Tacoma Considers Municipal Network's Future

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By Tim McElgunn

Nov. 30 — While a national debate continues over whether public utilities and city governments should compete with private providers to deliver broadband services, some municipalities that have built fiber networks are evaluating how to continue delivering state-of-the-art broadband without absorbing ongoing financial losses.

In Tacoma, Wash., the publicly-owned fiber optic network faces an uncertain future, with the Tacoma Public Utilities board (TPU) scheduled to vote on whether to continue operating the money-losing network under a new plan or lease it to a private provider, which would take over operations. Once the board makes its recommendation, the city council will vote on the measure Dec. 15.

According to the city, the network—which delivers both Internet access and pay TV services— costs about $240 million per year to operate and runs at a loss, even with wholesale revenue coming in, due to declining numbers of TV subscribers and increasing content costs. 

TPU sells pay TV services under the Click! brand directly to consumers, and has wholesale contracts with three local Internet service providers (ISPs) that lease capacity to provide retail Internet access to about 21,451 customers. Click! gets a 60-percent cut of the Internet revenues. The TPU's Financial Impact Plan https://www.documentcloud.org/documents/2623192-u-10828-keep.html#document/p6/a263996 projects that continuing to operate the network under the current model will cost the city between $28 million and $31.6 million over five years.
Operate or Lease?

Proponents of maintaining the TPU's management and operation of the system say that the city charter requires a vote by citizens before the city can sell or lease a utility system. They have proposed that the city continue operating the network under a new business plan.

That plan would determine whether the city would enter into new contracts with the ISPs now offering Internet services over the network, or buy them out. If the decision is made to buy them out, the TPU would begin offering Internet services in addition to pay TV. Proponents estimate that, assuming the city invests in upgrades required to deliver gigabit services, the city could reach positive cash flow after eight years.

Under the lease plan, the TPU would achieve positive cash flow of $6.9 million after five years, compared to a projected deficit of $37.4 million over the same period under the status quo. Providers would submit plans to meet certain requirements, including providing low-cost, broadband Internet access services to some city residents, delivering gigabit service within a defined period, and paying the city $2 million per year. Providers would also have to interview all current Click! employees and agree to hire at least 81 of them at a “living wage.”

So far, two providers have expressed interest in taking over the network.

In April, Wave Broadband proposed leasing the city's broadband infrastructure and taking over operation of the Click! pay TV service. Wave said it would deliver both retail and wholesale broadband services over the network; it proposes paying the utility with ongoing lease payments and crafting service agreements to support utility and municipal operations on the network.

Rainier Connect, one of the three providers now offering services under wholesale agreements with the TPU, has also said it is interested in assuming full operating responsibility for the network.

To contact the reporter on this story: Tim McElgunn in Cherry Hill, NJ at tmcelgunn@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com