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Towns prove success with broadband

March 29, 2004

By HEATH HIXSON
Kane County Chronicle

For slightly more than $80, residents in Dalton, Ga., receive high-speed Internet, phone service with long distance and 80 cable TV channels.

All three services are offered through the city's public utility, Dalton Utilities, which spent $20 million to upgrade its electric service to a fiber system and provide telecommunications services to residents, said Don Cope, Dalton Utilities president and chief executive officer.

A similar relationship allows Tacoma, Wash., residents to receive about 125 cable channels and high-speed Internet service through the public utility, Tacoma Power. Residents pay about $64 for both services.

When Tacoma Power wanted to upgrade its electric system to fiber but no private company wanted to invest, the utility also found that an upgrade to fiber meant the possibility of providing telecommunications services to residents, said Diane Lachel, spokeswoman for Click! Network, which is Tacoma Power's telecommunications arm.

The cities are part of a nationwide trend of public utilities that offer electric service or city governments stepping into the telecommunications market to offer services to residents. And many of these cities are succeeding in their new venture, said Jim Baller of The Baller Herbst Law Group, a national telecommunications law firm.

"The trend of interest on the part of localities is continuing, and it is strong," Baller said. "I think it is where cities have electrical utilities of their own they tend to focus on fiber projects. In the case where localities do not have their own fiber, they are working with groups who are experienced or they are working on wireless technology."

Activists with the Tri-Cities group Fiber for our Future want to create a similar public utility to offer phone, Internet and cable TV services to Batavia, Geneva and St. Charles residents. They have vowed to make another attempt to win over voters who rejected the idea a year ago.
Each of the three cities has its own electric utility.

But the activists are sure to again face massive opposition from telecommunications giants Comcast and SBC, who opposed the last effort. If voters approve the initiative, the companies would stand to lose thousands of customers in the Tri-Cities.

Back to the ballot
Proponents argue that municipal broadband services would result in cheaper rates for residents who now receive service from Comcast and SBC, and a local utility would wrest control from corporations whose headquarters are not in the area.

"This is just like the utility companies over 100 years ago. People are paying too much. We are paying artificially high prices," said Annie Collins, Fiber for our Future chairman. "The money stays here with a city-owned system. Local control, local accountability and your money stays here."

But to create the system, the group again proposes that voters allow the three cities to sell nearly $60 million in tax-backed bonds to fund the creation of the utility and the fiber-based system. The bonds would be paid off by users through their rates.

Tacoma and Dalton utilities used cash reserves or loaned themselves money from cash reserves.
Fiber for our Future activists are launching a petition drive to qualify referendum questions for the Nov. 2 general election that would ask voters to allow the Tri-Cities to sell the bonds.

However, in April 2003, nearly 60 percent of Tri-Cities' voters rejected similar referendums after Comcast and SBC dumped tens of thousands of dollars into the area as part a campaign to short-circuit the public utility plans.

Telecommunications companies' opposition
Comcast spokeswoman Patricia Andrews-Keenan said a telecommunications public utility duplicates services that Comcast already offers to residents and questions whether such a utility would be the best use of local dollars.

"From the Comcast standpoint, we have really invested a lot in those communities, we offer a multiplicity of services in the area," Andrews-Keenan said. "Is that really a good use of local funds?

SBC spokeswoman Andrea Brands agreed, but also called the venture too risky for municipalities because it could lead to financial difficulty for cities if the utility were to fail.
"Certainly, our hopes would be the same (as the last referendum), and that the consumer fully understands what services are available to them right now and what risks are involved," Brands said.

Neither corporate official would say whether the companies would oppose the new effort by Fiber for our Future.

Andrews-Keenan said the venture is risky because municipalities do not have the infrastructures, experience or knowledge to efficiently operate a telecommunications business. She said those services should be left to private enterprises that provide such services.

"It is what we do," she said. "It is not the expertise of the citizenry there."

Each of the Tri-Cities have fiber systems that link their respective offices and schools in some cases. The cities have operated their own electric utilities for several decades.

Municipalities succeeding
Anecdotal evidence shows municipalities that supply telecommunications service can provide cheaper and better service. In addition, some cases show that when a municipal utility enters into the market, competitors lower their prices for services, said John Kelly, American Public Power Association director of economics and research.

Kelly said opponents to municipal broadband systems initially funded by bonds have yet to show evidence of one of these utilities failing.

Tacoma Power decided to step into telecommunications service when the local private telecommunications company was not willing to invest in service upgrades. Tacoma Power decided to fund the upgrades to a fiber-based system and then realized that the fiber technology could be used commercially.

"We wanted to work with the privates, but they were not interested. We decided to build our infrastructure just for our own use," Lachel said. "The infrastructure is the same infrastructure that is serving the utility's need. The infrastructure was going to be built anyway. What we did was add a few components to provide commercial services."

The utility launched commercial services in August 1998.

Lachel said Click! Network now has nearly 23,000 cable TV customers in its service area, which includes 68,000 households and represents 32 percent penetration. The original business plan called for 25 percent market penetration, she said.

"We consider that pretty successful," Lachel said.

Click! Network also offers Internet services through three regional providers that sell the service to residential customers. Those providers have at least 10,000 customers. The utility also sells wholesale broadband to businesses, Lachel said.

In Georgia, Dalton Utilities also decided to jump into the telecommunications industry after upgrading the utility's electric system.

Cope said when the utility was installing fiber to upgrade its electric system, it realized that increasing the amount of fiber and adding equipment would allow them to offer phone service and data services, such as cable and Internet.

Dalton Utilities' residential service was launched in August. Cope said the response has been very positive, and the utility has seen 38 percent penetration into its first service area in central Dalton that includes 3,800 dwellings.

"The only problem that we have encountered is that because we are doing direct fiber to the home, there are some installation issues. I can't marshal enough resources to install it as fast as people want it," Cope said. "We might have had better penetration."

Reprinted by permission Kane County Chronicle © 2004

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