Palo Alto’s Torn Over Fiber Project

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Officials in Palo Alto, Calif., are torn over whether to proceed with a municipally funded fiber-to-the-home telecommunications plant that would compete with SBC Communications Inc. and Comcast Corp.

In a vote last month, the city’s Utility Advisory Committee split over whether to recommend that the City Council proceed with a municipal overbuild.

The city, home to Stanford University, has been examining the feasibility of FTTH since 2000, when the council approved a limited trial.

That trial launched in October 2001 and served 66 sites, including homes, a library, a school and the civic center. During the trial, the project delivered phone service through SBC; video, though only local TV channels; and Internet service outsourced to a local provider.

The committee reported fees from the trial paid for the expenses.

That technical trial gave the community enough confidence to have a business case study created by an outside consultant, Uptown Services.

That study developed a proposed budget of about $40 million, including marketing, direct sales, hardware and programming costs.

The study estimated the city would need 22 full-time personnel to operate a bundled-services company, which should be created separately from the local municipal utility.

The project has reached Phase 3, and the city needs to decide whether or not to spend $390,000 for the next step.

The utility commission pointed out risks to running a telecommunications system, such as lack of control of content costs.

The funding mechanism — bonds, privatization or loans from general funds — would be also subject to voter approval.

California law requires a two-thirds majority of voters approve new tax-supported ventures, a level that’s proven very difficult to achieve.

The report noted that if the city goes forward, the funding measure may also have to compete with a tax measure sought by the local school district, as well as the city itself, which may need new business-license or hotel taxes to balance its budget.

Palo Alto has long demonstrated support of alternative business models.

When the community was first wired for cable, the city did not franchise a commercial cable operator. Rather, it adopted a cooperative approach in which subscribers also became shareholders in the local infrastructure.

The co-op later found it did not have the money to keep up technologically, so it sold out to Tele-Communications Inc. in the early 1990s. Comcast now operates the system.

The City Council has tentatively set May 24 to decide whether to proceed with the FTTH proposal.

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