Governor Beshear, Congressman Hal Rogers Launch Statewide Broadband Initiative, Beginning in Eastern Kentucky

Macquarie Capital chosen as private sector partner to design and develop statewide system

FRANKFORT, Ky. – A new public-private partnership will develop a robust, reliable, fiber “backbone” infrastructure to bring high-speed Internet connectivity to every corner of the Commonwealth – with the critical first components scheduled to be operational in less than two years.

Governor Steve Beshear and U.S. Rep. Hal Rogers announced the partnership with Macquarie Capital today.

“We are on an aggressive timeline and believe that the Macquarie team’s technical capabilities and history of innovative solutions are the best fit for this important project,” said Gov. Beshear. “Kentucky’s Internet speed and accessibility have lagged behind the rest of the nation far too long. This partnership puts us on the path to propel the Commonwealth forward in education, economic development, health care, public safety and much more.”

This infrastructure project is unlike any other seen in Kentucky in the last 50 years. Broadband, now considered an essential utility service, will improve Kentucky’s dismal connectivity and slow speeds to some of the fastest and highest capacity service in the U.S. – all with the potential to lower consumer costs and improve coverage as well.

Just as important, this project will be paid for up front by leveraging private capital at no additional cost to Kentucky taxpayers.

“If we were to rely solely on state government funding to get this project off the ground, it would take years, if not decades. Those kinds of tax dollars just aren’t available,” said Gov. Beshear. “In this technology-dependent economy, we can’t afford to wait another minute. That’s why this partnership is so valuable – it ramps up this project to the speed of the private sector without any additional burden on our taxpayers.”

State to oversee main broadband lines
The first stage of the project is to build the main broadband fiber lines across the state. These major fiber lines are called the “middle mile.” The “open access” network will allow the private sector to use the fiber to deliver services into communities. Once complete, other Internet service provider companies, cities, partnerships, or other groups may then tap into those “middle mile” lines to complete the “last mile” – the lines that run to individual homes or businesses.

Where already in place, the project will take advantage of existing infrastructure, thus partnering with local telecommunications companies, municipalities and major carriers to deliver the network more quickly and reduce construction costs.

Improved cell phone coverage is anticipated as part of the initiative. Cell phone companies may choose to use the state’s “middle-mile” fiber network to add capacity and broaden coverage areas throughout the Commonwealth that have traditionally had poor cell phone reception.

Eastern Kentucky to be first priority
When completed, the more than 3,000 miles of fiber will be in place across the state. This “middle-mile” fiber infrastructure is key to reaching much of Kentucky’s large rural population.
Fiber will be available in all 120 counties, and the underserved eastern Kentucky region will be the first priority area for the project. The Center for Rural Development in Somerset will partner with the Commonwealth, focusing on communities east of Interstate 75. The Center will also host education workshops to help communities learn how to connect to the new network.

The push for reliable, accessible high-speed broadband is one recommendation that emerged from SOAR, the “Shaping Our Appalachian Region” initiative.

“We’re laying the first bricks for what could be ‘Silicon Holler.’ This new Super I-Way is the cornerstone of SOAR’s mission to diversify the economy in eastern Kentucky with improvements in business recruitment, fast-tracking telemedicine in the mountains, and adding high tech advancements in education,” said Congressman Rogers. “I commend all of our federal, state and local partners for working together on this project that will undoubtedly chart the course for a better future in the coalfields and across the Commonwealth.”

Over the past several months the Commonwealth, in conjunction with the Center for Rural Development, released the request for proposal solicitation and negotiated with private sector vendors including Macquarie Capital.

Work on design, scope of fiber system to start right away
Macquarie Capital has assembled a team of market-leading specialists to design, develop and operate the network over the next 30 years. While the private sector partners will bear developmental and operational risks of the project, the Commonwealth will retain ownership of the network.

Macquarie will begin work immediately on phase one to design the overall statewide system and determine the project’s scale. The design and cost estimates are due by the end of February 2015 with construction of the first segments expected to begin in the summer and completed by April 2016. The total cost of the project will depend upon the ability to leverage existing infrastructure versus deploying new routes, which will be determined during the design phase. Overall, the project is estimated to cost between $250 million to $350 million, and will be supported by approximately $30 million in state bonds and $15 to $20 million in federal grants.

Work along I-75 from northern Kentucky to Williamsburg will form the “spine” of the network, with work in the priority region of southeastern Kentucky occurring simultaneously. More than 100 key facilities will be connected, including universities, state government buildings and community and technical colleges.

Public-private partnership leverages private market, lowers costs
The initiative will be a partnership of government at all levels and the private sector. The public-private partnership – often referred to as a P3 – allows the state to leverage resources to fill service gaps. In this case, private capital will be used to build the network at no additional cost to Kentucky taxpayers. This project likely would never be undertaken with traditional state financing methods.

The state chose to use a P3 for several reasons. The P3 model is well-established and enables projects to be completed on an accelerated timetable while transferring risk to the private sector partners. These partners also bring expertise, innovation and flexibility to the project.

Bringing private sector investment to build the network significantly decreases the time needed for design and construction, making broadband access available sooner for families and businesses. Finally, with the state’s oversight of the main broadband lines, consumer costs may be lowered by eliminating the need for private providers to build duplicate network infrastructure; that means Internet service providers can instead invest in cell phone service or “last-mile” service.

“Macquarie Capital and its partners are extremely excited about the opportunity to develop this network under the public-private partnership model, bringing together a team of market leading specialists focused on implementing the network as quickly as possible,” said Nick Hann, senior managing director at Macquarie Capital. “We believe that this project will be the centerpiece of Kentucky’s long-term economic infrastructure, demonstrating the core principles of value for money and risk transfer to the private sector that will translate into a successful long-term partnership with the Commonwealth.”

Macquarie’s consortium partners include First Solutions, Fujitsu Network Communications Inc., Black & Veatch, and Bowlin Group.

Broadband is an essential public utility; project expected to lower consumer costs
In today’s economy, high-speed Internet is no longer a luxury, but is as essential to a community as water or electricity.

A modern, high-capacity fiber infrastructure allows businesses to compete globally, educators to expand their use of rich teaching resources, students to access the knowledge of the world, health care entities to collaborate and first responders to communicate easily in emergency situations.

The project scope is similar to building other public utilities. Consider the broadband fiber lines to be like the main water lines in a community. The largest water lines are built in central community areas, and then smaller lines branch off the main line. Finally, someone connects the street line to an individual home or business. The broadband project will act in much the same way. The first phase of the project is to build the main broadband fiber lines across the state, then construct branches off the main line to deliver into communities. These major fiber lines are the “middle mile,” and other Internet service provider companies, cities, partnerships, or other groups may then tap into those lines to complete the “last mile” – the lines that run to individual homes or businesses.

The project will leverage state government’s existing Internet networks to build a kind of high-speed delivery line throughout the state.

One of the most important features is that the network will be truly “open access,” meaning many other Internet and cell phone service providers can lease portions of the network. More important, those leases will not be limited to one provider per county or community; several groups may lease the network, which will give consumers a choice in purchasing their broadband. By partnering with the network, providers will be able to reduce their costs when building out “last mile” service to customers. That competition should result in lower consumer costs.

Internet access isn’t high-speed broadband
Kentucky ranks 46th in broadband availability and 23 percent of rural areas in Kentucky do not have access to broadband.

Most households in the state have access to an Internet Service Provider (ISP), but that’s not the same as high-speed broadband. High-speed broadband is capable of carrying much larger amounts of information to a larger group of users at much faster speeds.

As the federal definition of broadband changes, and minimum speed increases (often in megabits per second, or MBS), Kentucky falls further behind because the service available to citizens does not meet these minimum qualifications.

Today, only about half of the state’s households use broadband service, and nearly one-quarter can’t access broadband at all.