Tag: "economics"

Posted July 7, 2009 by Christopher Mitchell

Windom, a small community of only 5,000 people in southwestern Minnesota, upgraded its city-owned cable network to a fiber-to-the-home system. They issued $9.4 million in revenue bonds (of which $800,000 were just for the first two years of interest, when no revenue is generated from the system being built) to pass 2,000 homes and 300 businesses.

But, as with so many other aspects of life, the story was more interesting than that.

Before Windom could formally dedicate resources to address its communications challenge, however, the city was required by state law to obtain a two-thirds majority vote of approval from its citizens. Largely due to the incumbent [Qwest] telecommunications operator's announcement that it would upgrade its infrastructure and roll out digital subscriber line (DSL) services in Windom's area, the initial vote in 1999 on a new city-owned network failed. But after the incumbent cancelled its plans for DSL [while building DSL in other nearby communities], a citizens group petitioned Windom's city council to put the telecommunications project back on the ballot. In spring 2000, Windom received approval by the voters to begin work on a next-generation broadband communications infrastructure project.

This is a two-page article covering some of the history of WindomNet.

Posted June 30, 2009 by Christopher Mitchell

This article highlights three publicly owned networks that are expanding or building in the midst of a difficult economy - the Dumont Telephone Company in Iowa (a cooperative); Auburn, Indiana; and Greenlight in Wilson, North Carolina.

Dumont is facing the most difficult path:

Deploying rural and small-town fiber is always tough. Doing it without much hope of funding from outside is even tougher. But visionaries in these communities took the long view, planning to stretch out their builds over as much as seven years – longer if they have to. One community – Dumont, Iowa – is profiting from a world-class GPON build with fewer than two households passed per mile and precisely zero businesses to help foot the bill.

Auburn began building a municipal fiber network to keep some local employers in town - called Auburn Essential Services. As happens all over the United States, small towns lose businesses because the private sector is not able to provide the necessary networks. Built at first just to connect some local sites, the city later began to expand it:

In mid-2006 the city adopted a phased rollout plan for FTTP, where each phase would generate revenues that could be used to fund the next phase. The first phase, which includes the neighborhoods where most businesses are located, rolled out between April and December of this year.

The city’s marketing plan includes mailers, door hangers, advertising and even site visits to businesses. Existing technology was leveraged for back-office operations, and customers were given the option of receiving consolidated utility bills or separate bills for electricity and telecommunications.

Wilson, North Carolina, was also dealing with poor local networks that hampered economic development. Time Warner not only refused to build the necessary networks, it then refused to use a network the city offered to let them ride, and finally tried to prevent them by passing what was often called the "Incumbent Protection Act" in the state legislature. Fortunately, Time Warner was not able to prevent local competition and Wilson's network is currently being built. They used a rather unique financing plan:

Rather than issue general obligation bonds, Wilson obtained $31 million in private funding...

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Posted June 26, 2009 by Christopher Mitchell

Jesse of Free UTOPIA offered an in-depth explanation of UTOPIA's financial situation and some of the financial difficulties they are facing in mid-2009.

A snippet:

I had the opportunity to go down to UTOPIA’s office today to get updated on what’s going on down there. I walked away with a much better feel of what’s going on and a better understanding of what has caused the situation with the bonds. They also comitted to do a better job of keeping me up to speed on what’s happening. Here’s the lowdown on why the bonds are being called.

The bond situation they are in is complex, ugly, and not at all their fault. UTOPIA was required by the financing bank to use variable rate bonds instead of fixed rate bonds. Variable rate bonds obviously create a lot of issues with financial planning since you can end up with drastic and sudden rate changes. As a hedge against this, UTOPIA opted to create sort of a hedge against this volatility using a second type of bond. (If I screw up this explanation, someone send Kirt Sudweeks in to fix my explanation.)

The gist of it is that UTOPIA makes payments on a bond at a fixed 5.65% in exchange for receiving revenues on a type of variable-rate bond that has, historically, been withing 14 basis points (0.14%) of the type of bond they are using for financing. Because the bonds paid to them have historically been about the same as the bonds they are paying, it should, in theory, ensure that they pay no more than 5.65% on the outstanding debt.

Posted June 24, 2009 by Christopher Mitchell

NATOA, the National Association of Telecommunications Officers and Advisors, comprises many people who are in, and work on, community broadband networks. Whether they are dealing with cable-company owned I-Nets or citizen owned networks, one of their jobs is to make sure the community has the network it needs.

Starting this year, NATOA has made its publication, the NATOA Journal, available to everyone, not just members. This will be a great resource for community broadband information.

This issue has important articles - from an in-depth comparison of the physical properties of copper and fiber to less technical arguments by Tim Nulty and myself. Tim Nulty wrote "Fiber to the User as a Public Utility."

He advances a number of important arguments:

  • Universal - everyone should have access at affordable rates
  • Open Access - it must encourage competition, not stifle it
  • Future Proof - the technology must be built to last and meet needs currently unforeseen
  • Financial self sufficiency - this can be done and the political culture suggests it must be done

He then delves into the problems Burlington Telecom faced, how it resolved those problems, and some of the strengths of their approach. He also offers some details on his new project - East Central Vermont Community Fiber Network.

My "Community Owned Networks Benefit Everyone" makes the case that only publicly owned networks can offer true competition in the broadband market because private network owners will not open their networks to other providers. Facilities-based competition is a policy that encourages monopoly or duopoly throughout most of America.

However, I also argue that public ownership, and the accountability that comes with it, may be more important than competition in cases where the community chooses that model. As always, we stand up for the right of communities to choose their future and to take responsibility for their choices.

Other important articles in this issue discuss the...

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Posted June 22, 2009 by Christopher Mitchell

Benoît Felton of Fiber Evolution says that Open Access makes Economic Sense - in four parts:

Posted June 8, 2009 by Christopher Mitchell

This is a transcription of the speech Nulty gave at the 2008 Broadband Properties Summit. Nulty describes the history of the Burlington efforts before and after he joined to build their fiber-to-the-home system. He talks about incumbent obstructionist efforts, the role of consultants, and the economical questions they considered before building.

He goes on to discuss why FTTH is practical in rural areas - and less expensive than most claim. Finally, he frankly discusses some of the tensions involved with running community networks when they are a city department (as opposed to a utility that may be at arm's length or a nonprofit).

Posted May 18, 2009 by Christopher Mitchell

We consider how government-owned enterprises affect privately owned rivals. Specifically, we compare the types of markets that municipally owned telecommunications providers in the United States serve to the types of markets that competitive local exchange carriers (CLECs) serve. We find that CLECs focus on potential profitability while municipalities appear to respond to other factors, such as political considerations or the desire to provide competition to incumbents. As a result, municipal providers tend to serve markets that CLECs do not. We also find that the presence of a municipal provider in a market does not affect the probability that a CLEC also serves that market. Our results suggest municipalities may not pose a significant competitive threat to CLECs and do not preclude CLEC participation.

Posted May 18, 2009 by Christopher Mitchell

In this paper, we explore whether broadband investment by municipalities has an effect on economic growth. To do so, we employ an econometric model to compare economic growth in Lake County, Florida, with other similar Florida counties. In 2001, Lake County – a small county in central Florida – began generally offering private businesses and municipal institutions access to one of Florida’s most extensive, municipally-owned broadband networks, with fiber optic connections to hospitals, doctor offices, private businesses, and 44 schools.1 Our econometric model shows that Lake County has experienced approximately 100% greater growth in economic activity – a doubling – relative to comparable Florida counties since making its municipal broadband network generally available to businesses and municipal institutions in the county. Our findings are consistent with other analyses that postulate that broadband infrastructure can be a significant contributor to economic growth. Our results suggest that efforts to restrict municipal broadband investment could deny communities an important tool in promoting economic development.

Posted May 18, 2009 by Christopher Mitchell

There are 2,007 municipalities across the United States that provide electricity service to their constituents. Of these, over 600 provide some sort of communications services to the community. An important policy question is whether or not public investment in communications crowds out private investment, or whether such investment encourages additional entry by creating wholesale markets and economic growth. We test these two hypotheses – the crowding out and stimulation hypothesis – using a recent dataset for the state of Florida. We find strong evidence favoring the stimulation hypothesis, since public investment in communications network increases competitive communications firm entry by a sizeable amount.

Posted May 18, 2009 by Christopher Mitchell

This paper provides evidence that municipally owned and operated cable television enterprises are financially viable and provide large rate savings to their communities. The findings contradict allegations in Costs, Benefits, and Long-Term Sustainability of Municipal Cable Television Overbuilds, a 1998 paper authored by Ronald J. Rizzuto and Michael O. Wirth, that such enterprises are likely to be poor investments for cities. The authors claim that analysis of financial histories of the cable enterprises in Glasgow (Kentucky), Paragould (Arkansas), and Negaunee (Michigan) “clearly indicates that [they] have been poor investments from a pure business perspective.” They are pessimistic about the fourth, Cedar Falls (Iowa). The authors contend that these enterprises “have not generated [or will not generate] sufficient cash flows to cover their out of pocket cash needs.... None ... [is] currently sustainable over the long run.” However, by the incorrect criteria and analysis that Rizzuto and Wirth use, few new enterprises—public or private—would pass financial muster. The authors further contend that the only reason these utilities have been able to remain solvent is because of various subsidies, personal and property tax transfers, or interest-free loans. Rizzuto and Wirth’s conclusions are not surprising since their paper was partially funded by Telecommunications, Inc. (“TCI”), the private, incumbent cable television provider in Cedar Falls at the time the city was creating its municipal cable enterprise. Although Rizzuto and Wirth’s paper was published seven years ago, critical review of it is timely and important. Formation of municipal cable enterprises is a major public policy issue; private broadband providers have been successful in having several states bar or place crippling limitations on the formation of such enterprises. The time that has elapsed since the paper was published provides a good perspective for checking the authors’ predictions about the financial viability of the four municipal enterprises. Most importantly, however, Rizzuto and Wirth’s paper is often cited currently by those who oppose municipal entry in the cable television industry and related broadband industries. Their paper is widely quoted in reports of other organizations that oppose formation of municipal cable enterprises.

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