Knoxville Utilities Board Set To Build Largest Municipal Fiber Network In The Nation

For the past several years the Knoxville Utilities Board (KUB) has been considering whether to add high-speed Internet service to its portfolio of offerings after nearly a decade of the region’s residents and businesses being plagued with the poor connectivity served up by incumbent providers.

Now, with the Tennessee Valley Authority (TVA) and the state Comptroller’s office having earlier this spring approved the Knoxville Utilities Board (KUB) business plan [pdf] to build a fiber network, the city-owned utility recently cleared the final hurdle needed to move forward with the massive project.

Unanimous Approval from Knoxville City Council

Two weeks ago, the Knoxville City Council unanimously approved the KUB Board of Commissioners proposal to build a fiber-to-the-home (FTTH) network in one of the Volunteer State’s largest metro areas. Network construction is expected to cost $702 million and take seven to 10 years to build out, reaching 210,000 households across KUB’s 688-square-mile service area spanning Knox, Grainger, Union, and Sevier counties.

Once the network is complete, it will not only be the largest community-owned network in Tennessee – surpassing the size of EPB Fiber in Chattanooga, which served as inspiration for KUB officials – it will also be the largest municipal network in the nation.

“Now that the approval process is complete, our focus has shifted to deploying the infrastructure and implementing the processes and systems that allow us to deliver quality services to our customers. We will be providing regular updates to our customers as we make progress,” KUB officials wrote in a prepared statement to Knox News.

Though it will take nearly a decade to build the entire network, KUB officials expect its first subscribers will be able to get service from the core network sometime next year, as the utility will first deploy 300 miles of fiber to connect its electric substations, part of its meter modernization program that uses a combination of wireless and fiber technologies to improve its electric distribution system.

Pricing and service tiers have not been officially decided on yet, however, the plan calls for offering up to a gigabit symmetrical service with a basic symmetrical 500 Megabits per second (Mbps) connection expected to cost about $65 a month.

Cost-Benefit Analysis

KUB’s electric division will provide a $35 million loan to the newly created fiber division over the first two years to fund the upfront capital and operational costs. Much of the money to build out the network will come from three consecutive annual electric rate increases of 3 percent each, beginning in 2022. As in Chattanooga, the electric division will likely own the fiber and use it for significant smart grid benefits while also leasing some of the fiber assets to the telecom/broadband division. 

“More than half of the revenue from the [electric] rate increases will fund previously planned electric system improvements” and “the long-term impact of funding the fiber network is $3.60 on the average residential monthly bill,” according to the business plan.

After those three consecutive annual rate increases, KUB officials say, electric customers can expect to see their monthly bills about $10 higher than they are now, although it is estimated subscribers would save anywhere from $11 to $46 a month for Internet service from KUB in comparison to the prices currently being charged by incumbent providers.

In Chattanooga and Clarksville, the municipal fiber network has allowed the electric utilities to ultimately forgo multiple rate increases since inception, suggesting that the ratepayers will benefit in the long run from this investment. Chattanooga EPB, for instance, has not raised its rates in six years.

A recent independently published analysis of KUB’s business plan conducted by Larry Kessler, Professor at the University of Tennessee Boyd Center for Business and Economic Research, found that the network would “enable KUB to offer cheaper, ultra-fast Internet to all households and businesses in its electric grid service area” and provide a variety of economic and community benefits, including 200 new local KUB jobs to staff the utility’s new fiber division.

“Assuming that 35% of KUB households adopt the new Internet plan, we estimate that the cost savings of switching from their current provider would lead to a $18.5 [million] to $85.7 million increase in [aggregate] Tennessee incomes per year,” the analysis found.

Beyond that, Knoxville’s Chief Policy Officer Erin Gill told Knox News the new network will mean an annual increase of $4.7 million in additional revenue to the city, bringing KUB’s payments-in-lieu-of-taxes to the city to $26 million a year.

Another important community benefit is that KUB has been authorized to partner with the City of Knoxville to explore how the utility can offer a low-cost service option for low-income households.

Offering high-quality, low-cost options has been a key focus for municipal networks in other cities where the pandemic has exposed a huge affordability gap, leaving massive numbers of students unable to fully participate in remote learning. In Hillsboro, Oregon, where city planners are building the HiLight fiber network, low-income households will be able to subscribe to gigabit service for $10 per month. Closer to home, in Chattanooga, EPB Fiber is on its way to providing free 100 Mbps symmetrical service for the next 10 years to the families of 24,000 students  enrolled in the free and reduced lunch program through a partnership initiative known as HCS EdConnect. The initiative has brought more than 14,000 students in 8,300 households online so far, and expects to reach additional milestones with the start of the next school year later this summer.

Widespread KUB Support Despite Incumbent Opposition

Prior to the KUB Board of Commissioners decision to move forward and a month before the Knoxville City Council gave the project the green light, KUB officials held a public forum in which a parade of city officials and residents spoke in favor of the proposal.

The project, of course, is not without its detractors. As has become par for the course whenever a municipality puts forward a proposal to build their own broadband network, the regional monopoly provider swoops into town to try to convince city officials and residents it’s a bad investment. Before the Knoxville City Council voted in favor of moving forward with the KUB proposal, Comcast Vice President of External Affairs Andy Macke traveled from Georgia to register the cable giant’s opposition at the City Council meeting, as did an out-of-state lobbying group known as Business Forward. 

As Knox News reported, Comcast offered to bring fiber service to Knox, Union and Grainger counties but was not able to sway the City Council. The mayors of those communities were underwhelmed by the proposal, leery of Comcast’s vague promises.

Union County Mayor Jason Bailey summed up his reaction to Comcast’s tardy proposal succinctly.

“I’m not throwing Comcast under the bus here," Bailey told Knox News, "There have been so many areas in the county that have literally begged for Internet . . . And all of a sudden here they are. My question is, where have you been before?”