• cfoster@cfoster.com

Velocity Broadband

Updated: Aug 14, 2019

There are rumors and truths regarding Velocity Broadband and it is hard to sort them out. I would like to detail some, sort them appropriately, and give you a candid opinion of someone who knows the tech field and finance.

Claim - VBB is a key driver in bringing businesses to Hudson and thus is responsible for generating huge city income that is not accounted for within the VBB revenue stream. Its a mixed truth. It is difficult to tell why businesses choose Hudson. Some have said VBB played a part in their decision. As a business owner who has a building sitting on fiber I see the advantage. It doesn't cost much to connect into VBB. Another truth is that having AT&T or other Cle/Akron present ISP's is not hard to get either. We use a couple hundred megabits of bandwidth and it costs my business about $800 a month. In the scheme of things if it cost my business $1,500 or $500, its not enough to sway a move decision. Not when businesses generate Millions in revenues. I tried to move my business to Hudson about 12 years ago. (The reason it is not here is a topic for another post.) I didn't even ask about connectivity because business owners can get it nearly anywhere. So in short, the claim is conjecture, promotion, possibly applies on some level to some businesses... key driver and responsible for those businesses being here? No. I don't think so.

Claim - VBB is making a profit. Lie (I can be blunt!). Businesses don't expense, in their profit and loss statements, capital items. Really expensive routers (VBB bought one for roughly $200k in December 18 - Jan 19 time frame) are placed on a balance sheet and amortized over a period of time. So you need cash for those things, but they dont appear as expenses. You will see in tonight's city council meeting our July financials. It shows VBB's fund has $81,944 in remaining capital (usable cash). But in January we had $590,444. We had a bit over $111k in June. So if we are making a profit, but cash balances are going down, where is the cash going? Capital items. We can keep making a 'paper profit' and still run out of cash if the capital expenses associated with the business are too high to make profit over the long term (in cash). Some businesses even report EBITDA (earnings before interest, taxes, depreciation and amortization). The last time I checked, if I didn't have CASH to pay interest on a loan, I would go out of business. We (Hudson Taxpayers) took out a 20 year loan to pay for VBB's investment recently. It looks good because we are able to put that 3.85 million back in the bank as it were. But we have a liability plus interest. VBB is not making enough money nor will it have enough available capital to service that loan for 4 years, or more. That is based on VBB and City projections. SO - Hudson needs to repay it. Thats why financial reporting lies (like EBITDA - or making a profit, without explaining capital expenses) matter to citizens in Hudson. We are on the hook for at least $1 million of the money we saw come back.

VBB is available to all. Mixed at best. There are maps showing where VBB runs currently. If you are on that line, you can connect for roughly $65-70 a month. They are trying to build their numbers without major investment. That's smart... I agree with that. But people think that means it will come to their part of town. Running fiber, the labor cost, is expensive. Much of the fiber in the city of Hudson has been run by Hudson Public Power workers and vehicles. Those expenses are not charged back to VBB. Our Hudson Public Power department (and bills) are responsible for that. See the city doesnt want to account for time across revenue departments. It would be too difficult for a power worker to document spending 8 hours on running fiber for VBB. So they dont. And their time and salary go to the power department. Why does this matter? I have a house on Walters road and am serviced by Ohio Edison. So is Ashbrooke and all of those homes around that area. About 40% of Hudson is not serviced by Hudson Public Power. Our VBB advisory council stated in their findings to city council that the incremental cost of paying other utilities to run fiber to all areas of Hudson would likely be prohibitively high and thus they must expect that many areas would never been VBB accessible. What they are saying is this - VBB would have to pay Ohio Edison to run fiber and it would cost too much. But I guess its okay for Hudson Public to run it and have people pay for their labor in your power bill, huh? healthy dose of sarcasm there.

I am concerned about why we funded this technology over 20 years. While Moore's law no longer applies perfectly (the theory that computers double in speed and half in cost every 2 years, which held true for decades), it did not become obsolete. Cell phones became capable of transmitting data (texting) in the late 90's. It was slow, about 56kb/sec. To put that in terms people understand, it would take about 1 hour to send someone a picture taken on your iPhone today. 3G was released in 2003... 16 years ago. That is when most people started using a cell phone as a tool. Smart phones came along later - the first iPhone is only 12 years old. With 3G, speeds went from 'very slow' to about 7 Megabits per second. That means you can send that normal iPhone picture to someone in about 12 seconds. 4G or LTE which is what most people use today can operate at speeds of 100Megabits per second... a massive increase in speed. Photo transmition time - a second. Sub 1 second, in fact. Remember 3G was a 2003 technology and 4G only a 2009 technology. We are starting to use 5G now. Go to Cleveland airport and you will find yourself on 5G with the right phone. Speed? 1 Gigabit. 10x faster than what most people see now. It has not been that long when you consider 12 years of smartphones. And yet we financed VBB with 20 year bonds. Im not saying it has no value. Hard-wired land lines have 1 large advantage and always will... they are hard wired. Always there (except when cut or fail due to equipment). But 3.85 Million in value? hmmm.

What should be done? We need to find a partner in this business venture long term. The lines are in and thus have value (about $3.85 million as far as I can tell). Allow them to take the business unit over and Hudson can earn a royalty on the usage over a number of years to slowly repay that debt. Or partner with a business that is in the business of providing connectivity. Someone who has the experience and volume of business who can handle the capital expense spread over their entire business (volume matters in the ISP game) to accelerate usage. There are ways to reduce capital expenses by providing fiber trunks on main routes only, and cross connect that with less expensive mediums in neighborhoods. You have the advantage of a fiber backbone with the reduced cost of neighborhood connections where people don't need 1 Gigabit of dedicated service on a per home basis. That is how cable companies work. You can still run fiber in some areas, such as business parks, where it can make sense. Businesses generally pay more for the service anyway so you can justify the higher costs IF the businesses serviced are in central areas - like say where YDC is.

I will leave it there for now. But you can see, there are other options that wont continue to bleed us as a community. Funny timing that recently we are looking to finance $5 million in road repairs with long term debt. Maybe we should not have spent nearly $4 million on VBB. Just a thought.


©2019 by Chris Foster for Ward 2 City Council. Paid for by Citizens for Foster