PUD’s $24M broadband adventure is high-risk
August 4, 2004
For 75 years, the Truckee Donner Public Utility District has served its customers well, in large part because its directors have made careful, well-informed decisions.Unfortunately, several of the current directors are challenging the district’s honorable history. Without fully and fairly considering all of their options, they have embraced an unnecessarily expensive and risky plan to build a $24-million fiber-to-the-user (FTTU) network.They claim they want to build this network to bring broadband data (Internet), voice (telephone), and video (television) services to Truckee. That’s a noble pursuit, but a confusing one when you consider that residents already have access to such services from two direct broadcast satellite operators; a local cable TV system that offers television and high-speed Internet – and has plans to offer telephone service in the future; at least one traditional wireline phone-service provider, which also offers high-speed Internet and co-markets a DBS service; and multiple wireless voice-service providers, most of which are planning wireless broadband.The situation becomes even more confusing when you look at the assumptions made in the business plan for this proposed broadband venture. For one thing, the plan assumes the venture can charge its customers higher prices than those currently charged by other service providers – clearly not the most competitive stance to take. Moreover, in year-three of the proposed venture, the district estimates its debt per customer will be nearly $6,000. From available reports, that is more debt-per-customer than anyone else in the cable broadband industry, and nearly twice as much as the company with the next highest reported debt-per-customer, at about $3,400. Incidentally, that other company is Adelphia, a large broadband system operator that has been in bankruptcy proceedings since 2002.Those are just two examples of the bewildering assumptions made in the district’s broadband business plan, and unfortunately, the confusion doesn’t stop there. Certain district directors want to push forward despite a long list of other public bodies that have tried similar experiments and failed. Consider Bristol, Va. and Kutztown, Pa., where public entities decided to build fiber-to-the-user networks. They are not able to cover their operating costs and require subsidies from government-owned utilities to survive. They have little prospect of paying off their initial investments and are on their way to becoming an indefinite drain on taxpayers and ratepayers.Granted, the Truckee Donner Public Utility District promises it won’t use water or power utilities as collateral for financing its broadband system, nor will California law allow them to subsidize broadband operations through utility assets. These guarantees may protect district ratepayers in the near term, but make no mistake about it: The ratepayers will ultimately carry the burden. When the fiber-to-the-user venture fails, and history suggests it will, the district’s reputation in the financial markets will be damaged and their interest costs could increase. As a result, the district could be forced to raise utility rates and may very well find it difficult to secure financing for other projects, including infrastructure projects that are critical to the ongoing vitality of the Truckee community.We have raised these points with the district, but when we do, some district representatives dismiss our concerns, claiming we only want to stop them from competing with us. They miss the point. History firmly demonstrates that we have nothing to fear from this type of competition. History also demonstrates that when experiments like this fail, the community is harmed. And if something harms the community it also harms our company and our local employees, along with every other business owner and homeowner. We are all taxpayers and ratepayers.So, should the district’s directors abandon their desire to advance Truckee’s telecommunications infrastructure? No. But they should consider other, safer options for achieving that goal. For instance, rather than duplicate what the private sector is doing, they could collaborate with the private sector. Consider Cabot, Ark., a community similar to Truckee in many respects, including population. There, the school superintendent wanted to build a fiber network to interconnect 12 buildings. After seeking bids from multiple companies, the work was awarded to our company – for total construction costs of about $200,000. The same type of benefits can be realized in Truckee, if the Truckee Donner Public Utility District would endorse a collaborative rather than conflicted approach. My company, for one, is ready to collaborate because, contrary to what some district directors say, we plan to be members of the Truckee community for many years to come, a goal supported by a fair evaluation of our track record.In summary, the district has options, from high-risk to no-risk. At least one district director has publicly questioned the wisdom of the high-risk fiber-to-the-user system. And other directors, privately, may be wrestling with the same doubts. They need your help.Now is the time – before it’s too late – for the people of Truckee to speak up, ask tough questions, and demand that the Truckee Donner Public Utility District continue its time-honored tradition of making careful, well-informed decisions, fairly weighing all of the options before them.Jerry Kent is chief executive officer of Cebridge Connections, the company that plans to acquire, operate, and improve the existing broadband cable system in Truckee.