services. We'll give you hardware assets to create your own virtual servers, to design your own services, and we'll give you free one gigabit path to the addresses in our fiber system to test those. All it really takes is for that developer or researcher to get some local residents to want to participate in their little science experiment, or their development of their Internet of things product. That's where we're at. We want to become an assistant to those, provide a tech hub that others can use to try to develop next-generation services.

Christopher Mitchell: As we get back to the cost savings and the benefits to the businesses I think it's just worth nothing once again what Mike said earlier, which is that a lot of this has come about because of the way you've financed the network. In terms of having so much of it already paid for, it gives you freedom to engage in these other kinds of activities that create soft benefits beyond what SNG has totaled. But Mike, just go back to the businesses that are there today, what kind of savings are you predicting for them based on what you've seen already?

Michael Curri: Well, we're predicting just under 72 thousand dollars per business on average, a year. Before I sort of get into what those numbers mean I wanted to jump back and talk about the financing, because I think this is really fundamental about what Ammon has done. When you have private sector investments, they've got to have certain level of returns, to return the investment dollars that are made, plus they've got a shorter time frame to deal with. And I think I really want to key off on what Bruce said. They're trying to break even in Ammon, and they're looking at it over a longer time frame. So the investment that was made to connect the anchor institutions and those municipal buildings and facilities, that I think is fundamental to the vitality of the community, the ongoing sustainability of that community. And they can do it really cost effectively and they treat it as a public works project. When you then had the neighborhoods then sign up to these local improvement districts or broadband improvement districts, as Bruce already said, when they reach that 60 percent threshold of people signing up, they already had the money to build it so there was no debt that the city had to go in. It was the property owners that said, "We're going to do this, we're going to take on this cost." And so that enabled this to be built. What I find really interesting then is with not only with the cost savings to the subscribers, the reductions to the municipal costs which -- those in itself pay for the network build. On top of it you have now these economic benefits. The businesses need that pipe. A good, reliable, affordable pipe for what they need and that depends, depending on size and so forth. But our research has shown -- we've got a database of over 70 thousand reference and we see that the smaller the business, they may have the pipes, they may not, but the lower the level of utilization, how do they actually? What are those online business practices? The more rural they are the lower the level of utilization, so you can get that bigger pipe. Some of them will use it to their full potential. Fantastic. But 80 plus percent of them aren't fully benefiting from the pipe that Bruce is making available. So when you invest evolving and new technologies, here's what you need to do to be relevant because if you're not online people won't find you anymore. With that kind of economic development and local training and awareness are our findings show that 52 businesses, small businesses, less than 50 employees, would have an annual impact of 3.7 million dollars in annual incremental revenue.

Christopher Mitchell: And so when you talk about this saving of 72 thousand dollars per business that is based not on the fact that they have lower bills because most of them aren't paying that much in their bills. What you're saying is that a community that is properly helping those businesses to take full advantage of it, those businesses will see such incredible process improvements and productivity gains-

Michael Curri: The 72 thousand is the new revenues. Generally speaking they're able to access new markets, offer new services, and so they're realizing new revenues. There are cost savings. Our findings are that they're a fraction compared to the new revenue opportunities. And people realize, "I save time," but they actually haven't quantified the amount of times. But the new revenues show up in the top line and in the bottom line.

Christopher Mitchell: The 78 million dollars of economic development benefits are from businesses being more productive and generally having more capacity to compete and then grow and thrive, basically.

Michael Curri: Absolutely. And I think there's an important element here because communities think, "I put a lot of money to invest, whatever that cost is to build the network." But if you don't give those businesses better broadband we're finding one, they can't grow. If you don't do it there's going to be an opportunity cost as well, and that's something we're getting into as well to looking at that. When you start doing this kind of analysis up front before sometimes even the feasibility or demand study, but looking at these numbers up front to say, we have an idea what the costs would be. Well we can get much more detailed later on in the feasibility, but if we have no idea what the benefits are costs and isolation are prohibitive. So if we understand all these costs reductions, costs savings to subscribers, economic benefits, and community benefits. There's also quality of life. Well, now we can see the benefits far outweigh the costs. Now let's make those decisions to invest the right of money to do this right, to look at the demand, feasibility as needed, and even get into engineering and design. And I think that's what Bruce -- he jumped a couple steps because he realized this is a utility, this is for our future. We need to do this. There is no question we need to do this.

Christopher Mitchell: Bruce, I'm just curious if you have perhaps an anecdote of one business or just any comments you've had from some of the businesses as a result of this network.

Bruce Patterson: Well one thing that we've had happen is there's a business from out of the region. They actually sell Internet of things to buy. It's actually a device that you put into a commercial freezer in a restaurant and it monitors the temperature in that freezer. There's value in the food that's stored there and so forth. So they've taken and monitor it and they run an online service where that little device will report back and people that buy that device automatically get a username and password into the system and so they can create their own notifications and they receive a text message or an email if anything goes out of whack. And they've operated in a rural part of Idaho. They've taken a hard look at the city of Ammon and they are going to relocate into the city of Ammon for two reasons. One, the Internet bandwidth is cheap here, and they can now move away from a cloud service and actually install a server in their business location and host it themselves, which they feel like represents some cost savings, but more importantly it gives them some control and access improvements that they don't really have currently. And then they are looking for houses in Ammon residential fiber areas because the city will provide one gigabit access. Their business is part of the utility service at no additional fee. So we are seeing businesses move in. They're choosing to do it for different reasons but clearly as they understand the model, and that's the key, is that they understand the model, they start to understand how to leverage the infrastructure that works for them and their business model.

Christopher Mitchell: Great. Well, thank you both so much for sharing all this information, and being such pioneers.

Michael Curri: Well, thank you very much, Chris.

Bruce Patterson: Thank you, Chris.

Lisa Gonzalez: That was Christopher with Bruce Patterson from Ammon, Idaho, and Strategic Networks Group's Michael Curri. 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. Subscribe to this podcast and the other ILSR podcasts, Building Local Power and the Local Energy Rules podcast. You can access them on iTunes, Stitcher, or wherever else you get your podcasts. Thank you to Arne Huseby for the song, Warm Duck Shuffle, licensed through Creative Commons, and thank you for listening to episode 259 of the Community Broadband Bits Podcast.