Will Santa Fe Strategy Be a Message to Munis?
A relatively small municipal network project in New Mexico has sparked some big local controversy, prompting cries of government favoritism, complaints about misuse of government procurement processes, and accusations of municipal ignorance about local competitive conditions.
Despite its size, the project and the ensuing debate could provide some valuable guidance for municipalities pondering network projects, as well as the network operators seeking their buildout business.
The situation stems from the City of Santa Fe's beliefs that despite the presence of several service providers, its residents don't have enough options for high-speed broadband service -- and that the options they do have are too expensive. The city considers incumbent CenturyLink Inc. (NYSE: CTL) to be a bottleneck that causes Santa Fe residents and businesses to get half the speed that nearby Albuquerque users get for the same price.
The culprit, city officials maintain, is a two-mile CenturyLink fiber route that extends from an optical regeneration and amplification site just outside Santa Fe into the city center. According to the city, the incumbent's control of that route blocks other carriers from buying affordable wholesale bandwidth and passing the lower costs on to customers.
"All of the Internet anyone can buy in Santa Fe goes to CenturyLink," says Sean Moody, special projects administrator for the Economic Development Division of the City of Santa Fe. "We're going to create the conditions for a competitive market to replace that."
The city's proposed resolution was to issue an RFP for a $1 million project the city believes will create more wholesale pricing competition, stimulating faster speeds and lower broadband prices for residents. The proposed project calls for a two-mile fiber pipe to run parallel to CenturyLink's, connecting the central office to a new, neutral co-location point for wholesale fiber providers and retail carriers. The project was authorized by Santa Fe city council as part of a capital improvements bond issue in 2012.
"The goal is to create a viable competitive wholesale market in Santa Fe," Moody says. "It will result in lower wholesale prices, which will create the condition for providers to provide higher speeds."
Several operators replied to the RFP, including CenturyLink, Plateau, CityLink Fiber Holdings, and Cyber Mesa. The city selected Santa Fe-based CLEC Cyber Mesa as the sole contractor on the project, but only after it halted the procurement process for several months and then used a utility procurement law that allows the city to skip the competitive bidding process when selecting a utility service such as a water or power provider.
Moody said telecom falls into that category. John Brown, president and co-founder of Albuquerque-based CityLink, vehemently disagrees.
"The reason the loophole exists is to help save the city from unneeded costs of procurement, and it makes sense when it's applied as it's supposed to be and not abused, as it's being now," Brown says. "It's highly anti-competitive, and my personal opinion is that the attorney general's office needs to investigate."
CityLink submitted a plan to use the city's money to build a seven-mile fiber ring connecting parks and city buildings, from which it would extend fiber to the premises at its own expense, echoing its architecture in Albuquerque, Brown says. CityLink was told it was one of two finalists, but Brown believes Cyber Mesa was a shoe-in from the start and that the city is biased against his company.
"Cyber Mesa is the local hometown team," he says. "To a certain extent the city is pissy with us because we've threatened litigation to get them moving, and they don't want to have anything to do with us. This is New Mexico politics."
Moody maintains that the selection process was sound and used a three-person selection team of which he was not a member but only a facilitator -- a contention Brown calls "bullshit." "Sean Moody directed, controlled, and steered the entire process," he says.
Moody says CenturyLink told him not to waste money on the project, and Plateau's ideas weren't comprehensive enough. As for CityLink?
"He's selling gigabits to residences. That's a very good program, and I would love to see that in Santa Fe," Moody says. "If John Brown is alienated, it's because he feels he has a better program. He has an excellent program, but it wasn't what we were looking for."
CenturyLink, for its part, declined a request for an interview and would not respond to an email query about CenturyLink's own response to the RFP or directly address the contention that its fiber route into Santa Fe makes wholesale access unaffordable for other providers. David Gonzales, market development manager for CenturyLink in Albuquerque, referred Light Reading by email to the same statement the company provided to the Santa Fe New Mexican -- a statement that seems to at once lambast the city's approach and defend the Santa Fe market as competitive and open.
"While we believe that public broadband networks that compete directly with private industry are not the best use of taxpayer dollars, we support government initiatives to leverage existing infrastructure and extend broadband service to unserved areas," Gonzales wrote. "Consumers and businesses have a variety of choices when it comes to choosing an Internet provider, including cable, wireless and satellite providers. We operate in a competitive marketplace."
Cyber Mesa, which won the project from the city, dismisses Brown's ire as "sour grapes" and says it is eager to get started on the buildout.
"We have a contract with the city -- signed, sealed and delivered," says Jane Hill, president of Cyber Mesa. "We're trying to get quotes from contractors and I'm working hard to get the first part of this project under budget. The less we spend, the farther we can extend the fiber."
Hill believes a fiber-to-the-home project like CityLink proposed shouldn't be the domain of a municipality anyway.
"Google can do that, but I'm not sure a government entity is well-suited to that kind of a project," she says. "The idea here is to start in a way that will bring in competition and offer better wholesale rates, and hopefully that will stimulate more development."
Beyond the fiber run, Cyber Mesa is also putting in a data center to give non-CLECs access to the network and put competitive providers closer to end customers, she says.
Under the conditions of the contract, the city has created a wholly transferable entity called Santa Fe Fiber to sell wholesale capacity. After four years, Moody says, the city has the right to designate an entity other than Cyber Mesa to operate Santa Fe Fiber.
"All of this was to fit into existing law and not compete with providers," Moody says. "We will never be a telecom provider and we will never be a CLEC."
Moody describes the solution as a "light touch" that is intended to encourage market-based solutions. Other municipalities have taken similar approaches, opting for public/private partnerships to promote competition and economic development rather than providing services themselves. (See Taking a Different Path to 1 Gigabit.)
"I want to keep intact the incentive for a fiber provider to build out their own network, or connect to anchor institutions, or increase broadband speeds using LTE or fixed wireless," he says. "I don't want to step on any market forces that are doing their jobs. It's the least thing I could do that I thought would create a viable market."
Time will tell whether the city's approach will indeed bring more broadband offerings to Santa Fe and drive market pricing down -- or if any of the jilted providers decide to file a lawsuit against the city, as Brown of CityLink believes will happen. ("I suspect at some point CenturyLink will take litigation action against the city over this," he says.) And depending on the outcome, one relatively minor municipal project could end up providing valuable lessons for municipalities about vendor selection processes, evaluating competitive bids, and how -- even if -- a municipality should get involved in the world of broadband competition.
— Jason Meyers, Senior Editor, Utility Communications/IoT, Light Reading