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Council fast-tracks fiber Internet for Palo Alto

Original post made on Jul 15, 2008

After being assured of few or no financial risks, the Palo Alto City Council fast-tracked a "watershed" plan for a citywide, ultra-high-speed fiber Internet network for residents and businesses Monday. The city will put up part of its existing fiber network in lieu of any cash.

Read the full story here Web Link posted Tuesday, July 15, 2008, 2:31 AM

Comments (52)

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Posted by Wayne Martin
a resident of Fairmeadow
on Jul 15, 2008 at 12:57 pm

The last time this terrible idea of City involvement in telecommunications was before the Council, all of the devotees of the "Municipal involvement" were beside themselves with claims about how wonderful iProvo was, as well as its bigger brother, UTOPIA.

The following article reports on the failure of iProvo to deliver, with its most recent sale to a private-sector company:

----
Web Link

Tuesday, 01 July 2008
Provo, Broadweave work out details of iProvo sale
Joe Pyrah - DAILY HERALD

Leaders of Provo City and Broadweave Networks were harder to find Monday than cheap gas.

They were holed up in city offices hammering out the details of the $40.6 million deal that privatizes the fiber optic network, in turn taking the money-losing venture off the city's hands. The deadline was Monday and by now, Broadweave owns the system -- we think.

"I'm holding my breath hoping that it gets done," said Councilman George Stewart, who was also awaiting word Monday. There was supposed to be a small ceremony, but nothing had been made public, even to council members, by 5 p.m. Monday. The council approved the sale in June.

What customers will see during the transition is yet unknown because Broadweave has made no comment on it. Despite numerous requests in the past week from the Daily Herald, Broadweave has failed to provide responses to questions related to customer impact. The company did recently come to the aid of hundreds of customers whose phone service went dead after their provider -- Mstar -- failed to pay its bills.
----

Wonder why this rather important bit of news has not been reported to the Council by the so-called "Advisory Committee", and/or why it hasn't been reported in the local papers?

The general premise of this, and other articles that can be found on the NET/WEB is that the "wholesale" model does not work--which is the very thing that the so-called "Advisory Commission" has "praised" as "progressive", or words to that effect.

This is another mess in the making ..


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Posted by Me Too
a resident of Meadow Park
on Jul 15, 2008 at 1:35 pm

Will the agreement require the Consortium to actually do anything? Or can they just sit on the assets (our assets) while they raise money, work on other things, etc.? If a deal seems too good to be true, it usually is...


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Posted by Bandwidth
a resident of Crescent Park
on Jul 15, 2008 at 2:57 pm

"The general premise of this, and other articles that can be found on the NET/WEB is that the "wholesale" model does not work--which is the very thing that the so-called "Advisory Commission" has "praised" as "progressive", or words to that effect."

Mr. Martin gets it wrong, again - just like he did last time. So far, he's batting 1.000.

Mr. Martin, who claims to have written "800 pages of diligence" on the last fiber network (an absurd claim - one that would make anyone who really understands financial and strategic diligence wonder at the credulity of Mr. Martin's claim, or the validity of his findings) fails to notice that there are many, many different deployment variations that exist within the "wholesale model" of municipal information infrastructure deployment.

My hat is off to all who worked on this, because they ironed out the _genuine_ problems in the last fiber plan (problems that Mr. Martin overlooked, in his 800 page tome of diligence).

There are a lot of very savvy people connected to this effort. Palo Alto has the potential to lead, in addition to generating significant local revenue-generating opportunity.


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Posted by Walter E. Wallis
a resident of Midtown
on Jul 15, 2008 at 3:22 pm

I sincerely hope that this time the utility department had the foresight, sadly lacking in the cable tv deal, to preserve city access for real time utility metering. The savings possible with time of day metering and voluntary load shedding would save more energy, the peaking energy that is so expensive, than all the Mickey Mouse foolishness the city has irritated us with all these past years.


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Posted by Tyler Hanley
digital editor of Palo Alto Online
on Jul 15, 2008 at 4:37 pm

Tyler Hanley is a registered user.

We combined two separate threads on this subject. Here are the comments from the other thread:

--------------------------------------------

Brevity is still a virtue, even when writing online :)

Posted by Evan, a resident of the Crescent Park neighborhood, 2 hours ago

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Evan, Would Proust agree?

Posted by Bandwidth, a resident of the Crescent Park neighborhood, 2 hours ago

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good news. wow! let's see how long it takes to roll it out. imagine that. the city council actually addressing something relevant to the people of palo alto. go figure!

Posted by casey, a resident of the Midtown neighborhood, 2 hours ago

--------------------------------------------

Would that 1-3 mbps was the typical DSL speed for all of Palo Alto. Those few who have DSL in Triple El are typically capped at 0.3 mbps because the AT&T infrastructure is so old it cannot support the load. But remember, "it is good enough for voice service and that is what the PUC requires of us." While Covad and Earthlink provide such capped service, AT&T has refused new installations for several years.

I doubt that ours is the only Palo Alto household that doesn't see a need for cable TV and doesn't want a Comcast or AT&T U-verse 'package' deal that bundles TV and internet access. We look forward to a system which provides simple, fast access to ISP's sans TV.


Posted by John Baum, a resident of the Triple El neighborhood, 1 hour ago

--------------------------------------------


I'm curious to know what the residents, as opposed to businesses, will be charged for hooking up to the service. And whether they must buy a bundle of unwanted features to get the one(s) they want.

Where did I read that the devil is in the details?

Posted by dave, a resident of the Downtown North neighborhood, 55 minutes ago


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Posted by Wayne Martin
a resident of Fairmeadow
on Jul 15, 2008 at 5:15 pm

----
Mr. Martin, who claims to have written "800 pages of diligence"
on the last fiber network (an absurd claim - one that would make
anyone who really understands financial and strategic diligence
wonder at the credulity of Mr. Martin's claim, or the validity of
his findings) fails to notice that there are many, many different deployment variations that exist within the "wholesale model" of municipal information infrastructure deployment.
-----

For the record .. about 400 pages of the material was submitted, one section at a time, to the City Council--into the public record. The remainder, was not submitted, but none-the-less written.

Most of this work was an analysis of the so-called "consultant" (Uptown Systems) who charged the City at least $125,000 for a very incomplete "business model" (or some such) .. and then wanted another $125,000 to complete his "work". Even those in support of this nonsense were in support of not renewing this guy's charter to develop what turned out to not much more than a big "pay day" for himself.

Nothing that this fellow (the Colorado-based Consultant) claimed has come true. He failed to predict the changes in the law allowed AT&T to rapidly bring fiber into the neighborhoods of California, he failed to predict the emergence of IP-TV and VoIP as significant revenue streams for the various service providers.

There were vast holes in the UAC Consultant's "business model".. much of the 400 pages pointed out the failures of his approach, or that the holes involved expenses which would ultimately increase the costs of providing the services.

Making the claim that writing 800 pages of material is "absurd" is in itself.."absurd".

City governments should stick to what they know .. not "experimenting" in things that they do not know ..

iProvo has not been a success .. nor will this venture be any more so..








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Posted by Wayne Martin
a resident of Fairmeadow
on Jul 15, 2008 at 5:26 pm

A little more about the iProvo fiasco:
---
Web Link

News Release

Think Tank: iProvo's Losses at $8 Million and Counting
At what point do taxpayers cut their losses?

Los Angeles (April 16, 2008) - iProvo has already posted over $8 million in losses according to a new Reason Foundation policy brief that concludes that Provo is destined to join a list of cities like Ashland, Oregon, and Marietta, Georgia, that have "thrown away millions of dollars on broadband projects that, in the end, failed to deliver any of the promised benefits."

iProvo's total losses are likely to exceed $10 million by the end of this fiscal year - and that figure doesn't include the $39.5 million borrowed to launch the project, most of which still needs to be paid back. The Reason Foundation report says Provo "faces the dilemma of continuing to fund iProvo with no break-even point in sight, or it can sell and recoup as much of its investment as it can."

"Provo's taxpayers are being fleeced," said Steven Titch, policy analyst at Reason Foundation and author of two reports on iProvo. "The only question is how much of this fiscal recklessness they are willing to take before saying 'enough.'"

In 2003, iProvo lost $1.3 million in taxpayer money. It posted a $1.4 million loss in 2004, a $1.6 million loss in 2005, another $1.9 million loss in 2006, and in 2007 iProvo was over $2 million in the red. That's over $8 million in losses, and things don't look much better for 2008. In January, iProvo posted a net-gain of just 29 subscribers and could be headed for over $2 million in losses again this year.

"The city can continue to prop up iProvo by shifting and transferring money around, but taxpayers are ultimately going to be stuck with the multi-million dollar bill," Titch stated.

A December 2006 Reason Foundation study found that iProvo's financial losses were inevitable and correctly predicted the red ink would only get worse. Yet, in a response to the Reason Foundation report, Mayor Lewis K. Billings said that iProvo just needed more time and lamented, "How would you like it if the world judged your entire education only on the grades you received during your freshman year?"

Well, iProvo and Mayor Billings aren't freshmen anymore. iProvo has failed to meet nearly every benchmark set for it and is on pace to hit $10 million in total losses this June.

"No matter how many times the city tries to move the goalposts for what success means or how many subscribers iProvo needs, it can't get away from the fact that iProvo is a dismal financial failure by any standard," Titch said.

The Reason study notes large cities like Los Angeles, Houston and Chicago have recently backed away from municipal broadband plans because it is increasingly clear that government agencies aren't equipped to compete in the fast-moving, ever-changing Internet, phone and cable television business.

Full Report Online

The Reason Foundation policy brief iProvo Revisited: Another Year and Still Struggling is available at www.reason.org/pb69.pdf.

Reason Foundation's detailed analysis of iProvo's municipal broadband efforts, published in 2006, can be found online at www.reason.org/ps353.pdf.

Jerry Ellig, former deputy director of the Federal Trade Commission's Office of Policy Planning, wrote a 2006 Reason Foundation study that concludes cities shouldn't fool themselves into believing that their experience running water, gas and electricity systems has prepared them for the fast moving Internet world. The full study, A Dynamic Perspective on Government Broadband Initiatives, is available online at www.reason.org/ps349.pdf.

Reason Foundation's municipal broadband research and commentary is here: www.reason.org/telecom/index.shtml.

About Reason

Reason Foundation is a nonprofit think tank dedicated to advancing free minds and free markets. Reason Foundation produces respected public policy research on a variety of issues and publishes the critically acclaimed Reason magazine and its website www.reason.com. For more information, please visit www.reason.org.

Contacts

Steven Titch, Telecom Policy Analyst, Reason Foundation, (312) 925-0464
Chris Mitchell, Director of Communications, Reason Foundation, (310) 367-610


 +   Like this comment
Posted by JA3+
a resident of Crescent Park
on Jul 15, 2008 at 5:47 pm

Does the City contribute its assets at the onset of the venture -- perhaps prior to much, if not nearly all, of capital contribution by the venture partners?
_____

If one or more such private entities later fails -- perhaps filing for bankruptcy protection -- is the City entitled to full recovery of any and all assets contributed to the venture?

How does the City perfect such entitlement?
_____

What is the track record of these firms elsewhere?

What successful projects -- of an identical nature -- has these group of three firms done elsewhere?
_____

What are the total returns to date on the City's expenditure of funds here?

Why is it wise for the City to contribute all of its assets here?


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Posted by JA3+
a resident of Crescent Park
on Jul 15, 2008 at 5:54 pm

An addendum to the foregoing:

What if Comcast significantly raises potential broadband speeds -- say, by adding an additional service tier at a higher price?

Will the new venture be able to compete against an entity -- Comcast -- with no future significant construction requirements?

Will Comcast wait to file suit until after the City's contribution of its fiber assets to the venture?

If Comcast files suit after the City's contribution of assets to the venture, will the City possess a means to recover its assets in a speedy manner?

Why will Comcast simply 'do nothing' here?
_____

"The Reason study notes large cities like Los Angeles, Houston and Chicago have recently backed away from municipal broadband plans because it is increasingly clear that government agencies aren't equipped to compete in the fast-moving, ever-changing Internet, phone and cable television business."

Such study -- dated April 2008 -- is right on-the-mark here.


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Posted by Eric
a resident of Meadow Park
on Jul 15, 2008 at 8:02 pm

I don't want Broadband, I want WiFi. Broadband is only for the rich.


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Posted by Bandwidth
a resident of Crescent Park
on Jul 15, 2008 at 10:53 pm

Wayne Martin "The Reason study notes large cities like Los Angeles, Houston and Chicago have recently backed away from municipal broadband plans because it is increasingly clear that government agencies aren't equipped to compete in the fast-moving, ever-changing Internet, phone and cable television business."

Looks like Mr. Martin is still batting 1.000, in the "wrong" column.

Why? because the current plan doesn't have our municipality running the network. Suprise!

Mr. Martin, again..."He (the consultant) failed to predict the changes in the law allowed AT&T to rapidly bring fiber into the neighborhoods of California, he failed to predict the emergence of IP-TV and VoIP as significant revenue streams for the various service providers."

Please do tell us, Mr. Martin, where all that ATT fiber is, and how it's been deployed universally. And while you're at it, please do regal us all with tales of superb ATT service (NOT!) and their generous help to the Bush administration in illegal spying on American citizens.

We would also appreciate a lecture on the massive disruption caused by IPTV; funny, it doesn't appear to be happening as a mainstream application that isi disrupting anything. IPTV is nascent technology infancy, with most large operators clueless about how complex a system they are trying to deploy.

VoIP? Major revenue stream? You must be kidding. Maybe today. VoIP is headed for a pure status of "free", Mr. Martin, because all it is is packet transport, just like email. The only reason it costs anything at all si because consumers are generally ignorant of that fact, and because they don't have the option of fiber connections. In fact, VoIP is causing ATT to LOSE money because it's a highly competitive market and it cannabalizes more profitable wired services.

So, before Palo Altans decide to take yuor advice on this, and other matter of importance, I suggest you brush up a lot more on the various municipal and private sector businesses you tend to weigh in on.

You last sentence on one of the posts above really made me laugh: Here's Mr. Martin, again: "City governments should stick to what they know .. not "experimenting" in things that they do not know .."

Please spare me, Mr. Martin. Aren't you the person to claim that local governments and school systems don't do anything well, which is why you have argued against every single municipal improvement ever put forward.

That's a fact that's verifiable, unlike most of the "diligence" I see coming from your busybody pen.



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Posted by Alan
a resident of Greenmeadow
on Jul 15, 2008 at 11:17 pm

The fact that Comcast filing a lawsuit is an option, show what an upside down world we live in. Comcast was forging RST packets only several months ago, and is now considering "slowing down" connections that watch too many YouTube videos. (This is all to eliminate any viable competition to people that want alternative sources of video.)

They have a chock-hold on people that want internet access and only a real alternative could cause them to behave better. It has unfortunately come to this, but we need fiber so we can ditch the sorry excuse that cable monopoly Comcast has become.

Alan


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Posted by Bandwidth
a resident of Crescent Park
on Jul 15, 2008 at 11:23 pm

Comcast and ATT are also experimenting with 'bandwidth capping" in a few Texas municipalities. Just as we start to enjoy applications like youtube, Hulu, etc. etc. they are going to start metering bandwidth. In other words, creating false scarcity.

Given that the telcos and cable operators - through their buying influence in Washington - have actually kept America behind in communications capacity, they are traitors our future.

I would happily dance on their respective corporate graves.


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Posted by Alan
a resident of Greenmeadow
on Jul 15, 2008 at 11:33 pm

It is unfortunate that these policies - "creating false scarcity" - is killing much of the innovation occurring right here in Silicon Valley.


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Posted by compeing in another way
a resident of Community Center
on Jul 16, 2008 at 6:24 am

Anyone else ever experience diminished capacity of a Comcast alternative (including broadcast tv)following a Comcast visit?


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Posted by Chris
a resident of Old Palo Alto
on Jul 16, 2008 at 8:49 am

I have read (much of) Mr. Martin's analysis, and it makes a lot of sense.

He's likely correct that the current proposal will fail and certainly is correct that the city (which is doing a very poor job at the things cities are supposed to do like keeping up with its infrastructure demands, and protecting citizens from violent crime) should stick to the basics.

If there is a saving grace in the current proposal, it is that the city is contributing assets to the venture which it should never have acquired in the first place. If as a result of the likely failure of the venture, Palo Alto is involuntarily divested of these assets (and the attention it takes to manage them), we'll be better off in the long run - and the city might take this as an object lesson to stay out of commercial enterprises.


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Posted by Bandwidth
a resident of Crescent Park
on Jul 16, 2008 at 10:03 am

" If as a result of the likely failure of the venture, Palo Alto is involuntarily divested of these assets (and the attention it takes to manage them), we'll be better off in the long run "

Frankly, you're grossly uninformed on this issue, as is Mr. Martin. The details of this arrangement are not what you claim. There is no "likelihood" that this effort will fail, and nothing that says the city will lose the asset if there's a failure. Also, the city's dark fiber ring has been well run, and has generated a handsome annual profit.



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Posted by Bob
a resident of Barron Park
on Jul 16, 2008 at 10:20 am

"...nothing that says the city will lose the asset if there's a failure."

The problem, of course is that nothing in the current proposal, to the extent it's been sketched out, says the city will NOT lose the contributed asset if there's a failure.

As to the likelihood of failure, the experience of Provo and other cities who've tried this shows that the fiber business is a very shaky financial proposition. If the city contributes its assets upfront and the commercial partners can't make it work, who's to say what might happen in a bankruptcy as JA3 points out?

People like Bandwidth seem much too willing to overlook the considerable risks in this proposal - perhaps putting hope over the experience of other cities that residential high speed bandwidth can be had on the cheap if only the government will get involved.

There is no reason to think that this proposal will succeed where fiber ventures in other cities have failed. The financial risk is hidden because the city is contributing existing assets rather than future taxes, but it is a risk nonetheless.

As Chris points out, there is no shortage of things for the city to be doing right now visa vis infrastructure repair and other more urgent items. Why get involved in this risky deal?


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Posted by Me Too
a resident of Meadow Park
on Jul 16, 2008 at 10:31 am

Agree with Bob. Based on the track record out there, the likelihood here is failure - we all have to own up to that. The Council has gotten comfortable with this so far based on a "no risk" proposition. But is it?

In the article, this point comes up: "The city's agreement should also indemnify the city against third-party legal action, Kishimoto specified in her motion, a clause designed to head off lawsuits from Web firms such as Comcast that take issue with broadband competition by public agencies. She said the city must be able to take its assets back, should the entire project fail."

Both good objectives, but very hard to achieve. What good is indemnification from under-capitalized entities? If AT&T sues us and wins a judgment for $50 million (just pulling a number from the air), do the vendors just declare bankruptcy and leave us with the bill? Probably. Also, being able to get the assets back - that sounds right, but how do we achieve it in a bankruptcy scenario? The bankruptcy court have a lot of leeway and our assets could be stuck in a bankrupt entity for a very long time.

This is less about engineering and business plans and more about getting a good deal lawyer (not just the city's general counsel) to take a hard-nosed look at the deal and tell us every thing that could go wrong. My guess is that it is a long list and hard to structure around. If a deal seems too good to be true, it usually is...


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Posted by Paul
a resident of Duveneck/St. Francis
on Jul 16, 2008 at 12:23 pm

There probably is risk in this proposal, like many things in life.

There is also a chance of progress from a very real dilemma many of us in Palo Alto have suffered with for years, and that's the lack of reasonable broadband to enable us to be more productive and even innovative.

It looks like the risks have been considered, and I am ready for something which gets us out of the AT&T/Comcast stranglehold where they invest little and deliver less. Bring on the fiber.


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Posted by Jude
a resident of Midtown
on Jul 16, 2008 at 12:57 pm

"I am ready for something which gets us out of the AT&T/Comcast stranglehold where they invest little and deliver less."

It is a mere truism that local providers have failed to invest in faster service than is now available in town. But these companies (and others like RCN) are profit seeking businesses with expertise in broadband provision.

Is there anyone who thinks that these greedy companies would NOT build a higher speed system than now available if they thought it could be done at a profit? (And spare us the conspiratorial argument that they're trying to protect existing investments by keeping an otherwise profitable faster system off the market. That make as much sense as the old saw that auto companies have 100mpg cars that they're sitting on so they can sell gas guzzlers at a higher profit.)

If greedy profit seeking companies are having difficulty finding a way to sell high speed access at a price consumers are willing to pay, what makes Paul - or anyone - think the city can do it?

Rather, it appears that proponents of city provided high speed access are hoping that somehow with enough financial complexity, an implicit, but hidden, subsidy to users can be coaxed from the political process.

While it is perhaps true that people would be willing to pay for a faster system if there were content available that took advantage of it, and that on the other hand, the content providers won't materialize until there is such a system, it should be clear that (small town) Palo Alto can't drive a process that would entice enough content providers to make a difference. We're likely to end up with a big local pipe with nothing in it until the rest of the state (or nation) comes along - if ever.

Sorry Paul. The city shouldn't be taking risks with the taxpayers' money (or assets.)


 +   Like this comment
Posted by Pat
a resident of Leland Manor/Garland Drive
on Jul 16, 2008 at 1:00 pm

I'm with Jude on this. While private sector companies are in the business of taking risk, city governments shouldn't be.


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Posted by Me Too
a resident of Meadow Park
on Jul 16, 2008 at 1:20 pm

But Pat and Jude, this is new and exciting stuff, not the boring stuff like street and storm drain repair, city staffing levels, benefits plans, or just plain old cost reduction! If the city council limited itself to those things, they'd have nothing interesting to talk about. We are Palo Alto after all - we can't be like those other boring towns, can we?


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Posted by Bandwidth
a resident of Crescent Park
on Jul 16, 2008 at 1:26 pm

Looks like the last four posters are the same person, spinning away.

Let's look at some of their arguments:

"If greedy profit seeking companies are having difficulty finding a way to sell high speed access at a price consumers are willing to pay, what makes Paul - or anyone - think the city can do it?"

This statement is seriously lacking in historical perspective, re: incumbent unwillingness (to the degree where they have spent 10's of millions lobbying) to build out fiber infrastructure *that has already been funded* by their own customer's mandatory fees.

Incumbents have been struggling to avoid gutting copper infrastructure, and scaling fiber into place only when the *incumbent's own actions* make current bandwidth availability untenable for use.

It's wrong, and probably duplicitous, to make the argument that the incumbents have been leading the market, or even meeting the market demand for bandwidth; they haven't.

Why are so many other countries fiber enabled? Why are so many other countries less burdened with ominous pricing and other bundling burdens on the consumer than we are.

You need to do some serious homework.

next argument:
"While it is perhaps true that people would be willing to pay for a faster system if there were content available that took advantage of it, and that on the other hand, the content providers won't materialize until there is such a system, it should be clear that (small town) Palo Alto can't drive a process that would entice enough content providers to make a difference. We're likely to end up with a big local pipe with nothing in it until the rest of the state (or nation) comes along - if ever."

This statement is so uninformed I don't know where to begin. How can content be made available from the edge of the network if there's no way to put it there? Currently, consumers have to mediate their risch media contributions to the network through modalities like youtube, etc. etc.

With upload speeds of far under a Mbyte the most common scenario, who's got time to upload anything. With download speeds well under a Mbyte, how many are willing to wait around for movies to download.

What about high-bandwidth application provision from the home?

What about high-bandwidth interface among local schools, libraries, and other institutions?

The network is about *many* different kind of content, not just top-down distribution of entertainment.

So far, every single person (al two of them) weighing in against this idea don't appear to undrstand that.

Last:
"What good is indemnification from under-capitalized entities? If AT&T sues us and wins a judgment for $50 million (just pulling a number from the air), do the vendors just declare bankruptcy and leave us with the bill? Probably. Also, being able to get the assets back - that sounds right, but how do we achieve it in a bankruptcy scenario? The bankruptcy court have a lot of leeway and our assets could be stuck in a bankrupt entity for a very long time."

Whoever wrote this hasn't made a deal in a long, long time. And, if they have, I dare say it was for a low rent crowd who couldn't afford a good attorney.

Since when doesn't indemnification protect against the top line party in a contract? That's just crazy, and overreaching. It won't happen. And anyone who suggests it could happen is creating FUD in order to create cold feet.

In all, every single argument against the current yet-to-be-hammered-out agreement is full of holes, misinformation, ignorance (of the market, and deal structures), and the city's role in the proposal.

I wouldn't be surprised of those arguing against are Comcast or ATT plants.



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Posted by Taxpayer Plant
a resident of Barron Park
on Jul 16, 2008 at 2:45 pm

Bandwidth spouts on and on, but has not come up with a single good reason why not just the Comcast/ATT incumbents, but any of the legions of other potential investors and entrants have not entered the market for high bandwidth. In fact if Bandwidth is so convinced of the merits of his arguments, why doesn't he take them to some investors and show them the easy profits to be had bringing FTTH in Palo Alto?

The reason he doesn't do this is, of course, that there is no profit making opportunity here that can be sold to someone investing his own money. That's why the FTTH argument has become a political argument made to politicians on our Council who are responding to political imperatives, not an economic case that can be sold to rational investors.

Bandwidth, to the extent he is a potential FTTH subscriber is then, primarily a rent seeking opportunist hoping to have the rest of us subsidize his bandwidth by having the Council make the non-economic investment that the private market will not touch.

If Bandwidth thinks we should subsidize him and a few other hobbyists, or if he thinks we should subsidize the "high-bandwidth interface among local schools, libraries, and other institutions" and other pie-in-the-sky goofiness he rambles on about, he should say so. Then we can have a discussion about the merits of making such subsidies.

But as long as he pretends this is a rational profitable investment opportunity for the city, he's fooling no-one but himself and we should keep close watch on our wallets while he's lurking.


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Posted by Bandwidth
a resident of Crescent Park
on Jul 16, 2008 at 2:52 pm

"In fact if Bandwidth is so convinced of the merits of his arguments, why doesn't he take them to some investors and show them the easy profits to be had bringing FTTH in Palo Alto?"

That's what Palo Alto just did. This is a private enterprise deal, with no cash investment or risk by the city. Try getting your facts straight.

btw, who do you work for, Comcast, or ATT?


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Posted by Me Too
a resident of Meadow Park
on Jul 16, 2008 at 2:57 pm

Bandwidth, I didn't understand your point on indemnification. Perhaps you didn't understand mine.

My point is that indemnification for a big amount from a small company is like getting a lifetime guarantee of a start-up - it probably isn't worth much. Assuming the vendors who indemnify us are small companies (I believe they are), then they can't realistically stand behind their indemnification. Per my example above, if AT&T gets a judgment for $50 million, and we then go to the vendor to collect, the vendor simply doesn't have it - they just declare bankruptcy and we still owe AT&T. As with most deals, the party who has the deep pockets usually ends up with the risk. In this case, that seems like that party is Palo Alto.


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Posted by Taxpayer Plant
a resident of Barron Park
on Jul 16, 2008 at 3:05 pm

"This is a private enterprise deal, with no cash investment or risk by the city."

As was discussed at length in this thread, the city is putting up its Fiber Ring, valued at $13million by the city. It is duplicitous to say the city is putting up no cash investment or that it's not risking anything in this deal.

Maybe Bandwidth should try getting his facts straight before castigating others.

I'm all in favor of selling the Fiber Ring - preferably in a competitive bid - and using the funds to, say, fix the streets. But let's not give it away to be squandered in some risky undercapitalized scheme as is now proposed. We haven't got the money for that kind of wastefulness any more.

Memo to Bandwidth, and to Mike of College Terrace: it's possible for people to disagree with you on city policy and not be fronting for some evil corporation. Knock off the name calling.


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Posted by bad analysis
a resident of Fairmeadow
on Jul 16, 2008 at 3:10 pm

Jude -

ATT/Comcast are not nimble. They have a vested interest in milking their existing assets, technologies, business models, billing systems, content providersm, customers etc. as long as they can. To argue that if they don't do it, it's not the right thing business-wise, is missing the mark.

It may not be a good idea to go ahead with this, but "because Comcast isn't and they would if it made sense" is not a sound argument against the plan.


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Posted by Jude
a resident of Midtown
on Jul 16, 2008 at 3:18 pm

"ATT/Comcast are not nimble."

As compared to City Government's Fat Albert, ATT/Comcast is Fred Astaire.

More to the point, there are NO private actors - Att/Comcast or not - who are willing to put up money for this scheme. That ought to say something to those wanting to let the people who misunderestimated the storm drain repair project by 50% invest in something complex as FTTH.

The fact that private investors are unwilling to fund this without city contributions (in the form of assets and - per MeToo - possible indemnification), should be a signal that the city should NOT be doing this, not as some argue here, that it should.


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Posted by Bandwidth
a resident of Crescent Park
on Jul 16, 2008 at 3:51 pm

Taxpayer plant, the city is not putting up the fiber ring. Nor is it selling the asset. Nor is this a risky undercapitalized scheme. It's offering an option for use, with details yet to be worked out. Again, get your facts straight.


Me Too, How can you claim to know what the deal details is even before they're made? And, how can you claim that contracts can't be let that provide immunity from telco lawsuits? Seriously, I think you're talking through your hat, because I've see REALLY risky deals that effectively separated the leveraging partner from the asset owner.


Jude, "there are NO private actors - Att/Comcast or not - who are willing to put up money for this scheme. "

That's just wrong. Did you even watch the proceedings? The private partners in this deal are risking a lot. They're leveraging a dormant asset with intellectual capital. have you *ever* worked a balance sheet. Have *any* of you?

I've yet to see an accurate representation of the deal, or the market, from anyone above. Thank god you people aren't running our city; then we'd really be in trouble.


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Posted by Me Too
a resident of Meadow Park
on Jul 16, 2008 at 4:29 pm

Bandwidth, I think I give up. You don't seem to be listening or maybe you don't care.

If the vendor indemnifies the city, that means if someone like AT&T sues the city and wins, the vendor is obligated to reimburse the city for any payouts (and hopefully the legal bill too, depending on how the contract reads).

But if the vendor doesn't have the money, it doesn't really matter what the contract says. Just because they have the obligation to pay doesn't mean they have the money. And just because they can't pay doesn't give Palo Alto an excuse not to pay, in the event we have to go through and lose a law suit. Hence the indemnification protection is no bigger than the balance sheet standing behind it. If they declare bankruptcy, we are stuck with the tab.

Let's just get a solid deal lawyer in there. If s/he does his job, everybody should have a good sense of the practical risks.


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Posted by Bandwidth
a resident of Duveneck/St. Francis
on Jul 16, 2008 at 6:11 pm

Me Too,

You assume that the city will be sued. Why? On what basis?

Also, you assume that indemnity will be built into the contract. Why? The City doesn't have to assume any responsibility re: the vendor's activities. If I let someone rent my property and he uses it to open an illegal gambling establishment, I'm not responsible.

And even if the above were the case, it appears that you would rather have our City Council, and nation, held hostage by thieving telcos and cable operators. Timidity is the refuge of losers.




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Posted by Taxpayer Plant
a resident of Barron Park
on Jul 16, 2008 at 7:00 pm

" If I let someone rent my property and he uses it to open an illegal gambling establishment, I'm not responsible."

Bandwidth sounds suspiciously like Mike of College Terrace, and like Mike of College Terrace, he will bluster through without the slightest bit of concern or consciousness about the accuracy of his statements.

The statement quoted above is flatly false. If a landlord rents a property to someone who conducts illegal activities there and knows about the activities, he's not only responsible, but in California his property is subject to forfeiture.

And Me Too is correct that indemnity is only as good as the assets of the indemnifying party.

I'm less worried about our Council (and the nation?! Talk about self aggrandizement!) held hostage by greedy telcos and cable operators than I am about the know-nothing global warmists at City Hall being duped by a coalition of grifter small entrepreneurs who play on the naivete and gullibility of the Council and the false bravado of people like Bandwidth who talk big but think not at all beforehand, and obviously haven't got a clue about what they're talking about. (See above).

Timidity is the appropriate posture for officials handling the public's money. If Mike of College Terrace or Bandwidth want to take risks, let them do it with their own funds.


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Posted by Joe
a resident of Barron Park
on Jul 16, 2008 at 7:19 pm

The "$50 million dollar AT&T lawsuit" is just fear mongering. Let's face it, AT&T's U-verse plan is to sell bundled television, internet and voice services, just like Comcast. The interesting wrinkle is that internet bandwidth is deliberately throttled to protect TV and voice revenue. On top of it, their U-verse neighborhood build out is fiber to neighborhood hubs, with the old copper lines still running to homes. Any competitor gets locked out of the new infrastructure and has to make do with the marginally maintained old copper all the way back to the central office. They can't be happy, but there's no case for AT&T to make. AT&T is already walking a pretty thin line.


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Posted by Me Too
a resident of Meadow Park
on Jul 16, 2008 at 8:21 pm

Why worry about indemnification from lawsuits by existing carriers:

(1) PA Weekly: "The city's agreement should also indemnify the city against third-party legal action, Kishimoto specified in her motion, a clause designed to head off lawsuits from Web firms such as Comcast that take issue with broadband competition by public agencies."

(2) Senior asst city attorney Grant Kolling: "AT&T has become a lot more litigious with [city governments]. We don't have an explicit statement that a lawsuit is imminent, but it is our sense, based on previous statements to [the city council] and recent meetings with AT&T, that it's under consideration."

What are the stakes / amount of such a lawsuit? I have no idea. But in any deal, there are unknown risks; here at least some of them are being advertised up front. It isn't fear mongering to face up to the risk, and for us to ask ourselves whether our insurance policy - indemnification by small vendors - is big enough that we actually are taking "no risk."

Mike/Bandwidth - do you even read the articles before going off?


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Posted by Bandwidth
a resident of Duveneck/St. Francis
on Jul 16, 2008 at 10:55 pm

Taxpayer Plant seems not to know very much about contracts, or the law, especially when it comes to leveraging dormant municipal assets for community benefit. Nor does TP (an interesting acronym) :) appear to understand that the consortium partners have partners and parents with _very_ deep pockets. TP doesn't seem to understand that maybe, just maybe, some of those partners and parents might want a foothold into leveraged municipal fiber plays. Again, it looks like TP isn't up to the details of this project, and shows again that doing deals isn't in his repertoire.

Me Too takes the stance that because there's a distant risk, or even an immediate risk, that Palo Alto should fold, without, like TP, considering who we're doing business with. What Me Too fails to see is the opportunity in such a lawsuit, for the defendants. You might think about that.

This is what happens when minikin thinking attaches itself to opportunity; it drags opportunity down like an anchor. You're gonna love your fiber, guys!


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Posted by Me Too
a resident of Meadow Park
on Jul 16, 2008 at 11:57 pm

Looking at the consortium members, does anyone know if there are any US examples of similar networks they have done? Is there anybody who has done anything like this in the US?

Axia, who seems to be the lead, is a Canadian company that seems to operate in Alberta and France. They mention bidding on projects in Australia and Singapore. But I didn't see any mention of US activity.

PacketFront calls out success stories in Sweden, the Netherlands, and one in Canada; nothing in the US.

180 Connect seems to be the installer, who does construction and installation of fiber projects.


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Posted by Wayne Martin
a resident of Fairmeadow
on Jul 17, 2008 at 4:49 am

Web Link

News
Amazon Opens VOD Store -- But No HD
The films will also be available on Sony high-def sets.
By Swanni

Washington, D.C. (July 17, 2008) -- Amazon.com today will launch a Video on Demand store where customers can watch any of 40,000 movies and TV shows immediately after ordering them.

That's according to an article by The New York Times.

However, the online store will not include high-def programs. Amazon, the Times reports, will also make the service available on Sony Bravia High-Definition TVs via a $300 Bravia Internet module. However, the Sony service will also not include HD movies or TV shows.

By launching the VOD streaming service, Amazon joins what is becoming a crowded field. TiVo, NetFlix, Apple, Sony and Microsoft are all now offering streaming or downloaded movies and TV shows over the Net to home TVs.

The Times reports that the Amazon service would be made available to a limited number of customers initially before expanding later this summer.
-----------


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Posted by Jude
a resident of Barron Park
on Jul 17, 2008 at 10:46 am

"...to leveraging dormant municipal assets for community bnefit."

IF Tax Plant doesn't know much about law, it appears that B'width knows nothing about finance. The city values the fiber ring at $13 million. Depending on the discount rate used, that makes its value somewhere roughly $700k to $1 Million/yr. As the city apparently intends to contribute the value of this asset to the venture free of charge, it is inaccurate to pretend the city is risking nothing.

As to B's legal acumen, one might want to consider his statement that, "What Me Too fails to see is the opportunity in such a lawsuit, for the defendants. You might think about that. " Anyone who thinks being a defendant in a lawsuit represents an opportunity for the city needs to think a little harder - and if he still comes to the same conclusion, needs to have his head examined. Given Palo Alto's recent record as defendant in lawsuits (the Enron contract, the cop beating, etc., etc.) it is reckless in the extreme to contend that the city should increase its exposure to lawsuits as B apparently advocates.

But, as with the fiber investment itself, B isn't gambling with his own money....which may account for everything he says here.


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Posted by Bandwidth
a resident of Crescent Park
on Jul 17, 2008 at 11:01 am

Jude,

The city would not be the first party named in a lawsuit, THINK hard about that. Do some research into the partners and parent companies of the consortium. Come on! Put your strategy hat on. You can do it. And, the value of the asset is leveraged against performance milestones. Has anyone on this thread - other than myself - ever done a deal? Looks like a lot of casual readers of Fortune Magazine, playing wannabe financiers.

Also, what makes me laugh about Wayne Martin's comment above is that he and others who are railing about this project just DON"T GET IT. They never have. For instance, Martin thinks that libraries are obsolete, because everyone uses Google for everything. That's been refuted so many times it isn't even funny, but her persists. A real "true believer". Now he's telling us that just because we can download movies from Amazon we don't want fiber.

Wayne, please do help us understand, in your infinite wisdom about all things tech, why so many other nations have deployed universal fiber in urban centers, and are receiving massive payback from that, and we haven't. Interested parties want to know. You can use any one of your aliases like "Jude" or "Taxpayer Plant" to let us know, assuming they're not here as ATT and Comcast plants, already.


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Posted by Me Too
a resident of Meadow Park
on Jul 17, 2008 at 11:39 am

Bandwidth brags a lot about his experience, but I think any sensible person can see some of the potential risks we are walking into. The idea that the "partners" of our small vendors will shoulder the indemnification risk for them and us speaks for itself in terms of how uncomfortable we should feel.

Again, can anyone point out a similar setup that these players have done in the United States? The premise the Council seems to be taking is that there is "no risk." If in fact there are real risks - business risk, legal risk, financial risk - then that assumption is wrong and we should discuss how much risk we are really willing to take - and if we should invest any time and assets into a first-of-its-kind project that seems likely to fail. Of course there is potential upside, but should the city be in the business of betting on long-shots?


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Posted by Bandwidth
a resident of Crescent Park
on Jul 17, 2008 at 12:24 pm

"Again, can anyone point out a similar setup that these players have done in the United States?"

Just what Steve Jobs, Gordon Moore, and H&P would have said. NOT!

It's kind of funny to hear from someone who has never worked a term sheet talking about how "risky" something is.

We've heard enough from the amateurs; it's time to engage opportunity.


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Posted by Jude
a resident of Barron Park
on Jul 17, 2008 at 12:27 pm

"Has anyone on this thread - other than myself - ever done a deal? Looks like a lot of casual readers of Fortune Magazine, playing wannabe financiers."

Anyone who had high value as a deal maker would not be spending hours and hours posting here bragging about all his connections and experience. They'd be out doing deals. I suspect that like most of the rest of us regular posters here B is retired or less than fully employed and looking for ways to fill up days with too much time in them.

For all the aspersions B casts about people who "Don't Get It", it's quite clear that the person most lacking in understanding, or even an ability to follow a logical argument, is B himself. This is why when challenged directly on point, like Me Too just did for example, he goes off on tangents having diminishing connection to the point at issue.

When he's posting as Mike of College Terrace he does the same thing. I wonder if he'd be so free with his insults if he posted under his real name. [Portion removed by Palo Alto Online staff].

Say what you will about Wayne Martin, he always posts under his own name.


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Posted by Jude
a resident of Barron Park
on Jul 17, 2008 at 12:31 pm

"Just what Steve Jobs, Gordon Moore, and H&P would have said. NOT!"

Anyone who thinks municipal governments are capable of doing - or should be doing - the same thing local entrepreneurs have done with risk capital has revealed himself as a poseur of remarkable ignorance.


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Posted by Ralph
a resident of Adobe-Meadows
on Jul 17, 2008 at 12:35 pm

Back in Texas, we've got the perfect epithet for folks like Mike of College Terrace and Bandwidth.

Web Link


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Posted by Bandwidth
a resident of Crescent Park
on Jul 17, 2008 at 12:53 pm

It sure looks like "Ralph" (who is no doubt "Jude", Wayne Martin" "Me Too" "Taxpayer Plant" and/or a Comcast or ATT plant have lost his cool. Mike? Sanford? What are you guy (sic) talkin' about?

Goofy, is that you?
Web Link


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Posted by Fiber guy
a resident of Fairmeadow
on Jul 17, 2008 at 1:01 pm

Jude, the partners are engaging the risk. Why can't you get that through you unseemingly hard head.


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Posted by Bandwidth
a resident of Crescent Park
on Jul 17, 2008 at 1:05 pm

Hey Jude posts "I suspect that ^^^^^like most of the rest of us regular posters here^^^^^^^ B is retired or less than fully employed and looking for ways to fill up days with too much time in them."

So that explains your backwardness! Just a bunch of old geezers, wasting time!

fyi, I'm on vacation, Goofy! :)


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Posted by Me Too
a resident of Meadow Park
on Jul 17, 2008 at 1:15 pm

It's too bad really - I actually think he does it just for the attention and getting a rise out of people and doesn't care what happens with the city.

The "argument" so far:

- no-one would sue!
- so what if they sue - they can't sue us!
- so what if they sue us - we'll be indemnified!
- so what if the vendors are too small to indemnify - they have big "partners"!
- so what if the partners won't pay - there would be opportunities if they sue us!
- so what if none of this makes any sense - Steve Jobs would do it anyway! And besides, you all work for Comcast!

PS: Nice picture of "all hat no cattle"


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Posted by I want my fiber
a resident of Charleston Gardens
on Jul 17, 2008 at 2:33 pm

Me Too, You're running out of bandwidth, and arguments. Relax, and enjoy the day.


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Posted by Show Me
a resident of Another Palo Alto neighborhood
on Jul 18, 2008 at 3:00 pm

Bandwidth asks, "What about high-bandwidth interface among local schools, libraries, and other institutions?"

The conceptual proposal presented to the City Council gives the schools, libraries, and other institutions a special transport rate for 1 Mbps. That's 1 Mbps, not 100 Mbps, not 1 Gbps.


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