City-owned fiber plus private sector service providers: a better public broadband model for cities?

Two U.S. cities, Santa Cruz (California) and Westminster (Maryland) have chosen a different model for public broadband deployment: one that separates the ownership of the underlying fiber infrastructure from the service layer and that does not place all of the risk and costs on the private service provider. This is not the model that most US municipalities follow and one can see the results: Americans pay a lot of money for average to below-average broadband service and they complain about the lack of choice (it’s the cable guy or the telecom guy).

For over ten years, cities have opted to deploy their municipal wired and wireless broadband networks using the “franchise” model. Under this (old) model, the city issues an RFP seeking a company to build out a broadband (wired and/or wireless) network at the company’s own cost and deliver broadband service to residents and businesses. The city pays nothing and thinks it’s being very clever, but it creates a monopoly yet again, as cities did when, decades ago, they awarded one cable company a monopoly to provide cable TV service to households. The franchise model imposes all of the risks and costs on one firm and therefore ensures that the only companies that can afford to roll out high-speed broadband service are large incumbent cable and telecommunications firms, not small, local enterprises.

There’s a better way. The “shared risk” model – where the city pays for and owns the broadband infrastructure and leases out capacity to service providers – is more appealing to residents and businesses. Under this model, end users can choose from a variety of service providers and even in the case where the city hires one service provider, it can always terminate the contract if the provider does not meet levels of service specified in the contract. The shared risk model makes it more attractive for private firms, especially small, local ones, to participate in delivering high-speed broadband to their communities.

Two cities that follow the shared risk model

Santa Cruz, California (a surfer’s paradise and quirky little city on the coast in Northern California) is investing $52 million in a fiber broadband network and has selected Cruzio, a local ISP and one of the oldest Internet service providers in California, to serve as network operator and service provider. Santa Cruz is home to the University of California at Santa Cruz and despite its proximity to Silicon Valley, it does not have gigabit fiber broadband access. Many tech professionals live in Santa Cruz, in addition to students and professors. Santa Cruz residents and businesses are excited about the rollout of fiber broadband service in their city.

Westminster, Maryland (45 minutes from Baltimore and one hour from Washington DC) has entered into a fiber-to-the-premises partnership with Ting Internet in which the city pays for and owns the fiber, while Ting pays the city to lease the fiber network and deliver services. Westminster has redundant fiber connections to the Baltimore Internet POP—connections. Using this model, the city does not have to enter the broadband service business, where it has no expertise, and it will receive money by leasing its network. Ting does not have to make a large investment in infrastructure, thereby incurring fewer risks in its Westminster venture. The shared risk model in Westminster gives residents and businesses an alternative to the incumbent cable and telecoms companies in the region.

Further reading on public broadband options

The New America Foundation has published a document entitled The Art of the Possible: Overview of Public Broadband Options. This document summarizes the different network ownership and governance models for municipalities, an overview of broadband technologies (including their advantages and disadvantages), and business models for publicly owned networks.