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The city of Burlington, Vermont is providing communication services for its residents over a new, advanced municipal fiber optic network. Burlington is a city of about 40,000 persons. The city department that builds the network, operates it, and sells communications services is called Burlington Telecom (BT). BT had been designed and operated to be self-sufficient. BT receives no city budget or special tax revenue.

BT has been much more successful than other new communications services providers. Construction of BT's fiber network began in 2005. BT provides wholesale services on an open access basis to other communications service providers, and it provides telephone, cable television, and broadband Internet services to retail customers. BT signed up its first customer in 2006, went cash-flow positive for operations in 2007, and is projected to cover its debt and be profitable about 2009.[1] The network is intended to offer long-term, advanced communications services to every resident, business, and institution in the city. By the end of 2008, the network will be sufficiently extensive to do that.

One important factor in BT's success has been the expertise and leadership of Tim Nulty. After an impressive career working for the United Auto Workers, the U.S. government, the World Bank, and a private capital fund addressing telecom start-ups in Central and Eastern Europe, Nulty came out of retirement to provide key direction for the Burlington project. Unfortunately there's only one Tim Nulty. But other cities have good leaders, and they can learn from what Nulty has done.

Nulty emphasized a "build the barn you can afford" approach to building BT's network. BT first built a network for Burlington city government organizations, which served as anchor tenants. The network was then extended to selected large businesses. Subsequently it was expanded to serve residential customers.

BT benefited from relatively low cost of capital. Koch Financial Corp., an organization of private investors, provided $20 million dollars for the project at 5.17% interest.[2] The physical network itself, rather than municipal guarantees, provides the backing for the loan. However, as municipal finance, the interest is tax-exempt. Tax-exempt municipal bond financing provides capital much more cheaply than private equity finance.

A factor less widely understood is that providing retail services has been critical to making BT financially sustainable. BT's retail services include differently priced bundles of telephone, Internet, and cable services similar to what commercial service providers offer. Since BT offers wholesale services on an open access basis, commercial services providers could out-compete BT at the retail level and confine it to wholesale service provision. Given that city departments typically do not excel in complex, competitive retail services, that probably would be a desirable long-term outcome.

However, beginning a municipal network with retail services makes good financial sense. Establishing a municipal network necessarily requires mobilizing the population to support it. Commercial service providers, in contrast, need to make huge expenditures on advertising and marketing to gain popular recognition and to attract customers. Moreover, pre-established popular support for a municipal network makes customer uptake relatively predictable and scalable. BT has had a take rate of about 30% of houses passed.[3] At the recent Freedom to Connect conference, Nulty emphasized that not allowing a municipal network to provide retail services is a sure way to kill it.

Update: See also the East Central Vermont Community Fiber Network.

Update 2: Burlington Free Press article on Burlington Telecom. Tim Nulty's response. More on the Vermont E-State and the East Central Vermont Community Fiber Network clash with the Vermont Telecom Authority. Summary: technology is easy compared to the interaction of human egos.

Notes:

[1] From Tim Nulty's presentation at Freedom to Connect, 2008.

[2] This was for Phase 3 and 4 of the project. A $2.6 million loan for the initial phases was at 5.63%. See p. 3. of Christopher Mitchell, Burlington Telecom Case Study.

[3] Ibid.

2 Comments

Providing network infrastructure need not be limited to a choice between the model of public roads and the model of selling soap. The provision of public roads depends on market transactions for a variety of goods (construction worker services, trucks, asphalt, etc). Selling soap depends on a variety of public services (money supply provision, law enforcement, public right-of-ways, etc.). Whether in India, Ireland, or Silicon Valley, initiatives to provide network infrastructure are making interconnections between different organizational forms more complex. Revenue models are expanding from taxes, subscription, and advertising to include a variety of public and private sponsorships, in-kind contributions, and special benefits for anchor users.

Impurity is a traditional human concern. In some circumstances, another name for public-private partnership is bribery and corruption. Failed and wasteful network infrastructure projects that involve governmental entities undoubtedly exist. For-profit network providers, who cannot fail without serious public effects, have made dire business mistakes and squandered huge amounts of money. Government entities' judgments about the services that users value are not likely to be better than those that for-profit network providers have made.

The history of libraries in the U.S. suggests that organizational diversity can have enduring value in information infrastructure. In the American colonies and the United States prior to 1876, most organizations that founded libraries were neither government bodies nor commercial organizations. A wide variety of organizations established libraries (see Table 1). The most commonly created form of library was a social library:

a library owned by an association formed to establish and operate a library intended for its members' use. Usually, the members subscribed for stock in order to purchase the initial collection, which was general in subject matter. Then they were assessed a smaller sum (a "tax") each year to keep up the collection.[1]

Public libraries, meaning libraries that government bodies owned and made open to all or most citizens without a specific-purpose charge, began to grow only from the mid nineteenth-century. As late as 1900, about as many social libraries existed in the U.S. as did public libraries (see Table 2).

Public libraries had different characteristics than social libraries. Smaller populations and more recently settled areas favored social libraries, while larger populations in cities with a longer history favored public libraries. Social libraries had typical lifespans about thirty-five years, with considerable variance.[2] Public libraries tended to be more permanent organizations that endured in organizational form through jurisdictional consolidations. Public libraries had a more secure base of funding and grew in size relatively rapidly. Across the last twenty-five years of the nineteenth century, public libraries came to predominate among the largest libraries (see Table 3). These historical facts are consistent with general comparative organizational characteristics: compared to social organizations, government organizations are more difficult to establish and require more developed government administrative capabilities, government organizations are more enduring, and government organizations are more favorable for organizational growth. Shifts in library organizational forms were in part a response to changing demographic and political circumstances.

Different organizational forms, however, interacted significantly. Social libraries and public libraries coexisted as important forms of library organization for more than half a century. Through at least 1875 and possibly into the beginning of the twentieth century, social libraries were widely regarded as a valuable form of library organization.[3] Some public libraries evolved from the buildings and collections that social libraries established. In the 1930s, more than a sixth of all "public" libraries in cities with population 30,000 or greater were libraries for which "the library society and the town government shared control in a manner that makes it difficult to know how power was divided between the two bodies."[4]

In a long-run international historical perspective, the U.S. has had a relatively highly developed information economy. New organizational forms for book sharing, network infrastructure, and telephone service are not just necessary entrepreneurial experiments in rapidly changing technological circumstances. Diversity in the organizational forms of its information infrastructure has been an enduring characteristic of the U.S. information economy. Organizational diversity may be a key to growth of the information economy.

Notes:

[1] From "Definition of Types," American Libraries Before 1876, Davies Project.

[2] McMullin (1985) p. 214.

[3] Id. pp. 218-20.

[4] Id. p. 223.

References:

McMullin, Haynes (1985), "The Very Slow Decline of the American Social Library," Library Quarterly, vol. 55, no. 2, pp. 207-225.

McMullin, Haynes (2000), American Libraries Before 1876 (Westport, Conn.: Greenwood Press).

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