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Palo Alto FTTH Initiative Stalls

Light Reading
News Analysis
Light Reading
7/29/2005

Tech-friendly Palo Alto, Calif.’s initiative to provide broadband service over a city-owned fiber network appears to be losing momentum, raising doubts about the workability of the concept in other cities (see FTTP Gets Plenty of Airtime ).

The city council voted 5-1 Monday night to end a trial providing fiber infrastructure and broadband to 70 homes in one neighborhood in Palo Alto. The participants reportedly received 100-Mbit/s data service for $85 a month.

Palo Alto Councilwoman Yoriko Kishimoto tells Light Reading the trial was not discontinued because of looming legal threats from local broadband providers such as SBC Communications Inc. (NYSE: SBC) and Comcast Corp. (Nasdaq: CMCSA, CMCSK). Rather, she says, it was discontinued because council members do not believe constituents support spending public money to expand the project.

“It would have cost $40 million to roll the service out to the rest of the city, so we would have had to go to the general fund, and the constituents would not have supported that,” Kishimoto says.

Palo Alto, with its mix of community activism, social liberalism, and tech savvy, seems like the perfect place for municipal broadband to find grassroots support. That the idea is losing ground may be a bad sign for other cities now considering similarly ambitious plans.

At least part of the customer premises gear and switching equipment used in Palo Alto's trial was donated or lent to the city by Marconi Corp. plc (Nasdaq: MRCIY; London: MONI), Kishimoto says.

Another Palo Alto source says a local university promised to donate all the optical equipment needed to extend the trial, but the city council voted the idea down.

Meanwhile, the local incumbent carriers, threatened by the idea of losing ownership of local telecommunications infrastructure, are watching the situation closely (see RBOCs Cast Wide GPON Net). "We don’t think it's fair to the taxpayers,” says SBC spokesman John Britton. “We don’t think cities should be competing with private enterprise and putting the taxpayers’ money at risk, particularly if you are just duplicating the services already being offered.” (See SBC Sheds Light on 'Lightspeed'.)

Britton also downplays the support Palo Alto’s broadband initiative has attracted. "The way I understand it, it’s really just 12 to 14 people that are trying to convince the city council to do this anyway."

Proponents of municipally-owned networks see broadband as an increasingly vital utility -- just like railroad tracks or water mains -- that should be owned and controlled by the city. Service providers, whether they be Union Pacific, Pacific Gas & Electric Co., or SBC, would then pay fees to use it.

Since the mid-90s, Palo Alto has leased a city-owned dark fiber network to private enterprises and has shown a profit doing it. But the proposed $40 million dollar extension to the trial would have pushed fiber all the way to the household. The city would have acted as a service provider, not just an infrastructure wholesaler.

Interestingly, the Palo Alto trial did not offer a voice or video service. As such, the city could not have taken fire for taking video franchise or telephony fees away from providers it was competing against.

The council has voted to pursue a new plan in which the city would take only part of the financial risk in the fiber network. In a setup resembling the Utah Telecommunication Open Infrastructure Agency (UTOPIA) network, the city would own the infrastructure and lease access to all service providers wishing to run services over the network.

Kishimoto says city staff are busy putting together an RFP to attract a private company to operate the network. The financial terms of the public/private arrangement weren’t immediately available.

Still, the local incumbent providers are uncomfortable with FTTH network ownership by the city, and they may sue if the plan goes forward.

"I wouldn't say it is absolutely certain we would sue," SBC's Britton says. "We will read the RFP very closely."

— Mark Sullivan, Reporter, Light Reading

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opticalwatcher
opticalwatcher
12/5/2012 | 3:07:01 AM
re: Palo Alto FTTH Initiative Stalls
Palo Alto also has its own dam and is one of the few cities in the Bay Area where residents don't have to pay PG&E--Northern California's power company. Instead residents pay a much lower bill from the city.

Palo Alto has always wanted control over its telephone/cable systems and has been trying things like this since the 1800s.
See:
http://www.paloaltodailynews.c...

I don't necessarily think its the right thing to do (it's not like a road, there's lots of rapidly changing technology involved--do we want our cities having to operate this?) but nevertheless it apparently was profitable so it's somewhat suprising that they are canceling it. No doubt there was lots of influence by competing commercial interests.
ron202
ron202
12/5/2012 | 3:07:00 AM
re: Palo Alto FTTH Initiative Stalls
$85/month for Internet only access (no TV , no telephony) is kind of high.Not sure that they will have a lot of takers against a $25-30 SBC DSL service...
ron
stephencooke
stephencooke
12/5/2012 | 3:06:59 AM
re: Palo Alto FTTH Initiative Stalls
The figure of $40M seems misleading given that there appears to have been a whole bunch of donated equipment involved. I imagine that the city is also able to 'donate' the fiber right-of-ways which are one of the highest expenses for commercial deployments. I'm not surprised that the incumbents were nervous about this approach.

Steve.
Frank
Frank
12/5/2012 | 3:06:58 AM
re: Palo Alto FTTH Initiative Stalls
In consideration of the following snippet from the article:

"Since the mid-90s, Palo Alto has leased a city-owned dark fiber network to private enterprises and has shown a profit doing it. But the proposed $40 million dollar extension to the trial would have pushed fiber all the way to the household. The city would have acted as a service provider, not just an infrastructure wholesaler."

I ask: Does extending fiber to an end point constitute service provisioning? Or is it merely the extension of infrastructure that could be sold on a wholesale basis to upper layer providers?
rjmcmahon
rjmcmahon
12/5/2012 | 3:06:54 AM
re: Palo Alto FTTH Initiative Stalls
I don't necessarily think [municipal broadband is] the right thing to do (it's not like a road, there's lots of rapidly changing technology involved--do we want our cities having to operate this?)

I think a role for the local governments would be to raise the financing for the long lasting technologies. That's primarily the fiber and the interconnect facilities. The other pieces could be contracted out to third party providers. Management of the network would also likely be contracted out.

If the US is ever going to replace the access copper with fiber, there may be no other way but for every local community to pay for it themselves. (I think of it like buiding a school or a library where most of the money has to come from local bond issues.)

It's somewhat odd to me the phone companies don't actively support such projects as they would be the likely beneficaries in the end game. Maybe they'll change their position after they finish consolidating all the long fibers?

Also note, Citylink in Wellington, New Zealand looks interesting.

http://www.citylink.co.nz/
http://www.citylink.co.nz/info...

PS. Fiber access links are very much like a road in the economic sense. They are both public goods which can be under provisioned (if provisioned at all) if government doesn't take an active role. Roads have the benefit of gasoline taxes and land speculation to motivate their provisioning. Fiber access networks has neither which makes it a tougher nut to crack.
rjmcmahon
rjmcmahon
12/5/2012 | 3:06:53 AM
re: Palo Alto FTTH Initiative Stalls
The figure of $40M seems misleading given that there appears to have been a whole bunch of donated equipment involved.

I think you may be misunderstanding things, which is not surprising because the article was full of inaccuracies. The $40M is an estimate for a citywide system which includes purchasing the equipment. This is not related to the trial, where the equipment was lent (not donated). The trial is more of a proof of concept than anything.

I imagine that the city is also able to 'donate' the fiber right-of-ways which are one of the highest expenses for commercial deployments.

I'm confused by your comment here. Easements rights have always been something local governments manage. It wouldn't be in any local government's interest to overcharge itself for access to its own ROWs.
rjmcmahon
rjmcmahon
12/5/2012 | 3:06:53 AM
re: Palo Alto FTTH Initiative Stalls
$85/month for Internet only access (no TV , no telephony) is kind of high.Not sure that they will have a lot of takers against a $25-30 SBC DSL service...

This price was for the trial only which consists of about 70 homes which consists of fiber enthusiasts - so it's not really a "market" price. It's not representative of the prices for a city wide system.

I don't think anybody really knows the prices for access links supporting 100Mbs and 1Gbs to suburban US communities. Hong Kong is offering them for something like $64 and $234 per month, respectively, but they only serve high density buildings. I don't know if those prices would pay for the buildout in Manhattan or not. But the point is Hong Kong is building it out while Manhattan is not. That's not good for long term US competitiveness.
Balet
Balet
12/5/2012 | 3:06:53 AM
re: Palo Alto FTTH Initiative Stalls
I remember the FTTX city talks while living there at early 90s with a promise to have FTTH "in the next two years". Not too much changed since then.

It will be sure nice if "the small local University" with a couple of $Bs of revenue helps the city too.

An interesting thing is that while one of the reachest cities in the USA can not afford putting FTTX Network a bunch of cheaper towns all over the country is doing it happily. The secret is where to find some funding.

By the way, $85 for ISP in Palo Alto is nothing comparing to an hourly median income of an average citizen there.
Balet
Balet
12/5/2012 | 3:06:52 AM
re: Palo Alto FTTH Initiative Stalls
rjmcmahon: think the rural towns putting in fiber are getting subsidies from the wealthier ones. And even with the "free" money they aren't putting in access links of 100Mbs or better. Somebody, like those handing out the subsidies, would do better if they raised the bar such that rural communities had to meet real broadband standards.

Actually, several rural and not too rural cities/towns I am working with are designing in GPON links, asking for guaranteed 60-80 MB/s to each subscriber. Even most of typical IT directors are really damn when it comes to FTTX stuff, they are really good with listening right buzz words and repeating them.
The main problem is always the same - where to get $$. If it's a new development, then the developer usually pays for FTTX and charge the future home owners those extra $2-3K. Then, city still owns the Network. For fiber overlays cities are open to any suggestions including issuing city bonds or other financing mechanisms.
rjmcmahon
rjmcmahon
12/5/2012 | 3:06:52 AM
re: Palo Alto FTTH Initiative Stalls
An interesting thing is that while one of the richest cities in the USA can not afford putting FTTX Network a bunch of cheaper towns all over the country is doing it happily. The secret is where to find some funding.

I think the rural towns putting in fiber are getting subsidies from the wealthier ones. And even with the "free" money they aren't putting in access links of 100Mbs or better. Somebody, like those handing out the subsidies, would do better if they raised the bar such that rural communities had to meet real broadband standards.
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