Last month, we reported on Seattle’s interest in building a municipal gigabit network. The city commissioned a study to examine the feasibility of doing so—Seattle’s fourth such study, actually. That study is now complete, and it’s interesting not just for what it has to say regarding the cost of building a municipal network, but for the glimpse it provides into what’s important for broadband consumers, and how much they’re willing to pay for it.
The Bad News First
The study doesn’t come right out and say that building a municipal network would be too expensive, as that’s a decision for the city to make, not Columbia Telecommunications Corporation (CTC), the company that conducted the study. However, the study does provide a range of construction costs for the network based on four different sets of assumptions. No matter which figure you look at, construction costs would be high.
CTC’s lowest estimate for network construction is a bit over $463 million, and its highest estimate is just over $630 million. The study projects maintenance costs to be nearly $10.9 million in the first year of service, rising to $31.5 million by year five and $39.2 million by year 20. At the same time, revenue projections predict $11.7 million in sales for the first year, rising to $91.5 million by year five and remaining there through year 20. And it doesn’t look as if that’s enough to make a municipal network a reality –at least not yet.
Tell Me What You Want, What You Really, Really Want (From Broadband Service)
To help determine demand for municipal network construction, CTC surveyed 833 residents living in the proposed service area. Questions included how much residents were willing to pay for various connection speeds, what kind of connection they already had, and what was most important to them regarding broadband Internet service. While it’s possible that the results aren’t representative for national consumers as a whole, they’re still interesting to look at.
Nearly all respondents, 96 percent, had home Internet service Over 70 percent of subscribers get access through a cable modem, and 17 percent use a DSL connection. No other form of service was used by more than four percent of respondents with Internet service.
The average connection price of Internet access for all surveyed was $56. With responses on cost broken into $10 tiers, more subscribers reported paying $71 per or more per month than any other amount: 21 percent pay $51–$60, 17 percent pay $61-70, 15 percent pay $41-$50, and 14 percent pay $31-$40. Less than five percent pay less than $30 per month for Internet access.
What Are People Paying For?
Respondents said reliability was the most important single aspect of service, followed by speed, price, customer service, and tech support service. When it came to bundling, responses varied significantly by age. There was a direct correlation between consumers’ age and the importance they placed in being able to bundle Internet access with TV service; it was most important to consumers over 65, and least important to those 18-34.
When CTC compared the level of importance of these factors to consumers with their level of satisfaction, it found that bundling was the only area in which Internet Service Providers (ISPs) exceeded customer expectations. Perhaps it’s not surprising, then, that an unrelated survey, the American Customer Satisfaction Index, found that ISPs ranked at the bottom of every industry in terms of customer satisfaction. The 77,000 people surveyed gave a collective score of only 63 out of 100 for ISPs. For reference, the U.S. Postal Service received a score of 69. How much do you enjoy going to the post office?
What Would it Take for Consumers to Switch?
The less satisfied customers are, the more likely they are to switch, but price matters, too. CTC asked those surveyed how much they’d be willing to switch to a new provider. For 1 Gbps service, 85 percent would be willing to pay $55 per month, but only 15 percent would pay $95. For 100 Mbps, 80 percent would pay $55 per month, but only 7 percent would pay $95. This data also allowed CTC to determine that consumers felt a 1 Gbps connection was worth, on average, $10 more per month than a 100 Mbps connection.
CTC asked how much respondents would be willing to pay for a one-time hookup fee, both in exchange for a $20 monthly reduction on their bill, and for no monthly reduction. Oddly, only 98 percent would be willing to pay $0, even in exchange for the reduction. Another 85 percent would pay $100 for the reduction, and 51 percent would pay $250. Without the reduction, 73 percent would pay $100, and 31 percent would pay $250.
How Do You Compare?
Now that you know how much others are willing to pay for gigabit service, does it change your opinion of current pricing, or affect the amount you’d be willing to pay?
While the survey offers no help to residents of Seattle, that doesn’t mean there’s no help available. Residents of that city, or any other, who are dissatisfied with their current service can find another they like better using nothing more than a zip code.
Photo Credit: Howard Ignatius/Flikr Most cities are happy just to have a single option for 1 Gbps Internet access. Seattle isn’t one of them.
Gigabit service is already available in Seattle, and from more than one provider. Typically, communities that have pursued municipal broadband have done so as a side benefit of other programs or because private providers weren’t willing to build fiber networks. There have been cases in which private providers have offered service in markets that already have municipal networks, but it’s unusual to see a city with existing broadband options pursue a municipal network.
It appears that Seattle Mayor Ed Murray wants to pursue all broadband options. The mayor’s office website lists his three tactics for improving the city’s connectivity.
1. Eliminate red tape that makes Seattle less attractive to private networks.
2. Merging private/public solutions by using public fiber already in place.
3. Commission a study investigating whether a municipal broadband network makes sense.
The city will soon release that study, but this isn’t the first such report for Seattle. It isn’t the second, or even the third. The city funded previous studies in 2005, 2007, and 2011 to investigate the feasibility of building a municipal network. Why commission a fourth study?
Ambition and Expense
The 2011 report put the price of a municipal network at $700 million, which, at the time, Seattle didn’t have. As the economy improves such an expenditure becomes more feasible. A second reason is that advocacy group Upgrade Seattle claims a municipal network will make broadband more affordable to low-income residents.
While it may not be an official reason for backing a municipal network, Seattle’s notorious anti-corporate streak could be something that sways public opinion in favor of a public network. Recent federal government support of municipal network construction can’t hurt, either.
If Seattle does build a municipal high-speed network, it would be the largest city in the nation to do so thus far. It has 500 miles of existing fiber, and that’s obviously a good start, but it’s not nearly enough. Chattanooga’s municipal network has more than 6,000 miles of fiber for a population less than one quarter the size. As that $700 million price tag suggests, the value of that existing fiber might not be significant enough to influence a decision on whether to build out the rest of the network
Another Northwest Approach
Seattle might also take a page from its weirder neighbor to the South, Portland. In April, Oregon Governor Kate Brown signed a bill exempting gigabit Internet services from certain property taxes. It’s probably just a coincidence that Portland has been on the list of potential cities for Google fiber service, right?
Seattle Has Options. So Do You.
Residents of Seattle and elsewhere don’t have to commission a study to find the fastest local Internet speeds. You don’t need $700 million, either. In fact, you only need five numbers to find broadband access that’s right for you – your zip code.
Photo Credit: Howard Ignatius/Flikr