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TMCNet: Fiber, fiber everywhere, but not on my street

[April 06, 2012]

Fiber, fiber everywhere, but not on my street

CASHMERE, Apr 06, 2012 (The Wenatchee World - McClatchy-Tribune Information Services via COMTEX) -- A Chelan County PUD utility pole strung with fiber-optics cable stands so enticingly close to the back of the Gilyard family's Railroad Avenue business strip that one of them could probably hit it with a rock.

But they can't get a hookup.

The flooring, mini storage, furniture-resale businesses and commercial space inside the family's repurposed row of fruit-packing buildings are, literally, on the wrong side of the Burlington Northern Santa Fe tracks.

"It's very frustrating to have the resources so physically close and to have what amounts to a bureaucrat say, 'No, you can't have it,'" says Budd Gilyard, the family's web maven. "And they haven't communicated as well the options, including self financing." The Gilyards are "30 percenters" -- the "have nots" in a county where 70 percent of residents already have access to PUD fiber.

The group most often includes those who live up canyons or in other remote, sparsely populated or hard-to-serve reaches of the county.

But here in Cashmere and in a few other urban spots around the county, the "haves" and "have nots" converge.

They're hopeful the PUD fiber will one day be a lower cost and better-performing option to their existing satellite or national providers of broadband Internet, telephone and cable TV services.

They may still have to wait a long time.

The PUD halted new network buildout in February 2011 amid fears of inaccurate cost estimates, mounting operational debt and a shake-up that cost two fiber-related managers their jobs.

Fiber's costs last year exceeded revenues by $8 million. PUD officials say this includes about $5 million in interest payments on PUD reserve funds used to build the network. These reserves were loaned with the expectation that the fiber business would repay the loan with interest. It hasn't been able to.

The network, which cost nearly $120 million to build has $99 million in this accumulated, internal debt.

PUD staffers will end months of study and analysis Monday when they make an official set of recommendations to commissioners about how to best turn fiber into a self-sustaining business, one that covers costs, including new build-out.

The "doughnut hole" In Cashmere, only those downtown core homes and businesses west of Division Street and north of the tracks have access to PUD fiber service.

That leaves a segment of as many as 119 other potential fiber customers without PUD fiber in central Cashmere, even though most are very close to downtown.

This area isn't round. It's not even completely surrounded by fiber, but it's come to be called the "doughnut hole." Business here include The Best Bite restaurant, the Gilyards' businesses and Blue Star Growers, a large fruit packer.

Doughnut hole residents include well-heeled local business leaders, a couple of former county commissioners and Rotary Club regulars. Some live in expansive homes on hilltop overlooks. It's not like they don't have other options through national companies. They do.

But with so much luscious PUD fiber strung all around downtown, the inability to hook up can be almost unbearable.

"Fiber customers are a group who are being benefitted at the expense of those who are not," fumed Eric Strutzel, a doughnut-hold resident and Cashmere longtimer, at a recent PUD-hosted community fiber meeting in the town's Riverside Center. "At the end of the day, you have the obligation to treat your customers equitably." His comments earned applause from an audience of more than 60 people.

Gilyard objects to the utility's decision to build fiber to remote, less populated areas like Lake Wenatchee and up Chumstick Canyon, before urbanized areas like Cashmere were served.

Fibernomics A peek at the economics of the Cashmere doughnut hole is like a window into why the utility has taken a second look at fiber county wide.

The area contains 119 electric meters. Some customers may have more than one meter, but generally, that means that as many as 119 potential fiber customers could be served here.

Only about a fifth of the donut hole's 400-acres contains a concentration of businesses and, mostly, homes that are very close to the downtown area. The rest is covered by orchards and only a smattering of buildings.

It's hard to predict how many of these residents would subscribe to fiber if it were available. "Take rates" in Cashmere range from 10 percent to 37 percent, depending on the part of the city served, PUD figures show. The average take rate across all of Cashmere is 26 percent.

Chris Church, the PUD's engineering services director and fiber spokesman, estimates that it would cost the utility a minimum of about $500,000 to serve 26 percent of the doughnut hole with fiber -- about 31 of the potential 119 hookups.

The PUD earns about $30 for each new hookup. That means that doughnut-hole customers, at the average 26-percent take rate, would collectively generate about $11,000 in new annual revenue, Church estimated.

Although this could grow over time, it could be an approximately 45-year payback if the initial investment is in the $500,000 range, and that doesn't include increased operational costs from what would be a larger network.

"Fiber's expensive to install and your revenue is relatively low," Church said. "Why aren't the take rates higher? That's the conundrum we get into." A consultant hired by the PUD has recommended that all build-out stop until the utility and private companies, called "service providers," who sell Internet, telephone and cable TV services over PUD fiber, figure out how to increase these take rates in already served areas. That's a challenge in an industry where broadband competitors like Charter and Frontier already engage in hardball marketing.

Physical barriers further add to the complication of serving the Cashmere doughnut hole.

About 60 percent of the area's electric service is by overhead electric cable, Church says. The rest is underground and some of it isn't run through conduit. These direct-bury areas are costly to serve with fiber, which follows the same routes as PUD power.

Unserved Cashmere residents say they know its expensive and don't want the PUD's overall finances to suffer.

"I totally support the PUD's financial plan and their being financially conservative," says Sue Ozburn, chief information officer for Cashmere Valley Bank. She's in charge of the bank's computer systems and networks, but can't get fiber at her home. "We want the PUD to be here. We want them to survive." But oh, the frustration.

"I know they have a tough decision, but they are in that because of their own decisions," Strutzel said. "The 'P' in PUD stands for 'public,' not 'private.' If they were private, there would probably still be portions of Chelan County waiting for power.

Christine Pratt: 665-1173 pratt@wenatcheeworld.com ___ (c)2012 The Wenatchee World (Wenatchee, Wash.) Visit The Wenatchee World (Wenatchee, Wash.) at www.wenatcheeworld.com Distributed by MCT Information Services

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