City releases municipal broadband feasibility study results
By Julia Rentsch
Reporter-Herald Staff Writer A detailed study of the “what-ifs” of a municipal broadband utility in the city of Loveland produced results that suggest the city could successfully become a broadband provider. City staff presented to the Loveland City Council at a study session Tuesday evening about the results of preliminary investigations into the feasibility of a municipal broadband internet utility conducted in conjunction with several consultants.
The investigation found that a public-public partnership would be the most favorable municipal broadband business model for the city, providing the least risk and greatest reward. Concerns over how a plan to provide municipal broadband puts consumers at risk in the event of a project failure dominated council discussion. Brieana Reed-Harmel, broadband project manager for the city of Loveland, led the presentation to council.
Reed-Harmel was accompanied by consultants the city partnered with on the analysis: Jill Mosteller, who holds a doctorate in business and designed the latest take-rate survey; John Honker, president of Magellan Advisors, which was the business chosen to help city staff do the broadband feasibility study; and Colman Keane, director of fiber technology for electric utility and telecommunications company EPB, which is owned by the city of Chattanooga, Tennessee. Mosteller prepared the Conjoint Internet Survey Report, which was the second survey the city has conducted on the feasibility of broadband in the community, Harmel said. The survey began in August.
A municipal broadband service can only be self-supporting if enough customers buy it, so the “take rate,” or number of customers who subscribe to the service compared to other service providers, is a key aspect of the project’s risk.
The study worked to validate and update initial numbers collected in fall 2016 that showed what is important to customers, Mosteller said. The survey reported that the city of Loveland was viewed with higher favor as a hypothetical provider of internet compared with Comcast and CenturyLink, the presentation stated. The survey found that the best approach toward municipal broadband by the city would be offering different tiers of price and speed to accommodate consumers’ needs in conjunction with the city’s need to pay back debts taken while installing and administrating the network.
Modeled price plans for residential service priced 50 megabits per second of internet at £19.95 per month, 300 megabits at £49.95 per month, and 1 gigabit at £79.95 per month. For business, 50 megabits per second would cost £49.95, and plans would increase at 100, 250, 500 megabits and 1 gigabit price points. Honker said the city would develop tiers to be competitive with Comcast and CenturyLink, which provide the vast majority of internet service to Loveland customers.
Honker explained the city’s financial analysis was based on a system that covered all residential and commercial premises in Loveland, with a residential take rate of about 40 percent and a business take rate of about 30 percent. The model assumed the city would borrow money for the project with a 20-year bond at 3.5 percent. Some councilors expressed dismay over the survey result stating 40 percent of residents would subscribe to municipal broadband service, stating they would not want to develop a service for a minority of residents that puts all taxpayers at risk in the event of a failure.
“What is it about a government solution, the government getting involved in a market that traditionally we haven’t been involved in?” Councilor Don Overcash asked. “What is driving our enticement to go in competition with those businesses that we’ve been trying to attract and work with over the years?” The cheapest option for municipal broadband, according to the analysis, would be a public-public partnership, which would in total cost between £68 million and £83 million, to be paid back in 16-18 years. A public-public partnership would provide a positive net surplus in its sixth year, the analysis says.
Reed-Harmel said none of the respondents to the request for proposals were willing to allow the city to own the network, and a net surplus in costs would not occur with a public-private partnership until year 18, far later than with other options. Keane discussed the impact of municipal broadband utilities on communities, which see lower prices and higher speeds for internet compared with cities that do not have municipal broadband. Cities that provide internet at prices and speeds that people want lead the marketplace competition to push cable companies to beat those expectations, Keane said.
Doug Rutledge, a member of the Loveland Broadband Task Force, gave the council the task force’s recommendation. Rutledge said the Broadband Task Force unanimously recommended a public-public partnership model for municipal broadband. The Broadband Task Force consists of 10 members and includes representation from Platte River Power Authority, McWhinney, Medical Center of the Rockies and the Thompson School District, but the number of members who voted on the issue was disputed.
Councilors Overcash and Dave Clark both said they wanted the council to hear arguments from the cable companies about why they feel municipal broadband would be disadvantageous to Loveland residents. The council agreed to draft a letter invite the 10 providers that submitted proposals to attend a meeting so they could ask those providers questions. “I want the public to hear from them to see if they can stand up to this or not,” Clark said.
“I would suspect that if we could have a different tone … could this become a win-win for industry and the city without us taking this huge risk?” Overcash asked. The question of how the Loveland utility would compete with incumbents’ bundled services — meaning telephone, TV and internet rolled into one package for one price — led to a discussion about how the city would potentially provide video services via the internet that would allow for streaming cable channels. Internet-based phone was modeled as an additional city service, costing £19.95 per month for residents and £119.95 per month for businesses.
Clark asked about the potential for litigation from cable companies in the event that the city develops a system. Keane said when his business was helping the city of Chattanooga launch municipal broadband in 2009, the court costs were not as high for the city and they were for the cable companies. Councilor Olson said he remains concerned about the risks to the taxpayers.
The positive side to the risks would be the cost savings to consumers on both municipal broadband and service provided by incumbents, who drop their prices due to increased competition, Keane said. “When we looked at doing this, the savings to our community were around £1,000 per home over a five-year period,” Keane said. Ultimately, the city’s involvement in municipal broadband was spurred by a desire to tend to the needs of customers who say they are being underserved, Councilor Kathi Wright said.
“We need to look past what we want, and we need to look past what we need — (this is for) the next generation of Lovelanders and not the current generation of Lovelanders,” Councilor John Fogle said. In 2015, more than 82 percent of Loveland voters approved a ballot measure that allowed the city to provide municipal broadband, but without raising taxes. Overcash said he believes the matter of whether to allocate funding towards starting a municipal broadband service should also be voted on by the citizens.
“Just because people choose to do something and people follow along does not make it right or best for Loveland,” Overcash said.