15 Jun 2021

Four Critical Questions Every Community Should Ask Before Providing Public Support for High-Speed Internet Infrastructure

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Seemingly overnight communities around the country have realized that affordable, reliable, high-speed is more than a “nice thing to have” – it’s a necessity. The COVID pandemic exposed the risk of relying on stop-gap solutions such as smart phones, hot spots and obsolete DSL technologies. Public officials and local businesses are beginning to understand that hoping for a technological breakthrough to solve their digital connectivity problem is a poor plan for the future of their community. 

Just like the electric grid, every community, no matter how isolated needs to be connected to the “information grid.” 

This has given way to the sobering realization that, just like the electric grid, every residence and business in every community needs to be connected to the “information grid” — the network of fiber optic cable supplemented by various wired and wireless technologies that connects communities to outside world and to the 21st century technologies that rely on high-speed internet access to provide better health, education and economic outcomes for all. 

Some will continue to insist that this is a problem that only can be addressed through private, for-profit companies. Others will argue that an internet connection is so critical to everyday life that it is a “utility” and should be publicly owned and controlled, so that all individuals and business have a minimum level of internet service at a price they can afford. However, it’s likely neither of these extremes is the answer for most of neighborhoods and communities still waiting for adequate high-speed internet service. 

Instead, many local governments have instead turned to public-private partnerships to bridge the digital divide in their community. Public-Private Partnerships –- often referred to as “P3s” — are contractual agreements that allocate the “4Rs” – the roles, responsibilities, risks, and rewards — associated with the design, construction, maintenance, operation, and ownership of a modern high-speed internet network. 

P3s operate from the premise that local, State, and federal government can do some things well, while others are best handled by for-profit business and nonprofit organizations (NGOs). P3s dispense with political and ideological rhetoric, in favor of a finding a practical approach that recognizes that government, NGOs and business can create a better solution by working together for the common good. 

All P3 arrangements involve some degree of “risk sharing.” They operate from the premise that the best result is achieved when all stakeholders are motivated by the risk of failure – along with the anticipated rewards that accompany success.  For the most part businesses and most operating NGOs are familiar with these concepts and are comfortable balancing their appetite for success (profit) with their aversion for risk – the risk of failure. 

The same cannot be said for many local government “public partners.” Too often, public partners tend to assume that a public private partnership is a one-way street, where business and NGOs (the private partners) will assume all the risks, fulfill all the public partner’s objectives, and deliver and operate the project for the common good – just because someone calls the arrangement a “public private partnership.”  

This mindset can have disastrous consequences for the public partner (and the public at large). Just as there are many examples of successful P3s, there also are also many examples of P3’s that have failed, leaving the public partner (and its taxpayers) on the hook for the additional funds needed to provide the promised network.  

Does this mean that P3s are a bad choice for communities? Of course not, but it does mean that public entities contemplating a P3 arrangement to solve their digital connectivity problem need be aware that a P3 is simply a tool, and like all tools, it needs to be used properly. Of course, that means that no public partner should enter into a P3 without first obtaining legal and financial representation to represent the public’s interests.  But it also means that local government decision makers need to focus on 4 key questions that largely will determine how their P3 will be structured. 

Public entities contemplating a P3 arrangement to solve their digital connectivity problem need to focus on 4 key questions when structuring a P3.

Question 1 — Design and Construction:  

Which party – the public partner or a private partner is best able to design and construct an effective high-speed internet network for the community?  

Regardless of who will ultimately own, maintain, and operate the internet infrastructure once it is completed, a properly negotiated and documented P3 can assign responsibility for the design and construction of internet network to the private partner. Arrangements that do this are often called design-build contracts. A public partner using a design-build P3 would first go through a process to define its objectives for the network (for example, speed (throughput), reliability, expandability, etc.).  and leave to an expert private partner to determine how those objectives will be achieved.  

The process of decerning the core objectives for the network is critical. A properly negotiated design-build P3 can reduce and eliminate many of the risks associated with the design and construction, but in the end it only promises to achieve the results the public partner identified in the contract specifications. If those specifications are insufficient to meet the needs of the community, that is a risk assumed by the public partner.  

In addition, ideally, a design-build P3 should be set up as “fixed price contract” and payment should be required only when the network is completed, and all design specifications are satisfied. While this may seem somewhat obvious, there are several projects (both for internet infrastructure and other capital projects) where the public partner failed to follow this guidance, and instead agreed to make required to make “progress payments” – even if though the private partner’s work was incomplete. While such an arrangement may be appropriate in some special cases, it is critical that the public partner understand the risks associated with making payment for a network that has not been completed. 

Question 2 — Maintenance  

Which party – the public partner or the private partner should be responsible for maintaining the community’s internet network?  

Once a network is completed, a second question needs to be addressed: who will be responsible for maintaining it in working order. This really can be divided into two questions. First, which partner is responsible for replacing equipment that wears out, fails, or is that is damaged by weather or some other natural cause? Second, which partner is responsible for making certain the network does not become technologically obsolete: assuming responsibility for upgrading the equipment and associated software so that it continues to meet the evolving needs of individual and business users in the community?  

A high degree of technical knowledge about network design and industry trends are critical to meet these maintenance requirements. For that reason, it isn’t surprising that in many settings this responsibility will be assumed, at least in part, by a private partner, even if the public partner wants to own and operate the network. 

Maintenance for the network can be addressed in variety of ways. For example, a private partner might include a long-term warranty and extended service plan as part of a design-build P3, converting it P3 to a “design-build-maintain P3.  Concerns related to technological obsolescence might need to be combined with and made a part of a “maintenance and operation” P3.   

In either case, a threshold question for the public partner is whether it has the personnel and the expertise necessary to maintain the internet network. If not, then it must decide how to select a private partner to assume that responsibility. 

Question 3 — Operation 

Which party – the public partner or the private partner should be responsible for operating the internet network?  

Operating an internet network certainly requires a significant level of technical expertise to monitor network demand and data traffic (for example, how many folks are accessing the network and how much bandwidth are they using), but it also requires competency in handling more pedestrian issues, such as billing, customer relations, and marketing. This means that a partner handling network operation, needs to have resources available to address issues as complex as negotiating guaranteed access through a mid-mile or backbone provider, to helping a customer trouble-shoot a bad connection inside their home or business.  

For the public partner, the first question again is whether it has experience and personnel available that can address these issues. Logically, one might thing that a public partner that has extensive experience operating other utilities would be best equipped to assume responsibility for operating an internet network. But this may be an oversimplification. After all, the technologies involved in delivering water and sewer service to residents are quite different than those used to operate a high-speed internet network.  

 Question 4 — Ownership 

Which party – the public partner or the private partner should own the completed internet network?  

This might seem like the most important issue in any P3 arrangement, but usually it isn’t. Legal ownership often is not the critical factor in terms of achieving the practical objectives of the parties. For example, the right to use and control internet network assets or the responsibility for designing, constructing, maintaining, and operating the network can be assigned to a partner even though that partner doesn’t “own” the network.  

However, the “legal ownership” of portions of the network assets may have significant state law and tax implications, both for the public partner and the private partner. For example, there are a variety of public financial and tax incentives that can be provided to help make it possible for a private partner to go forward with the construction and operation of a high-speed network in the community, but the availability of these incentives may hinge on which partner has legal ownership of the assets. These issues are often best addressed by the public partner’s legal counsel and financial advisors.  

The Digitally Connected Community Guide 

Obviously, the issues associated with a P3 are complex.  No one approach will be right for every community, and clearly no community should commit public funds or enter into a P3 arrangement without expert legal and financial advice.  

Nevertheless, many communities need information and guidance as they work to understand and evaluate various potential P3 options. The Digitally Connected Community Guide is a facilitated program sponsored by MU Extension that can help communities and their stakeholders develop a workable proposal that uses a P3 to help their communities become “digitally connected.” To learn more about the program and how your community can participate — contact info@mobroadband.org.  

18 Dec 2020

No, Missouri Law Does Not Prohibit Political Subdivisions From Offering Internet Service to Its Residents and Businesses

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No, Missouri Law Does Not Prohibit Political Subdivisions From Offering Internet Service to Its Residents and Businesses

That statement might come as a surprise to some folks. 

Some articles have stated – without qualification — that Missouri law bars political subdivisions (such as cities, counties, municipal utilities, school districts and other local government entities from offering internet access service to their citizens, or even owning the equipment that others use to provide that service. 

The authority given for this conclusion is Section 392.410.7 of the Missouri Revised Statutes.  That statute does generally prohibit Missouri political subdivisions from owning telecommunication equipment or offering telecommunication services, and in Nixon v. Missouri Municipal League, the United States Supreme Court did decide that federal law does not prohibit the Missouri legislature from restricting or prohibiting political subdivisions from providing any type of telecommunication service.  Since one reason the Missouri Municipal League challenged Section 397.410.7 was to allow municipalities to offer internet access service as part of a municipal telecommunication utility, it is not all that surprising that commentators have raised concerns about the statute. 

However, the issue actually addressed by the United States Supreme Court in the lawsuit, was whether federal law (the Telecommunications Act) prevented the Missouri legislature from restricting political subdivisions that wished to offer telecommunication services.  The case did not decide whether the particular statute in question (Section 392.410.7) actually did restrict political subdivisions from offering the public access to the Internet (as opposed to other types of telecommunication services).  In the twenty-plus years since the statute was passed, technologies and business models related to Internet access have evolved.  Today a number of Missouri cities now offer public access to the Internet directly or through partnerships with private ISPs.  While the approaches adopted by these political subdivisions have varied, in each case a way has been found to navigate Section 392.410.7 to avoid violating the limits imposed by that statute.

Just what does Section 392.410.7 prohibit – and why is it no longer particularly relevant to the Internet access offered by political subdivisions today? 

The Missouri legislature passed Section 392.410.7 in 1997 in response to federal legislation that deregulated the telecommunications industry.  Faced with the prospect of increased competition from the private sector, legacy telecommunication companies, convinced legislators that it would be unfair to allow municipalities (political subdivisions of the State) to offer traditional telecommunication services.  The rationale was that, unlike private competitors, a political subdivision (or for-profit entities that partnered with them) would have an unfair competitive advantage over existing “legacy” telecommunication companies because political subdivisions do not pay income or property tax and they are able to raise capital to finance operations through taxation.

For that reason Section 392.410.7 generally prohibits a political subdivision from “providing or offering for sale, either to the public or to a telecommunications provider, a telecommunications service or telecommunications facility used to provide a telecommunications service for which a certificate of service authority is required pursuant to [Section 392.410].”  A “certificate of service authority” (issued by the Missouri Public Service Commission (PSC)) was, and continues to be required before some telecommunication services may be offered, but Section 392.611.2 specifically excludes “Broadband and other internet protocol-enabled services” from regulation by the PSC, except to the extent the provider offers voice over internet protocol service (“VoIP” or “internet telephone” service). 

Additionally, the general “prohibition” against offering telecommunication services contained in Section 392.410.7 contains additional exceptions.  First, and most importantly, the statute does not prohibit a political subdivision from providing “Internet-type services” (as opposed to telephony service).  Second, it does not prohibit political subdivisions from providing any type of telecommunications services for its general governmental purposes, to students at educational institutions or for any educational or medical purpose.  Third, political subdivisions may own and/or operate telecommunications equipment to provide E911 or other types of emergency telecommunications services.  Finally, a city’s municipal utility (water, gas, electric, etc.) is expressly authorized to provide other telecommunication companies access to the municipal utility’s telecommunication and other assets on a nondiscriminatory, competitively neutral basis, at a price equal to what the political subdivision would charge if it were a for-profit business.

Read together, these exceptions make the statute largely irrelevant for a political subdivision that today wishes to own and operate a system designed to deliver access to the Internet for its citizens.  Today internet access provides the public multiple opportunities to obtain online healthcare, buy goods and services, obtain an education, and launch a new business – as well as communicate with friends located anywhere in the world.  The services that use the Internet to make this possible are offered by government, business, and nonprofit organizations. Those services are subject to varying degrees of federal, state and local government regulation, but the transfer data over the Internet by a political subdivision is not prohibited by the express language of Section 392.410.7.  Additionally, as noted above, the statute provides wide latitude for political subdivisions to provide any other type of telecommunication service in addition to internet access) in order to deliver governmental services:  public administration, healthcare, education and public safety. 

If Not Specifically Prohibited — Should Political Subdivisions Undertake to Provide Internet Access to the Public?

This is a much harder question to answer.  It requires communities, in consultation with legal and financial advisors, to  carefully consider of a number of other legal questions, as well as economic and local public policy concerns.  For example, a school district considering participation in a public-private partnership with the goal of offering internet access to each student’s home for online learning, would need to be careful that the arrangement did not jeopardize the district’s existing E-rate funding that now provides internet service to school buildings and classrooms.  Many of these questions will be identified and examined in future articles, and developing strategies to address them will be part of a systematic online “Digital Community Guide” that will be made available to local government officials, community stakeholders and their advisors on the Missouri Broadband Resource Rail early next year. 

However, at least part of the answer can be found in the Report published earlier this summer following the University of Missouri System’s online Broadband Internet Workshop.  A core conclusion of the Workshop was that local government (political subdivisions) should actively consider arrangements involving public-private partnerships with internet service providers and other interested stakeholders to speed the deployment of affordable, reliable, high-speed internet service, and the adoption of new digital applications that use the Internet to deliver better health, education and financial opportunities for their citizens.  

9 Dec 2020

The FCC’s RDOF Award Announcement – Good News, but Only One Step toward Closing the Digital Divide

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Some quick reaction to Monday’s FCC Rural Digital Opportunity Fund (RDOF) Auction Award Announcement:

It’s good news of course! – Over $346 million allocated to seventeen providers that proposed to bring gigabit level service to almost 200,000 (199,211) locations through-out Missouri.  On average – that means the Federal government is offering to contribute about $1,740 per location over the award period.  

Overall the auction award was not as large as what was authorized (around $20 billion) — $9.23 billion was awarded nationwide.  So more funds are expected be awarded in the future, hopefully using a revised system to identify unserved areas within census tracts that are now partially served.  Only census tracts that had no adequate broadband service were eligible to participate in this round of awards – a fact that all agree is a significant shortcoming of the award program that needs to be corrected. 

A bit of additional fine print: 

Companies receiving awards are required to submit much more detailed information to the FCC throughout next year before their award is final.  That information includes engineering data, deployment plans and a financial data, and failure to submit it by the deadlines can result in forfeiture of the award.  

Once the award is final, the winning bidders will receive their grant over a ten-year period in equal annual installments.  In other words the average award of $1,740 for each Missouri location, entitles the winning bidder to a $174 annual subsidy paid over ten years for each location.  This likely means that companies will need to find separate financing sources to fund costs of constructing the broadband infrastructure that ultimately will be repaid from annual award installments. 

Companies that received awards are provided a significant period of time to complete actually provide the promised service.  The first 40% of locations must be served after three years, and final build out need not be completed for six years (2027). 

Finally, while the awards were based on locations in census tracts, the winning bidders were not required, and did not agree to serve all residents in living in the census tract. 

Does this mean that the RDOF Award is not “good news” for residents in rural Missouri? 

Of course not! 

But it would be a mistake to think that the award is more than a single step in bridging the digital divide. To close the digital divide, government and community stakeholders will need to continue to work creatively with internet service providers. 

In that regard, it’s also important to keep in mind that bringing internet infrastructure to a location, is not the same thing as actually providing service to residents and businesses at that location.   As important as the RDOF program likely will be to closing the digital divide, it does not directly address the issues of affordability and digital literacy, and we know that both must be solved before underserved populations can actually reap the benefits of the new digital technologies that use broadband. 

View the RDOF map here

17 Nov 2020

Rural Access to Industry: Barriers from the Infrastructure Planning Front Lines

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As part of this research initiative, we conducted a qualitative analysis of 11 semi-structured interviews with the planning community in Missouri to identify what barriers they recognize for the deployment of rural broadband in Missouri. Participants reported that the return on investment and the financing of rural broadband projects constitute the main barriers. Technology was the most frequently discussed barrier in the literature, but the Regional Planning Commissions identified technology as the least significant barrier to rural broadband infrastructure deployment. They understand the required technology is available, but paying for it is the main challenge. The Regional Planning Commissions had had limited involvement in the planning of rural broadband infrastructure as most investment decisions regarding rural broadband infrastructure have been made by private internet service providers. Several Regional Planning Commissions expressed a lack of confidence in managing broadband projects due to their limited experience. On the other hand, they are looking forward to supporting an anticipated statewide planning initiative to be promoted by the Missouri Office of Broadband Development.

Rural Access to Industry 4.0:
Voices from the Infrastructure Planning Front LinesDownload

3 Sep 2020

New Missouri Statute Encourages Public-Private Partnerships for Broadband Infrastructure

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9-3-2020

New Missouri Statute Encourages Public-Private Partnerships for Broadband Infrastructure

For many years Missouri cities and counties have used Community Improvement Districts (CID) and Neighborhood Improvement Districts (NID) to finance public infrastructure and to encourage economic development in designated geographic areas (“districts”) located within their borders.  CIDs and NIDs are well-suited for this purpose, because when approved by property owners or individuals living in the district, a CID or NID can raise revenues through taxes and/or special assessments on property located or sales occurring in the district.  For more general information about CIDs and NIDs see Missouri Local Incentives.

Up until now Missouri statutes did not specifically state whether internet broadband was a “public improvement” eligible for financing by a CID or a NID.  However, in this past session the Missouri legislature enacted HB 1768 which made some significant changes to both the CID and the NID Act.  In each case a new provision has been added that permits these districts to be used for public-private-partnerships that will construct or improve broadband infrastructure.  CIDs and cities and counties that create NIDs are now specifically authorized:

“[T]o partner with a telecommunications company or broadband service provider in order to construct or improve telecommunications facilities which shall be wholly owned and operated by the telecommunications company or broadband service provider…”

However, this specific authorization is limited to areas that are certified by the Missouri Department of Economic Development to be unserved or underserved. As a practical matter this means that the area to be covered in an agreement with a telecom or other broadband service provider (an “ISP”) must currently have internet service below speeds of 25 mps download and 3 mps upload.  This requirement is imposed by cross-reference to the Missouri’s Broadband Grant Program statute.

How can Missouri cities and counties use a CID or a NID to “partner” with a broadband provider and bring broadband service to their community?

One example might be for a CID (or the City/County acting through an NID) to contract with an interested ISP to build broadband assets and to deliver broadband service to residents and businesses located in the district, in exchange for an upfront lump sum cash payment.  This cash payments would constitute the CID/NID’s “contribution” to the partnership formed with the ISP.  The ISP partner would obtain conventional financing and/or grants from the federal government to pay for the balance of the cost of the system, and the ISP would operate and maintain the newly-constructed system.  Residents and businesses would subscribe for service on the system pursuant to a normal internet service model, but the cost of that service could be more affordable, because a portion of the capital investment was covered by the CID and/or NID.

To further government and public purposes, the newly-constructed broadband system could be made available for use by the city and county government and other government entities such as the local school district, the county public health department and municipal utilities.  These “government users” would use broadband to better deliver government services to the district’s residents and businesses.  For example public schools might use the system to provide remote learning opportunities to children – and help solve the homework gap.

The upfront investment from in the partnership by the CID/NID could be financed with debt paid by revenues produced from special assessments, taxes imposed in the district, or from fees paid by local government users of the system.

The picture below illustrates how this “ISP Public Support Subsidy Model” would work.  The CID or NID provides a portion of the funding for the broadband project, along with possible ongoing contributions by other local government entities that will use and benefit from the system.  Together, these public entities “partner” with an interested ISP to make broadband and its applications a reality for the district’s residents and businesses.

In the above-example, the CID or NID is only one part – albeit a critical part – of an overall plan to bring public support to a broadband infrastructure project that will be owned and operated by a private ISP.  Implementing the plan assumes that residents and businesses located within the CID or NID boundaries want broadband – and that they are willing to join together to help fund the “gap” that currently makes the expansion of broadband into their community financially impossible for the ISP acting alone.  However, one advantage of taxing districts is that their boundaries can be tailored to include those areas where residents and property owners clearly favor the approach and are willing to join together to help pay for it.

This and other approaches are described at pages 48-54 of the Workshop Report prepared for Bollinger County, Missouri, as part Broadband Workshop hosted by University of Missouri System earlier this summer.

Whether a CID or an NID is a practical solution for a particular community requires individualized legal and financial advice of professionals.  Many steps are necessary to properly explore and implement a workable financing plan that adequately protects the interests of the public and that provides a fair economic return on the ISP’s investment.  That said, the changes made by HB 1768 are a welcome new tool to allow local communities to begin to enjoy the benefits of Broadband.