TIM JAMISON Courier Staff Writer | Posted: Tuesday, August 21, 2001 12:00 am
WATERLOO
The city has reached an agreement with Cedar Falls Utilities and MidAmerican Energy to construct and operate a high-speed, fiber-optics telecommunications system in Waterloo.
Mayor John Rooff and members of the city's Telecommunications Task Force today announced plans to build the fiber "backbone," which would be leased in part to the two utility companies, with CFU providing high-speed Internet and data transfer service to businesses along the route.
"Fiber optics is the key to Waterloo's future growth," Rooff said. "In order for Waterloo with its businesses to move into the 21st century, we need fiber optic capability.
"I believe it has hurt us economically not be able to provide fiber optics to businesses locating in our city."
City Council members are expected to approve a memorandum of understanding with CFU and MidAmerican next week and set an Oct. 2 referendum asking voters to approve selling near $2 million in revenue bonds to help construct the backbone and establish a municipal utility to oversee the system.
Rooff said the agreements with CFU and MidAmerican will take local taxpayers off the hook for the construction cost because the company's lease payments will fully cover the bond payments and maintenance of the system, while generating additional cash for the city over the next 15 to 20 years.
"It will cost (taxpayers) no money because the cost of this is being covered by our two major utilities in the Cedar Valley," he said. "There will be not tax or general fund expenses as a result of this project."
The Telecommunications Task Force formed last year because several Waterloo businesses complained about a lack of affordable telecommunications services, which was leaving them off the "information superhighway" and hurting economic development efforts. The task force proposed having the city build a fiber backbone, which could be leased to potential service providers.
CFU, which already provides high-speed data transfer and cable television service to business and residential customers in Cedar Falls, was one of two firms responding to the city's request for a proposal to operate the backbone. The other was Cedar Valley Broadband, a joint venture between The Forbin Group, a subsidiary of VGM Inc. in Waterloo, and Vectren Communications Services, an Indiana-based company that runs similar systems around the nation.
Council members voted earlier this year to select CFU and negotiations yielded the final agreement.
The backbone would cover 40 miles in the city, focused in heavily commercial and industrial areas.
CFU would lease 48 of the 144 fibers on the backbone for $330,000 a year, and would provide service to businesses along the route. MidAmerican will donated up to $350,000 in easements for the fiber to be laid and would donate another $250,000 in up-front capital to help build the system in return for six fibers to link its substations.
The city would utilize 48 fibers to be used for city operations, county government and all the public and parochial schools in the city at no cost. The remaining 42 fibers could be leased to other service providers to increase revenues.
Even without leasing the additional 42 fibers and potential revenue sharing with CFU, the system is expected to generate a profit of $857,000 if the decision is made to issue a 15-year revenue bond to pay for construction. That would grow to $2.3 million if a 20-year revenue bond is used.
Dan Mills, a consultant with SFT Inc., which helped negotiate the deal, said the positive revenue projections make the bond issue a "low risk" proposition.
"The financial outlook for this project is very positive," Mills said. "Significant returns are projected even at this early development stage, when only a portion of the entire available fiber capacity is used."
On the downside, CFU is only planning to commit to lease its 48 fibers for five years, which could create financing problems if the company chooses to pull out after its initial lease expires.
Also, the system is designed initially only to serve the business community. The system does have the capacity for a residential "build-out" in the future if a company is interested in making the investment to provide Internet, telephony or cable television service to home owners.