March 21, 2011 By Craig Settles
The battle for North Carolina broadband is continuing this month in the state Assembly, and communities won some big concessions. It’ll be interesting to see if in the next round, communities can introduce a very good broadband strategy — one that communities nationwide should seriously consider as an option. Public-private partnerships (PPP) is a business model to move broadband forward, but legislative forces friendly to private industry have, in some cases, shot down the idea without meaningful debate.
Though the specifics of each PPP usually differ depending on the communities, there is a growing consensus among stakeholders that such arrangements are fiscally sound, and politically expedient since they appease some free market concerns.
The strength of these partnerships is that each party brings something important to the table the other doesn’t have or can’t easily acquire. The community (public) could bring vertical assets such as water towers, light poles and rooftops of public buildings for mounting infrastructure; committed anchor tenants for the network; and sometimes cash. Private-sector partners bring network-building and operations experience.
In North Carolina, as well as other states with pioneering communities that built their networks several years ago, many networks are 100 percent municipally owned. However, the broadband stimulus program started changing communities’ thinking as dozens of PPPs were formed between 2009 and 2010 to pursue grants. In addition, Google’s offer to build at least one lucky community a 1 gigabit network brought home quite vividly the PPP’s value.
Last year, North Carolina broadband advocates began formulating policy recommendations to make PPPs something of a standard in business models for communities that want better broadband. When legislation was introduced earlier this year that would effectively end further development of municipal networks in the state, this seemed like the right time to promote PPPs. Unfortunately the legislators pushing the bill effectively shut out these muni-network proponents from offering a compromise in separate negotiations.
If North Carolina communities can find a way to stem the tide in this latest legislative battle, expect PPPs popularity there to increase. One particular flavor of PPP has the community — such as a muni government, nonprofit co-op or utility — build the network infrastructure. They may operate the network or outsource the task. The community then opens the infrastructure to any and all service providers willing to offer services to constituents.
“This is a winning scenario,” said Ed Hemminger, CIO of Ontario County, N.Y., and CEO of Axcess Ontario, the county’s 180-mile fiber network project. “It’s the only way some communities may be able to get fiber broadband. They can finance the buildout with bond financing with a 25-year payback term. If a muni is going to partner in this manner, be extremely cautious and ensure that it’s a true open access model that not only benefits providers in the area, but also allows others to come in and compete.”
The beauty of this scenario is that it enables private-sector companies to overcome one of their biggest hurdles to deploying networks in rural and low-income areas: the cost of laying fiber or building wireless infrastructure. Municipalities, if they’re able to swing the financing, can take up to 25 years to pay off the debt. Providers, on the other hand, have to make their money back in three to five years.
Verizon, TW Telecom and a local telco have signed on with Axcess Ontario since it launched last December. Axcess Ontario realizes they can boost the balance sheets of existing wireline providers by leasing their fiber to get from point A to B within the overall buildout. The providers subsequently get cash and access to a bigger network for their services, while Ontario saves time and money for those particular sections of the buildout. Wireless providers of all types can use the network as backhaul to increase speed to customers. And of course, constituents benefit because this truly can be a level, open playing field on which competition leads to more services and reasonable prices.
As with many things related to broadband, each and every strategic approach has variations on how to implement it. Public-private partnerships are no different. Axcess Ontario is partnering with the local government, Ontario County, which owns a key element of the infrastructure. In North Carolina, the community, not the government, owns the infrastructure. There is a significant distinction.
Wally Bowen is founder and executive director of the nonprofit Mountain Area Information Network (MAIN), which provides broadband services in and around Asheville, N.C. He and others actively advocate for community networks in which either a nonprofit or a co-op is created that owns the infrastructure. The entity operates the network directly or retains other organizations to do so. Local government is only one member of the entity. Within the county where Asheville is located, a coalition of nonprofits and co-ops coordinate their respective efforts to get broadband deployed throughout the county.
“Government-owned infrastructure creates political vulnerabilities given how incumbents are behaving,” Bowen said. “Our nonprofits are comprised of representatives from private-sector companies, private colleges, hospitals and so forth, in addition to local government. So there are limited legal grounds for attacking the nonprofit via laws passed in the legislature.” Some incumbent Internet service providers still will try these tactics anyway, but the makeup of these nonprofits can give them a stronger position from which to defend themselves.
Larry Baumgart, CEO of Virtual Networking Service Inc., also advocates vigorously for the nonprofit/co-op approach. “The government has partial role versus complete control. Yet this entity has more clout as far as using the network for the community’s best interests because when structured properly it is a true democratic body.” I lean toward having a separate entity (e.g. public utility, service provider) handle day-to-day operations. The nonprofit or co-op owns 51 percent of the network, for example, and the remaining 49 percent can be offered to whatever organizations manage and operate the network. The nonprofit or co-op can set up a foundation so individuals and organizations can contribute to it. The foundation also can apply for grants such as the broadband stimulus.
The bottom line is look at the make-up of your community. “These all sound good in theory,” said Jim Baller, senior principal at Baller Herbst Law Group, “but lots of models have worked well in some cases and not as well in others. In the end, a community’s own situation should drive the model and not the other way around. It’s like asking the abstract question: ‘Is a 4-4-2 formation in soccer better than a 4-3-3?’ That will depend on many dynamic factors.”
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