Tangled up in fiber

By Jim Hu
Staff Writer, CNET News.com
May 2, 2005 4:00 AM PDT

Ashland City Council member Russ Silbiger has a word of advice for communities thinking about installing their own fiber-optic network: Do your homework.

Ashland, an Oregon town of 20,000 perhaps best-known for its annual Shakespeare festival, is one of the first rural municipalities in the United States to have built out its own fiber-optic network.

Launched in 2000, the Ashland Fiber Network now offers its subscribers TV programming that some consider on par with local cable provider Charter Communications. Its broadband Internet speeds were recently clocked at 6mbps, Silbiger said. Most cable broadband services offer speeds of up to 4mbps.

AFN is also loaded with debt--$180,000 at last count, and climbing fast.

"My belief is they didn't calculate the numbers right," Silbiger said, referring to the council that approved the broadband project five years ago.

Community broadband is becoming a hot-button issue, pitting cities against state legislators who are heavily supported by local cable and phone giants. From large metropolises such as Philadelphia and Chicago, to smaller cities dotted throughout predominantly rural states such as Oregon and Utah, a growing number of municipalities are mulling ways to build their own broadband networks.

Some cities complain that their telephone or cable supplier has moved too slowly in bringing broadband to their residents. Others consider municipal fiber or wireless networks a draw for businesses and a way to pad local revenues.

Broadband albatross?
Not all muni-backed broadband efforts have been a flop. Backers point to a number of smaller efforts that have fared well since taking the leap, including Kutztown, Pa., and the city of Spanish Fork, Utah, which is comparable in size to Ashland. Silbiger himself regards the Spanish Fork effort as a system that managed its financing and operations well, leaving it in sound financial health.

As there are no conclusive economic studies to prove the point one way or the other, anecdotes play a powerful rhetorical role on both sides in the debate.

The example of failure cited most commonly is Marietta, Ga. Just like Ashland, Marietta decided in the late 1990s to build fiber lines into people's homes and pipe in broadband access, TV channels and voice calling. But the cost of construction and maintenance, coupled with lower-than-expected subscriber additions, became too expensive for the city to handle.

In July 2004, the city sold Marietta FiberNet for $11 million to American Fiber Systems, a fiber-based Internet service provider. In total, Marietta spent about $35 million to build and maintain the system, AFS said.

A representative for the city of Marietta did not return repeated requests for comment.

"From their perspective, I think it became more cost-intensive than they were willing to pursue in terms of continual maintenance and the cost of upkeep," said Debbie Coffman, marketing manager at AFS.

Like many rural cities, Ashland was unhappy with the pace of broadband development from the local cable and phone companies. So in the late 1990s, Ashland residents decided to build their own. The city raised funds through bonds to build an advanced fiber-optic network, with plans to cover costs by selling broadband Internet access and cable TV into peoples' homes.

The first part of the plan was a success. "If we did not have that service, we would never have gotten broadband here," said Ann Seltzer, a spokeswoman for the city.

But Ashland's rosy projections soon fell apart amid construction cost overruns and higher-than-expected maintenance expenses.

To pay off its $180,000 debt this year, AFN has started borrowing funds from other city departments. The load is expected to balloon to more than $450,000 next year. City council members are seriously considering a politically risky solution, according to Silbiger: raising taxes.

Ashland's debt problem has become a perfect lever for the Baby Bells and cable operators seeking to put a stop to municipal broadband projects across the country. Their message has been consistent: Muni broadband projects are bad for competition, bad for broadband build-out and, most important, bad for residents who will see their taxes rise should the network's business plan fail.

"Quite honestly, it's bad public policy for the government to be in competition with private enterprises," said Joe Chandler, a spokesman for phone giant BellSouth.