Gainesville can become its own internet service provider within a few years – but not without overcoming considerable hurdles, a telecommunications consultant’s analysis concludes.
The city wants lower prices and increased speeds for residents and businesses and to build a municipal network for everyone in designated areas. Those areas include parts of Newberry, Hawthorne, Archer, High Springs, Waldo and the City of Alachua, the consultant’s report states.
The city also wants the lowest-priced gigabit internet service for residents and businesses in the country – and universal free service to all residents served.
“What we found was interesting,” CCG Consulting, of Asheville, North Carolina, wrote in a nearly 200-page draft report presented to a Gainesville City Commission committee in April.
“There are scenarios where the city could provide low-price broadband while operating a fiber business that would be self-sustaining and profitable and that wouldn’t need any subsidies from GRU or the city,” the report states. “However, creating such a business is no slam dunk.”
CCG found “the city has some of the overall highest rates we’ve seen” for triple play – broadband, cable TV and telephone service – in the nation. AT&T and Cox Communications are the primary internet service providers in Gainesville.
At the same time, CCG randomly surveyed 370 potential residential customers. Just 38% of the respondents supported the idea of Gainesville building a fiber network, while 35% said they needed more information. However, over a quarter, 27%, did not support a city-owned network.
CCG Consulting President Doug Dawson presented the draft report to the commission’s digital access committee via a conference call during meetings in April and May. Dawson is scheduled to present his company’s findings to the full commission in person on June 20.
The city selected CCG and approved the cost of the analysis – up to $105,500 – in September.
CCG’s report cites four significant challenges to becoming a municipal internet service provider.
One is finding a way to finance it. In the analysis, the estimated cost for building a fiber network within Gainesville city limits is $113 million in bond financing. That figure could rise to $213 million if the service extends to neighboring municipalities.
Another hurdle could be how AT&T and Cox react. “We would expect them to vigorously attempt to delay or derail any plans to launch a retail fiber business,” the report states. It added that existing state law “creates a series of hoops for a city to jump through,” particularly the one mandating the use of revenue bonds to finance the project.
That likely means a voter referendum. State law requires one if a city aims to borrow revenue bonds for more than 15 years. “The issue is further muddied,” the report states, since the city’s current broadband business relies on non-revenue bonds with terms greater than 15 years. The city needs a referendum “to be safe or risk being sued over the issue,” according to the report.
Other hurdles include operational challenges of creating needed internal processes. “The nature of bond financing for this kind of project,” the report states, “is that you’d have to sell and install customers quickly and in large numbers to be able to make needed payments in bonds. … It’s a tall task to gear up for the operation needed to make this work in the time frame that’s needed.”
As for free broadband for residents, Gainesville would need some other tax revenue to cover the cost of more than $27 per month per household. That’s more than $330 per household per year.
“That sounds like a huge challenge,” the report states.
According to the study, the city could potentially offer gigabit internet for $50 per month and would generate money for its coffers if it attracts 48% of the market. CCG said that this would be the lowest-priced such product in the United States.
The findings also indicate that while a municipal internet network could decrease the digital divide that exists in Gainesville, the city needs to determine how households would qualify.
District 2 Commissioner Harvey Ward, who is chairman of the digital access committee, said his broader goal is to offer everyone a chance to access new technology.
“If we want to – and I do want to – make sure that every child in this community can take advantage of all that the 21st century offers, instead of just the rich kids, then yes,” Ward said. “We will need to figure out how to subsidize that some way for some folks.”
The process could take three to five years, depending on when the fiber network is installed.
“It takes a while to get successful,” Dawson told WUFT. “That’s one thing this study will say. You’re never successful overnight, just like anyone else would be if a commercial company came and built fiber in the city. It takes a while to get profitable.”
The study notes that similar efforts elsewhere have led to lawsuits against them. One of these scenarios involved Chattanooga, Tennessee, and the establishment there of a municipal fiber network governed by an agency called an electronic power board.
Comcast and AT&T sued the board multiple times to prevent it from launching gigabit speed fiber internet, said John Pless, the board’s public relations coordinator.
“They lost all those battles in court,” Pless said.
District 4 Commissioner Adrian Hayes-Santos, another member of the digital access committee, said he is prepared for any such opposition.
“They are making money hand over fist,” Hayes-Santos said of AT&T and Cox. “So they don’t want to lose the cash cow of Gainesville. That’s kind of one of the things that is expected.”
Cam Johnson, public affairs manager for Cox Communications’ southeast region, wrote in an email that it would be premature to react to the CCG analysis since it is still considered a draft.
“I can tell you that Cox has been at the table with the digital access committee throughout this process, and we remain committed to helping the city of Gainesville achieve its goals for connectivity,” Johnson said.
A spokeswoman for AT&T, Kelly Starling, said the company would not offer a statement about the consultant’s report or about the city’s initiative.
Hayes-Santos said he hopes the commission would vote to proceed within the next year.
“We have people who are being left out of the 21st century – the digital age – because they don’t have that access and they can’t afford it,” he said. “We need to ensure that everyone in our city has access to internet at an affordable price.”
Assets financed include the cost of fiber, vehicles, Wi-Fi modems and other electronics within the first five years of the project that are financed with debt. Cost of issuance is the amount of fees paid to raise the bond funds. Working cash would be used to cover operating expenses during the first several years prior to revenues becoming high enough to cover costs. Capitalized interest “represents the first three years of interest payment that are borrowed upfront to make interest payments after issuance of the bonds,” according to the report.