|Seattle Fibernet Won't Bankrupt Qwest|
|Written by Dave Burstein|
|Wednesday, 11 November 2009 10:56|
New Seattle Mayor Mike McGinn wants fiber to every home,. He's ready to "direct Seattle City Light to build a citywide fiber optic network connecting every home and business in the city." 600,000 in Seattle and three million in the metropolitan area are among Qwest's richest customers. Because they only are wireline in a world going wireless, everyone - including the FCC chair - is concerned.
My Wall Street friends are near unanimous that Qwest is secure financially at least until some debt maturities in 2012, and probably beyond that. They are already losing a remarkable 12% of homes each year. Everyone, including the FCC chairman, is worried about Qwest going broke, because they don't have a wireless network when the world is going wireless. (We're all wondering if British Telecom, CenturyLink, and Frontier will go the way of FairPoint & Hawaiian Tel.)
There's no question that Seattle City Light - a government agency - has the skill to run a fiber network. SCL generates most of their own electricity and has the lowest electric rates of any major U.S. city. Seattle has AA and AAA credit ratings. There's no shortage of engineering talent locally, from Microsoft to Boeing.
When I ran the numbers, however, I discovered that Seattle is unlikely to be the straw that breaks the camel's back. Even a rapid build by Seattle is unlikely to take more than 20,000-35,000 customers/year. It's taken 4-7 years for Verizon to win 25% and 35% of the market for FiOS. Similar takeup by City Light's 345,000 homes would be 100,000 homes over 4-5 years. Qwest has much deeper issues, starting with the loss of a million customers in the last 16 months.
Standard and Poor's bond ratings find Qwest "faces major ongoing uncertainties to adverse business, financial and economic conditions." Qwest was for several years on the edge of bankruptcy, according to then-CFO Oren Schaffer. Schaffer did an extraordinary job re-financing debt, and Qwest now is OK until at least 2012 and probably beyond.
Five years ago, I asked Qwest CTO Balin Nair "Would Qwest build fiber if a city thought it important?" He dodged the question. Qwest's spokesman this week tells me, "We'll talk with the city, but fiber home isn't in our plans." Qwest needs to do better than that, perhaps finding a way to give Seattle a fiber network with city finance and Qwest management. CTO Pieter Poll is respected by his peers and can build a network to whatever standard the city chooses. Paul Reynolds of BT, facing financial issues similar to Qwest, went actively looking for such a "public-private partnership.:
Qwest is already looking for a bailout from the USF fund, although with USF rates going to 14.9% already it's hard to justify spending even more. CEO Ed Mueller has frozen his own salary, cut pensions, and is firing thousands more. Qwest has been mortaging their future for most of the decade, so that in most of their territory their network can't compete with cable. Capital spending has typically been 20-30% less than depreciation, including a remarkable 40% less than depreciation in 2006. In 2008, the "disinvestment gap" was close to $600M - about the amount they spent on dividends.
Thanks to a friend at the FCC for pointing me to a story I might have missed.From McGinn's campaign website
Five years ago, the City of Seattle completed a plan to build a publicly owned fiber optic network. But due to a lack of vision and political will, the current administration has left the plan to sit on the shelf gathering dust.
Private Internet providers have not gotten the job done: in this technology-driven era, nearly a majority of Seattle households still do not have access to high-speed Internet, do not have Internet service at all, or experience poor service. But this is not a mere economic need. In this time of severe wind and snow storms, at this time when citizens are being ignored by their government, we need municipal Internet as a way for city government to communicate better with its citizens.
A Better Deal for Consumers
At a time when Seattle households are feeling their budgets pinched, the city’s private broadband providers charge as much as $60/month for technology that is 10 years old. Soon, that could look like a bargain: cable companies elsewhere in the country are already charging $139/month for high-speed, 50 Mbs next-generation service. We can do better.
A citywide fiber optic network will be paid for in five to seven years, after which service could be provided to residential users at a substantially cheaper price than commercial providers currently offer.
Boosting the Economy and Creating Jobs
Thousands of new jobs in Seattle have been created in the knowledge-based industries: software development, biotechnology, and aerospace. These industries chose the Puget Sound region because we’ve cultivated one of the most educated and creative populations in the country.
A citywide broadband network will attract the industries of tomorrow. It will spur immediate job creation, lower overhead and startup costs for small businesses, and give current employers another reason to remain in Seattle. Companies will have greater incentive to allow telecommuting, potentially easing traffic congestions in the city.
Social Justice and Equality: Internet for All
Broadband is more than just an economic development tool. It is an essential component of the modern education system. Lack of broadband access puts children from low-income families at a disadvantage in modern classrooms, where teachers increasingly expect students to access the Internet in order to complete homework assignments.
Yet in Seattle, 41% of Seattle households do not have access to high-speed Internet, and 27% have no Internet access at all. Internet literacy is an essential skill set in today’s economy, and not providing our children with access is like not teaching them to read. And not just children are affected: Seattle Public Libraries only offer 90 minutes per day of Internet per customer, making it difficult for adults to apply for jobs, putting low-income residents at a significant disadvantage.
We Cannot Afford to Fall Behind
Previous generations of Seattleites had the courage to make legacy investments that continue to pay dividends today. Seattle City Light, the Metro bus system, and our municipally owned water system are now national models that have proven their worth time and time again.
High-speed Internet represents the next wave of infrastructure investment for our city, one that will foster an environment in which ideas, knowledge, education, and commerce can flourish well into the future. We need to act now.