“Judge asked to toss LUS Fiber suit” [updated]

¿¿ “Judge asked to toss LUS Fiber suit” ??

Uh, no—The suit in question is the National Cable Television Cooperative’s (NCTC) suit. Lafayette Consolidated Government has filed papers further supporting its contention that the NCTC’s lawsuit is merely designed to block an ongoing FCC inquiry into the matter.

So if the headline isn’t actually the news in this story then what is?

Well it is a little hard to tell from the Advertiser story. Especially since important bits that might make it all make sense are missing.

The real timeline involved goes something like this: LUS and two other cities with new FTTH networks who have submitted applications for membership after years of being ignored and then enduring a “moratorium” on new members started proceedings at the FCC asking the FCC to exercise its obligation under the Communications Act to block anticompetitive practices. The FCC requires that complaints be preceded by filings of intent at the FCC and fully informing the interested parties. LUS and its sister cities did so. (This is not fairly characterized as a “threat.”) The FCC’s hope in requiring this is pretty clearly that the two parties will get together and work it out without burdening their docket with the case. Indeed, the two other cities were admitted…and only Lafayette was refused. Why? Well the NCTC simply hasn’t said. But the fact (unreported in this story) is that Cox Communications is the largest member (this is recent—they joined after the successful referendum battle in Lafayette and the “moratorium”) and has a seat on the board of directors. The two other cities don’t compete against Cox or any other NCTC member. (This is not established policy, other places have more than one competitor in the NCTC.) If the point of the NCTC refusing only LUS membership is to stifle competition on behalf its most powerful member—well…on the face of it that would make their action anti-competitive and the FCC would be obligated to act.

Sooo, armed with a more complete picture can we now discern what the real news is?

Why yes, it is contained in the final, trailing paragraphs:

Included in Lafayette’s latest filings is a letter from an FCC official, supporting Lafayette’s position.

“We are extremely gratified that the Federal Communications Commission has taken the extraordinary step of writing a letter for submission to the federal judge in order to indicate that the agency is in full agreement with Lafayette’s position that the FCC should have primary jurisdiction over resolution of the issues under the Communication Act,” City-Parish Attorney Pat Ottinger said in a statement.

Lafayette has garnered the support of the FCC, which is agreeing that the matter falls into its domain. This is a big deal and Ottinger is right to be “extremely gratified.”The court will surely understand that if it allows the lawsuit to proceed it will be in danger of federal preemption—that the FCC will simply exert its right under the Communications Act to rule on such issues and take it out of state courts.

That, actually, is news. And it is good news for Lafayette and LUS

7/28/10, 2:12 pm: I’m Wrong: It has just been pointed out that federal preemption can’t be at stake here because the case is in federal court. That was careless. Thank goodness there was a knowledgeable reporter around to gently set me straight.

It’s still good to have the FCC asserting its authority and that will help sway the court to defer to administrative authority but it is not nearly as effective in a federal court as the implied threat of preemption would be in a state one.

LUS Fiber Commercial

LUS is prepping a new media campaign—something Director Huval hinted at recently when he noted that the new utility had resisted starting a full-scale media campaign until the network was finished and available to everyone in the city. Since that day is upon us now is time to see a full-throated campaign developed to sell the network to the community

This draft video is of the first television ad in that campaign.

What’s most interesting is the themes that are sounded. It’s a fair indication of what the campaign will emphasize. Take a listen, if you haven’t already, and see what you hear.

I like it. Here are some key phrases in sequence:

  • “Together we’ve built something special. And the world is watching”
  • “LUS Fiber belongs to all of us.”
  • “Fiber to the home…Others want it, We’ve got it.”
  • “Invest in Lafayette. And bring the world right to your door”

The accompanying visuals with a growing network of glowing (orange!) fiber traced out over the city connecting houses and bringing services reinforces the basic message.

The major theme is local pride—pride in what’s been accomplished and in what we have. That’s the right note…as is characterizing taking the service as investing in Lafayette.

LUS Yard Signs

From LUS’ Facebook page:

LUS Fiber Congrats to Hugh Mouton, LUS Fiber Customer of the Week! He’ll get $50 worth of bill credits for displaying his yard sign. Thank you Mr. Mouton, and all of our LUS Fiber customers!

Now isn’t that sign just a great idea! The perfect sentiment, isn’t it? And a great way to get friends and neighbors asking about the service. I certainly think so…and thought so back when Pat Ottinger got his service put in. (Tongue planted firmly in cheek.)

I’m not asking anything for my marketing expertise but I do want one of those signs!

PS: But I want one of the second printing…you know, the one that includes the website for their fiber-optic service.

“Getting your Fiber ON”

Local videoblogger Lane (Lanevids.com) has posted a stream of consciousness review of LUS Fiber install and intial tests to his funnyrats channel on youtube.

Short version: He likes it.

Part of the reason, no doubt, is that he finds he pegs out his iPhone’s Speedtest App when using LUS Fiber to push wifi to his iPhone (left). Speedtest needs to update its graphics.

The video (below) is part of his daily vlog so if you are uninterested in the bits about his banking and his cat’s grooming habits you might want to look at the first minute or so of intro and skip to minute 5….

“Cox gives laptops to eighth-graders”

Kudos to Cox. This morning’s Advocate reports on Cox’s latest effort to address the digital divide and offers a brief overview of continuing efforts in Lafayette to address the issue.

The company announced Thursday that it will donate 350 Dell netbooks to select eighth-graders who have no access to the Internet at home. The donation also includes free home Internet service for a year.

This isn’t Cox’s first donation—they did something very similar back in ’08 supporting The Early College Academy. This time through:

[Cox] will donate 350 Dell netbooks to select eighth-graders who have no access to the Internet at home. The donation also includes free home Internet service for a year…

The 350 students will be identified through the district’s GEAR UP program, an early college-awareness program that targets middle-school students.

This initiative resembles a suggestion made late last year by the cable industry. At that point the NCTA—the industry’s support and promotion arm, suggested that a good way to use some of the broadband stimulus money was to support its “A Plus” program; that program was broader but less generous with Cable’s resources. It suggested that:

(1) digital media literacy training; (2) discounted computers that can access the Internet; and (3) discounted home broadband service to households that do not currently receive a broadband service.

Cox is also renewing support for the Boys and Girls Club, this time donating an expansion of their computer lab to the Jackie Club.

These generous donations join other Lafayette-based efforts to ensure equity in accessing the internet. In ’09 Je’Nelle Chagois’ Heritage School put 200 computers into the hands of students at Faulk Elementary. The Heritage School is also a participant in a $5.3 million stimulus grant request with LUS that has a similar, student-based purpose.—A second grant for $3.5 million has LUS and LCG partnering to build and enhance community computer centers that serve a broad range of citizens.

It’s all good stuff. Kudos to Cox on this one.

UPDATE 7/13/10: The Advertiser logs in with a substantially similar story this morning, except theirs doesn’t discuss other Lafayette efforts to bridge the divide…

Revised LUS Fiber Budget

Both the Advertiser and the Advocate have articles today on last night’s council meeting and LUS’ revised budget. The big news was that LUS will not meet its own revenue projections; in fact they are off by about half…a disturbing shortfall.

Huval’s explanation cites two factors: the lack of initial marketing and defensive budgeting that was designed to make sure that a worse case scenario of having too many customers wouldn’t “break” the budget.

Defensive Budgeting
This is one of those cases where the Advertiser has the better quote:

“We made projections based on the most optimistic approach,” LUS Director Terry Huval said. “We didn’t want to get into a situation where we might have budgeted too conservatively and we don’t have the materials and supplies for the customers.”

To understand what Huval is worrying about requires some background. LUS is in the odd position of having a brand new service that needs to be cautious about growing too fast. Hooking up and initially provisioning each household is a VERY large expense. The labor and materials costs — especially the set of three boxes that sit on the side of the house and the set top box inside the house—are all very costly. It will, in many cases, take several years to recover that initial investment. While the profit margin is good, even with LUS’ reduced prices, you have to invest substantially in each customer. On the books you will typically lose money for a time on every new customer you bring on. As a consequence you might have to look at borrowing more money. For most businesses this would not be something to worry about very much. Any bank could see that you were a better risk for capturing a larger share of your market than you initially anticipated. You’d get your “float” loan.

But LUS is not like other businesses. LUS cannot, practically, go back and get a bridging loan. They have borrowed all their money upfront in the form of bonded indebtedness. Budgeting in this situation is, in part, a way of projecting the “draw” the business will be making against that loan. What Huval is saying is that they originally projected the most “optimistic” draw against the loan so that they would be sure that they had enough money at the ready to buy the equipment they needed to complete the budgetary period without going back to well…So budgeting for the most extreme case was, in this case, “conservative” budgeting. A typical business would typically borrow for its most optimistic realistic case in order to have a little reserve and to avoid having to go back and borrow money again—usually at higher rates. This maneuver is LUS’ equivalent.

The tendency to be conservative here is aggravated by a state law that shapes the way LUS has to assess the risks to its business. And we have Cox and AT&T to that for that: Long-time readers will recall my inveighing against the (un)Fair Competition Act. This is one of the places where that incumbent-written law comes into play. One of the provisions of that law is that LUS is forbidden to loose money for any year. If they do, the law mandates a fire sale of the business. Given that law, you’ll notice that once you understand that LUS is actually investing in each customer that it is entirely possible to be successful too quickly. Suppose LUS took 50% of the market in a single four month period…and then, having saturated the local market it would have to endure a year or two or three of losing money just to pay off that initial investment before the income from the bulge of new customers turned positive. It is far safer to grow at a steady rate as long as you get above the break-even point before the bond money runs out. Losing money too fast is always a problem. But the (un)Fair Act makes being successful too fast a problem too. State lawmakers piously claim that they are just protecting the citizens of Lafayette from losing money. This case makes it obvious that the people that wrote the bill, AT&T and Cox, are the ones being protected. Lafayette doesn’t need or want Baton Rouge’s protection.

LUS also acknowledges that it hasn’t run much of a marketing campaign, saying that it doesn’t make sense to gear up a large and expensive campaign if you aren’t yet ready to sell your product to all the people you’re paying to reach. From the Advocate:

Revenues for LUS Fiber this year might have been more in line with the initial projections had the city pushed a more-aggressive marketing campaign, Huval said.

But he said the decision was made to hold back on intensive marketing of the service until it was available to most residents, so as to get the most out of the marketing dollars.

That does make a certain amount of sense. But that excuse is already effectively over—LUS is currently finishing off its build-out. The vast majority of the citizenry is now ready to receive service. So we should now begin to see a much more aggressive campaign. —Though, of course, not sooo aggressive as to run afoul of the (un)Fair Act’s penalty on gaining customer share too quickly. (sigh)

In all fairness, LUS also has another reason not to want to sell too much of its cable product too soon. also been wrestling with the set top box software—the initial software was simply not up to snuff…it provided the fundamental functions in that it would change channels and record material but the interface was outdated and it was clumsily designed. It was even worse than most cable providers interface and that is saying something. With the new Microsoft Mediaroom LUS has come out on the other side–the interface is very slick, it works well and there are obvious hooks left for the development of innovative features. But until that mess was settled and LUS knew that Alcatel was going to step up and make good on its promises LUS Fiber was looking at a situation in which it very strongly suspected that each and every video customer was going to upgraded to a new box and software platform in the very near future. They had little desire to put the whole city on a solution that they would have to turn around and dump.

The most reassuring part of the story is that the Advocate reports that Huval is saying that they are making their break-even rate—that is, they are getting the 23% of the population they need to win over to break-even and pay back the dedicated bonds. That, frankly, is the only important number—

[Huval] said that even though LUS Fiber is not meeting the early revenue projections, he feels confident the venture is building a solid foundation and will be successful.

LUS Fiber can break even with a 23 percent market penetration, Huval said, and that percentage has been “handily” reached in most areas where the service has been available for more than a few months.

What’s interesting is that while LUS will doubtless get some flack for not meeting its defensive budget estimates nobody is asking what LUS achieving its break-even rate means for the other actors in this little drama: Cox and ATT. Leaving aside ATT for the moment since it is not selling a cable product let’s look at Cox. Nationally the take-rate for cable video is supposed to be about 50%. I don’t have any reason to think Lafayette would be much different. If LUS is taking more than 23% of the local market “after a few months” that would imply that in just a few months—without a very credible set top box arrangement and with very little marketing—LUS can take about half of Cox’s well-established cable video market. That makes LUS, by any reasonable assessment, a very successful competitor.

“The Battle Is Raging for Control of the Internet”

Chris Mitchell of muninetworks.com and his compatriot David Morris have published an article on Alternet and the title says it all: The Battle Is Raging for Control of the Internet — and Big Corporations May Come Out on the Losing Side. While I’m not so sure an upbeat conclusion is appropriate just yet what is encouraging is that there is, increasingly, a visible public position that maybe, just maybe, communities and not massive multinationals should control local telecommunications networks.

When Lafayette first joined battle with Cox and BellSouth (now merged into an even larger AT&T) the cry raised here for local control and independence simply had no national resonance. The idea that local activists and local officials had joined to raise a flag in Lafayette against what was widely regarded as parallel phone and cable monopolies was exciting because it was so unusual…and, well, quixotic. While widely reported, the conflict was also viewed as a David and Goliath story—and while few expected David to win, the colorful locals and bulldog-like persistence drew bemused interest.

That attitude is fading, no doubt in part because Lafayette proved that David actually could beat Goliath. And, having beat Goliath LUS went on to offer stunningly fast service for shockingly little money—just as the little “David” had claimed it could and would. Increasingly, in reportage and on commentary boards I see people mater-of-factly taking positions labeling the incumbents monopolies and asserting that local, utility control is obviously to be desired. That’s not everyone, nor even beyond a few places a majority opinion. But it is visible and insistent and that’s a sea-change for the better.

The first paragraph of “The Battle is Raging for Control” has Harlod DePriest head of Chattanooga’s fiber deployment reprising Terry Huval’s role when he rhetorically asks:

“Does our community control our own fate or does someone else control it?”

You are supposed to know the answer to that question…and that, DePriest clearly believes goes without needing to be said, means that you should support him and his utility’s fiber to the home system.

The article walks through the now familiar argument: the big incumbents don’t have local interest at heart, Federal action has failed to slow the consolidation of local monopolies into a very small cartel of major national players with an implicit pact to not compete locally, as competition falls prices rise, without competition there is little incentive for the incumbents to make the upgrades communities need to sustain clean, fair development and control of their future economies….locals can, and indeed must, take matters into their own hands.

Incumbents have little incentive to lay new fiber. Their monopoly position allows them to continue to reap high profits while amortizing their investments in old technologies.

And when they do lay in fiber we are at their mercy. Karl Bode, a longtime reporter on broadband, notes that Verizon, which has laid the most fiber, has a very low tolerance for “towns or cities asking for much of anything in negotiations.” Verizon shunned Boston when it was asked to pay property taxes like everybody else. Wilmington, Delaware was rejected because it wanted to ensure the company would serve the entire community, not just wealthier neighborhoods. Pointedly, Verizon serves the affluent suburbs of Seattle, Portland and Baltimore, but not the inner cities.

The article is well worth a read, but I close with a bit that uses the advantages Lafayette has brought to its community as an example of differences local ownership and control can make:

Cox Communications, famous in Louisiana for regular rate increases, froze its rates in Lafayette for several years following the city’s initial announcement that it would offer telecommunications services. Meanwhile Cox continued to raise its rates in other parts of the state. The result was that even before Lafayette’s system began operating it had saved its residents and businesses nearly $4 million.

Now that Lafayette is offering citywide services, it is teaching companies like Cox a thing or two about next-generation broadband. In addition to offering the best value in the country (the fastest speeds at the most affordable prices), everyone on the network gets the fastest possible speeds to others within the city’s local network (100Mbps). This approach is spurring a wave of innovation as entrepreneurs and local media activists take advantage of unprecedented speeds throughout the city. Others just enjoy the opportunity to work from home, accessing their local office network as though they were still in the building.

Community broadband networks also offer subscribers something that few private networks do: symmetrical speeds for both upload and download. Internet offerings of telephone and cable companies typically have upload speeds that are about one-tenth of download speeds. Rather than encouraging a purely consumptive approach to the Internet, symmetrical connections allow subscribers to produce content as well, a hallmark of the modern Internet.

We are quickly beginning to take our advantages for granted here in Lafayette. Articles like these remind us that most of the country still needs to replicate the success we are enjoying here.