Consultant: Little financial risk in Glenwood Springs’ fiber-optic expansion | PostIndependent.com

Consultant: Little financial risk in Glenwood Springs’ fiber-optic expansion

Pete Fowler
pfowler@postindependent.com
Glenwood Springs, CO Colorado
Post Independent Photo IllustrationThe city of Glenwood Springs is considering expanding its fiber-optic network. The city's existing network was installed in 2002 and has been losing about $200,000 a year.
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GLENWOOD SPRINGS ” John Trustman said the only way expanding the city’s fiber-optic network would pose a financial risk to the city is if the project were done horribly wrong from the get-go.

“Financially, the only way there’s a risk to the city is if this is botched beyond belief from the installation,” he told the Glenwood Springs City Council during a presentation Thursday.

Trustman is working with a nonprofit called Roaring Fork Fiber that executed a $135,000 planning and design contract on the fiber-optic expansion for the city. He presented a report on the work in a two-hour session with the City Council.

Trustman was the co-founder of the deNovis software currently being used by Medicare. He was a senior vice president and chief information officer of Aetna Health Plans and senior vice president of Fidelity Investments. He received an MBA from Harvard Business School.

The current fiber-optic network the city installed in 2002 hasn’t made money and has been losing about $200,000 a year. It connects only to businesses in some areas. The expansion would allow the city to sell Internet, television and phone service directly to homes. The city is looking at selling off its wireless infrastructure and customers and potentially running the network with a nonprofit.

Roaring Fork Fiber, which hopes to be that nonprofit, tightened its financial models since a past presentation and came up with a “base scenario” assuming 47 percent of potential customers would eventually subscribe to services over fiber optics. That projection estimates the city would take out a $12 million bond and start construction next year.

The model says the fiber-optic network would start operating in the black at the start of 2011 and make more than $4 million a year by 2013. The model shows the city making millions for years while paying off the bond, with maximum profits of around $6 or $7 million a year in 2022. The model assumes average monthly residential fees of $148.81 and business fees of $700 per month. Trustman said the model was based on “ultra-conservative” planning assumptions.

The expanded network would generate that much cash while offering far better services with prices at least 20 to 30 percent cheaper than companies like Qwest Communications and Comcast, according to Roaring Fork Fiber.

An “optimistic” scenario has the fiber-optic network making more than $15 million a year by 2015.

Trustman also presented results of surveys of institutions, potential residential customers and businesses. The results gathered information about how people use services like Internet, television and telephone and what they pay for them. The results pointed toward substantial interest in expanding the network.

Surveys of more than 300 residential respondents found Glenwood customers paid an average of around $167 per month for a basic “triple play” of Internet, television and phone.

City manager Jeff Hecksel said he recommends that the City Council vote soon on the big decision: whether to issue the bond and start construction next year.

According to a study for the Fiber-to-the-Home Council, a group that promotes fiber-optic deployment, around 3.76 million households are subscribing to services over fiber-optic cables in North America, and the number is growing.

The study was conducted by RVA Market Research of Tulsa, Okla., and released in September. It says the overall take rate for North America is around 30 percent, meaning that about 30 percent of those offered fiber-optic service decided to subscribe. The study says the take rate for a small or mid-size municipality providing services over fiber-optic cables is about 54 percent.

Roaring Fork Fiber’s most conservative financial model assumes a take rate of 30 percent. That model says the expanded network would pay off a $15 million bond and still yield an internal rate of return of 4.9 percent over 15 years.

The RVA study found the median download speed over fiber-to-the-home connections was 7 megabits per second (Mbps) in March. That’s about three times faster than the average U.S. broadband download speed of 2.3 Mbps that a Communications Workers of America study found in August.

Japan’s average download speed is around 63 Mbps.

Municipal fiber-to-the-home (FTTH) proponents say expanding Glenwood’s network would get it to make money while providing cheaper and better services to consumers. They say it would keep profits local, attract businesses to the city, create jobs, raise home values and benefit school districts and health care. Critics have said the expanded network could fail financially and stick taxpayers with the bill. They contend cities should instead do things like fix roads or provide some people near Midland Avenue who still use septic tanks with sewer connections.

Zoomy Communications of Glenwood Springs conducted research for the city into around 29 existing municipal FTTH projects around the U.S. plus about 14 fledgling FTTH deployments. The company concluded in a report in March, “The municipalities that have embarked upon a FTTH project have already shown the viability of a municipality successfully competing and meeting their business plan objectives with conservative take rate projections.”

Zoomy provides FTTH networks for real estate developments.

The FTTH Council says there are 44 publicly run fiber-to-the-home systems serving more than 60 U.S. cities, and they have “generally been successful to date.” It says not one has failed.

Critics often point to iProvo, the largest publicly run FTTH network. Construction began in 2004. Provo never made money and was losing up to $2 million a year on its network since 2003, Utah newspapers said. Provo sold its FTTH network to a private company for $40.6 million in August, about a million more than what was issued in bonds to pay for the network.

Trustman said in an e-mail that iProvo may not have met expectations, but it installed fiber optics that existing service providers never would and it was sold for enough to pay off the bonds without raising taxes. That’s not bad for the worst example anyone cites, he said.

Provo had intended to be the service provider over the network but it was restricted by a state law forcing it instead to lease bandwidth to companies that wanted in. City manager Jeff Hecksel has said Glenwood’s expansion would not use an open model where anyone is allowed to operate on the network.

Contact Pete Fowler: 384-9121

pfowler@postindependent.com

Post Independent, Glenwood Springs Colorado CO


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