The gears are slowly engaging on Seattle’s several-year-old neglected plan to build high-speed fiber optic connections to every home in Seattle that wants the service and will pay for it. Given what we’re poised to do, we should look at how other cities have fared in recent efforts in fiber-to-the-home (FTTH) projects.
I spoke last week to Joey Durel, the City-Parish President (combined leader of the city and parish, or county) of Lafayette, LA. I came away with some great advice from Durel for how Seattle could tackle selling the idea of fiber and fighting off incumbent backlash. Durel recently met with Mayor Mike McGinn to share similar insights while he was in Seattle for a conference.
A few months into his first term in 2003, Durel commissioned a study to look into FTTH for Lafayette, a city of about 110,000. The study showed it was feasible to build a triple-play voice, television, and broadband network with far higher speeds and lower costs than Cox and BellSouth (now AT&T), the two companies that were providing those services.
Like Seattle, Lafayette was already operating a fiber network for its own purposes and selling wholesale access. Also like Seattle, Lafayette owns an electricity firm, Lafayette Utilities System (LUS). The fiber network is marketed as LUS Fiber.
Over what he described as “endless meetings over coffee,” Durel courted both BellSouth and Cox to build an advanced network, telling them, “Nothing would make me happier than if you were to bring fiber to every home in Lafayette and we don’t have to do it.” Finally, though, it became clear that the incumbents were just trying to delay. “I’ve had enough coffee, thank you very much,” he said.
The city first planned to issue revenue bonds without voter approval, but the incumbents forced a vote, which overwhelmingly favored the bonds. Despite that vote, BellSouth sued the city, won in appeals court, and lost in the Louisiana Supreme Court in 2007. Lafayette issued its bonds later that year—just over $100 million, compared to an estimate of about $500 million in Seattle.
Lafayette started offering service to residents in 2009, and will finish the network in mid-2010, about six months ahead of schedule.
LUS Fiber has three tiers of broadband, 10 Mbps, 30 Mbps, and 50 Mbps, all of them symmetrical: the same speed to upload and download. Most cable and DSL systems offer 1/5th to 1/10th of the downstream speed for uploads, even at the highest services levels—like 50 Mbps downstream and 5 or 10 Mbps upstream. All LUS Fiber users get a 100 Mbps connection to and from all other LUS Fiber users no matter what level of service they pay for to reach the rest of the Internet. That’s enough for robust home teleworking, allowing huge files to be moved quickly as well as high-quality videoconferencing.
The rates are pretty sexy. Monthly rates are a la carte (the same rate whatever you put together): $28.95, $44.95, and $57.95 for 10, 30, and 50 Mbps, respectively, including seven emails accounts with 2 GB of service each. In Seattle, I pay about $60 per month for Comcast’s “up to” 15 Mbps downstream and 2 Mbps upstream service, which is often substantially faster in both directions.
Triple-play bundles range from $84.85 for 80 standard definition cable channels, 10 Mbps, and full-featured phone service (call waiting, etc.) up to a super-deluxe $199.99 rate for 50 Mbps broadband, 250 regular and HD channels, an HD receiver (rented), and unlimited long distance.
Mayor McGinn's broadband proposal closely mirrors Lafayette's.
Durel said Lafayette didn’t build fiber because of a lack of broadband availability, which is what dogged cities like Tacoma (which built a hybrid cable-fiber network starting in the late 1990s) or Ashland, OR, years ago. Rather, as in Seattle, incumbents were interested in slow, incremental, inexpensive upgrades. Seattle suffers from market failures in parts of town, too, such as in Beacon Hill, downtown, and the Central District, where many residents can’t get a connection that’s reliably faster than 1 Mbps downstream.
We had an opportunity to “catapult into the future, to really jump into the 21st century, and jump ahead of the curve,” said Durel, and with the incumbents uninterested, the city leaped. The fiber network would help the city compete for jobs, Durel said. “It was more about economic development than about saving 20 to 30 percent on our phone bill,” although subscribers have been sold on the cost savings and improved services as well.
Durel said that at least two firms have relocated to Lafayette because of the fiber: a call center opened a branch because of the low cost of living coupled with the availability of fiber. The firm has 500 employees so far, with a target of 1,000. Another firm, Pixel Magic, opened an office in Lafayette for cost reasons, but wholesale fiber was a factor.
Building locally keeps the money local, too, to pay for local workers to build the network and handle the call center. “When you call the phone company for help, they’re going to know how to pronounce Boudreau and Thibodeaux,” Durel said.
There was also the question of equity. When Verizon and other firms build out fiber to homes and neighborhoods, the companies go where they think people will pay. “Verizon has made a commitment to fiber on all new developments and into areas that will pay for them, the more affluent areas. I can understand that,” Durel said.
But that’s not the goal of a city. Every home in Lafayette qualifies for this service, which isn’t subsidized. “The poorest parts of town are not going to get it any cheaper than anyone else,” Durel said, but he noted that some homes paying for television and phone service would be able to switch to the city network, add broadband, and pay the same amount or less.
Durel noted that during the legal battle and then the network buildout, Baton Rouge received multiple rate hikes while Lafayette did not. He believes the city’s competition saved citizens in the parish as much as $10 million over that period.
With a few months to go on the complete buildout, Durel thinks Lafayette has something nearly unique, and I’d have to agree. Durel believes that it will be 10 to 15 years before much of America has what Lafayette built. “I think that America will catch on,” he said.
At the moment, Durel and LUS are being coy about the precise uptake rate—the number of people signing up for one or more services when fiber arrives. He said that the target was 23 percent, and that in areas receiving service they are “well above the target.”
What lessons can Seattle learn from Lafayette’s nearly complete multi-year effor? Quite a few.
It’s okay to pick a fight with a giant telecom and cable firm. Durel fought against BellSouth, and subsequently AT&T, as well as Cox Communications, the cable operator. Seattle has a weak opponent in Qwest, which has barely begun to bring fiber-to-the-neighborhood service into the area. Comcast is a more serious threat.
However, Durel said that the lengthy legal battle was a big win for the city. The city spent $1.2 million in legal fees, but estimates the delay saved $8 million in equipment costs because fiber gear dropped so much in price during that period. Citizens got a better and faster network, too.
A public fight over fiber meant the public knew more about fiber. Durel said the cable and telecom incumbents “were their own worst enemy. The more controversy they made out of this, the more they educated people.” The local newspaper covered the legal battle fairly, Durel said, and most people understood what they’d get from the new network by the time it launched.
Incumbents step up. After the network started being built, incumbents have kept rate increases low, while donating more to the local community. “I can tell you: some of the providers here are doing more for the community than they have ever ever done for this community: not a little bit, but millions of dollars, for our university, for various nonprofits and things like that,” Durel said.
Watch for dirty fighting from opponents during the first years of building. The Lafayette system relies on revenue bonds, as would Seattle’s—bonds that are paid not out of taxes, but existing revenues. “While the incumbents tried to throw a lot of fear out there about taxpayers being at risk, that was never the case. It was always going to be paid off with revenue bonds,” Durel said.
For the same reason, the fiber system will report debt for its first several years of operation, as it builds out heavily, but has too little revenue from early customers to offset debt. Lafayette’s business plan calls for a break-even position years into operation over a 25-year bond payback period.
Analysts say that early break-even revenues are a bad sign, because that shows that too few subscribers are signing up, and less is being spent on the upfront infrastructure investment. The more critical number to look at is whether the per-home cost of installing the service is within the target range for when the bonds were sold, and whether the uptake number (the number of people signing up for the service) is within the projected ranges. The churn rate, or the percentage of subscribers canceling, is useful as well, because every subscriber costs the system thousands to install a fiber link, even if they get rid of the service.
If you’re mayor, don’t put service in your own house first. At one point during the interview, Durel said he had just gotten fiber into his neighborhood a few weeks ago. I stopped him, laughing. “You didn’t get it first?” I asked. Durel also laughed and said, “my neighbors got mad at me” for making sure he gets any city benefits last. They want him to move, he said.
Greg Nickels might have been re-elected had he put the same message out to city departments: his street might not have been plowed ahead of higher-priority areas (he didn’t ask for this, apparently), and he might have assessed conditions as far worse, and changed the snow response earlier.
But then we wouldn’t have the possibility of getting this fancy new fiber-optic network, would we?
