Lessons from the Field, Strategy

Bringing Broadband to Rural and Tribal Areas 3: Rural Public Utilities

This month we’ve been discussing models and successful initiatives for bringing broadband to rural and tribal areas of the United States. We started with the increasingly productive role that electric cooperatives are playing, and then took a close look at a couple of non-profits with programs that could serve as models nationally. This week, we conclude with a brief look at rural public utilities, with a spotlight on Sandy, Oregon.

By “rural public utilities,” I mean your established electric or telecommunications utility, excluding co-ops (which we covered two weeks ago), or a body set up by a rural jurisdiction (town council, county) specifically to provide public broadband. As most of us know, ILSR finds that 19 states have enacted restrictions on municipal utilities providing broadband services – either surmountable roadblocks or outright prohibitions. (SNG identifies restrictions in 21 states.) Nevertheless, in most states, utilities – both rural and urban – are protagonists in providing municipal broadband.

EPB in Chattanooga is, of course, among the most famous cases of city councils and public utilities being pro-active, but it’s an urban utility that provides broadband services also to rural counties around the city. But what of rural towns and utilities? SandyNet provides a great example of a small town whose city council thought ahead, and took the reins of broadband service provision.

SandyNet, in Sandy, Oregon

Sandy, Oregon, lies about 30 miles from Portland, and though its population is only 10,000, the city is a retail hub for about 32,000 other people in the surrounding region, which includes Mt. Hood and Estacada. In 2001, the local telephone company couldn’t provide a DSL connection to city hall, so city leaders formed a municipal internet utility. In 2003, they named it SandyNet.

“We had a city manager known for thinking outside the box, an IT director who was very talented,” Sandy’s Economic Development Manager, David Snider, told me in an interview. “And Jeremy Pietzold [currently Sandy City Council President], a network engineer for a local school district out here. Between them and the city manager, we thought we’d form our own ISP. Lo and behold, we got a DSL line out here. And then we started thinking about service to Sandy’s citizenry.”

Initially, Sandy provided citywide wi-fi, but the network “was insufficiently reliable and could not provide the high-capacity connections that were already becoming necessary in 2008,” according to an ILSR report. As Joe Knapp, SandyNet’s IT Director, told me about the decision to switch from wi-fi to fiber, “I always joke that Netflix happened. More people began to stream video, and we thought ‘this is going to be a problem.’ What we did was assess ‘what are we going to do to provision services at a level that will keep up with customer demand, is wireless feasible?’, [and we realized that with wi-fi]… we were going to be in a constant state of upgrade, so we took that… to the City Council, and said we can do a forklift upgrade to the wi-fi every 3-5 years, or spend more money up front [for fiber] and never have to worry about it again. Snider agrees: “We got to the theoretical limit of what our [wi-fi] system could provide, and the city was growing, so in 2011 we… determined that fiber was next.” City Council approved the fiber plan.

In December 2013, SandyNet contracted with cable manufacturer OFS  to deploy fiber, and in February 2014, to finance the fiber network build out, the City Council issued $7.5 million in 20-year revenue bonds. While most of Sandy’s city government was on board with the build out, potential opposition was further overcome by the fact that the build out did not imply tax hikes or or extra utility fees. Says Snider, “I think [we had very little pushback] predominantly because we bonded [construction] out to begin with, so there was no utility fee on water bills to pay for the system. Instead, the system is paid for by bond funding.”

SandyNet started building its fiber network in August 2014, and now SandyNet has about 60 route miles. The take rate to date is 60%, but “we’d hope to see that be around 70% by this time next year,” says Snider. Growth is slowing due to SandyNet’s current transition to installation and user fees as its primary source of financing, but “as we continue to add homes, our funding grows, so eventually we’ll see a return on investment.”

On the operations side, while network construction was contracted out, Knapp says that SandyNet has since found it more economical to bring most activities in-house. Even SandyNet’s asset and operations management software is proprietary, designed by SandyNet staff member Greg Brewster. (That alone saves the ISP thousands of dollars a year.) Knapp adds that operations and maintenance are made easier to this day by SandyNet’s ongoing positive relationship with OFS. “They continue to give us support, so if we come across a problem [in our network] and are confused, we still have all their cell phones and so can just call them for clarification. We can talk through these things with them, they’re open to that.”

I asked Snider if there have been any challenges along the way. He affirmed that the build out has gone smoothly, but expressed some concerns regarding economic development. After all, Sandy does not simply want to provide better Netflix streaming to its customers – it wants to leverage SandyNet to attract small- and medium-sized businesses and diversity Sandy’s economy.

“One thing that struck me,” Snider told me, “is that I thought that businesses around here, especially as we’re offering $60 Gig [service], more businesses would clamor for service. We don’t have a shortage [of business subscribers], but a lot of retail prefers the wireless network for $25, because they’re just processing credit cards, so they don’t need a whole ton of bandwidth. I was a little surprised, because I thought the response from the business community would be stronger. Now I think they’re starting to get it, word is getting around, and now there’s a bit more interest from retail than there was six months ago.”

Though only a start to a broader commitment to developing and diversifying Sandy’s economy, SandyNet is a great start, and a potential model: A municipal broadband fiber utility paid for by revenue bonds and installation and service fees, rather than taxes; that provides up to gig service to customers, and could serve as an asset to bring businesses and teleworkers to Sandy.

But can other cities follow Sandy’s lead? Knapp thinks so: “There seems to be a hesitation for municipalities to get into this business. Often, they think they should just leave it to the private sector, or they don’t think that a municipality can operate municipal internet service. I say to that, if your citizens are behind an initiative, and want local choice, then cities are well suited to this. Sandy provides a good use case for that. Broadband is a utility – a necessary utility – and cities are poised to be fantastic providers for their communities.”

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