Dollars and Sense

Rybak holds to the idea that private vendors are the best option for the city primarily because the city of Minneapolis won’t have to—and can’t—pay for it. So the city’s plan consists of securing a private vendor to build and manage the network. The estimated cost of the project is $25 million, which won’t come out of taxpayers’ pockets. Instead, the vendor the city chooses to administer the program will foot the bill as an investment and will make its money back as it gains customers.

By not relying on taxpayer money, cities avoid direct conflict with telecom and cable companies that have fought such plans with well-financed ad and public relations campaigns claiming they waste taxpayer dollars. For example, in 2003, cable companies and telecoms defeated a referendum in suburban Chicago that would have created the Tri-City Broadband authority to deploy municipal broadband across several communities. Fiber for Our Future, a citizen committee that favors municipal broadband service, claimed the cost of companies’ advertising campaign against the initiative ranged into the seven figures.

According to a Minneapolis’ Business Information Services (BIS) recent Request for Proposals (RFP) document released last spring, the $25 million price tag for the city’s program exceeds the city’s entire $23 million annual capital improvements budget for all of its capital needs, such as street repair. And this doesn’t take into account the upgrade and maintenance costs associated with the technology. But the report also doesn’t take into account the possibility of a publicly-owned information infrastructure as an investment that—conservatively—will generate on average 12 percent annual returns; surplus revenues beginning in the first year of operations, and, realistically, tops the total public benefits over 15 years at $129 million.

“They are so concerned with eliminating gaps that they don’t consider investing in infrastructure that could both lower the cost of city services and improve the quality of life in Minneapolis,” says Becca Vargo Daggett, research associate for the Institute for Local Self-Reliance, an organization dedicated to sustainable, economic development.

She applauds the city’s efforts in creating a broadband network, but stresses that a publicly-owned citywide wireless network could generate millions in public benefits, including paying for itself in five years, according to a financial analysis recently released by the Institute. “Even in the worst-case scenario, the network makes money in the first year. Investing in its information infrastructure is the wisest investment Minneapolis can make at this time,” insists Ms. Vargo Daggett, who is also director of the Institute’s Municipal Telecommunications Project.

The report, “Is A Publicly Owned Information Network for Minneapolis a
Wise Public Investment?” was done to fill a void in the public discussion. “We had hoped the City itself would do such an analysis,” says Daggett. “It’s not too late. In the report, we urge the City to develop its own financial analysis and make it publicly available.”

The report offers two scenarios: One is very conservative, or “worst-case”; the other more realistic. Under the more realistic scenario, in the first year of operation, the publicly owned system would generate sufficient profits “to put 20 more police officers on the streets or keep all 15 libraries open on Sunday afternoons.”

The report concludes that in its first 10 years the system could generate a surplus of $19 million. “This could go into the City’s general funds or be used to guarantee that all residents in Minneapolis have access to high speed information networks,” says David Morris, vice president of the Institute. Mr. Morris notes that the City has stated publicly that it cannot afford to invest $25 million in building a network—that such an investment is equal to its entire annual capital budget. “But the vast majority of the city’s existing capital budget is for non-revenue generating projects, like road resurfacing. This investment, on the other hand, will yield a 10 to 20 percent annual return. Minneapolis isn’t going to become a great city by passing up this kind of opportunity.”

A “public-private” partnership?

Rybak has commented that outsourcing this city service is a good example of a public-private model. He said the city is going to make a deal with a vendor who not only gives city staff access to the Internet, but also to residents, schools and businesses, at a reasonable price.

“We are using our buying power as a city to deliver a service for every citizen in Minneapolis,” he was quoted in a recent interview with the MN Daily, the University of Minnesota’s student-run newspaper. Given that the city is planning on outsourcing the development of the network, the maintenance of the network, the service of the network and the actual fiber-optic infrastructure (the backbone, etc.), one might wonder if there really is a partnership at all. Other than that, Minneapolis’ core city services will be yet another—albeit a huge—client for one of two telecommunications giants, this is more aptly a public-private ongoing subsidy. So why would any forward-thinking city even consider such a proposal?

Again, the main justification for excluding the possibility of public ownership is that the city lacks the financial resources. But it is clear that other municipalities around the country and world—like Portland, Boston and Jerusalem, to name just the tip of the Wi-Fi iceberg—have or are currently considering the public ownership model primarily based on its investment potential. Not only will the investment create a revenue source that, based on the experience in other cities, will easily pay off the $20 to $25 million (relatively small bonds for an information network) in a little over five years, it will also provide a significant surplus that could be used for future city projects. By comparison, consider that the government’s investment in light rail is 35 times that cost. Light rail serves less than 2 percent of the population, while a telecommunications highway will serve as much as half the population currently, and will serve nearly everyone in the not so distant future.

Some city officials have also argued that Minneapolis needs to avoid lawsuits; that building an information network is outside of the City’s core competencies; and that the City has already invested considerable resources in getting to this point and any delay will inhibit the introduction of high speed broadband.

Minneapolis is well within its legal rights to build a municipal network; Minnesota law does not restrict municipal telecommunications utilities in any way, except to require a two-thirds majority approval in a referendum if the city intends to provide telephone service.

Minneapolitans would be wise to remember that legal battles by private companies held up construction of the Minneapolis cable system for four years. And the recent proposal was intended, in part, to build a high-speed network to which the City already believed it was legally entitled under the cable franchise agreement.

That the city had to resort to a lawsuit against Time Warner indicates how little influence a city has over a private network once it has entered into a long-term contract. Adding insult to injury, in November 2005, a U.S. Circuit Court granted Time Warner’s motion to dismiss the case, primarily on the ground that the City’s authority over its cable franchisee is preempted by federal law.

Over 100 other cities have found that it is their responsibility as caretakers of their cities’ futures to own high-speed information networks that serve residents and businesses. In Minnesota, this includes Buffalo, Chaska, Windom (which has a municipal fiber-to-the-home network), and Moorhead. Hundreds more have found it within their responsibilities to own at least the networks that carry sensitive data traffic for city services and other public entities, such as schools and police.

Minneapolis doesn’t need to be a service provider, like Chaska.net, and can lease capacity on its network to competing service providers and therefore actually encourage competition and lower prices in the private market, rather than a Time-Warner-esque monopoly akin to Minneapolis’ cable contract. The city doesn’t even have to manage the network—it may contract network management to another company—but that tends to raise security flags. Building this kind of public-private information network is easily within a city’s realm of competencies.

Philadelphia is a city that recently went with outsourcing service and maintenance, but in the spirit of ’76, kept democratic safeguards in order to generate revenue and help bridge the digital divide. Wireless Philadelphia (WP) is a nonprofit group incorporated by Philly’s Mayor John F. Street. WP struck a deal with Earthlink to develop and build the nation’s largest municipal Wi-Fi broadband network at 135-square miles.

Under the terms of the agreement, which can be renewed for two five-year terms, Earthlink will carry the cost—a little over $13 million—to build the Wi-Fi network. The company also will pay the city and Wireless Philadelphia a fee to mount wireless internet equipment onto city infrastructure, such as streetlamps. These 4,000-plus wireless access points will transmit to each other, forming a wireless internet mesh. Earthlink will then give 1,000 Wi-Fi accounts to the city, and negotiate a discounted rate for additional users.

Earthlink will own Philly’s network and charge a wholesale rate of $9 a month to internet service providers (ISPs) that would resell the service to the public, the idea being that wholesale price is low enough to enable ISPs to offer at $20 or less. The City of Brotherly Love will also provide free internet access in some parks and public spaces and Earthlink will give Wireless Philadelphia 5 percent of revenue, which will be allocated for buying 10,000 computers for low-income households.

Catherine Settanni, Executive Director of Community Computer Access Network (C-CAN), is somewhat inspired by Philly’s Wi-Fi, and says that helping poor people access the internet must be a driving force of any project.

“Public ownership does not address this issue in any way—it assumes that if we all pay for this broadband Wi-Fi network, we’ll somehow all benefit.” The truth is, says Settanni, that “under public ownership, the costs of this network will be shared with those who can least benefit from it—those without computers, or technology literacy skills. There is nothing progressive about taxing the poor to pay for Wi-Fi access that serves us creative class techno-literates.”

She also feels that if Minneapolis’ Wi-Fi becomes a public utility, any revenue generated will go back into the General Fund and have to be “fought for all over again” to bring access to the poor. C-CAN’s position is that the private/public partnership the City is pursuing provides the best opportunity for low income, digitally disenfranchised residents and non-profits.

Along with their project partner, the Alliance for Metropolitan Stability, C-CAN has organized a community coalition now in the process of drafting a community benefits agreement with the vendor who wins the Broadband contact in Minneapolis. They’ve met with the two finalist vendors several times to discuss community technology needs and are at the table representing community concerns about private ownership, i.e. who benefits and who gets left behind.

As the public/private debate rages on, there are ways to begin extending high-speed information access to all Minneapolis residents immediately without relinquishing control over our information future. The cost of activating wireless “hotspots” in neighborhoods with low rates of broadband subscriptions is in the thousands of dollars, not millions. This has been demonstrated with Wireless Community Networks in Chicago and Champaign-Urbana, where free and low-cost wireless is available through small-scale networks based out of community centers. It was also demonstrated when wireless networks were set up quickly and inexpensively in the aftermath of hurricane Katrina. It’s feasible to establish a wireless network this year without compromising a proper analysis and a much needed robust public discussion.

Taking cautious steps will cause only a small delay in building a complete wireless network. Isn’t it the city’s duty to choose the form of ownership that is best for its citizens, rather than the form that is best for a private company trying to protect its market share? Can we afford not to have this debate?

A backbone … anyone?

Rybak has been in the news a lot lately touting the benefits of Wi-Fi in the city— from students being able to move around the city while easily doing work, to overall “urban greatness” of a citywide Wi-Fi network. He has been so successful in plastering his name in the media around this proposal that in a recent Star Tribune puff piece on Wi-Fi—a piece that neglected to mention anything about public-ownership (“Minneapolis is cool with citywide Wi-Fi” 02/01/06)—even went so far to call this “Rybak’s vision.”

That “vision” of Wi-Fi throughout the city belongs to the 21st Century, an inevitable sign of the times. Cities like Minneapolis are at a technological point where they must go wireless to facilitate government communications, linking city buildings, police and inspectors to the city’s databases. Essentially, this is an effectiveness and security issue for developing modern police, fire, emergency, and other imperative services. The excess capacity will be made available to provide service to businesses, residents, guests and the public in general. That begs the question: Are there leaders in this city with the backbone to ask if it is wise to outsource the development and maintenance of our entire security and information network infrastructure?

Other cities that have eventually chosen to allow a privately-owned wireless network have gotten better deals from their private partners if they first own the most valuable portion of the network—that fiber backbone. Keep in mind that wireless is only the last piece of an information system—a convenience that enables mobile usage. Many cities already own fiber networks. In fact, Minneapolis already owns a limited fiber network, which was installed by the city’s BIS department. By maintaining ownership and expanding the network, cities have much more leverage with private companies interested in installing a wireless system. Once the fiber backbone is in place, adding wireless is relatively inexpensive. In Tempe, for example, a private company has installed parallel wireless networks using city facilities, and with access to the city’s fiber network. In exchange, the city is getting free wireless for all municipal services. Corpus Christi owns both its fiber backbone and its wireless network, which are currently used only for municipal services. Private companies are now seeking to pay the city to provide services over the municipal network.

It is clear there are viable alternatives to the current Wi-Fi proposal that has Minneapolis tied to a long-term contract to a privately owned network. Why aren’t our elected leaders leading on this? How did we get into this mess?

How Minneapolis got into this mess

It really began in 2003, when the Park Board was pursuing a plan to allow a private company to use Park Board facilities to set up a wireless network. Originally, the Park Board went ahead without city involvement. The concept was expanded to include the city, with the city’s BIS department taking the lead. Then in January 2004, the City Council passed a resolution making BIS the central organizing agency for all activities related to deployment of citywide wireless. In November 2004, the City Council delegated all responsibility for all activities related to citywide wireless to BIS.

In April 2005, BIS announced a bid (RFP) from private companies willing to finance, build, own and operate a citywide wireless network. The city would be an anchor tenant on the network, paying for wireless services as well as wired information and communications services for city departments, schools and libraries. In addition to exclusive rights to the city’s business, the private partner would have the non-exclusive right to place wireless equipment on and in city facilities, and would build out the city’s wired infrastructure as necessary to support the city’s need for wired and wireless services. The city expects to receive a percentage of revenue from sales of wireless services to residents and businesses. Ironically in the same month, after more than a decade of conflict, the city filed a lawsuit against Time Warner Cable alleging that the company had violated the terms of the franchise agreement by itself using capacity that was to have been set aside for public use.

In October 2005, BIS announced that two finalists, Earthlink and U.S. Internet, had been selected from the nine proposals submitted. The selection of finalists was not presented to the Council for consideration.

In fact, to date there have been neither public meetings nor public hearings on the initiative. There were several internal working groups, consisting of representatives from city departments and the Park, Library and School Boards. The only external working group consisted of representatives of the business sector. The questionnaires completed by these working groups did not include any mention of ownership models.

No feasibility or cost-benefit study has been done that compares different ownership structures. Odd, given that over 100 other U.S. cities have successfully created municipally-owned, high-speed information networks. These cities have, at minimum, created a publicly available document laying out the rationale for a citywide network and alternatives for ownership and operation. The latest example is Saint Louis Park, Minn. Indeed, Saint Louis Park’s feasibility study specifically refers to and compares itself to the Minneapolis proposal. Under its proposal, the St. Louis Park will own and operate the network, and will “set price levels and ensure reliable service.” Under the Minneapolis proposal, the city will have no ownership or control over the network, and therefore has no control over the service or pricing.

Across the river in St. Paul, a citywide wireless internet network is one step closer to reality now that a broad study has begun of how it should offer municipal wireless. The study will take input from residents and the business community and examine St. Paul's communications infrastructure looking at how similar cities approached the issue. St. Paul has advantages over Minneapolis that make it easier to offer a Wi-Fi network. For example, St. Paul owns city light posts, which can be used to mount wireless transmitters. Ultimately, several proposals will be presented to the city, which will include ideas on how large a role the private sector should play.

Earlier this year, the City of Minneapolis issued yet another RFP for the construction and operation of a citywide wireless and fiber network. The business model that Minneapolis chose to pursue is rooted in a private handout reminiscent of a Halliburton reconstruction contract. According to the RFP, Minneapolis is seeking a vendor that will build and operate a wireless network, and in return, the City agrees to buy service from the selected provider. This type of arrangement is similar to a cable franchise arrangement, in which one provider owns the infrastructure and is also the exclusive service provider.

Just say “No” to corporate handouts

Where does the buck stop? Accountability and transparency are keys to a responsive government, and happen to be the two values that are sorely lacking in the Minneapolis Wi-Fi debacle. Mayor Rybak can be such a great advocate for this city; one has to wonder if he is not aware of the gravity and urgency of the situation, or if he just doesn’t care. This is primarily a Minneapolis issue, and we all know at whose desk the buck stops.

The last incarnation of the City Council seemed practically clueless to the possibility of municipal Wi-Fi as an investment and appears to have never taken the time to carefully examine the risks and benefits of publicly-owned models compared to the current privately-owned proposals. Current Council President Barb Johnson supports the private model, saying that “the direction the city is taking to provide wireless service to all our citizens while mitigating the risk to the taxpayers.” She neglects to mention that it is the taxpayer who will be missing out on literally hundreds of millions of dollars to projected revenues.

Lisa Goodman, a no-nonsense veteran councilmember who represents some of Minneapolis’ finer neighborhoods, says she mainly supports the current privatization direction because she “wants to see something done.”

Newcomer Councilmember Diane Hofstede was more cautious, noting that she supports a “network that will deliver service to our broader community,” warning that is must be “cost effective for our city.”

Green Party Councilmember Cam Gordon is one elected leader who has questioned a private Wi-Fi model. “Enough concerns and questions have been raised about the current model—and the process that got us here—that I am convinced that we need to take a breath and evaluate how we got here and make certain that we are moving in the best direction,” says Gordon.

He continues, “The Public Safety Working Group itself raised concerns about transmitting police, fire and inspections information over a privately-owned system. While I am not interested in derailing the progress that has been made, I do think we need to move forward from here in as thoughtful and open a way as possible.”

Gordon is about process and inclusion: “If we affirm that the current private model does make the most sense, we need to lay out a more public, informed and inclusive process for comparing the two pilot programs and crafting the best contract possible that will preserve public involvement, meet the needs of residents, businesses and all city departments, and bring affordable, quality wireless internet service to more people in Minneapolis.”

Gordon is inspired by the Philadelphia model, where a new nonprofit is part of the ownership structure. “I think that a public ownership model may offer far better security, more public control, better oversight and involvement in decisions that will be driven, at least in part, by considerations about what is in the best interest of the city and the public and not necessarily by considerations for holding costs down and increasing profits.”

He supports the City Council initiating a cost-benefit study of a publicly-owned network, including, at least, the costs of physical infrastructure, the costs of service provision and maintenance, the benefits of flexibility to negotiate service contracts with multiple vendors over the life of the network, and the benefits to citizens of choices among competing service providers.

As for those city officials who would rather pinch a penny today, and not deal with meeting the challenge of developing, at least in part, a publicly-owned Wi-Fi infrastructure, rest assured that that decision will eventually cost generations hundreds of millions of dollars in lost future city revenue, lower service rates from existing cable or phone companies, and access to locally owned information service providers. Sadly, this is another example of a government giveaway to corporate interests. But what’s possible if Minneapolis’ elected leaders reconsider the current plan for a privately owned network is, most importantly, a restoration of citizen influence on the direction of future information technology. ||

It is not too late for the City to reconsider the current plan for a privately owned network! Contact the City Council and urge them not enter into contract negotiations with a single bidder until a cost-cost-benefit study of a publicly owned network has been done and the results made available for public comment. Just call the new Minneapolis 311–the three-digit number can be called anywhere within the Minneapolis boundary limits–to connect with your representative.