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News: Citynet Eyes Fiber-to-Customer Network

by George Hohmann, Daily Mail Business Editor

Citynet, a Bridgeport-based telecommunications provider with offices in Morgantown and Charleston, has received preliminary approval for a $7 million loan from the West Virginia Economic Development Authority to help finance construction of a fiber-to-the-customer network in Morgantown, Fairmont, Clarksburg and Bridgeport.

The company's ultimate goal is to build a statewide fiber-to-the-customer network, Jim Martin, Citynet's president and chief executive officer, said Thursday in an interview after the authority's monthly meeting.

The $7 million loan would help finance the first phase of the project. The first phase is expected to cost $12 million to $15 million and take two years, he said.

About 40 miles of the initial 130-mile network are already finished, said Todd Dlugos, Citynet's chief financial officer.

Martin said, "Citynet recognizes the broadband challenges that West Virginia faces. The primary challenge is we have a lack of infrastructure. Citynet has a vision to build new infrastructure throughout West Virginia, but initially we're going to focus on north-central West Virginia.

"The infrastructure we plan to build is a very dense fiber-optic network in which we bring fiber direct to the end user, whether it's a residential home or a business. We view this project as being similar to the Google fiber project that's under way in Kansas City.

"Today's average broadband speed in West Virginia is about 1 megabit for residential customers and about 3 megabits for business customers. Our plan is to bring gigabit services to West Virginia, which is 1,000 megabits and greater."

Such speeds are not currently available in West Virginia, Martin said.

"Our broadband costs in West Virginia are 20 times the cost of other states because of the lack of infrastructure and the lack of competition," he said. "Our goal is to reduce broadband costs by 90 percent. What will happen is not that your bill will go down from $50 for 3-megabit Digital Subscriber Line service at home; our goal would be to give you 100-megabit service at the same price."

Martin envisions there will be about five phases to Citynet's fiber network build-out before it is finished statewide. The company has not yet determined when it will build the network in Charleston. He said the company first would focus on connecting business customers to the network.

The $7 million loan Citynet would receive from the state Economic Development Authority would be for 15 years. It would carry an interest rate equal to a 20-year U.S. Treasury security plus 0.75 percent.

David Warner, executive director of the authority, said that if the loan had closed on Thursday, it would have carried an interest rate of 3.33 percent.

Martin said he's pursuing a fiber network build-out to take advantage of an opportunity.

Citynet's largest competitor is Frontier Communications Corp. Although Frontier provides telephone and related services to more than 90 percent of the state's population, it does so on a network that is dominated by copper wire.

Frontier became the largest telecommunications provider in the state in 2010 when it acquired Verizon's landline business in West Virginia. Verizon did not build its FIOS fiber network in West Virginia before it left.

A fiber network has more capacity than a copper-based network.

Lumos Networks Corp. is another competitor. It operates a 5,800 route-mile fiber-optic network in Virginia, West Virginia and portions of four surrounding states.

Lumos was created in 2011 when nTelos Holdings Corp. combined its wire line and FiberNet operations under the Lumos name. NTelos purchased FiberNet in 2010 for $170 million.

Asked why he didn't buy Lumos when it was for sale, Martin smiled and said he tried.

This is the second loan from a state-affiliated agency Citynet will have had since it was established nearly 20 years ago. In 2005, Citynet completed a five-year financing plan that included a $12.5 million loan from the West Virginia Housing Development Fund. That loan was subsequently paid back in full with interest.

Martin said he owns Citynet along with Parry Petroplus and the estate of Milan Puskar. Petroplus is a Morgantown commercial property developer. Puskar, who died in 2011, co-founded the generic drug maker now named Mylan Inc.

Citynet has almost 100 employees and thousands of business customers, Martin said. In addition to offices in Bridgeport, Morgantown and Charleston, the company has equipment in 20 to 30 other markets around the state, he said.

Citynet's initiative occurs as the state nears a deadline to complete a $126.3 million federally funded project aimed at expanding high-speed Internet service in the state. Martin has been an outspoken critic of the project, which is being carried out largely by Frontier under a state contract.

The state project has been criticized for buying expensive routers, and the U.S. Commerce Department's inspector general is reviewing the state's use of federal funds.

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