A possible new City of Edmonds revenue source: Selling excess broadband

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By the Communications Subcommittee of the Citizens Economic Development Commission: M. Zagorski, D. Haug, B. O’Rourke, R. Senderoff, R. Wolfe

The elections are over, and now we have to buckle down and concentrate on making this city work and assuring its long-term financial future. Since all three proposed levies failed, the City must find new ways to increase revenues or we will find that more cuts in services and other areas will become necessary. And the citizens of Edmonds have made it clear that raising taxes in not the route to go. So the hard decision is how and where, after many years of cuts, can we find new sources of revenue?

With this in mind, we would like to update you on what the Citizens Economic Development Commission (CEDC) has been doing in cooperation with the City and the Citizens Technology Advisory Committee (CTAC) to increase City revenues through sales of excess broadband capacity. There is tremendous potential to improve the City’s finances, depending on the path our City leadership chooses to take.

First, we would like to recap why the City is involved in broadband. In 2005, Washington State Department of Transportation approached Edmonds with a request to use City right of way to install fiber optic facilities from Hwy 99 to the Washington State ferry dock at Main Street.  In exchange for the City’s permission to use the public right of way for this purpose, the City of Edmonds was granted the use of 24 strands of fiber optic cable along the same route. These fiber optic strands could, if exploited to their full potential, have enough capacity to provide every residence, business and governmental entity in the City of Edmonds with about 4 times the capacity currently offered by Frontier’s recently installed fiber optic network. The potential is enormous; what and how we exploit it?

The City has already found a way to produce significant savings; foremost among these is through video arraignment of prisoners. The Edmonds Police Department houses any arrestee in the Lynnwood jail if the infraction is not a felony (the felony arrests are already housed in Everett). In order to bring the prisoner to an arraignment from the Lynnwood facility, two off-duty officers are required to escort the prisoner to and from the courthouse in Everett. This procedure creates a lot of overtime and denies our officers their time off to rest up for their next shift. Fiber optics has now eliminated the need for transporting prisoners to and from Lynnwood. The judge and defendant are able to communicate directly via camera, which saves the City more than $66,000 annually.

The city also saves more than $13,000 annually on internal Internet expenses. It uses its own fiber instead of contracting with a commercial firm.

There are certainly more possibilities for cost-savings; however, the greatest benefit can be found in the potential for increasing revenues.

There is a new technology emerging called “white space.” In simple terms, if the federal government sells bandwidth 1-5, it next sells 7-9, leaving bandwidth 6 unused. The new technology is able to use bandwidth 6 and allows access to broadband for a distance of three to five miles, depending on buildings in between. This would enable coverage of the entire city with very few antennas. As an example, Microsoft uses only antennae to service its entire campus. The antenna used for fiber optics is not a huge cell phone antenna; rather it is about the size of a pizza box with ears.

As technology is moving forward, it may allow us to create a citywide (or almost citywide) network. We could cover the downtown now. That means everyone could have a wireless internet connection at a much lower cost by buying the connection from the city, while the city could have a large and steady revenue stream. The City, CTAC and the CEDC are working together to evaluate and develop a plan on how to best implement the technology to the best advantage to the City. This will, however, take time and analysis before this can come to fruition.

In addition, we are working with three new customers for our current technology who will be ready to come on line in the first half of 2012. Some city resources are needed to make this happen, notably time from IT and Public Works, but this could happen soon.

The city is making money with its fiber sales; current revenue is more than $25,000 annually. It could make more, potentially lots more. This is not an easy process for a city and it will take a new business model and an entrepreneurial spirit. For example, big broadband customers need redundancy in the system, so that if there is a breakdown in one part, the back-up makes everything run smoothly. A private entrepreneur would view the cost of building this redundancy as part of necessary start-up costs. Government has not traditionally thought this way about expenses. But we need to build in the redundancy if we want to grow our customer base to ensure a big revenue stream for the city.

It is up to us, the citizens of Edmonds, and our elected officials to determine the route Edmonds financial future will follow. A little creative thinking can go a long way.

10 COMMENTS

  1. For the past seven years we have been continually told of the potentially great financial rewards and benefits of this project to the citizens of Edmonds. The cost to taxpayers has been somewhere in the many hundreds of thousands of actual dollars, perhaps somewhere now over a half million.

    And while continuing to be bombarded with vague pie in the sky future estimates we are now told the current return after seven years is a disappointing 25 K annually.

    Any which way you slice it, that is a mighty sorry investment record to date. Lets hope and pray that there will be a sharp improvement in the lagging development of this “new —- —-revenue source”. While “a little creative thinking” sounds very good, perhaps a dash of PRACTICAL thinking should also be added to the mix.

  2. ROI isn’t just about revenue, it’s also about cost savings – a dollar saved is worth just as much as a dollar of revenue.

    When you add up all the figures cited in the article $25k, $66k & $13k – you get $104k. If our city’s investment was $500k, this is a great return – especially given the other upsides of this project. By the way, $500k is cheap for access to this technology.

    Kudos to our government for thinking outside of the box on revenues. While I’m not certain that city government should be in the internet service business, I really like the initiative. I’d be happier with Edmonds licensing this broadband to a private firm to provide services and being able gain revenue without the administrative load of new employees, etc. I just don’t think the city will run this business as well as a private owner would.

    The one exception would be the idea of running a city-wide (or near city wide) wi-fi network. This would be a great way bringing attention to Edmonds and it’s excellent technology infrastructure. I sincerely believe that many people either don’t know about the fiber we have, or don’t understand it’s practical implications.

    If they saw that they’d have internet for their computers, phones, iPads and more anywhere in Downtown (and beyond), and had city council meetings and municipal and community content available on demand via this network – I believe it would bring to the front of their minds the potential of this technology.

    The true upside of this technology isn’t just free wi-fi, it’s new businesses and residents for our city – something that will be much more likely to happen if more people know and understand this technology.

  3. Assuming the “figures cited” are truly accurate and all other costs have been included (which I doubt) in the seven years of continuous failures to come anywhere close to projections we have a cool half million dollars locked up with an average gain of 3% to show for it.
    ($500,000 X 3% X 7 = $105,000).

    That is simply not a “great return”.

    What is likely more important is the danger of expected obsolescence. When the Ford Model A came out, there was a sharp decline in the demand for the Model T. Technology continues to advance at an ever increasing pace.

    Finally our cash poor city simply is not equipped to be speculating and competing in the wild and crazy electronic future.

  4. Ray , Dont under estimate the power of positive attitudes and thinking if we dont compete in the wild and and crazy electronic future we will not grow and become what Edmonds can and should be

  5. Don, It would be a pleasant surprise if you were right in defending the continuing waste of our limited resources for the past seven years on this pie in the sky project.

    And maybe pigs will learn to fly.

    For the next few years, keep in mind my comment on rapid technology development. That, and the fact our city is simply not equipped to compete with private enterprise on a short or long term basis will most probably eventually bear out unfortunately.

    Meanwhile let’s all remain positive while continung to question the wisdom of our city’s financial decisions. Time will continue to tell the tale. How many more years (currently 7) will the citizens tolerate the current level of results?

  6. Well said Don.

    Like you, I’m not quite sure where a pessimistic leader will lead us, and frankly I don’t want to find out.

    I’m not sure I agree that we should just leave the new car in the garage because other people might have a better one.

    I agree that the City isn’t going to be as successful as private enterprise at realizing the potential of this technology, which is why we should partner with private entrepreneurs to use the capabilities that we already have to their fullest. This sort of licensing partnership is ideal for situations like this – low costs for the city, and a consistent, potentially growing source of revenue.

  7. 24 Fibers in the ground have no retail value what so ever. The primary value of the fiber is for a dark fiber agreement with another provider.

    Once electronics are added, light source, routers, switches, etc., there is retail capability that can generate revenue. The key word is revenue, as there is no guarantee of profit when you load in the costs for equipment, service, maintenance and such. Retail customers expect very stringent SLAs on high bandwidth services. Are we ready to build a physically diverse route to the current fibers and a service infrastructure to support it?

    There is a significant amount of work to be done before anyone can say whether there is real money to be made and what a successful model would look like.

  8. Jamie, some good points about “govt’s ability run an internet business. There are two citizens groups (CTAC and Econ Development Commission) who have been advising the city for 6 years about the use of the fiber network. A white paper detailing what had been evaluated is available. The options ranged from a full blown, wire every location and provide, TV, Internet, and Phone service. While we had the back bone capacity to do all three the risks were simply too great. We felt govt could not pull it off in a competitive environment especally with the business model of TV delivery is such a state of flux.

    The more conserative approach was taken that concentrated on cost savings using the net, leasing services to other govt entities, and finally working with local companies to provide a win win for the company and the city.

    We are nearly complete with some unannounced agreements that will add to the revenue stream. Mean while we are paying back every last dime every budgeted for fiber. In fact the fiber project is paying for upgrades to other city infrastructure not associated with the fiber project. After all upfront costs are paid the city will still enjoy the revenue and savings cited.

    The citizen generated plan has always been one of caution and critical thinking. Govt is not good at running a competive business unless it organizes an agressive effort to run the enterprize like a business. In the long run a differerent model may will be the best way to optimize the return. As we work with early customers we will learn more about what will work best for both Edmonds and its customers. There is not a preconcieved model that we are trying to force.

    Bill Vance writes above some good points. He is a skilled professional in this area and we have visited with him along the way. Bill talks about the need for reliability and diverse routing. Along with other things these ideas produce the best up time. Just last week we were with a major Edmonds business discussing the use of the city fiber net and we discussed these ideas. They have provide a measure of diversity but contracting with two major internet vendor to cover their needs. Each of their vendors had diverse route so in theory they had 4 internet options. Two weeks ago there was a major internet outage impacting all of Edmonds. During that outage both of there vendors lost service on all of their diverse routes. The customer asked about the City fiber service’s expenience during this major outage and we were happy to report that the Edmonds fiber DID NOT GO DOWN. In fact since the fiber network was connected it has only been off the net for 40 minutes, and these were planed shutdowns. Space does not permit a full discussion of the net design that accounts for this reliability but our design does not have the same points of failure as others who are serving our community. The customers we have talked have come to understand Edmonds has 24/7 needs for public safety services running on the net so keeping the system working is a primary need.

    Bill and others are correct to suggest that a very robust approach will be needed as we go forward. With tight city budgets just to provide basic services it may not be in the cards to convince council to spend added money even if it will lead to added revenues. Meanwhile we continue to save money, reduce cost and generate new revenues with the constraints we have. We will aslo continue to examine opportunties to use the fiber net to help with our economic development. With that leads us to a form of wireless for our citizens and visitors, or just providing a high quality service for our business commnity we remain committed to optimizing the revenues and minimimizing the risks. We have avoided the mistakes of other cities that have spent way more than we have and have nothing to so for there effort.

    So keep asking the questions and offer ideas to help Edmonds move carefully forward.

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