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Discussing (Ranting) Consolidation - Community Broadband Bits Episode 209

In celebration of Independence Day, we are focused this week on consolidation and dependence. At the Institute for Local Self-Reliance, we are very focused on independence and believe that the consolidation in the telecommunications industry threatens the independence of communities. We doubt that Comcast or AT&T executives could locate most of the communities they serve on a blank map - and that impacts their investment decisions that threaten the future of communities.

So Lisa Gonzalez and I talk about consolidation in the wake of Google buying Webpass and UC2B's partner iTV-3 selling out to Countrywide Broadband. And we talk about why Westminster's model of public-private partnership is preferable to that of UC2B.

We also discuss where consolidation may not be harmful and how the FCC's order approving the Charter takeover of Time Warner Cable will actually result in much more consolidation rather than new competition.

Read the transcript from this show here.

We want your feedback and suggestions for the show-please e-mail us or leave a comment below.

This show is 18 minutes long and can be played below on this page or via iTunes or via the tool of your choice using this feed.

You can download this mp3 file directly from here. Listen to other episodes here or view all episodes in our index.

Thanks to Fifes and Drums of the Old Barracks for the music, licensed using Creative Commons. The song is "Cork Hornpipe."

The Tacoma Click Saga of 2015: Part 4: Accumulating Spillover Effects

This is the last in a four part series about the Click network in Tacoma, Washington, where city leaders spent most of 2015 considering a plan to lease out all operations of this municipal network to a private company. Part 4 highlights Click’s often unseen “spillover effects” on the City of Tacoma’s economy and telecom marketplace over the network’s nearly 2 decades in operation, contributions that Tacoma should expect to persist and even expand in the future.

We published Part 3, an analysis of why the municipal network is positioned to thrive in the years ahead within the modern telecommunications marketplace on June 21st. In Part 2, published on June 7, we reviewed why Tacoma Public Utilities considered the possibility of leasing out all of the Click operations. On May 31, we published Part 1, which reviewed the community's plans for the network.

Part 4: Click’s Accumulating “Spillover Effects”

Regardless of any impending changes with Tacoma Click’s operations, it’s clear that the network has and will continue to support and enhance the overall economic interests and the public good in the City of Tacoma. “Spillover effects” - the benefits to the community that don’t show up clearly in any financial statements - tend to appear after communities developing their own municipal broadband networks.

Click’s spillover effects start with the broad economic development benefits that arose when Click appeared. Before Click came to town, Tacoma was a city in economic decline. Many businesses had fled downtown for the suburbs over the 50-plus year period after World War II. 

While we can’t give Click all of the credit for the city’s efforts to rebound from that period of economic downturn, analysts like the U.S. Conference of Mayors cite the $86 million Click network as a major component. The network was part of an ambitious and highly successful economic development effort in the 1990s that helped to revitalize Tacoma. In 2005, the Sierra Club named Tacoma’s revitalization effort one of 2005’s top 12 economic development projects in the nation

As part of Tacoma’s revitalization project, the city opened a new downtown branch of the University of Washington that remains successful today. And as we noted in a 2010 article about Tacoma Click, more than 100 high-tech companies arrived in Tacoma within a couple of years after the network launch. This means that many current Tacoma citizens also arrived in town through jobs that Click helped create.


Broadband Competition Spills Over Too

A recent study from the Organisation for Economic Co‑operation and Development (OECD) shows that the arrival of a municipal network in a city typically improves competition in the local broadband market. That is, municipal networks tend to prompt private broadband companies to lower prices and improve services in places where there are municipal networks. Indeed, a Tacoma resident reported a few years ago that Comcast customers had been consistently paying about half of what Seattle Comcast residents were paying for the same services. It’s also likely that Comcast would have delayed its 2008 upgrade of its infrastructure in Tacoma if the city had never built Click in the first place.

This evidence suggests that, were it not for Click’s impact on the ISP marketplace, the city’s Internet services from private ISPs like Comcast would likely be slower and more expensive than they are today. If Click disappeared and the city had no municipal broadband service to compete with Comcast, citizens, businesses, and government agencies in the city could expect prices to increase while customer service declines.

What many people in and outside of Tacoma may not realize is that, like most community-owned networks, Click strives to keep prices for telecom services below market rates for the good of the community. The city of Tacoma also saves on telecommunication costs because it uses Click rather than leasing. Click has essentially contributed untold savings to the City of Tacoma.

So who would be the big winner if Tacoma decided to lease out Click to a private company? Tacoma businesses and residents? The private ISP that would take over the Click’s operations? Leasing Click to a private company would almost certainly benefit Comcast more than any other party. The company with the dubious distinction as both the largest media company in the world and a perennial contender for most hated company in America has the most to gain.  

Another Historical Moment for Click

As the importance of broadband access expands, we expect the City of Tacoma to see the wisdom in the words of Tacoma’s former mayor Bill Baarsma, who in 1999 described Tacoma Click’s historical significance for the city and its potential for the future:

“This is the single biggest economic decision the council has made since the turn of the last century, when the City Council decided to move forward with the construction of the first hydroelectric dam on the Nisqually River. Things are happening here that are happening nowhere else."

In the years immediately following Click’s launch, this municipal network helped the City of Tacoma to re-emerge from a decades long economic slump. The question facing Tacoma between leasing Click to a private ISP and keeping Click as a publicly owned and operated asset will once again culminate in a pivotal decision with far-reaching implications for Tacoma’s future.

Our observation of community-owned networks around the United States suggests that the benefits of keeping and remaking Click as a city-owned asset will only become more apparent in the years ahead. A renewal and restructuring of Click operations to meet the needs of the changing telecom landscape would help to optimize the network’s potential as a driver of local economic development and cost savings. These changes will allow the Tacoma leaders of today to carry on the legacy of the city officials who took the initiative to create the historic Click network nearly 20 years ago.


Photo of Tacoma Skyline: Dean J. Koepfler, Tacoma News Tribune Staff Photographer, through Creative Commons

Photo of East 21st Street Bridge at Night: AFreeman, through Creative Commons

The Tacoma Click Saga of 2015: Part 3

This is Part 3 in a four part series about the Click network in Tacoma, Washington, where city leaders spent most of 2015 considering a plan to lease out all operations of this municipal network to a private company. In Part 2, published on June 7, we reviewed the main reasons why Tacoma Public Utilities considered the possibility of leasing out all of the Click operations. On May 31, we published Part 1, which shared the community's plans for the network. Part 3 covers why we believe the Click municipal network is positioned to thrive in the years ahead within the modern telecommunications marketplace.

Part 3: Positioning Click for the Future

If Tacoma leaders decide to move ahead with the “all in” plan that they're currently exploring, several factors suggest that Click can become an increasingly self-sustaining division of Tacoma Public Utilities (TPU). To recap, the “all in” plan would reportedly involve two major changes at Click. One, it would mean upgrading the network to enable gigabit access speeds. Two, the all in option would likely mean cutting out the “middlemen” private companies that currently have exclusive rights to provide Internet and phone services over the network. Instead of the current system, where Click only offers cable TV services while middlemen provide Internet and phone, the new all in plan would position Click as the retail provider for all three services.

Adapting to A Challenging and Changing Telecom Landscape

It makes sense for TPU to keep Click and improve it. TPU’s slide from Part 2 in this series reveals:

(1) Click’s subscriptions for Internet-only customers turned a corner in 2014 and started to exceed projections.  This data indicates that the most important component of Click’s future business prospects—its Internet access service—is growing.

(2) With a proposal on the table to upgrade the infrastructure to offer gigabit speed service, the city can expect Click to provide stronger local ISP competition on both broadband speed and price. In an age of increasing need for data access, any ISP that upgrades its infrastructure should reasonably expect to see increased demand for extremely fast Internet access services, a level of demand that didn’t exist 10 or even 5 years ago during the period when Click was having its greatest financial challenges.


(3) The ongoing growth in Internet subscribers for Click’s ISP partners runs parallel to the growing cord-cutting phenomenon, a development led by younger generations that industry experts predict could eventually lead to an Internet-only model for all media programming.

(4) If Click goes with the all in option, the triple play proposal figures to create new revenues as Click would more easily attract those customers who see the triple play option as simpler and more cost effective. Indeed, as a private consultant once suggested to Click, Click’s previous inability to offer triple play services was almost certainly an obstacle to achieving a higher take rate

A decision to instead lease Click out to a private ISP, would mean losing control over a business that is now primed for faster and more sustainable growth than ever before. Tacoma Mayor Marilyn Strickland agrees that a reshaped Click is the way to go:

“I can’t support doing something with Click when we haven’t presented the best possible Click” she said. “It’s about the quality of the product. We’re here to compete. We’re here to compete hard. And we’re here to win.”

Beyond the city’s efforts to restructure the network’s technology and business model, a common challenge for community networks like Click is the disadvantage that any small ISP has in its ability to market its services. Indeed, a poll TPU conducted last year showed that only a small minority of Tacoma residents even understand the services that Click provides. This fact underscores the reality that Click is competing against a Comcast's national brand with far greater resources for reaching potential customers. It also suggests that Tacoma Click could benefit from improved future marketing efforts that might become possible with stronger revenue flow from the expected growth of a revamped Click.

More than a Telecommunications Provider

While the financial health of Tacoma Click is of paramount importance to the network’s future success, it’s also essential that the people of Tacoma recognize the wide-ranging spillover effects for the community over its nearly two decades in existence. These spillover effects are the broad impact that Click has had and will continue to have on things like Tacoma’s varied economic development fortunes, Click’s impact on competition, and on lowering local telecommunications costs. These factors, which we discuss in Part 4, clarify that Click’s actual value extends far beyond internal financial reports.


Photo Credit: Dean J. Koepfler, Tacoma News Tribune Staff Photographer, through Creative Commons

The Tacoma Click Saga of 2015: Part 2

This is Part 2 in a four part series about the Click network in Tacoma, Washington, where city leaders spent most of 2015 considering a plan to lease out all operations of this municipal network to a private company. Part 2 explores the major reasons why Tacoma Public Utilities has considered the move to lease out all Click operations. Part 1, published on May 31, examines possible plans for Click in the immediate future.

Part 2: TPU’s Challenges with Click

When TPU officials proposed last March to lease the network to a private ISP for 40 years, they cited revenue losses for Click as high as $7.6 million annually, indicated by troubling financial reports in recent years. Some critics, however, such as those with the advocacy group “Stick with Click,” countered that this figure is inaccurate. They say that TPU manufactured the revenue losses through an accounting decision that resulted in a deceptively bleak picture of Click’s financial performance.

To shed light on the disagreement, we're examining relevant facts about Click.

Allocating the Costs of a Shared Infrastructure

When Tacoma first built the Click network in the late 1990s, the Hybrid Fiber Coax (HFC) infrastructure was to support services for two divisions of the TPU: TPU Power and Click. Besides the infrastructure’s function for supporting Click’s services, the city designed the HFC infrastructure to support a smart electrical metering program for TPU Power services.

This dual purpose meant that for accounting purposes, TPU had to allocate the costs of a shared network based how much each division would rely on the network. This cost allocation (a common accounting practice) would assign each division a portion of the original capital construction costs for building the network and a separate portion of the network’s ongoing operations and maintenance (O&M) costs. 

Ultimately, and with the help of an independent consultant, the city settled on cost allocation ratios in 2003, which determined how the TPU would assign capital and O&M costs to each division.

TPU Power would pay 73 percent of the capital costs to build the HFC infrastructure; Click would pay the remaining 27 percent. Click would then pay a 76 percent of the network’s ongoing O&M costs, with TPU Power paying the remaining 24 percent of O&M.

For several years, TPU Power used the HFC infrastructure to facilitate operations of a series of smart meters. But a few years ago, TPU made the decision to follow what they said was a trend in the power industry to instead start using wireless technology for their smart metering needs. This decision, they said, led TPU Power to begin phasing out its use of the HFC infrastructure for their smart metering program.

Now that TPU Power would no longer be using the smart meters, they determined that this change would justify significantly increasing Click’s portion of the allocated O&M costs for the HFC infrastructure. After some dispute over how to fairly adjust the numbers, TPU settled on a new cost allocation which raised Click’s portion of the O&M costs from 76 percent to 94 percent.

Is the Updated Cost Allocation Justified?

Using these new cost allocation numbers, TPU reported that the Tacoma Click network was experiencing annual losses of $7.6 million. But some observers in Tacoma were skeptical of TPU’s cost allocation decision and loss figures. For instance, an accountant for a Tacoma-based tech company suggested a view expressed by many others in town that the TPU has not been sufficiently transparent about the nature and causes of Click's reported financial problems.

Others note that if Click had simply kept the original cost allocation structure unchanged, Click’s current reported annual operating losses would sit at a more modest $700,000 rather than the $7.6 million figure. 

Justin Marlowe, a professor of public finance at the University of Washington, told the Tacoma News Tribune that cost allocation decisions by government agencies like this are always based on somewhat subjective criteria:

“Cost allocation for internal budgeting and cost analysis purposes is really the Wild West,” he said. "There is very little in the way of national standards. It’s nothing like financial accounting, where there are very strict rules about general accounting principles.”


Regardless, TPU officials believe that TPU Power has paid its fair share of costs for building and using the network and that the new cost allocation for the two divisions is justified. For one, TPU Power retained responsibility for paying its full, originally established 73 percent share of the $86 million capital costs for building the network. TPU Power also paid the portion of the O&M costs originially agreed upon during the period they were using the infrastructure for their smart meters. Now that TPU Power no longer uses the network for the smart meters, utility leadership sees the adjusted cost allocation as a natural result of these changes.

But supporters of the plan to keep Click believe TPU’s adjustment of O&M costs represents a broken agreement by TPU, a failure to follow the originally established financial conditions for building and then operating and maintaining the network. Moreover, Click supporters believe that the locally owned municipal network offers economic and other benefits to the city that TPU is failing to recognize.

Claims of Mounting Financial Challenges

When TPU’s constructed its HFC network in 1997, it provided speed, capacity, and reliability that far exceeded the standards in the telecommunications industry of the time. The only private competitor in Tacoma was TCI Communications and they offered inadequate Internet and cable TV services. Click’s arrival not only improved the quality of local connectivity, it also helped attract businesses to the community as part of a highly successful city revitalization effort in the late 1990s and early 2000s.

In 2001, a couple of years after Click got off the ground, Comcast bought TCI and in 2008, Comcast upgraded their telecommunications infrastructure to a DOCSIS 3.0 network throughout the city. One report said that this upgrade enabled Comcast to start providing more affordable prices than Click at each speed tier for Internet service in Tacoma. And yet a more recent 2014 report says that Click’s service prices would continue to be below or the same as Comcast’s local prices, suggesting that reports of better prices from Comcast in Tacoma may have been based on temporary bait and switch promotional rates that Comcast is known to use to attract new customers. Still, the reality is that many Tacoma residents have at times at least had the perception that Comcast has offered the best prices for service in Tacoma.

Comcast also has the advantage of being able to provide bundled triple-play services -- Internet, cable TV, and phone. With Click’s business model, however, Click serves as retail provider of Cable TV services while providing only wholesale Internet access and phone services through a group of private ISPs. This divided model prevents Click from offering triple-play packages. Some in Tacoma believe that Click’s inability to offer a triple play option has been a major barrier in Click’s efforts to increase their take rate

Comcast’s extraordinary market power gives them another advantage. The conglomerate has had unparalleled leverage to negotiate rates on programming costs that are as much as 20 percent less than what Click pays. Because Comcast has the luxury of being able to use revenues from other markets to cross-subsidize their services in Tacoma, this makes it easier for them to offer low rates and deep promotional offers to compete with or even at times undercut Click’s prices. These are all indications that the company has an unfair competitive advantage in a marketplace with a very high concentration of ownership.

Finally, as the slide below from a recent TPU presentation shows, TPU’s original 1997 projections for expected cable TV subscriptions never reached projected rates.  And in 2010, Click had to increase their subscription prices after programming costs started increasing at about five times the rate of inflation, far outstripping TPU’s original projections. Overall, it’s clear that factors on the declining Cable TV side of Click’s business have been a major source of the network’s struggles.


Figure from TPU Presentation Illustrating Click’s Actual Performance Vs. Projections

This slide from a recent TPU presentation shows that Click's Cable TV division has underperformed while seeing higher than expected programming costs. It also shows, however, that their ISP business is exceeding expectations.

A Look Ahead to the Future of Click

Comcast’s built-in competitive advantages in Tacoma have likely hampered Click’s capacity to grow a larger customer base. The above slide also tells another story: one of recent strong growth on the Internet side of the business, growth that has allowed Click’s Internet services to exceed TPU's original projections. As we discuss in Part 3, this trend suggests that Click can expect to see continued growth in its core future function as an ISP.


Photo Credit: Dean J. Koepfler, Tacoma News Tribune Staff Photographer, through Creative Commons

The Tacoma Click Saga of 2015: Part 1

This is Part 1 in a four part series about the Click network in Tacoma, Washington, where city leaders spent most of 2015 considering a plan to lease out all operations of this municipal network to a private company. Part 1 explains Tacoma's plans for Click's immediate future.

Part 1: Tacoma Votes to Explore Keeping Click!

2015 was a tense year for Tacoma Click, the nearly 20-year-old municipal network in this city of about 200,000 just south of Seattle. In March of 2015, Tacoma Public Utilities (TPU) announced it was considering a proposal to sign a 40-year agreement to lease out the network to a private Internet Service Provider (ISP). But after months of deliberations, the Tacoma City Council decided in December with a resounding 8-0 vote at the last City Council meeting of the year to explore what the city calls their “all in” option: a plan which, if implemented, would include technological upgrades and major structural changes to the business model aimed at preserving Click as a municipally-owned network.

When Tacoma Click, one of the first municipal networks in the U.S., launched its Hybrid Fiber Cable (HFC) system in 1999, the network provided Internet speeds that were among the fastest in the country. For the past two decades, Tacoma Click has provided community anchor institutions, businesses, and residents in Tacoma with access to retail Cable TV service and wholesale Internet and phone service. 

Click has never managed to pay for itself. However, nothing in Click’s financial reports can account for the municipal network’s numerous indirect contributions (both economic and otherwise) and overall value to the Tacoma community as a whole. There are also promising signs that the network is positioned for future growth.

Taking Sides

The tone of discussions at City Council meetings over the past year about Click’s future signaled a strong desire by some city officials to get out of the telecom business altogether. Before the December vote, two of five TPU board members favored the lease option, a proposal to lease the network that would have effectively marked the end of Click as a municipal network. Several other Tacoma officials have expressed deep concerns throughout the year about Click’s ongoing financial viability, including Tacoma’s Mayor and TPU director Bill Gaines.

Still, since the TPU’s first suggestion in March of 2015 that the city consider getting out of the municipal broadband business, some city officials have consistently pushed back. At a July meeting, Councilwoman Lauren Walker summed up a lot of the frustration among people in Tacoma who saw the proposal to dump Click as unnecessarily hasty and lacking sufficient support.


"You keep coming back and telling us it's not financially feasible," she told TPU Director Bill Gaines. "What we're trying to figure out…, as crazy as it is -- there's so much value in the city keeping the damn thing -- is how can we do it and what would that look like? And so, I know it's more work, but that's why I think you don't have the council on board, and I think that's why I think there's so much disharmony in the community."

Plans Moving Forward

The December vote does not guarantee that the city will keep Click. Rather, the vote approved the creation of a seven person “Click Engagement Committee” that is now helping TPU officials create a new business plan -- expected to be completed in the coming months -- to map out a recommendation for a 5-year business plan for the network.

Among the city’s plans under this “all in” option include an objective to upgrade the network infrastructure. In the range of $3.5 to $6 million, city officials say they can make upgrades that would increase Click’s connection speeds from its current fastest available rate of 100 Megabits per second (Mbps) up to Gigabit per second (Gbps) speed levels.

A second major proposed change, according to reports about the “all in” option, is that the city is looking to revamp its current operating structure. Currently, Click provides retail Cable TV services while a group of private ISPs provide the retail Internet and phone services. Under the “all in” plan for a revamped Click, reports say Click will become the sole retail provider of Internet access, Cable TV, and phone services over the network.

The Will of the People Makes a Difference

When the city announced its plans in March to explore getting out of the business of operating Click, the public reacted strongly against the proposed plan. In one example, a group of concerned citizens created “Stick with Click,” a coalition of Tacoma residents advocating to keep Click as a municipal network.

Large groups of passionate Tacoma citizens attended town hall meetings last spring (see here and here) to express their desire to keep Click. At a September meeting where the City Council voted to keep TPU director Bill Gaines in his position, a vocal contingent of public commenters urged City Council members to fire Gaines over his management of Click.

Then in November, Tacoma citizens re-elected the City Council’s most vocal supporter of the “all in” plan to keep Click, Anders Ibsen, even as Ibsen’s colleagues on the City Council and Tacoma’s mayor endorsed his opponent. Of the more than 40 Tacoma citizens who spoke during the public comments portion of the December City Council meeting, all except one voiced their support for the “all in” option. 

In the end, consistent and vehement public support for Click as a city owned and operated network played an important role in the City Council’s decision to look for a way to keep Click and improve it. But how did we get here? In Part 2 of this series, we’ll cover in detail the varied financial factors that brought Click to this crossroads in the first place.


Photo Credit: Dean J. Koepfler, Tacoma News Tribune Staff Photographer, through Creative Commons

Businesses Push Muni Networks, Not Socialists

"Municipal broadband may or may not make sense for a particular community, but the idea is not exactly one being pushed by beret-capped socialists quoting “Das Kapital.” On the contrary, it’s cold-eyed disciples of Adam Smith — specifically business leaders, the captains of the private sector — who are usually the most enthusiastic champions."

Crazy Talk from Another Telco-Funded Think Tank - Community Broadband Bits Podcast 200

This week, we discuss a report with zero credibility from the State Government Leadership Foundation, which was written by a well-known telco economist from the Phoenix Center. Entitled, "The Impact of Government-Owned Broadband Networks on Private Investment and Consumer Welfare," the report [pdf] makes so many factual errors that one wonders just how much these telco think tanks really take pride in their work.

George Ford authored the report. Ten years ago, he demonstrated that municipal networks most certainly did not crowd out private investment. The biggest change since then is that his employer went from supporting competitive networks to opposing them - when BellSouth SBC bought AT&T and took its name. Prior to that acquisition, AT&T actually supported competitive carriers and was even going to be an ISP on the UTOPIA network. As goes AT&T, so goes the Phoenix Center.

For episode 200 of the Community Broadband Bits podcast, we discuss this report and why it has no credibility. One of my favorite points is that Ford argues municipal networks average an incredibly high take rate, which flies in the face of all the other criticism municipal networks typically face. You just can't make this stuff up.

Read the transcript from this show here.

We want your feedback and suggestions for the show-please e-mail us or leave a comment below.

This show is 30 minutes long and can be played below on this page or via iTunes or via the tool of your choice using this feed.

You can download this mp3 file directly from here. Listen to other episodes here or view all episodes in our index.

Thanks to Forget the Whale for the music, licensed using Creative Commons. The song is "I Know Where You've Been."

Service Unavailable: The Failure of Competition - Community Broadband Bits Podcast 196

If you are paying close attention to discussions about broadband policy, you may have come across Fred Pilot's reminders that competition is not a cure-all for our Internet access woes across the United States. The blogger and author joins us for episode 196 of Community Broadband Bits.

Fred Pilot's new book, Service Unavailable: America's Telecommunications Infrastructure Crisis, discusses some of the history behind our current challenges and proposes a solution centered around federal funding and cooperatives.

We discuss the switch from telecommunications as a regulated utility, to which everyone was guaranteed access, to a system relying on competition, in which some people have many choices but others have no options. We also discuss the merits of a national solution vs encouraging more local approaches with federal financial assistance.

Fred's blog is Eldo Telecom and you can follow him on Twitter.

Read the transcript from this show here.

We want your feedback and suggestions for the show - please e-mail us or leave a comment below.

This show is 30 minutes long and can be played below on this page or via iTunes or via the tool of your choice using this feed.

You can download this Mp3 file directly from here. Listen to other episodes here or view all episodes in our index.

Thanks to Kathleen Martin for the music, licensed using Creative Commons. The song is "Player vs. Player."

Sale of OptiNet: BVU Caught Between Virginia's Rock And A Hard Place

For more than a decade, the people of Bristol, Virginia have enjoyed what most of us can only dream about - fast affordable, reliable, connectivity.  In recent days, we learned that Bristol Virginia Utilities Authority (BVU) has entered into a deal to sell its OptiNet triple-play fiber network to a private provider. The deal is contingent on approval by several entities.

As we dig deeper into the situation, we understand that troubles in southwestern Virginia and Bristol have led to this decision. Nevertheless, we urge the Bristol community to weigh the long-term consequences before they sacrifice OptiNet. Once you give up control, you won’t get it back.

"...A Few Bad Apples..."

If the people of Bristol surrender this valuable public asset to the private market, they run the risk of undoing 15 years of great work. None of this is a commentary on the private provider, Sunset Digital Communications, which may be a wonderful company. The problem is that Sunset will be making the decisions in the future, not the community. 

OptiNet has helped the community retain and create jobs, attracting and retaining more than 1,220 well-paying positions from Northrup Grumman, CGI, DirecTV, and Alpha Natural Resources. Businesses have cut Internet access and telecommunications costs. Officials estimate around $50 million in new private investment and $36 million in new annual payroll have come to the community since the development of OptiNet. The network allowed public schools to drastically reduce telecommunications expenses and introduce gigabit capacity long before such speeds were the goal among educators.

Schools and local government saved approximately $1 million from 2003 - 2008. Subscribers have saved considerably as well, which explains OptiNet's high take rate of over 70 percent. Incumbent telephone provider Sprint (now CenturyLink) charged phone rates 25 percent higher than OptiNet in 2003. The benefits are too numerous to mention in one short story.

However, BVU is emerging from a dark period marked by corrupt management. This sad reality actually makes its considerable achievements all the more remarkable. Last summer, several officials from BVU's OptiNet utility were indicted and found guilty of a number of federal charges including falsifying invoices, taking kickbacks, and misusing funds all for personal gain. Four people were fined and sentenced to prison. One other official is still being tried for her involvement in misuse of funds and tax offenses.

When this small number of officials violated the trust in Bristol that accompanies a locally managed utility, their actions negatively impacted the entire community. The actions of a few bad apples may have put the entire barrel at risk.

An Unsolicited Offer


A few months later, Sunset Digital Communications approached BVU with an offer to purchase OptiNet. Sunset had its financing in place prior to making the offer.

Sunset worked with the LENOWISCO Planning District Commission on its 2001 Fiber-to-the-Home (FTTH) project in Lee and Wise Counties in southern Virginia and Tennessee.

The company, based in Duffield, Virginia, serves 80,0000 residents and businesses. They also provide services to anchor institutions, and other Internet service providers. Sunset wants to use the OptiNet infrastructure to start an expansion into rural areas. In a recent Herald Courier article, Sunset President and CEO Paul Elswick described the relationship between OptiNet and Sunset as "friendly competitors."

Virginia Doesn’t Care About Rural People

BVU has been effectively prevented from expanding into nearby rural communities by Virginia law, which limits which business models BVU can use despite an utter lack of interest from existing providers improving their services in that region. 

BVU Authority Board Chair Jim Clifton told WCYB:

"We have peaked in our ability to compete, and again, if we can't get grants, and even with the grants, we can only go into certain areas. We can only go into a 75 mile radius of our footprint," Clifton said. He said as a public utility, they have reached the peak for providing those types of services.

Bristol's neighbors want OptiNet because of the great things it has accomplished for Bristol but state legislators will not allow the city to share the wealth. The pressure to expand through privatization is testament to OptiNet's success in a harsh, anti-muni environment.

In Steps Richmond

Rather than allowing BVU to bring its high capacity connections to those who desperately want it, legislators are using the actions of a few corrupt officials to further harm one of the few sources of economic growth in southwest Virginia.

While Sunset was pursuing BVU, State Senator Bill Carrico (R-Galax) was preparing a bill the Bristol Herald Courier described as a "wrecking ball for a job better suited to a hammer." The bill, a knee jerk reaction to the federal indictments, would reduce the size of the BVU authority and effectively transfer broad decision-making to state leadership by appointment. The editorial board described it as a way for the state to revoke local authority from Bristol for more than just OptiNet. From the Herald:

At the same time, Carrico wants to reduce to just two board members the representation from Bristol, Virginia, where the customer base represents 46 percent of OptiNet, 86 percent of wastewater, 98 percent of water, and 53 percent of electricity service business. 

We believe stronger oversight is required — and new blood on the board is essential — but not necessarily appointed from the governor’s office.

The City Council also opposed the bill but managed to get an amendment that allowed more Bristol representation on any new Board. Those members would only vote on water and sewer issures. SB 329 has passed through the Committee on Local Governments and now awaits a vote by the full body. It is not clear what will become of the bill if the sale of OptiNet is finalized.


A Tempting Offer But At What Price?

Sunset has offered $50 million to purchase OptiNet, which now carries approximately $24.4 million in long-term debt, reports the Herald Courier. A portion of that includes interdepartmental loans from the electric division to OptiNet. The electric system, water and sewer systems carry about $20.9 million combined, the bulk of which belongs to the electric system. BVU CEO Dan Bowman told the Herald Courier that the sale of OptiNet "would enable BVU to pay off all its $48 million in long-term indebtedness in all four divisions." There is some debate about whether or not this is possible, according to the agreement between the city and the BVU Authority.

The idea of becoming debt free is intrinsically appealing, but at what cost? BVU generates the necessary revenues to service its debt. Should Sunset decide to sell to one of the big corporate providers like Comcast, subscribers will be subject to the same price hikes and sub-par customer service like the rest of us. The purchase agreement has not been made public yet, but unless Sunset agrees to retain ownership or BVU is allowed a right of first refusal if Sunset decides to sell OptiNet, the risk is real.

Moving Along

On Tuesday, the Bristol City Council quickly approved a 2009 agreement between the city and BVU to clean up loose ends so the purchase can move forward. The agreement ensures that after debts are paid, half of all proceeds from a sale of OptiNet will go to the city. The City Council seems poised to approve the purchase, which must also be approved by the Cumberland Plateau Company (CPC), U.S. Department of Commerce Economic Development Administration, National Telecom and Information Administration and Virginia Tobacco Commission. 

CPC is part of the Cumberland Plateau Planning District Commission, an entity established by the state legislature to improve economic development. CPC has the right of first refusal to purchase OptiNet because it was a partner in its deployment and its infrastructure is located in the CPC service area. If CPC and the other entities approve the transaction, the sale is expected to be finalized in May or June.

Rocks Carefully Placed For Maximum Effect

The deal is not over but momentum is moving toward the sale. No one can deny that BVU is under intense amount of pressure from several fronts. Virginia legislated a hostile environment that pushed OptiNet to privatize if it wanted to continue expanding to meet the needs of neighbors. The only interests served by this policy have been the big cable and telephone companies that maintain lobbyists in Richmond so they can pay less attention to the rest of the state.

When legislators are too cozy with big corporate Internet access providers, the only choice for expansion may be privatization. If the Virginia State Legislators were considering their constituents first, they would do what it takes to grow more networks like OptiNet. In other words, remove all barriers in the form of onerous requirements that limit expansion and discourage public investment in Internet networks.

The actions of a few corrupt BVU officials have played right into the hands of those that want to limit local Internet choice. 

Local Governments and Internet Access Debate - Community Broadband Bits Episode 185

For this week's Community Broadband Bits podcast, we are trying a discussion/debate format between myself, Christopher Mitchell, and Ryan Radia, Associate Director of Technology Studies at the Competitive Enterprise Institute. We have debated previously and prefer a style of seeking to flesh out the argument rather than merely trying to win it.

We start by discussing the role of incumbents in limiting competition and what might be done about it. Next we move to bandwidth caps. On both of those points, we have pretty significant disagreement.

We finish by discussing the role of conduit and poles, where we have some agreement. If you like this show, please do let us know and we'll try to have more in this style.

The transcript from this episode is available here.

We want your feedback and suggestions for the show - please e-mail us or leave a comment below.

This show is 22 minutes long and can be played below on this page or via iTunes or via the tool of your choice using this feed.

You can can download this Mp3 file directly from here. Listen to other episodes here or view all episodes in our index.

Thanks to Arne Huseby for the music, licensed using Creative Commons. The song is "Warm Duck Shuffle."