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Plan goes to council

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Broadband > Voters may have to approve financing for $47M fiber optics infrastructure

By Arin McKenna

Nearly two years after its inception, the Community Broadband Network project is nearing the finish line.
Soon the Los Alamos County Council and residents will be faced with the question of whether the county should invest in a fiber-to-the-premises network to every structure in the county.

Project Manager Estevan Gonzales presented a project overview and business plan proposal at public meetings for residents and the business community on Wednesday. Council hears an update on the project during its March 12 work session (7 p.m., White Rock Fire Station No. 3).

In April of 2011, council directed staff to develop an engineering design and a business plan for CBN that would provide open and advanced broadband communications access to all Los Alamos citizens and institutions, with a minimum target speed of a gigabit per second.

The business plan calls for an “open access” model in which the county would serve as the wholesale network operator, with retail service providers purchasing wholesale network services. Any qualifying service provider would have equal and fair access to CBN services.

Building the 1Gbps fiber optic network to every home and business in Los Alamos would cost approximately $47.2 million. Consultants also recommend an “equipment refresh” within seven to nine years of operation, with an estimated reinvestment of $7.6 million. Average annual operating expenses associated with the day-to-day administration, maintenance, support and marketing of the network are estimated at $2.3 million.

The business plan developed by staff recommends that the initial project cost be financed through a revenue bond issuance that would be repaid over 20 years with a 7/16 Gross Receipts Tax increment. The GRT increment would also help cover operating costs, along with revenues generated by selling wholesale network services to retail providers.

Reinvestment costs would be funded by a shorter term revenue bond package, with debt service covered through accumulated cash flows.

The proposed GRT tax increment could run into opposition. Council did not include a GRT increase in its budget guidance to staff for FY2014. Council has consistently opposed GRT increases on the grounds that Los Alamos National Laboratory — which is already under financial constraints — bears that burden.

However, a market survey shows residents strongly support this financing option. Research conducted by Research and Polling in October 2012 discovered that 51 percent of residents support an increase in GRT to help fund the construction of CBN, while 29 percent were opposed. Residents would have to approve the GRT increase in an election.

Gonzales said that staff has researched other financing options, such as federal grant and loan programs, but has been unable to identify any grant opportunities for which the county would qualify at this time.

The October survey is the most recent effort to determine community interest in broadband service. Staff has not only utilized private sector research firms but has conducted online surveys, in person interviews and a series of public meetings. The information gathered has been cross-referenced with broader national trends.

Based on market research and national trends, staff estimates that the annual “take rate”–the number of premises buying service from providers using the network — would reach a minimum of 30 percent by year five and 40 percent by year seven, with annual revenues estimated at $6 to $7 million.

When asked about what appears to be a relatively low number of subscribers utilizing the network, Gonzales responded,

“The analysis for take rate was intended to be conservative. It’s based on a conservative view of the market research that was conducted.”

Gonzales said the take rate could potentially be higher.

“As a matter of fact, we compared our expected take rate for Los Alamos County nationally. The industry average is 40 percent, but there is research that shows take rates are higher in areas that are underserved, like rural areas. So while the business plan has a certain take rate model built into it, the expectation would be that there would be higher take rates.”

National research suggests that CBN could also have broader economic implications for the county. Communities that have invested in fiber optics infrastructure show an 11 percent increase in home-based businesses and a 67 percent increase in telecommuting. Investing in CBN could bring the county $47 million a year in home based business revenues and add approximately 215 new jobs, based on industry averages, according to officials.

Fiber optics infrastructure also adds an estimated $6,500 to home values and lowers community- operating costs by two percent.

National trends show an increasing demand for higher bandwidths, which can provide users with access to web-based television and high definition movies, “cloud computing” applications for word processing, email, automated remote file backup and other business and personal services. Increased bandwidth also provided enhanced options for distance learning, teleconferencing and even medical applications such as teleconferencing with specialists.

Councilor Pete Sheehey attended one of Wednesday’s sessions and was impressed by what he saw, but has doubts about a GRT increment.

“I think a Community Broadband Network would be a good thing for this town. It would kick this town into the 21st century,” Sheehey said. “But this business plan would require a vote on a big revenue bond, and I think most felt as I did that, that there was no way that would pass.”

Sheehey suggested that charges to service providers utilizing the system should include a share of the infrastructure costs to help repay the bonds.

“I hope we can find a way to make this work,” Sheehey said. “This would enable some serious business development and would be an economic stimulus we sorely need, but we have to find a way to pay for it.”

As the project moves into the home stretch, additional public input is being solicited through April 5 on the county’s Open Forum, which can be accessed on the county’s homepage. Residents can also call 663-1998 or email CBNProjectManager@lacnm.us.