Last month the Board of Estimates approved a $157,000 contract with Magellan Advisors, now given the task of identifying the costs, benefits and risks of expanding Baltimore’s broadband capabilities, as well as identifying “key anchor tenants” that might lease portions of an expanded fiber network owned by the city.
Expanding fiber options was one of several initiatives city CIO Chris Tonjes, now a year into his job, highlighted as a chief part of the Mayor’s Office of Information Technology‘s new mission.
Christopher Mitchell of the Institute for Local Self-Reliance calls hiring Magellan “a smart start.” Mitchell heads up the institute’s Telecommunications as Commons Initiative, and in an interview said, “Continuing to have last-generation Internet access is intolerable. Baltimore has to do something.”
Now seems to be the opportune time. Consulting with a broadband Internet firm is a first step, although it’s not for a lack of trying that Baltimore still contends with “last-generation Internet.”
The city was passed over by Google in 2011 after a failed grassroots effort to entice the search giant to build a high-speed fiber network here. Earlier this year, residents representing several of Baltimore’s northern neighborhoods held a town hall-style meeting with Comcast and Verizon representatives in an attempt to corner them on why more offerings of higher-speed broadband options are unavailable.
Some of this, as Baltimore City Paper smartly acknowledged, is because of “regulatory capture and monopolistic pricing.” Cities tend to be underserved yet beholden to large Internet-service providers and cable companies, in part because of how expensive it is to construct a fiber-optic network.
Baltimore city, for instance, has a cable franchise agreement with Comcast through 2016, and while CIO Tonjes is eyeing renegotiating that contract, he also told the Baltimore Business Journal he won’t use the consulting process with Magellan to “demonize Comcast.”
National academic Susan Crawford explains why U.S. Internet access is “slow and costly”:
Of course, some of the thrust for establishing or expanding city-owned fiber networks — and there are roughly 340 communities nationwide with municipally-owned fiber networks — is to not only invoke the specter of price competition, but to also follow through on it.
Big telecommunications firms send lobbyists to the legislative bodies of state government to block building such networks, mainly because they have their intended effect on broadband pricing, provided a city can clear the initial hurdle of finding the capital to build its own fiber network.
In a Baltimore Sun op-ed, state senator Catherine Pugh channels this cost concern as an argument against Baltimore city expanding its fiber network, citing such cities as Chattanooga, Tenn., and Provo, Utah, as “fanciful boondoggles,” examples of municipal broadband gone wrong by city officials ill-advisedly flirting “with an idea that should have been discarded years ago.” Never mind that Pugh can count Verizon and Comcast among her campaign donors, according to data from FollowTheMoney.org.
But Chattanooga and Provo are perhaps two of the better examples anyone could have given for why Baltimore should formulate a plan to significantly expand its own fiber network. In Chattanooga, where gigabit-speed Internet is delivered by the city-owned electrical utility (an advantage Baltimore doesn’t have), revenues from the fiber-optic network increased to $66.5 million in fiscal year 2012, with 37,000 residential customers signed on. The expenses to the city? Hefty at $59.9 million, but lower than total revenues.
As Mitchell notes, the more salient case is Provo, where a city-built fiber network is now being upgraded by Google following Provo’s selection as the second U.S. city to get Google Fiber. There, Comcast “has lowered their prices and increased the speeds of broadband to their customers,” he said, which is “exactly what they would do in Baltimore” if this city managed to meaningfully upgrade its fiber network.
In fairness, Pugh makes the legitimate point in her op-ed that for a city to build or expand a fiber network is a risky maneuver. No one denies how capital intensive such projects are. As Mitchell puts it: “It’s just hard to imagine Baltimore wanting to take on a major investment with major risk when there are so many competing problems.”
Sure. What about this city’s crime rate? What about it’s ailing public schools system? How best does city government allocate limited financial resources?
But what opinion pieces like Pugh’s fail to realize is that a city-owned fiber network won’t be in a position immediately to compete directly on revenues with a big cable company like Comcast. The biggest cost for a city with its own fiber network is connecting residences, Mitchell said, a losing proposition if cities are unable to sign up a mass of its residents within the first two or three years. Anything like a fiber-to-the-home broadband arrangement in Baltimore is a long way off, if achievable at all.
But when a city owns its fiber resources, it can offer the bandwidth for lease to the lowest bidder — which could be Comcast, as Tonjes told the Baltimore Business Journal — while enjoying some happy externalities, among then increased property values and a 21st-century infrastructure, which might do more to attract companies to Baltimore than tax-increment financing just to abate this city’s high property tax rate.
“Cities can take losses for more years than a private company can, and they’ll eventually break even,” said Mitchell. “It makes [municipal broadband] a much more compelling investment for cities.”
Mitchell thinks the model for expanding Charm City’s broadband offerings should be one for which city CIO Tonjes has demonstrated an interest by bringing on this broadband consultant: do an initial overbuild of the existing fiber network, serve some of those anchor tenants in the private sector — schools, libraries and such — and expand the network in incremental stages if it makes sense.
“For Baltimore to launch right into providing services directly, it’s a very high risk. It’s not something we would advise a city to just dive right in to,” Mitchell said. “Deliver modestly, develop experience, and then re-evaluate.”
Projects: Baltimore Fiber