Posted by: Ann Treacy | June 3, 2012

Communities need to get creative with funding: Here’s a muse!

Thanks to Craig Settles for sending me a heads up on his latest report Getting Off the Dime: Finding Alternative Sources to Fund Community Broadband Networks. I enjoyed reading it – partially because he’s illustrated some business perspectives that I think make great sense. Just this week, I was talking with my colleague Bill Coleman about how future customers can often make the best investors. They are invested financially – but they are also invested in getting things done right. They don’t want shoddy service so they’re generally OK with wise investment. The flip side of that coin – they don’t want to see marble floors in the foyer or other needless spending. This is true in any industry – but as noted, Craig illustrates what this means on the front end of broadband initiatives.

He starts by framing the “regular ways” communities get broadband…

To date, communities wanting higher broadband speed and quality seem to have only a few choices. They either can 1) wait for the large incumbent service providers to install adequate infrastructure, 2) hope for a miracle and small local providers can somehow afford to build a network or 3) build their own networks.

And he follows this up with some more innovative ways that specific communities have gone about encouraging (mostly) local investment. First there’s the issue of setting up a formal structure to support investment, such as nonprofit, co-op and community foundation. Each comes with its own brand of regulations and it makes sense to know what those are! (Minnesota’s Arrowhead Electric Coop gets a nice nod.) Second, there’s the approach and options for investors.

As a quick aside – I will interject my own note here to mention that locally, I think most folks think Blandin, whenever Foundation and Broadband are in the same sentence. Blandin is a good option for folks in rural Minnesota! Craig’s example is a little different; Steuben County [IN] Community Foundation created an organization to build dark fiber. Blandin will support; it sounds as if Steuben built.

Back to innovative funding strategies… I think the gist is finding a way to get direct investment from locals. Craig uses a nice example that will hit home in the Midwest (whether you love or hate ‘em), the Green Bay Packers…

If Green Bay, WI can raise $70 million in five weeks to rehabilitate its football field by selling $250 stock shares, I bet $250 there’s a community in America that can raise $2 or $3 million the same way for a broadband network.

Then he offers a few examples of success case studies in the industry (I’ve loosely paraphrased or quoted enough to give you the idea – a fuller account is available in the report)…

  • ECFiber – offers tax-exempt 15-year $2,500 promissory notes that effectively earn 6 percent interest. From 50,000 people in the 23 towns, they raised over $900,000 in 2011 to begin an initial buildout covering 26 miles. In a recent effort, the town of Barnard, VT with 386 households generated $350,000 to continue building out the network in their town. With funds for covering two-thirds of Barnard accounted for, they expect to raise enough to complete the job. To finish the network and bring connections to everyone’s doorsteps, ECFiber is doing additional fundraising rounds.
  • UTOPIA- Todd Marriott became CEO in 2008 and completely changed the arrangement. Starting with Brigham City, “if residents were interested we’d bill them one fee of $3,000/home to connect to the network. We offered financing if they agreed to have a lien put on their houses. Over 31% of residents subscribed, with 25% of these households paying the $3,000 up front.”Going one step further, UTOPIA started using a Contractual Utilities Enhancement (CUE) that creates a Subordinated Note of Interest. The Note enables a city to bill subscribers for expanding the network to their doorstep without requiring a lien. They pay $22/month for the buildout, and another $24 for network operations costs. Comcast puts a similar charge in their bills. ISPs offer Internet services directly to subscribers.
  • Broadband for the Rural North, Ltd (B4RN)- Eight parishes in rural Lancashire in northwest England combined to form Broadband for the Rural North, Ltd (B4RN), a not-for-profit community co-op. B4RN not only sells shares in their broadband businesses, but also offer opportunities to work for the co-op in exchange for stock. There are farmers literally running the machines that drop conduit in the ground.B4RN shares sell for £1 each. Investors have to buy 100 shares minimum. Those buying 500 or more get a tax credit of 30% of the purchase price. Buying 1500 shares also earns a year’s worth of 1 gig-to the-home service (regularly £30/month). Residents and businesses do not have to be investors to subscribe to the network for the same monthly rate.
  • Value-Net- Valu-Net’s engineering study determined they needed $12 -14 million to build a fiber network for the entire town. However, similar to ECFiber’s strategy, they estimated that with $5 million they could build enough of the network to start selling and delivering services.“We went to local banks who endorsed our plan and its financials,” says Tidwell. … Rather than go the co-op route, Valu-Net decided to become a private telephone company, technically a Competitive Local Exchange Carrier (CLEC).

    The company got early interest, with most of their initial investors living in or right around Emporia. Valu-Net asked for an initial investment of at least $50,000. Investors could choose between Series A Preferred Stock Community Broadband Snapshot Report 14 of 21 or Series B. With Series A, investors receive 12% interest accrued and compounded. Series B investors receive 8% per year annually.

    “To date we have raised $6.8 million and shut off investments before we became oversubscribed,” comments Tidwell.

The report ends with some cost saving approaches – some alluded to above – which I think I worth checking out. I especially like B4RN’s approach where folks are digging their own trenches. I am considering my own version of that (camouflaged garden hose around glass strands) on my own block, which is being torn up all summer for sewers.


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