St. Joe Valley ChoiceLight is two corporations created through a private-public partnership to improve the economic development climate in South Bend, Mishawaka, St. Joseph County and the region by providing telecommunications infrastructure – and not services – in the form of dark fiber-optic cable.
The ChoiceLight network of fiber-optic cable extends more than 70 miles and has more than 100 subscribers in the most important commercial, education, medical and governmental centers in South Bend, Mishawaka and St. Joseph County.
The network is largely underground and laid out in concentric rings. This design increases reliability. In the rare event of damage to the network, signals can be rerouted to subscribers from the other side of the ring.
ChoiceLight provides infrastructure. Subscribers choose among competing vendors and service providers for telecommunications and services such as cloud computing, server virtualization, internet, and others. Perhaps the largest concentration of cross-country fiber networks passes through South Bend near Union Station. ChoiceLight connects subscribers to these networks allowing data to be sent worldwide in milliseconds.
Dark fiber is unused fiber. Light carries data signals on fiber-optic cable. ChoiceLight fiber is “dark.” Subscribers choose among competing service vendors or provide the equipment themselves to transmit light through the fiber.
Since fiber has virtually unlimited capacity, subscribers are limited only by the equipment used to light the fiber. ChoiceLight’s subscription fees are not based on bandwidth, so subscribers can light the fiber at any bandwidth they need.
ChoiceLight service differs in three basic ways. Fiber allows virtually unlimited capacity at speeds many times faster than available over cable, telephone or T-1 lines and wireless networks. ChoiceLight’s vendor-neutral, dark fiber service means subscribers choose among competing providers.
Competition keeps costs low and encourages innovation. Because the capacity is virtually unlimited, ChoiceLight subscribers don’t have to worry about exceeding data plan limits or service that slows when other users are on line.
In the late 1990s, Project Future, at that time the local Economic Development Organization for South Bend, Mishawaka and St. Joseph County, recognized that economic development opportunities in the region were hurt by the high cost and limited availability of broadband communications. Costs in the region were many times higher than in Chicago, even for the same level of service.
Project Future put together a task force including representatives of the City of South Bend, Mishawaka, St. Joseph County, the University of Notre Dame, the Chamber of Commerce and other business and community interests.
The task force concluded that a dark fiber, vendor-neutral network would best meet the area’s needs.
St. Joe Valley ChoiceLight Inc. was incorporated in 2004 with Patrick McMahon, executive director of Project Future; Gordon Wishon, office of communications technology at the University of Notre Dame; and Karl King, a respected South Bend businessman and community volunteer, as the initial members of its board of directors. Bylaws established the makeup of the board, with membership to include government representatives of South Bend and Mishawaka and of St. Joseph County; and representatives of Project Future, the initial founding subscribers and of other business, education and community organizations.
St. Joe Valley ChoiceLight was granted nonprofit, tax-exempt status because its mission was to serve the interests of government. By requirement of the IRS, a second, for-profit, taxable corporation, called SJVM, Inc., was established. The nonprofit would be limited to serving governmental agencies and tax-supported schools. SJVM, Inc., the for-profit, was created to allow service to other users including banks, medical facilities and other commercial and business subscribers.
The for-profit, taxable corporation is wholly owned by the nonprofit, tax-exempt corporation and income earned by SJVM, Inc. goes to the nonprofit corporation in the form of dividends to support the nonprofit’s mission.
This model of a nonprofit corporation owning a for-profit corporation is common. One well-understood local example was Notre Dame’s ownership of the WNDU radio and television stations. Broadcasting income supported university activities. Just as in ChoiceLight’s case, the structure allows the nonprofit, through the second corporation, to perform beyond the limits placed on nonprofits because the for-profit generates income that benefits the nonprofit.
Seven initial founding subscribers, the University of Notre Dame, Teachers Credit Union, Memorial Health System, St. Joseph Regional Medical Center, Robert Bosch Corp., Madison Center and South Bend Medical Foundation, prepaid 10 years of subscription fees to fund building the network and two years of operational expenses. ChoiceLight also negotiated reciprocal agreements with South Bend, Mishawaka and St. Joseph County giving access to conduit through which to extend ChoiceLight fiber. These reciprocal agreements allowed the new fiber network to be built without breaking up streets and sidewalks and significantly lowered the prepaid subscription fees required from each of the founding subscribers.
In exchange, South Bend, Mishawaka and the county each received a number of pairs of dedicated fiber for their exclusive use. ChoiceLight paid the costs of installing the fiber, expanding the network and building the redundant ring structure. ChoiceLight also pays for monitoring and maintaining the fiber infrastructure, including that owned by the municipalities.
The City of South Bend had fiber dedicated to meeting the city’s communication needs, connecting city facilities and linking traffic signals to improve traffic flow. This fiber ran through conduit under city streets. It was neither designed for other uses nor used by entities other than the city.
And, prior to ChoiceLight, South Bend’s network was built in a star configuration with many dead-ends. In expanding the network and building the ring configuration, ChoiceLight provided redundancy to South Bend’s operations the city didn’t have with its own network.
ChoiceLight’s model is unusual but not unique. Even before ChoiceLight was created, the City of South Bend determined it did not want to be in the telecommunications business. Apart from the bureaucracy and expense of creating a new city-run utility and the significant costs of expanding the existing system to reach nonmunicipal users, it would have put the city in competition with existing telecommunications providers.
Some also saw potential issues in extending a city-owned and operated network to users outside the city limits.
Many municipally run networks are not dark fiber or vendor neutral, key factors in keeping costs low for ChoiceLight subscribers.
Seven initial founding subscribers: the University of Notre Dame, Robert Bosch Corp., Teachers Credit Union, Memorial Health System, St. Joseph Regional Medical Center, South Bend Medical Foundation and Madison Center, prepaid 10 years of subscription fees to fund building the network and to cover two years of startup costs.
Continuing operations are funded from subscription fees. ChoiceLight is not a municipal utility and is not subsidized by municipal or county tax dollars. In fact, ChoiceLight pays property and income taxes.
ChoiceLight is a private corporation with reciprocal agreements with the cities and county giving ChoiceLight access to municipal conduit in which to place fiber. In exchange, the city gets access to a specified number of pairs of fiber. ChoiceLight is neither a city department nor city-owned and operated utility.
It has two employees. Neither is on the city’s payroll. ChoiceLight pays to improve, expand, monitor and maintain the network infrastructure. The for-profit corporation also pays income and property taxes, putting ChoiceLight on a more even competitive status with commercial providers.
First, ChoiceLight offers a different solution than other providers since it leases dark fiber circuits and does not sell services. Second, ChoiceLight pays taxes and also pays the costs of maintaining and expanding the network, just like other providers.
In fact, some providers and carriers lease ChoiceLight fiber to support their operations and others are welcome to subscribe.
In a larger sense, the community profits. The City of South Bend has reaped millions of dollars in reduced operations costs, and ChoiceLight’s mission calls for returning profits to the community in the form of lower rates.
ChoiceLight access has helped existing businesses expand and enter new markets, has made it possible for new businesses to start, and has supported economic development based on technology and innovation. ChoiceLight is two corporations, one nonprofit called St. Joe Valley ChoiceLight Inc. and one for-profit called SJVM, Inc.
By IRS rules, the nonprofit is limited to serving governmental agencies and tax-supported schools. All other organizations, such as manufacturers, health care centers, financial institutions and nonprofit agencies, are served by SJVM, Inc., the for-profit entity. Because of the limited number of organizations that can be served by the nonprofit, income generated from these subscribers isn’t sufficient to meet the operational and growth expenses of ChoiceLight.
The for-profit corporation is wholly owned by the nonprofit corporation. Income from the for-profit is returned to the nonprofit in the form of dividends and that money is used to maintain and expand the network. Individuals serving on the boards of directors receive no compensation and have no ownership rights or interest in the assets of either corporation.
The for-profit entity which produces the majority of revenue pays income and property taxes, putting it on a more competitive footing against traditional providers.
Yes. The University of Notre Dame, for example, one of the founding ChoiceLight subscribers, is outside the city limits. It uses ChoiceLight fiber that runs through city conduit to connect to its supercomputers housed at Union Station in downtown South Bend, and to national fiber networks. The city-owned conduit is used, but ChoiceLight provides the fiber that runs through the conduit.
Notre Dame’s status as a world-class research and teaching university would suffer without this access. This really is no different than allowing businesses not in the city of South Bend to route their trucks over city streets. ChoiceLight’s purpose is to support regional economic development. Economic development does not stop at city borders.
A number of seats on the board of directors and on the executive committee are reserved for representatives from South Bend, Mishawaka and St. Joseph County as well as for representatives from each of the founding subscribers (see question “How was ChoiceLight funded initially?”).
As board members they set policy, approve budgets, plan expansions and prepare and approve long-term strategic planning. They protect their own interests.
The public-private partnership that helped launch ChoiceLight has produced numerous benefits for the City of South Bend, the City of Mishawaka and St. Joseph County, meeting original goals of lessening the burden of government and justifying the agreement granting ChoiceLight use of the municipal conduit. In general, ChoiceLight facilitates the cities’ and county’s ability to do more technology-based innovations. Some of these innovations would not have been imagined but for the large, affordable data pipes ChoiceLight provides. Resulting savings would have been much harder or not feasible without ChoiceLight connectivity.
One of the City of South Bend’s first improvements was the design of the network structure. ChoiceLight is configured like a series of rings, creating redundancy. In the event of a break in the fiber, data can be rerouted around the intact side of the ring. Prior to ChoiceLight, South Bend’s network was built in a star configuration with many dead-ends. ChoiceLight provides redundancy to South Bend’s operations.
ChoiceLight’s speed, capacity and reliability support South Bend’s innovative approach to Combined Sewer Overflow mandates, saving the city tens of millions of dollars to meet federal requirements to prevent storm water from overwhelming waste treatment systems.
ChoiceLight supports use of a new VOIP (Voice over Internet Protocol) telephone and internet system. Because of phone cost savings, South Bend is breaking even on lease-purchase payments for the required equipment and expects to save $250,000 annually once the lease is paid off over approximately five years.
Two new applications controlling building energy and security systems will be added to the VOIP systems and the city expects to save 10 percent of its $8 million annual energy bill.
Bluetooth type devices are being installed to monitor traffic flow on main arteries. Integrating these with the original traffic control network supported by ChoiceLight fiber optimizes traffic flow, saving drivers an estimated $3 million in fuel and uncounted hours of time.
Business growth enabled by ChoiceLight also leads to new tax income, more employment and other benefits of economic development.
ChoiceLight has two full-time employees. The executive director reports to the board of directors. Although each corporation has separate boards, the same individuals hold the same positions on each of the boards.
Board members are chosen as outlined in the bylaws, with seats reserved for representatives of the City of South Bend, Mishawaka and St. Joseph County, for founding subscribers and other specified organizations.
Since the nonprofit, tax-exempt entity owns the for-profit, taxable entity, and since the goals and missions of both corporations are the same, there is no conflict. The same individuals make decisions for both corporations. Board members are not compensated and have no ownership rights.
Income generated by the for-profit corporation is returned to the nonprofit corporation in the form of dividends and is used for expansion, maintenance and operational expenses. The two corporations do not compete with each other since, because of tax regulations, they serve different clients.
Yes. Appointments to the board are for fixed terms and are made as outlined in the bylaws, with seats assigned to the founding subscribers, the cities and county, and other institutions and organizations.
ChoiceLight has a variety of pricing models and costs determined by the needs of each subscriber. Some require multiple pairs of fiber and full redundancy and automatic backup systems. Others share fiber and pay only for the bandwidth they need.
ChoiceLight has special rates for not-for-profit and social service organizations. For further information, please send inquiries to info@ChoiceLightzing.org.
ChoiceLight leases fiber to all types of businesses, including telecommunications service providers. Subscribers agree to use the fiber only for their core businesses. An industrial user, for example, cannot sublease access to its fiber to another organization.
A service provider, however, lighting the fiber and providing technology services as part of its business mission, can lease a ChoiceLight circuit and sublease access to it.