Those customers added their own equipment to light up the fiber to carry data.

"We've made pretty good revenues doing that over the last eight years, and it's helped offset our construction costs for expanding that metropolitan network," said Bruce Hamer, director of the LADWP's Fiber Optic Enterprise.

"In the last year and a half, we've chosen to move on up the value chain to become a 'wholesale carrier's carrier,'" he said, noting that the LADWP now activates fiber strands itself and leases point-to-point circuits to ISPs and other retailers.

Though the wholesale market has been good to the utility, the LADWP has no plans to compete in the retail broadband market, Hamer said; retail is a much more complicated business, requiring facilities for customer service, billing and other back-office functions.

"We're trying to keep our life a little more simple," he said. "Yet we want to encourage lots of service providers to come to our city and compete with their services and pricing to deliver services to end-users."

Wired City

Tacoma Power also got into the broadband business to support the network it built to monitor its distribution facilities and automatically reroute power when outages occurred.

"The utility could not find a wireline provider to offer the kinds of capability they needed to get data from remote locations to a central location," said Diane Lachel, government and community-relations manager of Click Network.

Once planners realized how many neighborhoods the new network would reach, they decided to pursue new revenues by offering broadband services. The utility financed the construction with money it earned selling surplus power from its generating stations on the wholesale market.

Click solved another problem in Tacoma: Many neighborhoods did not have cable TV or high-speed Internet service, or when they did, that service was poor, Lachel said. City officials credit the city's data infrastructure for keeping several businesses in town and attracting new ones.

Mayor Baarsama said, because of the services Click provides and the improved offerings from AT&T and Qwest, Tacoma boasts more broadband capacity than Seattle.

"We made the move, and now, rather than being a secondary market, we're a primary market," he said.

Why the Telecoms Don't Build Out

"Some of the telecommunications providers are not building out the infrastructure quickly enough," said Ron Gdovic, executive director of 3 Rivers Connect, a nonprofit organization working to create a community-owned high-speed network in southwestern Pennsylvania.

When telecoms fail to expand their facilities, some neighborhoods and whole communities go without high-speed Internet service, causing some public utilities to fill the void.

The telecoms are not wholly at fault, Gdovic said. Certain federal and state regulations discourage expansion, and shareholders demand carriers realize a return in three years on infrastructure investments.

"That's next to impossible," he said.

One roadblock to expansion is a policy embedded in FCC rules implementing the Telecommunications Act of 1996, said Verizon's Hoewing. That particular policy stipulates incumbent carriers must allow competing firms to use their networks until the competitors build their own, he said, and the rates the FCC allows telecoms to charge for this use are far too low.

"Every time I decide to put a new fiber connection in someplace, I've got to provide it to a competitor at 60 percent below my cost, on average," Hoewing said. "That's really a disincentive for us to invest."

Verizon wants the FCC to let the company charge market-based rates for use of its network.

About 55 percent of Verizon's residential network lines are connected to phone-company offices equipped for DSL service, Hoewing said. To increase that number, Verizon needs to install new fiber.

"Over time, we can transition out the network," he said. "I think a change in policy will make it happen a lot faster."

Bio: Contributing Writer Merrill Douglas is a freelance writer based in upstate New York. She specializes in applications of information technology. E-mail: mdouglas@stny.rr.com

Merrill Douglas  |  Contributing Writer