Study: Connecting every SF resident, business to fiber-optic internet would cost up to $1.9B

San Francisco is on the verge of becoming an internet connectivity leader by asking the marketplace to help create a fast network on a scale never before achieved by a major U.S. city.

The cost to create a fiber-optic network connecting every home and business in San Francisco to the internet would cost up to $1.9 billion, according to a new city-hired consultant report released today. And the best way to get there is through a public-private partnership.

“The opportunity The City is about to present to the private sector is unprecedented,” reads the 195-page report by Maryland-based consultant Columbia Telecommunications Corporation in partnership with financial advisory firm IMG Rebel.

“There has never before existed in any American community an opportunity for a private entity to lease fiber or broadband infrastructure to reach 100 percent of the homes and businesses in the community,” the report says.

For Supervisor Mark Farrell, who has taken the lead on the issue with the support of Mayor Ed Lee, the report paves the way for making citywide internet access a reality.

“We are going to continue to move aggressively down this road,” Farrell told the San Francisco Examiner on Tuesday. “I, along with the mayor, will do everything possible to make this a reality for San Francisco.”

He added, “We are further along than any other major U.S. city has ever been.”

The consultant team, under contract with the Department of Technology, studied various public, private and public-private models, ultimately determining a public-private model meets the objectives of The City, which includes San Francisco retaining ownership of the network, ensuring the most competition and the least financial risk.

One model the report favors is having The City select through a competitive process one entity to build out the dark fiber network — the actual laying of the fiber optic cables — and select another entity for “lighting” the fiber for use by businesses and residents. The entity elected to create the lit fiber network would then sell access to internet service providers.

The report “envisions delivering 1 Gbps [gigabit per second] intranet access to every home and business and thereby creating a Civic Network that would connect all San Francisco residents and businesses to civic, educational, healthcare and nonprofit resources.”

“Residents and businesses can also choose to purchase retail services (from competing providers that would buy wholesale service from the Lit Fiber Concessionaire), in addition to the free, high-bandwidth access to the Civic Network,” the report says.

The report, titled “The Potential for Ubiquitous, Open Fiber to the Premises in San Francisco,” estimates the internet broadband service would cost residents between $26 and $67 a month and businesses between $38 and $97 a month. The rates would ultimately be determined by how the project is financed and the model chosen.

Additionally, the report assumes a subsidy for 15 percent of the population — more than 100,000 residents who are low-income — which, if free, would total $33 million. But with $10 per month charge, as the report assumes, the cost would be $26 million in subsidies.

The up-to-$1.9 billion estimate includes the total capital cost to build the fiber to the premises network to support ubiquitous 1 Gbps data service.

The City’s financing of the initiative could come from revenue bonds backed by the user fees and pre-leasing use of the fiber.

Farrell said a fiber network, commonly considered the gold standard for internet connection, will not only pay for itself but become a major revenue creator as services like Google Nest, Netflix and the advancement of the Internet of Things would likely pay for use of it.

“This asset that we are building is going to be one of the most valuable pieces of infrastructure that The City could ever have,” Farrell said.

“The need for this is only going to grow.”

The private market left to its own devices will not create a “ubiquitous, open, fiber-based service throughout San Francisco,” the report concludes.

There are two major internet service providers in San Francisco: Comcast and AT&T.

“AT&T is upgrading its network to fiber in certain areas, but not, to our knowledge, on a ubiquitous basis,” the report says. “Comcast … still relies on coaxial cable for distribution and the gigabit service is priced in excess of $150 per month.”

A smaller “new class of competitors including Sonic, Webpass and Monkeybrains is making important investments in fiber … but these new networks are available only in certain areas and to certain buildings or consumers,” according to the report.

As for a public network, such a model could “meet goals for ubiquity and openness” but there are concerns over the ability to build and operate the utility, the limitation of public financing and assuming all the risks.

The analysis found that for a public network to pencil out, the “take up” rate would need to range between 45 percent to 53 percent to break even and “few municipal networks have managed to reach this level of penetration.”

The City plans to invite companies in the industry to meet on Nov. 15 for a “market sounding” on establishing the citywide network, followed by one for internet service providers.

The City then plans to issue a request for quotations and ultimately a request for proposals to build out the network, which would take about two to three years.

If all goes according to plan, The City would approve the project next year.

“Broadband networks rank among the most important infrastructure assets of our time — for purposes of economic development and competitiveness, innovation, workforce preparedness, healthcare, education, democratic discourse, and environmental sustainability,” the report says.

The mayor reiterated his support of the effort in a statement.

“All our city’s residents deserve fair and equitable access to this crucial resource which is why we’ve continued to push forward and advance this project,” Lee said. “There is still a lot of work to be done, but today we are one step closer to delivering fast and affordable internet to every San Franciscan.”

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