WATERLOO -- American Color Imaging's business depends in part on how fast it can push and pull incredibly long strings of 1s and 0s through a thin glass cable.

The photo processing company on 18th Street in Cedar Falls has relied for nearly a decade on an ultra-high-speed fiber optics line from Cedar Falls Utilities to receive and send encoded digital images across the United States.

Company President Mark Lane said the ability to transfer 100 megabits of data every second at an affordable price through the city-owned telecommunications utility has become an "invaluable" factor in the company's ability to grow its business in the digital age.

"It has allowed us to be one of the most aggressive labs in the country, and we could not operate without it," Lane said. "I live in Waterloo because I prefer to, but I certainly couldn't operate this business there."

American Color Imaging could be the poster child for Opportunity Waterloo, a group of business and community leaders who filed petitions forcing a Nov. 8 referendum asking voters to approve the creation of a telecommunication utility in Waterloo.

Supporters say Mediacom, Qwest and other private service providers have failed to meet the needs of Waterloo's business community, while the CFU fiber system has helped fill Cedar Falls' industrial parks and grow its tax base. The vote, they contend, simply protects the city's ability to create the utility if private companies keep dropping the ball, and it does not allow the city to risk taxpayer dollars on the venture without additional voter approval.

Opponents of the referendum counter that private industry has carried the ball quite nicely, and Waterloo businesses and residents already have -- and will continue to receive -- affordable telecommunication services through Mediacom and other providers.

Project Taxpayer Protection, an organization formed by Mediacom to run an expensive statewide advertising campaign against the measure, also argues city leaders could pursue construction without another vote.

In a communications world full of complex technology and laden with acronyms like DOCSIS, PoP, LAN and Mbps, the sharp difference of opinion on basic issues related to the vote may leave many voters confused.

On the ballot

Waterloo voters have had this chance before.

A similar measure in 2001 failed while getting support from just one in three voters. But that referendum included a $2 million general obligation bond issue to help construct a 40-mile fiber optics backbone to serve the city-owned utility.

This time, the ballot asks voters to authorize the creation of a municipal telecommunications utility and a five-member board to oversee it. Board members would be appointed by the City Council, but would operate with autonomy, much like the city's Water Works board of trustees.

The ballot asks voters for no money, and Opportunity Waterloo has not proposed any type of utility, technology or system to be constructed.

"We're not suggesting building anything at this point," said Ross Christensen, co-chairman of Opportunity Waterloo. "We don't even know what should be built. We just want to keep the option open."

Waterloo is one of 26 cities in Iowa with the telecommunication utility question on the Nov. 8 ballot. The movement started when Cedar Rapids businessman Clark McLeod formed Opportunity Iowa, which initially encouraged cities to construct their own telecommunications utilities to provide faster services than those offered by the private sector.

Meanwhile, the private telecommunications industry lobbied unsuccessfully at the Statehouse in Des Moines last year for legislation to place restrictions on the formation of municipal utilities. Operation Waterloo supporters say their chief goal is to approve the utility now in case the Legislature decides to adopt those restrictions in the next session.

While 51 Iowa communities have approved municipal telecommunications utilities, only 31 moved forward to construct and provide services. If the vote fails in November, Iowa law currently prevents the city from bringing the issue back to voters for at least four years.

Christensen believes the failure of the referendum would leave Waterloo at the mercy of private companies that may choose to invest their dollars and provide cheaper rates in areas with more competition.

"I firmly believe, when this is over in November, the cities that approve this will be getting the most attention," he said. "I think Mediacom can do what we need, and they'll be more apt to do it if this (municipal utility) is in place."

But Jon Koebrick, Mediacom's vice president for government relations, said the reasoning is misguided.

"We can deliver those services today to any business in Waterloo," Koebrick said. "This (referendum) is a huge, risky proposition for the taxpayers and the city to get into, especially when you're sitting in a city with the highest tax rate in the state."

The CFU experience

Opportunity Waterloo supporters make no bones about the fact the referendum is driven by what they feel is a lack of service to the business community, which they feel has hurt the city's ability to attract and retain employers and jobs. They point to the burgeoning Cedar Falls Industrial and Technology parks, and the related housing boom, as proof.

Cedar Falls voters in 1994 authorized the existing municipal gas and electric utility to construct a fiber backbone to begin providing cable television and Internet service to customers. Immediately afterward, TCI of Northern Iowa, Mediacom's predecessor, built its own system in Cedar Falls but not in Waterloo, where residents paid higher rates for fewer cable television channels.

For nearly eight years, Cedar Falls businesses were able to get high-speed data transmission services over CFU's system, while Waterloo businesses were forced to pursue more costly options or much slower services. Mediacom, which purchased the Waterloo system in 2001, eventually added 104 miles of fiber to its existing 40-mile fiber loop and started providing businesses with cable modem Internet service.

"Before Mediacom came in here, Waterloo was a second-tier market for the larger companies like AT&T and TCI," Koebrick said. "But if you take a look at where Mediacom is in Waterloo today, we are way ahead of a lot of other places. In fact, we are ahead of Cedar Falls in technology and capacity."

But Opportunity Waterloo supporters say the damage was done during the long spell where Mediacom's predecessors left Waterloo behind the technology curve. They fear the city could wind up behind the next generation of technology without at least the threat of city competition in place.

"The main issue in Waterloo is the lack of competition," said Doris Kelley, business development manager for Black & Veatch, a Kansas City area-based global consulting firm involved in infrastructure development, and a referendum supporter. "If we don't get the utility in place, we don't have a trump card."

CFU currently provides direct fiber optics connections to 30 businesses and leases fiber or provides other fiber services to 25 more.

Mediacom in Waterloo provides direct fiber connects to just two businesses, including Gilmor & Doyle engineering downtown.

Behind the curve

While Mediacom said the expansion of Cedar Falls industries can't be chalked up entirely to the telecommunications services, some businesses indicate it was essential to their ability to remain in the Cedar Valley.

"We've had fiber optics straight into the building since the day we got here eight years ago," said Jim Sartorius of The Mudd Group advertising agency in the Cedar Falls Industrial Park. "It has allowed us to be right here in Cedar Falls with the people and work ethic while competing on a national basis with firms on Madison Avenue or Hollywood."

The Mudd Group can send video and advertising spots to clients nationwide over the CFU system, or can use vocal talents in other parts of the country to record spots produced in Cedar Falls.

Conversely, Waterloo's two hospitals were forced to build their own expensive proprietary systems for high-speed data transmissions.

"I'm very much in favor of this thing," said Rick Seidler, chief executive officer at Allen Hospital. "We didn't have an option when we needed it, so we had to go out and basically create our own high-speed Internet backbone."

Seidler said hospitals now transmit lots of data electronically, including CT scans and MRIs.

"These are just the most incredibly dense bits of data you could send, and fiber's going to be the only way to get that done," he said. "In the future, high-speed (service) will be required for patients at home to access online registration or access to their medical records."

Chris Hyers, spokesperson for Covenant Medical Center, said the hospital is not taking a formal position on the referendum, but it also built its own system years ago.

"It's irrelevant to our specific business," he said. "But as the second largest employer of the Cedar Valley, it is important for the growth and development of the whole community.

"We think it's really important that people pay attention to what may seem very nebulous to them," Hyers added. "It could very well be about the economic future and our economic prosperity."

Dollars and cents

Mediacom's Koebrick admits his company is behind CFU in terms of the number of business customers with high-speed data services.

"They have been offering those services in Cedar Falls for a very long time, while we have only been on the ground for four years," Koebrick said. "But we expect our numbers to shoot up soon.

"In the past, we tried to sell our fiber service through a third party, and we were not very happy with the results we were getting," he said. "We brought in an in-house person in July, and he's been on the ground working."

Mediacom provided a list of businesses currently receiving Internet connections with T1 through T4 lines, which are faster than DSL services provided through phone lines, but have less capacity than direct fiber connections.

"The service is satisfactory," said Keith Creswell at Northland Products Co. "We had other providers prior to going to Mediacom, and the service has improved."

Lori Knapp, at Heartland Midwest Management, said the company was having problems with its DSL service before getting a cable modem connection from Mediacom.

"We weren't originally in their area to service, and they ran a special cable to hook us up," she said. "We need it because we do a lot of instant communication across the state of Iowa, and I think it's very, very competitive pricing."

Juneo Oelberg, at McKenna Pro Imaging, said he is currently in a "honeymoon stage" with Mediacom now, having just received the cable modem, but he's "cautiously optimistic they'll provide the services the business community needs."

Those businesses are paying higher prices for slower speeds than their counterparts in Cedar Falls.

Mediacom's highest-speed cable modem service provides 4 Mbps download speeds and 768 Kbps upload speeds for $250 a month. CFU's top cable modem service gives users more than twice the speed for $80 a month.

CFU also provided price lists for their direct fiber services, showing a business can get 10 Mbps upload and download speeds for $400 a month, while the service can be upgraded to ultra-broadband 100 Mbps for $571 monthly, plus additional bandwidth usage charges.

High fiber cost

Gary Chambers, president of Advanced Systems in Waterloo, salivates at those prices in Cedar Falls.

"We do a lot more online training, Webinars and transfer a lot of data back and forth," said Chambers, noting his business currently uses a T1 line from Qwest. "What we've got today is way better than what we had two or three years ago, but it still gets slower the more people we have on it."

Chambers contacted Mediacom recently about getting a 10 Mbps fiber connection to his building near the Waterloo Regional Airport and soon realized a 5 Mbps connection would fit the bill. But Mediacom quoted him $1,200 to $1,500 a month to provide the service, three times the cost of CFU.

For the record, Cedar Falls Utilities is prevented by Iowa law from providing services to most businesses in Waterloo, even if it has a fiber line running past the building. The exception is a business in Waterloo that also operates a branch in Cedar Falls.

"Mediacom might have 104 miles of fiber, but they don't have very many people hooked up," Chambers said. "If they've only got two businesses hooked up, how can they go on television and say they've done what we said they'd do."

Bill Roark, the man Mediacom hired in July to market its fiber services, said the company doesn't have a set of prices and service plans for direct fiber connections.

"Ours is a very custom-design type of situation," Roark said. "From our standpoint, it's almost impossible to do apples to apples because the situations are all very much unique.

"CFU is sitting on its on little island, so they price everything ala carte," he added. "But there are other pieces of this that are value-adds."

Roark said many businesses that think they need fiber to the building actually can get by fine with cable modem service at a lower prices. Of the 20 different businesses contacting Roark in the last two months, he said only five or six are truly interested in a fiber connection.

"We're probably talking about less than 1 percent of the businesses who need a direct fiber connection," he said. "Because of their particular business needs, cable modems will suffice in a lot of businesses."

Roark said the process of preparing a fiber solution for a company takes 30 to 60 days "even if everybody is ready, willing and able to do it."

Business support

Steve Dust, president of the Greater Cedar Valley Alliance economic development group, said the availability of fiber systems is a key to economic development.

The referendum has drawn support from organizations promoting economic development in Waterloo, including the Waterloo arm of the Cedar Valley Chamber of Commerce, the Greater Cedar Valley Alliance and Main Street Waterloo.

"Telecommunications generally is emerging as a critical location element for all kinds of businesses," Dust said. "It's becoming as critical to economic development today as the railroads were at one time … and as four-lane highways have become."

High-capacity, high-speed communication systems are important to many types of businesses, he said, even the traditional industrial and manufacturing businesses, which need connections for warehousing logistics or rapid connections to customers.

Dust said Cedar Falls has an advantage locally because it has a rapid response and the ability to provide immediate broadband service through CFU to companies locating in the industrial park.

"Qwest and Mediacom and other service providers in Waterloo have been willing to work with us on a case-by-case basis," he said. "But we have to go through more hoops, additional steps in Waterloo to get it done.

"We aren't talking about who provides the service, but it is critical that we have it," Dust added. "Is it there? Is it immediately available? And is it affordable?"

Koebrick said Mediacom's fiber backbone runs past all the city's industrial sites and stands ready to serve prospective businesses.

"What I don't understand is why (Opportunity Waterloo) never came to us and said, 'Hey, what are you going to do to help us on these things?'" Koebrick remarked. "We want to work with the city … so there's no risk to the taxpayer, to bring businesses and jobs to Waterloo.

"We've had companies come in and ask about fiber. We say yes, but we never get beyond that," he said. "If they go to Cedar Falls, it must be for some other reason."

Opposition

Former Iowa State Auditor Richard Johnson has emerged as the most vocal opponent of the Opportunity Iowa telecommunication initiative.

Johnson is working for Project Taxpayer Protection, which was formed by Mediacom to run the advertising and public relations campaign against the local referendums.

He said municipal telecommunication utilities are money vacuums and contends cities could finance and construct a communication system without coming back to the voters for their approval.

"We think that the citizens should look at what they're being asked to approve and they should vote no," Johnson said. "These are very risky, and city governments are not set up to do this. I have not seen any (municipal telecommunication utilities) that have made a profit."

Johnson said cities could issue revenue bonds or do general fund loan agreements to build a system without another vote, which would put taxpayers on the hook if the system fails to generate enough revenue. Many of those taxpayers would in essence wind up subsidizing a service they don't even use, he said.

Johnson also points to the state's Iowa Communication Network, a fiber backbone connecting statewide government and educational institutions, as an example of how things can go awry when government jumps into such ventures. The ICN was initially expected to cost $20 million but wound up needing more than $400 million in state investment.

"I feel so strongly that the cities in Iowa shouldn't make the same mistake the state did," he said.

Johnson also noted Cedar Rapids businessman Clark McLeod, who spearheaded the Opportunity Iowa effort that led to the 26 ballot measures, is pushing the venture to connect all homes and businesses in those communities with direct fiber optics connections.

McLeod's for-profit business, Fiber Utilities of Iowa, stands to make a profit building or operating the municipal systems, he added.

The Des Moines law firm which serves as Waterloo's bond counsel disagrees with Johnson, noting it would be nearly impossible under Iowa law for the city to risk tax money in the construction of a telecommunications system.

Opportunity Waterloo supporters also dispute his assessment of the ICN, saying it was never set up to offer retail services to homes and businesses and is currently operating in the black. They also said McLeod has no claim to any business in Waterloo.

Level playing field

Project Taxpayer Protection also commissioned a study through the Heartland Institute this year which said three Iowa municipal telecommunications utilities were losing money. The Heartland Institute is an organization that often advocates a position that private business should run certain government services.

The three utilities, including CFU, took issue with the study.

CFU spokesperson Betty Zeman questioned the study's accounting practices, noting audited financial records on file with the state show the telecommunications utility earned profits in 2003 and 2004 and is well on its way to paying off its debt by 2008.

Zeman also goes to great pains to ensure the telecommunications portion of the utility is fully charged for its share of the overall utility system. A state law adopted in 2004 prevents municipal utilities from subsidizing their telecommunications systems with revenues from gas or electric revenues.

Despite the law, Koebrick believes CFU is able to realize economies of scale that allow it to provide services cheaper than private companies because of its other offerings besides fiber optics. He said Waterloo could not achieve the same rate scale if it builds a system, because it doesn't have the existing municipal utility in place.

"They can't do it the same way Cedar Falls did it," he said. "It's never going to be a level playing field between us and CFU, and it's never going to be a level playing field between CFU and (a Waterloo utility)."

Koebrick also noted the private company is at a disadvantage because public utilities don't pay property taxes.

"There's obviously a concern for us that we're going to be competing with a city that does not pay property taxes," he said. "It's not a level playing field."

If the city builds a system that fails, he said, creditors could purchase it for pennies on the dollar, which would then give Mediacom a new competitor in the market with an advantage, he added.

But Mark Kittrell, a Cedar Falls businessman working with Opportunity Waterloo, said Johnson and Mediacom keep making assumptions about how Waterloo would build or operate a utility when nothing has yet been proposed.

"To me, I think this vote is fundamentally about how you motivate a monopoly," Kittrell said. "The municipal utility is the only credible threat to them."

Contact Tim Jamison at (319) 291-1577 or at tim.jamison@wcfcourier.com.

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