Transcript: Community Broadband Bits Episode 310

This is the transcript for episode 310 of the Community Broadband Bits Podcast. In this episode, Rick Smith joins the show to dicuss Colorado's connectivity. Listen to this episode here.

 

Rick Smith: I've always held to the belief that just because we choose to live in rural Colorado does not mean we shouldn't have services on par with the urban areas of Colorado. If we don't solve this problem, there's not going to be a white knight come marching into town and and save the day.

Lisa Gonzalez: This is episode 310 of the Community Broadband Bits podcast from the Institute for Local Self Reliance. I'm Lisa Gonzalez. Christopher is on the road again. This time he's in Colorado at the Mountain Connect event in Vail. While he's there, he's having all sorts of conversations that we want to share. The first of his guests is Rick Smith from Cortez, Colorado. Rick was last on the show way back in 2014 for episode number 98. Rick and the community have learned a lot since then about open access, working with ISPs, and what direction they want to go next. In addition to sharing lessons learned, Rick and Chris discussed potential plans for the future, which include the Cortez pilot project and the city's foray into retail services. They also discuss what Cortez is discovering as they examine a possible citywide build out, funding options, and ways to overcome their digital divide. Now, here's Christopher with Rick Smith from Cortez, Colorado.

Christopher Mitchell: Welcome to another edition of the Community Broadband Bits podcast. I'm Chris Mitchell, recording live in Vail, Colorado at the wonderful and the ever so valuable Mountain Connect conference, sitting here across from Rick Smith, the director of general services for the city of Cortez, and a repeat guest on the show. Welcome back, Rick.

Rick Smith: Thank you very much, Chris.

Christopher Mitchell: Cortez is in the southwest corner of Colorado. It's a rural area in Montezuma County. What else should people know about it if they're not familiar?

Rick Smith: Well, we're right next door to Mesa Verde National Park. And, currently we have two fires going on. So, the state's really in a drought situation really hurting, so...

Christopher Mitchell: Right. One of the things that I've heard that is on the better side of the news is that you're growing quite a bit, and I think in part because of the fiber investments you've made in the show notes, we'll have a link back to that episode. I can't remember the number offhand, but we talked about your early days in the open access world. Can you tell us a little bit about, just a quick refresher, what you've been doing?

Rick Smith: We have about 200 businesses in fiber to the business and we have seven providers using our network to provide services. Um, we're just now starting to branch out and do some residential and we have also started a pilot project to where the city is one of the providers. So it's been an interesting learning experience right now.

Christopher Mitchell: And you've helped to connect some in nearby towns as well, right?

Rick Smith: I work with the regional area. It started out with the SCAN network, Southwest Colorado Access Network, and that has grown into the COG, southwest COG. And we're working with the, what we call Region 9, which is three counties and yeah, we're working on middle-mile connectivity.

Christopher Mitchell: So before we get into how the city is starting to look at, I think retail services from the city, I want to focus a little bit on some of the lessons learned from the open access approach for the businesses. Um, were there any surprises as you got into this? I mean, I think you started with a network to connect your buildings as a municipality and then began connecting businesses and you have these service providers. Um, did anything surprise you about how that happened?

Rick Smith: Yeah, quite a bit actually. And this was going back to 2011, and back then the conversation was, "Why do I need fiber?" for the customer. Today, thanks to Google and others, it's, "How can I get it?" which is a whole different conversation, but I'm speaking directly to the open access. I guess I was a little bit naive in thinking that we would build this network, have these providers on the network, and they would market it and promote it. And as you know, Chris, governments typically really stink at marketing --

Christopher Mitchell: Right.

Rick Smith: And that's probably one of the biggest lessons I learned, is you can't trust somebody else to market it for you. And I was disappointed in the fact that some of the service providers just cherry picked it. They took the big fish and left the others alone. And so, um, it was frustrating and now that matter. So, being a government not being good at marketing and relying on others to do it and then not doing it, it kind of went into a lower -- it wasn't such a big deal in the community. So, that's one of the things that disappointed me.

Christopher Mitchell: Yeah, we heard that yesterday on one of the panels from Utopia. They were talking about how, they had a similar problem and one of the things they did was to start marketing it themselves and they found that if you want to have a successful open access network, you really have to sort of brand that separately from the service providers. Is that anything that you tried going down that path at all?

Rick Smith: We're starting to look at it. The City hired a marketing director here in the last year or so, so that's one of our goals. So, yes. One of the challenges is, every time I would talk to a customer, "Do you need to get on the city fiber?" And they say, "Well, that sounds great. What do I, who do I call?" I said, "Well, you need to call one of these six or seven vendors, ISPs, and by the way, I can't tell you what the prices are, you'll have to search it out." So, it's an uncomfortable conversation, because you're promoting connecting to the network, but you're not the one that's dealing in servicing that customer. So, it's kind of a dance, so to speak.

Christopher Mitchell: One of the things that actually surprises me, I mean I haven't heard of a network that has 200 subscribers that has six or seven service providers. Is there something you did to make that happen?

Rick Smith: What we did, we built a co-location space, and we made it extremely easy for an ISP to connect and our business model, one dot o, which again was started back in 2011, so another one of those cases, had you known then what you know now, you would do some things differently. But it's very attractive and very easy for them to get on. And because the co-location space brings the upstream connectivity to the ISPs, it's very easy for them to just jump on. So we made it very easy and contractually we made it very easy.

Christopher Mitchell: One of the things that we have resisted doing on this show is any sort of commercials or things like that. But I'll just, I want to say that my wife and I, while we were here before the conference started, did a hike. She was wearing Osprey Packs. When we go backpacking, we're wearing Osprey Packs. Um, Osprey remains in Cortez in part because of your network, right?

Rick Smith: Absolutely. Osprey Pack, wante to make a world headquarters are a global company, manufacturing and in Vietnam and distribution in Utah. And the CEO and employees and all that, they liked the area around Cortez and one of the criteria was they had to have dark fiber to this new building, their new world headquarters. And the city council stepped up and we have a whole buffer tube of fiber going into their new world headquarters, and the city also has some property. Property was kind, believe it or not, secondary to fiber because its, they've got to connect to the outside world.

Christopher Mitchell: So, when you and I last talked, that was before you completed the network, which as I understand it, you're completing and part with a grant from the Department of Local Affairs, an organization, a part of the state of Colorado that I actually hope to interview in a show that should be coming out very soon because it's a wonderful program for improving Internet access around the state through DOLA as it's called, Department of Local Affairs. Can you just walk us through what happened in 2016 with that grant?

Rick Smith: Yeah. The grant basically is a middle mile, an anchor institution grant by a DOLA regulations. They can't, cannot fund last mile build. So we secured a million-dollar grant and we were able to take middle-mile fiber to all four quadrants of the community and push fibers out to the edges. And that kind of brings in the regional networks. So, we're going to make it very easy for the regional middle-mile network to connect it and then go on through town and go on out. So we just finished that, and that, we also along the way took some city funding and, and built drops along the way because we didn't want to have fiber running down a road and not being able to take service off of it. So, we had to kind of do two projects at one -- the grant and one, you know, to connect people up with.

Christopher Mitchell: Was there any, you know, was there a political battle to be able to spend that local money on those local drops or was that something that people just immediately saw the value of?

Rick Smith: No, there wasn't any pushback, really. It was all decided by city council and of course we want to maximize the number of people on the network. So, it was kind of a logical next step

Christopher Mitchell: Were those your first residential customers then, or did you have some before then?

Rick Smith: We had a few residents that were connected up in the downtown business area that were maybe a block or half a block off main street. But, for real practical purposes there, they're the real group of residents this time, yes.

Christopher Mitchell: So I think you just got approval to begin offering retail services, whereas in the past you've been doing the open access approach. So, how are the future retail customers going to be connected?

Rick Smith: The city pilot project you're referring to -- we are one of the providers, not the provider, so we're still basically rolling the same model out. It's just that now we're able to also offer services. Um, so it really, it's the same model just kind of expanding.

Christopher Mitchell: And I'm curious why that's necessary. Um, you know, one of the things that I'm always curious about is sort of a division. In the open access networks we see in, for instance, Washington state on the public utility districts, you know, we often see people that's businesses, that specialize in either residents or businesses. They typically don't do both, although some do, it seems like. So do you, do you fear that, that some of your service providers just aren't interested in the residential market, or are you providing some kind of backstop?

Rick Smith: It's really multiple factors. We had a meeting with the service providers and told him what we were going to do and we queried them pretty good when we were getting this grant and none of them really expressed an interest in supporting the resident because it's an after-hours-type service and you know, they didn't want to do the truck rolls or whatnot. Um, so that was, that was one factor. The other factor was, I guess the model that they were pricing their products for, we had an incumbent-rule telecom company that moved in and they just brought their same telecom model in, and they had a majority of the customers. The incumbent cable company is not on our network, but they're going to do a Docsis 3.1 upgrade. And we see with the change in CenturyLink moving away from supporting their DSL and just pretty much letting it die, that we were very close to having a monopoly service provider if the city didn't move forward. So the cable company would be the only opportunity for people to get broadband if we didn't expand. So we took a look at the landscape, and we knew kind of what the cable company was going to be pricing broadband at, and we set our pilot project to compete with that roll out. An interesting thing happened was when the city became one of the providers and rolled those prices out, all of a sudden that telecom company, that rural telecom company came back, raised broadband speeds and dropped their prices to compete. So the winner here is really the citizens. So now they'll have choice. And so we feel like we were able to disrupt the pricing for the good of the community.

Christopher Mitchell: And how about how, what percentage of the community will have access after the pilot project?

Rick Smith: Oh gosh, a very small portion because there again, I was only able to leverage the middle-mile pieces. I still have a lot of construction to go in all the neighborhoods. So that kind of brings us up to where we're at today.

Christopher Mitchell: Great. Well, what's the next step, then?

Rick Smith: So we, we did the pilot project, got that going and city council allowed us to go out for feasibility and business case for fiber-to-the-home everywhere in the city limits. Kind of one of these, "What do you want to be when you grow up?" Well, we want to be a full fiber-to-the-home community. And so we contracted with, we did an RFP and contracted with Finley Engineering to do a high-level finished out engineering so we can develop the cost models. And Doug Dawson with CCG, excuse me, Consulting did the feasibility and business modeling of it. And, we had some very interesting results out of that study.

Christopher Mitchell: What kind of interesting results? Hah, you can't leave us hanging.

Rick Smith: Well, heretofore our network's been all underground, so obviously aerial should be cheaper. So, during the Finley Engineering research -- and the city has a pole attachment agreement with the local co-op, we don't own the poles. So, um, we did a cost analysis and building aerial because of the make-ready cost, and going underground were within a percent. That's not acceptable. So, we were also in the feasibility study or, excuse me, in the engineering part of it, we're going to go back and take a look at three options because a lot of our community has allies in the back way, the backyards. Um, we're gonna re-evaluate the aerial cost with make-ready costs from the co-op, underground or, believe or not put up our own poles, because we have the right-of-way. And we're going to go block-by-block and whichever's cheaper is the way we're going to cost model it. So, that was one thing. And then, Doug Dawson came through and did the feasibility part of it and he discovered a lot of interesting facts. Um, he had, we had a long campaign where the community would send in their bills and he was strapulating the amount of bandwidth for the prices and it was all over the board. He had difficulty finding two people having the same service from the cable provider be it they had all kinds of different prices. So it was a real challenge there. He said he'd never come across that to be quite frank.

Christopher Mitchell: Oh, well it confirms a suspicion that I'd had, but I'm surprised it's not more widespread because of the way that hey engage in all these different promos and then they negotiate depending on the willingness of the homeowner, but maybe you just have better negotiators in your community than most of us do.

Rick Smith: Yeah. And that was one of Doug's comments. He says one person was paying like $100 for service, but this neighbor down the street was getting the same service, but he negotiated it for half that price. It was all over the place.

Christopher Mitchell: Yeah. So when I'm looking at some of the results from the Doug Dawson and Finley engineering studies, it looks like, you know, this is something that's gonna be hard to pay for. A lot of municipalities find that, you know, they'll break even in seven years, four if they're lucky, or maybe it'll be 10 or 15, but it looks like you haven't even harder break even point in Cortez.

Rick Smith: We do, and that is primarily due to the cost to make ready. To the, to the fact that out of the $10 to $12 million build, you can attribute about $2, $2.5 million dollars of that just to make ready. So that's why we're going block by block, trying to get this down. The other thing is our construction cost is traditionally higher because of the rock and so forth. But, lowing that, get that price down where we think it should be, so then we can start dealing with some harder numbers. Um, the interesting thing about the CCG feasibility study, and I got a lot of feedback after it was presented to the community, is they really appreciated it didn't push one way the other. It just kind of like, here's the facts ma'am, and that's the way it is. The revenue bond to go out and do a bond doesn't pay for itself. In fact, it loses money. But it brought up an interesting opportunity for us in the same vein. If we could do a sales tax and we haven't set on any amount, but we in Doug's thought we could do say one cent for five years, half cent for 10 or quarter cent for 20 years. It doesn't really matter. It's what the citizens would approve. But if you take that debt service out of that model, now all of a sudden this network really makes sense. Well, of course it does because you're taking the debt part of that construction out of and taking care of setting that aside so the network would be able to run on its own merits. But the interesting thing that I think came out of that was, now we have an opportunity to really solve the digital divide because the citizens would be paying for it with sales tax. And by the way, we have a large, a tourist influx industry, so a lot you could argue that a lot of your networks being paid by somebody else.

Christopher Mitchell: Right, in fact, I've gone through as a tourist, I plan to go through again so happily contribute to that.

Rick Smith: But, but on the digital divide piece. So, let's say you build a network out, so then now you can look at, okay, we're going to pay for that now works through sales tax, let's build every single building. In Montezuma County, the school lunch program is subsidized 79 percent D rate. So that tells you that there's a lot of low income, um, challenged people in the community. So you could, if you wanted to, this is still to be decided by the city council, but let's say you gave every building automatically a reasonable connection, five, 10 meg. And that's there for free because it's being funded by the sales tax, that gives everybody on the network. Well, then you take it one step further. You work with local school district for example, and you say, okay, if you have a student in this home, let's connect them by way of an intra net, to the school district and we'll open that pipe up for that because it's not leaving the community. Let's open that up to a full gig. So now the kids can do their homework or whatnot and talk and do their schoolwork. Cortez is like a lot of places the kids drive to McDonald's or wherever to do their homework. It's crazy in our library.

Christopher Mitchell: That's music to my ears. I think, you know, for people who aren't familiar with the economics of it, um, that the connection to the home is where all the money is. And then a lot of times that's paid for with borrowed money and the debt service, it probably costs a lot more than the operating costs of keeping the network running. I mean, delivering three megabits, five megabits to a home when you have a community-wide network, um, you know, you're talking about like less than a quarter of real costs per month. Um, and in fact, from what we've seen, the real costs actually comes in just the customer service and I'm curious if you have a plan of how, um, for people who are being connected, who may not have been connected before, who they might turn to to get a little bit of help if a is not working right?

Christopher Mitchell: There's a lot of issues with that. Yes. We're looking at that very deeply and the feasibility and business case contemplated open access or the single provider. Now I want to be clear, the single provider could be one ISP or it could be the city that has not been determined. So for the service and support, if it was a single provider, then that kind of wraps that in, into that side of the bucket. Open access doesn't pay, according to this study with, with, with the network. It just doesn't. And to use Doug's analogy, if you sell a service for 100 bucks and the city's only getting say 30 bucks for it, and that's not covering the cost operations, well, why not be the provider and get the whole hundred bucks? Right? So we're in this dilemma and believe me, I'm not beating up open access at all. That's where we're at. That's what we started with, but it's just the numbers are playing out that if we really want to be successful that it's going to need to probably move to some sort of single provider

Christopher Mitchell: Right. The, um, these are, this is the reality of open access. And one of the reasons that I've always been a proponent of open access, but yet trying to be cautiously realistic is that it strikes me, you cannot build a citywide money, a city wide network with borrowed money and running as open access.

Rick Smith: Right.

Christopher Mitchell: Now, if a community is willing to subsidize it via property taxes, sales taxes or something like that, then it makes it more feasible. But in your area where you have exceptionally high costs of building the network, then even then you can have real challenges and you know, it seems to me that what you're doing is continuing to engage the community in a discussion to decide what people want to do and, and that's what we want to see in America I think is communities, you know, your, your community might decide to go one way and you know, someone um, up north in Colorado might decide to go a different way. And that's great.

Christopher Mitchell: Yeah, it's pretty much everyone is unique and you have to kind of look at all these factors. What's best for your community? How can we get this done?

Christopher Mitchell: So, Rick, one of the things that I've found in a number of communities is nervousness between what you get from a study and the real numbers that you're going to experience. Tell us a little bit about what you can learn from this pilot project.

Rick Smith: Well, what we can learn from it is two phases: number one, what, what the customer's needs are going to be and how to service them But, right now, more importantly for the city, how to be a provider and operate and run the network in a retail setting. What that takes. We have support for the govnet our open access, but as a whole nother layer when, when you got somebody at 9:00 on a Friday, can't watch Netflix. So we're learning what that means. And in w we've turned up our second gig customer and we've only got like 20 people in the pilot. It's just been rolled out and it's so exciting times.

Christopher Mitchell: Let me end with a question that we sometimes get and that's opponents of municipal networks, particularly those who I think are pretty disingenuous, and frankly unintelligent will say that all municipal networks are failures and you shouldn't do it because it's gonna be a disaster. Now, if we ignore Osprey, which is a big employer and a big part of the community, and that alone would be a good reason to invest in these networks, what have you seen in your time that you'd want to respond to a person like that and say, no, like the reason we built this network is this, and we've had all these benefits. How would you respond to someone who is attacking the idea of municipal networks?

Rick Smith: There's several things. I've always held to the belief that just because we choose to live in rural Colorado does not mean we shouldn't have services on par with the urban areas of Colorado. And I believe in choice. So, those are some of the issues. Also, if we don't solve this problem, there's not going to be a white knight come marching into town and save the day. Just by the nature of it, we don't have the numbers. It's always about the numbers. The big telecoms, we don't have the numbers for them it and by our numbers it's difficult even for us and the conversation has changed from being one of an economic development thing, you got to have it, to now it's becoming a utility and getting back to the sales tax piece, it really is becoming a utility at that point. If sales tax funds the cost of the construction, then you're running it basically just like a water system or whatnot. If we don't do it, who's going to? If you don't, you're going to have a monopoly. And I'll say this too, that we're at a point where let's say city council chooses not to move forward. Well we're invested in this far enough, there's a cost to not doing a network. So we're going to have to face what do we do with the current infrastructure because I've built quite a bit, how do we treat it or do we sell it off or whatnot. But more importantly, are we going to be content with having that monopoly play in Cortez?

Christopher Mitchell: Well, and especially after this decision, we're recording this and I think this will actually go live, one of the rare cases in which a show we'll go live the day we're recording it, but we now know that AT&T is going to be a bigger monopoly and we're expecting Comcast to be a bigger monopoly. I'm sure Charter's going to respond by becoming a bigger monopoly. So, um, it really doesn't look good for communities that are going to rely on those entities for service.

Rick Smith: And you take the fact that CenturyLink and Level 3's merger and their change of focus, which is in rural Colorado, they're the incumbent. So what happens to all those people?

Christopher Mitchell: Well, we're all thinking about your communities with the fires raging. We hope that they're able to, um, get those under control. And thank you so much for taking time today to speak with us.

Rick Smith: You're very welcome. Thank you, Chris.

Lisa Gonzalez: That was Christopher speaking with Rick Smith from Cortez, Colorado. They're at the mountain connect conference in Vail. Read more about the city's network at Muninetworks.org. We have transcripts for this and other 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. The handle is @MuniNetworks. Subscribe to this podcast and the other ILSR podcasts, Building Local Power and the Local Energy Rules podcast. You can access them on apple podcast, stitcher, or wherever else you get your podcasts. Never miss out on our original research. Subscribe to our monthly newsletter at ILSR.org. Thanks to Arnie Huseby for the song Warm Duck Shuffle, licensed through Creative Commons, and thanks for listening to episode 310 of the Community Broadband Bits podcast.

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