Battling to become gigacities

Municipalities are weighing risks of providing high-speed Internet and competing with telecoms

This is part one of a two-part series on the city-run high speed internet.

Amid concerns in some markets that big telecoms and cable companies are providing service that is too slow and too expensive, some cities are starting their own Internet services, spending millions of dollars to bring super-high-speed, or gigabit, Internet service to their communities through a new fiber-optic infrastructure. Proponents call it the single most important piece of infrastructure of the 21st century, attracting businesses, bolstering education and raising property values.

President Barack Obama has declared community broadband, as it’s called, a key to economic prosperity. “Today I’m making my administration’s position clear on community broadband. I’m saying I’m on the side of competition,” he said.

But it’s a layer of competition the telecom giants don’t support. The industry says it shouldn’t have to compete against a government entity and are pulling out all the stops to prevent these cities from going gig — suing them and even influencing restrictive laws in 19 states.

“Representatives of AT&T and Comcast paraded into my office to tell me why they didn’t think Chattanooga should get into this business of competing with private enterprise”

Ron Littlefield

former mayor, Chattanooga, TN

One place this battle has materialized is Chattanooga, Tennessee, which today is known as the Gig City. That’s because in 2008, then-Mayor Ron Littlefield helped make it one of the first U.S. cities to offer super-high-speed Internet through its power utility, the Electric Power Board (EPB). To do it, he had to do battle with telecommunication giants. “When you’re dealing with those giants — with the Comcasts and the AT&Ts — they are reluctant to give up the market that they have,” he said.

He and other city officials worked with EPB in hopes of attracting entrepreneurs and new businesses — and to provide faster, cheaper service than what was available at the time. The existing providers were not happy. “Representatives of AT&T and Comcast paraded into my office to tell me why they didn’t think Chattanooga should get into this business of competing with private enterprise,” said Littlefield.

EPB paid for the $320 million project through bonds, a line of credit and a $111 million government stimulus grant. But not before Littlefield said he offered to let local telecoms build out the infrastructure themselves. “They both said, ‘Oh, we really can’t afford to do that.’ And I said, ‘We really can’t afford not to do that,’” he said.

EPB began installing almost 9,000 miles of fiber-optic lines. Meanwhile, Comcast sued the utility to prevent it from building out its network. 

Over half of rural Americans don’t have access to high-speed Internet.

Comcast and others have argued that cities have an unfair advantage over for-profit companies. “Most cities actually charge broadband providers a fee, and then if the city comes in and uses taxpayer dollars, doesn’t have to make a profit, uses subsidies — it really is unfair,” said Rob Atkinson, the president of the Information Technology and Innovation Foundation.

In the end, EPB prevailed and today has almost 70,000 subscribers. It offers two data transmission speeds: 1 gigabit per second, for about $70 a month, and 100 megabits per second, to which the majority of customers subscribe, for about $58 a month. The national average broadband speed is just 11 megabits per second.

The city credits its gigabit service for attracting businesses and entrepreneurs and helping create a science, tech, engineering and math (STEM) education program.

“I have to say that we did it right. We did not actually compete unfairly with those giants, struggling as they are financially,” said Littlefield. “Our rates were on par or above theirs. We were simply competing on the basis of service quality. And in the process, we’ve taken half the market.”

And the competition has gotten even fiercer. In May, Comcast announced it would offer 2-gigabit service in Chattanooga, one-upping EPB. A Comcast representative declined a full interview but said, “The Gig City should more accurately be described as the Two Gig City, thanks to Comcast’s investment.”

“You have municipal networks that will build a network in the absence of real competition. But that creates real competition,” said Christopher Mitchell, the director of the community broadband initiative at the Institute for Local Self-Reliance. “When they’re facing competition from a local government, they phrase it in such a way as to say, ‘It’s unfair.’ But when you look at their actions across the board, they’re trying to restrict competition in all manner of ways against private companies. They’re looking for an advantage in every single way that they can get.”

But Alex Horwitz, a Comcast representative, said that this characterization isn’t accurate and that today’s competitive landscape includes multiple providers competing for business and multiple platforms for consumers to watch content.

The sex appeal of the gigabit

The allure of gigabit Internet service is the speed. Downloading a two-hour high-definition movie takes half an hour or more at average broadband speed. At 1 gigabit per second, it takes just 25 seconds. But critics say cities are investing too much taxpayer money into infrastructure that provides too much speed for the average customer.

“You don’t need a gigabit today,” said Atkinson. “In general, a lot of cities have made a big mistake by putting money into these networks that are way ahead of consumer demand. Consumers aren’t asking for these networks.”

It’s a question some cities are asking as they explore the possibility of municipal broadband. “If we build it, will they come? That’s the question,” said Aldona Valicenti, the chief information officer for Lexington, Kentucky.  

The city is weighing the costs and risks of investing in fiber-optic infrastructure. It’s looking at building a network through a partnership with a private company. It’s one of many options the city is weighing. And there are many risks. 

“None of our cities really want to do this work. It’s hard. It’s scary. It’s risky. If they’re doing it, it’s because they have no alternatives.”

Deb Socia

Executive Director, Next Century Cities

Ron Littlefield, a former mayor of Chattanooga, Tennessee, says he fought telecom giants to bring public gigabit Internet service to the city.

“People don’t come right away. So if a company has to make money and they’ve partnered with the city or the county, will they come fast enough for them to repay the loan, to repay the lease payment? Whatever that arrangement was to the point where the company can make money,” she said.

“We’re the kind of city that really needs to have fast Internet access, which is the fuel, really, for a university city,” said Scott Shapiro, a senior adviser to Lexington’s mayor. He said the city is considering investing money in a new fiber-optic gigabit Internet system because it will lure businesses, bolster universities and hospitals and empower a higher caliber of STEM education. He added that gigabit increases property values by 8 percent.

“Why hasn’t that happened yet? You can ask the incumbent Internet providers that question. It seems as if there needs to be a third party in many cities that comes in and builds a fiber-optic network. And that’s been the pattern around the country,” he said.

“None of our cities really want to do this work. It’s hard. It’s scary. It’s risky,” said Deb Socia, the executive director of Next Century Cities. “If they’re doing it, it’s because they have no alternatives.”

The success of municipal broadband varies. EPB planned on operating at a loss for four years but began to see a return after 19 months. But critics point to several failures.

“If you look at Provo [Utah] or Burlington [Vermont], they put a lot of municipal money in, and the systems went bankrupt and weren’t sustainable,” said Atkinson.

Jim Baller, a lawyer who has been involved with more than 60 community-led fiber-optic projects, said most cities don’t fail. “By the time a project goes through the process of being viewed as an opportunity and the time the community gets to the end of the process, every number, every theory, every assumption will be tested in the marketplace,” he said. “The incumbents will participate in that process. And since that vetting process has worked so effectively in weeding out the strong projects, we’ve seen very few projects that fail for lack of consideration of what might be the future of a project.”

A large part of the expense comes from installing fiber-optic lines, which can be attached to telephone lines or buried underground, as Google Fiber is doing. The company is already in three cities and plans to expand to 12 others.

“I anticipated that when Google came to town, the game would change and there would be a lot more competitors willing to step up,” said Socia. “And that’s exactly what happened. There was a lot of fearmongering early on, saying, ‘You know, if Google comes in and builds, there won’t be any incentive for anybody else to be in the market.’ And the exact opposite has happened.”

In Kansas City, Missouri, and Austin, Texas, where Google has set up shop, AT&T is offering gigabit service for $70 a month — less than in cities where Google Fiber doesn’t have operations. For example, in Cupertino, California, where there isn’t Google Fiber, AT&T charges $110 a month.

As for Lexington, it says the key to its economic growth was getting gigabit service. “This is one of those opportunities, I think, from a technology perspective, where you have to sort of make the big leap. And the leap is that we will need that bandwidth,” said Valicenti.

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