MBI faults WiredWest plan, won’t use state money for it

Last modified: 2/4/2016 8:38:57 AM
GREENFIELD — The state entity that can funnel millions of dollars to bring broadband Internet to local towns has slammed the brakes on the plans of the WiredWest Internet cooperative.

Saying WiredWest’s current proposed agreement for member towns “is not compatible with the best interests” of the state, the towns or residents, the Massachusetts Broadband Institute says it won’t let state broadband money be spent on the current WiredWest plan.

Doeznes of area towns have been working with WiredWest to install and operate their planned high-speed Internet services.

But MBI, the conduit for the state funding for such projects, opposes the WiredWest proposal and has asked town officials not to sign WiredWest’s draft agreement by a Jan. 9 deadline given by WiredWest.

Without shutting the door on the municipal cooperative entirely, MBI Director Erik Nakajima said WiredWest’s business plan and draft operating contract for member towns “would require substantial, in some ways fundamental, revision in order to succeed as a reliable framework for the startup and operation of broadband service …”

One main objection was that WiredWest would own the whole fiber-optic network, although the towns and state would have paid all the costs.

Also in question was whether WiredWest could be profitable enough to repay the town’s startup debts with only a 40 percent to 55 percent subscriber base in the smallest rural towns. WireWest sold itself as a potential network builder and provider on the premise that if the towns’ borrowed the start-up costs and signed up about 40 percent of the potential customers, the fees from those customers would over time repay the taxpayers’ loan and cover operating costs going forward.

In response to MBI’s statement, WiredWest is holding a special meeting for WiredWest board members on Saturday morning, to decide what to do next. That meeting will be held in the Old County Court House, 99 Main St., in Northampton.

“The ownership issue has been an ongoing issue, but WiredWest is nothing but the towns,” said Steve Nelson, chairman of WiredWest’s legal committee. “The question is, do the towns own individual little pieces, or can the towns pool their money into a larger, more sustainable network? The towns are putting up almost two-thirds of the money,” he added. “We shouldn’t be dictated to by a bunch of Boston bureaucrats.”

In a phone conversation Wednesday, Nakajima said another concern was that the towns have been given a Jan. 9 deadline to sign WiredWest’s operating agreement. “There was urgency, the towns had an operating agreement deadline. Towns are looking at making a permanent decision on Jan. 9 that does constrain the freedom of what towns may want to do five or 10 years from now,” he said. “Our concern is: is there an alternative structure that may allow towns to adjust to market conditions or other issues in the future.”

Nakajima said that WiredWest’s operating agreement contradicts a “Last Mile Broadband Policy” approved by MBI’s board in July. This policy says: “Last Mile local and regional broadband networks, having been constructed entirely through investments by the (state) and local residents, either as property-taxpayers, renters, or broadband subscribers, will be owned by their respective municipalities.”

For at least the past four years, 11 Franklin County towns without broadband access have been considering WiredWest’s plans for a regional fiber-optic broadband network, and have been reviewing a draft operating agreement that member towns would sign, if they wished to be part of this collective last-mile buildout. These towns are also counting on a share of the $40 million the state has allocated in a technology bond bill for the “unserved” towns in Western Massachusetts. The state grant money would pay roughly one-third the cost for each town’s broadband buildout.

In a letter sent to local town officials this week, Nakajima praised WiredWest’s early efforts to motivate the public and educate it about the benefits of a regional network. He said MBI would like WiredWest to develop a structure for regional governance that minimizes the risks to towns.

To be part of the WiredWest coop, the current draft agreement requires member towns to commit the full share of their broadband costs to WiredWest, which would oversee network design and construction, as well as use of towns’ funds. Once earnings are at a break-even point, WiredWest is to pay the debt service of its member towns. After that, a board of directors, consisting of town representatives, would have a say over whether additional profits would go back to the towns, be used to reduce user fees, or be used to expand the network.

Member towns would not own the fiber-optic network running through their towns, but instead would own a share of the regional network proportional to its financial investment in WiredWest. Towns that sign on would have to remain WiredWest members for at least 10 years. If they were to withdraw, their share of the network would be bought out by remaining members. But the network running through town would still belong to WiredWest, along with the town’s customers.

“... if the towns leave WiredWest they will lose all rights to the broadband network in their towns, with no assurance of full repayment of their municipal debt,” says the letter. In addition, the operating agreement contains no clear means of resolving unbudgeted financial shortfalls or obligations such as may be expected in the startup of a challenging business. Such shortfalls could lead to sale or mortgaging of the network without any return of funds or control to the towns.

Other concerns about the operating agreement were:

∎ Towns losing direct managerial control when they want or need to modify plans.

∎ Towns’ loss of flexibility in responding to the interests of respective residents in the future.

∎ Unnecessary financial and operating risks for the towns.

Business plan questioned

MBI has also been reviewing WiredWest’s business plan, using industry experts and a consultant team from Wipro IT consultants from Boston, and plans to discuss these findings in the weeks ahead.

But MBI’s concerns include WiredWest’s model to work independently, without experienced technical partners, given the challenges of rural fiber-to-the-home networks.

Another is the collective’s plan to repay debt service to the towns, which Nakajima says “will be difficult or impossible to achieve at reliable subscription rates (including WiredWest’s proposed ranged from 40 to 55 percent subscribers.)”

“Towns should assume that they will have to repay most if not all of the debt they borrow,” he said.

Meanwhile, WiredWest just released an evaluation of its business plan that was done by CTC Technology & Energy consulting, which “has been well designed and depicts a reasonable portrayal of its business, given the model’s underlying cost and revenue assumptions.”

In his letter, Nakajima applauded Leverett’s single-town approach but adds that MBI believes “a regional approach to broadband service can work.”

“If WiredWest can demonstrate flexibility to align with the towns’ interests and the state’s policies, we can all continue to work together on a substantial, municipally owned regional project,” says the letter.

You can reach Diane Broncaccio at:
or 413-772-0261, ext. 277


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