by George Gramlich,
Analysis and Commentary
Custer County should not commit to supporting this venture that the Custer County Economic Development Committee (CCEDC) is proposing. Government should be limited, especially when it comes to entering a private sector marketplace (Just look at what happened to healthcare.)
Just from a business perspective, the proposal lacks a detailed business plan, market analysis, income/revenue projections, firm cost and liability projections competitive analysis (satellites, etc.), technology evolution projections, and county infrastructure requirements to support the towers. The proposal is fatally incomplete and would be laughed out of any CEO’s office.
For Custer County to make a 20-year financial and
liability commitment to this incomplete, flawed and certainly doomed project would be fiscally irresponsible and a complete disservice to its tax paying citizens.
Where Is the Detailed Business Plan?
Yes, where is it? Marketing, income/revenue, expenses, manpower, infrastructure, competitive analysis, legal issues, management structure, on and on. Nowhere to be seen.
The CCEDC commissioned a consulting firm (Centerline Solutions) to do a preliminary, basic cost study for the towers. The study is flawed in many ways. The cost estimates for land acquisition or leasing are simply guesses. They could be off by 100’s of thousands of dollars. Some landowners might just say no. The cost estimates for the towers themselves are just rough estimates. Indicative of the superficial scope of the “study”, Centerline solutions DID NOT EVEN VISIT TWO OF THE SITES. They based their estimates on satellite maps! Good grief.
More troubling are the shaky numbers themselves. Adding up the lowest cost for six towers comes to $1,629,827. The two grants CCEDC wants to get total only $2 million.
When was the last time you saw any government involved major construction project come in under budget? Or on time (and time is crucial here, see below).
The $370,000 gap between estimated costs and all the money available is simply too small to cover probable cost overruns. Past experiences insist that this project will exceed its preliminary, superficial estimates. Possibly by a huge margin. So, WHO WILL BE RESPONSIBLE FOR THE OVERAGE? CCEDC? Custer County tax payers? What happens if the money is not available? Is the project worth more (cost/benefit) if it costs $2.5 million, $3 million, or more? For how many new broadband customers?
Where is the equipment maintenance requirements and costs? At least one of the towers will require its own power. Who is going to maintain that 24/7?
The bottom line is the $2 million dollars in grants probably won’t be enough. How much more is needed NOBODY KNOWS AT THIS POINT. Is there a cost/benefit point where THIS IS SIMPLY NOT WORTH IT. Remember this is NOT free money. It is our tax payer money “benefiting” very few citizens. The cost study done so far is simply inadequate to make any decision. Bad planning equals bad results. If the CCEDC is so sure of success, let them own it.
Where’s the Market to Support It?
As noted in Dan Bubis’ analysis, the proposed towers would provide access to only 870 additional addresses (parcels) in Custer County that currently don’t have terrestrial internet access.
Of these, how many actually have houses on them or will have in the foreseeable future. The answer is few. If there was a profitable market there, our local internet providers would be there right now. On a cost-benefit basis, the “investment” in these towers is simply unsupportable.
Maintenance and Support Costs?
How can one commit to a major expense over a 20-year period without knowing what the actual costs will be? There is NO supporting documentation on what the maintenance and support costs are and what that will cost Custer County. Physical towers, electronic equipment, backup power, solar power, labor, liability, manpower, insurance, etc costs are ALL UNKNOWN. Plus, Custer County does not have the expertise to maintain these towers. We would probably have to contract it out which is a huge problem in itself. It could be a MAJOR expense issue in the future with little or no income to cover it. Who would enter a long-term business agreement without a realistic revenue and cost study? Who? The CCEDC with somebody’s else’s money.
Property Access/Lease/Acquisition Costs
Centerline’s estimates on property access/lease/acquisition costs are simply guesses. No sane business person would proceed with this project without firm, legal commitments from the landowners involved. The potential lease costs, which Custer County appears to be on the hook for in the future, are completely unknown. Bad planning equals bad results.
Where Is the Income to Offset the County’s Future Costs?
There has been NO study done to estimate the potential revenue flow to the county? None. My guess is that there is none because it would clearly show insufficient income to cover the County’s potential costs. As noted below, the number of new tower cus-tomers would be minimal. Plus, when satellite broadband comes online in the near future, it will certainly provide better and cheaper service resulting in major defections to the new technology leaving the tower customer base even smaller.
Has any county broadband supplier (eg, Secom) contractually committed to this project? NO. Will they? Nobody knows. It is completely irresponsible to commit $2 million dollars of tax payer money, and a large unknown annual future cost to the county, to a project WITH NO COMMITTED PROVIDERS.
The Use of Obsolete Technology
With multiple, multi-national corporations entering the broadband satellite market NOW, tower-based broadband will be obsolete in just a few years (see below). There will be literally thousands of low orbit broadband satellites available from various vendors competing against each other for the market. Performance/service will be high and cost low. The Ziggurat Towers will be no more.
New Technology Coming Within Years
From a recent Bloomberg report:
“The FCC last year gave OneWeb access to the U.S. market using a proposed fleet of 720 satellites and granted Telesat access to the market via 117 satellites already authorized by Canada. Space Norway won approval for two satellites.”
Bloomberg also reports that SpaceX (Elon Musk) is about to go big in satellite broad-band:
The FCC last year said SpaceX had requested authority to deploy and operate a constellation of 4,425 satellites operating roughly 700 to 800 miles above the Earth (or 1,110-to-1325 kilometers).
Without a doubt, cheap, high-speed satellite broadband is just around the corner. Spending $2 million dollars and making a 20-year commitment to obsolete technology is clearly wrong and irresponsible. In fact, it is just plain stupid.
(See news article URL’s below.)
Past Municipal Broadband Failures Nationwide
As noted in several Sentinel articles last year, there have been numerous, extremely high cost municipal broadband failures over the last few years. (see http://munibroadbandfailures.com) Most of these failures occurred in municipalities that have far greater financial bases than Custer County. There are clearly problems with small governments trying to compete against the private sector. We should not enter that arena.
Land based broadband (and specifically, tower-based broadcast broadband) will be shortly eclipsed and made essentially obsolete (especially for rural areas) within a few years. Satellites will dominate the market.
The economies of scale are obvious. The existing internet towers will be like the derelict mining structures doting our county. For the County or any private business to make a 20-year commitment with a KNOWN technology shift coming (and more after that) is simply wrong and irresponsible. It would be wrong for the County Commissioners to commit the taxpayers of this county to a virtually unlimited liability in a business/technology sector IT KNOWS NOTHING ABOUT. In the software/hardware/computer/communications sectors, THREE YEARS IS A LONG TIME. The towers could be obsolete before they are even operational.
Another Big Government Waste of Money
Would you personally, or would any business, sink two million dollars (or much, much more; which is just the initial infrastructure investment) of YOUR OWN MONEY into a new business without any real market, revenue/income and expense/cost studies? And said business would be soon using obsolete technology? This potential $2+ million tax dollar boondoggle is a classic case of the “road to nowhere” where there is virtually no payback for the money invested. Remember, the $2 million dollars is OUR TAX MONEY. It is not “free” money.
More on the SpaceX gigantic project: