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For Utah’s UTOPIA, New Utility Financing Model for Open Gigabit Networks Contrasts with Google Fiber

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WEST VALLEY CITY, Utah, May 5, 2014 – One of the largest global companies involved in the construction of highways, airports, bridges and other capital-intensive infrastructure projects plans to spend more than $300 million to complete a Gigabit Network in Utah.

The Australian-based company, Macquarie Capital, believes that it has found its first North American broadband infrastructure target in the Utah Open Telecommunications Infrastructure Agency. For about a decade, UTOPIA has been operating a high-speed fiber-optic network in 11 cities nestled in Utah’s urban corridor along the Wasatch Front mountain range.

Macquarie proposes to invest its own funds, with the cost of construction defrayed through a monthly utility fee on homes and businesses. A partnering company would then sell wholesale Gigabit Services on an open network. Gigabit Networks would be ubiquitous throughout the 11 cities.

At a Thursday night meeting here laying out the company’s proposed Public-Private Partnership, Macquarie Senior Vice President Duncan Ramage said, “people who have UTOPIA really like it – it is fast, and it is good.”

The problem, he said, lies in UTOPIA’s lack of capital, as well as its current lack of scale. The network currently serves about 16,000 subscribers, one-tenth of the 160,000 homes within the cities.

Macquarie’s solution is a bold application of infrastructure financing: perhaps the first time that such a model has been applied in the telecommunications space.

If the deal is consummated, Macquarie will invest more than $300 million of debt and equity financing and fully construct the Gigabit Network within two-and-a-half years, Ramage said. Effectively all risk would be transferred, for the period of 30 years, from the city governments to Macquarie.

“What we are trying to do here is financial innovation in the public sector,” he said.

Contrasting Paradigms: Google vs. Macquarie

The Sydney-based Macquarie unveiled the details of its proposed Public-Private Partnership at a series of three open meetings last week. The first on Tuesday was in Orem, near Brigham Young University on the southern edge of the UTOPIA region. Wednesday’s meeting was in Layton, in northern Utah. West Valley City, a blue-collar sister city to Salt Lake, hosted Thursday’s meeting.

If the UTOPIA cities agree to the Macquarie proposal, Utah Valley would offer a remarkable contrast in financing different Gigabit Networks. Google Fiber is currently operating in Provo, and the Macquarie-built UTOPIA network would be next door, in neighboring Orem and 10 other cities.

In April 2013, internet search giant Google announced an agreement to purchase the assets of iProvo, a municipal fiber network. Google – which has built fiber networks in Kansas City and is now building one in Austin, Texas – purchased the troubled Provo network for the price of one dollar.

Importantly, Google did not assume any of the city’s liabilities, which remain the responsibility of Provo citizens. Each Provo resident currently pays a utility fee of about $6 a month.  Moreover, as the network owner, Google will receive 100 percent of the profit from the network.

Macquarie, by contrast, is proposing a 30-year leasehold interest in UTOPIA. It promises to completely build out the network, share profits with the cities, and give a working Gigabit Network back to the cities at the conclusion of the lease.

Google’s Gigabit fiber network in Provo follows the same paradigm of traditional telecommunications monopolies: it is a closed networks serviced by a single provider — Google.

The Macquarie-built network, by contrast, retains the wholesale-retail model as originally envisioned, and thus far imperfectly executed, by UTOPIA.

Effects on Consumers, the Cities and ISPs

As articulated in both the Macquarie white paper and in the slides that accompanied the company’s three presentations here last week, the proposal leverages traditional utility financing in a new realm: broadband internet services.

Here’s a summary of how this Public-Private Partnership is designed to work:

Income stream. An income stream is pledged to Macquarie through a monthly telecommunications utility fee on all residences and businesses within the cities. The fee is expected to be $18-20 per household, or $9-10 per apartment unit, or $36-40 per business connection.

Basic, free universal broadband. In exchange for this utility fee, citizens would receive access to a basic broadband network — 3 Megabit per second (Mbps) symmetrical — built right up to the outside of their homes at no additional charge.

Open competition among retailers. Although contractors for Macquarie would build the network, a range of internet service providers would compete to offer consumers the best prices on Gigabit services. Although prices have not yet been set, it is contemplated that an internet service provider would charge about $50 for a Gigabit connection. Coupled with a $20/month fee, Gigabit Services would be available for about $70/month.

Revenue split with the cities. Revenue from the sales of Gigabit Services would be split among Macquarie, the various internet service providers, and the cities. Although the precise split has not yet been negotiated, it is anticipated that the cities would receive the majority of this revenue. This would help defray the financial obligations that cities are currently paying for the portion of the UTOPIA network already built.

Macquarie PPP Org Chart

“This is a utility,” Ramage said about the proposed ubiquitous Gigabit Network. “We make our bread and butter” from building and managing 120 large infrastructure assets worth about $100 billion.

The key to making a Public-Private Partnership work is to properly structure the incentives for the cities, the PPP vendor (Macquarie), a new wholesale company that will retail bandwidth, the internet service providers, and the public. “The punch line is that everyone’s interests are aligned,” he said.

Gigabit Network Process and Telecom Politics

Macquarie’s white paper on the “UTOPIA PPP Project” is the culmination of the “milestone one proposal” by the Australian company. After initial discussions with UTOPIA, Macquarie signed a pre-development agreement in December 2013, leading it to undertake the report and presentations made last week.

Legally, UTOPIA is an inter-local government agency consisting of 11 cities: Brigham City, Centerville, Layton, Lindon, Midvale, Murray, Orem, Payson, Perry, Tremonton and West Valley City. Under Utah law, government entities may not retail broadband services, but are able to wholesale internet service to private ISPs.

Now, the focus of efforts turns to council representatives for each of these cities. They have 60 days – or until June 27 — to consider whether to move on to the second and third milestones, and to construction of the dramatically expanded network.

With a concrete proposal on the table, those conversations have begun in earnest. At the meetings last week, many of those civic leaders asked a series of tough questions about the structure of the proposed deal, the mechanisms for transferring risk from the cities to Macquarie, the utility fee, and other topics.

With an eye toward a number of objectives now held by the cities, many are now discussing the pros and cons of three major options on the table, besides the current underfunded status quo. The three new options include entering into a Public-Private Partnership; selling the network to a private party, like Google; or simply shutting down and abandoned the existing network.

The following slide demonstrates Macquarie’s assessment of “high probability” (green), “medium probability” (yellow), and “low probability” (red), for each of 10 objectives held by the city:

  • Reduction in the cities operating deficit
  • Defray service obligations on existing debt
  • Parity of the network build across the cities
  • Certainty of execution
  • Expanding the existing subscriber base
  • Ubiquitous last-mile connection
  • Increase service offerings to users
  • Provision of civic benefits (public Wi-Fi, etc.)
  • Increase price competition and choice for users.

PPP Pros and Cons

In terms of the broadband industry construction, Macquarie has solicited expressions of interest from 14 local, regional and national contractors, and has shortlisted two contractors, Black & Veatch and Corning. (Other qualified respondents included Dycom Industries Inc. and Kiewit.)

Each contractor is prepared to develop fixed-price date-certain design-build proposals, said Ramage of Macquarie. The company also commissioned a technical analysis of the existing network, and has selected Alcatel-Lucent as its equipment vendor and Fujitsu as its system integrator, if the project continues to the next phase.

Drew Clark is the Chairman and Publisher of the Broadband Breakfast Club, the premier Washington forum advancing the conversation around broadband technology and internet policy. You can find him on Google+ and Twitter. He founded BroadbandCensus.com, and he brings experts and practitioners together to advance Better Broadband, Better Lives. 

Breakfast Media LLC CEO Drew Clark is a nationally respected U.S. telecommunications attorney. An early advocate of better broadband, better lives, he founded the Broadband Census crowdsourcing campaign for better broadband data in 2008. That effort became the Broadband Breakfast media community. As Editor and Publisher, Clark presides over news coverage focused on digital infrastructure investment, broadband’s impact, and Big Tech. Under the American Recovery and Reinvestment Act of 2009, Clark served as head of the Partnership for a Connected Illinois, a state broadband initiative. Now, in light of the 2021 Infrastructure Investment and Jobs Act, attorney Clark helps fiber-based and wireless clients secure funding, identify markets, broker infrastructure and operate in the public right of way. He also helps fixed wireless providers obtain spectrum licenses from the Federal Communications Commission. 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.

Digital Inclusion

Broadband is Affordable for Middle Class, NCTA Claims

According to analysis, the middle class spends on average $69 per month on internet service.

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Photo of Rick Cimerman, vice president of external and state affairs at NCTA

WASHINGTON, November 22, 2022 – Even as policymakers push initiatives to make broadband less expensive, primarily for low-income Americans, broadband is already generally affordable for the middle class, argued Rick Cimerman, vice president of external and state affairs at industry group NCTA, the internet and television association. 

Availability of broadband is not enough, many politicians and experts argue, if other barriers – e.g., price – prevent widespread adoption. Much focus has been directed toward boosting adoption among low-income Americans through subsidies like the Affordable Connectivity Program, but legally, middle-class adoption must also be considered. In its notice of funding opportunity for the $42.5-billion Broadband Equity, Access, and Deployment program, the National Telecommunications and Information Administration required each state to submit a “middle-class affordability plan.”

During a webinar held earlier this month, Cimerman, who works for an organization that represents cable operators, defined the middle class as those who earn $45,300–$76,200, basing these boundaries on U.S. Bureau of Labor statistics for 2020. And based on the text of an Federal Communications Commission action from 2016, he set the threshold of affordability for broadband service at two percent of monthly household income.

According to his analysis, the middle class, thus defined, spends on average $69 per month on internet service. $69 is about 1.8 percent of monthly income for those at the bottom of Cimerman’s middle class and about 1.1 percent of monthly income for those at the top. Both figures fall within the 2-percent standard, and Cimerman stated that lower earners tended to spend slightly less on internet than the $69-per-month average.

Citing US Telecom’s analysis of the FCC’s Urban Rate Survey, Cimerman presented data that show internet prices dropped substantially from 2015 to 2021 – decreasing about 23 percent, 26 percent, and 39 percent for “entry-level,” “most popular” and “highest-speed” residential plans, respectively. And despite recent price hikes on products such as gas, food, and vehicles, Cimerman said, broadband prices had shrunk 0.1 percent year-over-year as of September 2022.

Widespread adoption is important from a financial as well as an equity perspective, experts say. Speaking at the AnchorNets 2022 conference, Matt Kalmus, managing director and partner at Boston Consulting Group, argued that providers rely on high subscription rates to generate badly needed network revenues.

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Federal Communications Commission Mandates Broadband ‘Nutrition’ Labels

The FCC also mandated that internet service provider labels be machine-readable.

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Federal Communications Commission Chairwoman Jessica Rosenworcel

WASHINGTON, November 18, 2022 – The Federal Communications Commission on Thursday afternoon ordered internet providers to display broadband “nutrition” labels at points of sale that include internet plans’ performance metrics, monthly rates, and other information that may inform consumers’ purchasing decisions.

The agency released the requirement less than 24 hours before it released the first draft of its updated broadband map.

The FCC mandated that labels be machine-readable, which is designed to facilitate third-party data-gathering and analysis. The commission also requires that the labels to be made available in customers’ online portals with the provide the and “accessible” to non-English speakers.

In addition to the broadband speeds promised by the providers, the new labels must also display typical latency, time-of-purchase fees, discount information, data limits, and provider-contact information.

“Broadband is an essential service, for everyone, everywhere. Because of this, consumers need to know what they are paying for, and how it compares with other service offerings,”  FCC Chairwoman Jessica Rosenworcel said in a statement. 

“For over 25 years, consumers have enjoyed the convenience of nutrition labels on food products.  We’re now requiring internet service providers to display broadband labels for both wireless and wired services.  Consumers deserve to get accurate information about price, speed, data allowances, and other terms of service up front.”

Industry players robustly debated the proper parameters for broadband labels in a flurry of filings with the FCC. Free Press, an advocacy group, argued for machine-readable labels and accommodations for non-English speakers, measures which were largely opposed by trade groups. Free Press also advocated a requirement that labels to be included on monthly internet bills, without which the FCC “risks merely replicating the status quo wherein consumers must navigate fine print, poorly designed websites, and byzantine hyperlinks,” group wrote.

“The failure to require the label’s display on a customer’s monthly bill is a disappointing concession to monopolist ISPs like AT&T and Comcast and a big loss for consumers,” Joshua Stager, policy director of Free Press, said Friday.

The Wireless Internet Service Providers Association clashed with Free Press in its FCC filing and supported the point-of-sale requirement.

“WISPA welcomes today’s release of the FCC’s new broadband label,” said Vice President of Policy Louis Peraertz. “It will help consumers better understand their internet access purchases, enabling them to quickly see ‘under the hood,’ and allow for an effective apples-to-apples comparison tool when shopping for services in the marketplace.”

Image of the FCC’s sample broadband nutrition label

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Broadband's Impact

Midterm Control of Congress Remains Uncertain, But States Got Answers to Broadband Votes

Alabama, Colorado, New Mexico, New York, Kansas and Pennsylvania had broadband-related measures on the ballot.

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Photo of an Ohio voter on November 8, 2022, by Marshall Gorby of the Dayton Daily News

As voters went to the polls on Tuesday, November 8, 2022, broadband-focused initiatives and candidates could be found up and down the ballot all across the country.

Alabama

Alabama voters cast their ballots to decide on a state Constitutional amendment known as the Broadband Internet Infrastructure Funding Amendment. The measure sought to amend the state’s constitution “to allow local governments to use funding provided for broadband internet infrastructure under the American Rescue Plan Act (ARPA) and award such funds to public or private entities.”

That measure passed, garnering a “Yes” vote from nearly 80 percent of Alabama voters. With 73 percent of the vote counted late last night, 922,145 “Yes” votes had been tallied with 251,441 “No” votes.

Also in Alabama, Democratic U.S. Rep. Terri Sewell won her re-election bid to represent Alabama’s 7th congressional district. Sewell, whose district covers a large swath of the Alabama Black Belt, “spent much of her past two years in office bringing American Rescue Plan Act funds to rural Alabama, dedicated to healthcare, broadband access and infrastructure building,” as noted by The Montgomery Advertiser.

Colorado

The Centennial State is not listed as one of 17 states in the nation with preemption laws that erect barriers to municipal broadband because nearly every community that had a vote has passed it to nullify it. But more communities had to go through that unnecessary process yesterday due to the law known as SB-152 that bans local governments in the state from establishing municipal broadband service absent a referendum.

As of spring 2022, 118 Colorado municipalities, 40 counties and several school districts have opted out of SB-152.

Now Colorado can add to that list.

In Pueblo County, nearly 48,000 ballots were cast with 34,457 or 72 percent, voting yes to opt out of SB 152 while 13,087 (28 percent) cast a “No” vote.

In the City of Pueblo, the county seat, Mayor Nick Gradisar told The Pueblo Chieftain that his city was not looking to build a municipal broadband network but rather to pursue a public-private partnership to bring ubiquitous high-speed Internet service to the city in a way that does not “just allow (broadband companies) to cherry pick the ones that can pay the most.”

Meanwhile, in the City of Lone Tree, one of about a dozen communities located in Douglas County, voters there overwhelmingly approved opting out of SB-152 with over 83 percent of voters casting a “Yes” ballot.

According to the city’s website, the ballot question was put to voters to enable the county to extend broadband infrastructure into Lone Tree. The website goes on to explain what opting out of SB-152 would mean for city residents and businesses:

  • Along with providing support for the County’s efforts, voter approval opens a range of opportunities to improve broadband access or services. Approval would allow the conversation to begin, while not binding the City to any specific actions or timelines.

New Mexico

Similar to the Constitutional question voters decided in Alabama, a ballot question in New Mexico asked voters to modify the New Mexico Constitution to ensure the easy flow of broadband funding. A 1900s era portion of the state’s constitution restricts “lending, pledging credit, or donating to any person, association, or public or private corporation.”

The proposal, which was approved by the New Mexico state legislature last February, passed with a 65 to 35 percent split in favor of adding an exception to the state’s anti-donation clause that will allow the state legislature to appropriate state funds through a majority vote in each chamber for infrastructure that provides essential services such as water, sewer, electricity, and broadband.

Bipartisan Support for Expanding Broadband Access

Yes, one day after the election and it was still unclear which party will control Congress, even as political analysts pontificate on what happened to the “Red Wave.” But, this much is clear: for successful candidates in both parties, at the federal and state-level, expanding access to broadband has become a bipartisan issue.

In New York, Republican State Sen. Dan Stec won his bid re-election, building on his first victory in 2020 when he campaigned for better broadband and mobile phone service. In North Carolina, Renée Price, a Democratic state representative, was elected by a wide margin. During the campaign, Price said her priorities are funding a range of initiatives and that she was particularly focused on increasing access to broadband.

Meanwhile, Republican Congressman Rick Allen was re-elected to represent Georgia’s 12th Congressional District. Allen said he would “continue to fight for the priorities of the 12th District like securing funding for Fort Gordon and the Savannah River Site, expanding rural broadband, and supporting our farmers and rural America.”

In Kansas, where Republican Congressman Mark Alford was elected to represent Missouri’s staunchly conservative 4th Congressional District, Alford told The Kansas City Star that as he campaigned “’on just about every back road of the district, all 24 counties,’ he heard that the No. 1 issue in the district is lack of rural broadband access.”

Over in Pennsylvania, where Democratic candidate Josh Shapiro won the race to be that battleground state’s next Governor, Shapiro’s campaign told Spotlight PA “he will prioritize expanding quality and affordable access to broadband in rural regions of the state by supporting the newly created Pennsylvania Broadband Development Authority, and establishing comprehensive subsidies for low-income households with high [I]nternet prices.”

And finally, in Texas, where Republican Gov. Greg Abbott fended off a challenge from Beto O’Rourke, in the less sexy race for State Comptroller, Republican incumbent Glenn Hegar won his re-election bid in which he touted his record championing the expansion of broadband in the Lone Star State.

Eye On State Legislatures

States are now beefing up or establishing state broadband offices to award billions of dollars for the deployment of new or expanded broadband infrastructure thanks to an historic infusion of federal funds from the American Rescue Plan Act (ARPA) and the Infrastructure Investment and Jobs Act (IIJA). With those bills already passed and the midterm elections behind us, most of the action on the broadband front will rest in the hands of state lawmakers.

The National Conference of State Legislatures notes that “with roughly 9 out of 10 adults in America using the Internet, many consider it to be a necessity of modern life,” which is why there are numerous pieces of broadband-related legislation that was enacted or is pending in the 2022 legislative session.

  • In the 2022 legislative session, 43 states, the District of Columbia and Puerto Rico have pending and enacted legislation addressing broadband in issue areas such as educational institutions and schools, dig once, funding, governance authorities and commissions, infrastructure, municipal-run broadband networks, rural and underserved communities, smart communities and taxes. Twenty-six jurisdictions enacted legislation or adopted resolutions: Alabama, Alaska, Arizona, California, Colorado, Hawaii, Idaho, Illinois, Kentucky, Louisiana, Maine, Minnesota, Mississippi, Missouri, Nebraska, New Hampshire, New Mexico, New York, Oklahoma, Oregon, South Dakota, Tennessee, Utah, Virginia, Washington and West Virginia.

Authored by Sean Gonsalves, this article originally appeared on the web site of the Institute for Local Self Reliance’s Community Broadband Broadband Networks Project on November 9, 2022, and is reprinted with permission.

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