Building municipial fiber

There are a number of different ways one can pay for building the infrastructure that we care about. The most well known model is the Municipal one. Here you have your water and sewer delivered to you at some point (usually when your home is built) and you pay utilization fees for access.

I’ve started to look at applying the same model to building fiber to every home in Washtenaw County. Let me start with my basic premises, so you have a reference of how I’m thinking before I am destroyed in any comments.

1) There are 1647 miles of roads in the county. These do not include private roads. Most private roads are shorter, or part of a HOA (home owners association), and the cost of building to access such a network should be borne by the property owner. This distance is rarely very far, and if a large project were undertaken, these homes would likely see a significant discount as a result of existing labor and planning.

2) There are 111,536 residental homes in the “2009 WASHTENAW COUNTY PARCEL COUNT”. There are also commercial, farm and other “personal” properties that I also included in the counts. Using these brings us up to 125,455 and 139,363 total. These are important, because utility properties count in that final “Personal” property number.

3) Estimated build costs per mile. This is sometimes more complicated than it seems, as there are two primary methods of building. One is Aerial (pole-mounted) and the other involves putting conduit in the ground (direct-burial/ducted fiber). These costs range from ~$26k-95k/mile. It’s possible that costs could be higher in city centers as well, but since the majority of the county roads are local (1059 miles), I’m going to use an average cost of $60,198.14/mile. These are based on budgetary-quotes received in December 2009.

4) The fiber has a lifetime of 15 years. We should pay off the fiber over those 15 years. Figuring an interest rate of 6% seems reasonable, and a bond would pay out either annually or quarterly. I used annual for this analysis. Your figures may vary.

Now that the background information is disclosed, there’s a few important things to consider.

If you finance with public funds, there should be a public value, and non-discriminatory access given to the infrastructure. That means as much as you may hate your local incumbent Cable, Phone, or Internet provider, they will have equal access to the assets as any other business. (Unless you are funding this with your lotto proceeds, then you can do what you want with it).

This brings us to the important calculations, the actual “large” numbers.

The (average) annual tax for each property owner (including personal property) is… $73. NPR listeners will know this is less than a dollar a day! This number also comes off your Federal taxes, meaning your money stays local. Of course, the real values are higher. Over 15 years, my county would pay roughly $153.1 million dollars back to bondholders on the $99.1 million cost.

Now lets talk about the inclusion of those “real” property numbers for utilities and other business property. They have some value in utilizing data based networks to collect information about their businesses. If DTE wants to remotely monitor gas and electric meters, there is now a network upon to build. Their cost of business likely would go down, and lower electric rates would be possible as a result. Anyone that has experienced a brownout during the summer knows that electricity usage is higher during the day and early evening, the ability to monitor usage allows these outages to be minimized. Users could even opt-in for lower rates to be interrupted first. Your rates likely will not go down, but the increase may not be as high as other areas. Never again would you see that “Estimated” reading and get the shocker bill months later.

But business use is just a small component of why I’m thinking about this. It’s really about solving the last-mile issue. There was one attempt dubbed “Wireless Washtenaw” that attempted to bring internet access to all county residents. While a noble cause, it’s so far been a failure in bridging the gap. There are large swaths of even well-populated Scio Township, Lodi Township and even Manchester that have limited or no access except expensive satellite and cellular options. Both are slow and come with severe limits on usage.

Building a fiber network would make it possible to bridge these gaps where radio and last-century telephony systems can not keep up. There is a potential to increase property values through having high-speed access available throughout. The ability to start a home-based business with connections that rival those businesses have in major metropolitan areas, make distance-learning and access to the community at large are promising and worth exploring.

Even at the high-end of the model, this would be $145.13/year in increased taxes. While some people will balk at any increase in taxes, ignoring our basic communication infrastructure will reduce property values, the ability to compete in the global marketplace and allow the region to continue its slow slide.

My basic data is located here as a PDF file. The same model could clearly be applied to a cooperative as well, which is where the research started. The costs are not high, and the return is a first-class information society for all residents, schools and businesses.

EDIT 1: Reference data for Washtenaw county is here. A calculated millage rate to fund the $10.2Million would be 0.58235 for 15 years.

EDIT 2: A study from 2004 presented at the ITU by Charter talks about the costs of maintaining OSP (outside plant) for a fiber network vs coax. The cost per installed mile to operate is $85.11. The annual operations cost (emergency splicing, etc) is estimated to be 140,176.17. Service fees for right-to-use should incorporate this cost.

14 Responses to “Building municipial fiber”

  1. Interesting analysis.

    Can you rephrase the costs in terms of a millage rate, rather than a $/household? E.g. if you look at the total assessed property value, what kind of annual millage would you have to pay to service the debt from the build out, and what annual millage would you need to pay operating expenses? I’d assume you’d pay for this through property taxes.

    The catch is when you have lots of miles of public road but not much in the way of real estate values; that generates a situation where the cost for a township like Webster or Freedom or Augusta looks high.

  2. admin says:

    The http://www.ewashtenaw.org/government/departments/equalization/2009EQLREPORT.PDF report shows (page12a/pdf page 27) total values of $17.5B for 2009. The thought on operation costs is these would be paid by the users of the infrastructure. (They would pay some monthly/quarterly/annual fee for the right-to-use a segment, this would cover emergency repair, etc.. costs).

    Taking the $17.5B of property values, to generate the annual Principal+Interest payments of $10.2 Million (average cost) resemble a millage rate of 0.58235 if I do my math correctly.

  3. Jim Rees says:

    That’s just to pull the fiber. You still need to connect up each house. And you need some switching gear, which has a much shorter useful life than the fiber. It would be interesting to see numbers from an already installed network. Surely someone has done this before, if not in the US then abroad. I think much of east Asia is wired up this way.

  4. Dave says:

    Any numbers on what you think your market penetration will be when end users find out what the installation costs will be to get service from the street to the home?
    How about when the current incumbents are willing to take a loss on the services that they provide over their existing infrastructure? You should also budget some legal expenses into the initial start-up calculations.

  5. Jared Mauch says:

    RE #3 – This is just the building block for another network. To light the network, requires an investment of $500 to run up to 20Km on single-strand DWDM SFPs at 1Gb/s. This was in volume of 48 units, if you were talking volume or 25k I expect the pricing would get better.

    RE #4 – I estimate installation costs would run about $1k total, $500 for the equipment to light the fiber (this covers both ends), and another $500 to cover splicing and termination/extension of fiber via Aerial run to the building. The termination part is a SWAG so I’m ready to eat my words on that, but I included installer labor and a short above-ground run in my estimate. Any underground work would require the property owner to dig a trench/conduit. I propose these savings should directly come off the installation cost. A local lowes/home depot will see a run on their Schedule 40/80 1-2″ PVC conduit for underground use.

  6. Joe Hood says:

    Perhaps this project could somehow be piggybacked on undergrounding of electrical wires (pipe dream but a subject that appears every once in a while and likely Ann Arbor centric).

  7. Jared – any continuing ideas on plausibility of this? Buildout costs would be a lot less if you did this on top of something else that already was opening up the easement.

  8. Jared Mauch says:

    I continue to think this is plausible, the question is would people be willing to pay $1k to get commercial service.

  9. Zak Rimler says:

    Can you provide the source where you obtained budgetary build costs per mile under bullet 3 above?

  10. Jared Mauch says:

    I continue to have thoughts on this. If people would agree to a $1k install fee, it becomes quite feasible.

    Perhaps a lunch or phone call sometime to discuss some of my ongoing thoughts on this. There’s a lot that can be done here with ‘hybrid’ solutions, the question becomes “is there a will” for people to pay/fund the startup capex.

  11. Jared Mauch says:

    re #10

    Quotes were obtained from turnkey and fiberlink.

  12. Baylink says:

    One very important thing I think you might have missed here is that there’s an inherent increase in property values which comes from having them hooked to such a network, and some of that increase inheres to the *community*, both directly and indirectly in terms of things like lower vacancy rates, higher possible rents for landowners, and that sort of thing.

    So it’s not by any means necessary to recover *all* of the cost from the First End User — over time they won’t be the only one.

    And only 15 years? For glass-in-ground? I’m not sure that’s reasonable either; is that *really* what people are getting out of, for example, the fiber part of HFC CATV developments?

    (If you’ve already answered these points, my apologies; I’ll go read the package now. :-)

  13. Baylink says:

    Ah, I see I *have* already weighed in on this topic. Couldn’t remember if that was you or not…

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