For cities looking to get into the fiber game, the idea of engineering, financing, constructing and operating a citywide fiber network can be daunting.
A new model has emerged, though, that might pave the way for a more achievable option. The Utility Lease Model, an approach that aligns interests with private industry to expand fiber, is working in two mid-sized U.S. cities, and experts hope it can become a model for cities looking to build fiber networks without the headaches of being an Internet Service Provider (ISP).
The concept is simple: as electric utilities adopt new smart grid technologies, they build out (or expand) their fiber optic networks citywide and include excess fiber capacity to be used by others (e.g., ISPs, 4G/5G cellular operators). These network tenants take individual control of operating their broadband network providing residential, business, and wireless services. The tenant agreements are non-exclusive, creating the opportunity for healthy competition.
The model is the brainchild of The Broadband Group, a consulting company focused on city and community-wide broadband planning and construction.
Jeff Reiman, Principal at The Broadband Group, said they pursued this model after being approached by utility officials in Huntsville, Alabama six years ago.
At the time, City officials in Huntsville recognized the importance of having fiber Internet for every resident and business, but did not want to be the ISP,” Reiman said. Known as “Rocket City” for its contributions to the U.S. space program, Huntsville boasts one of the highest concentrations of science and engineering PhDs in the U.S., yet it did not have citywide Fiber to the Home (FTTH) Internet service. Huntsville Mayor Tommy Battle had announced that he wanted Huntsville to be a “Gig City,” throwing his hat in the ring to become Google Fiber’s first build. Unfortunately, Huntsville did not win that bid.
Working with city-owned Huntsville Utilities, The Broadband Group assembled the structure that would come to be known as the Utility Lease Model. “The capital requirements to build out an entire city before getting a single subscriber, rarely makes financial sense to a Service Provider,” Reiman said. “We saw this opportunity for the utility to remove the typical barrier of entry of having to build out an entire network.”
In 2016, the Mayor and Huntsville Utilities CEO announced that Huntsville Utilities would expand fiber passed every home and business in the city under its Smart Grid initiative, while teaming up with none other than Google Fiber as its first ISP.
“Google’s entrance into our market bolsters our high-tech legacy, energizes our entrepreneurs, thinkers and engineers, and supports the high quality of life Huntsville is known for delivering,” said Mayor Battle in a release in early 2016. “Fiber to the Home is the Internet infrastructure for the 21st century. It is as vital to our quality of life as roads, water, sewer and electricity. It will become the benchmark for cities vying for talent.”
For Huntsville, the Utility Lease Model has been a huge success. In four years, Huntsville Utilities has already built out fiber to more than 90% of the city and is on track to reach every home by the end of the year.
In addition, the competition has spurred other Service Providers to invest in fiber, and major tech and manufacturing companies have made significant investments in Huntsville as well. Facebook announced in 2019 its plan to bring a $750 million data center to the city, and Toyota-Mazda announced a few months later a joint venture to build a $1.6 billion plant there as well. Reiman said that that type of economic development should be enticing to any mid-sized city.
Huntsville isn’t the only success story for this model. In 2019, City Utilities in Springfield, Mo., announced it was expanding its fiber network by more than 1,000 miles with CenturyLink as its first anchor tenant ISP. Construction began this year.
“It’s an amazingly positive structure from both a financial and technical perspective,” Reiman said, “and it’s resonating across the industry.” Instead of utilities or cities competing against experienced ISPs, Reiman said, they can work hand-in-hand.
“Our biggest impediment to the growth of fiber in America is failed projects,” he said. “Cities going all in and competing against experienced ISPs—some of the most aggressive in the broadband industry—are taking on a risk that might not be required. The Utility Lease Model maintains a reliance on private enterprise, avoiding government overreach, and respects the metrics of the broadband industry, which allows adoption and use of the model by established service providers.
Reiman adds that the beauty of the Utility Lease Model is that utilities can invest in fiber infrastructure for their own internal operational needs without taking on the risks of being a residential Internet service provider. Similarly, ISPs lower their risk of having to construct a citywide network in a new market. Perhaps most notable is that it avoids multiple layers of very expensive infrastructure.
“That is why this model is so important,” said Reiman. By creating a multi-player approach to fiber, everyone stands to get something they need: electrical grids can be modernized, residents and businesses can receive ultra-high-speed Internet, and local governments can attract more businesses to the area.
“It’s something that’s now being accepted by the Service Providers and the utilities,” he said. “In a time when equitable access to high speed Internet is more important than ever, I believe we will see wider adoption.”
For Huntsville and Springfield, it’s already proving successful.