{"id":1647,"date":"2019-08-25T16:41:58","date_gmt":"2019-08-25T20:41:58","guid":{"rendered":"https:\/\/lakelandgazette.info\/news\/?p=1647"},"modified":"2019-08-25T16:42:11","modified_gmt":"2019-08-25T20:42:11","slug":"lakeland-city-leaders-have-to-ask-themselves-one-question-on-becoming-a-gig-city","status":"publish","type":"post","link":"https:\/\/lakelandgazette.info\/news\/2019\/08\/25\/lakeland-city-leaders-have-to-ask-themselves-one-question-on-becoming-a-gig-city\/","title":{"rendered":"Lakeland City leaders have to ask themselves one question on becoming a \u201cGig City\u201d:"},"content":{"rendered":"\n

What matters most when trying to determine if launching an internet service is the right move for Lakeland?<\/em><\/strong><\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

After two detailed studies of Lakeland\u2019s\npotential to become a \u201cGig City,<\/a>\u201d the city\u2019s leaders are questioning if\nthey have the information to decide whether to launch a high-speed internet\nservice. An academic expert says city commissioners are right to be skeptical.<\/p>\n\n\n\n

Commissioner Bill Read peppered John Honker, the president\nand CEO of Magellan Advisors, with questions about his company\u2019s experience and\nsuccess rate in launching municipality-owned broadband on Aug. 19.<\/p>\n\n\n\n

\u201cHow many have you done? How many did you recommend and how\nmany did you not recommend?\u201d he asked. \u201cOf the ones you did recommend, what\u2019s\nthe failure rate? Why did they fail? Why did they succeed?\u201d<\/p>\n\n\n\n

The business plan drafted by city broadband consultant\nMagellan estimates Lakeland\ncould build a citywide fiber optic system for roughly $97.5 million<\/a>, split\nbetween $79.5 million for infrastructure and $17 million starting capital. Once\nfully built, the network could produce on average $9.5 million in revenue per\nyear.<\/p>\n\n\n\n

The business plan provided estimates, but the company warned\nthose estimates should not be considered as a business recommendation.<\/p>\n\n\n\n

\u201cThe city hired Magellan to develop a broadband business\nplan, not to recommend whether the city should move forward with the broadband\nbusiness plan,\u201d Magellan wrote in a letter to The Ledger. \u201cMagellan provides\nstudies and assumptions that show whether or not the business, if the business\nplan is followed and achieved, can be sustainable.\u201d<\/p>\n\n\n\n

That leaves city officials to ask themselves the question:\nWhat matters most when trying to determine if launching an internet service is\nthe right move for Lakeland?<\/p>\n\n\n\n

\u201cWe would measure success by what we are able to provide\nthrough services and net as a contribution to pay off the debt and to provide\nrevenue to the city,\u201d Mayor Bill Mutz said.<\/p>\n\n\n\n

An expert weighs in:<\/p>\n\n\n\n

Christopher Yoo, a University of Pennsylvania law,\ncommunications, computer and information science professor, said he believes\nLakeland commissioners should take the time to thoroughly review Magellan\u2019s\nreport.<\/p>\n\n\n\n

\u201cAny city considering building a fiber network must study\nthe track record closely and ask in a very skeptical manner how likely they are\nto be one of the winners or become one of the losers,\u201d he said.<\/p>\n\n\n\n

Yoo, also director of UPenn\u2019s Center for Technology,\nInnovation and Competition, co-authored a May 2017 study titled \u201cMunicipal\nFiber in the United States: An Empirical Assessment of Financial Performance<\/a>.\u201d\nIt examines the financial status of 20 municipal fiber networks across the\ncountry.<\/p>\n\n\n\n

\u201cWhat we see in many examples are promises these projects\nwill generate cash, when in the majority of cases they do the opposite,\u201d he\nsaid. \u201cThe best justification for building fiber to benefit your citizens is to\nconstruct it on a break-even basis.\u201d<\/p>\n\n\n\n

The UPenn study found 11 out of the 20 municipal broadband\nnetworks had a negative cash flow over a five-year period from 2010 to 2014. Of\nthe nine municipalities able to generate a profit, Yoo said five saw profits so\nsmall it would take more than 100 years for them to pay off their costs.<\/p>\n\n\n\n

Mutz said based on his business and life experience, he\u2019s\nconcerned that Magellan\u2019s projected costs are off the mark and may not fully\naccount for changes in technology.<\/p>\n\n\n\n

\u201cI think we\u2019re 25-30% understated in costs in the study,\u201d he\nsaid. \u201cThat\u2019s a scary number.\u201d<\/p>\n\n\n\n

If the mayor is correct, it could add roughly another $30\nmillion to the project\u2019s overall price tag.<\/p>\n\n\n\n

Profit or not<\/p>\n\n\n\n

Lakeland\u2019s cost of building a fiber optic network capable of\ngigabit-speed internet can\u2019t be stated without considering the city\u2019s potential\nprofit.<\/p>\n\n\n\n

Magellan\u2019s latest estimate states it would take 9-10 years\nfor the city to begin seeing a net revenue if it chose to pay down its startup\ndebt, or loans, as quickly as possible. Once the system is fully launched,\nLakeland could make $9.5 million a year in revenue. That\u2019s providing that 38%\nof residents and 41% of businesses sign up with suggested pricing for internet\nservice starting at $20 a month<\/a>.<\/p>\n\n\n\n

Commissioner Justin Troller said he anticipates the city\nwill see a higher take rate, possibly capturing 50% of the market, based on\npreliminary interest and community feedback.<\/p>\n\n\n\n

\u201cI don\u2019t think it will be difficult for us to get our market\nshare,\u201d he said. \u201cOur community is desperate for an alternative to the current\nproviders.\u201d<\/p>\n\n\n\n

Honker said the sales and marketing aspect is one of the\nhighest risks for the city moving forward. Magellan suggested Lakeland should\nconsider hiring an outside company to assist in signing up customers.<\/p>\n\n\n\n

That point was strongly echoed by Yoo, who said one of his\nkey takeaways from his academic study is that municipal broadband utilities\noften fail in this area.<\/p>\n\n\n\n

\u201cWhat I find, by and large, is the networks are generally\nwell run, but the biggest problem is they don\u2019t generate enough revenue,\u201d he\nsaid.<\/p>\n\n\n\n

Seeking examples<\/p>\n\n\n\n

Magellan gave elected officials a list of three cities to\nlook at as successful examples of municipal internet service providers. Whether\nthese cities\u2019 models should be followed, based on their finances, may be\nquestionable.<\/p>\n\n\n\n

On page 9 of the city\u2019s draft business plan, Magellan cites\nChattanooga Electric Power Board in Tennessee and Lafayette Utility Systems in\nLouisiana. It was not immediately clear in the report how these utilities were\nbeing measured.<\/p>\n\n\n\n

\u201cCommunity broadband generally has many goals, including\nimproving competition, bringing better services to the community, providing\nlower prices through competition offerings, increasing economic development and\nbuilding infrastructure for future applications that improve the quality of\nlife,\u201d the company said in a statement. \u201cBroadband businesses must also be\nfinancially sustainable and cover their costs.\u201d<\/p>\n\n\n\n

Lakeland\u2019s elected officials have largely agreed the city\nneeds to ensure residents and businesses have access to high-speed internet to\nbecome a smart city and add to its potential economic growth.<\/p>\n\n\n\n

However, Yoo said based on his calculations of Chattanooga\nand Lafayette\u2019s finances, he would be cautious about either city being\nconsidered an example to follow. He estimated based on Chattanooga\u2019s financial\nstatements from 2010 to 2014 that it will take the city more than 400 years for\nthe project to pay for itself. Lafayette\u2019s financial reports through 2017 show\nthe utility has yet to turn a profit, according to Yoo, and is losing an\naverage of $5 million a year.<\/p>\n\n\n\n

\u201cI would regard Lafayette as a cautionary tale and a\nsignificant one at that,\u201d he said. \u201cWhen projects go bad, they can go bad in a\nbig way.\u201d<\/p>\n\n\n\n

Yoo said he has obtained updated financial reports through\n2017 for all 20 municipalities he studied, four of which have defaulted since\n2014 on their loans. He plans to publish an updated report with his co-author\nin the next month or two.<\/p>\n\n\n\n

\u201cRevenue assumptions are what the cities struggle to meet\nthe most,\u201d he said.<\/p>\n\n\n\n

Troller said he didn\u2019t think it was fair to compare Lakeland\nto other cities given its unique assets, such as its dark\nfiber network<\/a>, and without full, detailed knowledge of how these other\ncities built their networks.<\/p>\n\n\n\n

\u201cIt\u2019s a good opportunity to see how others have done it, but\nwe are unique,\u201d he said. \u201cThey may not have our infrastructure, we may pass\nthat hurdle many others are still facing or their debt service may be higher.\u201d<\/p>\n\n\n\n

Lakeland\u2019s future<\/p>\n\n\n\n

After Magellan\u2019s Aug. 19 presentation to Lakeland\ncommissioners, city staff was instructed to look into legal\nand financial implications of launching a broadband utility<\/a> in greater\ndetail.<\/p>\n\n\n\n

Troller said the city will also be scheduling community\nmeetings in the upcoming months to discuss the proposed broadband plans and\nhear feedback.<\/p>\n\n\n\n

\u201cI will be a champion of this issue as long as I have breath\nin me,\u201d he said. \u201cIt\u2019s that important not even for today, but for the generations\nto come.\u201d<\/p>\n\n\n\n

Troller said he has calculated if city residents are willing\nto accept a 0.5 millage increase for the next seven years, the city could pay\nback the $17 million it needs to launch broadband. This would increase the\naverage Lakeland homeowners taxes by approximately $35 to $45 a year, according\nto Troller, and create $2.75 million a year additional revenue for the city.<\/p>\n\n\n\n

\u201cIt has to be a commitment from our community,\u201d he said.\n\u201cWith that level of commitment we can show we are serious, our people are\nserious and they are willing to invest in the infrastructure of our community.\u201d<\/p>\n\n\n\n

Troller said he believes those who signed up for the\ncity-run broadband would make up the $35 to $45 in taxes their first month as\ncustomers, and then would continue to save. He would propose the millage rate\nsunset after seven years, or go on the ballot for a public referendum if\nneeded.<\/p>\n\n\n\n

\u201cMy goal is to have a decision made before I leave office\nwhether we are going to do it or not,\u201d he said. \u201cWe\u2019ve talked about it long enough.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

What matters most when trying to determine if launching an internet service is the right move for Lakeland? After two detailed studies of Lakeland\u2019s potential to become a \u201cGig City,\u201d the… <\/p>\n","protected":false},"author":1,"featured_media":1648,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"wpai_generated_summary":"","footnotes":"","jetpack_publicize_message":"{title}\n\n{excerpt}\n\n{url}","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"dois","default_image_id":71799,"font":"","enabled":false},"version":2},"_wpas_customize_per_network":false},"categories":[9],"tags":[],"class_list":["post-1647","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured"],"jetpack_publicize_connections":[],"_links":{"self":[{"href":"https:\/\/lakelandgazette.info\/news\/wp-json\/wp\/v2\/posts\/1647","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lakelandgazette.info\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lakelandgazette.info\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lakelandgazette.info\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lakelandgazette.info\/news\/wp-json\/wp\/v2\/comments?post=1647"}],"version-history":[{"count":0,"href":"https:\/\/lakelandgazette.info\/news\/wp-json\/wp\/v2\/posts\/1647\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/lakelandgazette.info\/news\/wp-json\/wp\/v2\/media\/1648"}],"wp:attachment":[{"href":"https:\/\/lakelandgazette.info\/news\/wp-json\/wp\/v2\/media?parent=1647"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lakelandgazette.info\/news\/wp-json\/wp\/v2\/categories?post=1647"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lakelandgazette.info\/news\/wp-json\/wp\/v2\/tags?post=1647"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}