The ambitious plans to implement a high-speed gigabit Internet network in 14 Seattle neighborhoods seem to be falling apart. Financial problems are forcing Gigabit Squared, the company behind the project, to delay efforts.
Even though outgoing Mayor Mike McGinn, who acknowledged this setback in an interview with GeekWire on Monday, won’t be around to handle this issue, he does have some ideas for what incoming mayor Ed Murray should do if the Gigabit plan falls through.
It was McGinn who pledged to bring broadband to every home in Seattle when he was elected four years ago. And it was McGinn who was a champion of the Gigabit project, which was announced last December.
But when we spoke with the mayor this week, he expressed newfound doubts about Gigabit Squared’s ability to raise enough capital for the project. McGinn said he thinks raising taxpayer money for a public fiber utility should be seriously considered if a private company like Gigabit Squared can’t do the job.
Continue reading for edited excerpts from our interview with McGinn in his City Hall office earlier this week.
GeekWire: OK, let’s talk about the broadband issues right now in Seattle. You called out Ed Murray last month for taking campaign contributions from Comcast and even labeled him as ”Comcast’s candidate.” Was it fair to attack Murray over all the Comcast stuff?
Mayor Mike McGinn: Absolutely. Here’s the deal. Let’s just take it up a level. The incumbent providers of Internet service are not upgrading their systems in any meaningful way. That means cities like Seattle are falling behind and will fall behind other places in the globe if we don’t upgrade service.
Now, there are private providers who generally focus on the very niches in the marketplace, or specific geographies, in which there’s high demand. So, for example, we were able to get fiber optic into Pioneer Square — with Comcast. The real question is, how do you wire up everybody? That’s where the incumbent providers aren’t measuring up. Nationwide, the challenge is, well, how are you going to do it? You can see Google trying to do it by just financing it themselves and in that way catalyzing competition in some way.
In our case, what we did was we went out and made our municipal fiber available to third parties to rent or lease as a way to reduce the barrier to entry for a new comprehensive provider of Internet with an open architecture. That’s the other key thing — we don’t want to create a new monopoly here in Seattle. There will be opposition to this by the incumbents because they are making money. What I heard multiple times over my four years is, if you’re going to create competition, get ready for pushback. It will happen. You can take a look at it. There’s a lot of history out there you can find in which new entrants to the market face a lot of competitive pushback from the incumbents.
In that respect the challenge is hard and remains hard. … We’ve entered into deal with (Gigabit Squared) in which we have no risk. They’re the ones that have to raise the dollars, they’re the ones that take all the risk. There’s an open question about whether they’ll be able to raise the capital to build the network they’re going to build. … One reason why they may have difficulty of raising capital is because of the history of incumbents throwing up roadblocks, right? [This] is one of the things I regret that I can’t be around to be a part of because I know what decision I’d make … If a private sector company like Gigabit Squared can’t raise the money to build out fiber-to-premise-network with open architecture, then I think it’s time for Seattle to consider a fiber utility and building its own fiber-to-the-premise, paid for by taxes, with open architecture that is open to any provider to pay the operating cost of system.
And we actually got a report, back in the end of 2010, in our first year, which identified how to go about doing that. We didn’t act on it because … the cost, you know, we’d have to raise taxes, No. 1. And No. 2, the political feasibility of doing it. … It is easier politically and obviously less risk to go with the private sector … and we put out the Request For Information, we got very promising proposals, we got the great proposal from Gigabit Squared, we entered into the MOU and said let’s go.
But again, if that doesn’t work, if they can’t raise the capital necessary to do it and maintain open architecture (then the city should consider a public utility). … I keep talking about open architecture because there are people who may be willing to do it if they could create a new monopoly.
GW: Can you clarify what you mean about open architecture?
McGinn: … Right now if you want to go on Comcast cable, they own that, it’s proprietary, they can say no, nobody else can come in. Or they can make it available. We are making it so other people have to come on. Now they would have to pay their fair share of operating cost, but it’s open to other providers. …
The city’s requirement for Gigabit is they have to make their fiber network available to anyone. That’s the goal, that they wouldn’t have just created a new monopoly. It would be open. So the question becomes, if they aren’t going to build fiber-to-the-premise with an open architecture, should the city do it as a fiber utility? We identified cost of $600 or $700 million.
GW: Oh, wow. That’s a lot.
McGinn: Yeah, but let’s put that in perspective. The seawall was $300 million and that cost an average-priced home in the city about 60 bucks a year. So you could see that for a cost of $120 a year, you could have fiber-optic cable to your home. That was a 30-year bond measure. You could save a lot of money because the capital cost of the network would be built … and if it was open, everybody would be coming on for very cheap to get service.
GW: So you’re saying that our monthly fees would be lower?
McGinn: Much lower. Your monthly fees would be much lower because the city took on the obligation of building the network for which everybody pays taxes and everybody would be connected.
Also, to put a cost comparison on it, $600 or $700 million is the capital cost of linking every home to fiber optic. The tunnel that’s under construction is about $2 billion. So, we have a tunnel which is about $2 billion, which is going to move about 40,000-to-50,000 cars a day through the city — they won’t even be able to get off in the middle — as opposed to, for the third of cost, you could connect every business and home in the city to the entire world.
Now, the difference is, well, there are a couple differences. One, Internet traffic is actually going up while automobile traffic is going down. That’s one difference. The other difference is that we’re used to the idea that we should build roads using public dollars and it’s the job of the government to provide that pathway. We are not used to that idea for fiber-optic cable and Internet access. That’s the political obstacle. We haven’t even thought of that idea. If it’s one big, big thing about broadband fiber to the home, it’s that we have been diligently working to figure out every pathway to get there, including partnering with private sector, but if it doesn’t work, the natural next step is, in my opinion, it’s got to be treated like a utility — like we treat electricity or water — and not treat it like a private market good.
GW: I’m sure you had this dilemma when you were figuring out whether to go with the private sector or raise money through taxes for the public option. Fast forward to today, and it sounds like you’re pretty supportive of the public fiber utility. So, why didn’t you do it back in 2010?
McGinn: I think the answer was that we felt like the first thing we should do is, before we got to the public and say, do you want to pay all this money — and by the way, for a 30-year bond measure for $600 or $700 million, you need 60 percent majority in city — would there be legal roadblocks thrown up to it? Would the state or someone else say, ‘You can’t form that kind of utility, utilities are regulated by state law.’ So there’s both the political obstacle to get to 60 percent and convincing the public it’s good, along with the potential political obstacle of the state legislature trying to shut us down and prohibit us. This is where the power of incumbents comes into play.
So we looked at all of these barriers to doing that. And then, the other alternative is to put out a Request for Information and say we’ll partner with the private sector and see if they’ll do it. And the political barriers to that were, we had to get the Council to give us approval to put out the RFI, and we won that, and we did that. So one path was potentially easier from a risk and cost.
GW: So in other words, try this first before anything else?
McGinn: We felt like we had to try this first, because if someone else can come in and pay for it, and make it work, and maintain an open architecture, then why would we do it ourselves if someone else would do it? But we’re now a year into it and the question is, will it work or not?
GW: You sound a little uneasy as far as Gigabit Squared succeeding in Seattle. Are you worried that it’s not going to work out?
McGinn: … Very concerned it’s not going to work. Gigabit Squared has to raise a lot of private capital to make it work. They have to raise the capital, they need to build the system, then they have to acquire customers. So, there’s a lot of risk before anyone is going to give them the money to build it. They need to feel comfortable they can make the economics of it work. They’re not quite a startup but they’re trying to create a new business which is a privately-funded, citywide fiber network with an open architecture. They believe they can do it, they had a credible pathway, so we entered into the agreement, but if they can’t raise money, then they’re not going to be able to do it. They’ve had to delay because of their challenges in raising money. So the jury is still out as to whether they can do it or not.
GW: OK, where is Gigabit Squared right now? What’s the status of their work in Seattle?
McGinn: Work is on hold until they gain financing.
GW: Didn’t they say they’d have something ready by early 2014?
McGinn: They are not going to hit that schedule.
GW: That sucks for people who were expecting the fast Internet. Say this whole thing doesn’t work out — what’s going to happen then?
McGinn: Great question. What will happen? If this doesn’t work out I believe the next step is for Seattle to build a fiber utility, and if I were in office that would have been my next step — to try and build political support for building a fiber utility if the private sector won’t do it. And we continue to talk to other private sector companies that want to build a fiber network in city, but most of them want a propriety system where they control access to network. I have not approved entering into those types of agreements because I think having the open architecture is important.
GW: How would the city go forward with a public option?
McGinn: We’d put together a business plan. We’d have to get the Council to approve bringing a ballot to the public. And we’d have to get the public to vote for it. And then we’d have to make sure that it was something that could withstand legal challenge, that we were acting within our authority as a city to create a new utility.
GW: You said you didn’t want to take that risk in your first year in office. Why would [incoming mayor] Ed Murray do so now?
McGinn: Well, we are giving the private sector a huge opportunity. And we haven’t given up on the private sector, I want to be clear, we haven’t given up, but if the private sector can’t do it, then your only option left — if you want to get benefits of a truly connecting everyone to gigabit speeds — I believe the only option left is some type of municipal utility. But I believe you have to go through a process of establishing whether or not the private sector could do it.
That will be a question the new mayor will face: How far down the road do you keep going and pushing on the private sector and seeing what they can do, and if you reach a dead end there, do you just say, “Oh well,” or do you say, “No, the next logical step is for us to finance.” And I don’t want to suggest that those are easy questions.
GW: But, what if people are fine with how Internet is now?
McGinn: Well, for lots of people it isn’t. The files get bigger, the programs get bigger. And the traffic, as more and more people are moving bigger and bigger files over Internet, it doesn’t work.
Here’s the fundamental issue. We are trying to run the Internet on networks that were built for TV and phones. And with the room leftover on those networks that aren’t being used for telephones and delivery of TV shows, we’re trying to squeeze the Internet in there. What if we totally changed the way of looking at it and we built one huge pipe, and TV and phones would become applications within that big new pipe way. We need the bigger pipe way — our businesses need it, our people need it. It’s where the world is going.
McGinn: The kids are moving to Kansas City right now because they want to get that fiber. I don’t want to say anything bad about Kansas City, but we want the kids to come here. We want the entrepreneurs who want that high speed to come here. It’s not just the download, but it’s the upload as well. We’re limiting our economic activity and our success when we … and one can’t even imagine. I mean, the analogy I use, and it may not be the best analogy, is when mobile phones were starting, they thought it was going to be for rich people who needed a phone in their car. It turns out to be ubiquitous device that we use in ways nobody could imagine.
So how will we use gigabit upload and download speeds? I don’t think we even know how we’ll use it until we have that speed, much like none of us knew we’d be carrying around a mobile computer which has really changed so much of how we live our lives and do business. We don’t know until we do it.
GW: Smartphones have changed how we recorded this interview.
McGinn: It’s everything. So many things that we do, it changed how we record our lives, there’s the picture taking, and the videos, and how we keep track of our calendar — it’s just changed so many different things about how we engage with each other. In fact, it’s one of the reasons people don’t want to drive as much — they don’t want to put the phone down. They’d like to live in the city so they can be connected. What will it mean to be connected to gigabit upload and download speeds instead of having sketchy Skype? I mean, Skype’s a great service, I’m not being negative, but imagine if you had that type of extraordinary real-time connectivity to your doctor. Or if your doctor could send your MRI file to the expert across country and have immediate conversation with that person to look at it. There’s applications we can’t imagine yet if we had that type of speed. And Seattle should lead.