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Archive for Thursday, January 23, 2014

Editorial: Need for speed?

Super-fast Internet service has a lot of allure, but the proposal currently on the table may not be a good investment for the city.

January 23, 2014

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Members of the city’s Public Incentives Review Committee are asking all the right questions about a request for a $500,000 grant and other incentives to support a local broadband company’s quest to provide 1 gigabit Internet service to downtown and about 1,000 customers east of downtown.

Their questions reflect some real concerns about the Wicked Broadband proposal that must be addressed before any recommendation is made.

One key question is what the city’s long-term financial commitment to this project could be. The $500,000 grant would be used to finance only a small pilot project. The second phase of the project envisions bringing the 1 gigabit service — the same level of service that Google Fiber has promised in Kansas City — to the entire city. That project would cost an estimated $20 million to $30 million to build. The initial grant isn’t going to buy much enhanced Internet service for the community, but it could open the door for many future funding requests to support the Wicked Broadband network. As County Commissioner Mike Gaughan pointed out, the city needs to determine how great an appetite the city has for 1 gigabit service and how much it is willing to spend on it.

The other key question is: If the city is willing to invest even $500,000 in enhanced Internet service, shouldn’t it make an effort to attract proposals from other broadband providers that already serve Lawrence? The answer to that question is obvious: Of course it should. PIRC members wisely asked city staff member to report back on how the city could advertise a request for proposals from other companies that might be interested in providing super-fast broadband service in Lawrence.

The incentives committee also asked city staff to calculate the value of the other incentives being sought, including a pair of 30-year leases, at a rate of $10 each, that would allow Wicked Broadband to use a portion of the city’s existing fiber optic network. Members also wanted to investigate the possibility of replacing the $500,000 grant with a $500,000 forgivable loan that could be tied to the company meeting certain investment or employment levels.

All of this information should help the PIRC make a well-reasoned recommendation on the Wicked Broadband proposal. Super-fast broadband service could be great for Lawrence, but that doesn’t mean local officials should jump at the first plan that is put on the table.

Comments

Lawrence Morgan 11 months ago

Other companies have not invested in Lawrence, at all. Wicked has.

And who is the Journal-World to be talking? The Journal-World has never done proper investigation into what has taken place at the Sports Complex, for example, although Chad Lawhorn has done a far better job of reporting this kind of thing than others on the Journal-World staff..

To this date,we've never seen all the contracts and the exchange of money which have taken place. The writer of this editorial, who remains hidden from the public view, obviously does not understand the importance of the Internet and the possibilities that it presents for Lawrence. It isn't even clear that this writer lives in Lawrence, because we don't know who he or she is. He or she might live in Kansas City or another town - and we should know that in this case because these things really affect the future of Lawrence, especially when they are presented from an "editorial" point of view.

Notice that after the word "by" at the top of the page, there is NOTHING, just a blank. This is not acceptable in today's world of digital economics, especially when this issue affects Lawrence very directly in so far as the future is concerned

And by the way - there is a proposal placed for public review from Wicked in another article. Why aren't proposals from other companies available, now?

Amy Varoli Elliott 11 months ago

Pay off the bills that you already have and stop asking for handouts. The public should not fund this or any other company, stand on your own two feet.

Ron Holzwarth 11 months ago

"That most delicious of all privileges - spending other people's money."
- John Randolph (June 2, 1773 – May 24, 1833)

He was a United States Senator, and a Member of the U.S. House of Representatives.

Some things never change.

Mark Rainey 11 months ago

Good point, why is the this the only unsigned print in the whole paper?

Joshua Montgomery 11 months ago

Ms. Gordon,

I've seen several of your posts regarding this issue and am glad to see you feel passionate about it.

I wanted to clarify that our first preference in this process was to give our operation to the City as a gift. This would have given the city a profitable seed from which to grow a municipal fiber network including low cost backhaul, a customer base, billing system, support staff, DMCA & CALEA compliance, etc.

It would also have the effect of keeping the City out of court. In communities where the municipality has undertaken FTTP projects incumbents have sued repeatedly to kill the projects. By taking our existing operations as a gift, the City would de-facto be in the Internet service provider (ISP) business. It would present a fait accompli.

The savings in legal fees alone would have justified the City's acceptance.

I also wanted to point out that the City of Lawrence applied for Google Fiber during the registration period. The City even had a website specifically set up to attract Google Fiber. Provided the network is built as a common carriage system, we support this concept.

We feel the best way to bring Google Fiber to Lawrence is to build the infrastructure in advance. If, for example, the City had pursued our Freenet Kids proposal in 2008, the City would already have had a fiber ring in place. It would have been built at our cost. Instead it is 5 years later and the city is paying to build its own fiber ring.

The only community that has successfully jumped the line to receive Google Fiber is Provo, UT. They did it by building the infrastructure themselves, then giving it to Google, a $40 Million subsidy.

We think we might be able to replicate that here by building a common carriage network that has four (4) active fibers at each address. We can then offer Google one fiber to attract them to the community.

The remaining fibers will be available to all comers on an equal basis. This includes WoW!, AT&T, Dawn Fiber, Mercury Wireless or anyone else.

By installing additional capacity, we promote competition and innovation. This will have the effect of lowering prices and improving service for everyone.

The City recently spent $435,000 on a sewage tank at the Airport with the hopes that it MIGHT attract new businesses. The overall cost of the project? $1.9 Million.

Surely $500K and advantageous pricing on unused fiber capacity is a reasonable expenditure for a Fiber To The Premises (FTTP) project that reaches 459 businesses with 3,762 employees.

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Joshua Montgomery

Wicked Broadband

Bob Forer 11 months ago

Josh,

You wrote:

"I wanted to clarify that our first preference in this process was to give our operation to the City as a gift."

I may be mistaken, but in an earlier article I thought I read that the "gift" you speak of had strings attached, mainly, that to accept your "gift" we taxpayers had to agree to assume 1.2 million dollars in indebtedness.

Is that true? If so, then it hardly qualifies as a "gift," and your stating otherwise without mentioning the "attached strings" seems to me to be intellectually dishonest.

Joshua Montgomery 11 months ago

Mr Forer,

We offered the operation as a gift. That means all of the revenue and all of the debt.

Since Kris and I took full ownership of the company in 2012 the operation is profitable. That means we are bringing in enough funds to cover all of our expenses and fully fund depreciation, amortization and interest, with some additional funds left over to pay down our principle balance.

All Internet Service Providers carry debt. WoW!, for example, took on $1 Billion in debt obligations to purchase Knology. AT&T carries $76 Billion in debt as of the end of last quarter.

Our offer was a very attractive one and was made in good faith. We offered the City an operation with a multi-million dollar valuation to be operated in the best interests of the citizens of Lawrence.

The path we are pursuing is our second preference. Our third option is to focus on high revenue customers with an eventual goal of exiting the Lawrence market through a liquidity event. We do not want to do that, but the opportunity costs associated with operating an ISP in Lawrence have gotten to be too significant.

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Joshua Montgomery

Wicked Broadband

Bob Forer 11 months ago

Mr. Montgomery,

I am a retired lawyer. A gift is defined as something given voluntarily without payment (i.e., anything of value--not necessarily cash) in return. What you describe is not a gift, as you are requesting that the city, in return, assume the indebtednes of the business.

Your response is also somewhqat cryptic. You wrote: "with some additional funds left over to pay down our principle balance" At what rate is the loan principle being paid off? Most loans are amortized over a pre-agreed term of years. Has Wicked been able to timely make the full payments as comtemplated in the original note, or has insufficient cash flow only allowed payment on interst, with "some additonal funds" left to apply towards principal? The fact that Wicked currerently owes the city money which it has been unable to repay as previously agreed suggests that your company is having cash flow problems.

Obviously, you and Kris, as owners, are expending your personal time running the company. After all, a company cannot run without officers and employees. I assume your "gift" does not include providing your free labor to the City should the "gift" be accepted. That merans that the city would have to expend funds to pay for the labor that you and Kris currently provide, and since it appears that the business is barely cash flowing (if at all) the labor costs invovled could very well put the business in the red should the City take you up on your offer.

One final question. A gift typically has an altruistic motive. Is anyone, such as yourself, Kris, associates, family members, friends, etc. personally liable for the comany's debt as guarators or cosignors?

If you answer is yes, then it would appear to most intelligent observers that while you may profess an interest in making Lawrence a better place to live, your primary motivation is to relieve yourself and/or others from an overwhelming personal financial obligation.

Thomas Fritzel claimed that he was not making a dime on the Rock Chalk Park, but instead, was motivated by his desire to "give back" to the citizens of Lawrence. Most of us laughed at that. There is nothing wrong with making a profit. Lying about it is something else.

I can't say for sure, because I am not familliar with the finances of Wicked, but it sure does appear that in claiming you are soley motivated by your desire to "help out Lawrence," you are trying to "pull a Fritzel" on us.

Julius Nolan 11 months ago

What we definitely don't need is giving handout to anything connected with Joshua Montgomery.

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