City to explore partnership options for Click’s future

Outspoken public support for Click Cable TV network swelled in 2015 when talks of leasing out the municipal network bubbled up and later died. Now the Tacoma City Council and Tacoma Public Utility Board will issue a call for proposals about how best to use the system. Photo by steve dunkelberger

Tacoma City Council unanimously approved a resolution on Tuesday that triggers yet another exploration of options for the future of Click Cable TV network, the municipally owned cable system.

“We aren’t shutting down Click,” Mayor Victoria Woodards said. “We are not selling Click. We aren’t giving up control of Click.”

The resolution the council passed allows a fuller discussion and exploration of options about the future operations of Click, she said.

“It is an asset not a liability,” she said.

The Tacoma Public Utilities Board already adopted the resolution, changing course from a 2015 vote to explore ways to upgrade the system, at a cost of up to $15 million, and begin offering “all in” services of phone, Internet and cable television and compete with private companies that offer those services. The system currently only wholesales bandwidth to Internet service providers, which in turn offer those bundled services. The “all in” effort first started in 2012 and was restarted in 2015 after Wave and then Rainier Connect submitted offers to lease the network for 40 years. Those lease plans soon went dormant as a working group of tech executives and policy makers set out to explore paths forward that ended with mixed reviews.

A consulting firm, CTC Technology and Energy, later concluded the plan was a costly gamble given the dynamics of the telecom industry that favor large operations, while noting Click has significant value.

“Click gives the City of Tacoma and TPU opportunity to further goals of equity, neutrality, privacy, and affordability,” according to the firm’s final report. “… Click provides competition – the holy grail of communications policy – and competition is critical to improve service and pricing in broadband. Thanks to its investment in Click, the Tacoma community has developed a competitive broadband environment that offers a level of competition that is available only in a relative handful of American communities. At the same time, it’s important to acknowledge the key challenges that TPU faces in attempting to improve Click’s financial results. These challenges are faced by most small broadband companies, whether public or private, in the current era.”

Several issues have since forced a decision on Click’s future be made sooner rather than later. Chief among them is a lawsuit that former TPU and City of Tacoma executives and a business coalition filed last year over the legality of Click’s finances, which showed it was operating at a loss. Those alleged ongoing losses of about $6 million a year have been covered by TPU’s general operations. The lawsuit claims that accounting shuffle constitutes a gift of ratepayer money to a non-utility function and wants Click to pay back $21 million, the ledger value of the fiber optic network. A trial is set for late June. A partial summary judgement hearing, however, is set for March 2.

Advanced Stream President Mitchell Shook holds that Click’s “losses” are internal accounting shifts to make the system look unsustainable and that more realistic allocations show the current wholesale plan is profitable for Click and its ratepayers. There are no financial standards, however, about how utilities allocate costs internally. He also challenged the upgrade costs for Click to start offering gigabyte service, saying other consultants put the figure at $600,000 to $2 million. The disparity is just an effort to make Click look like it loses money and force a decision on the side of a lease to a private company.

“We got rid of (former TPU CEO Bill) Gaines, but we didn’t get rid of the tentacles in the accounting that are choking off Click,” he said, noting that TPU shifted 94 percent of the fiber optic system’s costs onto Click in 2015, without considering the benefits the utility realizes from the system, namely its own communication and Internet system and the 15,000 smart meters that avoid manual visits to read, connect, or disconnect residential electrical meters. “The allocation is crazy. The smoking gun is the cost allocation.”

A return to a previous 75-25 cost allocation would more realistically show the actual breakdown of expenses and use, Shook said, noting that 40 percent of the modems on the network are smart meters. Using an allocation based on that cost allocation would leave Click $7 million in the black. The current allocation only has TPU paying for four employees out of the more than 100 people.

Click is profitable, Shook said, and it could be even more profitable if Click returned to its three-year contracts with ISPs so that they could have the stability required to make their own improvements in marketing to gain more customers. They are currently on month-to-month contracts.

“I can’t invest that money when I think they are going to take me behind the woodshed,” he said.

The new resolution will begin a search for information about possible partnerships with private companies and even public agencies to find ways to achieve at least some of Click’s 12 policy goals – from boosting Internet access to low-income families, to net neutrality to privacy and financial sustainability.

TPU formed Click 21 years ago as a way to fully use the bandwidth of the $200 million fiber optic cable system that the utility said it needed at the time to install “smart meters” to provide better and more efficient electrical service. Changes in technology largely made those meters less attractive, so the plan was not completed yet. A timeline for that is pending further review by a consultant now. Changes in the cable television industry, and the rise of “cord cutters,” who opt out of cable television packages to change online only streaming services have also altered Click’s operations, at least in the minds of policy makers and analysts.

“This is a very different era than the one in which you created Click,” CTC Technology and Energy President Joanne Hovis told the City Council at a recent study session on the issue. She also noted that even an option of Click just offering Internet access directly to customers instead of through wholesalers might not lead to financial stability under the current cost allocations because of the cost of debt and increased marketing costs. “We think there is a potential here, but it is not a slam dunk.”

She outlined a host of options, from shutting down Click entirely to going “all in” as originally planned. All options had pluses and minuses. She ultimately recommended that the city issue a call for ideas to see what businesses, other governments or even nonprofits might have for operating Click Network with the 12 policy goals as issues to be negotiated during any agreement discussions.

“You would very much be an innovator in this space,” she said, noting that any call for public or private ideas would at least establish a better understanding of Click’s value in the marketplace.

The TPU board and City Council took that option. Proposals from companies or public agencies are now expected later this winter, with the TPU board and City Council expected to review and decide on pursuing any of those options in the spring.

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