Broadband Communities

AUG-SEP 2014

BROADBAND COMMUNITIES is the leading source of information on digital and broadband technologies for buildings and communities. Our editorial aims to accelerate the deployment of Fiber-To-The-Home and Fiber-To-The-Premises.

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AUGUST/SEPTEMBER 2014 | | BROADBAND COMMUNITIES | 33 COMMUNITY BROADBAND Creative Financing For Fiber Networks Municipalities that want to bring fber networks to their residents must be willing to think outside the box. By Doug Dawson / CCG Consulting T raditional fnancing is not always the solution for fnancing a new fber network. For example, many rural communities don't have the borrowing capacity to fund a fber network strictly from bonds, and banks are still extremely cautious about lending to infrastructure projects or foating loans more than 12 years in length. Recently, I have seen several creative ideas in the market that are worth highlighting. Tese concepts could be used to fund municipal fber projects or public-private partnerships. TAX INCREMENT FINANCING Wabash County, Ind., wants to use tax increment fnancing (TIF) as a way to fnance a new fber network. TIF works by borrowing today against future increases in property taxes. TIF has been used for decades to fnance infrastructure projects, but I don't think I have ever seen it used to build fber. Tis is very diferent from the normal way of fnancing municipal fber projects, which involves issuing bonds that pledge customer revenues and the value of the network as collateral. In this case, the county expects that the project will be able to pay its annual debt service and that property taxes will have to be increased only if the fber network is unable to cover the whole cost of debt. Property taxes become the collateral for the project and assure a lender that it will be repaid for lending to the project. Other counties and municipalities in the state are looking at TIF. Interestingly, the Indiana Association of Cities and Towns recently helped defeat proposed legislation, supported by incumbents, that would have stopped municipalities from using TIF for fber projects. It is not unusual to see incumbents try to stop or ban any new fnancing ideas for municipal networks. UTILITY FEES Anybody who watches the industry understands the troubles that have plagued UTOPIA, a municipal network in Utah. Te company has been refnanced several times and has never raised sufcient capital to build to enough homes in the area to become solvent. UTOPIA cities are working with Macquarie Capital, an Australian company, on a fnancing plan that would fnance the construction of the rest of the network by means of a monthly utility fee billed to each home within the network footprint for 30 years. Tis is similar to what was done in Provo. Tat city sold its fber network to Google for a dollar, and customers are billed a monthly fee of about $6. For that small fee, customers can get 5 Mbps download Internet, or they can elect to pay more for Google's gigabit speeds. Tis plan difers from the Wabash plan in that customers begin paying the utility fee at the beginning of the project and will pay it for 30 years. Rather than serving as collateral for a loan, the utility fees help fnance the project directly. ECONOMIC DEVELOPMENT BONDS / LOCAL BANK CONSORTIUM RS Fiber Cooperative, a new cooperative in Sibley and Renville counties, Minn., is combining two diferent ideas to seek fnancing. First, it aims to fnance a portion of the project with an economic development bond guaranteed by a number of municipal entities within a fairly large rural service area. Tese bonds, which would cover less than one-fourth the project cost, would act as seed equity in the project. Te remainder of the project will be fnanced through loans from a consortium of banks. Te idea of bank consortiums is not new; it has been used to fnance other infrastructure projects. Generally, a local bank solicits additional banks to carry part of the loans. Local banks often have signifcant cash to lend and a shortage of quality borrowers. Local banks are also constrained by the amount they are willing to lend to any one borrower. By combining the lending power of many banks, no one bank lends too much, and each gets to participate in a high-quality loan. Tis project is a great example of a public-private partnership. It will be operated as a commercial entity – a cooperative – and will draw on both municipal and commercial funding. All three of these ideas step outside normal fnancing channels. In today's world, this kind of creativity is needed to get needed infrastructure built. v Doug Dawson is the president and founder of CCG Consulting, a consulting frm that has helped more than 750 carriers in the last decade. Contact Doug at

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