1 STAFF REPORT
DAT
E: June 25, 2024
T
O: Justin Hess, City Manager
F
ROM: Mandip Kaur Samra, General Manager, Burbank Water and Power VIA: Jim Compton, Assistant General Manager, Operational Technology BY: Daniel Lippert, Manager Telecommunications
S
UBJECT: Update on the Results from the Fiber to the Premise Broadband Feasibility Study
RE
COMMENDATION
1. Provide feedback on the Fiber to the Premise Broadband Feasibility Study and, if necessary, provide guidance on additional steps.
2. Note and file.
BACKG
ROUND
In Burbank, the two primary providers of mass-market broadband services are AT&T and Spectrum. Both companies have invested heavily in hybrid fiber/copper networks. These networks are available to all residential customers and offer internet speeds in the range of 70 megabits per second (Mbps) for Digital Subscriber Line (DSL) from AT&T, from 200 Mbps to 954 Mbps from Spectrum, and from 300 M bps to 5 gigabits per second (Gbps) for fiber -optic from AT&T. Typically these residential broadband service offerings are asymmetrical, meaning the download speed delivering content to customers is much faster than the upload speed. Customers served by AT&T over fiber networks can receive symmetric service, but fiber service is not available to all residents. Competitive market forces will likely cause providers to continue investing in technology to increase data speeds in the coming years.
M
obile operators have also started offering fixed wireless broadband services over their cellular networks, but these are mostly aimed at customers looking for low -cost bargain services and have not yet captured much of the Burbank market.
I
n response to growing interest in faster internet service, several municipally owned electric utilities and coop eratives have developed broadband services where no local high-speed service providers exist. Some of these programs have been financially successful and some have failed. This market is characterized by very high financial investments, significant operational costs, and strong competition for customers. The municipalities that implemented such residential services often were in markets that were
WATER AND
POWER
2 underserved and therefore received substantial federal grant funding. Current federal funding opportunities are focused on rural and low -income communities without service.
Burbank would not meet the requirements for these grant funds.
Currently, Burbank Water and Power (BWP) operates an extensive fiber -optic network connecting utility and City buildings, in addition to providing broadband service throughout the Burbank Unified School District. Broadband fiber -based internet service is available to the public free of charge at each of the City’s public libraries, and free “best effort” citywide internet access is available over the utility’s Wi-Fi network. BWP’s ONEBurbank program provides commercial customers Dedicated Internet Access (DIA) service, ultra- high speed point -to-point data transfer, dark fiber leasing, and other related services to approximately 200 customers. These are premium contract -based enterprise- grade services with guaranteed symmetrical reliability, and do not include phone or TV services.
The ONEBurbank program has been very successful with a high level of customer satisfaction and is self -supporting. The commercial ONEBurbank program differs from retail residential telecommunication service, which is characterized by much higher volume of customers, lower revenues per customer, and relatively high customer care and sales costs.
Given continued interest from the public, BWP commissioned a study from Entrust Solutions Group (Entrust) to analyze the feasibility of creating a municipal broadband utility to provide mass-market internet services.
DISCUSSION
The study assessed five general factors: available assets, current state of the market, available funding, infrastructure requirements including a conceptual design, and estimated costs and potential revenue.
Burbank Water and Power’s Capability
From a technical standpoint, BWP is capable of providing high speed fiber services to all customers in Burbank. It owns and operates an extensive fiber network and citywide pole and conduit infrastructure that can readily support a fiber to the premise (FTTP) network.
The study modeled a conceptual network that would expand upon the existing assets to build out citywide. Using current construction and borrowing costs, the estimated expense to build this network would be $128.5 million. Burbank would not be eligible for grant funding under current state and federal programs to cover these costs. They would need to be funded through bonds and/or the General Fund.
Burbank’s Broadband Market
Burbank has a typical broadband duopoly with a cable company providing gigabit download speeds citywide and an incumbent phone company providing low -speed DSL service throughout most of the city and high-speed fiber service in about 35% of the city.
Overall performance and cost are comparable to other places with broadband duopolies but fall short of what is seen in more competitive markets. Both carriers have a means of upgrading their networks to remain competitive, although no timeframes have been given and existing deployments show a pattern of avoiding low/middle-income neighborhoods.
3 Customer surveys reported that residents remain frustrated with cost, performance, and lack of competition in Burbank. Respondents stated that overall, they are willing to pay $70-75/month for internet service, but many opt for lower performance services t o save money. Other services, such as TV/video and landline phone, appear to have limited demand.
The wireless carriers Verizon, T-Mobile, and AT&T have begun offering broadband using Fixed Wireless Access (FWA) over their existing wireless networks. Thes e services are limited compared to wired services over cable or fiber but are low-cost solutions for people who don’t need high- speed access. Customer surveys showed only 3.5% of customers in Burbank are using FWA currently, but as the wireless carriers im prove their networks and focus on marketing, this number could increase.
Baseline Scenario
Multiple scenarios were modeled. The baseline scenario assumes 30% of residents and 35% of businesses would take BWP’s service. Prices would range from $50- 70 monthly for residential and $60 -150 monthly for businesses. The City would be required to take on $106M in debt to complete the buildout and to cover expenses until revenues grow enough to offset. Grants should not be expected as Burbank does not qualify for existing and planned grant programs. Operating expenses over the twenty -year window are modeled to be $132M. If these assumptions hold, the model achieves a positive return on investment of $2M after twenty years.
The model is very sensitive to customer tur nout. If the assumptions are reduced to 25% of residents and 30% of businesses taking service, the enterprise loses $38M over the same twenty-year window. If the assumptions increase to 35% and 40% respectively, the enterprise makes $42M in that timeframe.
Risk Analysis
While FTTP in Burbank is feasible under certain assumptions, substantial risks are involved. Strong opposition should be expected from existing service providers who have invested in their Burbank networks. Those providers will likely step up their competitiveness to depress Burbank’s sales as they have well-defined paths to nullify the advantages that fiber -based broadband provides. Other emerging competition with satellite providers like Starlink and fixed wireless providers Verizon, AT&T, and T-Mobile will offer broadband options as well that don’t require “ last mile” fiber to the residence.
Each of these will likely only capture a small part of the residential broadband market but as competition grows, achieving a return on a substantial investment becomes more challenging.
Multi-Dwelling Units (MDUs) represent an additional risk as installing wiring and equipment within a privately owned building requires negotiation and permissions from the building owners. More than half of the residential units in Burbank are MDUs. Friction from building owners could significantly affect the number of customers taking service, destroying the economics of the enterprise.
The modeled project requires borrowing $10 6M, which would be backed by the City.
Electric and water ratepayers cannot fund non- utility operations beyond the existing in - 4 lieu payments already being made. Failure to achieve customer counts or control costs would cause the enterprise to operate at a loss in perpetuity, requiring General Fund contributions or a forced sale of the enterprise.
Political opposition should be expected if the City embarks on municipal broadband. Other municipalities engaged in these efforts have dealt with well -funded campaigns in opposition to publicly funded internet services. Burbank is an important market and will face similar challenges.
COMMUNITY OUTREACH
As part of the study, Entrust conducted a survey of Burbank residents and businesses to identify their current internet service, the level of satisfaction with their service, and what they would like from an internet service provider. The survey received 1,326 useable responses. While the City of Burbank has adequate broadband services similar to what is found in other mid- sized cities, the survey found that resi dents remain frustrated with cost, performance, and lack of competitive options.
ENVIRONMENTAL REVIEW
This item is an informational report only and has no potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment , and as such, is not a “project” subject to the requirements of the California Environmental Quality Act (CEQA) 14 Cal. Code Regs. Section 15378.
FISCAL IMPACT
A fiber to the premise network could be expected to require up-front costs in the hundreds of millions of dollars, with recurring operations and maintenance (O&M) costs in the millions of dollars each year. Revenues may cover these costs over the course of a twenty-year period.
CONCLUSION
The broadband service market is characterized by high financial investments, significant operational costs, and strong competition. Universal service to all Burbank residents would incur significant costs and require a source of funding from a bond issue or from the General Fund. There are scenarios where the City could feasibly recover that investment, but there are serious risks as well.
ATTACHMENTS
Attachment 1 – Fiber to the Premise Feasibility Study