Jun. 25—Based on a recent feasibility study, Decatur Utilities is choosing not to jump into the high-stakes, high-speed internet service competition for residential or commercial customers that it had been considering.
The Municipal Utilities Board decided last week to instead build a 47-mile fiber backbone network that supports its own operations at an estimated cost of $4.5 million.
However, General Manager Ray Hardin said the decision does not rule out expanding into retail internet service in the future. It puts the utility in position for possible expansions should it decide to take this step later on, he said.
“We were encouraged by the projected subscription rates that the market survey determined,” Hardin said. “But in the end analysis, we felt it was more financially prudent to implement the fiber ring for internal use only and reserve the right to revisit retail applications in the future.”
Hardin said they’re “not ready” to pursue high-speed internet on the retail side to residential and commercial customers.
“We want to build this for DU’s use but position ourselves and design it in a way, if that changes in any way in the future, we have the opportunity to pursue it at that time.” Hardin said.
Board member Al Cheatham said he appreciates the conservative approach to the issue but supports the utility taking the first step of creating an internal network.
“We need to let the market and the economy play out,” Cheatham said. “To me, we need to be prudent.”
Board chairman Neal Holland said he likes that they don’t have to go to the bond market or raise rates to build the internal network.
“We don’t have to do anything other than be frugal,” Holland said. “Let’s just test the water and help our system at the same time.”
The City Council must give final approval before DU can move forward with the project.
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Feasibility studies
The board made its decision after hearing a report on the feasibility study by Uptown Services and a DU marketing study at last week’s monthly meeting.
The report estimated it would cost $87 million to $102 million to become a full internet service provider, said Electric Manager Glenn Boyles.
Under a likely scenario, Boyles said, they would have had to borrow $85.7 million in the bond market and use a $2 million capital loan.
Boyles said the marketing survey looked at $60- and $70-a-month prices. The survey found that 38% of DU customers would subscribe at a $60 rate, at which it would take the utility 18 years to break even.
As chief executive officer of telecom company Velox LLC and former president and CEO of 3-GIS, board member Tom Counts’ 30-year career has been heavily involved in computers and high-speed internet.
Counts said the value of doing this first step of a DU-only fiber system “is going to be immense” because of what it will do for long-term control and data acquisition.
He said it will also help DU’s gas and water/wastewater in addition to electricity for switching and valve control and monitoring.
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Survey results
Boyles said the survey found that 98% of the city’s households use internet at home with 84% using a wired connection. Spectrum is the dominant provider in the Decatur market, he added.
On a 1 to 10 scale, he said the report says the households give their internet service a 5.9 satisfaction rating.
“The percentage households ‘very satisfied’ on a 9 or 10 rating is only 13%,” Boyles said. “That’s mostly due to price and customer service and dissatisfaction with the incumbent providers.”
On affordability, 52% said they are subscribing to a lower internet tier to save money.
“This increases to over 60% for lower-income households,” Boyles said.
Boyles said charging $60 a month would allow the utility to maximize revenue and deliver the 38% subscriber rate.
Counts said the pricing is “dead-on and a very good price.” He believes the survey underestimates the percentage of customers who would subscribe if DU became a high-speed internet provider, especially for $60 a month.
“I think the take-rate would be considerably higher,” Counts said. “DU delivers excellent service. You could say take it or leave it, but you don’t. You’re known for great customer experience.
“But your (internet) competition does not, will not, will never do it. They’re focused on keeping costs down as much as possible.”
Counts pointed out Decatur Utilities “is not used to competition” and it would be getting into a different arena if it chose to offer high-speed internet.
“You’re living in a world where other people don’t try to sell power and water,” Counts said. “It takes a different mindset and an organizational approach. It’s going to be hard in the sense that it’s foreign to the utility.”
Counts said the COVID-19 pandemic increased the need for high-speed internet because more people now work from home.
In a survey of the city’s businesses, Boyles said they found that most feel they “have sufficient fiber and capacity available to them but satisfaction levels are low with the incumbents (the existing service providers).”
While their needs are being met, the survey found that most would strongly consider DU for fiber data connection if offered. Redundancy and responsiveness/support are key switching factors, he said.
The report says many firms do not have a backup circuit or protection on their connection.
“That would create an opportunity for DU to provide an additional circuit if physically diverse from the current circuit,” Boyles said.
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Fiber choices
Boyles said DU has four choices on the internet issue:
—Build a fiber ring that supports only Decatur Utilities operations for $4.5 million.
—Offer fiber internet commercial, industrial, government and institutional customers for an additional $4.5 million ($9 million total), plus $10,000 per customer for each connection. DU would have to begin hiring fiber-system personnel to maintain and market the system.
—Do a complete citywide system for commercial, government, residential and DU for $87 million.
—Select not to get into high-speed internet at all.
“Forget about abandoning fiber,” Hardin said. “That’s not even under consideration.”
Boyles said the fiber ring would provide a lot of internal benefits. These include providing better reliability to all the DU substations and back feeds from other sites should there be a problem in one area.
They would also be able to add video monitoring at the substations. They would be able to improve technologies like supervisory control and data acquisition, electric grid automation, the advanced metering infrastructure and the demand-side management in the electric system.
The main improvement is it “would help in restoring power in a timely fashion when there’s an outage,” Boyles said.
Boyles said a new in-house fiber ring could also have programs in which “we offer a special rate and provide capability to control their air conditioning systems, turn water heaters off during peak hours of the day for load considerations.”
Hardin said the load controls for residential customers “seems far-fetched today, but it really is what our industrial customers take advantage of today.”
He said TVA is indicating they’re looking at starting this kind of program as well.
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Contract awarded
The board approved a $110,000 contract with Uptown Services, of Boulder, Colorado, for engineering design services on the construction of a fiber ring that will connect all DU facilities. Boyles estimated this will take six months.
Pending final approval by the City Council, construction of this fiber network serving the utility’s internal needs for high-speed data communication will cost an estimated $4.5 million.
Boyles estimated construction will take about a year, depending on material delivery and availability of contractors.
— bayne.hughes@decaturdaily.com or 256-340-2432
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