June 10, 2015
According to a study performed by Columbia Telecommunications Corp., an outside consultant, a proposed government-owned broadband network is Seattle would cost between $480 million and $665 million to build. The report, which cost city taxpayers $180,000 to complete, was released yesterday.
The multi-million estimate is too costly for some Seattle officials, who also argue the city’s decision last fall to reduce regulatory barriers to private investment is already working.
Just to break even, the consultant’s report said the city would need 43 percent of its homes to subscribe to broadband plans costing $75 a month. Seattle Chief Technology Officer Michael Mattmiller argued, “Even the most successful municipal broadband utilities don’t achieve that take rate.”
Not meeting that “take rate” would have disastrous consequences for city finances. City Budget Director Ben Noble “caution[ed] that a failure to fund the network with subscriber fees would require the city to tap into its General Fund, potentially reducing funding for basic city functions such as police, fire, parks and human services.” According to Mattmiller, “[E]ven if the city falters just 5 percent with its take rate or drops prices slightly below the $75 per month mark, the ‘loss to the General Fund would be very significant.’”
As such, Noble concluded building a city-owned network wouldn’t be a “prudent” decision. Noble also explained to TheStranger.Com that “funding the network would require taking out hundreds of millions of dollars in bonds or levying a property tax.”
The consultant’s report also investigated using property taxes to run a government network. The report found, “If the broadband utility were to fail, property owners would still be obligated to the tax payments needed to cover the debt on the initial capital investments made to start the system.”
Instead of building a network on its own, according to GeekWire, the consultant’s report suggested the city find “an external partner to develop and deploy the broadband network as part of a joint venture instead.”
Unfortunately, at least one city official still wants to press ahead. Council Member Kshama Sawant, who, as GeekWire points out, was elected as a Socialist candidate in 2014, called for a “mass citywide movement” in support of a government network. Apparently outraged by prospect that private providers who currently serve the city might reduce prices because of ongoing competition, Sawant urged residents to “get involved in this year’s process of appointing a new general manager for Seattle City Light and provide their input on whether a commitment to municipal broadband should be a selection criterion for the job.”
Meanwhile, competition in Seattle is robust and growing every day thanks to a decision last year that reduced regulatory barriers to private investment.
While he questioned the costs of a government-owned network, CTO Mattmiller said last fall’s efforts have worked. Mattmiller told GeekWire, “To see that reducing regulatory barriers brought not one but two providers to the market who could start building fiber to the home has been very encouraging. … It’s very encouraging that we are taking the right regulatory approach that still protects the city but allows providers to invest.
At least three providers are expected to offer gigabit service in Seattle within the next few months.
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