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Building Gigabit Networks: Three Powerful New Financing Models in Utah, Mississippi and Texas

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April 29, 2014 – As communities across the country consider ways to build Gigabit Networks, a range of public- and private-financing models are now being considered in geographies as diverse as the Wasatch Front in Utah, rural Mississippi; and College Station, Texas.

Three separate financial models were explored earlier this month at the Broadband Communities Summit in Austin, during a panel on “Public-Private Partnerships for Economic Development.”

The first model, in Utah, involves a private company — Macquarie Capital — entering into partnership with the public sector to complete a fiber build worth more than $300 million. In Mississippi, network builder C Spire Fiber put out a “reverse Request for Proposals” in an effort to incent Mississippi communities to invest in fiber.

In the third example, in College Station, Texas, a technology entrepreneur and city council member discussed his efforts to bring Gigabit Networks to the hometown of Texas A&M University.

‘Boring, Low-cost Capital’

Macquarie, a global financial services firm based in Australia, is already a major player in the market for building traditional infrastructure: roads, bridges, tunnels, ports, water and gas utilities.

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“We have always been looking for new ways to apply the model, and when we take a few steps back, fiber to the home looks and smells like a utility,” said Duncan Ramage, company senior vice president responsible for infrastructure advisory and development in North America.

“This is a long-term asset, an essential service, with a certain investment horizon,” he said. “We are looking for opportunities to apply this, particularly in the U.S.” At the moment, Macquarie is focused on efforts that would lead to the completion of the Utah Telecommunications Open Infrastructure Agency (UTOPIA) Gigabit Network.

Although Macquarie is negotiating with UTOPIA, a final agreement to complete the network has not been inked, he said. UTOPIA offers Gigabit broadband services in about ten cities along the Wasatch Front, including Layton and Brigham City north of Salt Lake City, and Lindon and Orem, which are adjacent to the university community of Provo.

In bringing a traditional infrastructure financing model to fiber infrastructure and construction, Ramage acknowledged that Macquarie was attempting to do something unique in the current U.S. communications marketplace.

“Fiber can be good for many, many years, but it is effectively like a gas line into your house,” he said. Macquarie would like to build Gigabit-capable fiber lines into homes, operating network infrastructure — but allowing other companies to provide consumer-facing Gigabit services.

“We are a boring, low-cost capital [company]. We are keen on building the highway so that others may use it,” said Ramage. “In the case of UTOPIA, there is an interesting sub-scale network in need of an injection of capital to complete it, to make it sufficient.”

Under the Macquarie proposal, the company plans to invest more than $300 million of its own capital to build out the network. It would recoup those costs through a municipal utility fee in place over 30 years.

Ramage’s presentation highlighted two key differences between Macquarie’s proposal for UTOPIA and what Google Fiber has done in Provo.

Last April, Google announced an agreement to purchase the assets to the iProvo municipal fiber network. It was subsequently announced that Google’s purchase price for the troubled network was one dollar. The network would revert back to the city if Google doesn’t complete its upgrades within 7 years.

Barring that unlikely event, however, it is Google — not the city of Provo — that now owns iProvo. Additionally, Google’s fiber network follows the closed internet service provider model. That means that competing internet companies are not permitted to offer Gigabit services over Google Fiber’s lines.

By contrast, the proposed Macquarie-UTOPIA deal would put Macquarie in the business of designing, building and operating a wholesale fiber network. But Macquarie also would allow competing companies to offer Gigabit services. Also, at the conclusion of the 30-year leasehold, the 11 UTOPIA cities would retain ownership of their respective Gigabit Networks.

The other two models discussed at the Austin event elaborated on other variations of utility financing.

Reversing the RFP Process

The Mississippi-based telecommunications company C Spire Fiber has a 4,000-mile fiber network throughout the state, and has provided a range of transport services for wireless backhaul communications and others since 2006, said Greg Logan, senior vice president at the company.

In 2011, seeking to further exploit its fiber resources, C Spire began offering connectivity for small- and medium-sized businesses. In September 2013 it decided to “turn it up a notch” and issue a “reverse RFP” for Mississippi cities to build Gigabit Networks.

In other words, instead of waiting for cities to come hire them, C Spire said that it would build network in any cities that responded to its “reverse RFP” and met its selection criteria. Of the applicant cities, nine were selected.

“In our discussions, a few key elements emerged: we did not ask for capital, we did not ask for conduit, we did not ask for [access to telephone] poles” to put fiber infrastructure, said Logan. Rather, “we did ask for a fast-track permitting” in order to locate fiber infrastructure. Under their agreements, permitting issues must be resolved within a total of 30 days.

As part of its interactions with the nine cities, C Spire has prepared maps of “fiberhoods” — much as Google Fiber has done in Kansas City, and now in Provo — and shared those with city managers and city leaders.

“We needed to maintain those communities of interest as best we could,” said Logan. “The municipalities are committed to being very active in helping to identify champions, signups and registrations on the web site. We have been there to engage and to help them.”

In other words, he said, in a very real way it was the cities that took ownership for the networks that C Spire nudged them on to build.

A ‘Sahara Desert’ for Bandwidth

In College Station, it was an emerging core of technology companies and their employees that evidenced demand for Gigabit Networks, recounted James Benham, CEO of JB Knowledge Technologies.

Benham’s company,which specializes in enterprise application and database development for the construction and insurance industries, wasn’t getting the bandwidth that it needed from existing telecommunications carriers.

“We were frustrated in College Station,” Benham recounted. “It is a fascinating and great place, but the equivalent of the Sahara Desert [for bandwidth.] My software and technical people didn’t want to stay around town.”

Deciding to do something about it, Benham ran for the city council in November 2012, where he kick-started an initiative to develop and issue an RFP for the construction of a Gigabit network. After a fast-paced 14 months, the city is close to announcing the winner.

Although Benham wouldn’t discuss applicants, he did say that RFP respondents fell into three main categories:

  • Engineering firms that wanted to be paid to build a network, and which would then be run by the city — something that Benham said was “not palatable politcally.”
  • Private fiber providers who had already built fiber networks without any public-private partnerships.
  • The big incumbent providers were also included and offered responses. The city “did not want to exclude them” because the RFP was “not an anti-incumbent measure.”

The session, at the Broadband Communities Summit, was moderated by Diane Kruse, CEO of NeoFiber.

Drew Clark is the Editor and Publisher of BroadbandBreakfast.com and a nationally-respected telecommunications attorney at The CommLaw Group. He has closely tracked the trends in and mechanics of digital infrastructure for 20 years, and has helped fiber-based and fixed wireless providers navigate coverage, identify markets, broker infrastructure, and operate in the public right of way. The articles and posts on Broadband Breakfast and affiliated social media, including the BroadbandCensus Twitter feed, 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.

Education

National Non-Profit to Launch Joint Initiative to Close Broadband Affordability and Homework Gap

EducationSuperHighway is signing up partners and will launch November 4.

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Evan Marwell, founder and CEO of Education Super Highway.

WASHINGTON, October 18, 2021 – National non-profit Education Super Highway is set to launch a campaign next month that will work with internet service providers to identify students without broadband and expand programs that will help connect the unconnected.

On November 4, the No Home Left Offline initiative will launch to close the digital divide for 18 million American households that “have access to the Internet but can’t afford to connect,” according to a Monday press release.

The campaign will publish a detailed report with “crucial data insights into the broadband affordability gap and the opportunities that exist to close it,” use data to identify unconnected households and students, and launch broadband adoption and free apartment Wi-Fi programs in Washington D.C.

The non-profit and ISPs will share information confidentially to identify students without broadband at home and “enable states and school districts to purchase Internet service for families through sponsored service agreements,” the website said.

The initiative will run on five principles: identify student need, have ISPs create sponsored service offerings for school districts or other entities, set eligibility standards, minimize the amount of information necessary to sign up families, and protect privacy.

The non-profit said 82 percent of Washington D.C.’s total unconnected households – a total of just over 100,000 people – have access to the internet but can’t afford to connect.

“This ‘broadband affordability gap’ keeps 47 million Americans offline, is present in every state, and disproportionately impacts low-income, Black, and Latinx communities,” the release said. “Without high-speed Internet access at home, families in Washington DC can’t send their children to school, work remotely, or access healthcare, job training, the social safety net, or critical government services.”

Over 120 regional and national carriers have signed up for the initiative.

The initiative is another in a national effort to close the “homework gap.” The Federal Communications Commission is connected schools, libraries and students using money from the Emergency Connectivity Fund, which is subsidizing devices and connections. It has received $5 billion in requested funds in just round one.

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Broadband's Impact

Steve Lacoff: A New Standard for the ‘Cloudification’ of Communications Services

The cloudification of communications services makes it easy to include voice, data, SMS, and video within any existing service.

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The author of this Expert Opinion is Steve Lacoff, general manager of Avalara for communications

The line of demarcation between what has traditionally been considered a telecommunications service was once very clear. It was tangible – there were wires, end points, towers, switches, facilities. Essentially, there was infrastructure required to relay voice or data from point A to point B.

Today that line is fuzzy, if not invisible. The legacy infrastructure remains, but an industry of cloud-based services that don’t require the physical connections has exploded. Voice, data, SMS, and video conferencing can now be conveniently delivered OTT. Enabled by simple API integrations, businesses can embed just one of these services or a complete communications platform-as-a-service (CPaaS) into an app, service, or product.

Cloudification is a game changer

This “cloudification” of communications services makes it easy to include voice, data, SMS, and video within any existing application, product, or service. These are essential components for many business models.

Consider these services we have come to rely on in our daily lives: food or grocery delivery, ride services, and business and personal communications. These require multiple methods of communication with shoppers, drivers, co-workers, watch party groups, and external business partners.

The exciting news is there is no end in sight. Use cases will continue to evolve and growth will continue to skyrocket. The scale cloud delivery accommodates is massive. These untethered, easy to embed communications services are a critical differentiator for both business-to-business and business-to-consumer buyers, and the lifeblood of the businesses providing both the end user subscriptions and the APIs.

In fact, one industry juggernaut saw H1 YoY video application service demand grow nearly 600% in 2020.

Not surprisingly, as business demand for these services increases smaller CPaaS players continue to enter the market to quickly snag market share. According to a recent IDC study, “the global market revenue for CPaaS reached $5.9bn in 2020, up from $4.26bn in 2019, and is expected to reach $17.71bn by 2024.”

Merger and acquisition activity is aligned with this hockey stick growth forecast. Large telcos, SaaS providers, and even other CPaaS providers are all on the hunt. Whether they want to add additional features to punch up their products or eliminate the competition in a very tight, nuanced market, the end game is clear – as the market expands, the players will ultimately contract leaving only the most competitive offerings.

Don’t let communications tax take you by surprise

One of the least understood risks when adding cloud-based voice, data, SMS, or video conferencing to an existing product or service is new eligibility for and exposure to the complex world of communications taxation. Making mistakes can get costly very quickly.

Here are some of the key pitfalls to keep an eye on:

  • Expanded nexus: Understanding communications tax nexus is different – and exceptionally more complicated – than sales tax. There are approximately 60,000 federal, state, local, and special taxing jurisdictions, each with uniquely complex rules that tend to change at their own pace. Rules are very different for each service.
  • More complex calculations: The more communications services you provide via API, the more complicated communications taxes will be. Each feature can be taxed at different rates in each individual jurisdiction, or the whole bundle can be taxed at one rate. It’s critical to monitor monthly to avoid audit issues.
  • Maintaining overall compliance: Just as tax rates and rules need to be maintained, so must tax and regulatory filing forms in each jurisdiction. Some of these are very long and require significant detail.  They must be filed in a timely, accurate cadence to avoid additional audit risk.

Bottom line: Don’t assume, be prepared! As these communications services become more pervasive a larger swath of technology providers will find themselves liable for communications tax. The more your business falls behind, the more it can cost you.

It pays to be proactive and prepared. Tax and legal advisory experts can help determine your level of risk, and tax and compliance software providers can help you keep up with changing rules and regulations. Don’t underestimate the ongoing value of networking with peers who are either struggling to answer the same questions or have already overcome the hurdles you’re facing today.

Steve Lacoff is General Manager of Avalara for Communications. With a focus on data, VoIP, and video streaming, Steve has spent 15 years in various product and marketing leadership roles in communications and technology industries, including Disney’s streaming services and Comcast technology solutions. Steve now drives business strategy on today’s changing industry landscape and associated tax impacts. This piece is exclusive to Broadband Breakfast.

Broadband Breakfast accepts commentary from informed observers of the broadband scene. Please send pieces to commentary@breakfast.media. The views expressed in Expert Opinion pieces do not necessarily reflect the views of Broadband Breakfast and Breakfast Media LLC.

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Digital Inclusion

Digital Inclusion Week Highlights Focus on Broadband-Disconnected Urban Residents

Most Americans benefitting from federal spending on rural broadband are white non-Hispanic Americans, says NDIA.

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Angela Siefer, executive director of the National Digital Inclusion Alliance

WASHINGTON, October 8, 2021 – Experts on digital empowerment pressed the federal government to maintain a focus on broadband equity during a Wednesday event, hosted on Wednesday by the National Digital Inclusion Alliance as part of “National Digital Inclusion Week.”

Speaking about the broader agenda for NDIA, Angela Siefer, the non-profit group’s executive director, said that NDIA’s purpose was to provide “peer-to-peer learning. We get the conversation started. Everything we get is from boots on the ground.”

This theme of community-informed practice and knowledge sharing echoed throughout the presentation.

Siefer said that NDIA “learned that digital redlining is happening in Cleveland” from discoveries that came from having boots on the ground and from living there.

“Digital redlining” refers to discrimination by ISPs in deployment, maintenance, upgrade or delivery of services. Often, as was alleged in Cleveland, NDIA accused AT&T of avoiding making fiber upgrades to broadband infrastructure. The group has also published reports with the Communications Workers of America making similar charges.

These discoveries have built momentum for some, including New York Democratic Rep. Yvette Clark’s Anti-Digital Redlining Act, introduced in August. The bill attempts to ban systematic broadband underinvestment in low-income communities.

Panelists argued that federal government perpetuates digital divide

Underinvestment in historically excluded communities extends beyond large corporations’ – it includes the U.S. federal government’s broadband investment approach. Paolo Balboa, NDIA’s programs and data manager, said that federal government perpetuates racism within the digital divide.

Balboa discussed how federal broadband programs focus funds on expanding availability to residents in unserved and underserved rural areas, but ignore the many – often black and brown – urban Americans lacking high-speed internet access.

But NDIA’s research found that most Americans benefitting from federal spending on rural broadband are white non-Hispanic Americans. Americans who lack home broadband service for reasons besides local network availability are disproportionately of color, says NDIA.

The panelists argued that federal policies directed at closing the digital divide by spending primarily on rural infrastructure leaves out the digital inclusion programs urban and some rural inhabitants need.

Amy Huffman, Munirih Jester, Paolo Balboa, Miles Miller

In finding that fewer than 5 % of the bulk of American households without home broadband are rural, NDIA argues for a federal policy approach centering cost of access as the solution to connecting more families of color. The officials advocate a broader focus that includes the experiences of urban city and county residents for whom cost is the major barrier.

Munirih Jester, NDIA programs director said that NDIA keeps an active list of free and low-cost internet plan available for low-income households, and how they may access it to find affordable ISPs.

Amy Huffman, NDIA policy director, discussed the provision of COVID-19 response funding. She highlighted organization’s resources to raise awareness of the FCC’s Emergency Broadband Benefit, a program to help households afford Internet service during the pandemic.

This year, more than 100 events were registered as part of this week’s Digital Inclusion week, with many visible on the NDIA blog, said Yvette Scorse, NDIA Communications Director.

In a statement this Monday, the Commerce Department’s National Telecommunications Infrastructure Agency spotlighted the agency’s efforts on the topic, including its Tribal Broadband Connectivity Program which is making $980 million available to Native American communities.

As previously reported this August, NTIA recently launched Connecting Minority Communities Pilot Program making $268 million in grant funds available to HBCUs and other Minority-serving institutions.

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