Editor’s Note: This is one of several wrap-up articles about the 2015 Broadband Communities Summit earlier this month in Austin, Texas. For the complete list of articles from the summit, visit http://broadbandbreakfast.com/2015/04/articles-from-the-2015-broadband-communities-summit-in-austin/
AUSTIN, April 27, 2015 – Raising funds to build high-speed internet infrastructure through municipal debt financing is finally becoming a reality, according to a panel of financiers and broadband builders speaking earlier this month here at the Broadband Communities Summit.
Members of the panel, “Municipal Debt Financing and Public-Private Partnerships,” surveyed the landscape of typical municipal bond financing — traditionally used to build transportation infrastructure — and discussed how it applies in the broadband space.
While the financiers on the panel eagerly posed questions, some of the practitioners eagerly showcased models of bank-worthiness for building open-access fiber networks.
Brian Garcia, managing director of municipal debt financings at Aegis Capital Corp., said that the finance sector was finally paying attention to the bond market for broadband builds.
By contrast, in the typical vertically integrated telecommunications company broadband build, a single company — such as a Comcast, an AT&T, or a lower-tier communications company — is responsible for capital investments, for design and building of the network, and for its marketing and operations. Although some of these networks resell capacity, that’s been an adjunct to the core operations.
New investment in open-access fiber networks is beginning to change that paradigm. Still, there are still many unique aspects about broadband financing, Garcia said, including the fact that the market is not known as well as, for example, the transportation financing sector.
Fred Cornwall, president of Municipal Capital Markets Group, outlined the differing costs of financing under a general obligation bond, a revenue bond, or a non-rated revenue bond. Provided that network builders are willing to pledge cash flows and offer some equity in the system, he said investors will finance the construction of such open access systems.
The network builders — Fletcher Kittredge, CEO of GWI in Maine; Mark Erickson, the Economic Development Administration director for the City of Winthrop, Minn., and Nicholas Hamm, senior managing director of Macquarie Capital — eagerly showcased how they were building their respective networks.
Kittredge highlighted four fiber-optic networks in Maine, each of which operated under a different financial model. Having received a $25 million grant under the American Recovery and Reinvestment Act to build a middle-mile network known as the “Three-Ring Binder,” GWI was able to leverage the investment in building out to Rockport, Maine, a harbor town not far from the footprint of the fiber network.
Before the fiber network, the 40-year old Maine Media Workshop out of Rockport was considering moving because of the difficult of purchasing bandwidth for its video programs, he said. “We came up with a public-private partnership business model, where the open access dark fiber network is owned by the town, and GWI agreed to be the default let service operator with defined service levels.”
“The [workshop] agreed to be the anchor tenant guaranteeing cash flow, buying a 20-year indefeasible right of use [IRU] for $30,000; GWI provided $40,000 worth of design and engineering; and the town paid $30,000 out of tax increment funds,” recounted Kittredge.
Under the public-private partnerships, GWI offers residential services at $70/month for a Gigabit of symmetrical broadband (download and upload), and commercial services at $200/month for 100 Megabits per second (Mbps) symmetrical broadband.
“Immediately, many people said, ‘we will pay to have [the fiber network] build out to our area,’ and the town has received incredible feedback,” said Kittredge.
Each of the other cities or towns in Maine used different models, however. In South Portland, GWI owns the open network, which was built by bank financing. On the island of Isleboro, the town levered an undersea cable from the electric company to build fiber out to the island. Without it, “they were at risk of loosing the year-round community by loosing the school,” he said.
“The summer community didn’t want the year-round community shut down,” he said. As a result, the city is preparing to vote for a general obligation fund to fund the system directly.
The fourth city Kittredge discussed, Sanford, is not on the fiber network, and is hence at a competitive disadvantage. “They decided they needed a spur off the Three-Ring Binder, so they can get all the broadband competition, and a fiber network through the core of the town.”
Erickson of Winthrop, Minn., said that the first effort to build a fiber network with which he was involved attempted a municipally-owned network financed by revenue bonds. But with a rich tradition of co-operative institutions in Minnesota, last year this joint powers board handed off the project to a newly-formed cooperative entity, which is building the fiber network in two phases.
Also speaking on the panel was Hamm of Macquarie, an Australian company with significant experience in building public-private transportation systems, such as the Chicago Skyway toll highway. He discussed the way that a public-private partnership enables government to transfer risk to the private sector, and contrasted the different financial aspects of building middle-mile networks and last-mile networks.
The panel was part of a special “Financing Fiber Networks” session at this year’s Broadband Communities Summit.
Drew Clark is the Chairman of the Broadband Breakfast Club. He tracks the development of Gigabit Networks, broadband usage, the universal service fund and wireless policy @BroadbandCensus. He is also Of Counsel with the firm of Kirton McConkie, based in Salt Lake City, Utah, which enhances clients’ ability to construct and operate high-speed broadband networks in public-private partnerships. You can find him on LinkedIN, Google+ and Twitter. The articles and posts on BroadbandBreakfast.com and affiliated social media are not legal advice or legal services, do not constitute the creation of an attorney-client privilege, and represent the views of their respective authors. Clark brings experts and practitioners together to advance the benefits provided by broadband: job creation, telemedicine, online learning, public safety, energy, transportation and eGovernment.