Iowa Agency Votes to Reject Bids for State’s Municipal Network

"I don’t know if I could really put a dollar amount on it,” ICN Executive Director Dave Lingren said of the network’s value during a press call after the meeting. He described the network’s many assets across many different dimensions, including to the planned nationwide public safety broadband network known as FirstNet. “We're one of the states the federal government looks at and says, ‘We're sitting on a gold mine.'”

The municipal network was first authorized 24 years ago and provides voice, full-motion video, video over IP, data, wide area network connections and high-speed Internet. The network contains 3,400 miles of state-owned fiber and 5,261 miles of leased fiber connections and was only authorized to sell or lease the parts the government owns. ICN reports to the commission, a state agency.

The Iowa Communications Network received two different offers, both from Iowa Network Services. Lingren recommended rejection of both, and the commission voted accordingly. The first proposal included a $12.7 million cash offer, with an expectation of $3.4 million for right-of-way costs over five years and $5.2 million for sales and property taxes. If right-of-way costs are waived for five years, INS would pay $16.1 million. The second INS offer proposed a purchase price of $1 but the bid “includes Network Upgrade Investments to the ICN video network and the DS3 based ICN Part III End Points with investments totaling approximately $15.9 million,” according to the ICN memo on that bid. “The Offeror states that it will provide upgraded services through E-Rate funding under the Universal Service Fund and will use the E-Rate funding to maximize the investment commitment for video and DS3 network upgrades.” If not all $15.9 million is spent, INS would have created a Technology Grant Program for educational and library network end users, it said. INS would have paid all right-of-way fees in that second offer, which anticipated the same right-of-way and tax costs as the first.

"We're disappointed with the outcome, but we're evaluating,” INS Chief Operating Officer Michael Eggley told us after the votes. He attended the meeting in person, he said, and declined further comment until INS has a better chance to review ICN’s case against his company’s bids.

ICN staff compared the Iowa network to North Carolina’s middle-mile MCNC, which cost more than $149 million to construct, a figure that “represents less than the actual cost of the network,” the ICN memo said. That figure gives an approximate value of the Iowa network, it said. ICN also pointed to $25 million in upgrades it added over the last three years, with funding from the Broadband Technology Opportunities Program. That BTOP-funded buildout will end this Friday, Lingren told us.

"The public safety and security issue is actually the dominant issue, if you will,” Lingren said of his recommendation to reject the offers. The ICN staff memos emphasize the controlled access networks of ICN, which allege that “these capabilities would be lost or diminished” if the offers went through. Vulnerabilities would force the Iowa National Guard “to build new network connectivity or invest heavily in encryption systems,” ICN said. The sale would “threaten FirstNet viability” and create cyberthreats that would have to be dealt with other ways, it added. Lingren called Iowa “probably farther down the road than a lot of states” and said he has spoken of ICN as an asset with Jim Bogner, Iowa’s statewide interoperability coordinator. Lingren described the problems following the recent Boston bombing this year and in other instances: “The communications infrastructure collapsed,” he said.

"I was not surprised by the low dollar amount or the number [of offers],” Lingren added of the RFP. “It’s not equipped to be a commercial telephone company.”

"It’s the first time something like this has been done,” Commission Chair Richard Bruner said at the Wednesday meeting. “It’s been a very major process.”

ICN also raised several questions about the legality of what INS proposed in its bids, such as whether the state of Iowa could legally waive right-of-way fees for INS. The law prompting the network RFP included provisions that users had to pay roughly what they do now as well as that public funds could not be used in any deal. “That’s definitely public money,” Lingren told commissioners Wednesday of the E-rate funding. In both proposals, INS “assumes as part of its proposal that the ICN will incur $36.1 million in operating losses over the next five years,” ICN staff said in a memo on the strengths and weaknesses of the bids. “This is an inaccurate assumption.” ICN calculations include “equipment and non-capital equipment as an operating expense” and misses what ICN said is evidence that “shows positive net cash from operations year over year and an increase in cash balance for the last several years.”

"Sure, it impacted us -- we had to hire contractors to assist us,” Lingren said of the RFP process dominating ICN staff in recent months. “We felt our role was too important to put everything on hold.” He described a staff spread thin and the challenge of keeping the network running well. He also described its emphasis on Internet-based video, set to be released early July, and its emphasis on unified communications, cost-saving measures that would end redundancy.

"The ICN cannot be sold or leased without approval of the Legislature and the governor,” Lingren said during the press call. “I really can’t anticipate what [Branstad] may do.” The governor has options and will coordinate with the Legislature if he wants to really take up these offers, he said, noting the difficulty of the process from his perspective: “It’s kind of awkward to put the commission in that position.” The governor’s office staff will meet with the commission and take its recommendation into consideration, Branstad’s communications director told us. Branstad will take the thoughts of all stakeholders into account, he added.