Broadband Cooperative for Washtenaw County Area

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1 Broadband Cooperative for Washtenaw County Area Briefing Document By Ben Fineman and Community Members September 2014

2 Goal Introduction Develop a framework that will support the delivery of uncapped broadband internet service to every home in Washtenaw County by 2020, and fiber optic cables for the purpose of high speed broadband delivery to every home in Washtenaw County by Broadband is no longer a luxury in our society. Robust internet connectivity has become essential for information access and communication, not only where we work and learn, but also where we live. Access to broadband is not just about access to entertainment services on the contrary, it has become the primary way we communicate with family and friends, consume and participate in educational resources, access medical and government services, and engage in commerce. Many residents of the Washtenaw County area are severely limited in these aspects of life due to a lack of adequate broadband service. Many residents in Washtenaw County are unserved or underserved by broadband. In a recent survey of Washtenaw County residents 1, 9% of responding residents indicated they had no access to broadband at all. Of the residents with broadband access, 48% indicated that their current service was inadequate to meet their needs. Finally, 92% of responding residents indicated they would like to see more choices for broadband access. There is a clear desire in our community to improve broadband access. Robust broadband benefits not only residents, but also communities as a whole. Population growth and retention is increased when residents are able to work, pursue educational programs, and access medical care from home. Property values and tax bases increase as a direct result real estate experts say that broadband- connected properties can be worth 20% more than their unconnected counterparts 2. Business and commerce also improves robust broadband has been shown to both enhance existing businesses as well as attract new businesses to empty storefronts 3. Community anchor institutions such as schools, local government, libraries, museums, public safely, and medical facilities find broadband is now essential to accomplishing their missions. These are clear benefits for our community in ensuring access to robust broadband. 1 Data from survey by Connect Michigan, released spring broadband- vital- to- homebuyers 3 sheet- econ- dev.pdf September 2014 Page 2 Washtenaw Broadband Cooperative

3 Causes: Natural Duopoly of Infrastructure A main cause of inadequate broadband service in the Washtenaw County area is the expense of running communication lines. Traditional cable and DSL providers have little motivation to expand their footprints into unserved rural areas due to the lower population densities, which cause slower returns on investment compared with other opportunities. Furthermore, these same providers have little motivation to upgrade their existing copper- based communications lines to modern fiber optics for current customers due to a lack of competition. It is prohibitively expensive for a new service provider to run communications lines to compete with incumbent carriers, creating a natural duopoloy of cable television providers and telephone providers. Neither copper communication lines nor wireless transmission can scale to the bandwidth needs of our community. Current data from Connect Michigan indicates that Washtenaw area residents using these technologies are getting average broadband speeds of 7.1 Mbps. This is much less than the national average of Mbps, which in turn is among the lowest internationally for developed countries, ranking 25 th in the world 4. A 2010 report by the U.S. Small Business Administration stated that Distance learning and telecommuting requires speeds of at least 25 Mbps for a single user to have an OK experience, and 50Mbps for a Good experience. In addition, Nielsen s Law of Bandwidth tells us that users bandwidth needs grow by about 50% per year. If this trend holds true as it has for the past 30 years, by the year 2020 (six years from now) a single user will require 1.5 Gbps for an OK experience, and nearly 3 Gbps for a Good experience. We cannot meet these needs on aging copper cables or with wireless transmission: fiber optic cables are the only current transmission medium that can scale to these speeds. Solution: Open Access Network To solve this problem, it is necessary to remove its source: the natural monopoly stemming from private ownership of communication lines. When these lines are community owned and controlled, many broadband providers can then use them to provide service on equal footing. This is called an open access network and has been successfully implemented in other parts of the country. Under this model, a publicly controlled entity owns the rights to the communications infrastructure. This proposal suggests that a non- profit cooperative may be an ideal structure for such an entity in the Washtenaw area. A non- profit cooperative has two main advantages. First, the non- profit model ensures that this entity can focus on the mission of delivering high- capacity broadband infrastructure to Washtenaw area residents. Second, the cooperative model provides a non- governmental vehicle for democratic member control as 4 September 2014 Page 3 Washtenaw Broadband Cooperative

4 well as collaboration with local government entities. We propose that this entity incorporate as a 501(c)(3) and operate under the Rochdale Principles of cooperative ideals. Members of the cooperative could include Washtenaw area residents, townships, municipalities, Washtenaw County, and service providers. Hybrid Architecture Clearly, running fiber optic cables to every home in the Washtenaw area is a very large undertaking that will take many years and significant funding. This proposal asserts that the final goal of fiber to every home should be viewed as a 20- year goal. In the near term, we must have a solution for those residents with no viable broadband connectivity at all. The proposed solution is a hybrid approach that combines wireless transmission with fiber optics. For communities without sufficient population density to make fiber viable in the near term, the cooperative will build new or secure access to existing communications towers. It will then run fiber to the towers for backhaul, which will also provide the foundation for fiber networks in these communities. Over time as funding becomes available, it can then expand the fiber footprint to individual homes. Funding Models Running new communications cables of any kind is an expensive proposition, and fiber is not exception. Per household costs for a new fiber network can be estimated at $4,000, or up to twice that for areas of lower population density. Despite the expense, it is important to note that fiber cables are long- term assets that can be used for decades. Fiber- connected homes have also been shown to increase significantly in property value. Over time, such a proposed project will almost certainly attain sufficient revenue to pay for startup costs and become self- sustaining: the challenge is funding the initial capital investments. There are a number of methods available for funding such a significant endeavor: Grants will be a main target for funding. Government agencies such as the USDA (United State Department of Agriculture) and the NTIA (National Telecommunications and Information Administration) offer grants specifically for broadband development. Crowdsourcing. The cooperative model enables individual residents to commit to participation in the network. When sufficient commitment for a given neighborhood is reached, the cooperative can deploy infrastructure there. Revenue bonds or internal loans. Local governments and municipalities can participate without levying new taxes by using these funding mechanisms. These entities would receive payment for the assets they fund such that these investments would be paid back over time. Revenue from providing services. The open access network model encourages service delivery by private ISPs, but does not preclude direct service delivery by the cooperative or municipalities. September 2014 Page 4 Washtenaw Broadband Cooperative

5 Challenges Despite the strong community interest around such a project, there will be significant challenges beyond the basic issue of funding. First, Michigan has legislation in place to inhibit the ability of communities to provide broadband service to their residents. A thorough legal review will be required before moving forward to ensure compliance with existing law. Using a non- governmental entity as the vehicle combined with the open access model may help avoid these issues, but legal consultation will be necessary to fully understand the capacity in which local governments can participate. Second, incumbent carriers are understandably sensitive to disruption of their natural monopolies. They will send representatives to community meetings to speak out against such a proposal, and if this proposal is implemented they will spend both marketing and lobbying resources to disrupt it. It is important to note that this proposal is in no way intended to compete with incumbent providers, but rather provide the fastest route to broadband for all citizens through creation of a level playing field. Finally, there will be the basic challenge of community buy- in helping both residents and local governments understand the benefits of participation in the cooperative. Next Steps A steering committee needs to be formed to begin in- depth analysis of the issues surrounding formation of this cooperative. It is likely that funding will be needed for a formal feasibility study. Interested parties should ben@benfineman.com for inclusion in the steering committee. Conclusion With 92% of area residents wanting more choice in broadband providers, it is clear there it a need to improve our broadband situation. The natural duopoloy of cable and telephone providers makes it very difficult for any new for- profit broadband competition. The non- profit cooperative model provides a neutral vehicle for broad community participation. The open access network model provides a level playing field on which many commercial providers can participate. The long- term goal of fiber to every home with the near- term hybrid fiber/wireless solution provides a viable path forward. Varied funding models provide mechanisms to fund the deployment without levying additional taxes. Despite many challenges, together as a community we can succeed our ability to effectively communicate and access information depends upon it. September 2014 Page 5 Washtenaw Broadband Cooperative

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