The cost of things: For some Iowans, no internet choice at any cost

Competition is a key factor in price and speed

July 15, 2019 | 6:30 am
(Gazette Photo Illustration)
Chapter 1:

In Vinton, residents have grown so frustrated with what they consider insufficient internet speeds from private providers that the city of about 5,100 people has decided to make its own broadband service.

Ground is expected to break this year on the roughly $9 million Vinton Fiber project, which could take on its first customers by winter.

While some argue municipal broadband will be too costly to maintain in the small Benton County town, others say that not only can it be done, but competition in the market spells better options for customers.

About this series

With the most recent rate increase by Alliant Energy for Iowa customers, The Gazette decided to take a look at the cost of energy in Iowa — namely with the state's two investor-owned energy providers.

This report is the last in three-part series on the cost of services in Iowa.

• Part 1: Energy

• Part 2: Water

• Part 3: Internet services

“Communities like Vinton have said, ‘We’re going to take control of it ourselves,’” said Curtis Dean, co-founder of Indianola-based Community Broadband Action Network, which aims to help communities pursue broadband options.

“When the entire market starts competing, whether on service or price, everybody benefits,” he said. “Competition drives innovation, features and services.”

While a state utilities board rules on natural gas and electricity rate increases proposed by investor-owned companies and local officials are accountable for a customer’s water and wastewater bill, Iowa broadband exists largely in the private sector.

That means competition often is the driving factor when it comes to the price of connectivity.

About broadband in Iowa

Broadband connects Iowans to medical professionals, creates access to educational tools, is key to economic development and provides the connectivity needed to service the growing field of precision agriculture.

The Federal Communications Commission has established 25 megabits per second (Mbps) download and 3 Mbps upload speeds as the benchmark for high-speed internet, or “advanced broadband.” Traditionally, this speed has been viewed by industry officials as adequate for a single user, or multiple people with light use.

Iowa's internet profile

• 88.9 percent of Iowans have access — or the ability to connect — to wired broadband 25 mbps or faster

• 84.2 percent of Iowans have access to broadband 100 mbps or faster

• 73.2 percent of Iowans have access to 1 gigabit broadband speeds

• Since 2010, Connect Iowa has been awarded more than $5.7 million in federal grants toward broadband infrastructure.

• There are 424 internet providers in Iowa.

• About 343,000 Iowans do not have access to a wired connection with download speeds of at least 25 mbps.

• About 474,000 Iowans have access to only one wired provider.

• Another 109,000 Iowans don’t have access to any wired internet service providers.

Community profiles

Johnson County

• About 2,000 people in Johnson County don’t have access to any wired internet.

• About 6,000 Johnson County residents do not have access to 25 Mbps wired broadband.

• About 95 percent of Iowa City residents have access to multiple wired providers.

Linn County

• Fiber internet is available to about 31 percent of Linn County residents.

• About 6,000 Linn County residents do not have access to 25 Mbps wired broadband.

• About 95 percent of Linn County residents have access to a fixed wireless internet service.

Source: BroadbandNow

However, as online activity increases or streaming services and devices are added, higher speeds are needed.

While the commission reports that 90 percent of Iowans have access to advanced broadband, others, including Microsoft, argue that measurement of access is grossly overstated, as only about 30 percent of Iowans actually use broadband.

An issue with the current FCC maps is they break access down into Census blocks, rather than smaller, individualized areas. That means if one customer within that area has access to 25/3 speeds, the entire block is considered to have advanced broadband.

What’s more, FCC maps also include areas where service could be expanded without “extraordinary costs,” which plays a major role in where federal funds are dedicated to bolster rural broadband. So incomplete maps mean it’s difficult for officials to even know where upgrades are needed.

While residents in some of Iowa’s more urban locations have multiple options of providers and reap the benefits found in a competitive market, more rural residents may have only one option when it comes to high-speed internet.

“There’s no real overarching strategy on a national level to really fill those gaps in any kind of controlled fashion. It’s still kind of up to the marketplace,” Dean said.

As the debate over Iowa’s connectivity — or lack thereof — wages on, work continues both in the private and public sectors to forge ahead and provide more Iowans with faster speeds.

High-speed internet comes at a cost

Across the state, established large-scale internet providers vie for a 21st century customer base hungry for high-speed internet.

Customer offerings run the gamut — from faster speeds and unlimited data to promotional discounts — and play into an increasingly competitive market.

“The market kind of drives where the price needs to be,” said Jake Ryan, vice president of finance and accounting with Cedar Rapids-based ImOn Communications.

While Mediacom started as a cable company, customers’ biggest demand today is for high-speed internet, said Phyllis Peters, senior director of Mediacom communications.

One of the biggest costs associated with internet can be traced to infrastructure upgrades to provide better speeds and more data.

Peters said the company boasts up to 1-gigabit speeds in many communities and plans to unveil a 10-gigabit option soon.

 

“We’ve invested in our network to make everything bigger, better and faster. If you think of the network like a pipe, we continually expand the capacity, the efficiency of the traffic that moves through it and the speed,” Peters said. “The size and complexity of how the internet has had to keep growing is something many of us couldn’t have imagined.”

Ryan said infrastructure upgrades are crucial to remain competitive.

“If you don’t make that same investment, all of a sudden as usage goes up, performance goes down,” he said. “If you don’t stay two steps ahead, you’re going to fall behind.”

While Mediacom has been boosting performance in established communities, ImOn has been looking at expansions into Iowa City, Coralville and Dubuque.

Despite the growing investments, officials said, the cost of services has remained relatively flat. Added costs can, however, be noticed in upgraded packages.

“Where we have added costs to what a consumer pays is when we’ve added the higher speed tiers. Our entry level, basic internet, that’s where the flattest line in price has been, but when we added 500 megabyte speed or gigabit speed, those are at higher price lines,” Peters said.

Costs between providers also can vary depending on the location. Other offerings like an on-site call center or crews on call to fix outages around the clock also can play into prices, Ryan said.

One industry standard that many customers can relate to includes promotions that allow new customers to purchase services at a discounted rate for what typically is a two-year period.

“There’s really no standardization there; it’s mostly just what we’ve found the market will bear,” said Lisa Rhatigan, vice president of marketing with ImOn Communications. “We work with our customers every day to figure out what makes sense for both parties.”

Communities step in to provide internet to rural Iowans

In addition to the big providers like Mediacom and CenturyLink, as well as emerging companies like ImOn, many of Iowa’s more rural residents get their internet from a local telecommunications company or municipal broadband utility.

Tim Whipple, general counsel with the Iowa Association of Municipal Utilities, said there are about 25 municipal telecommunications providers in Iowa.

Despite often receiving considerable support from residents who vote to pursue a municipal utility, doing so can be a challenging endeavor, Whipple said. A newly created entity doesn’t have any capital, so the new utility almost always has to issue bonds to finance the project.

“The business has to do well and make money to pay the bond back. Those are the hurdles in front of a small community like Vinton who wants to do this,” he said.

Vinton residents in 2015 voted to create a communication utility — planting the seed for municipal internet.

Costs on the rise

Family-budget costs rose 41 percent in six years

From electricity to water to broadband internet, the cost of services often are on the rise.

But while the price of services, housing and health care see almost annual increases, those expenses often outpace Iowans' income.

United Way's 2018 Asset-Limited, Income-Constrained, Employed — ALICE — report, found the statewide cost of a family budget increased by 41 percent from 2010 to 2016, to more than $56,000 for a family of four.

That's more than four times as much as the national rate of inflation, which was about 9 percent, over that time period.

In the same span, the Iowa Data Center reports that the median household income increased about 17 percent, from about $48,000 to $56,300.

A 2018 Iowa Policy Project Cost of Living in Iowa report found that nearly 100,000 Iowa working households — about 227,000 people in total — do not earn enough to meet “a basic-needs, no-frills, self-sufficiency budget.”

While the Iowa Policy Project report focuses on working households, the ALICE report took a look at all Iowa households.

The ALICE report found that 457,044 Iowa households, or 37 percent of the state's total, were unable to meet basic needs. That marked a considerable increase from 31 percent of households in 2016.

The report found that about 12 percent of Iowa's households live below the Federal Poverty Level and an additional 25 percent — while considered above the poverty threshold — are unable to cover basic expenses such as housing, food, transportation and health and child care.

A 2017 fiber-to-the-premise feasibility study for Vinton Municipal Electric Utility notes the project could have a positive net income in the fifth year. But others, like former state Rep. Chip Baltimore, now senior fellow with advocacy group Taxpayers Protection Alliance, said that means it’s possible the utility accrues debt in that first half-decade.

The feasibility study estimated Vinton’s residential service would cost about $75 a month for 100 Mbps speeds and up to $150 a month for gigabit speeds.

The report notes that speed is slightly below Mediacom’s nonpromotional monthly rate, and the service also boasts what officials hope is more reliable service.

Community Broadband Action Network’s Dean said there are about a dozen communities across the state looking to add a competitive internet service, whether public or private.

Dean said many of those efforts are comparable to Vinton, with residents or policymakers tired of a lack of options.

But while smaller communities like Vinton pursue their own broadband, the larger providers in Iowa do hold onto one advantage — the economy of scale.

Mediacom serves approximately 1.4 million households across 22 states — with about one-third of the company’s customers and employees spread across about 300 communities in Iowa.

Having such a large customer base requires massive infrastructure, but also allows project costs to be easier to spread out.

“If you get more people paying a portion of that, it keeps the costs down for everybody. We’re not making the increases that some people see in some product lines,” Peters said.

Whipple said it’s common for an incumbent provider to provide extremely discounted prices in markets where a municipal utility is being explored — in an effort to outprice the potential service before it begins.

“They take actions to try to dissuade a community from moving forward,” he said.

Dean acknowledged the benefits of a larger company, but also noted that, while investor-owned companies look for a quick return on investment, a municipal service doesn’t operate as a revenue-generating entity and can look at a 15- to 20-year payback period, if necessary.

“That is definitely an advantage for some of the legacy carriers, but it’s not enough of an advantage to offset the advantage that a municipality-owned or community-based provider would have in not having that rapid rate of return on their investment and that profitability that is needed to sustain a company like that,” Dean said.

• Comments: (319) 398-8309; mitchell.schmidt@thegazette.com