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