After initial enthusiasm, Palo Alto considers scaling back fiber plans

Sep 05, 2023

For more than two decades, Palo Alto's elected leaders and community advocates have touted the benefits of expanding the municipal fiber network, which currently serves a few dozen customers, to every section of the city.

The project, known in its various iterations as Fiber to the Home and Fiber to the Premises, would, in theory, bring reliable and affordable high-speed internet to areas that are currently underserved by private-sector incumbents, Comcast and AT&T. Even before the era of Zoom and Netflix made broadband a basic necessity, mayors and City Council members have talked about the boost that a citywide fiber network would provide in fields such as commerce, health care and education.

But for all the big dreams, the proposal that the city is now considering would be significantly smaller. Last month, city staff and the Utilities Advisory Commission recommended a far more conservative option that would largely limit the expansion to a "fiber backbone" that serves city departments. The plan also calls for creating a "last mile" connection to homes and businesses in some neighborhoods, though these would constitute just a small portion of the city.

The option, which the City Council plans to discuss on Monday, doesn't specify which neighborhoods would be selected for the first phase of the fiber expansion. However, a new analysis by the city's fiber consultant, Magellan Advisors, indicates that neighborhoods such as Crescent Park, Duveneck/St. Francis, Charleston Meadow and Palo Verde would likely be among those that would be excluded from the municipal effort.

Also missing out are the northern portion of Old Palo Alto and the neighborhoods that straddle Oregon Expressway in the eastern portion of the city, including Leland Manor, Triple El and the northern portion of Midtown. These areas are among those that are already covered by AT&T Fiber, according to surveys that Magellan had conducted earlier this year. If Palo Alto opts to avoid AT&T competition, it will likely defer or forego the expansion of municipal fiber into these neighborhoods.

So which areas would get fiber? In a presentation to the Utilities Advisory Commission, Magellan recommended focusing on areas that it had identified as "lowest cost, highest density." These areas are rich in residents in businesses and they typically don't have AT&T Fiber as an option. Importantly, they also get their power though aerial lines, which would make installing fiber quicker, cheaper and less disruptive than in areas where utilities are buried underground.

According to Magellan's analysis, areas that fit these criteria include large portions of the Downtown North, Evergreen Park, College Terrace, Southgate and a western section of Old Palo Alto, roughly between Alma and Bryant Street. In south Palo Alto, prime candidates for municipal fiber would include the western section of Midtown, between Colorado Avenue and East Meadow Drive, and around Loma Verde Avenue in the Saint Clare Gardens neighborhood.

Magellan's analysis showed that portions of Barron Park and Ventura seemed particularly suitable for taking an early role in the city's fiber expansion because they not only showed "lowest cost and highest density" under Magellan's analysis but also provided the most deposits, indicating interest in fiber. The area just northeast of Gunn High School, including Matadero and Barron avenues, indicated support and is viewed as strong candidates for being in the early phase. So is a portion of Palo Alto Orchards, which is just south of Arastradero and just west of El Camino Real.

The analysis also considered areas where residents showed support for fiber by making a $50 deposit. Fiber enthusiasm was particularly strong in Crescent Park and in neighborhoods around Mitchell Park, as well as in the Community Center and Leland Manor neighborhoods, which are near the intersection of El Camino Real and Middlefield Road. Yet residents from these neighborhoods who made the deposits will likely be disappointed. Because of the presence of AT&T, they are unlikely to see municipal fiber any time soon if the council moves ahead with the staff recommendation.

The conservative approach will likely rankle longtime proponents of the fiber expansion. In September, when the council last discussed the project, numerous council members talked about the value that a municipal fiber network would bring. Council member Greer Stone noted that a citywide system would "open up a lot of interesting opportunities for the city" and allow the city to "deliver the quality of services that residents have really come to expect from the city of Palo Alto." Council member Tom DuBois, a longtime proponent of expanding fiber, pointed to the roughly 740 people who contributed $50 each for a system that doesn't even exist — contributions that he called a very strong statement of interest.

"There are very few things that we do that provide these kinds of benefits to our residents and also generate this much revenue," DuBois said of a potential fiber system.

Jeff Hoel, who has been advocating for Fiber to the Premises for well over a decade, lobbied the utilities commission to move ahead with an option that expands the network throughout the city, not just to the select areas identified in the Magellan study. He pointed to promising examples elsewhere in the country, including in the city of Chattanooga, Tennessee, which implemented a citywide fiber system that made the city enough money to pay for itself.

"That's an inspiration that we in Palo Alto could take advantage of, if we thought about it hard enough," Hoel told the Utilities Advisory Commission at the Nov. 2 meeting.

Others, however, urged a more cautious approach. An analysis by Magellan suggested that the city would need about 25% of the customers to subscribe to Palo Alto Fiber for the service to become financially sustainable. Hamilton Hitchings, a municipal fiber skeptic, suggested that the city would unlikely get there. The city, he said, would have a hard time competing with the likes of AT&T, which had a head start on municipal fiber.

Residents in some parts of the city also have the option on signing up for Sonic, an internet service provider that uses AT&T infrastructure, he said.

"Thus, we should assume Palo Alto Fiber will get almost no market share in neighborhoods where AT&T is first to the market," Hitchings told the commission last month.

Numerous commissioners also indicated that they have no interest in building fiber in areas where AT&T already exists. Commissioner Lisa Forsell said she would not want to see the city compete with a private company that is already providing a very similar service. Rather, the goal should be to focus on underserved areas and to make sure everyone has access to fast and reliable internet.

"I'm not convinced that the goal is to duke it out with other providers," Forssell said at the Nov. 2 meeting. "My goal is that everybody in Palo Alto has access to good quality broadband."

Commission Chair Lauren Segal also indicated that she would not support building municipal fiber in areas where private companies already operate.

"It's clear to me that residents want good internet access," Segal said. "It's very unclear to me that they want Palo Alto fiber."

In recommending the more conservative approach, commissioners cited the high financial risk that a broader expansion would entail. According to staff analysis, it would cost about $25.6 million to construct a "fiber backbone" that would support city services and enable a future expansion to neighborhoods. Because the city's fiber fund currently contains about $34 million, everyone agrees that the fiber backbone should be a priority for whatever option should be chosen.

Going beyond the fiber backbone and actually implementing Fiber to the Premises would cost considerably more and, in the more ambitious scenario, would likely involve the issuance of a revenue bond. The more conservative option would involve spending about $20 million on the "last mile" connections to the neighborhoods identified by the city, funding that could come from the city's fiber and electric funds. The more expansive option, which would bring fiber to every part of the city, would involve spending $142.9 million and require the city to borrow money.

At a time when the Federal Reserve keeps increasing interest rates, which makes borrowing more expensive, not everyone is thrilled about moving ahead with a bond. Commissioner Greg Scharff, a former mayor who in the past had advocated for Fiber to the Premises, urged his colleagues and city staff not to underplay the risk of rising interest rates.

Scharff's motion to support the more conservative "phased" approach that does not rely on bond funding won unanimous support from his colleagues.

"This made a lot more sense when interest rates were cheap," Scharff said.

Utilities Director Dean Batchelor made the case for moving ahead with the more limited expansion by citing another massive project that the Utilities Department is now undertaking: the modernization of the city's electric grid so that it can handle increased loads and support the city's "electrification" initiatives, which are key to meeting the council's goal of achieving carbon neutrality by 2045.

Batchelor suggested at the meeting that it would be easier and cheaper to expand the fiber network if the new lines are installed at the same time as the city is replacing its transformers and installing new poles.

"There are going to be some synergies, and I strongly believe that we'll be able to save some dollars going forward," Batchelor said.