SMBS offers television through a partnership with Windomnet based on per customer charge…

Windomnet oversees the cable TV system, handles service and repair of equipment, updates channels and pays for programming. When residents pay their cable TC fees, Windomnet essentially received $5 per customer to help cover costs.

The phone and Internet services are purchased differently…

On a monthly basis, SMBS pays Windomnet for Internet based on the total amount of bandwidth used. Essentially, Windom is paid so much per megabit.
…
“For telephone, we bill based on number of minutes used, ” [Windom City Administrator Steve] Nasby said, “Everything runs through our switch and we bill the broadband group.”

It sounds as if things are running smoothly both from the perspective of SMBS and Windomnet. SBMS expects to begin connecting more folks very soon – hoping for a pace of about 250 customers a month through 2012. Windomnet may be hiring new staff or at least bumping up a part time employee to full time. So although this is a very high level look, this seems to be a successful recipe.

Last night was an opportunity for the public and elected officials to hear from the various project partners. Each partner gave a presentation on their role and progress and/or plan for their role in the project.

There were well over 100 people there. Closer to 150, I’m sure – despite the fact that it was a bitterly cold night.

I took outline-type notes on the presentations – mostly because I thought it might inform and inspire other communities who are (or should be) looking at creating broadband options. Towards inspiration, I wish that I had a camera on Gary Evans from HBC, he spoke passionately about the need for broadband. I’ll paraphrase just one of his remarks…

“Broadband is an essential utility for a community. And the window for bringing it in to remain vital is closing.”

Here are some of the quick takes from the project…

Their plan is to bring FTTH. If all goes well, they’d like to build the backbone this year and start bringing it to residents next year. The estimate cost is $50 million; they are looking for revenue bonding for $70 million. (Revenue bonds are paid back from revenue from the project – not with taxes. However, parties involved (Joint Powers and members) are responsible for keeping the reserves replenished throughout the project.)

The project is expected to have a positive margin by the end of year two. There are a couple of wildcard factors. First: take rate – the business plan assumes a 65% penetration rate where customers subscribe to at least two services (of the triple play offering). Second: interest rate – they need to get better than 6% interest rate.

There are other wildcards – such as ensuring other numbers are correct, and assuming there are no roadblocks, such as a lawsuit – but I think these that the take rate and interest rate are two biggies because they are outside the scope of the partners to a large degree.

Not surprisingly, attendees seemed most concerned about mitigating risk – starting with the bonding but also with potential lawsuits. They were clearly up on the history of Monticello’s project – but a lawyer has determined that the situation here is different, in part because as a countywide project they can escape some roadblocks set out for municipalities.

Here are more complete notes…

 1. Welcome & Call to Order – Mayor Jim Kreft, City of Arlington & Commissioner Swanson, JPB Chair

 2. Doug Dawson, CCG Consulting

Doug Dawson of CCG Consulting will provide an update regarding the financial model for the project.  Doug will discuss his thoughts regarding the project given the progress that has been made in marketing, management, project finance, and the estimation of construction cost.

Financial Model:

• They went to towns a year ago to introduce this model. This is an update.
• Added 4 new towns (Lafayette, Stewart Buffalo Lake & Browntown)

• 6 year project – to be cash positive by year 5.
• Requires $49.2 million in assets (fiber is biggest ticket item)
• Requires a $69.4 million (will take care of working capital for few first few years)
• Positive margin at very end of Years 2 (Revenues exceed direct expenses)
• Customer savings $970,000 per year by year 4.
• Breakeven penetration rate is 64.5%
• Profits over year after bond retired.

Project will have

• Starts with 7 employees to grow to 15
• Total investment per passing is $5,590
• Assumes private management by owned by cities and county

Financing assumptions

• 30 year bond of $69.4 million
• Guaranteed by overall revenues of the business (not backed by tax dollars)
• Reimburses the cities for the start-up costs
• The project will not cash flow at 6% interest rate

Issues

• Start time will depend on prep (design) complete before bonding.
• It would be nice to start building dark fiber this year – and next year start with customers.
• Need to finalize deal with HBC – figure out headend

Next Steps

• Continue pre-sale and marketing
• Finalize deals with partners and a financial model
• Develop policies
• Bonding process (should take 90 days)

QUESTIONS:

Might we have trouble getting fiber?
There were problems this year – due to ARRA funding and a fire in one of the few fiber factories. We have already pre-order some fiber

Did you budget for equipment upgrades?
In 30 years we assume the electronics will be changes twice.

Does 64% penetration take into consideration the triple play?
We assume that 64% will take at least two services. We think telephone will be dropping eventually.

Who is responsible for changing pledge cards to orders?
The marketing committee will be involved. HBC will probably hire people to help – but the Joint Powers will be involved too.

Do you know how many pledge cards have been collected?
I heard 2900.

 3. Ralph McGinley, Oppenheimer & Co., Inc.

Ralph McGinley of Oppenheimer & Co., Inc. will be summarizing the draft terms sheet that has been presented regarding project financing.  The terms sheet summarizes the obligations of the Joint Powers Board and units of government that are members of the Joint Powers Board if project financing is to be obtained through Oppenheimer & Co., Inc.

Their business is to raise debt capital for projects such as these. We take the bonds to the marketplace to get financing.

We have made a commitment to broadband – and fiber.

We believe FTTH is a very valuable component to communities.

Underwriting Standards

• Need to see clear commitment from community – we’d like to see more than 64% take-rate
• Like to see separate of business from politics
• Need to see a good business plan
• In a market like this we need to see a municipal component and we need to see a conservative pro forma

We will be selling revenue bonds. They will not be backed by tax. They will be backed by revenue from the project.

Bond maturity is 30 years – they will be fixed rate – no payments for first 3 years.

We assume bonds will go to market as an investment grade category. We assume BBB category – conservatively. That is the lowest end.

We are looking at 5% interest rate on tax exempt bonds.

A debt service reserve fund is initially funded by bond. It will be one year principal and interest. It will act as a rainy day fund.

It will also be available for final payments.

A critical component is the debt service reserve fund replenishment guarantee. It means if you have to draw on debt fund – then the participating communities will agree to make up the difference. This is made on an annual appropriations. So the Joint Powers communities will be asked to make up the difference. (So if one community drops out – then the rest will need to make it up to the tune of 1.5 times their originally agreed upon rate.)

Bond holders will want to know that in the event of default – they can step in and take over the project.

We look for investors of high net worth

What’s necessary to complete financing?
Need legal documentation, due diligence, need to get all necessary permits. It’s about a 90 day process.

QUESTIONS:

With revenue bonds what guarantee do we have that cities and county will be sued by investors if funding falls short?
There is no assurance. However bonds will be sold with very full disclosure that these are revenue bonds and there is no pledge by cities/counties to pay bonds with tax. (In fact under MN law you can’t.) The buyers should be aware of what they are buying; we will be clear and they are savvy buyers. Courts have shown in the history that such suits have not been successful.

The Joint Powers board has looked into this issue as well. We have looked at the Amberfield bonds to make sure that we don’t fall into a similar issue.

Debt service replenishment – can we use that for multiple years (for the next ten year for example)?
Yes. But however – but by the time we take the funds to market, we are clearly on your site of the table. SO we will have the same objective – to have a successful project. But things can go wrong. So if we see that in ten years there’s been a draw every year – well that’s a bad sign. SO we’ll go to operations to adjust what needs to be changed to get the project on track.

Is any individual  community obligated to replenish debt reserve?
It’s up to the community on an annual basis. But we strongly suggest that cities consider it. We ask for 1.5 times is simply a limit to give bond holder some opportunity for recovery. And yes at some point communities will be responsible for reserve replenishment.

What happens if one community says no – and the rest follow suit?
There is the reserve fund for a year. But after that the bond holders may exercise the prerogative – and they can take over the project.

So if a bond deal is made – but before we get funding there’s a lawsuit – can we turn down bonds?
As the underwriter for the Monticello projects – it feels like deja vu all over again. You don’t need to accept the funding. You can choose to put the funds in reserve or choose to turn down funding.

In that event – and say the bond doesn’t close – then the issue is resolved – would it would be tougher to get bonding again?
It’s pure speculation – but probably yes.

Will the excess capitalized interest be available?
If you’re not using up the full interest, things are going really well. SO you might keep the cash for operations for later. Use the capitalized interest, keep the cash.

4. Robert Vose, Kennedy & Graven

Robert Vose of Kennedy & Graven will be discussing the legal authority that the project will proceed under, and challenges that the entities may face in implementation.

He is here as attorney for Joint Powers group; not a public funding expert.

Two kinds of authority:

• Regulatory – PUC cert of authority; local franchise – process is straightforward.
• Institutional  – local governments are creatures of statute. So how do we get into business? Via Joint Powers – so we must share same authority. It’s a way to get bonds

Possibly sticky statutes

Ch 237.19 – does not apply – two tricky terms (municipality & telephone exchange)

• - municipality may provide telephone exchange with super majority referendum if there’s an incumbent.
• - But in this example – we are not a municipality – we are county/Joint Power
• - telephone exchange must include switch – but this will not be a part of this project. There will not be a local switch

Ch 238 – applies and will permit Joint Power to provide cable

• Unless otherwise prohibited by law, any municipality may construct, purchase, and operate cable communications systems
• - municipal here is defined
• - cable communication includes TV, radio and other programs

QUESTIONS

Have there been any litigation to back up these decisions?
Yes – 237 has especially been litigated. (MediaOne has fought this case in Lake County.) There has been much less litigation of 238.)

Are we asking for trouble?
Yes – in the sense that there will be incumbents who will be unhappy? We may hear of opposition.

What would make necessary the referendum?
A change in the law – as counties are not included. You could pursue the referendum – except that if you win – the incumbent may claim that it doesn’t matter since we are a county.

You can’t proceed under 237 given the composition of the group.
Right.

Are townships include in 237?
Yes. Municipality does include townships.

Would it mitigate the risk to write this down?
There will be an opinion regarding authority. Oppenheimer needs permits.

Since the Joint Powers has increased – does the increase the chance of opposition?
Practically – yes because more incumbents will get involved which increases the chance of one of them opposing the deal.

5. Gary Evans, Hiawatha Broadband Communications

Gary Evans, CEO of HBC, will be discussing his company’s experience in building and operating other FTTH networks in Minnesota, the role they will play in implementing and managing the RS Fiber Project, as well as their company values and the importance of customer service in a FTTH operation.

The issue today is all about quality of live issues and rural America as a quality place.

New services – wireless telephone and Internet

We worked with Monticello
We worked in Burlington VT

HBC Differentiators – Local customer services & community involvement

HBC Penetration

• Cable
• 75% of units in three retail communities
• 63% of single-family
• Internet
• 83% of total Internet market
• 70% cable modem penetration
• 42% of business connected via direct fiber
• Telephone
• 68% of business market
• 64% of residential market

We’re not the low cost provider in any community we serve – but we are the dominant.

Monticello –

• The customer load in Monticello is where it was expected / forecasted to be (despite delays)
• We want to own the employees – that is not the case in Monticello. That was not a good idea. (Also a problem in Burlington)
• The city drops rates. We advised against it. Now the revenue is below what it should be. We are working to negotiate a contract where we have more authority; Monticello has requested this.
• Monticello is successful – customers are paying much less now than before Monticello went into business.
• In Winona Charter charges $30-40 less than other areas where we aren’t a competitor.

“Broadband is an essential utility for a community. And the window for bringing it in to remain vital is closing.”

We have seen populations grow in the communities that we serve.

QUESTIONS

Would you open a field office in this county?
I would open several.

6. Linda Kramer – R/S Fiber Marketing Committee Update

An update on the activities and progress made by the marketing committee for the project will be provided.  Ms. Kramer will also discuss marketing activities that are planned in the upcoming months.

We are getting the word out on the project and gauging interest. We collect the cards.

We are not professionals; but we are passionate.

We have

• Sent out 2 mailings
• Held community meetings
• Had booths at county fairs
• Billboards
• Website et al
• Newspaper ads et al
• Now working with marketing firm

So far we have 2926 cards mailed in – towards a goal or 4220 (That’s 55% of drops)

7. Question & Answer Period

All of the presenters will be available to answer project related questions.  It would be appropriate to take this opportunity to ask questions about financial risk, potential legal challenges, business model, services to be provided, etc

What would the impact be if there was a draw?
We are still looking at that and we need to come up with some policies. We do have an equation for seed funding; that process may be different.

Is there a potential overlap of responsibility for funding with county and city?
We are looking at this.

Does our rate of return of cards compare with other comparisons?
Yes, it’s very cool.

Do you think we’re close to the numbers we need to be successful?
I think we need about 3200; we have 2900 before bonding.

How many projects has Dough worked on?
80 cities have FTTH; I’ve worked on about half – plus more than 100 commercial projects. None have failed. But there have been projects that have failed; I haven’t worked with them and there’s usually a story behind the failure.

Do we have a feel for the impact adding schools and large business could have?
Those businesses will probably sign up – but they are not usually early adopters. They need security and reliability. We have kept our business plan conservative.

Can we see the business plan?
It belongs to the Joint Power Board.

8. Request for Release of Funds

At the recommendation of the Joint Powers Board, a request is being made to each of the participating entities to release the second half of the project seed funds.  Funds will be used to finance additional marketing activities, legal expenses, and administrative expenses associated with continuing to move the project forward.   It is asked that the Joint Powers participants respond to the request by early March.

However, one of CenturyLink’s responses in a Sept. 30 letter stated, “After receiving your letter I requested that my management team report back to me on the costs associated with your request for a minimum 10 MB speed to every home and business within the county. For proprietary reasons I’m unable to share with you the estimated costs of meeting this goal in Kanabec County.”

The letter continued, “However, I can tell you that it represents many millions of dollars at a significant cost per household or business passed that under current business models do not generate a return on the investment.”

Yesterday, the Kanabec County Times published a follow-up, Letter to the Editor from Carrie Amann at CenturyLink…

I am pleased to report that since receiving a letter from community leaders regarding broadband availability and speed concerns, CenturyLink has committed to a project that will increase broadband speeds to customers in Mora.

In fact, nearly 20 percent of the living units and businesses in the county that are served out of the Mora wire center will soon be able to receive 12MB speeds.

We anticipate this project to be complete by the end of November. At that time, we will begin contacting customers who are eligible for the new speeds.

While this won’t immediately meet the county’s goals of ubiquitous coverage, it is an initial step in building out the network.

This is good news – for almost 20 percent of the living units served by the Mora wire center. It is heartening to see the conversation between KBI and CenturyLink continue – albeit via the local newspaper. It looks as if it takes a village to raise broadband in a community – everyone has a role to play. Getting community leaders, incumbent providers, local newspapers and others involved in the process can help raise awareness of barriers and create opportunities to overcome barriers. Something for other communities to consider as they move forward with plans.

Kanabec Broadband Initiative’s (KBI) hopes of moving up the ladder and not having Kanabec County be ranked as one of the worst counties in the state for broadband service looks bleak

Kanabec County has been looking at broadband options in their area. Bolstered by advice in the 2009 Minnesota Ultra High Speed Broadband Report to develop public-private partnerships, Kanabec went to their incumbent provider to talk about planning for the future. They wrote a letter suggesting a team effort – where CenturyLink would come up with a preliminary plan (including costs) to bring the County to 10-20 Mbps (the speed specified by Minnesota Broadband Law) and community partners would come up with funding for a market study. According to the Kanabec County Times, the response was less than hopeful…

However, one of CenturyLink’s responses in a Sept. 30 letter stated, “After receiving your letter I requested that my management team report back to me on the costs associated with your request for a minimum 10 MB speed to every home and business within the county. For proprietary reasons I’m unable to share with you the estimated costs of meeting this goal in Kanabec County.”

The letter continued, “However, I can tell you that it represents many millions of dollars at a significant cost per household or business passed that under current business models do not generate a return on the investment.”

It’s a tough barrier to hit – but it doesn’t have to be a dead end. It sounds as if Kanabec will be meeting to regroup and talk about pursuing a feasibility study.

The Albert Lea City Council on Monday approved another step toward sharing information technology services with Freeborn County. The collaboration is expected to save the city more than $6,000 a year.

The action was an amendment to a previous information technology sharing agreement between the two entities.
It allows Freeborn County to provide the city with Internet for $150 per month, plus an additional $49 monthly fee for the connection to the state router.

It will upgrade the city’s current Internet from 3 megabytes to 50 megabytes.

All city business locations, including City Hall, City Arena, City Garage and the Wastewater Treatment Plant will be serviced.

It feeds into the trend of activity happening on the county level.

In what was characterized as a “rubber-stamp” approval, the Minnesota Public Utilities Commission OK’d Lake Communications’ application for the authority to provide broadband fiber-optic service in Lake and St. Louis counties.

Lake Communications is the two-man team hired by the county to run an Internet, telephone and television service using $66 million in funds from the U.S. Department of Agriculture’s Rural Utilities Service. The county is adding $3.5 million in matching funds.

After running into some roadblocks it sounds like the Lake County project is on its way. You can also track progress of the projects by looking into the expenses approved for the project in the unofficial Lake County Board notes. Here’s a sample:

MOTION BERGMAN, SECOND CLIFFORD: 18 – Authorize payment in the amount of $16,525.06 to JSR Professional Services for fiber optic project management for the period of July 14-August 14, 2011. Absent:
Jones

MOTION BERGMAN, SECOND CLIFFORD: 19 – Authorize payment in the amount of $3,678.28 to GRSsr Telecommunications Consulting, LLC for the period of July 14-August 14, 2011. Absent: Jones

MOTION BERGMAN, SECOND CLIFFORD: 24 – Authorize payment in the amount of $82,830.56 to Compass Consultants for fiber optic project engineering professional services through July 16, 2011. Absent: Jones

It’s good to see that the project is moving forward – and it’s good to see that the ARRA funding is appearing to fund jobs as well as broadband.

Please join us in celebrating the kickoff of construction on Connect Anoka County. The new fiber optic network will connect 145 public sites in Anoka, Ramsey, and Isanti Counties through a 286-mile fiber optic network. It supports emergency, educational, and government services, and boosts the competitiveness of area businesses.
Connect Anoka County Kickoff
September 13th @ 1:30 p.m.
Connexus Energy
14601 Ramsey Boulevard NW
Ramsey, MN 55303
We invite you to join elected officials, business leaders, and educators in celebrating this landmark.
We invite you to share this information via email and social media. Thank you, and see you on September 13th!

I am planning to attend and will post notes and/or pictures.

Moose Lake’s goals were twofold. They wanted to bring broadband to local businesses, residents and government. (The local school, library, hospital and state facilities already had it.) The also had a strong focus on public safety – in part I’m sure because of MCF-Willow River/Moose Lake, the Level 3 Correctional Facility in town. In 2009, local broadband leader, Bill Carlson provided Blandin on Broadband with a thorough update on broadband progress in Moose Lake. In short the local utilities provider took on the job of providing broadband. They set up wireless access to area businesss and began providing access to community residents. Here’s a snippet of Bill’s report…

The current demand on the capacity and speed of the community network has prompted the Water & Light Commission to build a fiber optic backbone which extends the length of the city. Public Safety has always been a priority of the community and this added bandwidth will allow the monitoring of the electrical distribution system, the back-up electrical generators, the community surveillance cameras and emergency management and notification communications system. Community server/software and GIS mapping projects are also in the development stages. The fiber optic cable also passes by an area that is slated for economic development.

I had an opportunity to speak with Bill about the latest news in Moose Lake last week. Bill is frustrated because while they have broadband, it seems that as soon as they get close to achieving or goals, the emerging technologies forces them to redirect our focus. There are plans to move their network forward. Apparently the service to residents and local businesses is thriving – but upgrades aren’t necessarily improving public safety. They are looking at Video over IP Community Access/Public Safety (CAPS) Network utilizing digital security cameras to connect key community critical facilities and for local broadcast of community events. (You can get more details on the plans in the PPT below or the script from a recent City Council meeting.)

Recently it seems like I’ve been able to post so many positive stories of groundbreaking and construction on ARRA funded projects. And the ARRA funds (and maps) have stimulated discussion in other towns. But I think it’s instructive to look at what’s happening in Moose Lake.

They are a community that has been paying attention to broadband for years. They have a local broadband champion – although I suspect after 30 years he may be thinking about retiring at some point. So they are a town in a precarious position. And I think it’s one concrete example where the tiered definition of broadband raised by the National Broadband Plan (At least 100 million U.S. homes should have affordable access to actual download speeds of at least 100 megabits per second and actual upload speeds of at least 50 megabits per second. And 4 Mbps download speed for the rest.) will be a serious disadvantage to rural communities.

The major employers in town are tax exempt institutions. It means unemployment is generally low – but Bill mentioned that it has been difficult to recruit qualified employees who have spouses would also want to work. Improved broadband might help rectify that problem. One possible solution is to develop a program that would make broadband available for telework and home type businesses. It would also allow spouses to maintain cultural and family connections with their hometowns. Also the presence of many commuters working in the community might draw more interest in terms of improving local public safety. The question is whether the town’s slow progress will be enough to support their future. And are there other towns in similar positions.

It is City of Eagan’s intent to obtain and own a fiber cable plant to be used for city purposes, wholesale access to telecommunications providers, or open access to telecommunications providers within the corporate limits of the City of Eagan.

They are looking for proposals by September 13, 2011. The contract will be awarded September 20 and the project should be completed by November 18. You can get all of the details on the RFP. Good luck to those who will propose!

Here are the essential details:

Monday, August 29, 2011
5-6 p.m. Social/Networking
6-8 p.m. Presentations — Redwood Area Community Center
900 Cook Street, Redwood Falls, MN 56283
Please RSVP your attendance by Wednesday, August 24, to 507-637-4004 or email julie@redwoodfalls.org — Event is free — need a count for the caterer. THANK YOU!

And here is info on the content for the day:

Minnesota has adopted a broadband mandate that will go into effect in 2015 which would will require a minimum of 10 MB download and 5 MB upload speed to be accessible to all citizens of Minnesota. How will we make this happen in Redwood County?

Mark Erickson—Renville/Sibley Fiber, and Pam Lehmann—Lac qui Parle County Broadband will share with us what they have been working on in their counties to address this new infrastructure demand. They will be sharing and educating us on what the future of broadband will mean to us for business development, recruitment, labor force retention and attraction, and life-long learning opportunities for all ages.