City may get into fiber optic cable business Salisbury would be competing with Timer Warner Cable

Published 12:00 am Wednesday, December 2, 2009

By Mark Wineka
Salisbury Post
The city of Salisbury is poised to go into another kind of utility business ó fiber to the home ó and become a direct competitor to providers such as Time Warner Cable and AT&T.
In two years and with an investment close to $30 million, Salisbury could be offering residents an alternative for telephone, television and high-speed Internet service.
Salisbury City Council-man Mark Lewis labels it “critical infrastructure” for Salisbury’s future.
Lewis served with Councilman William “Pete” Kennedy, staff and consultants on a committee that over the past two years has studied whether Salisbury should enter the communications business and operate a fiber to the home enterprise much like it provides water-sewer service.
“Fiber to the home” refers to direct fiber optic connections that supply far more bandwidth than what’s now available to cable television, telephone and Internet customers.
More bandwidth translates to more speed and more capacity for transferring information.
City officials say they can get into an enterprise business without obligating taxpayers for the costs and offer the service at 10 percent below what Time Warner charges.
They propose two 15-year bond issues ó just more than $15 million this year and just under $15 million in 2009 ó to provide the capital funding for the first three years.
The city’s financial advisor, Davenport and Co., say Salisbury could have a self-supporting system in which $1 of the debt would be covered by $1.25 in revenues.
No revenues are assumed in the first year. Projections have a positive operating income by year three, and cash flow with debt would become positive in year four.
The city’s study, shared with the whole City Council at its annual retreat Friday, projected cash reserves by year 15 for the enterprise at more than $18 million.
The study also made these conclusions:
– DSL and cable networks cannot offer the speeds that will be required “by a city wishing to compete in a digital economy.”
– Business, government and citizens will need the kind of affordable, fast access to information networks that the fiber optic is able to provide.
– As capacity grows with current providers’ present infrastructure, speed diminishes.
– Fiber would help the economic growth of the community and is the only technology that will deliver enough bandwidth reliably and at a low enough cost to meet consumer demands of the next decade.
– Public ownership of the new utility would offer a network “built to benefit the community.”
Lewis said the “local determination” aspect of the city’s providing fiber to the home is maybe the most important argument for it.
“We are doing what’s good for the community,” he said.
As applications and technology change in the future, members of the community can decide if they need upgrades for even faster speeds, Lewis said.
The city officials suggested that national providers serving Salisbury now will be slow to make upgrades because of the infrastructure they already have in place.
City Council members spoke often at their two-day retreat about how Salisbury should position itself to attract people who will work at the N.C. Research Campus in Kannapolis.
One way might be to offer fiber to the home that can meet all their informational and video needs, they said.
“It may be this is the time to make that move,” Councilman Bill Burgin said.
The city’s study also promoted fiber to the home as important to the city’s economic development. It would help businesses compete even better in a global economy. Quality of life would be enhanced by online entertainment, education, culture and e-commerce, and fiber to the home attracts a creative class and young professionals, the study said.
Other benefits of the fiber optic network could include automated meter reading, digital signs, security improvements, telecommuting, international television programming, an educational network and telemedicine, the study added.
Mayor Susan Kluttz said she liked the idea of being able to offer the service to residents at a lower rate than they pay now. She also liked the increased accountability that would come with a locally run utility.
Even if Time Warner, for example, would lower its rates to match the city’s, Lewis said, that’s still good for Salisbury residents.
“They basically have a monopoly on us now,” Mayor Pro Tem Paul Woodson said.
Providing fiber to the home would require, among many other things, a pole attachment agreement with Duke Energy. Technology Services Manager Mike Crowell said an agreement with Duke could be ready for council consideration as soon as next week.
The negotiated price is $5.32 per pole a year.
Council decided Friday that it should have a public hearing and a formal vote to proceed with the enterprise in coming weeks. City Manager David Treme said he wanted the council to be unanimous in its support for the project.
“What most people don’t realize is we have worked on this for the past two years,” he said.
Council appointed a fiber to the home subcommittee in March 2006 and hired Uptown Services LLC to conduct a feasibility study in April 2006.
An initial report in June 2006 showed that the project would be feasible and could be self-supporting.
One of the big questions was whether going into this business was a legal activity for a municipality.
The N.C. Supreme Court ruled in 2005, in the case of BellSouth vs. the city of Laurinburg, that municipalities could own and operate fiber optic networks.
Since then, the city of Wilson has started construction of a fiber-to-home system.
Uptown Services also conducted a market feasibility study sampling 402 respondents in 2006 and found demand for alternative broadband services strong across all three services ó Internet, video and telephone.
The demand was primarily driven by a desire for lower prices, increased Internet speed and a bundling of services.
Where municipal fiber to the home has been constructed, the market penetration rates have ranged from 35 to 65 percent. The Salisbury business model went on the assumption of a 28 percent penetration.
Salisbury’s business model assumes that the city would contract for an outside company to provide telephone service. It would translate to monthly revenue of $21.25 to the city for each telephone subscriber.
The initial staff would include an operations manager, a head-end technician, three customer service representatives, four field technicians, a marketing coordinator and a data technician.
Installations in the first three years would be handled by contractors, while the field techs would handle all after-installation service and maintenance.
Contact Mark Wineka at 704-797-4263, or