Vermont Municipal Fiber Network Is On The Road To Profitability

Many cities have run into problems when they enter the telecommunications market, whether wired or wireless. But Burlington, Vt., seems to be making it work. A city department 10 years ago slowly started to deploy a municipal fiber network, which is up and running and beginning to provide triple-play services of voice, data, and video. It also hopes to eventually provide a hefty profit for the city, and wireless services.

While many other municipalities have jumped head first into races to build their own networks -- most of them wireless -- with often-dismal results, Burlington Telecom gradually and methodically cobbled together the pieces of its network, starting with fiber.

"We are going to build a wireless network," said Tim Nulty, BT director, in an interview. "But the best way to build wireless is to build fiber first. That way we already have backhaul [capability] and every telephone pole is a potential antenna site."

Like many municipalities seeking to deploy their own networks, the challenges in Burlington, the largest city in Vermont with 39,000 residents, were daunting. It had to convince state and city politicians and the town's voters that the network was a good idea, as well as fend off criticism from established telecom providers. And early financing problems nearly sunk the project.

After picking its way through complicated political and financial minefields, BT developed a city-owned network that will supply Burlington citizens with low-cost triple-play broadband and, when its debt is retired in 15 years, should provide the city with 20% of its general fund.

"BT will be able to pay down its debt very quickly," said Christopher Mitchell, of the Minneapolis-based Institute for Local Self Reliance. "On the cost side of the equation, Burlington once faced massively growing telecommunications expenditures. It now views the telecommunications sector as an important source of new revenues." Mitchell, who is director of the Institute's Telecommunications as Commons Initiative, has written a report on BT and views the city's effort as a model for municipalities working to build their own triple-play network.

Mitchell said the involvement of Nulty, a veteran of the telecommunications industry and a former venture capitalist, was key to the success of BT. He joined BT in 2002. In addition to his background as former chief economist for the U.S. Senate Commerce Committee and as a World Bank senior project manager, Nulty had startup experience as a telecom entrepreneur in Eastern Europe.

"Nulty was highly critical of the original 'build-everything-at-once' plan and developed a multi-phased, modular plan entitled 'Build the Barn You Can Afford' inspired by observations of economically-wise Vermont farmers," Mitchell wrote in his report. "It called for building a small network serving the local government's Internet needs first. This approach would build out the network more slowly, but with much less risk." Once the financial integrity -- and future profitability -- of the project was established, outside investor Koch Financial signed on to the project, agreeing to provide $20 million for its early key stage funding, much of it at a low 5.1% interest rate. BT has projected an overall positive revenue flow by 2009.

The network currently provides services to Burlington's municipal offices and to the city's public school system. About 2,000 citizens have signed up for the services to date, representing about 30% of the population currently passed by the network.

There is no effort to subsidize offerings for low-income people, largely because BT provides a low-cost basic service package of TV, phone, and Internet connections for $45 a month, substantially lower than the triple play packages of existing telecom providers.

With BT's network secure and pointing towards profitability, Nulty, in his cautious step-by-step approach, is beginning to look at wireless. "We do a lot of due diligence," he said. "We hit a lot of singles and doubles and don't look to go out and hit a home run right away."

"We resisted pressure to do wireless at first," he said, adding that he expects that BT will one day provide Burlington with a "wireless cloud." Nulty is beginning to look at various wireless approaches including Wi-Fi, WiMax, mesh, EV-DO, cellular resale, and 700 MHz among others.

BT is reported to have started negotiations with other Vermont cities including Montpelier and Rutland as well as smaller neighboring communities interested in gaining access to the Burlington network.