Connecticut and Kentucky Reshape the Public-Private Partnership

The Rise of Municipal Networks A new approach to public-private partnerships in the creation of large broadband networks likely will be a top item to watch in 2015.

The idea of public/private partnerships is not new. An important change, those familiar with the flow of events say, is an arrangement in which ownership of the infrastructure is shared between the public and private entities and largely financed by the latter. Full ownership of the network moves to the municipality over time.

The new approach is in part an acknowledgement by communities that they need advanced broadband projects and, at the same time, a new approach to financing is necessary. “In the past, the typical arrangement was the city owning the infrastructure and the private sector the service,” said Craig Settles, a broadband strategist and consultant active in this area. “They are expanding the public/private ... to where now companies are coming and making an investment in the buildout of the network.”

Two such projects - one in Kentucky and one in Connecticut - made news toward the end of 2014.

On Dec. 23, the Commonwealth of Kentucky announced a middle mile public-private project being established in conjunction with the Australian company Macquarie Capital. Macquarie is a significant player. It has 70 offices in 28 countries, employs almost 14,000 people and has more than $370 billion under management. The company is heading up a consortium that includes First Solutions, Fujitsu Network Communications, Black & Veatch and Bowlin Group, according to the state.

Macquarie has a long background in projects in which it assumes the risks of planning, building and helping to operate big infrastructure projects. It has done so on telecom in other places, including Canada and in Utah, where it is broadening the struggling UTOPIA project.

The less wired eastern area of Kentucky will get early attention. Overall, the plan is to build rings in the state to which last mile entities will be invited to connect. Insiders familiar with the plans say that the first phase - which will focus on rings enabling connection of major institutions - is scheduled to be completed by April 2016. Eventually, the project will include four-and-a-half rings.

The Connecticut project is fundamentally different in that it focuses on the last mile to homes and businesses. Bill Vallée, Connecticut’s state broadband policy coordinator said all 169 towns in the state have either three or five important municipal buildings linked to the Internet via The Nutmeg Network, which was created under a grant from the Broadband Technologies Opportunity Program (BTOP), which is administered by the National Telecommunications and Information Administration (NTIA), a part of the U.S. Department of Commerce.

On Sept. 15, the state issued a request for quotes for a public-private open access network to all 169 towns. Vallée said 46 towns responded, led by Stamford, New Haven and West Hartford. Th 46 towns represent about half of the population of the state. Proposals from each of the communities - which will suggest which vendors the state should interview - are due next Tuesday.

Vallée said the catalyst for the project is the underperformance of cable and telephone operators in the state. The main telco is Frontier - which completed the acquisition of AT&T’s Connecticut local exchange business on Oct. 24 - and the dominant cable company is Comcast. Charter, Cablevision, Cox and MetroCast also are active in the state. These companies, Vallée said, were falling short, especially in their offerings to small businesses. “There is huge demand, pent up demand, and it is not being satisfied by the current suppliers,” he said.

The RFP has 25 pages of questions, he said. The state is open on the technical particulars and any company - including incumbent operators - can participate if they pass muster with both the town and the state.  

Macquarie is not officially involved in the Connecticut project, but may become so. The new version of the public-private partnership in which the private entity is a part owner is attractive to Connecticut. Financial sources - such as pension funds - are happy to have the money work over a long period of time. “It’s a great asset,” Vallée said.

Neither Vallée nor the folks familiar with the Kentucky project report pushback from incumbent telcos and cable operators. These groups have reportedly lobbied against relaxing prohibitions against municipal projects that exist in some states. The bottom line for incumbent carriers, including cable operators, is that bringing in outside money and project expertise likely will make municipal networks more formidable entities. “I think it’s the perfect 'lead, follow or get out of the way,'” Settles said.

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