New England Ratepayers Association

Advocacy for Ratepayers Across New England

Muni Fiber Proposal a Bad Bet for Westerly

Westerly’s Town Council is currently considering whether or not to enter into a contract with SiFi Networks of London to build a $30 million fiber-optic network. SiFi is proposing to build the network and the town would lease-purchase it from the company at an annual cost of $1 million to $2.5 million over 30 years.  SiFi has promised that a third-party Internet Service Provider (ISP) will sell broadband packages on the new network, sharing revenue with Westerly to cover the town’s lease cost. SiFi has “guaranteed” it. That guarantee is only backed by the word of the company – a company that hasn’t actually built a single mile of fiber anywhere in the United States. The town can supposedly back out of the contract at any time – but SiFi would then retain ownership of the network, and would be free to utilize it as they see fit without town involvement.

Steve Blum, a broadband consultant hired to study SiFi’s contract in another community, recently told the Westerly Sun that, “[The town] should assume it will have to be subsidized by some other source, whether it’s a tax or a utility fee…They will not make enough money from operation of the system.” Even a cursory look at the numbers should raise a red flag. Using SIFI’s assumption of 36 percent penetration, the average monthly household bill would have to exceed $200 per month for the town’s revenue to cover the $1.5 million annual lease commitment.

Additionally, the Westerly Sun reported that SiFi has entered into “exclusive negotiating contracts” with at least three communities in the United States, though none have progressed beyond the discussion phase. Most recently, Pacific Grove, California halted negotiations with SiFi after the company was unable to deliver on any of its promises.

Well before the network is actually built in Westerly, the town must enter into an “exclusive negotiating contract” with SiFi. This is described as being an exploratory period for the company. However, if the town decides not to proceed during or just after this timeframe, it will have to pay a $100,000 fee to SiFi. It would be far too easy for SiFi to set unreasonable requirements and just pocket the fee when the town balks. This has been the pattern in other locations, when it became clear there would be a cost to local government.

Westerly taxpayers have much to risk and little to gain under the proposal from SiFi. Internet service providers in town can already provide businesses with more than 10Gbps – the promised speed from SiFi. They can already provide residences with speeds of 500Mbps. They do all this via networks they own and manage, with local Rhode Island employees. Broadband providers like Cox and Verizon have laid thousands of network miles throughout the state at a cost of hundreds of millions in private capital. They continue to invest in and improve those networks as Internet connectivity becomes more and more important to business and personal success. Most importantly though, they do this in a manner that ensures their long term viability and continued service to their customers. This also ensures taxpayers or ratepayers do not foot the bill if their systems are no longer financially viable.

There are too many examples of communities building municipal broadband networks that have collapsed financially, pushing huge fees onto local ratepayers and taxpayers. Ironically, the SiFi proposal highlights the Utopia project in Utah as a selling point, but they neglect to point out that those communities are burdened with hundreds of millions in debt the network cannot repay.

There are far too many financial risks for Westerly to undertake this project. How can a company that has never laid a mile of fiber borrow tens of millions of dollars to build the system? Will the town be required to guarantee the debt and bear that risk? Has anyone done the math to understand the monthly subscriber fees required to cover the town lease payment?

There is no such thing as a free lunch and municipal broadband is no exception. A $30 million network must be paid for, and time and again these projects have failed. The Westerly Town Council should exercise its fiscal responsibility and reject this proposal.

Marc Brown is the Executive Director of the New England Ratepayers Association, a nonprofit dedicated to protecting ratepayers.

(A version of this column originally appeared in the The Westerly Sun.)

Updated: November 29, 2016 — 9:37 am

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