Palo Alto, Provo Mulling Muni Overbuilds

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Two Western cities — Palo Alto, Calif., and Provo, Utah — are mulling the prospects of a fiber-optic overbuild of local cable and phone companies.

Palo Alto has operated a two-year pilot program, offering high-speed data service to 90 local homes. Now, officials for the Bay Area community need to decide whether to move forward with a possible extension, estimated to cost up to $50 million.

A business plan prepared for the city by Uptown Services of Greenwood Village, Colo., gave an indication of the competitive forces a municipal fiber-to-the-home project would have to overcome. Palo Alto is home to Stanford University and many residents already have either cable-modem service from Comcast Corp., or digital subscriber line service from SBC Communications Inc.

The plan projects a municipal fiber-optic plant would not generate a profit during its first five years of operation, but could make enough to pay off municipal construction bonds in 15 years.

The electric utility-run municipal video operation could lure customers from Comcast with discounts and bundled services, including video and telephony. Comcast has upgraded its Palo Alto system and now offers 160 channels, charging $41.25 for expanded basic.

The business plan suggests the city match Comcast basic and expanded basic rates, but undercut its charges for digital-basic and premium services.

The muni would offer high-definition services, too. Comcast has launched five local channels.

Palo Alto launched its first cable system as a user-owned cooperative in the 1970s and was one of the last to revert to a traditionally owned, commercial cable system in the 1990s, when board members determined it was a better business decision to sell the system than to invest in upgrades. The system was eventually sold to Tele-Communications Inc.

Officials are reviewing the business plan submitted to the Utilities Advisory Commission, but don't plan immediate action on a fiber optic project. A bond issue would require a public vote.

Provo also has a broadband feasibility study in hand, from Peregrine Communications.

The study found that Provo presents the opportunity to tap into one of the highest per-capita personal computer penetrations in the nation. To reach them, the city would have to compete with two cable operators: Provo Cable TV and Comcast.

On the telephony side, Qwest Communications International Inc. is the incumbent.

Consultants estimate a Provo municipal system could offer services at rates 10% lower than the broadband incumbents. A municipal system would cost about $37 million.

The consultant proposed the system be rented to service providers, from whom the city would earn up to $18 million in annual leases. That revenue would retire the bond, according to the consultant's calculations.

An estimated 33% of local consumers would have to buy services from the city to make the venture profitable.

The energy utility needs the city's approval before requesting proposals from potential vendors.

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