There is so much to say about Burlington Telecom and its struggles that it cannot be covered in a single post. This is one of several posts that will discuss pieces of the situation. One of the questions that has been raised by the Larkin "audit" of BT is whether BT was losing money on the broadband it provided to City Departments.

Though the report prepared by Larkin for the State revealed a number of disturbing practices by Burlington Telecom, a number of them have been strongly disputed. The report clearly has a number of weaknesses, from an apparently lack of expertise on somewhat basic telecom economics to the fact that the "auditors" do not appear to have attempted to talk to anyone who knew anything about how BT operated.

That said, something surely went dramatically wrong with BT and the Larkin report may help shed light on it.

But when one reads articles in the local press about it, it is quickly evident that the writers have practically no understanding of what they write and harbor a strong hostility against Burlington Telecom. Consider this passage from the Burlington Free Press:

Auditors observed as well that the city, a prime user of BT services, was charged “below market rates” and “below BT’s cost of service. The low rates charged by BT ... to the city could be viewed as a form of cross-subsidization,” which, the audit notes, is a violation of a provision of BT’s state license. The building of the system in general, auditors said, was marked by a “lack of timely and accurate accounting information.”

While the quote does come from the Larkin report, it offers no foundation for the claim and later hedges against it (two paragraphs later -- all from page 26):

The fact that BT is providing services to various City departments at below- market rates that may be below BT’s cost of service, which could be viewed as a form of cross-subsidization, is a problem.

After stating without referencing any evidence that BT is providing services to Departments below the cost of provisioning, the conclusion two paragraphs below states BT may be providing services to departments at...

Jackson Energy Authority in Tennessee, long the largest community fiber network in the US, is investing in greater smart-grid capabilities. If you aren't already familiar with this network, an article in Electric Light & Power offers some history:

After receiving local government support and revenue bond issue funding, JEA went ahead with the $54 million project. Now its FTTP network boasts 16,500 cable, 10,843 Internet and 7,000 telephone subscribers. JEA is preparing for the next phase of its FTTP deployment with a smart grid initiative expected to begin in 2010.

The article also makes an important point that many find confusing in understanding the economics of these community fiber networks:

In the early years, JEA focused on subscriber growth as its key performance metric, rather than average revenue per user (ARPU). The capital-intensive cost of acquiring and hooking up new customers, however, can create significant cash flow problems for a network operator, especially when growth substantially exceeds the business plan. JEA had to secure more financing to support its incremental growth. The utility also adjusted its business model to focus instead on ARPU and increasing the number of existing subscribers using two or three services. JEA employed special promotions and service packages that took advantage of the huge bandwidth capabilities of its fiber network to build customer loyalty and overcome the customer churn typical of the industry. Today, JEA’s network has passed more than 30,000 homes, more than 16,000 of which are subscribers.

This is a good example of a community encountering a problem and overcoming it. The article also offers other lessons learned along the way. Moving forward, JEA has decided to work with Tantalus to add smart-grid capabilities to the fiber network.

A recent article discussing testimony from the President of the industry trade group, National Cable & Telecommunications Association (NCTA) reminded me once again that Congress and the FCC have utterly given up on true broadband competition for millions of of Americans.

As with the broadband stimulus funds being handed out by the Commerce Department, NCTA is concerned that the USF money not go to overbuild its members. "It would be a poor use of scarce government resources to subsidize a broadband competitor in communities--including many small, rural communities -where cable operators have invested risk capital to deploy broadband services," McSlarrow says.

This seems like a common sense argument. Why would we want to subsidize broadband for those who already have a single option (underserved) when others have no choice at all (unserved)? Unfortunately, building networks to solve the problem of the unserved is all but impossible without simultaneously serving some who are underserved. This is because the unserved are often in areas so remote and expensive to serve, there is no sustainable business model to serve only them.

So the idea that we could somehow only target the unserved with networks is extremely suspect. Unless we want to endlessly subsidize networks in these areas (which companies like Qwest emphatically want because they would likely collect those subsides endlessly), we need to encourage sustainable networks that reach across those already served, underserved, and unserved.

He added that it also might discourage the incumbent from continuing to risk that capital. "Government subsidies for one competitor in markets already served by broadband also might discourage the existing provider from making continued investments in its network facilities.

I certainly respect this argument up to a point. But when it comes to essential infrastructure, we know that most existing providers (particularly absentee-owned massive companies) are delaying investments in network facilities anyway because the lack of true competition allows them to delay making the investments more common in our international peers (where true competition exists, often as a result of smarter government policies than we can muster here). The principle of self-...

Stop the Cap! has the authored the most recent of several articles examining a unique middle mile broadband approach in the Finger Lakes region of New York. Their title summarizes the motivation: Ontario County, NY: We Need Fiber So Badly, We Just Did It Ourselves. That story includes a video clip of a recent CNBC Power Lunch 2 minute piece about the Axcess Ontario initiative (complete with the factual error that "no provider offers 100Mbps;" in fact, several community broadband networks offer 100Mbps and Chattanooga has moved beyond with a 150Mbps offering).

Ontario County has a population of some 100,000. To stay relevant in the modern era, they determined the County had to do something to improve broadband availability, so they created a nonprofit called Axcess Ontario, an initiative sufficiently impressive for the County's CIO to receive an award - State Public Sector CIO of the Year.

In creating Axcess Ontario (originally named Finger Lakes Regional Telecommunications Development Corp), the County wanted to be locally self-reliant and did not seek funding from the federal government:

Unlike numerous similar attempts in other parts of the country, Ontario County funded its network without dollars from the American Recovery and Reinvestment Act. Those who created Axcess Ontario were insistent the project shouldn't rely on the availability of outside funding, according to Edward Hemminger, CIO of Ontario County.

The network's startup costs were $7.5 million, which the municipality generated through the Ontario County Office of Economic Development/Industrial Development Agency. The organization is a quasi-government agency created by the state to generate economic activity. Businesses pay the agency for various services, the revenue from which pays for initiatives like Axcess Ontario.

In order to mollify the private sector, the county...