The logic is simple and seductive: The Internet, as fiber proponents like to point out, is the lifeblood of today's economy and at least a partial solution to almost every imaginable problem. It can reduce traffic by allowing more people to work from home; upend how health care and education are delivered; and give people more control over everything from energy consumption to water conservation.
To supporters of what's known as "Fiber to the Premises," a fiber system capable of delivering Internet access at speeds of one gigabit per second is a logical next step for a city Utilities Department that already provides electricity, gas and water to customers throughout the city.
"The Internet, and increasingly Fiber to the Premises, is the core infrastructure over which our economy flows in the 21st century, and certainly over which our democracy flows," Joanne Hovis, president of CTC Technology and Energy, told the City Council this week. "Those are the reasons the public sector engages in it."
Hovis, whose Washington, D.C.-based firm specializes in municipal fiber, described her company as a "proponent of Fiber to the Home as one of the things that is essential to any city or any community in the United States in the 21st Century."
Yet in analyzing the market conditions in Palo Alto and the economic viability of a potential citywide buildout, CTC's conclusion was viewed by some on the council and in the community as oddly cautious. The firm concluded that the city shouldn't get into the Internet retail business — providing services such as television channels, telephony and Wi-Fi — on its own but should partner with the private sector to deliver the service on what would be a city-owned system.
"The city simply does not have the same buying power and experience as the private sector, and it is not particularly skilled at operating a for-choice competitive business," the report notes.
The firm concluded in its analysis that an expanded fiber system — with connections to every home and business — would cost the city about $77.6 million to construct, far more than prior estimates commissioned by the city. It calculated that the city would need 72 percent of the city to sign up for the operation to have positive cash flow, a rate that Hovis conceded was "virtually unattainable."
A potential partnership would help minimize the risk for the city, Hovis told the council. It would allow the city to focus on long-term fiber investment, leverage the telecommunications company's operational efficiencies and reduce the number of households and businesses needed to make the enterprise profitable.
Despite her enthusiasm for municipal fiber, Hovis cautioned the council that Fiber to the Premises "is not for the faint of heart."
"It is really challenging to do," Hovis said. "If it were easy to make a business case for Fiber to the Premises, we would've seen private capital come into the market a lot sooner, given the growth of the Internet in our economy."
Facing the competition
The new report highlights the fierce competition that the city should expect from private sector providers, including Comcast, AT&T and the rich new kid on the block: Google Fiber. Google is expected to announce before the end of the year whether it plans to extend fiber service to the San Jose area, which in addition to San Jose would include Santa Clara, Sunnyvale, Mountain View and Palo Alto.
Given the uncertainty in the private market, the council Monday reverted to familiar behavior: praising the idea of universal fiber, requesting more data and refraining from making any commitments.
Councilman Tom DuBois, a strong proponent of a municipal fiber network, urged his colleagues to take a more aggressive stance. He proposed establishing as a goal "a ubiquitous fiber network in Palo Alto with city ownership of fiber assets."
Telecommunications companies may offer high-speed Internet, he said, but it's not clear who would get this service and how much it would cost. AT&T, for example, relies on a "cherry pick" model in which high-speed Internet service is delivered only to those areas where the market supports the rollout. The city's vision, meanwhile, has traditionally leaned toward the "ubiquitous" model in which everyone shares equally in the bounty of a one-gigabit-per-second Internet connection.
"This question of ubiquitous access, ownership and control is really what we need to decide as a council," DuBois said.
He suggested that the city enter into discussions with Google and other providers about a possible "co-build" scenario, in which the city would lay its own conduits in the streets at the same time telecoms are expanding theirs. The city should pursue a "dig once" policy that would offer opportunities for the city and other companies to install conduits as part of Google's potential expansion, he said.
Now, Dubois said, is a "critical time" to act precisely because of the interest and action in the private market.
"There is a window to talk to these providers before the announcements are made," DuBois said.
Not all of his colleagues saw the situation as being clear-cut, however, nor did they share DuBois' enthusiasm for quick action. As the CTC report makes clear, the risks for a municipal fiber project are real and significant. The city can expect fierce resistance, and possibly lawsuits, from incumbent service providers, the report notes. Both Lafayette and Chattanooga faced litigation from established telecoms over their respective municipal systems. After failing in its lawsuit against Chattanooga's municipal project, Comcast announced this year it would bring its own competing two-gigabit fiber service to the city.
Councilwoman Liz Kniss, who two years ago attended a conference in Kansas City about the fledgling municipal-fiber industry, said hearing about lawsuits and other problems that other cities have experienced "really poured cold water on my enthusiasm."
She also acknowledged the awkwardness for the city hinging its plans on what Google will decide to do but did not argue against pursuing this course.
"Google is the big dog, and we're waiting to see if he's going to bark or not," Kniss said. "It'd kind of an interesting situation for us: to be waiting to see what one company is going to do."
Finally on the cusp?
The city constructed its fiber-optic ring, or backbone, in the late 1990s, and that network today serves about 200 mostly commercial customers that connect to it. By all accounts, the ring has been a huge success, bringing in about $2 million in revenues annually.
In addition to enabling high-speed Internet access, it has fed the city's appetite for more connections. From 1998 to the present day, councils have voted for test runs, commissioned analyses and looked for partners in the private sector who could build out the system. In the meantime, the price of equipment has gone down, the value of the Internet has become even more self-evident and cities from Chattanooga, Tennessee, to Lafayette, Louisiana, have achieved the type of system of which Palo Alto has long dreamed.
Yet Palo Alto's effort has been guided less by Moore's Law and more by Murphy's. Every push has stalled. In 2009, the city's partnership with a Canadian tech consortium died in the economic downturn, killing what has been the most promising effort to date. Undeterred, the city commissioned more analyses only to have the Utilities Department and the Utilities Advisory Commission recommend pulling the plug on the project in June 2012.
Then came the economic rebound, another season of hope and fresh declarations by the council in 2013 and 2014 that "technology and the connected city" would be a top priority for the year, with Fiber to the Premises as the centerpiece of the effort. To support this priority, the council commissioned another study and a fiber "master plan," which CTC performed.
Now the city is poised, yet again, to reach a decision on municipal fiber, this time by early next year.
Prompted by proposals from DuBois, the council agreed Monday to direct staff to explore a "dig once" policy and endorsed a universally popular proposal to expand wireless services for the city's emergency responders. It also directed staff to expand wireless service to retail areas in north and south Palo Alto, a proposal championed by Councilman Cory Wolbach.
Though the whole council approved of most items in DuBois' proposed motion, the council split 5-4 on one key provision, which directed staff to issue a request for information to explore the construction of a city-owned system by contractors and also to consider a potential public-private model, whether or not Google sets its sights on Palo Alto.
The vote came despite despite concerns from Chief Technology Officer Jonathan Reichental, who said it might be tough for companies to respond to the city's request without first knowing whether they'd be competing with Google.
Another DuBois proposal, to adopt as a goal the creation of a "ubiquitous fiber network in Palo Alto with city ownership of fiber assets," didn't fare well with his colleagues, either. Rather, the council decided to designate this as a "preferred alternative," subject to further evaluation. This came after several council members, including Greg Scharff and Kniss, said they were uncomfortable with setting the goal at this time, particularly given that the city will revisit the topic early next year when it is armed with more information.
"Really, establishing a goal at this time that we might change in four months — it looks like we're just not committed," said Councilman Pat Burt, who proposed the "preferred alternative" wording.
Looking at the numbers
As in years past, economic predictions for the huge fiber project came under council scrutiny Monday, with both Burt and DuBois taking issue with the economic analysis presented by CTC. DuBois disputed the report's conclusion that the cost would be far greater in Palo Alto than in other areas, and he noted that the cost of equipment has actually been going down and that the cost of labor can potentially be reduced through the use of contracted work.
Burt, meanwhile, argued that a municipal network would foster competition and potentially improve service and bring down rates charged by the telecommunications firms. The CTC report noted that in areas where Google has set up its fiber ring, AT&T has dropped its price to about $70 per month. In other areas, the monthly rate is $110. These benefits, Burt argued, should be quantified and considered as part of the discussion and planning for municipal fiber.
To address these concerns, the council agreed to request more information about CTC's economic assumptions and the methodology used to forecast the costs. This information would be reviewed by a longstanding group of citizen advisers, potentially revised, and ultimately returned to the council for possible acceptance.
In its decision to wait until early next year before making any big determinations about fiber, the council aligned itself with a recommendation from the Utilities Advisory Commission, which voted 4-3 on Sept. 2 to recommend deferring action for at least three months due to market uncertainties.
The minority — Chair Jonathan Foster and commissioners Arne Ballantine and James Cook — preferred a more assertive stance, outlined in a memo by the citizen advisory group, and recommended that Palo Alto adopt as a goal "to own at least a dark fiber to the premises network with dark fiber drops to all Palo Alto premises, residences and businesses alike."
Foster also supported declaring utility to be a "public benefit" and asking the voters to weigh in on whether the new utility should be pursued.
The citizens advisers, many of whom have been involved in fiber since the 1990s, also urged for faster action on bringing the project to life. Richard Brand, Bob Harrington, Donn Lee, Christine Moe and Andy Poggio encouraged the city to pursue ubiquitous access, noting that the Palo Alto community "greatly values our citizens having access to all our services."
"America is falling behind globally in terms of communication infrastructure," the memo states. "As a world-leading technological community, Palo Alto can ill-afford this. Our city must have access to world-class communications while leaving no one behind."
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