Allocating Broadband Costs

Why Allocate Broadband Costs?

Allocating broadband costs is considered a best practice in the utility industry to treat each utility service as a standalone business, responsible for recovering their full cost of service. Broadband utility infrastructure is used by the entire community. Thus, the municipality's utilities and city government should pay for the cost of broadband usage, just as any other customer.

Common Cost Allocation Methods

Several commonly used methods allocate inter-departmental broadband costs. These methods generally involve a fixed monthly fee to cover the fiber infrastructure's fixed costs and a variable component based on operation and maintenance expenses. Other methods may use allocations based on bandwidth usage or the number of fiber strands used.

Fixed and Variable Fee Approach

One approach uses a fixed and variable fee. The monthly fixed charge is based on dedicated interconnections' carrying costs (depreciation and rate of return) of the installed fiber's length.

In addition, a variable charge should be calculated based on the actual operation and maintenance expenses of fiber maintenance. The allocation method would be based on route miles.

Data Usage Method

Alternatively, a cost allocation based on data usage could be used if the utility uses AMI metering with wireless technology and hard-wired connections for substation usage. This method involves comparing overall data bandwidth used to the total network usage and multiplying by the total data fees for the year.

Benefits of Equitable Cost Allocation

Allocating broadband costs equitably benefits customer rates, as utilities and municipalities gain efficiencies through broadband services, leveraging a ready resource rather than constructing new facilities.

When each department pays its fair share of broadband infrastructure costs, the financial burden doesn't fall unfairly on retail customers. This approach ensures transparency and accountability across all city services while maintaining the broadband system's long-term sustainability.