Publication Date: Wednesday, February 11, 2004
Editorial: Weigh city fiber's benefits and risks
Editorial: Weigh city fiber's benefits and risks
(February 11, 2004) Questions of competition, technology, policy and law must be addressed before city embraces potential of adding a 'fiber utility' service
A long-awaited city staff report that is expected to recommend creation of a "fiber utility" in Palo Alto is due out late this week.
How the community responds in coming weeks will affect its future. The proposed system would make fiber-optic technology -- light-speed communications through glass filaments -- accessible to homes and businesses throughout Palo Alto.
The report has been literally years in the making, and much of it has already been reviewed in great detail by the city's Utilities Advisory Commission (UAC) and a staff-level advisory team that includes experts in fiber technology from the community.
But the world has changed since City Council candidates in 1998 were asked their opinions of a fiber-to-the-home (and small business) system at a candidates' forum -- when all but one endorsed the concept, insofar as it then went.
From then on, it went slowly, first because of high-level skepticism and resistance within the city staff and later -- after the staff conceptually supported fiber -- simply because of the complexity of the plan. The hefty $35 million cost estimate gave pause, and there were many legal and policy questions.
As outlined in this week's cover-story package, creating a "fiber utility" service would add to a successful century of city-owned utilities providing water, natural gas, electricity and sewage services to residents and businesses. Electric rates particularly have consistently been significantly lower than rates charged by private utility firms in neighboring communities. Substantial surplus revenues augment the city budget -- the utilities service, appropriately, has been called a "golden goose" for the city.
The fiber utility as conceived would provide fast, dependable Internet and communications service at modest rates, and as proposed would include "cable television" as well. Regulatory questions make it doubtful the city will include telephone service.
Surveys show the city's Utilities Department enjoys near universal popularity in town for its dependability and rates. And the department's operation of the so-called "fiber ring" -- a loop of fiber around Palo Alto that the city leases to communications firms, installed in 1998 -- has generated revenues to offset its installation cost of about $1.8 million.
But $1.8 million is far less of a risk than the $35 million to $40 million installation estimates for making fiber services accessible to homes and small businesses throughout the community. Even if that investment is to be repaid by revenue bonds, and even if the city's utilities have substantial reserves that presumably would cover any deficits, there would be some level of risk that could impact future ratepayers, at least.
On the other hand, the argument is made that having a city-owned fiber system would enhance competition with the private communications or telecommunications firms, such as ComCast (formerly AT&T Broadband) and SBC (formerly Pacific Bell). Both firms are planning major offensives to discourage Palo Alto from moving forward -- they are fresh from a victory in defeating a three-city fiber project in Illinois.
Some have speculated that without the dampening effects of city rates, the private firms would be free to raise rates for those who desire or need higher-speed Internet access. Over the long run, some speculate the rate-differential cost to residents and businesses could equal or exceed the cost of investing in a city system.
When all the reports are in, Palo Alto city officials and probably voters (next November) must decide to move forward or drop the citywide fiber idea once and for all.
Either way, there's a risk. Emily Harrison, assistant city manager, said in a presentation to the International City Managers Association in 2001 that communities that provide the electronic superhighways will be those that thrive in an age when information is the product. And as more people become engaged in online commerce from their homes, a dependable city system at reasonable, stable rates could provide a strong base to sustain and encourage such an economy.
And what would be the cost if an electronics or other business decided to move to a community that had more robust connections to homes to help with telecommuting?
A fiber utility could have huge potential benefits for the community, with spinoffs we can only guess at. But the investment carries significant risk, and city officials, residents and business leaders must now weigh the hazards and decide what appetite the community has for risk-taking.
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