S&P Global Market Intelligence - May 26, 2017

Hard Data on Municipal Broadband Networks

Written by Sarah Barry James

There is a dearth of good data around municipal broadband networks, and the data that is available raises some tough questions.

A new study from University of Pennsylvania Law School Professor Christopher Yoo and co-author Timothy Pfenninger, a law student, identified 88 municipal fiber projects across the country, 20 of which report the financial results of their broadband operations separately from the results of their electric power operations. Municipal broadband networks are owned and operated by localities, often in connection with the local utility.

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Yet Christopher Mitchell, director of the Community Broadband Networks Initiative at the Institute for Local Self-Reliance, argued that Yoo's study did not present an entirely accurate or up-to-date picture of U.S. municipal networks.

"When I looked at the 20 communities that he studied — and his methodology for picking those is totally reasonable and he did not cherry pick them — I was not surprised at his results because many of those networks are either in very small communities … and the others were often in the early years of a buildout during a period of deep recession," Mitchell said.

As an example, Mitchell pointed to Electric Power Board's municipal broadband network in Chattanooga, Tenn. — one of the five networks Yoo identified as having positive cash flow but at such a low level that it would take more than 100 years to recover project costs.

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In fact, without the revenue generated by the fiber-optics business, EPB estimated it would have had to raise electric rates by 7% this year.

According to Mitchell, Yoo's study captured the Chattanooga network when it was still "small and growing," but misses "what's going to happen for the rest of the life of the network, which I think is the more important part."

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Telecompetitor - May 25, 2017

Municipal broadband networks do not have a strong financial track record, according to an analysis conducted by the University of Pennsylvania’s Center for Technology, Innovation and Competition. The municipal broadband financial analysis, which looked at 20 municipal fiber projects, found that only nine were cash-flow positive and that of those, seven would need more than 60 years to break even.

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An Opposing View

Municipal network advocate Christopher Mitchell, director of the Community Broadband Networks Initiative at the Institute for Local Self-Reliance, pointed to several flaws in the Penn Law municipal broadband financial analysis.

He noted, for example that a substantial portion of the 20 networks studied were “early in the process and very small.” He also argued that the 2010-2014 study period may have biased the results, as that period included a recession and subscribership for some of the networks has increased substantially since 2014. He noted, for example, that EPB’s broadband network in Chattanooga had about 50,000 to 55,000 subscribers in 2014 but has now hit the 90,000 mark.

The Penn Law authors’ approach was “not the proper way to measure these networks,” said Mitchell in a phone call with Telecompetitor. The analysis “doesn’t take into account jobs created or the impact on the municipal budget,” he said.

He argued, for example, that a municipality that previously paid $1 million annually for connectivity might instead pay itself $500,000 for connectivity on the municipal network.

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Read the full story here.

Usually, we ignore the misinformation released by the Taxpayers Protection Alliance (TPA) but their latest efforts are so shady, we felt it was our responsibility to shine a light on its lack of validity and the organization's credibility. Our report, Correcting Community Fiber Fallacies: Taxpayers Protection Alliance Edition, takes a deeper look at the TAP's most recent attempt, which is filled with errors and a blatant disregard for the truth.

What Is A "Boondoggle" Anyway? This Map!

When we looked deeper, we discovered that TPA’s "Broadband Boondoggles: A Map of Failed Taxpayer-Funded Networks" is more misinformation than map. 

All of the basic errors in the map display a lack of attention to detail; our short report examines the deceitful characteristics of this resource. Our purpose in publishing this report is to caution community leaders and citizens who are investigating publicly owned infrastructure; the TPA is not a credible source.

One of the more obvious errors: Sandy, Oregon, appears in Utah.

The map is also visually deceiving because it includes 213 communities, but only provides information for 87. Of the 213 on the map, the TPA only label 14 as "failures," which means less than 10 percent of the networks they document fit their own definition of "failure."

Clearly, TPA has proven that it seeks to spread any and all information it can find to discredit municipal networks, regardless of accuracy. Communities, public officials, or staff that research the option of publicly owned networks should review our report if they have ever considered the data in the Boondoggles Map.

Consider the Source

If your community is seeking better connectivity, thorough research will be the foundation of how you proceed. As part of your research, be sure to review the organizations that offer information.

From our report:

A new report from the National Digital Inclusion Alliance and Connect Your Community concludes that the telecom giant AT&T has redlined low-income neighborhoods in Cleveland. The company has cherry-picked higher-income neighborhoods for new technology investments and skipped over neighborhoods with high-proverty rates.

AT&T’s Digital Redlining, uses publicly available data from the FCC and the American Community Survey to expose how AT&T has failed to invest in low-income communities in Cleveland.

See With Your Own Eyes

Read the report and explore the interactive maps on digitalinclusion.org. The National Digital Inclusion Alliance and Connect Your Community spent six months uncovering how AT&T has systematically passed over communities with high poverty rates. The five maps paint a stark picture of the digital divide. 

The extent of AT&T’s failure only came to light after the AT&T and DirecTV merger. As part of the merger, AT&T had to create an affordable Internet access program for low-income residents. The lowest speed tier in the program was 3 Megabits per second (Mbps) download for $5, but many low-income communities in Cleveland were considered ineligible; infrastructure in their communities only allowed access to speeds that maxed out at about 1.5 Mbps download. (Read more in "AT&T Gets Snagged in Giant Loophole Attempting to Avoid Merger Responsibility")

Public Data Can Share Some Insights 

The National Digital Inclusion Alliance and Connect Your Community noticed a pattern and began investigating. The FCC Form 477 data used in the report provides maximum speeds and technology by each census block, which typically overstates the quality of service actually available to households.

In December 2016, the Free Press released the extensive report Digital Denied: The Impact of Systemic Racial Discrimination on Home-Internet Adoption. In the 225-page document, Free Press Research Director S. Derek Turner dove into the numbers on race and the digital divide

The report provides a qualitative analysis of the digital divide's disproportionate impact people of color. Turner provides a number of policy solutions addressing both home Internet access and mobile Internet access.

Home Internet Adoption: A Continuing Divide

The digital divide refers to the gap between those who have access to information technologies and those who do not. Analyzing both U.S. Census Bureau data and FCC deployment data, Turner found that:

While 81 percent of Whites and 83 percent of Asians have home internet (counting wired and wireless subscriptions alike as “home” access), only 70 percent of Hispanics, 68 percent of Blacks, 72 percent of American Indian/Alaska Natives, and 68 percent of Native Hawaiian/Pacific Islanders are connected at home.

Even after accounting for differences in income, education, age, geography, and job status, communities of color have not adopted high-speed Internet services at the same rate as White folks. There remained a gap of six to eight percent between Hispanic, Black, or Native American households and White households.

Mobile-Internet Adoption: Model for Possible Solutions

Turner, however, noted that mobile Internet adoption did not sustain this same rate of digital divide. In some cases, low-income households of color have equal or higher levels of adoption than low-income White households. Explaining the difference between the adoption rates for home Internet service and mobile Internet service, Turner credited the wireless marketplace’s competitive prices and the prepaid or resold services offered.

In December 2016, the Congressional Research Service office released two reports on federal funding programs to improve high-speed Internet access. One report focuses on Tribal lands, and the other report provides an overview of the digital divide in general.

Dollars for the Digital Divide

Researchers Lennard G. Kruger and Angele A. Gilroy collaborated on Broadband Internet Access and the Digital Divide: Federal Assistance Programs. Kruger is a specialist in Science and Technology Policy and Gilroy is a specialist in Telecommunications Policy. The report provides an overview of ongoing efforts, including recently enacted legislation.

Kruger and Gilroy define the digital divide as between those who have access and those who do not. In particular, they focus on the dynamic between urban and rural areas, especially with regard to different income levels. The researchers consolidate previously released information on the digital divide and provide an analysis of current programs, including grants through the Appalachian Regional Commission. The researchers conclude by detailing all recent legislation. Check out the report for more information.

Status of Tribal Broadband

Kruger also wrote Tribal Broadband: Status of Deployment and Federal Funding Programs. This report follows up the Government Accountability Office’s 2016 report, Additional Coordination and Performance Measurement Needed for High-Speed Internet Access Programs on Tribal Lands. 

Drawing on information from both the GAO’s report and the FCC 2016 Broadband Progress Report, Kruger relays key facts about Internet access and federal funding. In particular, Kruger notes in the report that there is no dedicated federal funding earmarked to improving Internet access on Tribal lands:

To improve rural Internet access, the Georgia Joint House and Senate Study Committee on High Speed Broadband Communications Access for All Georgians recommends that Georgia enable municipal networks and empower rural electric cooperatives.

The committee recently released their report on potential solutions for the lack of rural connectivity. They held six public meetings over the course of four months in 2016, consulting with stakeholders and concerned citizens.

Support of Local Government Networks 

Specifically, the report recommended that the Georgia legislature:

“Reaffirm the state’s approval of competitive telecommunication markets by continuing to permit locally-owned and operated government broadband services”

In the economic development section of the report, they detailed the positive role of community networks and the challenges in finding financing.

The report pointed to the success of two community networks, Community Network Services (CNS) and ElbertonNet. ElbertonNet is the fifteen-year-old community network of Elberton, Georgia. The report praised the community network’s “tremendous public feedback” and “exceptional customer service.”

The Federal Reserve is responsible for setting interest rates and executing monetary policy in the United States, but many people don’t realize that the agency also has a hand in community development. This summer, the Federal Reserve Bank of Dallas released a report, Closing the Digital Divide: A Framework for Meeting CRA Obligations, which includes information for banks about funding digital inclusion programs and community networks.

The report, published in July, states:

“Access to broadband has become essential to make progress in all areas of community development—education and workforce development, health, housing, small-business development and access to financial services.”

Closing the Digital Divide is important not only because it provides substantial information for banks, but also because it indicates federal support exists for community-based infrastructure improvements. The report discusses improving Internet access for low and moderate-income individuals and neighborhoods.

Using The Community Reinvestment Act To Improve Infrastructure

From the 1930 until the late 1970s, many banks denied lending to individuals and organizations based on their location. The practice is called “redlining” after the red ink that outlined low-income neighborhoods on a map, and was made illegal when Congress passed the Community Reinvestment Act (CRA) in 1977. Under the CRA, banks must to use the same evaluation criteria for all loan applicants regardless of the neighborhood they live in, which expands lending to include low and moderate-income (LMI) individuals. The Federal Reserve assesses banks’ performance under CRA guidelines, which bring about $100 million in capital to low and moderate income areas per year through various projects. Improving Internet access is an increasingly large portion of these initiatives.

In The Weeds