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Palo Alto sees its fiber dream fizzle

City looks to abandon 15-year quest to bring fiber-based broadband connection to the masses

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After 15 years of failed schemes and dashed hopes, Palo Alto is preparing to pull the plug on its dream of bringing ultra-high-speed Internet to every household in the city.

Instead, Utilities Department officials are now looking to wireless technology as the most promising method to bring Internet access to the masses.

Despite some reservations, the Utilities Advisory Commission voted 4-3 Wednesday night, June 6, to stop analyzing the possibility of expanding the city's existing dark-fiber network to local residents, a project known as Fiber to the Premise (FTTP). If the City Council were to go along with this recommendation, it would effectively kill a project that the city has been coveting for more than a decade.

The decision by the Utilities Department staff to back away from the fiber project was prompted by a new survey and analysis showing that most residents would not be willing to make the necessary investments to make the system economically feasible. The city's existing 41-mile dark-fiber ring, which serves 78 commercial customers, has been an economic success, bringing in $2.1 million in annual revenues. But the new analyses show the cost of building the "last mile" from the ring to the city's residential neighborhoods would be extremely difficult given the market dominance by AT&T and Comcast of the local broadband market.

City officials had considered a phased plan under which the city would build fiber-optic hub sites at nine electric substations and then expand network access from these sites to 88 neighborhood nodal access points, which would then allow access to the fiber system. These steps would cost about $6 million. But it would still be up to a private company to step in and provide the final connection between the nodes and the residences. That, staff concluded, is an unlikely proposition given the local market.

"Market research indicates that a third citywide terrestrial broadband network in Palo Alto, built by the City or a third party FTTP provider, or built by a third party provider in a partnership with the City, would find it extremely difficult to acquire sufficient market share to succeed -- especially if the City did not want to expose itself to some financial risk beyond just licensing dark fiber to a potential FTTP system builder," Jim Fleming, a management specialist at the Utilities Department, wrote in a new report.

Fleming noted AT&T and Comcast already have an "entrenched presence" in the city and a "track record of aggressive tactics to retain their market share" – factors that represent "a formidable obstacle" to any new broadband provider.

"Based on current market conditions for broadband services in Palo Alto, staff concludes there is no fiscal basis to use the fiber fund reserve to pursue implementation of the phased conceptual plan for FTTP," Fleming wrote.

The phased approach was just the latest in a series of schemes the city has been pursuing in the past decade and a half. Five years ago, the city was hoping to link up with a private consortium that would build and operate the expanded fiber network. That deal collapsed, however, in early 2009 when the consortium, led by the Canadian firm Axia Netmedia Corporation, backed out of the deal to build the $45 million system, citing "deteriorating" financial conditions. The company had requested that the city contribute between $3 million and $5 million annually to support the system, a proposal the city rejected.

The city was also hoping to be selected for "Google Fiber," an ambitious proposal by the Mountain View-based Internet giant that was looking to bring a fiber-to-the-premise system to a chosen municipality. Despite a glut of letters, emails and a video of Palo Alto officials dancing for Google in front of City Hall, the company ultimately chose Topeka, Kansas, sending Palo Alto back to square one.

The city's proposed phased approach now also appears to be doomed. The analysis by the firm Tellus Venture Associates, shows that even in a best-case scenario, an average household would have to pay $1,000 upfront for the connection and $75 per month to subscribe to the fiber service (the base model showed a $3,000 upfront fee and a rate of $100 per month). The company concluded that a user-funded fiber-to-the-premise system "is not possible to achieve in Palo Alto."

Stephen Blum, president of Tellus, told the commission Wednesday that heavy city subsidies would be required to make a citywide fiber-system possible.

"In terms of a system being able to pay for itself completely upfront, it's not feasible," Blum said. "It's not going to happen."

Public opinion also influenced the staff recommendation. The city had recently commissioned a survey to gauge residents' interest in a citywide fiber network. The survey by the firm RKS showed that while residents are generally enthusiastic about such a system, their enthusiasm quickly sours when talk shifts to finances. For example, 61 percent of respondents said the city should create a system to compete with the incumbent providers. But when survey respondents were told that the cost of bringing a municipal fiber system to all residential neighborhoods would be between $40 million and $60 million, support decreased to 38 percent. Another 38 percent said they were unsure whether they would support the system's build-out when they were told about the costs.

Faced with these numbers, staff and the Utilities Advisory Commission decided that it's time to scrap the long-held dream. Fleming wrote in the report that embarking on a fiber project would "involve an unreasonable degree of risk," even more so than at other cities that pursued municipal broadband systems. These included Alameda and Provo, Utah.

"These enterprises ultimately resulted in financial failure and either bondholder losses and lawsuits or direct, supplemental taxpayer subsidies," Fleming wrote. "Additionally, staff does not support spending the fiber reserve generated by the City's dark fiber network on providing service to a small fraction of residents who, according to the RKS data, are likely to be among the City's most affluent households."

Not everyone agreed that its time to scrap the project. Commission Chair Jonathan Foster and Commissioners Asher Waldfogel and John Melton supported waiting a few months to give the city's citizen advisers a chance to evaluate the new studies and to solicit input from the City Attorney's Office about ways in which the city can spend its dark-fiber reserve, which currently stands at $12.7 million. Bob Harrington, who advises the city on broadband issues, also urged the commission to give him and other experts a chance to vet the documents.

"I urge a little longer consideration before we drop this and go on to a wireless municipal network," Harrington told the commission.

But the rest of the commission sided with staff, whose recommendation also includes directing the Utilities Department to pursue a study that would determine what a Palo Alto wireless system could look like. The study would cost between $25,000 and $50,000, Fleming estimated.

Commissioner Steve Eglash was among those who supported putting an end to the city's quest for a citywide fiber network and going with the staff proposal.

"I think the preponderance of the evidence tonight and over the years shows that we cannot support this," Eglash said.

We need your support now more than ever. Can we count on you?


Like this comment
Posted by Arch Conservative
a resident of Menlo Park
on Jun 7, 2012 at 10:36 am

Next on the "Hit List"- High Speed Rail?
Then two lanes for California Avenue?
Someone coming to their senses?

Like this comment
Posted by member
a resident of Greenmeadow
on Jun 7, 2012 at 10:39 am

What was the total consulting price?

Like this comment
Posted by Tyler Hanley
digital editor of Palo Alto Online
on Jun 7, 2012 at 11:01 am

Tyler Hanley is a registered user.

The following comments were moved form a duplicate thread:

Posted by Elizabeth, a resident of the Midtown neighborhood, 17 minutes ago

I hope you're correct AC. (and I'm not one.)

High speed made some sense in the economy that voted it into possibility.

We're not there now and the money for that and other projects could be better spent.


Posted by Mike, a resident of the Meadow Park neighborhood, 3 minutes ago

AT&T's "entrenched" presence provides a narrow-band, crawl-speed, DSL which features the spinning wait ikon while watching anything interesting on YouTube.

Like this comment
Posted by frankf
a resident of Ventura
on Jun 7, 2012 at 11:02 am

frankf is a registered user.

$75 / month is about than what I pay to ATT for slow DSL; I'd go to $100 + $3,000 set up and think it a bargain. I'm not unique.

I've never been able to figure out these consultant reports - where are they getting their information. The only parallel I can think of is way back in the 1960's when (what became) Xerox tried to sell the idea of the photo copy machine to IBM they said - no one would ever pay that much for a copy machine because we have carbon paper.

What lack of vision.

Like this comment
Posted by Garden Gnome
a resident of Crescent Park
on Jun 7, 2012 at 11:04 am

Near Neighbor Mike,

Consider checking out a different ISP...such as

Agreed - ATT can be pretty slow.

Like this comment
Posted by Comcast
a resident of Barron Park
on Jun 7, 2012 at 11:23 am

I'm paying about $45/month (after the teaser rate expires) for Comcast. I'm also going to switch phone service to it via Google Voice, which for now at least is free calling local and long-distance. So my AT&T bill, for local calling and (bad) DSL, was $75/month; I will now pay $45 with vastly better service (usually ~10-15 down, 4-5 up, including Wifi in the house). We're really using the Google Voice as a back up, since all family members now have cell phones which handle the vast majority of the calls. We won't have 911 service on Google Voice though, that's unfortunate. But we'll post the emergency numbers by the phone if needed.

Like this comment
Posted by Wayne Martin
a resident of Fairmeadow
on Jun 7, 2012 at 11:42 am

This idea of a City-owned Fiber Network has always been the dream of a handful of people who have very big-government visions of what government should be like, and how much it should be involved in our lives.

Over the past few years, these people have made incredible claims about how a City-owned/operated/managed Fiber system would increase the value of everyone’s home by up to 200K, to being able to “run Comcast out of town”. The Weekly went so far as to publish an editorial once that: “Comcast Poisons Communities”.

Supports of this large City operation have actually made claims that wireless could never equal Fiber-to-the-Home capabilities, without demonstrating why they believed their claims were true.

Over the past couple of years, the wireless industry has been forging ahead, with the 802.11ac standard being generally adopted this year, and full adoption likely next year. The following links offer a little insight into this emerging technology—

Web Link

Theoretically, this specification will enable multi-station WLAN throughput of at least 1 Gigabit per second and a maximum single link throughput of at least 500 megabits per second (500 Mbit/s). This is accomplished by extending the air interface concepts embraced by 802.11n: wider RF bandwidth (up to 160 MHz), more MIMO spatial streams (up to 8), multi-user MIMO, and high-density modulation (up to 256 QAM).

Multi-gigabit Wi-Fi is here and 5 reasons it matters:
Web Link

Is Google asking the FCC to allow gigabit Wi-Fi for its gigabit network?:
Web Link

Google has been pushing the idea of Fiber-to-the-Home in a couple target installations—mostly as an experiment. That’s great news, since it will provide data points about how a more-or-less independent technology “operator” can manage/finance/monetize with a FTTH system. Verizon has passed maybe 100M homes on the East Coast, but the high-speed Internet (100MB+) does not seem to have been especially popular—given how high cost Comcast has priced the service.

The 802.11ac standard might be best suited for home use, but the fact that high data speeds are available from this technology can not be overlooked by any interested in data systems.

There is also LTE (Long Term Evolution), which seems to have caught the eye of a number of US/Domestic carriers, and we’re now seeing LTE interfaces on iPads/Laptops, and some handheld voice communications devices (cell phones).

The City desperately needs a mesh network for public safety use. This network could also be utilized by low-end Internet use. Google has reportedly spent about $1M to install WiFi nodes in Mountain View. This service has not been 100% acceptable, but people can buy low cost boosters to increase the Google-provided WiFi signal inside their homes.

Given that a public safety mesh network would really need to be of a regional design, that presents a bit of a problem at the moment. All of the Santa Clara County/San Mateo County public safety people would need to come together, agreeing on the system to purchase, and then installing the hardware/software to make it work. That possibility seems a long way off, at the moment.

At any rate—not putting the City in hock for the costs of this FTTH system is good news. Now it remains to be seen what the City is thinking about.

Like this comment
Posted by Don
a resident of Downtown North
on Jun 7, 2012 at 12:43 pm

Please reread the statements made by Fleming: "These (at Alameda and Provo, Utah) enterprises ultimately resulted in financial failure and either bondholder losses and lawsuits or direct, supplemental taxpayer subsidies," Fleming wrote.

Also: '...that embarking on a fiber project would "involve an unreasonable degree of risk,"...'

Other than wishful thinking by the affluent, there does not seem to be support for spending a great deal of money for a system with little utility for the average homeowner.

Like this comment
Posted by Toady
a resident of Old Palo Alto
on Jun 7, 2012 at 12:54 pm

Given the high cost of CPAU services, I'm not surprised that everything was viewed in costly, overburdened (i.e. government services) manner rather than really figuring out how to deliver the services at a competitive price-point. Their approach only works if you're a monopoly, which CPAU is for our utilities.

I would rather try to figure out how to convince to bring its fiber broadband down here. They're doing it in Sebastapol and will start working on San Francisco soon, who, by the way, also have Comcast and AT&T servicing those regions. They've managed to figure out how to make money at a $70/month price point. And they're aren't charging $1,000 up-front for a connection (who the heck came up with that pricing model? probably some out-of-touch city employee)

Web Link

Like this comment
Posted by Broadband Fan
a resident of Adobe-Meadow
on Jun 7, 2012 at 1:14 pm

Palo Alto should consider partnering with Web Link is running Google's FTTH system at Stanford. also is building a FTTH network in Sebastopol and a test network in San Francisco. Web Link "The fiber Internet at 100 Mbps costs about $40 a month, and includes a home phone line with unlimited national calls. The 1 GBps speed option costs about $70 per month."

They currently offer Fusion broadband (an uncapped ADSL2+ circuit with a phone line with (mostly) unlimited local and long distance calls) for $40/month plus tax. Note that this is NOT a promotional price; rather it is the ongoing rate. You can keep your existing AT&T phone number. Web Link

Finally, was recently rated very highly by the Electronic Frontier Foundation (EFF). Web Link "We are especially pleased to recognize the first company to ever receive a full gold star in each of the categories measured by the privacy and transparency report:, an ISP based in Santa Rosa, California."

Like this comment
Posted by Nayeli
a resident of Midtown
on Jun 7, 2012 at 9:39 pm

Wow! Some of you pay wayyyyy too much for internet access! We have paid $14.95 per month for AT&T DSL for about four years. Every year, they tell us that our rate will increase. Every year, we subsequently tell them to cancel us. Then, PRESTO, they "extend" our rate for another year.

Granted, we only have 1.5 Mbps, but that is a problem with the lines in this area.

Still, the $14.95 per month for 1.5 Mbps is not bad for what we do. We watch some videos online (Netflix, Amazon, Hulu, etc...) without a problem and my husband plays his Xbox 360 games (occasionally) too and has experienced any problems.

Maybe you should look into AT&T again?

Still, it would be great to faster speeds for not much more than we are paying now.

Like this comment
Posted by Terry
a resident of Midtown
on Jun 7, 2012 at 11:03 pm

> Utilities Department officials are now looking to wireless technology as the most promising method to bring Internet access to the masses.

The Utilities Department is incompetent at everything else they do, so it is not surprising that they are clueless here too.

It would be productive for Palo Alto to have a fiber network, but no part of city government is qualified to run it. So Sonic?

Like this comment
Posted by JA3+
a resident of Crescent Park
on Jun 8, 2012 at 7:23 am

"This idea of a City-owned Fiber Network has always been the dream of a handful of people who have very big-government visions of what government should be like, and how much it should be involved in our lives."

+1. Wayne is 'spot on' here.

Several years ago, the Weekly forums were filled with posts written by just a handful of authors, touting the benefits and overlooking some serious shortcomings of fiber-to-the-home (FTTH). Much of the writings were nonsense; nearly all have been proven wrong. Comcast now provides speeds far, far faster than envisioned by the writers. The market adjusts and adapts, provided there is competition.

Without a doubt, the City of Palo Alto should not team up here -- whether in a joint venture or otherwise -- with any private entity to provide fiber service. Let the private market work: facilitate the provision by private entities of broadband service in our City.

Like this comment
Posted by SteveU
a resident of Barron Park
on Jun 8, 2012 at 8:14 am

SteveU is a registered user.

I will second (or n'th) get to run this. I recently switched and now pay for 2.5X faster Internet and Phone service (with caller ID) for what I was paying just for Internet. (my AT&T phone service did not have any features) I now save about $20 per month after all fees and taxes.
It can be done (right) and It can still make money without being pricey.

Like this comment
Posted by Resident
a resident of Crescent Park
on Jun 8, 2012 at 9:04 am

@ Terry in Midtown-

Please don't make general statements about other people's incompetency; it only shows your ignorance. I've had good and bad experiences with the Utilities department, but I've not found them incompetent. That said, I do think that FTTH technology seems the wrong way to go, both in terms of long-term technology and financial concerns at a time when our infrastucture desperately needs the funds.

Like this comment
Posted by another res
a resident of Another Palo Alto neighborhood
on Jun 8, 2012 at 9:49 am

I agree with resident, please don't malign our utilities based on your ideological biases.

I've had property in both PG&E and PA utilities areas, and while I can say good and bad things about both, most of the bad are from experiences with PG&E and most of the good with PA utilities. (I miss when conservatism was about results not about throwing out the results in favor of rigid and unrealistic beliefs about what produces them.)

I'd still be interested in FTTH, but then again, I have concerns about security and privacy of data, potential health effects from overabundance of wireless, health effects and bandwidth limitations with too much wireless, etc. The companies are probably willing to pay the money for the security and speed. AT&T and Comcast service is inadequate and overpriced, even though I too am paying less than posters above. I hope the above suggestions, such as, might make FTTH feasible, because we're so close already.

I think our utilities have done a fine job, and given the difference in experience and price (which over the years has dramatically favored PA municipal), the city utility was a factor in my choosing to buy a home in PA rather than another home in a nearby community. (People like Terry make me want to pick up the phone and call the utilities to say thank you. Real people work there who do a great job for our city. That kind of attack is just uncalled for.)

Like this comment
Posted by Toady
a resident of Old Palo Alto
on Jun 8, 2012 at 9:57 am

Utilities incompetent? No. Overstaffed and out of touch? Absolutely. I mean look at the bills we get every month stuffed with wasteful paper propaganda and nonsense that only a government agency could do. Hilarious ironic for a utility that prides itself for being green.

It's no wonder they couldn't figure out how to deliver residential broadband at a reasonable price. It's not in their DNA to be price competitive.

Like this comment
Posted by Toby
a resident of Midtown
on Jun 8, 2012 at 3:33 pm

Just when all the research is showing that wireless is harmful? We are trading our children's future health to cancer and leukemia. Such a bad move.

Like this comment
Posted by What a Waste!
a resident of College Terrace
on Jun 8, 2012 at 6:57 pm

A fascinating study in broken governance, leading to a lack of municipal innovation, stimulated by "Council Watchdogs" who, on the one hand are rabidly anti-housing and on the other hand obsessively overconfident about even bad business plan modeling for FTTH-FTTC, etc. The latter two groups are largely the same people who gum up the housing, development, and municipal improvement works (you know who you are) and at the same time tout technology solutions that, on the surface, appear to be a good idea, until one looks at the underlying folly of how those folks want to **implement** that good idea.

I really feel sorry for the lost potential of Palo Alto. This town will always be "sitting pretty", because Stanford is here (really, PA's "sugar daddy", even though PA likes to beat up on Stanford). In fact, if it wasn't for Stanford, PA would be Mountain View, or Sunnyvale.

Back to the topic at hand. What's truly ironic is that when FTTH was first touted here, the current crop of "I-just--love-that-poor-FTTH-business-plan" fanatics were ripping wireless proponents a new orifice, claiming that wireless technology was lame. This, while they supported FTTH plans that were either pie-in-the-sky, or wishful thinking. Palo Alto just doesn't get things done without a looooooong wait, because all these "Council Watchdogs" are so close to the game; they know the city better than Council Members do - even better than City Staff. You know who you are, folks, and guess what? You legacy is just one step above the big "L" on your respective foreheads..

Like this comment
Posted by Bob Moss
a resident of Barron Park
on Jun 8, 2012 at 10:52 pm

Cable Co-op wanted to install FTTH in 1995. We got a bid of $24.5 million for fiber to 1200 home nodes for the entire franchise area that includes East Palo alto, Menlo Park, Atherton, some parts of San Mateo County and Stanford. Nobody then or now has fiber to 100 home nodes in the U.S. Thecost for FTTH to 100 home nodes just in Palo Alto would have been about $6,5 to $7 million. Connewcting each home that wanted service would have cost $1100 to $1600 depending on local conditions like lot depth. Costs for hardware are much lower now than in 1995, but labor is higher. The proposal the city considered with 88 nodes equals about 325 homes/node, so the $6 million figure looks comparabe to the quotes we got taking into account changes in equipment and labor costs and number of nodes.
We couldn't raise the money to install the fiber network, let alone pay up front to connect homes, so we had to give up on the idea and then offered the system to the city for a liggle over $40 million, somewhat more than our bank debt. The city refused. We then sold the system to AT&T in 2000 for $70 million, so Palo Alto could have bought the basic system at a 40% discount from market.
If Cable Co-op had been able to raise the money and install FTTH it would have made a huge positifve impact on Palo Alto and the economy. We had over 13% of our subscribers paying $100/month for Internet access with nominal speeds of about 250 mbps on an all coax system - one of two such systems in the world. No other cable company had more than 4% of subscribers taking Internet, and they paid closer to $50 or $60/month. Demand for high speed Internet service 10 to 12 years ago was huge here compared to anywhere else.
Now the competition is different, technology like wireless offers interesting features, and an up-front charge of $750 to $900 to run fiber from the node to the house will upset many people and cut potential subscribers.
Too bad we missed our big chance 16 years ago.

Like this comment
Posted by Outside Observer
a resident of another community
on Jun 8, 2012 at 11:51 pm

@Bob Moss,

There was a trial FTTH project back in the 90's. Why did it fail?

Like this comment
Posted by PatrickD
a resident of Barron Park
on Jun 11, 2012 at 12:40 am

I can't say enough about We pay around $50 a month (w/ tax) for Fusion broadband service + phone, and get about 14Mbps down / 1.5 Mbps up. Additionally, their tech support people are amazing. You can get someone competent on the phone in a few minutes instead of wasting hours with ATT or Comcast trying to get through their menuing system.

The Google FTTH roll-out at Stanford is being done by, so why can't we pair with them individually instead of trying to beg for scraps from Google? Here's a link to the press release: Web Link

Like this comment
Posted by Jeff Hoel
a resident of Midtown
on Jun 12, 2012 at 3:53 pm

Citywide municipal fiber-to-the-premises (FTTP) is a success at places like Chattanooga, TN; Lafayette, LA; and Bristol, VA. There's no reason it couldn't succeed in Palo Alto.
Web Link

Sonic's ADSL2+ product may be attractive to some in the short term, but it uses AT&Ts copper wires. The phone wires to my house frequently get static when it rains, so I don't think it's an option for me. Sonic says it will look for places to implement FTTP based on which places have the highest take rate of its ADSL2+ product. I don't think it will happen here any time soon. Anyhow, if Sonic did implement FTTP here, it would be in the driver's seat to become the telecom monopoly here. I don't like the idea of private-sector telecom monopolies. According to the staff report, FTTP wouldn't be feasible for a third party, either acting independently or partnering with the City.

Those advocating building a municipal wireless network instead should admit that such networks haven't been financially successful in Minneapolis, MN, or Lompoc, CA. Staff isn't even sure that the wireless network it wants to propose would be for use by the public, or just by City government.

Re Outside Observer's question about about why Palo Alto's FTTH Trial (which provided service to 67 homes from 2001 to 2005) failed, Council said it succeeded. The goals were to find out a) whether the City could build and operate a FTTH system and b) whether users would like it. Having found out that the City could build and operate a FTTH system and that users liked it, staff recommended that Council terminate the Trial, and Council terminated it. (The City's original plan was to operate the Trial for only one year. Go figure.)

Like this comment
Posted by Mr. Smith
a resident of another community
on Jun 14, 2012 at 6:09 am

This is a bittersweet end to such a noble-sounding project. It's bitter because the infrastructure would allow for even more competition to keep telecom and video service offerings high and prices low. And it's sweet because it shows a fiscally responsible government—that although dissuaded from a pet project ten years in the making—can still be forward thinking by considering a different strategy to pursue its public agenda.

Although I'm from a large east coast city where FiOS is available (but not in my neighborhood for possibly another 5 years), my city's best hope for getting such a service at a reasonable price is for cities like Palo Alto to be able to find financial viability—and success—in building out such projects.

It's too bad that the telecom lobby in our government is so strong that we're precluded from municipal ownership of an infrastructure whereby operators can provide services that effectively compete with the incumbent telecom and cable providers.

I hope that in the future, perhaps new installation technology will drive down the costs of deployment for Palo Alto. Perhaps the city will look into obtaining wireless spectrum to deploy LTE Advanced and use its dark fiber ring as the backbone. With enough cells, end users might be able to see average real world speeds exceeding 100Mbit at a reasonable price.

Good luck, Palo Alto.

Like this comment
Posted by Mr. Smith
a resident of another community
on Jun 14, 2012 at 2:52 pm

Did any of the various feasibility studies examine how small town Bristol, Virginia was able to roll out FTTH and make it cost competitive and financially viable? It's amazing that a town with about half the population density, a third of the population, a fourth of the household income, and SIX times as many people living below the federal poverty line could find a way to build a fiber to the home system with an estimated 60%+ adoption rate, while Palo Alto has only found difficulties.

I wonder what it is about the cost and revenue estimates that is preventing 15 years of efforts from showing any form of success!

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