City Manager Scott Lazenby gets the OK to negotiate a contract with Lake Oswego firm after survey shows broad support
Lake Oswego will move forward with a plan to build a city-owned fiber broadband network.
In a 6-1 vote Tuesday night, the City Council directed City Manager Scott Lazenby to begin drawing up the final version of a contract between the city, broadband systems company Symmetrical Networks and its Lake Oswego affiliate, Sunstone Business Finance.
The vote followed a nearly four-hour-long work session in which the council met with representatives from Sunstone and Symmetrical to discuss the project. Also present were representatives from the cities of Sandy, Monmouth and Independence, who answered questions about their experiences building and operating their own fiber networks. (Monmouth and Independence share a network.)
But the most anticipated part of the meeting was the presentation of the results of a Lake Oswego-area phone survey conducted to gauge public interest in the project. The council requested more data last year when the broadband project was first proposed; the survey was conducted in December and January by the market research company Pivot, which has performed similar surveys about broadband for other cities.
Councilors said the primary question facing the project has been whether a city-owned network would be able to hit the estimated 35-percent take rate necessary to make it profitable. According to Pivot, public reaction to the concept of a fiber network without factoring in pricing was overwhelmingly positive, with 79 percent of respondents saying they would like to see the city offer a gigabit fiber network if the price to local households was acceptable.
Forty-six percent of those surveyed said they would definitely or very likely subscribe to a city-owned service at the current estimated monthly cost of $59.95.
Among those who did not say they would definitely subscribe, the two biggest concerns by far were both price-related. Thirty-five percent said their main concern was the price of the service itself, while 23 percent said their main concern was the total monthly cost of fiber Internet plus other services, such as TV, that are bundled with their current Internet connections.
When asked if they would switch if the total monthly cost of all their current services remained the same as it is now, the number of respondents who were definitely or very likely to subscribe jumped to 61 percent.
According to the survey, 78 percent of city residents use Comcast/Xfinity, while 13 percent use CenturyLink. Comcast got a satisfaction rating of 6.3 on a 1-10 scale, which Pivot representative Steve Boespflug said was toward the bottom, if not the bottom, of what we see for satisfaction ratings.
Comcasts standalone rating for pricing was the worst score, with a pricing rating at 4.6 drastically low, lower than anything weve ever seen, Boespflug said.
The results summary states that awareness of gigabit is the highest weve ever seen in any community, and it correlates strongly with a likelihood to subscribe. The results also indicated that Lake Oswego has a high proportion of speed-hungry residents.
Overall, Pivot estimates that the minimum take rate over the first 12-36 months, using the most conservative calculation, will be 32.6 percent for residences and 32.2 percent for businesses, both of which fall short of the 35 percent cutoff.
However, Pivot also lists what it estimates to be the achievable take rate, assuming certain factors are met, such as a total monthly cost of less than $150 for Internet access plus the other services that consumers currently obtain through bundling. In the study session, Boespflug listed the achievable estimate as 37-42 percent.
Pivot recommended that the city build the network, said the city should try to minimize the new total monthly cost and the hassle factors of switching, and also recommended that the city focus on educating the public about the benefits of fiber broadband.
One major topic of discussion was the financial risk of the project, both for Sunstone and the city. In the current preliminary agreement, the city will charge residents $59.95 per month for each connection. Roughly $34 of each payment will go to Sunstone as a lease payment on the network. (Sunstone will foot the bill for construction). The other $26 is the operating cost, which also goes to Sunstone.
The city is obligated to pay the lease fee no matter how many customers sign up, but the operating fee only has to be paid based on that actual number of customers, which means the city faces no financial risk as long as the take rate hits 35 percent, officials said. Sunstone is counting on the take rate eventually becoming much higher.
This has been wildly successful everywhere its been done, said Sunstone manager Kevin Padrick.
Though the vote was 6-1, several councilors still appeared skeptical about the project, and the preceding discussion emphasized that the city will still have two chances to bail out if the project starts to look less promising. The first chance will be when the agreement is finalized, which Lazenby estimated will take until April. The council will have to sign off on the agreement before the project can move forward.
The second chance will be in the first phase of the project, when a preliminary number of users are signed up in advance in order to ensure that the city can meet the 35 percent take rate. If the city cant enroll enough subscribers, then the project will end before construction of the actual network begins.
The 35 percent rate put me on the fence, but the upside of this and the benefit for the community pushes me to the side of the fence that says we should move forward, said Councilor Joe Buck. I think theres no risk to us moving forward and putting together the agreement, and then going out and seeing if we can hit the 35 percent subscribe rate.
The one no vote came from Councilor Jeff Gudman, who said he was concerned about the aerial design of the project. He emphasized that if the city decided to move all the aerial cables in a given area underground in the future, the presence of fiber cables would add to the cost the city would have to pay to do so.
Weve been undergrounding our utilities for decades, so Id like to know what undergrounding would do to the monthly price, said Gudman. Im not prepared to change my no vote until then.
Gudman also said he wanted to hear from current providers such as Comcast, who he expected would have a competitive response to the citys project.
The full results of the survey are included in the agenda for the Jan 26 city council meeting, which can be found on the citys website.