A committee that met in private for nearly seven months to study the expansion of Tacoma’s Click Cable TV system into internet and telephone services reached no consensus on how to pay for the plan.
That was the message Tuesday as committee members reported to a joint meeting of the City Council and Tacoma Public Utilities board, the members of which remain deeply divided on whether the system should continue to be publicly operated at a loss.
Members of the seven-member Click Engagement Committee — formed to vet the “all-in” business model in which Click competes alongside the private internet service providers that use its system to provide broadband — offered three different funding proposals. All required public subsidies, and each proved controversial.
“It all comes down to how you are going to fund the losses,” Tacoma Public Utilities Director Bill Gaines said Tuesday morning.
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The committee members’ proposals were:
▪ Utilities board member Karen Larkin proposed subsidies of $6.3 million a year from utility ratepayers and $1.7 million from the city’s general fund. Ratepayers’ contribution would come in the form of a $3 monthly surcharge on power bills, which Larkin said is equal to what customers are already paying to cover Click’s losses.
▪ Mayor Marilyn Strickland countered Larkin’s proposal with one of her own. She said the general fund, already facing a $6.7 million deficit in the next two-year budget system, is stretched too thinly. Strickland would shift the $1.7 million back to ratepayers, adding 83 cents to the $3 monthly surcharge that Larkin’s proposal would tack on power bills.
▪ Utilities board member Mark Patterson offered the third model. In it, the city would pay the $14 million in upfront work needed to provide gigabit internet service speeds as well as the ongoing costs to keep the system up to date. Utility ratepayers would continue to subsidize the system but those subsidies would decline over time.
All three proposals count on Click winning concessions from the system’s unionized workforce that save $1.5 million per year. Those concessions could include allowing the system to outsource some functions to contractors. Click has about 90 employees, including managers.
The question of how to finance Click wasn’t the only thing at issue Tuesday: One committee member submitted a scathing letter about the “closed door” process, which “appeared driven by members with a keen interest in keeping the city in Click’s broadband and cable business regardless of the financial facts presented.”
Janine Terrano, CEO of Topia Technology, said many of the details of the financial models were hammered out after the committee disbanded.
“Clearly the committee process was flawed from the beginning as the results before you today appear to disregard what the committee agreed to,” she wrote. “This calls into question the integrity of the process.”
Strickland, who read Terrano’s letter into the record, said that some of the work did continue after the committee’s final meeting June 3, but that members were invited to a subsequent session Aug. 1 in which details were hammered out. Terrano was one of two members who did not attend, the mayor said.
The committee had considered introducing a tax measure for the March 2017 election, but city and utility officials didn’t want to drag out the uncertainty of the system’s future, according to the committee’s report. Members then turned their attention toward developing alternative funding proposals.
Terrano also said the committee’s work ignores whether using ratepayer funds for support a cable and broadband system is legal. That has been a concern of utility officials and was the subject of a City Council closed meeting Tuesday.
Strickland said she thinks the city is on sound legal ground.
“When I hear an argument that there’s no nexus between a power company and broadband, I don’t buy it,” Strickland said. “There is a nexus and it’s we move forward and talk about broadband as an essential service that you have to have to fully participate in society — and I think there’s a way we can do it.”
In mulling Click’s future, committee members said they focused on the city’s goals for its residents. Providing internet service for under-served communities is among those goals, Strickland said. Predictably, fewer of those who live in less affluent areas of Tacoma have wired home internet service.
Larkin said she favors a publicly funded internet service as an economic equalizer.
“For people to participate in today’s society fully they have to have access,” she said.
Service for a low-income household could cost a customer as little as $5 per month, Larkin said. The utility would receive $15 per month because it will pursue a $10-per-month federal program for low-income internet households.
But public investment alone won’t bring Click back from the brink. It needs customers, too.
Industrywide, cable customers have dropped off in favor of internet streaming video services such as Netflix, Hulu and HBO Now. But Click’s cable customer losses have been steeper than the industry as a whole: It has hemorrhaged more than a quarter of its cable subscribers since its peak of 24,400 in 2009.
Gaines said a consultant told the committee that an upgraded Click could attract up to 30 percent of the internet customers in its service area.
The two private ISPs that lease space on Click’s wires to serve residential customers have around 20 percent of the market, Gaines said. Several other companies are angling for a share of Tacoma’s high-speed internet market, including Comcast, Wave and CenturyLink.
Utility board member Monique Trudnowski said Tuesday the report didn’t detail what would happen if targets for customer growth aren’t met.
“What happens if those revenues are not achieved — not only how are we going to finance it, but what are the worst case scenarios as well,” Trudnowski said. “To me this is not a business plan, it is a cash flow summary and financing model, but there’s a lot that’s missing and I would have hoped the committee would have gotten to this.”
Committee members said even if the city ultimately decides to lease the system to a third party rather than operate it publicly, their work will prove helpful.
“A lot of our goals and objectives for what this system ought to look like and what we would negotiate with some third party we have dealt with in this group,” Patterson said.
Some committee members aren’t ready to hand over the system to an outside operator. Tacoma spent $200 million in the 1990s to get Click up and running, Larkin said.
“If we get out of that business now, (and competition dies down) it’s going to be very difficult for us to get back into it again,” she said.
This isn’t the first time the council has debated the all-in model. In 2012, the council was asked to add internet and telephone services but bowed to intense pressure from the private ISPs that lease Click’s wires and sell service for a profit.