The reports from Columbia Telecommunications Corporation (CTC) and Tellus Venture Associates were commissioned by the city as part of its effort to create a new business plan for its 41-mile "dark fiber" ring — a network that the city built in the late 1990s that currently serves 68 customers. While both consultants recommend extending the fiber ring to new areas and building new infrastructure to support it, each concludes that a citywide fiber system — known as "fiber to the home" or "fiber to the premise" — would not make business sense in the current economic climate.
"There is no compelling case for providing fiber service directly to residents at this time," consultant Stephen Blum of Tellus concluded in his report. "Palo Alto is served by large incumbent retail video and broadband service providers that enjoy decisive competitive advantages resulting from economies of scale.
"Comparable municipal ventures have failed. It is unlikely that a City-run or supported residential fiber service would be able to achieve enough market penetration or subscriber revenue to support itself in the near term."
The findings, which the city's Utilities Advisory Commission reviewed Wednesday night, are the latest blow to the city's long-held ambitions to spread fiber-based Internet access to its famously tech-savvy masses. The city's earlier attempt to partner with an Internet consortium on a fiber-to-the-premise initiative fizzled in 2009, when the consortium's financing collapsed. Palo Alto also joined more than a thousand other cities in applying for Google's ambitious Fiber to the Community project, which aims to hook up an entire city to ultra high-speed Internet. Kansas City ultimately won the Google prize.
The new studies are sure to disappoint proponents of a citywide fiber system. But the reports provide an array of recommendations to the city and its Utilities Department for improving the city's small but lucrative fiber service, which is projected to generate an estimated $3.3 million in the current fiscal year.
The CTC report, which evaluates ways to expand the existing network, recommends a two-phased approach to widening the ring. The first phase would entail building new "access points" at nine existing electrical substations to entice private companies to work with the city on dark-fiber initiatives and to support various other wireless services. This could entail building new cellular towers, which CTC recommends making at least 75 feet tall, at the substations. These facilities would be leased to a variety of telecom companies and would help the city meet the spiking demand for wireless coverage.
This proposal will almost certainly prove a tough sell in Palo Alto, where two recent cell-tower proposals attracted intense opposition from residents at the proposed sites. In one case, AT&T was forced to pull its application for a 50-foot tower at St. Albert the Great Church after a group of residents in the Crescent Park neighborhood pressured the church to step away from its partnership with the telecom giant.
The CTC report acknowledges that its proposed initiative "will not be welcomed by all" but argues that this approach is "both a responsible form of stewardship of (City of Palo Alto Utilities) facilities and communications assets and a reasonable way to address a highly charged urban problem."
"We are aware that an initiative of this type is not without political challenges," the CTC report states. "This is especially true with regard to the aesthetics of cell towers.
"Everyone wants to have reliable citywide cell coverage for voice and high-speed data connectivity, but hardly anyone wants a cell tower located next door, or in fact even within the neighborhood.
"By developing a proactive cell tower placement program within the confines of existing electric substations, (City of Palo Alto Utilities) would in effect be blending the common aspects of facilities everyone needs and leveraging the common characteristics of both media."
The second phase in CTC's proposal involves building 88 "access nodes" throughout the city. Each of these nodes would be able to provide fiber access to about 250 homes and businesses. This "fiber to the neighborhood" initiative would cost about $5 million to build and, if all goes well, entice a private operator to build the "last mile" of the network to each home. The entire fiber project would cost between $40 million and $60 million, depending on the type of system deployed.
The high cost of building a citywide fiber system has deterred the City Council in the past from taking on the project without partners from the private sector. According to the Tellus analysis of market conditions, such a system would not be a financially feasible project for the city to take on.
In its report, the firm lists several cities, including Alameda and Provo, Utah, where citywide Internet initiatives had failed. Both Tellus and CTC also emphasized the dominant role of Comcast and AT&T in Palo Alto's broadband market — a tough obstacle for the city's fledgling operation to overcome.
The Tellus report urges the city to instead focus on its core customers — high-tech firms and telecom companies. Tellus evaluated various parts of the city where the existing fiber ring could be extended and singled out the area around East Meadow Circle (home to Space Systems-Loral and Dell Computers) as the "best immediate prospect" for such an extension. Other potentially lucrative areas for expansion are areas along El Camino Real and Sand Hill Road.
Blum wrote in his report for Tellus that the broadband business model is changing rapidly and that a fiber-to-the-home (FTTH) system could "eventually" become economically viable in markets such as Palo Alto.
"For the present though, the broadband sector's turmoil and uncertainty make FTTH system investments less attractive," Tellus concluded. "The current state of the broadband market does not support a business case for a third, overbuild residential broadband system in Palo Alto."
The city's utilities officials are expected to use the two new studies to put together a business plan for the fiber service by this fall. Jim Fleming, the city's project manager for the fiber utility, wrote in his report that staff will further analyze the reports' recommendations and reach out to customers in areas the consultants had identified as "underserved." Staff also plans to "evaluate the feasibility of constructing cellular towers at some or all of the electric substations," Fleming wrote.