Community Anchor Institutions Served by Government and Non-Profit Fiber Networks

The SHLB Coalition developed Connecting Anchor Institutions: A Broadband Action Plan to provide ideas and actionable policy recommendations for government leaders at the federal, state, and local levels to address the broadband needs of anchor institutions. The ten policy papers highlight connectivity gaps and explain why broadband access is vital to communities nationwide. In the coming weeks, the Benton Foundation will be highlighting each of the Action Plan policy papers. The following is an excerpt of the sixth paper. Later this month, we'll be looking at government funding of networks. To read the complete Broadband Action Plan, visit www.shlb.org/action-plan

Introduction

State and local governments have been providing anchor institutions with high-speed data connections using fiber-optic networks for several decades. Indeed, tens of thousands of schools, libraries, community centers, and public health and safety providers obtain their broadband connectivity from local government and state non-profit networks, including state research and education networks. Policymakers should strongly consider developing or augmenting their municipal or statewide governmental or non-profit networks to ensure that their anchor institutions have the highest-quality broadband connectivity, to establish a foundation for economic growth, and to meet fundamental societal needs.

Government and non-profit anchor networks generally do not require short-term profits and, in most cases, can focus on long-term and community-based goals. These networks enable anchors to benefit from high bandwidth and reliability at reasonable per-unit pricing. These networks also benefit the private sector; many anchor networks lease excess capacity to and from commercial providers. While some criticize municipal broadband providers that serve residential customers, there are very few objections to networks that focus on serving anchor institutions.

Addressing the Unmet Needs of Government Agencies and Anchor Institutions

Anchor institutions often cannot afford to purchase high-capacity circuits from the private sector; rather, anchors simply cap their bandwidth and choose not to deploy applications that require high bandwidth. In other cases, high bandwidth capacity is just not available to anchor institutions at any price because the commercial carriers have not deployed the required infrastructure in that region.

Fiber-Based Networks Offer Affordable Scaling as Needs Grow

Fiber-optic networks have a useful life of decades because the capacity can be upgraded simply by changing the electronics at the end of the fiber. These networks are capable of supporting greater speeds and bandwidths as anchor institution needs and applications grow. Anchor networks commonly upgrade any one of their backbone fiber pairs to hundreds of gigabits per second – which is often faster than available commercial service offerings. Further, government and non-profit anchor networks often offer increases in capacity at little or no increase in recurring costs to the anchor because of how they typically structure their cost recovery models. Cost savings from aggregating traffic from multiple users sharing the
same network are passed along in the form of lower prices to all users, including the anchor institutions.

The Efficiencies of Shared Construction

Many of the government anchor networks in operation were built through the economically-efficient mechanism of shared construction, in which agencies and organizations agree to build cooperatively and simultaneously.

A Platform for Last Mile Deployment to Homes and Businesses

Local government and non-profit anchor networks often realize yet another key efficiency – these networks also can serve as an open platform for last mile deployment, both public and private. By their nature, most government networks to anchor institutions will reach deep into neighborhoods that house schools, libraries, public health offices, and government facilities such as water towers and fire stations. Many localities then lease excess capacity to private sector providers to enable service provision and last-mile build-out in the neighborhoods. This trend is fast accelerating as hundreds of localities make available spare fiber optic capacity to private carriers at rates designed to catalyze new private sector investment and opportunity.(1)

Strategies to Finance Government Anchor Networks

There are several strategies local and state governments have used to finance anchor networks. Where there is sufficient leeway in the general fund, governments can appropriate funds to cover the necessary initial capital expenditure, either on a one-time or multi-year basis. If there is not sufficient leeway in the general fund, a number of municipalities have used general obligation bonds, revenue bonds, or certificates of participation to finance the network build-out.

While these financing strategies do come at a cost, the lack of a high-capacity anchor network can pose a greater threat to the community’s long-term financial situation. Government agencies’ and anchor institutions’ demand for bandwidth will continue to grow in the coming years. Failing to invest in high-capacity broadband can impede the community’s economic growth.

Anchor networks tend to have a relatively modest payback period, with the initial investment often being offset through avoided costs in roughly 3-10 years. This holds true even when bonds are used to finance the network build-out, taking into account the cost of servicing the debt.

Once constructed, there will also be ongoing operational costs associated with maintaining the network. Often, the network manager charges agencies and anchor institutions fees for their use of the network that are limited to the actual operational costs. Most networks have been able to reach financial self-sufficiency while charging agencies far less than a private carrier would charge for comparable services.

There is also growing interest amongst private financial institutions willing to invest in municipal networks. Local governments may be able to find alternative means of financing government anchor networks using private capital.

Addressing Criticism of Municipal Networks

Despite numerous examples of successful municipal networks providing broadband services on a wholesale or retail basis,(2) some critics argue that such networks unfairly compete with private industry and can pose a risk to taxpayers. While much of the criticism is unfounded and based on factual errors,10 these criticisms are largely irrelevant to anchor networks. Very few of the critics of municipal retail and wholesale networks argue against municipalities’ right to own and operate a network to meet their agencies’ internal needs. Commercial companies generally do not question anchor institution networks in part because these networks are analogous to private, corporate networks that are usually provisioned by commercial companies.

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Notes:

1. The value of shared construction and open access and interconnection policies are also addressed in Promoting Competition for Broadband Services in this Action Plan.
2. See, for example, Andrew Cohill, “Danville Transforms its Economy with Fiber,” Broadband Communities Magazine (November 2011) http://www.bbpmag.com/MuniPortal/EditorsChoice/1111editorschoice.php; Jon Brodkin, “Where Broadband is a Utility, 100Mbps costs just $40 a month,” ars technica (August 4, 2015) http://arstechnica.com/business/2015/08/how-a-small-city-offers-60-gigabit-fiberwith-no-taxpayer-subsidies/; Todd O’Boyle and Christopher Mitchell, Carolina’s Connected Community: Wilson Gives Greenlight to Fast Internet, Institute for Local Self-Reliance and Common Cause (December 2012) http://ilsr.org/wp-content/uploads/2012/12/wilsongreenlight.pdf

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About the author
Joanne Hovis is president of CTC Technology & Energy, where she heads the firm’s work in network business planning, market analysis, financial modeling, policy, and strategy. Joanne advises cities and states regarding how to build strategy and opportunity for public–private partnerships in broadband. She led the CTC teams that developed first-of-their-kind partnerships for the Commonwealth of Kentucky, the City of Santa Cruz, and the Champaign-Urbana Big Broadband consortium. Joanne is a former president of the National Association of Telecommunications Officers and Advisors (NATOA) and serves on the boards of the Fiber to the Home Council, OneCommunity, and the Benton Foundation.