Santa Cruz Council Votes Unanimously for Fiber Public–Private Partnership

Are we seeing a new trend in broadband public-private partnerships? This week, the City Council of Santa Cruz, CA unanimously approved a partnership with a local provider, Cruzio Internet, in which the City will build, own, and maintain fiber optics that pass every home and business in town, while Cruzio lights and operates the network and provides retail services to Santa Cruz customers. The project will run fiber past each parcel of land in the City and deliver the potential for gigabit Internet service to every home and business by 2018.

I wrote earlier this year about the innovative partnership of this same model between Westminster, MD and Ting Internet—to my knowledge, the first of its kind in the U.S. As someone who spends my days thinking about, and crafting, new ways to develop fiber-to-the-premises networks, I believe the Westminster model has the greatest potential to be replicated in communities across America—because it plays so beautifully to the respective strengths of public and private sectors, and because it reflects an attractive shared risk opportunity.

Santa Cruz is the first demonstration of that replicability, as the model is substantially similar in framework to that of Westminster: public sector fiber; private sector electronics and services; and a sharing of risk that makes the opportunity more attractive for both public and private sectors.

Like Westminster, Santa Cruz is just far enough removed from a major metro area to make unlikely a purely private investment in ubiquitous fiber. Although the City is less than an hour drive from the heart of Silicon Valley, it is still cut off from the rich broadband infrastructure in the Valley—and from Google Fiber and Comcast’s tentative plans for even more. Incumbent providers in Santa Cruz have not indicated any interest in upgrading their networks to the emerging standard—fiber-to-the-premises. Frankly, absent competition, incumbents don’t have much economic incentive to upgrade.

The City’s solution is a partnership that plays to the strengths of both public and private sectors. The Council approved a shared risk/shared cost partnership with a very local—and very committed—private partner. Santa Cruz will build the $52 million network, financing the construction with bonds and leveraging its long experience with public works and utilities to focus its efforts on the fiber optic infrastructure in the public rights-of-way. Cruzio, for its part, will lease the fiber from the City and will serve as network operator and service provider, focusing on what it does best, providing great Internet and customer service to Santa Cruz homes and businesses.

The model is win-win-win—for the City, for Cruzio, and for Santa Cruz consumers. For the City, this effort is a long-term economic development program, enabled by the City’s bonding capacity. For Cruzio, the City’s efforts will enable it to move its existing Santa Cruz customers over to state-of-the-art fiber and to build its customer base in its home town.

Perhaps best of all, for Santa Cruz consumers, the partnership offers them the same high speeds Silicon Valley consumers will enjoy, provided by a local company with a history of fantastic customer service. Cruzio has been operating in the Santa Cruz area for 26 years and is one of the oldest ISPs in California—and remains locally owned and operated. The name of the company even derives from its identity as a Santa Cruz company—Cruz from Santa Cruz, and io from Input/Output.

The shared-risk model makes the partnership attractive to both parties. The City can take a long view with regard to capital—bonding over the long terms that are typical of municipal bonds (but atypical of private investments in communications infrastructure that require ROI in a handful of years). And Cruzio will share the City’s financing risk—part of Cruzio’s commitment is that it will cover 80 percent of funding shortfalls if revenues are insufficient to cover the City’s costs.

Market surveys demonstrate clear enthusiasm in the community for gigabit Internet and the open partnership model. At the Santa Cruz City Council meeting Tuesday, Economic Development Director Bonnie Lipscomb commented that “we haven’t even built the fiber network and people are excited to work with us.”

I’m proud of CTC’s role in developing this partnership. The City selected its preferred private partner and then hired us to provide systems-level engineering, cost estimation, market data analysis, financial modeling, and business model development. It was a thrill for us to be engaged in such a community-focused partnership and innovative business model—and I’m personally delighted to rack up another win for local Internet choice, following the great outcomes in Westminster, MD and Holly Springs, NC.

This week’s yes-vote is another example of the innovation we are seeing in broadband partnerships nationwide. Through the partnership with Cruzio, Santa Cruz has the power to ensure the entire community is served with fast, affordable, future-proof broadband. Huge congratulations to Santa Cruz and Cruzio—like Westminster and Ting before them—and the many projects we think are likely to build on their innovative model.

— Joanne S. Hovis, President, CTC Technology & Energy

Published: Thursday, December 10, 2015 by CTC Technology & Energy