CITIES BECOME TELECOM OWNERS

Cities and towns -- worried that the information superhighway will pass them by -- are looking to own and run their own telecommunications infrastructures.

by / February 28, 1997 0
In 1995, Marc Bergman looked to the future and didn't like what he saw. Bergman, administrator for the city of Fort Wright, Ky., was concerned about the city's telecommunications system and where it was headed. With the federal government planning to deregulate the phone and cable industry, he worried that telecom providers might base their service decisions solely on cost.

Universal access could be weakened as new providers came in and "cherry-picked" the best customers, providing them with advanced technology while leaving the rest of the community with limited services. Most importantly, the city's rights-of-way could be exploited as competing telecom vendors cut and recut the city's streets for their projects.

It was during this time that Bergman heard of International Communications Services Inc. (ICS), a Colorado-based firm that specializes in developing municipal utilities. Recently, ICS had begun promoting the concept of municipal ownership of telecommunications infrastructure. By building a publicly owned fiber-optic telecommunications network and then leasing it to a range of telecom providers, said ICS, a city could ensure its residents and businesses have universal access to a leading-edge network, provide its community with quality phone, cable TV and Internet services at low cost, control its public rights-of-way and generate non-tax revenue.

For Bergman, the ICS idea sounded extremely interesting. "We had just been in a bruising battle with our cable provider for the past year over our franchise," he recalled, "and the whole episode brought to a head the issue of dealing with a single service provider, cherry-picking, density requirements and community access."

ICS told Bergman they would prepare, at no cost to the city, a business plan that would examine the feasibility of owning and operating a publicly owned telecommunications utility. The plan would include market research on the potential customers for such a utility and an analysis of what capital was needed to put the utility in the ground.

Fort Wright isn't the only city in Northern Kentucky intrigued by the possibility of owning its telecommunications infrastructure. Ten other nearby cities and towns have joined Fort Wright and will receive business plans from ICS. Hopefully, most of the jurisdictions will partner with Fort Wright and ICS, which will help lower construction costs through economies of scale.

If the plans look good -- Bergman said he will run it by an independent expert to look for any "fatal flaws" before accepting any of its recommendations -- the local governments will form a nonprofit corporation that will hire a major accounting firm to conduct a full-blown feasibility study for financing purposes. According to ICS and Bergman, the nonprofit corporation will be able to sell investment bonds and revenue from the utility's operations will be used to pay off investors. "There's no tax money at risk in this project," said Bergman.

If the bonds sell and the financing is raised, then ICS receives its reward for footing the bill on the original study and becomes the construction supervisor for the project, according to Bergman.

CHEAPER CABLE
The benefits of publicly building a community's telecommunications infrastructure appear to be many, according to Bergman and others. First, there's the benefit of offering customers low prices. As a public utility, the proposed corporation Fort Wright and other jurisdictions create would be exempt from Public Service Commission guidelines. "We will be able to set pricing standards any way we want," said Bergman. This kind of pricing control could be used as an economic tool. Cities could offer residents lower-cost cable TV and phone services and promote discounted telecommunications services to attract new businesses.

Because the infrastructure will be fiber right to the door, the utility will open the door to a multitude of different services. Besides cable TV and phone services, the telecom utility could offer residents and businesses high-speed access to the Internet, video-conferencing capabilities and distance learning for high school, junior college and university classes.

By building one super network now, Bergman believes Fort Wright will protect its public rights-of-way from being carved up by deregulated telecom providers. Instead they will have no choice but to lease bandwidth from the corporation's utility, reducing the number of street and road cuts while generating revenue for the city.

Then there's the benefit of improving the quality of life in the Fort Wright community. "This kind of infrastructure will make our community more attractive," Bergman asserted. "Citizens will want to live here because we have a state-of-the-art system that will become even more attractive as time goes on."

THE IDEA SPREADS
In Northern Ohio, a group of 15 cities and towns are also awaiting their business plan from ICS. According to Vilas Gamble, city manager for Bedford, Ohio, the effort is no short-term attempt to lower prices for cable customers. "We're not doing this so that people can watch more TV," he said. "The infrastructure will have ramifications that can improve public education and the local economy."

Gamble believes that telecommunications today has become as important an infrastructure as roads and highways. "It's like any infrastructure in the community and it should run on one road. You don't have three or four roads in a city, each owned privately and only allowing certain cars and trucks on it. It's the same with telecommunications."

Other cities are also considering ownership of their information infrastructure or have already taken the plunge. Anaheim, Calif., has installed a $6 million, 50-mile loop of fiber-optic cable that connects the city's electrical substations. Anaheim made sure it installed excess capacity that could be leased out to private companies in hopes of reducing wear and tear on its public rights-of-way and picking up some revenue. Like the infrastructure plans under development in Northern Kentucky and Ohio, Anaheim won't operate the infrastructure itself, but will contract out the work to a private-sector firm.

GLASGOW, KY.
But to see a real public telecommunications infrastructure at work, you have to go to Glasgow, Ky., population 14,000. There, the city's electric utility has constructed a 120-mile broadband cable network that supports cable TV, phone service and Internet access. Glasgow's information highway connects all the city's public school classrooms, city agencies, utilities and about 7,000 residential and business customers.

The $1.5 million system was constructed in 1989 and offers residents cable TV service for $13.50 per month (that includes HBO and several other premium channels) and direct Internet access at 4 megabits per second for $9.95 per month. The system also distributes electrical power throughout the community and does a better job of managing it than before, saving the city nearly $175,000 per year.

FAILURE FROM IGNORANCE?
According to the city of Glasgow, the harshest critics of its telecommunications utility have been, not surprisingly, the private cable television providers and the telephone companies. In a report on its utility and what the critics think of it, the city describes the private service providers as just wishing "to preserve the status quo, which allows them to establish monopolies and reap monopoly profits at the expense of all cities and all citizens ...."

In Ohio, the phone and cable firms have criticized Bedford and other communities for their plans to explore the building of a municipal fiber-optic system. An official from Ameritech told the Cleveland Plain Dealer that it would be risky for local governments to invest in a fiber-optic system. "Telecommunications is a very competitive, fast-changing technology," he said, adding, "I don't think the need is there yet [for fiber to the home]." The local cable provider said they were investing in their own infrastructure and would not use one built by local governments.

While some experts believe local government efforts at building a fiber-optic network are doomed to fail out of ignorance, others are concerned about the speculative nature of some of the proposals. Miles R. Fidelman, president of The Center for Civic Networking, wonders why firms such as ICS aren't putting their own money into the construction of the fiber-optic networks if the numbers look so good. "It sounds awfully risky and speculative to me," he said. "If you put your own money on the line, you better have real confidence that you understand this game."

Bergman counters that the goal of municipal ownership is not to generate vast amounts of revenue. "I'll be happy if we break even," he said. Instead, the project is to put into the ground a technology that can benefit the community for years to come. "If we build the network but the revenue stream dries up and the utility defaults, at worse, we have a state-of-the-art system in the ground, wiring the community together," he said. "Somebody else may end up owning it, but we are not going to be worse off than before we started."

While not every city or town will want to build its own telecommunications utility, many believe it's the only way to ensure their jurisdictions will be wired properly. With large service providers such as TCI and Time-Warner, as well as several regional Bell companies, backing away from their plans to bring fiber and broadband services to the home, more cities and towns may start looking at building their own infrastructure.

Bergman believes the odds are steadily increasing in his favor. "A while ago, I thought the odds of this happening were 20 percent for the city of Fort Wright. Today, our chances are better than 50 percent."

For more information, call Marc Bergman at 606/331-1700.

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CITY OF GLASGOW, KENTUCKY'S TELECOMMUNICATIONS INFRASTRUCTURE
Description: Glasgow's electric utility manages electricity distribution, provides cable TV, phone and Internet services to its residents and businesses through a bidirectional, broadband network.
Length of Broadband cable: 120 miles
Cost of infrastructure: $1.3 million
Number of business and residential customers: 7,000
Description of users:


2,500 households and businesses subscribe to cable TV services;
750 PCs attached to network
120 telephones served by network

Cost of monthly cable modem service: $9.95
Cost of cable TV service: $13.50 for basic service
Savings to the city and residents:


$175,000 per year from better management of electrical distribution
$1.2 million per year through reduced rates
City population: 14,000

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Source: City of Glasgow web site .





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