Public-Private Partnership Considered to Improve Click!

Tacoma's Click! Network is experiencing problems. That's not news. What is newer is a proposal to lease the public network to a third party operator to try to address those problems.

A brief summary of Click!'s history would go something like this: Back in the 1990s the City of Tacoma and its citizens were unhappy with the level of service they were getting from TCI, the only cable provider in Tacoma at the time. So Click! launched in 1997 to provide competition in the marketplace, bring service levels and quality up, and put downward pressure on rates. Initially Click! was successful on those counts, but over time market conditions have shifted, and the network has lost its competitive advantage. Meanwhile, Click! has also not been financially self-sustaining. The shifting marketplace has put the small network at a disadvantage in terms of economies of scale and negotiating power with content providers.

Over the years the City has worked with consultants to keep Click! viable, and various things have been tried, including a deal with ISPs currently set to expire in 2016 that locks in rates while the ISPs grow the customer base. More recent assessments show that's not working either, and look at a range of alternatives for moving ahead. Alternatives were evaluated in light of goals for the network (see the above chart). The options of selling or shutting down Click! were considered, but it was determined that the cons outweigh the pros, with the elimination of a publicly-owned network leading to a decrease in options for customers, and an eventual decrease in services. 

Two alternatives were identified as potentially workable: either reduce labor costs and try to operate with fewer employees or leasing to a third party. The option of leasing to a third party was determined to have the greatest potential for cost recovery while maintaining services, and TPU has been pursuing a conversation with Wave Broadband to do that. Wave offers 24/7 customer service, and is the largest gigabit network provider in Washington. The analysis provided by TPU found them to be financially strong, and committed to net neutrality, while offering competitive value-oriented pricing that could compete head-to-head with Comcast. 

TPU currently has a non-binding letter of intent with Wave, a locally owned, independent company headquartered in Kirkland. The agreement being disucssed would have Wave continue to make investments in the Click! network, and performance measures over the life of a 40 year contract (with the option to renew for an additional 10 years). Wave would provide increased services to Click! customers, with rate increases capped at 5% per year. They would continue to offer a low-income cable internet option for qualifying households, and a bundling option of internet, cable, and phone.

TPU is negotiating with Wave exclusively at this point, as an RFP is not required for this kind of an arrangement, and because there are very few suitable partners for such a public-private partnership.

The idea of leasing Click! to a third party operator is seen to have several advantages - the third party company can offer economies of scale and better negotiating position. If this happens the City will maintain ownership, and thus some degree of control over the network, but the Click! brand identity would go away, and become something new. Overall the assessment is that the deal with Wave would relieve TPU and its ratepayers of most, if not all, of the financial burden of the Click! network.

The proposal worked out with Wave is good for the next 60 days. During that time there will be continued discussion with the City Council and labor groups, followed by a couple of town hall meetings for the public to learn more and weigh in (those are currently penciled in for April 9 and 15). If the decision is to move forward, it will require the support of the council and the TPU board.

The council hasn't committed to anything, and some seemed a little wary when presented with the proposal at yesterday's study session. Councilmember Thoms in particular expressed a desire to ensure that the third party assessment was sufficient, and to ensure that all internal management solutions had been exhausted before pursuing a third party arrangement.

We're sure to hear more about this in the coming weeks, but what's your initial reaction?

Read more from The News Tribune.


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Comments

JohnShermanRegistered

There does not exist the simple solution “Public-Private Partnership Considered to Improve Click!” since a complicated web-weave mixing TPU power, Click! cable, smart electric meters data exchanged, Tacoma power systems monitor and control, and city agencies interconnected by the Click! data cable. Thus Click! is not your typical cables strung along poles with just services to homes and businesses. E.g. Comcast and now new CentryLink data cable network.

Because Tacoma Power electrical rate-payers will always be charged for some part of what Click! had constructed; irregardless, what happens to Click! in future. Therefore just have Click! wholesale internet connectivity to Tacoma Power and allow every home within Tacoma Power ratepayers get the benefit from Tacoma Power as a ISP to utility ratepayers. Internet connectivity to utility homes at a cheap rate. Because we Tacoma Power rate-payers with defined services are already paying money that supports the Click! cable system installation and operation for Tacoma Power ratepayers benefit.

April 2, 2015 at 7:13 am / Reply / Quote and reply

4 | 2

JDHAsty

John,

I am far from being a “grammar Nazi” but you may want to consider using irrespective or regardless in place of irregardless.  Irregardless is a double negative, that is logically and morphologically ill-formed and thus has no meaning.

April 2, 2015 at 8:24 am / Reply / Quote and reply

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JohnShermanRegistered

It is always good to have a words-joined judge reading my words.

April 2, 2015 at 9:17 am / Reply / Quote and reply

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talus

Interesting thought.  How much would it cost TPU to directly provide free or nearly free broadband to all homes and businesses in Tacoma?  If it would only cause a minor power rate increase to our highly competitive rates, such a move would attract new business and residents and be well worth the subsidy.

April 2, 2015 at 8:10 am / Reply / Quote and reply

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Jim Ecklund

A 40-50 year contract? Are you kidding me? To commit to a company providing technology based media for that length of time does not make sense. Look how much technology has changed in the past 40 years (8-tracks, beta, etc). Re-think this folks!!!

April 2, 2015 at 9:51 am / Reply / Quote and reply

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Betsy Tainer

I’m having some trouble reading the chart. Not understanding the layout and entries. If I’m reading it right it would appear to me that what they are proposing is totally skipping over ‘partial’ fixes with additional effort to close the gap. Again, if I’m reading the chart correctly, whatever entry ‘wholesale only’ represents, just based on NPV value seems to have a great deal of potential. Again, I have no idea what these options/entries mean. Looking at the $78M revenue estimate, I can’t help wondering what our investment in inventory is and are we ‘giving that away’. Surely there is a more productive way to handle this. My interpretation of the ‘wholesale only’ option is to ‘resell’ via Wave, did I read something into that? NetVenture is a reseller, right? Is there an opportunity in the resale market to make adjustments that would bring us into black ink on this venture. I think that at least part of the problem is a public entity trying to operate as a business… businesses don’t operate under the same parameters and make decisions/choices based on bottom line without the opportunity to subsidize investment and changes on the backs of gov’t subsidies (us)... it loses the motivation to operate within the parameters of best business practice.

April 2, 2015 at 12:14 pm / Reply / Quote and reply

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Jom Bowman

Click should get out of the TV end of things. Provide internet service only, as a public utility.
Folks are dropping cable tv in lieu of internet only connections. Click needs to get ahead of that curve.

April 2, 2015 at 12:42 pm / Reply / Quote and reply

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paolo

Go big or go with Wave.  The question is whether Wave from the tech-rich Seattle-area is poaching Click!  TPU built click when private firms ignored opportunities to upgrade such services in and near Tacoma.  Perhaps Click! now serves the needs of TPU to enhance electricity services and that other commercial applications should just be farmed-out to Wave to reduce general ratepayer costs.  While some firms like local firms like Rainier Connect benefited from the Click! trunk network, did Click! ever launch broader economic renewal for Tacoma, like when a New York Times business brief speculated about a place called Tech-oma?  Amazon briefly operated an office in an old bank branch near TPU headquarters.  Anyway, for the city council, the long-term finance issues count, as does internet access at affordable rates for lower-income residents.  But the last question is simple:  will Kirkland executives make decisions regarding an important public utility component for Tacoma that helps Tacoma or will they be distant boardroom-types who mock the community.  The last time that kerfuffle happened, in 1893, citizens bought the private utility assets of New Tacoma founder Charles B. Wright, created what is now TPU, and sued him on multiple grounds of fraud, even going to Philadelphia to meet with him directly to get a fair settlement.  TPU’s founding inspiration is a mark of pride for Tacomans who believed in their city’s potential.  Will Wave Kirkland be fair to Tacoma?  Tacoma should be dignified but not desperate in this courtship of Wave to woo Click!

April 3, 2015 at 6:34 am / Reply / Quote and reply

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Buck Futz

Will Wave Kirkland be fair to Tacoma?

That appears to be questionable…

http://www.yelp.com/biz/wave-broadband-kirkland

April 3, 2015 at 11:00 am / Reply / Quote and reply

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John Johnson

Couple of thoughts:

1) From my observation, the conversation thus far has been confusing the dying cable TV network with broadband access. Click! Cable is dying and from my guesstimates will go under within a couple of years regardless of this current offer due to changing technology, demographics, and customer options. This has nothing to do with Click as Council seems to be steering the blame. Instead this is out of their control and reflects the industry reality- the only way cable companies can grow is through acquisition. Period. See Comcast-Time Warner. Or Wednesday’s WSJ business section lead article “Cable Deals…”

2) the telecom network is a different discussion than the dying cable company; however, providing access (not ownership) to the infrastructure via a lease provides an easier sell or value proposition for TPU to ease out of the dying cable market. Otherwise it will just be layoffs and shuttering the business within two years. It also affords the City to still own the infrastructure. It’s a lease. It looks like TPU will still be able to use it for their grid operations and probably influence how the network is managed. I’d bet that infrastructure is being used for a fraction of its capability. Would like to know more about its capacity to better understand what options there could truly be.

3) surprised no crafty attorneys have not started circling blood in the water surrounding the issue of subsidization. Who else is subsidizing? Businesses? People who don’t even have access to Click! Service but still pay via electric rates?

4) from my recollection, city council restricted Click’s ability to sell Internet access directly, instead caving to the local ISP companies lobbying. That inability to compete in Internet service is likely a huge factor in why they are in the state they are in. And how much have those ISPs been subsidized as well? What payments have they made into the system? Free rider? I’m paying for Comcast personally, but now also Click and likely the ISPs as well? What the? Feigning surprise or making big political claims shows council’s inability to grasp basic business concepts or their lack of attention to areas they are responsible to oversee (cue images of our roads, missing crosswalks & sidewalks, state of schools, less garbage service, huge tax rates, no financial transparency, etc). So the prospect of the city council getting in the middle of this mess makes me very concerned, particularly as a couple are up for reelection.

5) I think TPU provides electric service outside of the city limits, so why is this only Tacoma’s issue- what about the county? UP? Fircrest? Frederickson? Lakewood? Are they concerned there may have been subsidization but they have no say? Another Tacoma city council v. Pierce County (and Lakewood, and UP, and…)

So while we all ponder the possibilities of a brave new free interwebs world for Tacoma, I think some of these other issues need to be considered as part of the discussion. If there is an option to eliminate subsidization for all of us, mitigate job losses, potentially improve service options, and turn a money pit into at least neutral or positive revenue, heck, it should at least be considered and not passed off for some political claim or personal belief. Too many of us are getting the short end for a politician to feel really good about themselves while the business goes into the toilet & jobs are lost anyway. But they sure did protect their constituents!

April 3, 2015 at 10:29 am / Reply / Quote and reply

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Jonathan Paul

Tacoma should sell the network to Google Fiber, just like Provo, UT did.

April 3, 2015 at 3:43 pm / Reply / Quote and reply

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Jonathan Paul

Tech-oma 2.0

In 1998, Tacoma Public Utilities’ invested in a 100-Mbps high speed fiber optic network in order to get better service for local residents and bring down prices by injecting an alternative into the marketplace. It was a noble idea and received some great press for the city.

Today, the cable landscape has drastically changed. Mega-mergers have created huge cable companies that dominate the market and have significant scale advantages over small regional players. Local providers and municipal networks are having trouble competing. It’s no surprise, they don’t any clout when negotiating retransmissions fees because they don’t have the same bargaining power as a behemoth like Comcast. Also, small players don’t have the resources to make the necessary investments in order to stay competitive. Did you hear Comcast is rolling out 2-gigabit networks, that’s 2000-Mbps, starting in Atlanta by 2016 (http://www.wired.com/2015/04/comcast-says-itll-bring-ultra-fast-internet-us-2016/)?

The current proposal on the table is to “sell” the network to a small, regional player called Wave Communications. It’s important to note the city is not actually selling the network, rather the deal is to sign a 40-year lease with a 10-year option. This deal gives Tacoma ownership over the network and, most importantly, control over the infrastructure for municipal purposes. But is this the best option for the city?

Given the current state of the cable market, how long will a small regional player like Wave Broadband be able to operate competitively? I worry this deal will lead Tacoma to very similar market dynamics it faced in 1998. This time around it will be a single player, Comcast, having a de facto monopoly on the local market because small players won’t be able to keep prices down. Comcast is probably licking its chops because it sees price increases on the horizon and the company will have very little incentive to upgrade its local network any faster than Wave Broadband does over the next 40 years at a promised $1.5 million per year. Get ready for your cable bills to rise and to be locked into 20th century speeds for the foreseeable future!

This deal looks great to an analyst backing into the option with the highest NPV for city coffers. The city sees $350 million in potential revenue from this deal as an opportunity to help fix it’s structural deficit and do something with its money losing fiber network that never lived up to hopes. It’s understandable why it makes sense to someone analyzing it from solely the municipal government’s perspective. But what’s the return for the residents of Tacoma? Doesn’t this network belong to the people living in Tacoma after all?

The market needs another big competitor to force Comcast to keep prices low and invest in the necessary upgrades near term to keep the market competitive with consumers and businesses. What company has bought a municipal network in the past and millions to upgrade the network in years, not decades? Google. Imagine having the following offering in our city, it would be a game changer for Tacoma and have Comcast shaking in its boots: https://fiber.google.com/cities/provo/

What’s driving growth in the today’s economy? Technology. Every industry is being reinvented from the ground up for the digital age. Tacoma needs a catalyst to put us on the map for startups, companies and creative talent across the region. Bringing in Google Fiber would be a jolt to Tacoma’s economy, provide a real competitor in the market that will help keep prices low for the foreseeable future and immediately upgrade Tacoma’s internet infrastructure.

A Google deal will result in millions of dollars of savings over the coming decades for Tacoma residents. This is why a city like Provo, Utah decided to sell their network to Google Fiber for $1. It was the best thing to for the residents and local economy. Also, the city was able to negotiate key provisions into the deal such as access to the network for municipal purposes, the wiring of public schools and municipal buildings with gigabit speeds and a free basic internet option for all local residents. It was a huge win for a city that saw the writing on the wall a few years before Tacoma.

We should do everything in our power to replicate a Provo, UT style deal with Google before selling the network to Wave Broadband. Let’s bring Tacoma into the 21st century and start rebuilding our economy for the modern world.

Jonathan Paul
Startup Executive
Ex-Googler (2005-2010)
UCLA Anderson - MBA
Santa Clara University ‘05
Bellarmine Prep ‘01

April 4, 2015 at 6:19 pm / Reply / Quote and reply

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John Sherman

The future Click! success or failure depends on a utility customer money spending choices.

What will persuade Internet access customers money spending choices between services—-CentryLink, Comcast,  or Click! (TPU)? It’s the monthly cost.

April 6, 2015 at 5:51 am / Reply / Quote and reply

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thackerspeedRegistered

I’d prefer to set up a 3-martini lunch with Wave and directly negotiate my interests with a proposition in which a partial settlement may be reached through a stock swap.

April 6, 2015 at 3:43 pm / Reply / Quote and reply

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Xeno

I’m concerned at Wave’s ability to provide a decent product.  Not a fan of a 40 year lease either.

I’d be interested in focusing on gigabit for sure by either means of selling the whole cow to Google Fiber for some added benefits like burying above ground utilities, school/library/city connections, and whatever else cities like Provo, UT have gotten or simply a bond measure to invest in the better infrastructure like Chattanooga, TN did.

I think our future lies in those two models.  No matter what Cable has to go, it is not a public good worth protecting at the cost of subsidizing it so much.  We have no bargaining power and the market is changing too much for us to react to it.

April 7, 2015 at 11:34 pm / Reply / Quote and reply

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Jim Williams

I’m concerned that the proposal involves firing all CLICK! workers and making them reapply for their jobs (humiliating at best.) WAVE is non-union and IBEW 483 members might incur difficulty in retaining their jobs.  Union wages benefit Tacoma businesses as well as taxpayers.

April 14, 2015 at 12:28 pm / Reply / Quote and reply

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