During the recent Westminster City election some candidates made poorly informed or misleading statements about the Westminster Fiber Network (WFN) project. In short, the WFN is doing great. Anyone saying otherwise is either confused or has some other agenda. None of the facts I share here are secret. They’re all in the public record for anyone to access.
Municipal fiber projects are difficult, complicated, and expensive. Back in 2013, there weren’t a lot of readily available American models to emulate, so a detailed and exhaustive process began to explore building a community wide publicly owned fiber network.
Based on very strong positive feedback from citizens, and numerous feasibility studies, business plans, and financial models, the city settled on a Public Private Partnership (PPP), and chose Ting as the private partner.
Construction was planned to proceed in phases, taking 3-5 years to complete. This was chosen to avoid taking on excessive construction debt before an adequate number of subscribers could be enrolled to generate revenue to service construction debt.
During the negotiations with Ting, operating expenses were a relatively unknown quantity. Rather than haggle over numbers and assumptions neither side really had any basis for, we both decided to set aside operating expenses for the future, and focus instead on structuring rates to cover debt service, with reasonable assumptions about future growth to cover operating expenses. This compelled both parties to project break even on debt service at take rates that were far more conservative than Ting preferred, but optimistic from the city’s perspective.
The fiber lease rate was structured to share and mitigate risk. It consists of two components: a passed premise fee, which functions as a base rent, pegged to the number of potentially serviceable addresses passed by the city fiber; and a per subscriber fee, which is only paid when a subscriber is a paying customer.
The passed premise fee accomplishes two things: it gives the city a minimum guaranteed revenue, regardless of how successful the partner is enrolling subscribers, thereby partially mitigating financial risk; it also creates additional fixed overhead for the partner, proportional to their revenue opportunity, which further incentivizes them to enroll paying subscribers as quickly as possible.
Construction expense was initially estimated at approximately $20 million, depending on difficulties with underground construction, and the number of initial drops installed. A loan was secured for $21 million from Sun Trust with very favorable terms, and construction began.
The initial approved financial projections showed break even on debt service expense would occur somewhere between 7 and 12 years after project completion, depending on how quickly subscribers are enrolled.
Thanks to some luck, great planning, and the hard work and careful project management of City staff and our consultants, construction was completed on schedule in four years, at a cost of just over $16 million, significantly less than originally projected. In addition, thanks to lucky timing, borrowing costs were lower than expected.
Gov. Hogan’s broadband office also supported the project with a zero interest 30-year loan of $1.3 million, to help subsidize operating expenses.
As a result, the city is achieving project financial goals sooner than expected. Currently, the Westminster Fiber Network is on track to generate $825,340 this coming year, just shy of the annual debt service of $925,272. This is after only two years of full operations beginning June 2019. Due to lower than expected construction costs, Ting’s great service, and the successful refinancing of the construction loans, break even on debt service should be achieved sometime in the next two years, well ahead of schedule.
This success and rave reviews from residents has created sufficient interest from homeowners and businesses just outside city limits that Mayor Joe Dominick recently moved forward with plans to extend the network beyond the City border to a few locations. Construction costs are expected to be much lower, now that the City has in house fiber construction expertise. More revenue at lower expense equals faster financial success. Further down the road, with sufficient political will and resources, there is no reason this successful model couldn’t extend to the entire county.
The total value of the project goes far beyond entries on financial statements. The benefits to city residents during the COVID pandemic are abundantly clear. Local social media is replete with testimonials to the positive impact of affordable community-wide gigabit service. Downstream economic development of new businesses and attracting new residents due to this 21st century infrastructure will be realized for many years to come.
Dr. Robert Wack lives in Westminster, where he served on the Common Council from 2003-19, and led the efforts creating the Westminster Fiber Network. Reach him at at Robert.firstname.lastname@example.org.
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