Month: November 2004

For the next couple of hours or so, I’ll be blogging the Lafayette Consolidated Government Council meeting on the proposed Lafayette Utility Systems’ Fiber to the Premises project. I’m at home and watching this via Acadiana Open Channel — yes, Cox is letting it run!

Joey Durel made an opening remark about this project putting Lafayette on the map in terms of being a forward looking, technologically savvy community.

Terry Huval is up, recognizing members of his team before getting into the formal presentation. Jim Baller in the house!

Huval says “we’ve done due diligence.” Says the project will be beneficial to the city, the parish and possibly the region and state.

Doug Dawson of CCG will lead the presentation. CCG founded in 1997, after passage of the Telecommunications Act of 1996 became law. They’ve got 350 clients that cover the gamut of telecom providers — cities, private sector telecom companies, cable companies, universities, etc.

“We’re doers and implementers, not just consultants,” Dawson said.

Dawson cites Act 736, the state law that resulted from the attempt by BellSouth and others to kill the project before it got started. Says the presentation will relate to the requirements of that act.

First bullets:

— The concept is to build a state of the art broadband network to using fiber technology to every home and business in the city.

•— Initially, the major product offering will be the triple play — voice, broadband and video.

•— Fiber is the ultimate technology and can be continually upgraded overtime to deliver more bandwidth than any other technology around.

•— Will continue LUS wholesale services.

•— Future-proof network through constant innovation in the technology. This is a 50 year network.

•— FCC says competition drives price decreases, service improvements in every place where it occurs.

•— Targets 50 percent market penetration. Gets there incrementally. Based on market survey in the spring, think that is realistic over time. This is what they’re pitching to the bond market.

•— 20 percent lower than other providers. That’s the goal. Because of that, support $85 per month triple play package. 70 channels of cable included, significant bandwidth, plus telephony.

•— LUS will sell just retail to home and small retail.

•— 50 percent is the target. 30 percent market still results in bond payoff within 19 years.

•— Positive margin — revenues greater than expenses — in 2007. First customer in June 2006. Whole operation will be cash positive by 2010 — 100 percent self-supporting.

•— 56 percent operating margin when the system matures.

•— Over the 25 year life of the bonds, the project has a 14-18 percent interest return year to year.

•— Assumes competition will respond. Will drive even more savings to consumers.

•— LUS will pay $100 million in new revenue in lieu of taxes. Cash bonus of $213 million over life of the bonds which can be put back into this system, to other aspects of LUS operations.

•— Subsidy issues: Law requires that this division not be subsidized by other divisions of LUS. Because of this is develop a cost allocation manual to insure that none of these subsidies exist. Support will come in the form of a loan. Does not think loan will be necessary; bond will be sufficient. Communication will buy $6 million in existing fiber from the Electric Division.

— Imputation Rule requires that pricing reflect the projecting that LUS would have to pay federal and state taxes which private sector providers must pay. In Lieu of Taxes can be counted against that amount. So, In Lieu of Taxes will always offset imputed taxes.

— Key points: Don’t jump to 50 percent penetration. Think it will take four years to get to everyone who will want the service. Will lose money in early years. Will be covered by bond issue. After that we should be making money.

— In Lieu of Taxes is “$0” for a while. That starts in 2010. Does not start until covering all its expenses, including debt service. Ultimately will be about $6 million per year.

— Current bond structure will show no debt payments for first three years. May extend to four years. Debt payments will run $14 million per year. Might be lower. By 25th year, payments in lieu of taxes $7 million per year, and clearing $20 million per year.

KEY ASSUMPTIONS

— Deployed by phases, but exact path not determined.

— Rates will be 20 percent below rates of competitors.

•— 49 new employees.

•— 25 year Bond Issue.

— Pay in Lieu of Taxes in 2010.

— Business Customers. 2,000 large businesses will be targeted by wholesalers currently using LUS system. Retail customers, there are 5,000 other business customers in town which will be targeted by LUS.

— Revenue assumptions: Voice over Internet Protocol (VoIP) supported from day 1. High speed Internet. Cable also available. Sell more bandwidth at lower prices, that’s LUS’s commitment.

— Residential: 47,000 households in Lafayette. Everyone will have fiber down the street. Triple play package will be offered, but can buy pieces individually. Tiered Internet packages. Will exceed all locally available packages for less money. Marketing will be conducted through various means.

— LUS will distinguish itself by offering more for less in cable, telephony and Internet services.

— Wholesale assumptions: fiber will be running past every business. Will improve their ability to recruit and win customers to the network. Expect 30 percent growth in customer base for wholesalers.

— Penetration assumptions: 50 percent of 47,000 households. Start slow and build.

— Conservative on Internet penetration. Project 38 percent, but expect much higher penetration due to attractiveness of the offerings.

— Business penetration: will go slower than residential base. Will reach 50 percent, but maybe faster than projected.

— Asset intensive business. 2009 is anticipated end of initial build out. $117 million. $46 million for fiber. $20 million for fiber drops into buildings. Fiber to the home electronics (part of it at LUS and the other part of it on the side of the building). Cable TV head-end. Settop boxes. Switch. Building to erect to serve as network operations center.

— Financing assumptions: 25 year revenue bond, $110.5 million. Secured by overall LUS revenues. Will cover full cost of constructing fiber system. Will be inter-utility loan to buy existing fiber, but no cash changes hand. Long-term interest rates will not be moving much soon. Projections based on 5.5% interest rates, which is a full percent higher than current rates.

NEXT STEPS

— Need council approval of feasibility study.

— Start process of bonding.

— Once get approval can do detailed engineering.

— Meet legal and regulatory requirements. For instance, need cable TV franchise agreement from council.

— Address delay tactics. These happen everywhere, expect them here. Foresee 18 months before first customer on line, June 2006.

Terry Huval

Since we’ve started this project, we’ve been getting a lot of questions. Here are some of those and our responses.

Does the cost allocation and affiliate transaction rules in Act 736 affect time line?

No. These rules are not new, they are new to us. Taken directly from National Regulatory Commission models. LPSC rules will only require minor modifications of those rules, but don’t expect that to be time consuming. These cost allocation principles are long established within LUS, where there is no cross subsidization taking place. Not a new thing for us.

BellSouth requested FCC relieve them of these types of cost allocation issues.

Doesn’t Lafayette already have fiber?

No Lafayette homes have fiber run directly to them. No plans in place by incumbents to do so within the foreseeable future. Incumbents are underestimating bandwidth demands here and this will have impact on community and economic development here.

US trails rest of the world in broadband access. This will set Lafayette apart. We want to be part of America that forges ahead.

Priorities, why not drainage and roads?

This project will generate new revenues. Can only borrow money if you have a revenue producing entity. This project will produce revenue. Also, will save consumers millions of dollars in reduced rates, even if they stay with competitors. This project will be smaller than any generation project that LUS has engaged in over the past 25 years.

High potential for failure?

More than 70 percent of homes and businesses have expressed an interest in these services. The potential for great things to happen here will be higher as a result of this project.

Is this putting LUS at unreasonable risk with this project?

No, this project has a very high probability of success. The size of the project is not a threat as it will be phased in. $40 million is far less risky than the other projects in which LUS has invested in over the past decades. Debt will be less than 1.5% of entire revenue portfolio. The rest of the money will be spent only when customers come on line. So, $40 million is at risk.

Will LUS bills increase because of this project?

No. Telecommunications system will pay for itself and will lower bills for all customers. Will produce lower cable, telephone and Internet bills here. Might actually lower utility rates.

Will taxes be raised to pay for this project?

No. Project provides a source to keep need for new taxes low.

Will there be an install fee to connect?

No. No connection fee if you already have telephone or cable services.

Do you have to buy all three services?

No. Buy separately.

Better technology?

Fiber is the ultimate infrastructure. Even wireless requires fiber to move data. This would be a compliment to wireless systems. Within five years, Jupiter research predicts average home will need 72 megabits of home bandwidth, possibly 100 megabits. This is 20 times currently available.

More than we need?

That’s what they said about the Interstate highway system fifty years ago. More bandwidth will become a necessity. By building fiber to the home, all bottlenecks are removed from the infrastructure. Forward thinkers think fiber to the home is the infrastructure of the future. Quotes former VP of BellSouth saying the same thing.

Verizon is doing this in Keller, Texas. Why not Lafayette?

Municipal failures?

There have been no municipal failures when the municipality has been the direct seller without a middleman. Lafayette citizens are already benefiting from the discussion of this project. They say that the new products are not related to the LUS plan. You be the judge.

Fiber as an infrastructure.

The incumbents have been whispering that fiber is sensitive and expensive to work with. This is the same infrastructure upon which they are betting their future.

Fiber to the Curb

This is an improvement over current incumbent systems, but it is ultimately a half-step to the future. Take the full step now, Lafayette will join a small, but growing circle of advanced communities worldwide.

— All Lafayette businesses and consumers will get better rates as a result. Tens of millions will be saved annually and will stay in circulation within our community.

— Positive impact on the General Fund to support other projects without having to increase taxes.

— Contractors will get work on the buildout.

•— Positive impact on education.

• — Close the digital divide. Want to find more opportunities to close that divide.

• — Lafayette job market will see 49 new technology jobs. Expected economic development impact will draw new companies and jobs to Lafayette. We will be the only city that can provide this bandwidth and these capabilities to prospective companies. Cedar Falls, Iowa, has outgrown neighboring Waterloo, Iowa, since deploying fiber there. Will also help keep companies and jobs here.

— Will grow opportunity here instead of having to go elsewhere to find it.

End of LUS presentation.

No reminder articles in the media today so here is the bare-bones info:

Today’s hearing on the Lafayette Utilities System fiber to the home plan will be held at 5:30 p.m. in the City-Parish Council Auditorium at 705 W. University Ave.

You know what to do.

Telephony Online posts a story about Lafayette’s proposed municipal fiber optic system that implies that Lafayette is getting triple play services in response to LUS’ proposal. The reporter reviews the legislative, legal, and publicity-based strategies typically rolled out by the incumbents and tried in Lafayette. He then follows that by announcing a new incumbent strategy premiered in Lafayette:

But in Lafayette, the debate took a new turn as incumbent service providers shifted from denigrating public fiber to promising their own triple-play deployments, posing the prospect of a rare three-way market for voice, video and data. Earlier in the year, BellSouth argued it could use its DirecTV partnership to eventually deliver video service to the town. But on the heels of a recent regulatory decision freeing it from obligations to unbundle fiber networks, the telco assured Lafayette residents that it could soon deliver triple-play services using fiber-to-the-curb. Late last month, Cox announced it would add voice to its video and broadband offerings for Lafayette in November.

As attractive (and superficially sensible) as is the idea that the incumbents are developing triple-plays and fiber build plans because of Lafayette’s proposed fiber build the truth is that it is only hype that is changed for Lafayette consumption. None of the services mentioned in the article, including a recent speed upgrade from Cox, are really things which are outside the realm of either “already planned” or “all talk and no cattle.” It’s hard to even argue that Lafayette has been moved to the head of the line for planned upgrades. Baton Rouge got both the Cox speed upgrade and VOIP services on the preannounced schedule and Lafayette got them later. BellSouth’s hints are in the “all talk” category. As Mike has ably pointed out BellSouth is stretched for investment capital. Until we see boots on the ground there is no reason to believe that BellSouth will make the investment necessary to challenge Cox, much less Cox and LUS in Lafayette.

No, these triple play packages, “lite” though they may be compared to LUS’ potential offerings, were conceived as part of the ongoing battle between Cox and BellSouth and are being rolled out wherever these two are in conflict .

I am sure that the writer knows that the idea that LUS’ plan caused the incumbents to offer these triple play packages is doubtful because I told him so plainly. Still he got most of what we discussed right even if he got the name wrong, attributing my words to Mike—who is most definitely not retired.

Anyway, getting some national press is fun for both Lafayette and LafayetteProFiber. Expect heavy national coverage for the city in the next two weeks! Should Lafayette succeed LUS will be rolling out the largest fiber to the home deployment in the nation. In some quarters that’s real news…

I don’t have a subscription to the Wall Street Journal Online, but the daily eletter FierceWireless has a story today based on a WSJ story which says the big cable companies are considering a joint venture that will put them in the cellular telephone business.

Here’s the full entry from today’s edition:

1. Rumor Mill: Cable companies may launch cell phone joint venture

A group of the country’s leading cable companies are in talks to form a joint venture that would offer cell phone service. Members of the informal group include Comcast, Time Warner, Cox Communications, Charter Communications, and Advance/Newhouse Communications. It is uncertain how these companies will proceed. Some insiders claim they will make a collective bid to acquire an established wireless carrier, bundling that carrier’s service with their cable TV and broadband offerings. Others claim these companies may collectively, or individually, launch wireless MVNO services, leasing network capacity from an established wireless carrier. Still others claim the companies may form a new company and launch an alternative form of mobile service using a new wireless technology like WiMax.

Cable companies have already taken market share away from traditional telecoms through the success of residential cable broadband service. Cable companies are now launching IP telephony service, taking aim at the dwindling long distance phone market. If cable companies can find a way into the wireless market, they will be able to offer the coveted triple play to the country’s 74 million cable TV subscribers.

Note, please, that there are three cable companies on that list that have customer bases in Louisiana: Cox, Charter and Time Warner.

The second paragraph explains the siege mentality that Bill Oliver and the boys from BellSouth seem to embody these days. Cable is taking broadband service from BellSouth. Cable IP telephony is taking aim at BellSouth’s core business (that would be the telephone business).

Now comes the wireless play! Golly Bob howdy, Verne! They’re threatening BellSouth at every turn!

Readers and BellSouth customers will recall that the company recently ponied up about $17 Billion for its 40 percent share of the cost of Cingular to buy AT&T’s customer base. A fair bit of that $17 Billion came in the form of new debt taken on by the company. This is not to say that Cingular or BellSouth are in any way troubled, but BellSouth is getting into something of a tight spot in Louisiana.

Time Warner has cable franchises in Monroe and Shreveport-Bossier (and probably points in between). Charter has franchises in St. Landry and Pointe Coupee but, more importantly, in the fast-growing, prosperous areas of St. Tammany and Tangipahoa parishes. Cox has the rest of south Louisiana, including Lafayette.

So, the question again must be raised: What in the hell is BellSouth doing partnering with Cox trying to defeat the LUS fiber to the premises project when Cox has its foot on BellSouth’s throat across the southern part of the state? And now comes word that Cox (among others) is about to jump into the cellular business! What kind of alliance is this?

Is this a case of BellSouth having misplaced priorities? Or, could it be that there was substance to the rumors of the meeting with Joey Durel last week? Reaching out to Lafayette and LUS makes a lot more sense from a strategic standpoint than any kind of sham alliance with Cox.

But, that’s just me!

The Advocate story alerting the public to the upcoming fiber optic hearing, “LUS sets hearing Tuesday, ” gets it right the first time. This is in distinct contrast to the Advertiser’s fumbling approach and consequent make-good.

A story like this is a public service: it announces the event for which public input is desireable, and gives the community a sense of what is at stake in their participation. This article does that admirably—if you’d like a clean summary of what is at stake before going to the meeting Tuesday take a look.

Inattentive reporters are sometimes confused by the incumbent’s attempts to conflate today’s services with the potential of fiber networks. Blanchard, whose beat this is for the Advocate, is not:

BellSouth and Cox both use fiber-optics in their networks, but only to carry signals part of the way. The signal is eventually delivered using traditional copper wire, which doesn’t have the capability to provide as fast or clear a signal as a pure fiber-optic line. LUS officials have said that getting the fiber-optic infrastructure in place now would put Lafayette ahead of the game once applications are developed that require more bandwidth.

Relevant issues like LUS’s promised 20% discount for residents, the revenue flow for the city, costs, financing, payout projections, and the intangible point about bragging rights as the largest optically wired community in the nation are among the topics touched on.

Is BellSouth looking for a life raft?

The Atlanta-based company is the junior partner with Dallas-based SBC in Cingular Wireless, which just became the largest wireless provider in the country thanks to its recently approved buyout of AT&T Wireless’s customer base. AT&T Wireless (the brand) will actually stay around, in what has to go down as one of the weirdest buyouts in recent corporate history. AT&T wireless, in fact, has bought network services from Sprint so that it can roll out a new advanced wireless network. A buyout that didn’t remove a competitor from the field? Weird!

Any way, back to BellSouth. Word now comes that the company is again ponying up with its Dallas sugar daddy to buy YellowPages.com. No word in this story on the financial split, but the operation will be based in SBC’s footprint. A BellSouth guy will head the new venture, with two SBC guys serving as VPs.

This comes on the heels of a rumored meeting in Lafayette on Tuesday night between BellSouth bigwigs and Lafayette Mayor/President Joey Durel. If the meeting did in fact happen, and I have no information to confirm whether it did or not, it could be a sign that the unnatural alliance between Cox and BellSouth in Lafayette is fracturing.

As I’ve written on a number of occasions here before, Cox has BellSouth’s Louisiana business base in its sites. BellSouth finds itself in a no-win situation of knowing that its going to lose market share, regardless of how much money it invests in new infrastructure here. The fact is, though, that the company doesn’t have the money or the will to invest significant dollars in new infrastructure here primarily because of the fact that Cox is moving so aggressively against it in the market place.

The proposed LUS fiber to the premises project could, in fact, offer BellSouth a path to maintain at least some of its customer base here without having to undertake the full cost of building a new network. That “could” depends on the willingness of LUS to open its network to access to other providers (like BellSouth). I think it would be a financial win for LUS to do this because it would bring more revenue more quickly to the system than an LUS-only approach would.

BellSouth’s problem is its own propaganda. For most of this year, BellSouth and other RBOCs (like SBC) have been crowing over a court win which overturned rules for network sharing. The RBOCs have maintained that the rules made it financially impossible to justify new network investments. What the RBOCs (including BellSouth) neglected to say was that earlier law and rulings had already exempted them from having to share new fiber networks with competitors.

Still, SBC and Verizon announced big fiber plans and cited the roll-back of the network sharing rules as the justification for moving forward. It was a great slight of hand trick.

So, if BellSouth has reached out to the Durel administration seeking to broker a deal, it would undermine months of public pronouncements from the RBOCs about how network sharing is a financial drag. There’s been research to show that the argument was bogus. It would be a welcome development for an RBOC like BellSouth to confirm it via a deal here in Lafayette.

The Advocate’s Blanchard has a very informative story in this morning’s paper. It covers the final filing of comments in the process of developing Public Service Commission rules to govern LUS’ telecom services. Blanchard has writen on this before, in a very good opinion piece (no longer freely available but blogged here if you’d like to see a summary) which covered some pretty profound questions about the PSC’s involvement. It’s good to see that this crucial part of the developing story is being followed—by the Advocate.

Some background is in order; this whole issue is pretty obscure: Getting the PSC involved in rule-setting was mandated by Act 763 a law whose first draft was writen by BellSouth and was originally intended to simply prevent a municipal body from providing any telecom services to its citizens. It passed in a less onerous form but the intent to make life difficult for utilities like LUS remains. One way to do that was to get the PSC involved in regulating more services than it normally does and in the process exposing LUS to a regulatory regime which has a long-established chummy relationship with incumbent provider BellSouth. (The central purpose of putting the PSC in charge of rule-making was to make sure that LUS did not pass any tax savings it might get as a public entity onto its customers. Really. No, Really. I am not kidding. Your legislature at work.)

Blanchard’s article tracks the first fruits of this strategy. Incumbent BellSouth tries for delay, using its insider position at the PSC to suggest that maybe LUS should be prevented from going forward until the PSC issues the rules under which it would operate. BellSouth, of course, has long experience with gaming the rules-making process and undoubtably understands just how it can influence that process and delay the final promulagation into the next decade if it tries really hard. The commission apparently saw through that one and hasn’t gone for the bait. Expect rules in the first quarter of the coming year.

Cox, characteristically, went before the commission to argue for an “adversary” process that would involve both cost and delay. Charming, aren’t they? Since Cox’s Internet and Cable services are not regulated by the PSC it had to suggest that LUS’ unique state-level layer of regulation be governed by FCC rules. That is a weird suggestion since FCC rules are notable for being so minimal as to not have any real regulatory bite in controlling business decisions the way that state commission normally do. The fact that Cox is going in requesting adversary relations (requesting!) makes it is fairly sure that they will actually advocate something that their opponents will consider, well, adversarial. The commission didn’t fall for that little bit of spleen either. The rule-making process will go forward normally.

There is a very interesting nugget in this story; one I hadn’t considered the implications of but which could have very interesting consequences:

“So while the PSC will set up the rules for LUS to follow in cable and Internet, the actual rules enforcement in those areas will be carried out by the state Legislative Auditor’s Office.”

The state auditor is going to enforce regulations in Lafayette concerning internet and cable! The auditor? With what expertise? Only in Louisiana. Watch all this for very weird politics.

The story: “Council accepts fiber optic study” appears in today’s Advertiser. The title says it all. The study was accepted without discussion according to the article.

Schedule attendence at the next two Tuesday evening council meetings. If nothing else there should be an entertaining display of theatrics on the part of the incumbent providers.

In a truly nasty fight in Illinois the Fiber for Our Future proponents have lost their fight to be allowed to even explore trying to put together a privately-funded fiber optic network. (See the returns for Batavia, Geneva and St. Charles.)

Honestly, these returns were the result of a poisonous attack that was based almost entirely on demonstrable falsehood. The truth simply got buried by flood of incumbent money.

The lesson for us all is that something is really wrong in this country when a combination of money, greed, and outright lying can have its way no matter what the actual facts of the matter. It’s a shame.

See Karl Bode’s “Greed, Lies, and ‘Progress’ Corporations and American Broadband” written shortly before the election.