Home
About
Contact US
Northern Colorado Broadband

Dear Mayor Marsh and Loveland City Councilors


An in depth analysis of the current situation regarding the city wide broadband project.

Roger Ison

February 5, 2018

  Six hopeful broadband partners put the best light on their propositions at the January 30th pitch night, offering options, opinions and proposals along with some ambiguous claims and a few disingenuous statements. This was also an opportunity to observe and reflect on City Council’s process and approach.
Among these presenters, only Allo and Foresite seem like serious possibilities. CenturyLink seemed directionless and unprepared, hinting that they’d get their act together if only someone else would bear the cost. Mox and Sherpa rather small and inexperienced for a project this important.

Comcast has been working very hard to improve customer service and has made great progress. Even so, it makes no sense for Loveland to help further entrench the already dominant provider. That would not improve competition in Loveland’s broadband market. Comcast offered no changes to their business model to support Loveland’s stated broadband objectives, and specifically they feel no obligation to provide city-wide access. Comcast experiments with pricing to discover what each market will bear.
That’s very different from a community utility that offers everyone the best service at a low, stable price.
*****
Foresite proposed a European-style open access model, which has been deployed in a few U.S. municipalities. One of the underlying ideas in the Internet’s seven-layer technology architecture is that each “layer” (from physical/electrical to data transport to information content) can be provided by any
number of suppliers. That was a foundational argument for not regulating the Internet, but in the United States things didn’t develop as hoped in low-density markets like Loveland, because it’s very expensive to construct these networks.

Foresite presented Sweden as an example, but in Sweden as everywhere else, telecom technology developed and evolved over time. Like Loveland, Sweden still has a mix of DSL, cable, and fiber.
Foresite’s assertion that an open access network must be purpose-designed and built from the ground up is an overreach, and that is not how open access was born in Sweden. Any Internet-compatible broadband network can support open access, and it can be adopted now or later. Some wasted motion and expense could be avoided by planning for open access from the outset – if that’s what the City wants.

Open access is a sound idea that can increase competition. But if the City provides the fiber-optic infrastructure and data transport services as proposed, there will ultimately be relatively little difference among service providers on the network except the content they offer. It’s cool that customers could switch to a different provider in 20 seconds, but with fiber everywhere, why would they want to do that? In the long run, mainly to access different content offerings (e.g. entertainment). However, content is already disaggregating and unbundling. More and more of it can be bought separately.
Bundled providers are resisting, but this genie seems to have escaped his bottle. Companies are already emerging that offer selections of content to Internet-only subscribers; Loveland might not need to do that. Today you can subscribe to Google’s YouTube TV for $35 a month. That gets the primary Denver TV networks, a good selection of entertainment channels, all the important sports
channels, and an unlimited “cloud” video recording service. It’s still very buggy and awkward to use but will get better. Any decision about the best way to get the fiber-optic network infrastructure Loveland wants can be and should be evaluated separately from the open access decision.

[Full disclosure: We’ve been trying YouTube TV for two weeks; so far, Susan hates it while our daughter is fine with it. Still too many rough edges, but it saves $75 a month compared to DirecTV for the same sports coverage. That’s $900 a year … almost as much as the Republican tax cut … 10,000 families could save $9,000,000 a year. It’s certainly not an exact DirecTV replacement, but this snowball is on a downhill slope.

Foresite could be a serious candidate to design and cost out a municipal network. Their most important takeaway point was this: If you like open access, you really should own and control the infrastructure to avoid conflicts with providers and their content offerings.
*****
Allo proposed a full package. To unpack it, let’s begin with financing. Allo proposed that the City could participate by providing up to 50% of the investment. Why 50%? Maybe because above that level, Allo would lose control of the asset and the business.
This reminds us that Allo has already been bought once. In an industry with a strong tendency to consolidate, Allo’s owners and investors won’t want to miss out. It is reasonable to assume that being a service provider to Loveland is less important to them than owning and controlling the asset.
I spoke with the Allo guests after Council adjourned. I’m willing to be corrected if I misunderstood, and it was very late at night, so maybe people didn’t speak with full care and precision, but here’s what I took away from the conversation. They think Allo can build our network for 40% less cost than we could. Yet construction costs are mostly determined by the physical layout: how much cable must be buried, how many drops to residences and so on.

If someone offered to build me a new house for 40% less than nominal costs, I’d be skeptical. To have confidence in their proposal, we’d have to know how much it would cost Loveland to do the job or hire it out; then we’d have to understand why, exactly, Allo could do it so much less expensively. Less diligence than that would amount to naïve, credulous negotiating by the City that could produce a deal unintentionally built upon unsustainable expectations. I’m not suggesting any kind of bad faith, just that assumptions can be wrong.
One Allo rep liked the fat profit stream after the debt is repaid. Sure: for a commercial provider, isn’t that the whole point? And if Loveland wants to help them get there sooner by providing some of the funding … what businessman wouldn’t love that? But then how would revenues be divided, before and after the debt is repaid? The City should get more than just leasing fees. And if Allo falls into distress due to some unforeseen circumstance, then what?

Our Allo guests emphasized that they also provide video content. I didn’t find this reassuring, and the reason has to do with pricing. In their presentation, Allo suggests subscriber prices similar to what a Loveland municipal utility could offer. Yet their cost of capital and alternative investment opportunities must be at higher rates than tax-advantaged municipal bonds. It’s true that Allo already has a network operation center whose costs they could leverage, but so does Longmont, and working with Longmont should be less expensive and less risky than a for-profit commercial partner.

So how could Allo offer and sustain those prices? Part of the answer might lie in profit from channeling content, but as the content business unbundles and disaggregates, Allo’s overall profit margin could get squeezed. Then they might raise prices or sell the business to a new owner who will raise prices. And that business sale price would certainly be higher than the original construction cost, because the network will be up and running and subscribed. If Loveland is reluctant to pay to build this project now, the City sure as sunrise won’t pay to buy it once it’s up and running. And how would we get along with a new owner? Impossible to know.

Allo’s content business would also be conflicted if Loveland wants to go open-access in the future, because all the other providers would have to do deals that funnel some revenue to Allo. That feels very messy and might be incompatible with Allo’s financial expectations, because a pure, open access data transport provider is like a bus route: it wouldn’t make much money. Anyway, that choice would not be ours to make if Allo owns the controlling interest. Again: it really does matter who owns the network.
There’s an enormous difference between a partnership or tax subsidy for a shopping center or low-cost housing, vs. a key piece of infrastructure that is vital to Loveland’s future, which for economic development reasons needs to match or surpass what our neighbors offer. Beyond the fact that under Allo’s proposal we wouldn’t own and control the network, there are other reasons for caution. An obvious one is simply that Allo and its parent have other businesses. If they get in trouble elsewhere, or their owner-investors find alternative uses of their money that become more attractive, that could have a big impact on Loveland.
*****
Yet I cannot recall, during the past two years, a single question from any Councilor aimed at understanding the best we could do in partnership with our neighbors. Council cannot responsibly choose between a PPP and a public-public partnership without asking in depth: What could the City do, and how could Council constructively contribute, to make a public-public partnership work well for Loveland? What would that look like? Estes Park and two municipalities south of Longmont are evaluating this. Longmont is open to the idea. Why isn’t Loveland?

We work with Longmont and Fort Collins constantly and well. PRPA operates so smoothly and effectively that most citizens never give it a passing thought. Sharing broadband costs such as the network operations center, marketing, repair and maintenance capacity, and backbone data transit fees would reduce the risk and shorten the debt repayment for all our cities. We know that fiber-optic broadband service can exist very comfortably as a utility, and it should be easier and less risky to work with our neighbors who are doing the same thing, whose motives and objectives align with ours, than with a commercial partner.

Northern Colorado is one of the most economically dynamic regions in the United States. To prepare for the future, which is a key responsibility of government, Loveland must be equally dynamic and forward- looking. The better this City is positioned in our regional context, the more we participate in regional resources, the more attractive Loveland will be to businesses, investors, new residents, and a diverse labor force.

For all these reasons, the next step should be an engineering study to determine how much it would cost to build a city-wide network. This study is needed whether Loveland builds and operates a utility, or ultimately negotiates a deal with a commercial partner. I also hope that Council will invite Tom Roiniotis to discuss partnering with Longmont in front of the public.

I know this project requires hard, polarizing choices. Beyond its complicated technical and financial aspects, the broadband decision touches ideological beliefs and emotions, indebtedness and risk tolerance, aspirations, and the duty to responsible leadership. Positions harden, people listen without hearing, debates become arguments. It’s easy to fall back on gut reactions when the community would be better served by analytical clarity. Respect gets lost, and then the team doesn’t work together as it should. Please accept my kind regards, my best wishes for Loveland, and my thanks for your efforts.

Roger Ison
  ​
 

You can edit text on your website by double clicking on a text box on your website. Alternatively, when you select a text box a settings menu will appear!

This area is fully editable and gives you the opportunity to go into more detail about your business, what you do and what sets you apart from the competition. This area is editable and gives you the opportunity to go into more detail about your business, what you do and what makes you just that little bit special. This area can be fully edited and gives you the opportunity to introduce yourself, your website or company, your products or services. This area is 100% editable and you can use it to say whatever you wish to your website visitors. All the images are fully editable so you can add your own to customize each page.

Remember to keep your wording friendly, approachable and easy to understand…as if you were talking to your customers. You can edit text on your website by double clicking on a text box on your website. Alternatively, when you select a text box a settings menu will appear. Selecting ‘Edit Text’ from this menu will also allow you to edit the text within this text box.
 
You can edit text on your website by double clicking on a text box on your website. Alternatively, when you select a text box a settings menu will appear. Selecting ‘Edit Text’ from this menu will also allow you to edit the text within this text box.
This element represents the description field. You can edit text on your website by double clicking on a text box on your website. Alternatively, when you select a text box a settings menu will appear. Selecting ‘Edit Text’ from this menu.

This area is fully editable and gives you the opportunity to go into more detail about your business, what you do and what sets you apart from the competition. This area is editable and gives you the opportunity to go into more detail about your business, what you do and what makes you just that little bit special. This area can be fully edited and gives you the opportunity to introduce yourself, your website or company, your products or services. This area is 100% editable and you can use it to say whatever you wish to your website visitors. All the images are fully editable so you can add your own to customize each page.
 
Remember to keep your wording friendly, approachable and easy to understand…as if you were talking to your customers.