There is a way for Seattle’s residents to give themselves gigabit Internet service for $45/month. But as with most things in the world of telecom, there’s also a catch. The approach would require voters to approve a major new property tax.
This is one of the ideas studied in a new report on the prospects for a city-owned Internet service in Seattle. It isn’t yet clear if people in Seattle would want such a levy. But the underlying economics illustrate both the challenges and benefits of creating a municipal broadband service.
The vision is to deliver gigabit-speed Internet to businesses and homes across the city, creating a public broadband utility to compete with the likes of Comcast and CenturyLink. Seattle’s municipal broadband network would be the largest in the country, and it wouldn’t come cheap — requiring $480 million to $665 million to build, according to the consultant’s report.
Affordable, strong Internet access is a key issue not just for residents but also for the region’s business community. Tech leaders say it’s critical for the region to keep pace on this issue to maintain and build on its status as a national tech hub.
Seattle’s top technology and budget officials say the city can’t bear the cost on its own, if funding for the project comes purely from subscriber fees. But they acknowledge that the city would have a better chance of bankrolling the build-out by adding a property tax to the mix.
A property tax would have several advantages. First, under the financial models used by consultant Columbia Telecommunications Corp., the monthly fee for subscribing to Seattle’s municipal Internet service would drop to $45/month if a property tax were used to subsidize the cost, rather than the $75/month envisioned otherwise.
This, in turn, would make it tougher for Comcast, CenturyLink or any other commercial provider to engage in a price war with the city.
A price war might be good for consumers, but it would be one of the biggest risks to the city if the project were funded purely by subscriber fees, without a property tax. Under that scenario, 43 percent of the city’s households would need to subscribe to the city’s Internet service to fund the project.
That’s a very high bar — well above the 33 percent participation rate achieved by Chattanooga, Tenn.’s successful municipal broadband network.
Closer to home, the financial struggles and subscriber losses at Tacoma, Wash.’s Click public Internet service also demonstrate the risks of municipal broadband. In Seattle, a similar scenario would mean potential cuts for basic city services like parks and police, because the city would need to draw from its General Fund to make up the difference.
That was the warning from Ben Noble, the city’s budget director, in a memo sizing up the consultant’s report.
A property tax, on the other hand, “would indeed limit risks to the General Fund since some or all of the capital costs would be paid from the levy and not from operating revenue,” Noble wrote. It wouldn’t be without risk, he cautioned, but it’s “possible that this approach could help provide the resources needed to leverage other public funding or private capital, in pursuit of a more robust broadband network.”
Would Seattle support a broadband levy?
Reading the comments on the recent Comcast outage (and other stories), you might think that people would gladly raise their taxes to get away from incumbent Internet services.
But property owners in Seattle are already paying a long list of taxes, for everything from parks to education — and that’s before Seattle Mayor Ed Murray’s $900 million transportation levy hits the ballot. The tax from the transportation levy would cost the median Seattle household $275/year, for nine years.
The broadband project would be about half the cost of the transportation initiative. Municipal broadband advocates would be able to point to the potential savings in subscription fees as reason for voters to approve a broadband tax. Still, it would be one more levy in a city growing weary of them.
Do Seattle residents want a municipal broadband network? Here are the responses from the consultant’s survey, when people were asked what the city’s role should be in broadband access.
Forty-three percent of respondents said they want the city to offer broadband services to the public, 22 percent want the city to build a municipal broadband network and lease it to private companies, and 13 percent want the city to “encourage a private firm to build a private network.”
Seattle’s path forward is unclear. Noble and Michael Mattmiller, the city’s chief technology officer, point to the possibility of landing state or federal funding, or striking a public-private partnership.
But those scenarios are full of uncertainties and risks of their own, as Seattle learned through the Gigabit Squared debacle. After entering into a partnership with the city, the Cincinnati company failed to raise enough money to implement a promised high-speed Internet network in 14 Seattle neighborhoods. After planning to pursue a multi-million-dollar project together, the city ended up suing Gigabit Squared over an unpaid $52,250 bill.
In an interview last week about the consultant’s report, Matmiller also cautioned that there would be no guarantee of success with the scenario of a $45/month rate subsidized by property taxes.
“We still want a model that puts less risk to the system,” he said. “Even though it’s a cheaper monthly amount, if Comcast or a competitor comes in and uses their pricing power to match it and takes away the consumer argument to switch over, then we are stuck in same boat where now you’re paying a property tax and we have to shut down the system.”
CenturyLink’s Gigabit Rollout
In the short term, Seattle CTO Mattmiller cites CenturyLink’s rollout of gigabit Internet in Seattle as an encouraging sign. In addition, Comcast announced last month that it will offer gigabit service to more than 1 million Washington-based customers starting this summer.
But consumers would clearly benefit from competition.
For example, in the Seattle area, CenturyLink has been advertising its new gigabit Internet service at a promotional rate of $79.95/month. At first glance, that’s not far off the $70/month that Google Fiber charges in its initial markets, and it essentially matches the $80/month charged for gigabit speeds by Condo Internet, which is part of Wave Broadband.
The catch: CenturyLink’s rate requires a multi-year contract that bundles broadband service with a $45/month phone plan. That means you actually need to spend $125/month with CenturyLink, not including taxes and fees, to get the $79.95/month promotional rate for gigabit Internet.
This can vary by geography, but based on our research, to get gigabit Internet from CenturyLink — not bundled with anything else — the price is currently $110/month in Seattle under a one-year contract, not including taxes and fees, and hoops to jump through. For example, to get that rate, you have to opt for paperless billing and autopay. There’s also an installation fee and a monthly modem rental fee, if you don’t buy your own.
Without a contract, the price for gigabit Internet from CenturyLink would be $154/month.
CenturyLink’s fine print wasn’t a surprise to Andre Vrignaud, a Seattle resident and veteran of the video-game industry who made headlines in 2011 when he was banned from Comcast for unknowingly exceeding a data cap. He’s become an advocate of broadband users’ rights, and when he saw the CenturyLink offer for $79.95/month gigabit Internet, he was naturally motivated to dig into the details.
“CenturyLink is offering choice, not competition,” Vrignaud said. The city “needs to stop pointing at CenturyLink’s fiber offering as a win.”
In a statement about the broadband feasibility report, CenturyLink said, “We share the City of Seattle’s commitment to providing the fastest internet speeds to populations at all income levels. We believe it is the right thing to do for the community and also makes good business sense.”
The company noted that it’s “on track to reach 100,000 households by year’s end” in the city.
In fact, Vrignaud himself recently signed up for CenturyLink gigabit service — after making sure it didn’t have usage caps. He recently took a new job as Games Platform Strategist for Mozilla, and he opted for the CenturyLink service in hopes of avoiding the problems that he has experienced trying to conduct video conferences on a Comcast connection.
“I had to shift to this ‘choice’ in the hopes of reliability,” Vrignaud said. “But I really wish I had competitive pricing choices.”
Christopher Mitchell, director of community broadband networks for the Institute for Local Self-Reliance in Minneapolis, Minn., agreed that the further rollout of gigabit service from CenturyLink and Comcast isn’t the solution to the problem.
“There are places in Seattle where people will have a choice between terrible customer service from Comcast and terrible customer service from CenturyLink,” Mitchell said. “That is progress, but it’s not the progress we want.”
Seattle Mayor Ed Murray has been outspoken on this issue, declaring last year that Seattle “must be a national leader in identifying innovative ways to make high speed internet available and affordable to anyone who wants it.”
Mitchell advocates a more incremental buildout of a municpal broadband network. “It’s definitely reasonable,” he said. “One impression I’ve gotten from Michael Mattmiller and the mayor is that they’re very serious about figuring out a way to do it — they’re just concerned about the level or risk from trying to build it all at once.”
“It’s just crucial that the city of Seattle not be disheartened,” he said.
A middle ground?
Bill Schrier, a state official who was previously Seattle’s chief technology officer, has been studying this issue for years, including a previous report on broadband feasibility in the city by a special task force a decade ago.
That report set a goal for 2015: “Within a decade, all of Seattle will have affordable access to an interactive, open, broadband network capable of supporting applications and services using integrated layers of voice, video and data, with sufficient capacity to meet the ongoing information, communications and entertainment needs of the city’s citizens, businesses, institutions and municipal government.”
The report concluded that “market forces, left alone, probably will not provide the broadband networks and services Seattle needs.”
Schrier said on this weekend’s GeekWire radio show that broadband service in Seattle, a decade later, is getting to the level of coverage envisioned by the study, through the efforts of private companies, but price competition is another issue.
He said he doesn’t believe a large-scale municipal broadband network would be feasible in a city the size of Seattle, because of competition from incumbents. The legendary “Seattle process” also makes partnering with a fast-moving company like Google unreasonable, he says.
However, he pointed out that city residents have been willing to pass levies for universal preschool, fire stations and more. In the same spirit, he could envision the city passing a “Seattle Technology Opportunity Levy,” funded by sales tax or property tax.
This would not be a full municipal broadband network. Instead, the idea would be to declare Internet access a basic human right for the city’s residents, and use the funds to put Internet access in every subsidized housing unit, put tablets and smartphones in the hands of every student, and help kids learn to code, for example.
“There’s a ton of things we can do in Seattle with funding to bridge the digital divide, get to digital equity, and actually make universal broadband a reality,” Schrier said.
One advantage of this approach is that the city would work with the incumbent providers, subsidizing the build-out of the network to homes and businesses in low-income neighborhoods. “There’s great advantage to actually partnering with the providers rather than legally opposing them,” Schrier said.
‘Ready to go the distance’
Upgrade Seattle, a group advocating for municipal broadband in the city, says it’s still optimistic about finding a solution after the release of the consultant’s report.
“The study is a clear-eyed view of the benefits and risks that accompany municipal broadband in Seattle,” wrote Sabrina Roach and other leaders of the group in response to GeekWire’s questions. “Armed with all of this fantastic new analysis and knowledge, we can work with our communities and our local government to craft a solution that works for us. We are thankful for the Mayor for funding this study.”
The Upgrade Seattle leaders say, “The study recommends a number of ways forward, all of which we think should be done: pilot projects, seeking federal or state funding, putting the property tax option out for a vote. We also think this will kickstart a conversation about other, creative ways of getting a city-owned and operated network implemented (fiber utility district).”
“The Mayor’s Office and the Department of Information Technology have indicated hesitancy based on this study,” they acknowledge. “But it’s up to the City Council to put forth a bill and the people to vote on it, and they’re still eager to create a public broadband utility. There’s a lot of work ahead of us, but we’re ready to go the distance.”
Andre Vrignaud, the game industry veteran who recently signed up for CenturyLink gigabit service, also would like to see the city push forward more aggressively.
“It really feels like the city and mayor are ducking the issue and not wanting to actually solve the problem,” he said.
“The very least the mayor could do is put out a number that felt ‘right’ to spend from the general fund, and then ask for a vote on the remaining portion to be funded through property taxes. That’s the key — don’t just hide your head in the sand. Try to split the difference and ask what the citizens want.”