Transcript: Community Broadband Bits Episode 468

This is the transcript for episode 468 of the Community Broadband Bits podcast. On this episode of the Community Broadband Bits podcast, Christopher Mitchell is joined by Bruce McDougall, Anacortes City Council Member to speak about the journey to build a 21st century infrastructure in this small community in Washington by advocating for a municipally owned and operated fiber optic network. Listen to the podcast here or read the transcript below.

Bruce McDougall: It's good to have some technical resources that know the industry, whether that's within the activist's portion of it or within the elected officials, or even if there's IT staff in city hall that want to take this on.

Christopher Mitchell: Welcome to another episode of the Community Broadband Bits Podcast. I'm Christopher Mitchell at the Institute for Local Self-Reliance in St. Paul, Minnesota. And today I'm speaking to Bruce McDougall, who is a member of the Anacortes City Council. That is a part-time position. And so like many people who are working to better their communities in an elected position, he also works as an outside position, and he works for Cisco systems as well, where he is a consulting engineer. Welcome to the show, Bruce.

Bruce McDougall: Thanks, Christopher. Great to be here.

Christopher Mitchell: This is one of those shows that I wanted to do two years ago. I knew that good things were happening, but we always like to let things simmer a little bit so that we can talk about what's been done rather than what you plan to do. And it seems like now you're in a good stage to do that.

Bruce McDougall: Yeah. Timing is good. We've made some progress on construction and turning up customers here in the last 12 months. So yeah, so we have real things to report at this point.

Christopher Mitchell: Excellent. So let's start with Anacortes. Anacortes is in Washington State for folks who are not familiar with it. Tell us a little bit about it, and what one might expect if they've visited.

Bruce McDougall: Yeah. Anacortes is about an hour north of Seattle, along the coast. It's kind of the gateway to the San Juan Islands. A lot of boating around here. It's a town of about 17,000 people. And it's just far enough away that we have some folks that commute to and from Seattle. But it is mostly folks that work here. Although with the pandemic, we're actually starting to see more people that can work remotely move into town.

Christopher Mitchell: And is that creating growing pains? I'm always curious. I feel like usually there's half of the people are excited about it and half of the people are saying, "It's killing our town."

Bruce McDougall: I think like the entire West Coast is experiencing a certain amount of growing pains. There's a lot of pressure on real estate prices and things like that. So I think everywhere from Vancouver on down to San Diego has kind of similar problems.

2:24

Christopher Mitchell: Okay. So Anacortes, 17,000 people. Usually that means that there is a cable system, maybe some DSL, maybe a little bit of fiber also. But give us a sense of what it was like when you, as a citizen activists to start, but also later as a member of the city council, what made you feel that you needed to make an investment in a municipal fiber network?

Bruce McDougall: I got introduced to some friends here in town that had been kind of the original activists for it. A lady by the name of Pam Allen and a gentleman named Wayne Huseby. And Pam saw, I guess, municipal broadband as an economic development tool. And Wayne was a retired Verizon engineer. And the mayor at the time was also interested in doing something, but they hadn't really formulated what they wanted to do. They knew that the nearby community of Mount Vernon had built a fiber optic network to serve their community institutions, and kind of their downtown business core. And that was a really visionary project. A gentlemen named Kim Kleppe had led that effort. And they got started, I think, even in the late 90s.

Christopher Mitchell: Yes. And Kim talked about that on our show. And it's wonderful. I know they've also worked with Burlington and Port of Skagit as well. Yeah. We'll talk about that in a little bit. I want to come back to what the county's doing as well, I think in part based on that enthusiasm and yours.

Bruce McDougall: Yeah. So in those early times, my family and I had actually just moved to Anacortes from Denver. I'm originally from the area. So it was kind of coming back home. And I had been working, I guess, in the telecom sector for quite a long time at that point, 15 to 20 years. And a lot of exposure to ISPs as well as the interplay between ISPs and kind of dynamics of the Internet. The emergence of cloud and cord cutting, and things like that. And saw it as actually kind of a unique opportunity for a small community to kind of differentiate itself, to sort of create real 21st century infrastructure that could then act as kind of an economic driver for attracting knowledge, industry, companies and workers, and things like that. So that was kind of how I got started was just meeting those folks, and then seeing this dynamic and seeing this possibility for a really cool infrastructure add to the community.

Christopher Mitchell: So let me ask you this, because this is a step that I feel like a number of people are in, you made some friends. You're talking about it. You're maybe getting together at a coffee shop or bars, or one of each other's homes to talk a little bit about it. How did you get to the next step? What was next?

5:06

Bruce McDougall: I think really key was that the mayor in the 2013 election had spoken about it as something that she was interested in investing in. And while she didn't have a detailed plan, she said it was something that she wanted to look into to try to do. And then our sort of three person group, we were given the opportunity to come in and basically do a several education sessions with the sitting city council and mayor. So we developed presentations. We would go in and just do what were at the time called study sessions, where we simply provided, at first, here's the basics of what broadband is, what fiber optic is. And then we kind of built on it from there, sort of into an exploration of what a community broadband network could look like, different models for how it be done. I want to say we did three or four presentations. We also spoke to other groups, like the chamber of commerce hosted us to do a presentation for them.

Bruce McDougall: And that kind of got things rolling where as the existing city council at the time became more comfortable with the idea, they started to show interest in they could maybe spend some money on doing a feasibility study, or something like that. And we actually proposed they fund a feasibility study. They ended up, I want to say about 2015, the city staff, sort of public works folks, built a kind of a quick RFP that went out, they tried to get basically folks to bid on, like consulting on a feasibility study. And it didn't really get a very good response. I think it was kind of early days, and not many folks have built out this sort of consultancy kind of business. So actually in talking it over with a couple of council members that I had befriended at the time, they basically asked if I could provide, kind of build, a do it yourself feasibility study.

Christopher Mitchell: It seems like a nice way of saying they told you to put up or shut up.

Bruce McDougall: One of them joked something about conscripting.

Christopher Mitchell: Right. So you basically had to become more of an expert than someone who thought it was a good idea, someone who knew a lot about the technology, but actually having to really look at the business models and things like that.

7:29

Bruce McDougall: Put some time and skin in the game. Yeah.

Christopher Mitchell: How did that go? I mean, you had the benefit of going to some events, I think, if I remember correctly.

Bruce McDougall: I got to go to a couple events. There was one that was held kind of in Skagit County, and a bunch of community, I guess, representatives from the different communities around the county, including the mayor of Mount Vernon and Kim Kleppe as well. Another event that took place down in Seattle. And that was more of a Washington State broadband discussion. And then in my job, I spend a lot of time just researching how to apply a given technology to a given customer problem, and specifically ISP kinds of things. And so it was pretty natural for me to just start kind of doing some digging around the Internet, looking for examples. We actually did a road trip down to Sandy, Oregon, where they had built and have been operating a citywide fiber optic network for a few years at that time.

Christopher Mitchell: Yeah. That would have been Joe Knapp was running it at the time. I think he's moved on, but Jeremy Pietzold is still there.

Bruce McDougall: Yep. Those guys were really gracious in hosting us for kind of an all day event and tour of their setup, and answered a ton of questions. And they were super helpful. All through this process, one of the keys is building sort of just confidence within the elected folks, as well as the staff. The [inaudible 00:09:02] staff that would have to actually execute the plan. And just getting confident that, yes, this is technology. It's probably something that not very many folks are super familiar with. But as a municipal entity, we have a water treatment plant that serves our community and actually three other communities around the area. And this thing is it's a $40 million a year operation, this water treatment plant. It is much bigger than a little ISP that would say have 3,000 customers. And the stakes are much higher too with that water treatment plant, because if something goes wrong, we've got bad water.

Christopher Mitchell: Yeah. And for people who aren't familiar, it's also the technology's changing. There's increasingly concern about keeping pharmaceuticals out. So this is not something where it's just sort of you're doing the same thing you were doing 20 years ago. Because sometimes people belittle other utilities and say, "Well, those things are easier. They're not as rapidly changing as broadband." But they each have a lot of things that are not only dangerous, but rapidly changing.

10:05

Bruce McDougall: Absolutely. Yeah, yeah.

Christopher Mitchell: So how did you build up their confidence because it's a really good point. And I think that's really important.

Bruce McDougall: Kind of continued exposure, continued education about it. The trip down to Sandy, Oregon, I was not on the council yet at that time, but the mayor went and one of the council members, the head of public works, and a couple other folks. And that was really great for the mayor and council member and head of public works to all see here's an ISP, and it's not just a fiber optic network that sort of serves the business core. It's like every address in town has the ability to be hooked up to this fiber network. And to see them running it at a profit down there. And they weren't massively staffed up or anything. It was its own small self-contained department. That was really big.

Bruce McDougall: There were other visits that happened where the mayor and head of public works went and visited some of the PUD, public utility district networks around Washington State. They went to Eastern Washington and saw some of those. And we also started developing a relationship with NoaNet, which is, I would say that they are a facilitator/network operator for open access networks that various PUD districts around the state run.

Christopher Mitchell: Right. Then the Northwest Open Access Network, NoaNet. And yeah, they've been around for 22 years, I think. Because the PUDs form them back in '99, if I remember correctly.

Bruce McDougall: Yeah. And they're a terrific partner, both for the PUDs, and they later on they became our partner in a slightly different role. But simply having brokered those relationships, or the mayor and staff and various council members sort of starting to develop relationships in addition to the education sessions, it really worked to get everyone's comfort level up that, hey, we could actually do this.

Christopher Mitchell: That's interesting. That's something that hasn't come up before, but I think it's incredibly important, especially for a city that doesn't have a municipal electric department, to really engage in that sense of there are good ways of doing about it. And then just knowing that you did all those visits. The other piece of that is we need cities to have many people on the council interested in it, and others who are digging into it. It doesn't work to have one person who's sort of the know it all. We always say we want to have a champion, but we need to make sure that there's a lot of people in the city who are taking it seriously and learning about it.

12:42

Bruce McDougall: Yeah, absolutely. A council person had stepped down for personal reasons in mid 2017. And we have a process where community members can apply to be appointed to replace that person until the next election. So myself and a couple other folks had applied. And because I had been working with the council in kind of a volunteer sort of consultant status or manner, they chose me as the one to be appointed in that June, or whatever it was.

Bruce McDougall: And one of the key questions was they wanted to know of this person of who they would appoint, do they plan on serving, running for election in November, and serving a true term? They wanted somebody who was committed. And I had said, "Absolutely. I plan to run." So I started serving mid 2017. Got actually elected in November. Once I started, I kind of continued the work of just sort of talking with the fellow council members, talking with staff members about the importance and the confidence building measures that we can do this. Had an early kind of business model that worked out the costs of what construction might look like and what staffing might look like. It was kind of really a framework. Got some really good numbers from Kim and Mount Vernon again. Also just sort of researching other projects around the country like Lafayette, Louisiana, or Chattanooga, Tennessee, a couple in Colorado as well to just kind of to get numbers and comparative numbers to have a sense for what this project might cost.

Christopher Mitchell: And so at what point did you know that it was going to happen?

Bruce McDougall: We had two pivotal points where we decided to issue an RFP to basically develop a public private partnership for us to kind of build and own a network, and we were seeking someone to operate the network. And that could be an open access proposal, or it could be just an ISP who would be willing to essentially offer an ISP set of services over our physical network. We got some responses back, including some numbers. And to be honest, I didn't really want to go down that path because I felt like the Sandy, Oregon model was actually the best model anyway, from a financial perspective.

15:08

Christopher Mitchell: Where the city would be in charge of just about everything and take care of it.

Bruce McDougall: Exactly. Yeah. We have all the capital outlay for construction and everything. And so then somebody has to staff it. And you could either pay somebody to run it, or you could build some staff and run it yourself, and then have all the revenue come in as opposed to some sort of revenue splits. And what I was seeing was, with cord cutting, both of phones and essentially the TV, the move to streaming services, the idea of an open access sort of model, where you've got a bunch of little ISPs that are competing and that are selling these bundles, there isn't really a point in bundles anymore. It's just Internet. And you can get your TV from YouTube and you can get your phone from a voice provider. So it didn't make sense to have competing ISPs, I don't think any more. I'm kind of post sort of open access.

Bruce McDougall: But then if we split with some ISP, they're going to watch X amount of, say, the revenue from a user on a monthly basis. We got some numbers back and actually ran it. And the return on investment for construction, it was going to take the city a long time, basically. 50 plus years. Whereas if we just ran it in-house and got creative with staffing, we could have an ROI of much closer to 15 years.

Christopher Mitchell: What does that mean, to get creative with staffing?

Bruce McDougall: What that actually fundamentally meant was the biggest challenge that our staff was looking at was how do we run a 24/7 NOC, network operations center, and customer support? Because that right there is, to run the day-to-day ISP during business hours, four people basically. But to run 24/7, you just tripled the staff. And we were able to partner with NoaNet. This is where we're just really thankful to be partnered with them. Because they're running a bunch of networks around the state anyway, they've got a 24/7 NOC. We can basically pay them kind of a small fee per subscriber per month. And they cover that 24/7 aspect of it. And that totally took care of the staffing problem. And now our OPEX, our operational expenses, are basically a staff of four or five. And then fortunately, this increased the monthly number that goes to NoaNet because we have customer numbers increasing. But it's not a full head count kind of number.

17:40

Christopher Mitchell: Yes. And this is something that I think we will see from more municipal networks that are growing because there are already so many NOCs out there, it does not make sense. And I actually think we may see more municipal networks and fewer NOCs because some of the existing municipal networks are choosing to work together on some of those aspects.

Bruce McDougall: Totally agree. Yeah.

Christopher Mitchell: So anyway, I interrupted you, though, as you were telling the story of what was going next. So you were looking at the numbers. You decided that a partnership would not make a lot of sense. And so was it difficult to convince other folks that it was safer to do it yourself?

Bruce McDougall: Yeah, to be honest. Within city hall, staff was used to running things like road department and the water treatment plant, and things like that. And parks department. And the idea of running an ISP was very daunting. The thing that was actually the real daunting thing was that 24/7 support. Because I think we were able to get past the idea of having a network engineer on staff who managed the GPON equipment and the routers and things like that. That was not a huge deal. And we were able to get past the idea of having somebody to manage the outside plant. And then we would need some installation crew for, we were projecting, a four year construction project. So we would need one or two installation crews.

Bruce McDougall: This was several internal discussions. We can kind of get past these pieces where everyone can wrap their heads around these roles. And the sticking point was that 24/7 support. And I remember a great conversation with the head of public works and the mayor and a couple other council members in the room at the time. And our head of public works just said, "I'm not in a position where I can be taking a phone call at 3:00 AM because there's a fiber cut, and me knowing what to do really. I'm just not comfortable with that." And that's totally reasonable for him to not be comfortable with that because he's run very different kinds of infrastructure. But we ended up going back to NoaNet and asking them basically... NoaNet was not actually able to bid on being the company that ran the ISP because they're not legally allowed to be a retail ISP.

20:10

Christopher Mitchell: Or they were not at the time. Times have changed now. And well, I should say I believe their bylaws may not allow them to, but the state law has changed in such that I think that they may be permitted to do so now if they so chose.

Bruce McDougall: Oh, that's fantastic. Okay. Yeah. At the time they weren't allowed to, so they couldn't bid. Had they been allowed to at the time, we might've gone just with a partnership with them. But we went back to them and we asked, "We don't need you to run a retail operation here. Can you simply provide NOC 24/7 and to be able to answer that phone?" And they said, "Let us get back to you." And they went back, and I think they ran some numbers. And they came back with a proposal, and it basically fit. Where it's like, all right, now with our projected staffing, installation, and kind of construction schedule, we think we can target a 15 year ROI. And that was kind of the voila.

Christopher Mitchell: And now you've been building it and connecting folks. And how are your assumptions holding up? Are they looking pretty good right now?

Bruce McDougall: The assumptions are looking pretty good actually. Yeah. We were projecting the total construction to be about 15 to 18 million. The town is about half aerial utilities, so we can run fiber along the utility poles. And we partnered with PSE as the local power company. They've been a great partner there as well. The other half is all underground. Some of it's pretty rocky. Part of the construction is pretty cheap. And we actually went and passed about 1,300 buildings kind of as fast as we could in the aerial. Tried to get a bunch of customers, a bunch of revenue on. And then in kind of year two and three, we're doing some trenching and some harder, more expensive work.

Christopher Mitchell: And you're having people sign up and people are liking the service? I mean, that's sort of the key.

Bruce McDougall: The council at the beginning of 2019 allocated kind of a $3 million sort of loan to the fiber department, essentially, that came out of kind of a surplus fund that we had. So we're really fortunate that we had that chunk of money because it would have been difficult to just get a bank loan or something, or a bond out of the gate because we have no customers, no revenue. We were able to loan ourselves that $3 million. The fiber department got started constructing past, what we called at the time, three trials zones. So one kind of a business district and then two residential areas' aerial utility.

22:37

Bruce McDougall: And the target was if we have 35% of the addresses signed up for service within a certain timeframe, then we think we're a go. We can really do this. We got probably 25 or 30% of the addresses in those areas signed up, I'm going to say, at some point sort of late 2019. And we felt like rather than wait for the full 35, we're well on track. We think if we start actually turning customers up, we'll get past that 35%. We started activating customers. We had kind of two really early adopters get turned up in January of 2020. And then kind of late February of 2020, we were just ramping up to start doing lots of installs, and the pandemic hit. And now, I want to say, we had 18 or 20 customers on by then. Maybe a few more. And we had 300 waiting.

Christopher Mitchell: And probably really anxious at that point to get that fiber.

Bruce McDougall: Yeah. Excited to get that fiber. And we also had a bunch of people on staff. So we're paying them, and benefits. And we're burning into that three million because it's paying for construction and salaries. But so we're facing the situation do we stop turning up customers for 90 days, or what do we do? Because to actually connect a customer, the installers have to go up and attach a drop table to the MST, and run it down to the outside of the house. Connect it to the box.

Christopher Mitchell: Wait. I'm sorry. The MST is like a connector in the alleyway that the fiber pass has left... For people who aren't as familiar, multi-service terminal, I think, is that right?

Bruce McDougall: Yeah, that's it. Yeah. Basically a splitter. But thank you for that. Yeah. So we run that cable down to the outside of the house, attach it to a box. Then they have to drill a hole through the house, run the cable in, and then, in theory, somebody has to go inside the house then, and terminate the fiber to the ONT, the optical network terminal. Basically kind of the equivalent of your cable modem. And then from there, they plug into the homeowner's Wi-Fi, or we also offer a managed Wi-Fi service as well.

25:03

Bruce McDougall: So the pandemic, though, made that go inside somebody's house part a problem. Because basically, things were shut down. We just couldn't do that. So we quickly improvised and we came up with this concept of assisted installation. Where basically the installers would do the outside work, drill the hole, and then they would leave a box on the porch with instructions for the homeowner to be able to basically, from there, all they really have to do is kind of plug Cat5 jumper kinds of things. So it's not a big deal for a homeowner to hook it up. At the same time, an ISP would prefer to have done that last leg and make sure it's done right and everything and test it.

Christopher Mitchell: Especially when you get that service call a month later, and you're not really sure what they actually did.

Bruce McDougall: Yeah. Yeah. So it would be tested from the outside of the house. And then, fingers crossed that the homeowner hooked things up correctly and it worked on the inside. And if the homeowner was okay with somebody coming in, I think we had done that for a couple of weeks. And then we modified it where we had safe sort of clean and installation procedure where, well, an individual goes in all masked up and booties, and does their work, gets the install done, and disinfects the area, and then leaves. So if the homeowner was okay with that. But that was really interesting. Because we had to come up with a quick way to sort of overcome our own imposed sort of safety precautions to try to get customers on the network because we had fiber ready to go.

Christopher Mitchell: Yeah. It's a difficult position because, like you said, you have people who are getting their payroll. And so you're creating ammunition for opponents of the network to say, "Oh, this was never a good idea. Look, they're struggling to get the people signed up." And so you have a lot of pressure to figure that out.

Bruce McDougall: Yeah. I mean, we had a target of we wanted to be cashflow positive ideally within 24 months of starting our customer connections. So that would have been roughly at the end of 2021. When we're doing aerial, we were able to do about three or four installations a day. And you lose four months of that, that's a lot of customer revenue, and that pushes that cashflow positive way back.

27:27

Christopher Mitchell: Yeah. Especially because then you either have to slow down your rate of installs, which further creates problems, or find another source to borrow from. So yeah, it's cascading problems from there. But no, I feel like between your proactive actions as the city of Anacortes, as the result in part of Kim Kleppe and others that are doing really good work on the western part of the county there, it seems like the whole county's doing some interesting work. I don't know if you want if you could briefly recap that for folks who might be interested.

Bruce McDougall: The entire county does have a number of things going on that. The Port of Skagit County is actually kind of running the initiative. And I haven't been as close to that the last couple of years, because I've been really focused-

Christopher Mitchell: You've been a little busy.

Bruce McDougall: ... on our own implementation. But I know that they've been doing some work, especially to get fiber out to the east county where it's really underserved. I think they may only have DSL out there. So work on that as well as extending the existing network, expanding it in both Mount Vernon and Burlington as well as kind of there's a business park that's outside of city limits where the Port of Skagit Airport is and things like that. There's a bunch of fiber out there. So using it both to try to enhance or offer additional service to underserved, as well as to continue to use it as a business development, economic development driver.

Christopher Mitchell: Excellent. Well, is there anything else you want to share with us? I mean, it's exciting. And the fact that this has been led by a group of folks, such as yourself, who started off as citizen activists, folks who were just active in the community, and then that the city got excited about it and moved forward with it. It's a great story.

Bruce McDougall: Thank you. Yeah. I think the key items are really building that confidence. It's good to have some technical resources that know the industry, whether that's within the activist portion of it or within the elected officials. Or even if there's IT staff in city hall that want to take this on like the way Mount Vernon did long ago.

Bruce McDougall: Other items are, we are roughly on track to be cashflow positive by the end of 2021. We're approaching, I think, 900 active customers on the network to date. And I think our ROI is going to come in under 15 years. I think we may actually be running at a profit quite a bit sooner because we've been able to use essentially some stimulus funds to help with some build out. We're chasing some grants as well. So if the infrastructure bill comes through with broadband funding at the federal level here this year, then I think there's going to be a real opportunity to improve projects like this and their ROI. So encourage folks to be looking at that and going after it.

30:23

Christopher Mitchell: That's excellent. Let me say this before I thank you. For folks who are longtime listeners, who aren't just tuning in because Bruce's on the show, next week, I think I'm going to take it off. I don't think we're going to have a show for next week. I do want to let people know Mountain Connect is coming up really quickly. It's a really great event. It's in Keystone, west of Denver. That's going to be, I believe August 8 through 10, but check the website, mountainconnect.org.

Christopher Mitchell: And there's also in the end of September, BBC, Broadband Communities, is having their event in Houston. And I'm going to be at both. Broadband Communities is bbcmag.com, I believe. And anyone listening to this show knows how to find that stuff, but these are going to be good events. It's going to be a great chance to find out what's been going on while we're all sheltering in place. And it's a place in which these sorts of events were helpful, as Bruce said, in getting him educated on what's going on out there. So I want to throw that out there. I'm looking forward to being back in about two weeks. And Bruce, thank you so much for your time today, and just being an inspiration out there.

Bruce McDougall: Thank you Chris. It's great chatting with you.

Ry Marcattilio-McCracken: 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 and other podcasts from ILSR, including Building Local Power, Local Energy Rules, and the Composting for Community Podcast. You can access them anywhere you get your podcasts. You can catch the latest important research from all of our initiatives if you subscribe to our monthly newsletter at ilsr.org. While you're there, please take a moment to donate. Your support in any amount keeps us going. Thank you to Arne Huseby for the song Warm Duck Shuffle, licensed through Creative Commons. This was the Community Broadband Bits Podcast. Thanks for listening.

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