Cities Seek New Fiber-to-the-Home Funding Models

Published June 1, 2008

As financial trouble continues to plague municipal-funded broadband efforts, planners in mid-sized, small, and rural cities and towns around the nation are weighing alternatives to taxpayer-backed multimillion-dollar loans for broadband deployment.

Broadband funding was a principal issue at the Southeast Information and Communication Technology (ICT) Symposium hosted in Raleigh-Durham, North Carolina in mid-April by e-NC, the state’s telecommunications development authority. State and local officials, mostly from small or rural communities in the Carolinas, Georgia, and Tennessee, debated the merits of relying on private-sector development or pushing forward with publicly financed systems.

The debate at the North Carolina symposium mirrored the policy discussion at the national level, although action has stalled somewhat in Congress given the election year and the coming change in administrations. All three presidential contenders have called for some sort of national broadband policy, although they have been short on specifics.

Republican John McCain favors creating conditions conducive to more private investment, whereas Democrats Hillary Clinton and Barack Obama favor direct U.S. government participation in infrastructure development.

Cooperating with Private Sector

One Democrat at the symposium, former Ft. Wayne, Indiana Mayor Graham Richard, said communities facing economic transition should do as much as they can to work with the private sector.

In a keynote address kicking off the symposium, Richard said Ft. Wayne was one of the first cities in the country to benefit from Indiana’s 2006 state franchise reform, which allowed new competitors to enter the market without spending months negotiating a franchise agreement with a local authority.

Richard enticed Verizon Communications, which was looking for a suitable area to invest $100 million to launch its FiOS fiber-to-the-home (FTTH) service, to come to Ft. Wayne.

Municipalities must understand broadband is a business, not a service, Richard said. Success, he added, requires “a business plan, not a magic wand.”

For that reason, Richard said, cities should reach out to private-sector partners as well as nonprofit organizations which, though not looking for a return, still must balance their budgets. “Leaders of not-for-profits have a business-based cash flow model. If they don’t, we try to find someone who does.”

Looking Beyond Current Providers

Another touchstone of success is to look beyond the phone and cable companies and to court large companies and enterprises in the area that will be immediate beneficiaries of the huge bandwidth fiber provides, Richard said.

He told about forming a task force drawn from the city council, local businesses, and the local chamber of commerce, which in turn worked closely with Raytheon, a major Ft. Wayne employer, and area health care providers. They agreed to contribute $1 million to the project because they were looking for better data networking solutions.

Richard’s approach in Ft. Wayne mirrors the path taken by Corpus Christi, Texas, which established applications and measurable goals in advance of building a network. (See Info Tech & Telecom News, November 2007.) Corpus Christi funded construction of a wireless broadband network but later sold the operation to EarthLink.

Piling Up Debt

Richard’s partnership with the broader private sector stands in stark contrast to projects such as iProvo and UTOPIA in Utah. Both built FTTH services with poor marketing plans and are now deep in debt because of higher-than-anticipated costs and lower-than-expected revenues.

At press time, iProvo was working with consultants to evaluate future options, including sale of the system to a commercial service provider. Meanwhile, UTOPIA was facing a reckoning May 1, a date loan payments were due for which it did not have the funds.

UTOPIA was urging pledged cities to commit to a refinancing plan that, while paying off the immediate debt of $350 million, would put the 12 members at risk for $505 million.

“They’re paying off a loan with a credit card,” said Royce Van Tassell, vice president of the Utah Taxpayers Association. “They are leveraging debt with more debt. UTOPIA stands to be the Bear Stearns of municipal systems.”

Steven Titch ([email protected]) is a technology policy analyst for the Reason Foundation.