For more than 15 years, Palo Alto has been chasing a dream of bringing ultra high-speed Internet to every local household, only to watch it spark to life in places like Kansas City, Chattanooga and Austin.
Today, with the local economy booming, the City Council is fully behind the Fiber to the Premise project; and long-time proponents of the effort said the time has come for the city to dramatically expand its 20-year-old fiber network, which currently serves about 200 commercial customers.
Unfortunately for the city, the giants of the industry completely agree that fiber is the future. Established telecoms Comcast and AT&T are both preparing to unveil new high-speed Internet services, and Google Fiber is expected to announce later this fall its decision on whether to include the "San Jose metro area," which includes Palo Alto, in its next expansion.
These plans have yet to materialize but they are already putting a hitch in Palo Alto's latest reboot of the municipal project, which has been flickering on and off since the late 1990s. The current council is all in, having set "technology and the connected city" as one of its top priorities in 2014 and having committed in this year's retreat to stay on course.
Palo Alto's last venture to build a citywide system stalled in 2009, when the high-tech consortium that was planning to build the system saw its funding collapse in the midst of a recession. Today, money isn't as much of a problem as the city has more than $20 million in its Dark Fiber reserve.
The only constants in Palo Alto's endless debate over fiber are caution, uncertainty and disappointment for the project's leading proponents. The latest chapter in this familiar tale came on Sept. 2, when the Utilities Advisory Commission considered the future of the fiber project and voted 4-3 to defer further exploration of a city-owned system until early next year.
The three members who dissented Chair Jonathan Foster, James Cook and Arne Ballentine favored a more assertive approach, including a clearly stated commitment that the city wants to "connect all Palo Alto households to a fiber network as soon as reasonably possible" and consideration of a ballot measure to give residents a say on creating and funding a municipal network.
"There's been finally a realization that the future of competitive America is in high-speed Internet and eventually customers will begin to demand it for the yet-to-be-determined needs," the city's Chief Information Officer Jonathan Reichental said. "So incumbents and new players, like Google Fiber, are now exploring, announcing and upgrading their systems slowly but surely across the United States."
This, of course, includes the data-hungry, software-obsessed Silicon Valley region. Comcast has announced plans for a 2-gigabit Internet service in the near-term, Reichental said, and a 10-gigabit one in the "medium-term." The latter, he said, would be "1,000 times faster than the connection that the average American has to the Internet today."
AT&T announced in May its plan to bring its own ultra high-speed offering to Palo Alto. The service, called GigaPower, would offer a 1-gigabit broadband service to selected areas. It would not include TV, which would remain on AT&T's existing U-Verse system.
Reichental said that for its initial deployment, AT&T plans to install 27 new cabinets in Palo Alto that will be placed next to existing U-Verse cabinets. About two-thirds of these would be in south Palo Alto, he said, with the remainder in the north. But unlike Fiber to the Premise, this service would not be extended to everyone but made available based on demand.
These incumbents are joined in their quest by an aggressive newcomer. Google Fiber, which has already deployed its fiber system in Kansas City and Austin, announced in January its plan to expand the system into Atlanta; Nashville, Tennessee; and Charlotte, Durham and Raleigh, North Carolina.
One of the finalists for the next round of expansions is the San Jose metro area, an area that includes Palo Alto, Mountain View, Santa Clara, Sunnyvale and San Jose itself. Reichental said the city expects Google to make a decision about the San Jose area in the fall (the company is also considering Phoenix and Portland).
The challenges that a municipal fiber system would present are highlighted in a new study by Columbia Telecommunications Corp. (CTC) The firm concluded that to achieve positive cash flow, 72 percent of Palo Alto's customers would need to subscribe a "take rate" that Jim Fleming, a manager at City of Palo Alto Utilities, called "very high" and "probably unrealistic."
The report attributes the high rate to Bay Area's high cost of labor and material. If the city applies the $20 million from its fiber fund, the take rate would drop to 57 percent, which is still higher than most other builders of fiber networks have been able to achieve in their communities, according to CTC.
Given the financial risk and the estimated $77.6 million price tag of the new system, CTC and Utilities staff are both recommending that the city find a partner in the private sector. The CTC report states that given the "high cost to build and the extremely high required take rate, it may seem that there is little incentive for any provider (public or private) to pursue an FTTP (Fiber to the Premise) deployment in Palo Alto."
"However, the public and private sectors each have unique advantages and disadvantages that may impact their ability to undertake a standalone overbuild," the report states. "A private entity and a public entity could complement one another by developing a partnership that can take advantage of each entity's strengths, and may significantly reduce cost and risk."
Given these costs and risks, staff has advocated a cautious approach: waiting until the end of the year to see which private-sector services come online and then issuing a request for information to the private sector early next year.
Utilities commissioners Judith Schwartz and Michael Danaher, who served on a subcommittee dealing with the fiber project, both advocated for this approach.
Danaher argued that it's difficult to make a "thoughtful request for a partnership when we don't know the situation on the ground."
"It just made sense to wait a few months and collect that data and have time to think about it," he said.
Commissioner Steve Eglash supported the cautious approach and said he remains unconvinced that a city-owned system is the best way to go. He stressed that everyone agrees that the goal should be universal access to high-speed Internet. But on the question of whether the system should be owned by the city or a private company he had no clear answers.
Others had plenty of ideas. Three members of a citizen advisory committee that has been working on the fiber project issued their own memo, calling for the city to declare a city-owned system as the official goal. In the memo, Bob Harrington, Christine Moe and Andy Poggio, lobbied for a city-owned system.
"The Internet has quickly become the communications network that connects our planet," the memo states. "To assure all our citizens and businesses world class access to the world's most powerful network, and at a competitive prices, Palo Alto logically should own and control a FTTP network."
The three residents also called for the council to direct Utilities staff to negotiate with private companies "immediately" about the possibility of building out the city's fiber system in parallel with their own.
This idea found some support on the commission, with Foster arguing in favor of pursuing a city-owned system in which the fiber service is provided as a "public benefit."
"If there is any place in the United States to do it that is not underserved, it's probably Palo Alto," Foster said. "I think we're leaders on all things technology-related and, even if we're not, we like to believe we are."
Commissioner James Cook agreed with the three residents and their recommendation to begin negotiations now, rather than wait until AT&T, Comcast and Google Fiber come up with their own local programs.
"Instead of waiting, we've sort of got this golden opportunity in the four-month period to take some action and hit the train head on and see if we can steer it the way we want it to go," Cook said. "If we defer, we'll be stuck with whatever they're going to come up with in the next four months."
Ultimately, caution prevailed by a single vote. Schwartz stressed that the intent is not to delay the fiber effort any longer but to gather the needed information. She also argued that it would not be practical for any Internet service provider to make a bid if they don't know whether AT&T or Google plan to unveil their new systems in Palo Alto.
"For a realistic assessment, they need to know: Are the two 800-pound gorillas in the room or not?" Schwartz said.