The Otis Select Board announced they will be pursuing their own solution for last-mile broadband, rather than the WiredWest regional solution. A town has every right to choose the course it takes, however, based on the extensive due diligence completed by WiredWest, this decision will increase the cost of bringing fiber-optic service to Otis as well as the risks the Town will face by going it alone.
Financing and sustainably operating a telecommunications enterprise in our region is a complex endeavor and WiredWest has spent many years in discussions with nationally renowned consultants, municipal broadband experts, successful public and private fiber networks, and the Massachusetts Broadband Institute in the creation of a robust business model. Unfortunately it appears from statements made by the Otis Select Board, that this level of examination has not been applied in the course of making their decision to go it alone. The Select Board also has misconceptions about the WiredWest plan that are clarified below.
A Regional Network – Like other Shared Services – Reduces Costs to Subscribers and Towns
There has been a significant emphasis the last few years to regionalize or ‘share’ services in the region to keep a level of service, but reduce costs. Ambulance service, wastewater management and school districts are a few examples. The same rationale behind every town not having its own elementary, middle and high schools to save costs applies to sharing the cost of providing broadband in the region.
A regional network that operates its own services is simply the most cost effective and sustainable way for small, rural towns to deploy broadband. It brings together a much larger revenue base to share fixed cost operational costs and also enjoy better economies of scale in both construction and operation. Almost all of those benefits are not contingent on whether a town is part of a regional design process by the Massachusetts Broadband Institute, but are only a benefit of joint regional operation.
For example, a regional network could deploy far fewer equipment huts to be shared within the network, which are costly to purchase, provision and maintain. A single town network would need its own hut. Also, a single regional network could enjoy significantly lower backhaul costs, both by connecting to the MBI network in fewer locations, and by purchasing power in buying bulk bandwidth. A group of towns acting together could share the costs of providing video services, network operations and customer service. A single town network forgoes these benefits, and must take on these costs alone, which creates higher costs per subscriber.
And the unfortunate impact of higher subscriber fees is fewer people subscribing to network services. With fewer subscribers, the network runs the risk of not being able to cover operational costs, or at the very least, not generating enough excess profit to offset debt service. The majority of municipal networks in the US are able to cover debt service from revenues, and WiredWest has projected that will happen for its network by year six of the operation. Fees coming back to towns has been viewed by WiredWest member towns as a critical consideration for authorizing their portions of funding the network construction.
Development of a Responsible Business Model for WiredWest Member Towns
WiredWest has published history of its financial modelling process and assumptions, including the significant input and feedback from industry and business experts, and the Massachusetts Broadband Institute. We have not heard of financial modeling being done for Otis, nor of due diligence with credible expertise.
The vast majority of municipal fiber networks in the United States operate as their own network operators and internet service providers, meaning they provide services directly to their customers, instead of paying additional margin to a contracted provider for those services or to operate the network. After lengthy discussions and analysis, WiredWest has chosen this type of model.
The primary advantage of a vertically-integrated model, where organizations hire staff to run the network, is that it enables networks to utilize the higher margins from providing internet service to repay the debt on the network, or for expansion. When a municipality partners with a private provider, particularly in a rural area with higher capital costs, it means the town typically forgoes being able to access revenues to pay the debt, but rather allocates that margin to the private sector partner, who has no stake in debt repayment or affordability of services.
Spending Capital Wisely
One important WiredWest decision that has the impact of spending capital prudently and reducing borrowing costs to towns, is to build drops from the road to premises only if and when they request service. Everyone expects that most residents will take service at the outset, when installation cost is included, but there will be some who will choose to be skipped – presumably because they are content with nothing or what they currently have – or they may opt to wait to subscribe.
If a resident waits until a later time after the large scale, free installation is done to request service, they may have to pay to get the connection to their home. This has the advantage of encouraging more people to subscribe for service initially, making our large scale installation as efficient as possible, while saving some capital installing connections to those who may never subscribe to service. WiredWest towns like this strategy because it means taxpayers aren’t paying for unnecessary connections.
WiredWest Human Resources
Any municipal telecommunications operation, be it one town or a regional network, must make important enterprise decisions that require a breadth and depth of leadership expertise specific to telecommunications, including financial, legal, sales and marketing, organizational and technical knowledge.
The advantage of a regional cooperative like WiredWest is the wider pool of leadership resources available to the group, to bring to the decision-making process. WiredWest is renowned for its own internal expertise, deployed on behalf of our towns, including our marketing efforts, which have garnered national attention for their success, and which are largely recognized as critical to the success of a municipal fiber network.
WiredWest: Formed, owned, operated and controlled by its member towns
WiredWest was formed by the towns, for the towns, to ensure the best interests of the towns were represented in the financing, construction and operation of a municipal fiber network. The overriding goal of the WiredWest model is to make gigabit internet access as affordable as possible to our towns’ residents, while minimizing risk to the towns to the highest degree possible.
Consequently, WiredWest’s goals with the financial modeling have been to control or reduce capital and operational costs to mitigate the financial risk to towns, reduce borrowing costs, and make fiber to the home networks accessible to as many of our small towns as possible. WiredWest has continually advocated for specific cost-control strategies, including:
- Creating a locally-operated, regional cooperative to capture economies of scale and aggregate a large group of subscribers to support costs
- Designing the network to share fixed assets more efficiently
- Pushing for cost assumptions relevant to our region, instead of standard urban cost assumptions
- Reducing the number of unnecessary connections to the MB123 network to reduce backhaul cost
- Proposing legislation and regulation to streamline make ready costs
- Advocating for state funds to be spent first, to reduce interest expense to towns
- Advocating for strong local oversight of state expenditure of town funds during construction
- Developing the most cost-effective model to operate, and to return profits to towns
While we respect every town’s decision to operate cooperatively or pursue their own strategy, given our extensive experience planning the WiredWest network, we strongly believe the benefits to taxpayers and subscribers of small, rural towns acting cooperatively, are significant and create the lowest risk model for our towns, with the greatest potential benefits.