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Financing Public-Private Fiber Networks Becoming a Reality, Say Experts at Broadband Communities Summit

Panel on Municipal Debt Financing and Public-Private Partnerships

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 https://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. […]

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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 https://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.

Panel on Municipal Debt Financing and Public-Private Partnerships

Panel on Municipal Debt Financing and Public-Private Partnerships

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 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. 

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.

Fiber

Fiber Providers Need to Go Beyond Speed for Differentiation, Consultant Says

40 percent are unsure of their home internet speeds, said Jonathan Chaplin of New Street Research.

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Photo of Jonathan Chaplin, managing partner at New Street Research

WASHINGTON, November 9, 2022 – Despite fiber’s fast broadband speeds, providers must innovate and offer other benefits – like content bundling – to maintain market share as customers increasingly make purchasing decisions based on non-speed factors, argued Jonathan Chaplin, managing partner at New Street Research, a telecommunications and technology research firm.

“Our message to the cable industry is: Stop marketing on speed, put everybody on the gigabit tier, and start differentiating on everything else,” Chaplin said at a Fiber Broadband Association event Wednesday.

Chaplin also urged fiber providers to prepare to enter the wireless market, saying that wireless and broadband will soon “converge into one marketplace.

“It’s not a major differentiator or driver of consumers’ decisions today, but you need to start working on this as a product category to be ready for it by the time it [is],” he added.

And raw speed won’t be enough to attract customers, Chaplin argued. Although consumers say speed and price are the two top factors when considering internet plans, he said, his research shows that 40 percent are unsure of their home internet speeds.

Typical speeds have greatly increased in recent years, and Chaplin said faster service provides no perceptible benefit to most customers once certain speeds are reached. According to his data, “Increases in speed (above 200 Mbps) really have no impact on the satisfaction of a household with their broadband provider.”

Fixed-wireless uptake shows speed isn’t always king

The rise of fixed-wireless providers, who usually don’t advertise on speed, further demonstrates that consumers are willing to make purchase decisions on other factors, Chaplin argued. In fact, his research shows that many new fixed-wireless customers did not make the switch due to speed complaints.

“If you’re in the fiber business, you’re in a strong position. You’ve got a product that wins in the market today, but you cannot afford to be complacent,” Chaplin said. “The battleground for consumers is going to shift and you need to be ready for shift when it comes,” he added.

The Federal Communications Commission is considering a proposal to mandate “broadband nutrition labels,” which proponents say would help consumers understand the details of their internet plans. Researchers at the TPRC 2022 conference in September suggested that such labels should include “interpretive” data to explain the real-world implications of technical metrics. TPRC speakers also echoed Chaplin’s claim increased speeds do not necessarily correlate with higher customer satisfaction rates.

Industry players differ on substantive policy points surrounding the proposal, however, including whether labels should be mandatorily included on month internet bills.

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Fiber

COVID Funds Ensuring NTIA Broadband Infrastructure Funding Adequate: Conexon Executive

‘The way you close the digital divide is you build fiber to every single rural home,’ Jonathan Chambers said.

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Photo of Jonathan Chambers, partner at Conexon

WASHINGTON, October 17, 2022 – Millions of dollars from the American Rescue Plan Act, which are currently being deployed by states to extend broadband networks, is helping ensure that new broadband money allocated from the Infrastructure, Investment and Jobs Act will be sufficient to extend fiber to all homes in America, said a telecom executive on a Fiber Broadband Association web event Wednesday.

Since many states are using ARPA funding to deploy new networks, fewer than ten million locations will “be left for BEAD after ARPA,” said Jonathan Chambers, partner at rural internet service provider co-op Conexon, referring to the $42.5 billion Broadband Equity, Access, and Deployment program of the National Telecommunications and Information Administration.

Since the American Rescue Plan became law in March 2021, federal programs – including the Capital Projects Fund and the Emergency Connectivity Program – and state governments have put tens of billions of ARPA-appropriated dollars towards broadband various projects.

Chambers, whose company builds fiber networks and works primarily with rural electric cooperatives, said he wants to refute the arguments of fiber skeptics by going “to the hardest-to-serve, poorest places in the country and demonstrate you can build fiber there,” saying the company is working to build a fiber network to every home and business in East Carrol Parish, Louisiana.

An argument against fiber builds in rural areas has been the expense required to do so.

The BEAD program will dispense block grants to the states based on relative need. States will issue subgrants for broadband infrastructure and other projects. Pro-fiber advocates like Chambers and FBA President Gary Bolton support using these funds primarily for fiber deployments.

“The way you close the digital divide is you build fiber to every single rural home,” Chambers said.

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Expert Opinion

Paul Atkinson: Why Fiber Trumps Satellite When Bridging the Digital Divide

On the surface, satellite seems like the ideal way to close the rural-urban digital divide.

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The author of this Expert Opinion is Paul Atkinson, CEO of Optical Networks of STL

The Grand Canyon in Arizona is 18 miles across at its widest point. The only thing wider is the digital divide between the state’s rural and urban areas. Roughly 99% of urban Arizonans have access to fixed terrestrial broadband services that deliver at least 25 Megabits per second (Mbps) down and 3 Mbps up, according to the FCC’s 2021 Broadband Deployment Report . Only 66% of its rural residents do.

Arizona isn’t an anomaly, either. Nearly 99% of all urban Americans have access to broadband versus 82.7% of rural residents.

This problem also is a business opportunity, which is why so many vendors and service providers are positioning their technology of choice as the best way to bridge the digital divide. The main contenders are satellite, fiber, Wi-Fi and fixed wireless access that uses 5G cellular. Each has its strengths and weaknesses.

For example, 5G FWA requires building hundreds of thousands of base stations in remote areas that might be home to only a handful of homes and businesses — a buildout that likely would take years and tens of billions of dollars. That’s a difficult investment to recoup and make profitable.

That’s simply not a viable business model, as a US Cellular white paper acknowledged: “ Our economics require approximately 500 subscribers to build a new tower, and we can’t assume that everyone will adopt the service. The cost of building and maintaining a tower in rural America can be nearly twice as expensive as building a tower in an urban area.”

Satellite and fiber have emerged as the top two contenders. On the surface, satellite seems like the ideal way to close the rural-urban digital divide because it doesn’t require hundreds of thousands of base stations. But satellite has its share of technological and business limitations, too — to the point that in August, the FCC rejected SpaceX’s application for Rural Digital Opportunity Fund (RDOF) subsidies.

FCC Chairwoman Rosenworcel questioned whether it was affordable to ‘subsidize ventures that are not delivering the promised speeds or are not likely to meet program requirements, especially when consumer would have to purchase a $600 dish.

Rural America’s high-fiber diet

The FCC’s rejection of SpaceX/Starlink is not a setback in bridging the rural-urban digital divide. It’s actually a milestone toward parity because it ensures that an unproven technology doesn’t divert scarce public subsidies from a proven one.

As Gary Bolton, Fiber Broadband Association president and CEO rightly stated, this is a huge victory for 640,000 families who were relegated to Low Earth Orbit Satellite service. They could have been redlined from being eligible for fiber broadband. There is now clarity and a path forward for fiber to bridge the digital divide.

Fiber has already proven its worth in rural America, where it has 23% of the broadband market and the highest customer satisfaction of all internet-access technologies, according to a 2021 Pivot Group study . By comparison, fixed wireless and satellite have only 10% and 6% penetration, respectively. Cable has the largest share of the rural market, but many customers find it lacking: One third say they want faster speeds.

In fact, broadband speed is a decisive factor when people are deciding where to relocate. According to the 2022 RVA Market Research & Consulting study “A Detailed Review: The Status of U.S. Broadband and The Impact of Fiber Broadband,” 47% of the people who moved to a rural area in the past year chose one where fiber-to-the-home service is available. That preference highlights how rural communities can use fiber to attract retirees, young professionals, families, entrepreneurs and other demographics looking to escape to the beautiful countryside.

Fiber’s 23% share of the rural broadband market also busts the myth that as a wired technology, it takes too much time and money to deploy in sparsely populated areas, including those with challenging terrain such as mountains. Another wired technology — electricity — overcame those challenges 86 years ago with passage of the Rural Electrification Act , which funded utility cooperatives that built out transmission and distribution networks to serve farms, ranches, small towns and other rural places.

Today, more than 250 of those co-ops have built or are planning broadband networks, according to the National Rural Electric Cooperative Association . Many have been in service for the better part of a decade — or longer. For example, in 2006, Blue Ridge Mountain EMC launched FTTH in Georgia. In 2019, it deployed a 7,000-foot line up a mountain, using drones to overcome challenges such as deep gorge and 100-foot-tall pine trees. In 2016, Elevate Fiber, a division of Delta-Montrose Electric Association, launched gigabit FTTH in two Colorado counties by overlaying fiber on its 4,000 miles of distribution lines.

Co-ops are just one example of how fiber isn’t just poised to bridge the rural-urban digital divide. It already is. That’s great news for rural Americans, who don’t have to wait on unproven, pie-in-the-sky technologies such as satellite.

Paul Atkinson is Chief Executive Officer of Optical Networks for STL. This Expert Opinion 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 reflected in Expert Opinion pieces do not necessarily reflect the views of Broadband Breakfast and Breakfast Media LLC.

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