May: Broadband issue not ready for the ballot

Aug 7, 2017 | Uncategorized

This week the Fort Collins City Council will decide whether to refer a measure to the November ballot to establish a new publicly owned telecom utility to provide municipal broadband. But even after two years of work and study, there are still important questions that have not been answered.

However, let’s first start with some things most people would agree on: Fast and affordable access to the internet is desirable; a connected community has an economic advantage over those with no or limited access to high-speed internet; and local government serves a useful purpose in our lives and ours is generally well-run, particularly the utilities.

If it proceeds, the council would be asking permission to change the charter to expand and include telecom services and take on debt to build the related infrastructure, which is estimated to cost $130 million to $150 million.

Construction money would come from bonding, and the money to eventually run the utility would come from attracting and charging broadband customers. The city’s light and power department bonding capacity would be used up for five years.

This utility would be a radical change. The city has vast experience running monopolies. However, a telecom utility would operate in a highly competitive space filled with capable commercial enterprises.

The assumptions the proposed telecom model are built upon continue to change. The current pricing assumption is $70 per month for 1 gig to residential addresses. The city is assuming it will be able to acquire 28 percent of available broadband customers.

If the assumptions are right, by year 14 of the bonds, the city would be able to cash-flow the utility. If the assumptions are not achieved, all Fort Collins utility customers are liable for the debt. Something like $17 would be added to each utility customer’s monthly bill until the debt is retired. That’s even if you don’t have broadband or are not a city broadband customer.

According to a study of municipal broadband done by two Penn State professors, the chances of a municipality not being able to cash flow the utility are about 50-50.

A few thoughts and questions for council members to consider before jumping off this cliff:

  • Are you really ready to make this decision? The basic assumptions keep changing, so you can’t confidently tell utility customers what the costs and risks will be.
  • What problem exists that requires changing the City Charter to add telecom services, and one in such a high-risk competitive space? This needs to be explained.
  • What’s the business case for doing this? Anecdotal evidence and statements have been offered about the importance of this to the economy and business, but where’s the data?
  • Proponents cite business competitiveness as a reason for this investment, yet the 1 gig service for business is priced at an uncompetitive $599.95 a month.
  • What needs and opportunities in light and power will go unaddressed because we are giving up all of our bonding capacity for this project?
  • The city has identified the risks of this model but has not adequately explained how it will mitigate them in a competitive environment where it has zero experience.

This is too important to rush. The prudent thing would be to take more time.

Originally published by the Fort Collins Coloradoan on August 6, 2017