Phillip “Reality Check” Dampier

The city of Los Angeles believes if they ask for it, they will get it – gigabit fiber broadband, that is. It is too bad we have to run a reality check.

In December, the city plans to issue an ambitious Request for Proposals (RFP) inviting at least one private company to run fiber service to all 3.5 million residents (and businesses and public buildings) within the city limits. The idea, which won unanimous support from the City Council, does not exactly come with many risks for the city. The Council acknowledges the project is likely to cost up to $5 billion (we suspect more), and the city has made it clear it won’t be contributing a penny.

“The city is going into it and writing the agreement, basically saying, ‘we have no additional funding for this effort.’ We’re requiring the vendors that respond to pay for the city resources needed to expedite any permitting and inspection associated with laying their fiber,” Los Angeles IT Agency general manager Steve Reneker told Ars Technica. “If they’re not willing to do that, our City Council may consider a general fund transfer to reimburse those departments, but we’re going in with the assumption that the vendor is going to absorb those up-front costs to make sure they can do their buildout in a timely fashion.”

That is wishful thinking.

The winning vendor is not just on the hook for the cost of building the network. It also has to comply with a city requirement to give away basic 2-5Mbps broadband service, possibly recouping the lost revenue with advertising. Customers wanting faster access will pay for it. Although not required to offer phone or television service, Reneker anticipates the winning vendor will offer both to earn more revenue to pay off construction costs.

Greater Los Angeles is now served by a mix of AT&T, Time Warner Cable, Verizon, Cox, and Charter. Only Verizon has a history of providing a significant fiber optic broadband service, but it has suspended further expansion of its network. AT&T is the dominant landline provider, but considers its U-verse fiber-to-the-neighborhood design adequate for southern California. It seems unlikely any incumbent provider is likely to seriously contemplate such an expensive fiber project, especially because the city requires the winner to build an open access network that competitors can also use. Cable operators have also stated repeatedly that their existing infrastructure is more than adequate. The question providers are likely to ask is, “why do we need to partner with the City Council to build a fiber network we could build ourselves, on our own terms, that we ultimately own and control?”

The city can offer some incentives to attract an outsider, such as promising a lucrative contract to manage the city government’s telecom needs. It can also ease bureaucratic red tape that often stalls big city infrastructure projects. But Los Angeles is not exactly prime territory for a fiber build. Its notorious sprawling boundaries encompass 469 square miles, with many residents and businesses in free-standing buildings, not cheaper to serve multi-dwelling units.

Google avoided California for its fiber project reportedly because of environmental law and bureaucracy concerns. Even Google cherry-picks neighborhoods where it will deploy its fiber project in Austin, Provo, and Kansas City. The Los Angeles RFP will likely require universal coverage for the fiber network, although it will probably allow a lengthy amount of time for construction.

The City Council’s RFP comes close to promising Gigabit Fiber-to-the-Press Release.

Private providers govern their expansion efforts by an increasingly stiff formula to recover construction costs by measuring potential Return On Investment (ROI), which basically means when a company can expect to earn back the amount initially invested. Spending $5 billion on a fiber network that could actually cut expected Average Revenue Per User (ARPU) with a free broadband offer is going to raise eyebrows. Convincing investors to chip in on a fiber network “open to competitors” will also elicit a lot of frowning faces.

Wall Street analysts rolled their eyes when Verizon rolled out FiOS. It was “too expensive” and provided too few avenues for a quick ROI. ‘Verizon built a Lamborghini Aventador fiber network when a Honda Accord would have done just fine in the absence of fierce competition,’ analysts complained. Why spend all this money on fiber when fat profits were waiting to be harvested from high-ARPU wireless service? Verizon got the message and ceased expansion. AT&T never walked that Wall Street plank in the first place, delivering a less capable Chevrolet Spark network known as U-verse.

The city is likely to be disappointed with the proposals they receive, in much the same way local governments begging for competition from other cable companies get no positive results. The economics and expectations of today’s private broadband market makes it extremely unlikely an incumbent provider is going to rock a boat that has delivered comfortable broadband profits with a minimum of investment.

Breaking the broadband duopoly of high prices for slow service is only likely in the private sector if deep-pocketed revolutionaries like Google can self-finance game-changing projects. Los Angeles will likely have to sweeten its invitation to attract interest from players serious enough to spend $5 billion. It will likely have to invest some money of its own in a public-private partnership. Perhaps an even better idea is to take control of the city’s broadband destiny more directly with a community project administered by a qualified broadband authority with proven experience in the telecom business.

There is no reason private companies cannot be active participants in whatever project is ultimately built, but these companies are not charities and if their financial backers don’t see a pathway to profit running fiber rings around LA today, an RFP to build a fiber network with city strings-attached isn’t likely to garner serious interest tomorrow.

Six college towns will benefit from the nation’s first multi-community broadband gigabit deployment, thanks to $200 million in capital funding to get the broadband networks off the ground.

The Gigabit Neighborhood Gateway Program leverages local government, universities, private capital, and the public to jointly support and foster the development of new fiber optic networks.

The new program claims it will offer competitively-priced super-fast broadband through projects that will cover neighborhoods of 5,000-10,000 people and communities up to 100,000 in size.  Selection of the six winning communities will be announced between this fall and next spring.

“Gigabit Squared created the Gigabit Neighborhood Gateway Program to help select Gig.U communities build and test gigabit speed broadband networks with speeds from 100 to 1000 times faster than what Americans have today,” the company said in a statement.

“The United States is behind in the world for Internet speed,” said Mark Ansboury, Gigabit’s president and co-founder. “The goal is to help get us out front for a platform of innovation.”

That platform is certainly not forthcoming from the country’s largest broadband providers, who according to Ansboury have been pulling back on wired infrastructure upgrades in recent years, shifting focus to more profitable wireless networks.

Gigabit Squared defines the next generation of broadband Internet in terms of speed, declaring 2,000Mbps (2Gbps) as the target to achieve.

The winning projects will be sponsored by Gig.U members, which include:

• Arizona State University
• California Institute of Technology
• Case Western Reserve University
• Colorado State University
• Duke University
• Florida State University
• George Mason University
• The Georgia Institute of Technology
• Howard University
• Indiana University
• Michigan State University
• North Carolina State University
• Penn State University
• University of Alaska – Fairbanks
• University of Arizona
• University of Chicago
• University of Colorado – Boulder
• University of Florida
• University of Hawaii
• University of Illinois
• University of Kentucky
• University of Louisville
• University of Maine
• University of Maryland
• University of Michigan
• University of Missouri
• University of Montana
• University of Nebraska – Lincoln
• University of New Mexico
• University of North Carolina at Chapel Hill
• University of Oklahoma
• University of South Florida
• University of Virginia
• University of Washington
• Virginia Tech
• Wake Forest University
• West Virginia University

Blair Levin, executive director at Gig.U, believes private American telecom companies will always be constrained from delivering world class broadband comparable to South Korea or Japan because of Wall Street opposition to the investment required to construct them. In the eyes of investors, today’s slower networks, in their estimation, do just fine.

Gig.U believes that they have a solution, at least for towns with a sizable university system that can serve as host of the next generation broadband network:

First, any community that wants its residents to have access to a network that delivers world-leading bandwidth can do so. The barrier is not technology or economics. The barrier is organization; specifically, organizing demand and improved use of underutilized assets, such as rights of way, dark fiber, or in more rural areas, spectrum. The responses identified a multitude of ways local communities can improve the private investment case by lowering investment and risk, and increasing revenues for private players willing to upgrade or build new networks without budget outlays from the local government.

Second, the responses confirmed that university communities have the easiest organizing task and greatest upside. Their density, demographics and demand make the current economics more favorable for an upgrade than other communities. For example, the high percentage of the population in university communities living in multiple dwelling units makes the economics of an upgrade far more favorable than for communities composed largely of single-family homes. With the growing importance of Big Data for the economy and the society, university communities are the natural havens for such enterprises to be born and prosper. Through the Gig.U process, our communities are already exploring more than a half-dozen paths to achieve an upgrade; paths that will be replicable for others and will deliver a major step forward in providing America a strategic broadband advantage.

Outside of a handful of upstart private competitors like California-based Sonic.net, most fiber broadband expansion come from private companies like Google — building an experimental fiber-to-the-home network in Kansas City, community-owned broadband services coordinated by local town or city government, co-op telecommunications companies owned by their subscribers, or municipal utilities.

While those efforts are typically committed to the concept of “universal service” — wiring their entire communities — the Gig.U project targets funding only for networks in and around university campuses.

The New America Foundation builds on Gig.U’s premise in its own recent report, “Universities as Hubs for Next Generation Networks,” which argues affordable expansion of broadband can win community support when the public has the right to also benefit from those networks. While Gig.U’s approach suggests the project will target fiber broadband directly to the homes qualified to receive it, the New America Foundation supports the construction of mesh wireless Wi-Fi networks to keep construction costs low for neighborhoods targeted for service.

An earlier project in Orono and Old Town, Maine may afford a preview of Gig.U’s vision, as that collaboration between the University of Maine and private fiber provider GWI is already in its construction phase. For those lucky enough to live within range of the fiber project, broadband speeds will far exceed what incumbents Time Warner Cable and FairPoint Communications deliver. FairPoint has fought similar projects (and GWI specifically) for years.

Will private providers object to the Gig.U effort to win local governments’ favor in the six cities eventually chosen for service? History suggests the answer will be yes, at least to the extent local cable and phone companies demand the same concessions for easy pole access, reduced pole attachment fees, and easing of zoning restrictions and procedures Gig.U project coordinators expect.

Levin has stressed Gig.U projects are based on university and private funding sources, not taxpayer dollars. That may also limit how much objection commercial providers may be able to raise against the projects.

[flv]http://www.phillipdampier.com/video/WABI Bangor Orono Maine Getting Faster Service 5-16-12.flv[/flv]

WABI in Bangor previews the new gigabit broadband network being constructed in Orono and Old Town, Maine.  (2 minutes)

This influential documentary explores the rural cooperative movement for electricity in the 1930s.

In 1935, just 5-10 percent of America’s family farms were wired for electricity.  The cities: lighted.  The rest of the country: in the dark.  It was the same old story then as it is today for rural broadband:

• There are two few customers for us to make a profit by bringing you service;
• The return on investment will take too long;
• You won’t use enough service to justify the expense of providing it;
• Okay, we’ll install service, if you pay thousands of dollars to cover the cost to bring it you.

Private providers delivered electricity to big cities, but found the countryside not worthy of their time or investment.  Then, as now, rural America’s economy suffered for it.  Back in 1935, family farms coped with wood-fired stoves, school homework by kerosene lamp, discarding fresh farm products that could not be kept cool, no running water, no radio, and no appliances to make an already difficult life a bit easier to manage.  In 2012, an increasing amount of the rural economy is moving online, where raw materials and goods are bought and sold, where knowledge-based jobs require a dedicated broadband connection, and education means completing homework assignments and doing research on the Internet.

Same old problems cast in a different light to be sure, but borrowing from America’s past may put a down payment on our broadband future.

President Franklin D. Roosevelt had heard all of the excuses and seen private electric companies try to showcase their minor efforts to improve power in rural America. A series of small scale projects that looked good in the newspaper could not hide the more general attitude it was unprofitable to provide the service to family farms.  In 1935, Roosevelt signed an executive order establishing the Rural Electrification Administration (REA).  Although FDR’s contemporary critics like to consider him a socialist that interfered in the private economy, in fact Roosevelt’s REA spent the majority of its effort in areas commercial providers wouldn’t touch with a 25-foot power pole.

The idea was simple.  Rural American communities with limited or no electric service could reach out to the REA to obtain low interest loans to finance the infrastructure to construct rural electric service.  When loans were approved, a cooperative electric company was established, with each “customer” being a member and part-owner of the co-op.  Income earned from ratepayers would pay for the service and pay back the government loans.  When the federal government was paid in full, the cooperative owned the new utility company outright.

In practice, this was the only way rural Americans, especially farmers, could obtain electric service.  These cooperatives often found they could deliver the same service a private company could, and for much less money. Co-ops work for the benefit of their members, not for outside investors.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Power and the Land.flv[/flv]

In 1940, the federal government commissioned ‘Power and the Land’ through the United States Film Service.  This one film, showing life for a farm family in southeastern Ohio before and after electrification, helped drive the rural electrification movement forward in areas yet to be wired for service.  The first 17 minutes chronicles life on the powerless farm, while the second half explores the REA electrification program and the changes electricity brought to farming life. (38 minutes)

Belmont County, Ohio shows the legacy of the REA. Diagonal line-shaded sections illustrate the service areas of the original power co-op noted in the film 'Power and the Land.' The yellow shaded areas are served by Ohio Power, a subsidiary of American Electric Power, Inc., a commercial company.

The film’s impact was profound (the Village Voice called it “a little masterpiece”), and more than four million farmers were estimated to have seen it.  Eventually, more than 500 miles of electric lines were being strung by America’s co-ops every single day.  Additional documentaries about the film were made decades later, narrated by Walter Cronkite, to chronicle the cooperative electricity movement, the original film, and what happened to the family.

Private providers were, of course, horrified by the REA and other Roosevelt Administration public works projects.  Private companies railed they were being undermined by low interest government loans, government involvement, and fear new regulations would threaten their profitable business models.  Some of Roosevelt’s fiercest critics called the administration’s zeal for public-good spending anti-capitalist and anti-American.  For Roosevelt, it was often simply a matter of finding the fastest solution to a pervasive problem private companies seemed uninterested and unwilling to solve.

The legacy of the REA remains plainly visible today.  In Ohio, what started as the Belmont Power Cooperative is today part of the South Central Power Company, itself a co-op within the Touchstone Energy Cooperative.  Belmont County, Ohio’s power grid still reflects the work of the REA in the 1930s, with the county divided into regions served by the original REA co-op and Ohio Power.

While South Central Power hasn’t gotten into the broadband business, several other rural co-ops have, expanding their focus towards fiber to deliver cable TV, Internet, and phone service.

If the concept of the REA was adopted for broadband, the formula for success can remain the same.  Low interest loans to finance fiber telecommunications networks provide limitless expansion possibilities and a clear path to solving rural America’s broadband inferiority problem.  Interest rates have never been lower, and by gradually repaying the loans from income earned from subscribers, taxpayer dollars are not at risk.  The federal government’s only real involvement in guaranteeing loans and providing oversight that the money is spent appropriately.  The co-ops that result will govern themselves by and for their members.

Some will say electricity is more important than broadband, and for some families that may be as true as similar arguments were for and against REA electricity in the 1920s and 30s.  But take a week off from your broadband service.  Disconnect it, don’t read e-mail or visit websites, and then re-evaluate that statement.

More and more, broadband has become a firmly established part of our lives at work, school, and home. If private companies won’t step up, let others organize to provide it.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/North Carolina Farmers Utilizing the Internet America’s Heartland.flv[/flv]

Fast forward to December 2011, and watch how rural Rutherford County, N.C. farmers are adapting to the new digital economy with the use of broadband.  They are selling their crops online to eager restaurants, markets, and other buyers up to 70 miles away.  No broadband?  No deal.  (5 minutes)

Phillip "Break Free from 'What's In It For Me'-AT&T" Dampier

[We are reprinting this because it succinctly and persuasively proves a point we’ve been making at Stop the Cap! since 2008.  Broadband is not just a “nice thing to have.” It is as important as a phone line, electricity, and safe drinking water.  News, education, commerce, and culture increasingly utilize the Internet to share information and entertain us. Essential utility services can either be provided by a private company operating as a monopoly with oversight and regulation, or operate strictly in the public interest in the form of a customer-owned cooperative, a direct service of local government, or a quasi-public independent non-profit.

In North America, broadband was originally considered a non-essential service, and private providers in the United States lobbied heavily to maintain absolute control of their broadband networks, free to open them to share with other providers, or not.  They also won sweeping deregulation and are still fighting today for decreased oversight.  The results have been uneven service.  Large, compact cities enjoy modern and fast broadband while smaller communities are forced to live with a fraction of the speeds offered elsewhere, if they have access to the service at all.

With broadband now deemed “essential,” local governments have increasingly sought to end the same old excuses with the “don’t care”-cable company or “what’s in it for me”-AT&T and provide 21st century service themselves, especially where local commercial providers simply won’t step up to the plate at all.  Suddenly, big cable and phone companies are more possessive than your last boy/girlfriend. The companies that for years couldn’t care less about your broadband needs suddenly obsess when someone else moves in on “their territory.” They want special laws (that apply only to the competition) to make sure your broadband future lies exclusively in their hands.

Susan P. Crawford understand how this dysfunctional, controlling relationship comes at the expense of rural America.  She’s a visiting professor at the Harvard Kennedy School of Government and Harvard Law School. In 2009, she was a special assistant to President Barack Obama for science, technology and innovation policy. Her opinions were originally shared with readers of Bloomberg News.]

In cities and towns across the U.S., a familiar story is replaying itself: Powerful companies are preventing local governments from providing an essential service to their citizens. More than 100 years ago, it was electricity. Today, it is the public provision of communications services.

Susan Crawford

The Georgia legislature is currently considering a bill that would effectively make it impossible for any city in the state to provide for high-speed Internet access networks — even in areas in which the private sector cannot or will not. Nebraska, North Carolina, Louisiana, Arkansas and Tennessee already have similar laws in place. South Carolina is considering one, as is Florida.

Mayors across the U.S. are desperate to attract good jobs and provide residents with educational opportunities, access to affordable health care, and other benefits that depend on affordable, fast connectivity — something that people in other industrialized countries take for granted. But powerful incumbent providers such as AT&T Inc. and Time Warner Cable Inc. are hamstringing municipalities.

At the beginning of the 20th century, private power companies electrified only the most lucrative population centers and ignored most of America, particularly rural America. By the mid-1920s, 15 holding companies controlled 85 percent of the nation’s electricity distribution, and the Federal Trade Commission found that the power trusts routinely gouged consumers.

Costly and Dangerous

In response, and recognizing that cheap, plentiful electricity was essential to economic development and quality of life, thousands of communities formed electric utilities of their own. Predictably, the private utilities claimed that public ownership of electrical utilities was “costly and dangerous” and “always a failure,” according to the November 1906 issue of Moody’s Magazine. Now more than 2,000 communities in the U.S., including Seattle, San Antonio and Los Angeles, provide their own electricity.

Today, the Institute for Local Self-Reliance, which advocates for community broadband initiatives, is tracking more than 60 municipal governments that have built or are building successful fiber networks, just as they created electric systems during the 20th century. In Chattanooga, Tennessee, for example, the city’s publicly owned electric company provides fast, affordable and reliable fiber Internet access. Some businesses based in Knoxville — 100 miles to the northeast — are adding jobs in Chattanooga, where connectivity can cost an eighth as much.

Meanwhile, less than 8 percent of Americans currently receive fiber service to their homes, compared with more than 50 percent of households in South Korea, and almost 40 percent in Japan. Where it’s available, Americans pay five or six times as much for their fiber access as people in other countries do. Fully a third of Americans don’t subscribe to high-speed Internet access at all, and AT&T Chief Executive Officer Randall Stephenson said last month that the company was “trying to find a broadband solution that was economically viable to get out to rural America, and we’re not finding one, to be quite candid.” America is rapidly losing the global race for high-speed connectivity.

Tamping Down Enthusiasm

We've done something like this once before.

Like the power trusts of the 20th century, the enormous consolidated providers of wired Internet access want to tamp down any enthusiasm for municipal networks. Last year, telecom lobbyists spent more than $300,000 in a failed effort to block a referendum in Longmont, Colorado, to allow that city to provide Internet access. Time Warner Cable managed to get a North Carolina law enacted last year that makes launching municipal networks there extraordinarily difficult. The pending measures in Georgia and South Carolina are modeled on the North Carolina bill.

The Georgia bill is chock-full of sand traps and areas of deep statutory fog from which no local public network is likely ever to emerge. In addition to the ordinary public hearings that any municipality would hold on the subject, a town looking to build a public network would have to hold a referendum. It wouldn’t be allowed to spend any money in support of its position (there would be no such prohibition on the deep-pocketed incumbents). The community wouldn’t be allowed to support its network with local taxes or surplus revenues from any other services (although incumbents routinely and massively subsidize their networks with revenue from other businesses).

Most pernicious of all, the public operator would have to include in the costs of its service the phantom, imputed “capital costs” and “taxes” of a private provider. This is a fertile area for disputes, litigation and delay, as no one knows what precise costs and taxes are at issue, much less how to calculate these amounts. The public provider would also have to comply with all laws and “requirements” applicable to “the communications service,” if it were made available by “a private provider,” although again the law doesn’t specify which service is involved or which provider is relevant.

The end result of all this vague language will be to make it all but impossible for a city to obtain financing to build its network. Although the proponents of Georgia’s bill claim that they are merely trying to create a level playing field, these are terms and conditions that no new entrant, public or private, can meet — and that the incumbents themselves do not live by. You can almost hear the drafters laughing about how impossible the entire enterprise will be.

Globally Competitive Networks

Right now, state legislatures — where the incumbents wield great power — are keeping towns and cities in the U.S. from making their own choices about their communications networks. Meanwhile, municipalities, cooperatives and small independent companies are practically the only entities building globally competitive networks these days. Both AT&T and Verizon have ceased the expansion of next-generation fiber installations across the U.S., and the cable companies’ services greatly favor downloads over uploads.

Congress needs to intervene. One way it could help is by preempting state laws that erect barriers to the ability of local jurisdictions to provide communications services to their citizens.

Running for president in 1932, Franklin D. Roosevelt emphasized the right of communities to provide their own electricity. “I might call the right of the people to own and operate their own utility a birch rod in the cupboard,” he said, “to be taken out and used only when the child gets beyond the point where more scolding does any good.” It’s time to take out that birch rod.

The Bailiwick of Jersey, one of the British Channel Islands off the coast of Normandy, France, is being wired for fiber broadband speeds as high as 1Gbps and the island’s 100,000 residents are thrilled.

Jersey Telecom (JT), a government-owned service provider, expects to reach every one of the island’s 42,000 homes with Gigabit Jersey — a super-fast fiber network by the end of 2016.  The first 24 homes were switched on for service this week, with new homes coming online daily.

Graeme Millar, JT CEO, says Jersey’s new fiber network replaces the island’s antiquated copper wire based DSL service, and will result in much faster speeds for residents.  The initial trial is focused on La Rocque, Fauvic, and La Moye, and all commercial broadband providers are welcome to use the network to sell their services to residents and businesses on the island.

JT is offering a minimum of 40/40Mbps service to casual users and 1Gbps for Internet addicts.

Millar

The fiber project makes no distinctions between urban and rural residents and provides the same speeds to both businesses and residences.  Broadband has become such an important part of island life, it is essential every home have equal access.  With home-based businesses and home-based workers, it doesn’t make sense to only sell fast service to business customers.

The government spent £19m ($29.8 million) on the fiber network it calls an investment in the future.  None of the funding comes from the pockets of the island’s taxpayers.

Jersey officials claim the project will attract new high-tech businesses to the island, which is closer to France than England.

Government officials, and many residents, have rejected complaints from private providers like Airtel-Vodafone who claim the Internet’s future is mobile/wireless, not fiber.  Airtel-Vodafone fought Gigabit Jersey, claiming “fast enough” Internet access was possible over their mobile broadband network.  The company claimed the government investment interfered with private companies’ business plans for Jersey.

“Airtel had no intention of delivering anything close to the speeds we are going to get from JT, and they would hand us plans with small usage allowances and high prices to boot,” says Stop the Cap! reader Marie, who lives on Jersey.  “These companies believe it is more important to let private business dictate the Internet future of Jersey instead of letting people, through our local government, make that choice for ourselves.”

JT’s Gigabit Jersey project claims to be the most ubiquitous and comprehensive Gigabit fiber network in the western world, because it will reach every resident and business on the island.

“Why would anyone want an expensive, slower, and congested wireless network from Vodafone when you can have 1Gbps fiber broadband instead?” asks Marie. “If you want to walk around with a tablet, put a wireless router up and point it into the garden and be done with it.”

JT will gradually replace the island’s existing copper infrastructure as the project continues over the next four years.  The fiber network is expected to also bring down broadband prices, which run as high as $79 a month for 20Mbps service.

[flv width=”512″ height=”308″]http://www.phillipdampier.com/video/ITV Channel Islands Ozouf under fire over Gigabit Jersey 12-11.mp4[/flv]

ITV in the Channel Islands reports on Gigabit Jersey, the island’s new fiber to the home network, and the controversy over its funding and opposition from private providers.  (2 minutes)