Memorandum
City of Lawrence
City Manager’s Office
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TO: |
David Corliss, City Manager |
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FROM: |
Brandon McGuire, Assistant to the City Manager |
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CC: |
Diane Stoddard, Casey Toomey |
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DATE: |
September 9, 2014 |
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RE: |
Municipal Dark Fiber |
Overview
This memo provides information about industry standards and the City’s specific situation regarding municipal dark fiber.
Cost of Fiber Network Installation
The City has undertaken a number of fiber network construction projects, including fiber installation in the “Verizon Conduit” and KDOT ITS projects. Based on industry standards and the actual costs of City-managed fiber projects, the City uses a range of $15 to $20 per foot when developing cost estimates for the fiber network. Installation costs include the purchase and installation of 288-count fiber, conduit, and pull boxes and enclosures. Based on the standard estimate, the cost per fiber strand per mile is $275 to $367. Fiber cable units are commonly referred to as “fiber miles,” which is the product of a single fiber strand multiplied by its distance, in other words a per strand per mile basis.
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Standard Cost Estimates for Installation of 288-count Fiber, Conduit and Boxes |
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Per Foot |
Per Mile |
Fiber Mile (per strand per mile) |
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Low |
$15 |
$79,200 |
$275 |
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High |
$20 |
$105,600 |
$367 |
The upcoming KDOT ITS project to install fiber network along 6th Street from Iowa to Wakarusa provides an example of the cost to install the fiber network. The project includes the purchase and installation of 288-count fiber, conduit and boxes along the 3 mile route. The City’s cost estimates range from $308,068 to $385,085 for the portion of the project specifically related to the installation of the fiber network. On a fiber mile basis, the cost range is estimated at $357 to $446 per strand per mile.
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Cost Estimates for 288-count Fiber, Conduit and Boxes KDOT ITS Project: 6th St, Rockledge to Wakarusa (3 miles) |
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3-Mile Total |
Total per Mile |
Total per Fiber Mile (per strand per mile) |
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Low |
$308,068 |
$102,689 |
$357 |
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High |
$385,085 |
$128,261 |
$446 |
Valuing the City’s Dark Fiber Network
The standard installation cost estimates of $275 to $367 per fiber mile provides a basis for valuing the City’s dark fiber assets. The City’s dark fiber assets consist of approximately 2,016 fiber miles. Dark fiber lease rates are calculated based on a fiber mile basis. The number of dark fiber miles in City conduit is provided in the table below.
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Dark Fiber Assets |
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Route |
Approx. Miles |
Dark Fibers |
Fiber Miles (strands x miles) |
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1 |
HWY 40 & E 800 Rd to 6th & Wakarusa |
2.4 |
96 |
230.4 |
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2 |
6th & Wakarusa to Clinton & Wakarusa |
2.2 |
96 |
211.2 |
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3 |
6th & Wakarusa to 6th & Iowa (projected) |
2.4 |
96 |
230.4 |
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4 |
6th & Iowa to 23rd & Iowa |
2.2 |
96 |
211.2 |
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5 |
Clinton & Wakarusa to 23rd & Iowa |
2.6 |
96 |
249.6 |
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6 |
6th & Iowa to 6th & Mass |
1.1 |
96 |
105.6 |
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7 |
6th & Mass to HWY 24/40 |
2.0 |
96 |
192.0 |
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8 |
23rd & Iowa to 23rd & Harper |
2.6 |
48 |
124.8 |
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9 |
23rd & Iowa to 23rd & Noria Rd |
4.8 |
96 |
460.8 |
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Total |
22.3 |
816 |
2,016.0 |
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Multiplied by the standard installation costs, the value of the City’s dark fiber assets falls in the approximate range of $554,400 to $739,200. The value of the City’s entire fiber network is roughly estimated to be in the range of $30 million to $40 million. The estimates are provided for the purpose of valuing the fiber and conduit in the ground. Accounting for the array of additional costs would be helpful in determining the fiber’s true value.
Dark Fiber Leasing
Municipal dark fiber leasing is generally managed by municipal utilities. Municipal fiber utilities provide 24-7 emergency maintenance and support, they have a dedicated staff with technical expertise and the ability to negotiate and execute contracts, and they own specialized equipment. The City does not currently possess the equipment and human resources required to successfully implement a fiber utility. The City could conceivably be much less involved on the service and support side of dark fiber leasing, although this runs contrary to industry best practices.
City staff recently called a number of municipal fiber utilities across the country to learn about the business of dark fiber leasing. A few themes clearly stood out in each conversation as industry best practices.
1. Incremental Approach: Development of municipal fiber networks and entry into the fiber leasing market should be approached incrementally to avoid costly mistakes and overextension of the City’s resources. Some of the more robust and successful fiber utilities (e.g. Ponca City, OK and Chanute, KS) were developed by municipal electric utilities over several decades beginning in the mid- to late-1980’s. Electric utilities benefit from aerial fiber which is significantly more affordable than underground fiber. Debt should not be issued to fund the installation of fiber for the purpose of leasing dark fiber to private companies.
2. Competitive Neutrality: The municipal fiber network should prioritize the needs of local government and community anchor institutions (e.g. medical and educational institutions). Expenses incurred by municipalities related to leasing dark fiber to private companies should be fully recovered. Private companies should pay for all expenses related to dark fiber leases, including right of way fees, taxes, installation, administration and maintenance. Subsidies and incentives should be addressed exclusively through the municipality’s economic development process.
3. Ownership: Municipal fiber networks support every aspect of city government, including critical operations like street lights, emergency communications and public safety services, financial systems, and water and waste water utilities. Municipalities should retain explicit ownership of their fiber assets. Cities should maintain full and exclusive control of any work performed on their fiber networks.
Potential Revenue Model
The industry standard for municipal dark fiber leases is to recover the municipality’s costs and generate sufficient capital for current and future network needs. Current needs include staffing, splicing, maintenance and equipment. Future needs include the replacement of fiber, conduit, and equipment, network build out, and future staffing needs. Best practice in the industry is to establish a competitively neutral environment in which private companies leasing dark fiber from the municipality are required to pay for all costs incurred by the municipality for such leases, including construction, right of way, and administration.
Potential scenarios for revenue related to dark fiber leasing based on the total dark fiber miles (2,016) available in the City’s network are provided in the table below. Scenarios in which 50 percent and 100 percent of the City’s dark fibers are leased are provided for lease rates of $25, $50 and $75.
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Potential Dark Fiber Lease Rate Model |
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Approx. Dark Fiber Miles |
Monthly Lease Rate |
% of Dark Fiber Leased |
Annual Revenue |
Revenue (5-yr term) |
Revenue (20-yr lifecycle) |
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1 |
2,016 |
$25 |
50% |
$302,400 |
$1,512,000 |
$6,048,000 |
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2 |
2,016 |
$25 |
100% |
$604,800 |
$3,024,000 |
$12,096,000 |
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3 |
2,016 |
$50 |
50% |
$604,800 |
$3,024,000 |
$12,096,000 |
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4 |
2,016 |
$50 |
100% |
$1,209,600 |
$6,048,000 |
$24,192,000 |
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5 |
2,016 |
$75 |
50% |
$907,200 |
$4,536,000 |
$18,144,000 |
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6 |
2,016 |
$75 |
100% |
$1,814,400 |
$9,072,000 |
$36,288,000 |
A number of variables, known and unknown, would impact the City’s costs of leasing dark fiber. The lack of a business plan makes it hard to recommend a lease rate appropriate for the Lawrence market at this time. Considering dark fiber lease rates charged by other cities, or rates currently paid by the City of Lawrence, offers some context.
In 2009, the City received proposals effectively ranging from around $50 to $163 per month per fiber mile to lease dark fibers serving the Clinton Water Plant. The City currently leases two strands, approximately 14 miles long, serving the Clinton Plant for $1,500 per month, or $53 per fiber mile per month. The table below provides effective monthly lease rates, per fiber mile, charged by comparable cities in the Western, Midwestern and Eastern regions of the Country. The information comes from a 2012 scan conducted by CTC Consulting. The wide range of rates illustrates the fact that each local situation is unique. Sustainable rate models are driven by local factors, including the purpose of leasing dark fiber, the costs, the type of conduit (buried vs. aerial), and other variables.
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From CTC Dark Fiber Lease Considerations Report (Source: CTC, 2012) |
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Large urban Routes |
Effective Monthly Rate per Fiber Mile (per strand per mile) |
Effective Annual Rate per Year per Fiber Mile (per strand per mile) |
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Palo Alto, CA |
$177 to $295 |
$2,124 to $3,540 |
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CA large urban city |
$120 to $300 |
$1,440 to $3,600 |
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IL urban rates |
$13.75 |
$165 |
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VA urban rates |
$50 to $275 |
$600+ |
Recommendations
The memo is intended to facilitate further policy discussions on the City’s potential to lease dark fiber assets to private companies.