An abundance of examples show that government-facilitated broadband networks can pay their own way and contribute to the economic health of their communities.
The painter Vincent van Gogh was born and raised in a little village in the Netherlands called Nuenen (pronounced “noon-en”). He left as a young man to seek his fortune and, like the trampoline kids of today, bounced back into his parents’ house to regroup for a while. Before leaving Nuenen for good, he painted the first of the visionary canvases, The Potato Eaters, that would make him one of the most world’s most revered artists.
Nuenen is still there and doing nicely, thank you, and significant credit for its prosperity goes to a modern-day iconoclast named Roger Kees. Together with Henry Smits, director of a local housing corporation, he succeeded in gaining one of the last grants under a Dutch national project to promote municipal broadband networks. They used the money to form a cooperative called OnsNet (“Our Net”) and fund deployment of fiber to 7,500 of Nuenen’s 8,000 homes. Within three months, they had a penetration rate of 97%.
The amazing take-up was the product of OnsNet’s structure. Property owners were asked to pay for the “last-mile” connection from the core network into their buildings, because they were investing in a home improvement that would increase the value of their property. Today, the citizens of Nuenen own 95% of OnsNet and join technical and operational executives at meetings to suggest new offerings. An online exercise and weight-loss program, with a “virtual fitness coach,” is popular. A local church offers live broadcasts of baptisms and weddings on a paid basis.
So, a government giveaway gave birth to this small but powerful network. If you put that proposition to Mr. Kees, however, you will meet with fierce resistance. He is a retired banker and says that he could go to any bank in Holland today and get a commercial loan for the network, because it makes money. What he could not do was get a bank to lend him the money to capitalize it. That was a leap of faith only government was willing to make.
Networks Under Fire
The Nuenen story is worth keeping in mind today, as municipal networks come under fire. A Maryland state senator made some national news in August with an editorial in The Baltimore Sun. State Sen. Catherine Pugh wrote that, “For the most part, municipally-built broadband networks have the economic chips stacked against them and, where tried, have saddled local taxpayers with a mountain of debt and half-built networks that are then sold at fire-sale prices to vulture investors.”
Sen. Pugh’s editorial praises Maryland’s own state-wide network project but is otherwise an exercise in blasting an entire movement based on the bone-headed mistakes of a few. In Provo, Utah, she writes, taxpayers spent $40 million to build a network that the city, having grossly underestimated operation and upgrade costs, wound up unloading for just one dollar just to get it off the books.
There are other skeletons in the municipal network closet, each the product of some particular bone-headedness. But in truth, despite the broad strokes of Sen. Pugh’s tar brush, there are far more examples of municipal networks paying their own way and delivering striking benefits than there are of failures.
The poster child right now is Chattanooga, Tennessee. Its municipally-owned utility built a fiber-to-the-premises network – not for telecom but to enable advanced smart grid solutions. The electricity business predates computers by almost a century, and utilities learned to manage the network without really knowing what was going on inside it, mostly by building in lots of excess capacity as a margin of safety.
The engineers in Chattanooga calculated that, if they had second-by-second data from throughout the grid, they could change the way they managed it, and could let go of 40% of the network’s excess capacity while still making service more reliable. Fiber was the only way to get that much data, so they made plans to fiber the grid and started building.
By 2010, Chattanooga (a Top7 Intelligent Community in 2011) had a fiber network reaching all of the 170,000 businesses and homes in its service area and it was connected to smart meters and sensors throughout the grid. And – what the heck – since the network was completely cost-justified by the savings on capacity, they threw in 1 Giga bit per second (Gbps) Internet service at a modest price to all. Adoption has been as strong in poor neighborhoods as in prosperous ones. In 2012, the city launched a business plan competition called Gig University; its aim is to create businesses whose services depend on having a gigabit of connection speed.
Scaling It to the Rural Region
Chattanooga is a city of 340,000. But the same strategy has worked in a place one-tenth the size: Stratford, Ontario, Canada. Stratford also owns its own utility, and it installed optical fiber in the 1990s to help control the network, as well as providing an asset that large industrial customers could lease for communications.
Using the company’s cash flow and asset base as collateral, Stratford expanded the fiber network by 50%, and introduced 1 Gbps connections to city facilities and schools, which saved significant amounts of money. The utility also built a 300-hub WiFi network using the fiber network as its backbone, deployed a smart-meter program and expanded its leasing program to ISPs and co-op networks. In 2012, the utility did a deal with Wightman Telecom, a regional provider that operates its own FTTP network passing 11,000 homes. Through a revenue-sharing agreement, Wightman agreed to build out fiber into the rest of Stratford and deliver a 1 Gbps service.
Stratford, a Top7 Intelligent Community of 2013, has put this digital infrastructure to good use. In 2010, the prestigious University of Waterloo – from which such companies such as BlackBerry and Open Text sprang – agreed to open a Stratford campus focusing on digital media. Through strategic alliances, Stratford has also attracted companies from Toshiba and Cisco to Inter-Op to conduct pilot projects in intelligent lighting, remote constituent services and interoperability for first-responder communications. It is impossible to imagine any of this happening without the network.
A city of 32,000 is hardly small by rural standards. Yet rural communities may be the ones that can benefit most from municipal networks. (See The Rural Imperative at www.ruralimperative.com.) Just as electricity did not come to most rural places until they decided to create their own utilities, broadband tends to bypass low-density markets when left entirely to private-sector decision-makers.
A little more than a thousand miles due west of Stratford lies Mitchell, a city of 15,000 on the plains of South Dakota. With a willing local communications company and a federal broadband stimulus grant, Mitchell (a 2013 Smart21 Community) has developed a fiber-to-the-premises network serving every business and residence.
Its university and technical school meanwhile have leveraged the network and city’s agricultural heritage into regional leadership in precision agriculture, in which farmers use satellite and remote sensing data to develop a highly detailed portrait of their land and apply that knowledge to boost yields. Both also engage with city government, business, primary and secondary schools and a major hospital to promote digital literacy and supply the highly trained workforce in increasing demand by area businesses. These include software companies, customer service centers and telecom consulting firms.
How low can you go in terms of population and still have a successful municipal network? One community of 8,000 in the western rural area of Canada capitalized a fiber-to-the-premises network and needs a take-up rate of only 30% – which it is rapidly approaching – to begin getting payback. And fiber is hardly the only solution. Cheaper wireless technologies can deliver robust capacities at far lower costs. Municipalities do not even need to operate the network themselves: It is often enough to build infrastructure like conduits or wireless towers – something cities are pretty good at – and rely on it to attract service providers.
A Whole Lot of Krona
In the final analysis, what is the payoff to a community from building its own network? Is Maryland state Sen. Pugh right in describing it as a mountain of debt followed by a fire sale?
Aside from these success stories, there has not been a lot of hard economic evidence. In August 2013, however, a research group in Sweden published an analysis of Stokab, Stockholm’s city-owned municipal network. Stokab was launched in 1994 and laid a conduit network full of dark fiber, which it leases as a managed service to telecom providers on an open-access basis.
The economic impact study by Acreo Swedish pegged the value to Stockholm’s economy over 20 years at 16 billion Swedish Krona – US$2.5 billion – from business growth and job creation, capital investment, investments by property owners and cost savings to government.
That’s a whole lot of Krona. And unlike Nuenen, the Stokab network got its start with loans, grew on reinvested cash flow, and got where it is today without a penny of tax funding. For all his genius, Vincent van Gogh hardly saw a penny from his world-changing achievements, but the people of Stockholm have gotten a pretty good deal from theirs.
Robert Bell is co-founder of the Intelligent Community Forum, a think tank that studies and promotes the best practices of the world’s Intelligent Communities as they adapt to the demands and seize the opportunities presented by information and communications technology. He can be reached through the ICF Web site www.intelligentcommunity.org.