$173 Million Madison Broadband-For-All Estimate Is A Cold Shot Of Fiscal Reality

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MacIver News Service June 7, 2018

By M.D. Kittle 

MADISON  – Tax-and-spend Madison government isn’t known for giving in to the cold, hard reality of fiscal facts. 

… [T]o see if we can convince the city to bond for or assess for $150 million is not one that I would want to go to the City Council and be credible with,” said Barry Orton.

But new cost projections for a proposed broadband-for-all Fiber to the Premises (FTTP) network controlled by the city at least has a government subcommittee second-guessing hopes and assumptions about “ubiquitous” high-speed Internet service. 

“At the moment, clearly in terms of the total costs under the assumptions that the board is assuming … to see if we can convince the city to bond for or assess for $150 million is not one that I would want to go to the City Council and be credible with,” Barry Orton, chairman of the subcommittee of the city’s Digital Technology Committee. 

Orton and his fellow subcommittee members have deep concerns – and plenty of questions – about the feasibility of a draft Fiber to the Premises implementation plan unveiled to the panel this week by CTC Technology & Energy, the consultant contracted to track projected costs of the proposed project.

The estimated expense to build a so-called “dark fiber” FTTP network that “passes each residence and business” in Madison, is estimated to cost north of $150 million – $173.2 million all told when bonding costs are added in. 

Ben Chase, CTC staff engineer, said none of the bids from the private broadband service providers interested in partnering with the city “would cover the entire bonding amount.”

None comes close, according to the report. Private provider fees to link high-speed Internet service to customers who seek it would bring in about $52 million, less than a third of the total cost for the built-out alone. 

The remaining $121.2 million would have to be paid for by – you guessed it – assessments. 

“We assumed a special assessment fee assessed to all businesses and households” that the city fiber line passes, Chase said. 

These numbers are based on arguably liberal projections of how many customers the city-funded broadband network would attract, otherwise known as the “take rate.” CTC’s model estimates a 30 percent take rate, built on a fact that has eroded the argument of necessity. Madison, Chase reaffirmed, is a “mature” broadband market. An earlier survey found that about 95 percent of city respondents had some form of Internet connection, with 89 percent reporting home Internet service.

The city’s $500,000-plus pilot program (within its broadband-for-all pursuit) to bring low-cost, high-speed Internet to four low-income neighborhoods ultimately signed up just 19 customers.

As MacIver News Service has reported, the city’s $500,000-plus pilot program (within its broadband-for-all pursuit) to bring low-cost, high-speed Internet to four low-income neighborhoods ultimately signed up just 19 customers. The city had failed to realize that the neighborhoods already were being served by private broadband providers through contracts. 

That’s why the city wants “control” of its own network. That stated goals of the city’s FTTP plan include: 

  • Equity: Broadband for all aligns with the city’s myriad “social justice” programs. 
  • Ubiquity: Service employed to the entire city.
  • Control: So that the city can call the shots on where broadband service goes and when.
  • Competition: The assertion is that a city-controlled system will bring down prices.

The idea is that city control will create competition in the broadband marketplace, “enabling multiple providers to compete” and bring consumer choice. But the notion is counterintuitive. Where is the “competition” in government-subsidized broadband? What will that do to the real free market, the providers, the competitors that have invested much to provide a vital service? 

As noted by subcommittee members, much has changed over the past three years since the city began in earnest to pursue the FTTP campaign. Charter Communications and AT&T each offers a low-cost, high-speed Internet package, delivering on the city’s mission to “ensure at-risk populations are served in a sufficient way.” 

Orton said a number of his early assumptions have “proved either completely wrong or partially wrong from where we are now.” Assumed savings from the city’s Metropolitan Unified Fiber Network, lovingly referred to as MUFN, haven’t diminished costs enough to offset the estimated $173 million price tag of the ambitious broad-band-for-all proposal.  

Orton said he assumed there would be more than one provider at the end of the request-for-proposal process. The city is expected to announce who that provider is in the coming weeks. Multiple partners, Orton said, could mean savings through negotiations – negotiations that could put a bigger share of the costs on the provider. 

The committee and the IT bureaucrats, of course, had high hopes of the broadband pilot program. Those hopes have been dashed. 

“We have done that as a kind of experiment that was disappointing in a lot of different ways,” Orton said. “The report references that the percentage of potential customers was relatively low. The word isn’t ‘relatively,’ it’s extremely low.” 

And Orton said his assumption early on was that there would be a more “favorable legal and regulatory climate” when it came time to implement the plan hasn’t come to pass. In other words, he and his colleagues didn’t count on Donald Trump being elected president. He counted on a continuation of the Obama administration policies, with a big-government friendly Federal Trade Commission much more supportive of municipal broadband. He assumed there would be more government grants for such projects. 

“That has been an assumption negated by political events,” Orton said. 

The consultant’s analysis does offer alternative proposals, including a “targeted” FTTP buildout. Instead of a ubiquitous system, the city would select certain neighborhoods to serve. 

Of course, there’s the option that seems unthinkable to those all in on the broadband-for-all pursuit: Get out of the way and let the free market do its work. Providers are serving the underserved, and pledge to continue to expand those services. 

Even after the hefty estimates, at least one subcommittee member still finds it hard to let go. 

Mark Evans said he “felt challenged in really understanding the financials” of the different options. 

“I’d like to be a passionate supporter of Option 1 (the $173 million plan), but I don’t feel I understand enough to be able to do that,” he said. 

The new cost estimates have given the subcommittee enough pause to take a more deliberative approach. The panel was originally scheduled to have a recommendation to the full committee by early summer. That timeline has been pushed back at least a couple of months. The city council will not see a recommendation until at least September. 

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