ON KPU TELECOMMUNICATIONS PROPOSITON 2 ON OCTOBER 1, 2019
- WHAT IS PROPOSITION 2?
Proposition 2 is a Revenue Bond. KPU Telecommunications will use the Revenue Bond to finance construction of an undersea fiber optic cable between Ketchikan and Prince Rupert, BC, Canada. The Revenue Bond will not increase property taxes, and will be paid for by KPU’s cost savings.
- WHY DO WE NEED A REVENUE BOND TO FINANCE THE PROJECT?
If KPU were a privately owned company, KPU would simply finance the project by taking out a loan from a bank. As a municipally-owned company, KPU can only borrow money by gaining voter approval for a Revenue Bond.
- HOW MUCH IS THE REVENUE BOND, AND HOW WILL THE BOND FUNDS BE USED?
The Revenue Bond amount is $11,500,000. The Bond will be utilized to fund construction of an undersea fiber optic cable between Ketchikan and Prince Rupert, BC, Canada. The undersea fiber optic cable will become KPU Telecommunications’ primary permanent method of ‘connecting’ Ketchikan to the Lower ’48 Internet ‘cloud’ – ensuring the availability of competitive high-speed Data and Internet services throughout the community of Ketchikan for decades to come. KPU intends to pay for the Revenue Bond by cost savings, not by taxes or fees.*
- WHY DOES KPU TELECOMMUNICATIONS NEED AN UNDERSEA FIBER OPTIC CABLE TO PRINCE RUPERT?
Basically, KPU’s existing off-island network (between Ketchikan and the Lower ’48) is full – and KPU must presently rent additional off-island network capacity from competitors in order to meet customer demand for high speed Internet services. The present method – of renting additional capacity – is unaffordable. The most affordable method of connecting Ketchikan to the Internet – now and in the future – is for KPU to build and own an undersea fiber optic cable between Ketchikan and Prince Rupert.
- HOW, EXACTLY, DOES KPU CONNECT TO THE LOWER ’48 INTERNET TODAY?
KPU presently ‘connects’ to the Lower ’48 via two KPU-owned systems (a microwave radio between Ketchikan and Prince Rupert, and ownership of limited-capacity on an undersea cable). Both of the KPU-owned network ‘routes’ are essentially full, or ‘at capacity’, and cannot be expanded.
Because its two systems are very near capacity – KPU is presently forced to rent very expensive additional network capacity from its competitors.
- WHY IS KPU’S OFF-ISLAND NETWORK FULL, OR AT-CAPACITY?
Because over the past 6 years “the world has changed” dramatically. In 2013 ‘smartphones’ barely existed, and streaming video, Netflix, Amazon Prime, YouTube, were virtually unknown. Over the past 6 years the usage of ‘smart devices’, streaming data, on-line gaming, on-line business (all of which are “data hogs”) has exploded. And along with it –to accommodate our customer’s demand for high-speed services – KPU’s off-island network has been consumed. And the future promises more and more demand for even more data-intensive services. Higher-quality video, 4K, 8K, 5G, Security Cameras, Smart Homes, “The Internet of Things – all promise to require exponentially more data-capacity between Ketchikan and “The Cloud” in Seattle … or none of it will work. The most prudent and cost-effective way to ensure KPU’s network ‘works’ for decades to come is to build the undersea fiber optic cable.
- WHY DOESN’T KPU JUST RENT MORE CAPACITY FROM OTHER NETWORK PROVIDERS?
It isn’t affordable, nor is it sustainable, nor is it practical. Presently KPU pays ‘approximately $1,000,000 per year for leased or ‘rented’ network capacity. Lacking ownership of an undersea cable to Prince Rupert, KPU will be forced to continue renting ever more additional capacity (for additional cost) and/or signing a very expensive long term capital lease.
By contrast, KPU can repay the Revenue Bond by reducing the amount it presently pays for renting network, as well as by avoiding ‘rent increases’ in the near future. This results in a ‘no additional cost to the public’ to repay the Revenue Bond.*
- WHY ISN’T IT SUSTAINABLE OR PRACTICAL TO CONTINUE RENTING CAPACITY?
It simply is not practical to continue renting (at costs exceeding $1,000,000 per year and growing) – when the cost of building/owning its own network can be financed for less than the cost of renting. It is predictable that continuing to rent will ensure that rental-expenses will increase until the point where KPU’s cost-of-doing business is no longer sustainable.
- IS THERE A RISK KPU’s NEW UNDERSEA FIBER WILL RUN OUT OF CAPACITY?
No. The ‘capacity’ of the undersea cable is limited only by the type of ‘electronics’ KPU installs on both ends of the cable. Capacity can always be increased by adding electronics.
- IS IT UNUSUAL FOR A ‘LOCAL TELECOM COMPANY’ TO BUILD THIS TYPE OF PROJECT?
No. In 2011 Cordova Telephone Cooperative constructed a 90 mile undersea fiber optic cable from Cordova to Valdez. In 2016 Alaska Power & Telephone (AP&T) constructed an 86-mile undersea fiber cable from Skagway to Juneau. Presently MTA (Eagle River/Palmer) is constructing a terrestrial 270 mile fiber optic cable along the Alaska Highway to connect the Mat-Su valley to the Canadian terrestrial fiber network. Other similar projects are planned. Increasingly the Alaska ‘fiber map’ will become populated with locally-owned ‘middle mile’ fiber optic cables, as communities and local companies take control of their digital future.
- WHEN WILL THE PROJECT TAKE PLACE? HOW SURE ARE WE ABOUT THE COST OF THE PROJECT?
This is essentially a ‘shovel ready’ project. The undersea bathymetric survey (the route-plan and associated engineering) was completed in 2018. The undersea survey and route engineering – along with preliminary competitive pricing received from contractors in 2018 – means that KPUT has a very close idea as to the total cost of the project. Final costs will be determined by competitive bids received later in 2019. The majority of permits are in-hand (all permits will be in-place prior to construction). KPUT anticipates awarding a construction-contract in late 2019. The cable will be constructed next summer, and the new cable will be ‘lit’ and in-service by approximately October, 2020.
- CAN KPUT HANDLE A PROJECT OF THIS SIZE?
Yes, easily. The actual construction will be bid-out and a contract awarded to a company that specializes in undersea cable construction. KPUT will simply administer the construction contract. Post-construction, KPUT will install the electronics and manage day-to-day operation of the network, just as we presently do with our existing Microwave, local fiber optic network, capacity on the competitor’s undersea cable, Skagway 4G/LTE system, and our Seattle network-core.
- ARE THERE OTHER GOOD REASONS FOR VOTING YES ON PROPOSITION 2?
There are many good reasons for voting ‘yes’. Benefits of KPU’s ownership of the undersea cable include:
- ‘The future is the Internet/broadband’. In keeping with water and electricity, the community’s future economic viability is directly linked to the availability of competitive, affordable high-speed broadband/Internet. Ketchikan is one of the only communities in the United States with fiber-to-the-home-and-business throughout virtually the entire town. Completing this picture will be KPU’s undersea fiber – connecting the local fiber infrastructure directly to the ‘cloud’ in Seattle – which will then guarantee the community has several competitive digital connections to Seattle – one of which is owned by the community. Completion of this project will guarantee that Ketchikan is the best-positioned broadband ‘future-proofed’ community in Alaska.
- Ketchikan deserves to control its broadband future. Community-ownership of the undersea cable will ensure that the people of Ketchikan control Ketchikan’s broadband future. The community’s broadband future is too important to leave to the mercy of boardrooms in Anchorage, Denver, or New Jersey. KPU is happy to compete – but in the case of renting network capacity, it is difficult to compete with a corporate landlord …..
- The undersea cable will likely provide new revenue opportunities. Ownership of the undersea cable creates ‘partnership’ opportunities with other network providers (in the US and in Canada), which may assist in paying for the Revenue Bond (and provide additional income to offset expenses).
- What if I’m not a KPU Telecom customer? The entire community benefits from the fact that KPU’s network ensures that competitive telecommunications services (including TV, 4G/LTE wireless, Internet, and outstanding business telecom services) exist in Ketchikan. Competition drives lower prices and higher quality. KPU’s network ensures Ketchikan isn’t stuck with a monopoly provider of critical telecom services.
- WILL MY TAXES INCREASE? HOW IS A REVENUE BOND DIFFERENT THAN A ‘REGULAR’ BOND?
No. Your taxes will not increase as a result of Proposition 2.
A Revenue Bond is guaranteed by KPU’s customer-revenue – but as a practical matter the Revenue Bond will be repaid by KPU’s savings (because of a decrease in KPU’s network-rental expenses).
Regular bonds are typically paid back by property taxes. Your property taxes will not increase as a result of Proposition 2.
- WILL MY RATES FOR KPU TELECOMMUNICATIONS’ SERVICES INCREASE?
Proposition 2 is a Bond that essentially ‘pays for itself’ from savings. KPU’s new undersea fiber optic cable will enable KPU to decrease expenses it presently pays to lease off-island Internet ‘broadband’ circuits between Ketchikan and Seattle. So, essentially the money KPU saves will be used to pay off the Revenue Bond.*
*In a worst case scenario, KPU might raise rates by 1% ($1 on a typical $100 monthly bill).