Monthly Archives: June 2012

Broadband in Minnesota: the Researchers’ View

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I mentioned earlier this week that the MIRC folks met in Alexandria last week to talk about broadband adoption and expansion. Quick reminder to new readers – MIRC (Minnesota Intelligent Rural Communities) is an ARRA-funded project led by the Blandin Foundation to increase broadband adoption in rural Minnesota communities. One of my favorite sessions brought three great research projects together to paint a great picture of what’s happening in Minnesota in, around, aside, because of broadband. It feels like things are happening so fast in the broadband world these days – it was interesting to hear from folks who

The Challenges of Measuring Broadband Adoption

Jack Geller presented on The Challenges of Measuring Broadband Adoption. Many readers will know Jack’s work monitoring and measuring computer, Internet and broadband use in rural Minnesota over the years. It’s largely due to Jack’s work that we have an idea of what’s happened in terms of adoption and can predict (by way of Rogers Theory of Diffusion of Innovations and other theories) what is likely to happen in the future. And I think when we can predict, we are better able to prepare the future. In this case that means getting more people to adoption broadband.

We have learned that broadband adoption has increased at a faster pace in MIRC Communities than the rest of the state.

With these caveats in mind, at the beginning of 2012 we estimated that broadband adoption increased 7.4 percent in the MIRC communities, while the rest of rural MN increased by 5.7 percent.

… Well doesn’t seem like much of a difference!

While this difference may seem quite modest at first glance, it is important to recognize that this means the pace of broadband adoption in the MIRC communities is actually 29.8% faster than in the rest of rural Minnesota.

Assessing the Digital Presence of Rural Minnesota Businesses

Next we heard from Hans Muessig and Tara Daun on Assessing the Digital Presence of Rural Minnesota Businesses. I wrote about their research earlier – and their work to track what small businesses are doing in terms of using broadband to market themselves. Looking at their research would make sense for anyone working with (or who owns) a small business to use their ranking scale to judge their own use. Their statistics indicate that there is plenty of room for progress.

The Rural Brain Gain and Regional Recruitment

Finally we heard from Ben Winchester and Dawn Hegland on Rural Brain Gain and Regional Recruitment. I’ve written about the Brain Gain in earlier posts. It’s the idea that while young adults may leave rural areas, often for scholarly pursuits, a new demographic of slightly more seasoned residents (age 30-49) move in, accompanied by a secondary bubbles of kids age 10-17. These folks move for quality of life; they don’t leave for jobs. In fact, they seem to leave despite the job situation, which might indicate to me some great opportunities for telework programs. Ben and Dawn talk about strategies for community leaders interested in attracting the Brain Gain to their area.

Monticello puts a hold on repaying bonds

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Earlier this week Minnesota Public Radio reported on the latest update with FiberNet Monticello. (A quick recap, Hiawatha Broadband stepped down from managing the project last month and Monticello made planned to move forward.)

Strapped by lower revenue than expected for a project that delivers high-speed Internet access to residents, the city of Monticello has stopped making payments toward $26 million in bonds that were used to build the network.

The Monticello City Council is meeting on Monday and I think we’ll have a clearer idea on long term prognosis once they meet. The Notice of Status of FiberNet Monticello Project gives a glimpse at what they are looking at…

The Bonds are payable from the Net Revenues (as defined in the Indenture) of the telecommunications system (the “System”) constructed by the City with the proceeds of the Bonds. The System is substantially complete and, as of March 31, 2012, the System was providing 1,038 voice lines, 1,394 internet and 1,052 video connections.

Net revenues of the System are not sufficient to pay both operation costs and debt service payments on the Bonds. The Bonds are revenue bonds as noted in the Official Statement for the Bonds, the obligation of the City to make payments on the bonds is a special and limited obligation of the City, payable solely from the net revenues derived by the City for the operation of the System after paying the operation and maintenance costs and does not constitute a debt of the City. The Official Statement also noted that “Purchase of the Bonds involved a high degree of risk.”

While the City is not obligated to make deposits to the debt service fund in the absence of net revenues, the City has made supplemental payments to the debt service fund from July 1, 2011 to May 1, 2012. These supplemental payments were made after the capitalized interest provided for the Bonds was utilized.

The City previously notified you on March 23, 2012 that it was considering to discontinue making supplemental payments. After reviewing the financial performance of the System, the City has decided to discontinue making supplemental payments for debt service as of June 1, 2012. There is a debt service reserve fund that is available to make debt service payments for the near future in the event that net revenues of the System are insufficient to fund debt service payments.

The City is actively undertaking all reasonable actions and exploring all available options to make the System successful both financially and continue providing high quality services to its customers. To accomplish these goals, the City has expanded its efforts to review the operations of the System and is engaging professionals with experience in Broadband operations to assist it in examining strategic options for the System with a goal of enhancing operations through cost reductions, revenue enhancement and debt restructuring.

The firm that provided management of the System since it become operational has exercised its option to discontinue management of the System. The City expects to have an interim manager in place by the time the current manager’s contract concludes at the end of August 2012.

The City od also looking at all options for restructuring of refunding the Bonds to reduce the debt service costs of the System. The City has not precluded any option related to restructuring or refunding the Bonds and expects to work with you to develop options related to the debt that will allow the System to be successful, in combination with operational changes to accomplish the same goal.

Smartphone and laptops: like hammer and saw

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Thanks to Bill Coleman for sending me an interesting article comparing smartphones and traditional computers – Smartphones Bring Hope, Frustration As Substitute For Computers. It fits in well with a conversation I had the other day about the relationship between fiber and wireless. The conclusion to both conversations being that to maximize productivity and quality of life we need both.

We need smartphones and wireless to keep us informed on the go. To help us interact all day every day. To keep us constantly connected. We need laptops, desktops or some might maintain tablets and fiber for work that takes a longer time to produce or consume. Wireless and smartphones also have the advantage of being more affordable – at least on a short-term basis. So they often play a secondary role of introducing people to technology.

The article paints a picture of several people trying to make do with smartphone access. One story particularly struck me because it highlights the value of each tool…

Ashley Street, 23, a single mother in Philadelphia, has seen both the promises and pitfalls of relying on smartphones. When Street was briefly homeless and sleeping in a park, she used her phone to find a shelter, she says. When she was laid off from her job at McDonald’s, she was able to apply for a new job via her phone’s Web access.

But when Street recently tried to use her phone to fill out a student aid form so she can attend culinary school, it seemed almost futile. Just as she was nearing the end of the application, the phone’s wireless connection failed, and her information disappeared from the screen.

“I had to do it all over again,” she says. “I actually almost cried.”

I think it makes the case that all of these are tools in a toolbox. Having only a smartphone is like having only a hammer. It’s better than nothing but it doesn’t fix every problem. Sometimes you need a saw

I’m living my own toolkit kind of day today. It’s the last day of school for my kids – half day as a special treat to working parents. I’m at the park, typing on my laptop. My MiFi is no longer charged – so I do research and stay connected (email, text, Facebook messaging) through my smartphone. I’m typing on my laptop. It’s not a perfect solution (that would be a babysitter!) but it works. Having options keeps me productive and improves the quality of life for my favorite new third grader!

Who is accountable if the Lake County network fails?

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Lake County is in the news again. The big question – Who is accountable for the RUS loan to build the local fiber network?

One answer is that the business plan includes repayment of the loan. So if all goes well, the network will pay for itself. That’s the plan. But if it doesn’t go well – then what?

I wrote last week about the Lake County issues addressed at the House Subcommittee on Communications and Technology. Allegations were made that someone at Lake County said that the RUS said that Lake County wouldn’t be required to repay the loan. Adelstein emphatically denied this, saying that definitely no one in the office would say such a thing.

This week Minnesota Cable Communications Association executive director, Michael Martin, has an editorial in the Duluth News Tribune that Contributes to the conversation…

If it’s too good to be true, it probably is. Unfortunately, that appears to be reality for Lake County taxpayers as it relates to the $70 million county broadband project.

There has been much discussion, some critical, of my Minnesota Cable Communications Association’s effort to educate residents about the true exposure to Lake County taxpayers. However, we can all agree it is critical to establish who ultimately is on the hook for the $56 million federal loan that makes the project possible. After all, $56 million amounts to almost $5,200 for every man, woman and child in Lake County.

In an op-ed in the Lake County News Chronicle on July 15, 2010, Lake County Commissioner Paul Bergman wrote, “None of these funding sources require any taxpayer guarantees, so the taxpayers of Lake and St. Louis counties will have no obligation if the utility fails. This is clearly stated in our application materials.”

Bergman’s claim is in direct conflict with the head of the federal agency responsible for distributing $66.4 million to Lake County for the fiber project. At a congressional oversight hearing in May on broadband stimulus loans and grants, Rural Utilities Service Administrator Jonathan Adelstein was asked point blank about the financing for the Lake County project — not just once, but twice.

I don’t know that this is where the allegations started. It’s helpful to look at more of that op-ed in the Lake County News Chronicle on July 15, 2010…

First let’s talk about the financing. The county is seeking funding through a federal government program: Rural Utility Service (RUS). RUS funding is like a non-recourse home mortgage loan, meaning if you do not make the payments, the home is foreclosed and becomes the property of the lender. Similarly, if the Broadband Initiative does not produce enough revenue to cover the loan payments the new utility would be foreclosed and become the property of the federal government. The federal government would then resell the utility to the highest bidder. Residents and businesses would then purchase their services from the new service provider.

The money from RUS can only be used to build the infrastructure not the operations part. So our funding proposal also requests money for day-to-day operation of the utility until it is able to generate sufficient revenues. For this money the county will issue subordinate county revenue bonds. With these bonds we pledge the revenue from the utility to make the payments on the revenue bonds, not taxpayer’s dollars.

None of these funding sources require any taxpayer guarantees so the taxpayers of both Lake and St. Louis County will have no obligation if the utility fails. This is clearly stated in our application materials.

It seems as if everyone is right – in their own way. I think it’s helpful to continue with the analogy of the mortgage. Are you required to pay back a mortgage? I think most of us would say yes; although we recognize that in extenuating circumstances that’s not the case. The bank can foreclose. As a homeowner you lose your investment and you taint your credit rating but you don’t have to pay it. Some folks looking at foreclosure will try to sell before it gets to that point; some will hold unto the property as long as possible, letting the bank resell.

It’s my understanding that the RUS loan is similar. Yes the county must repay. But before they asked for every citizen to write a check for $5000 to the RUS, the county and the RUS would make some decisions about how to minimize financial loss – while hopefully maximizing benefit to the county residents.

But again the Plan A is for the project to pay for itself. That is the plan that the RUS approved.

Blandin eNews Monthly Recap June 2012

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Broadband Access  Gap is Shrinking
New research unveiled last month by Connect Minnesota shows that   the broadband availability gap in Minnesota is shrinking, with 85.09% of  Minnesota residents now having access to broadband speeds of 6 Mbps download/1.5 Mbps upload, compared to 81.20% last October. http://wp.me/p3if7-1J7

Schools  Need 100 Mbps per 1000 Students
The State Educational Technology Directors Association recently released a report that set a target for broadband speeds of at least 100 Mbps  per 1,000 students/staff for 2014-2015. http://wp.me/p3if7-1IL The FCC has long had a program that helps school afford broadband. In fact, the  FCC’s E-Rate program subsidies offset more than$20 million in Minnesota every  year, historically about half of the cost. http://wp.me/p3if7-1Ip Unfortunately, total demand  for 2012 is $5.237 billion. For the first time in the program, demand exceeds  the $2.3 billion in funding available, without rollover funds, which indicates  that some applications may not get funding. http://wp.me/p3if7-1IL

Minnesota  Businesses Using Web for Marketing?
University of Minnesota Extension released a report that  indicates that 42.6 percent of businesses from 23 rural communities  investigated have a website. On average, 9.9 percent of businesses in each  community used social media. http://wp.me/p3if7-1IG That number rings true with a national statistic used by Google last fall when  they announced that 60 percent of businesses don’t have a website. http://wp.me/p3if7-1qf A recent report from Connect Minnesota  indicates that Minnesota businesses that use broadband are benefitting, to the  tune of approximately $200,000 more in annual median revenues than  non-broadband adopting businesses. http://wp.me/p3if7-1H3

Minnesota  Public Safety Broadband Requirements
A Minnesota Public Safety Broadband Wireless Data Network  Requirements Study assesses the needs of public safety wireless broadband in  Minnesota. Specific recommendations are made, such as create a Minnesota Public  Safety Wireless Broadband Plan and establish a body under the Statewide Radio  Board to oversee plan. http://wp.me/p3if7-1I6

Conferences  Notes

Minnesota  Broadband Task Force – In May, the Task Force met in Winona, where  they had an opportunity to learn more about telehealth from the folks at Winona  Health. The effort started 10 years ago with digitizing health records (EHR),  centralizing them and allowing different facilities to share records. That was  the building block making it possible to now deploy remote consults.

Also two of the Task Force small groups met during the session:  Broadband Adoption and Monitor/Understand Impact of FCC/PUC Decisions. Both  seem to be moving forward with action items to help the state get closer to the  broadband goals. http://wp.me/p3if7-1Hq

Minnesota  Intelligent Rural Communities Conference –  MIRC partners met to discuss  broadband expansion in rural Minnesota. Practice met policy during the  conference with an impromptu and very accessible lesson on the changes to  federal funding of broadband infrastructure (USF, Intercarrier Compensation and  Connect American Fund) by Kevin Beyer from Federated/Farmers Telephone. http://wp.me/p3if7-1JC See more from the conference http://mirc-may-2012.posterous.com

Continuing  Legal Education – CLE hosted a full day workshop on broadband policy and  regulations. Workshop highlights include firsthand perspective from lawyers in  the trenches and an insider perspective from the FCC. http://wp.me/p3if7-1Ic

Local Broadband News

Anoka  County
Anoka  County’s ARRA-funded project is selected as part of a national study. http://wp.me/p3if7-1Hc

Austin
Austin  community works with PCs for People to get refurbished computers in the hands  of those in need. http://wp.me/p3if7-1HG

Benton  County
St  Cloud Times highlights broadband adoption efforts (and need) in Benton County,  including a look at use at the schools, home computer use and area digital  inclusion opportunities, many sponsored by MIRC. http://wp.me/p3if7-1Jb

Also,  Sauk  Rapids-Rice Community Education and Foley Community Education have increased  open computer lab times for their communities and students and are providing  basic computer skills classes and broadband classes through the U of M  Extension. http://wp.me/p3if7-1GX

Bemidji
United Way of Bemidji Area partnered with PCs for People to locally  find, refurbish and donate 88 computers to new computers users. http://wp.me/p3if7-1Iv

Carver  County
The  ARRA-funded fiber project in Carver County continues to make ground despite  setbacks, such as fiber scarcity. http://wp.me/p3if7-1Jm

Cook  County
Arrowhead  Electric Coop gets a nice nod in report on innovative broadband funding for  communities. http://wp.me/p3if7-1Jp

Dakota  County
In  April, Dakota County had an opportunity to show off the results of their  broadband policy and planning. In May, they share templates with other  communities looking to expand broadband in the community. http://wp.me/p3if7-1HP

Duluth
Duluth  makes concerted effort to attract datacenters; Involta will open new datacenter  in Duluth this fall. http://wp.me/p3if7-1IY

Granite  Falls
MVTV  Wireless reports that their ARRA-funded projects is well ahead of schedule and  has create 16 full time jobs. http://wp.me/p3if7-1JI

Halstad  and Spring Grove
NTCA (National Telecommunications Cooperative Association)  published a collection of case studies highlighting some best-of class stories  for use of broadband technology in rural communities, including stories from Halstad and Spring  Grove, Minnesota. http://wp.me/p3if7-1I2

Hubbard  County
Local  provider Paul Bunyan Communications reports the need to slow down projects due  to uncertainty and changes in federal policies (Universal Services Funds and  Intercarrier Compensation USF/ICC). http://wp.me/p3if7-1IP

Itasca  County
Itasca Area Schools Collaborative (IASC) received local and national  attention for successful deployment of telepresence in the classrooms. http://wp.me/p3if7-1HK

Lac qui Parle County
A workshop attendee and local business owner talks about the  value of learning how to better use technology in her business through  MIRC-sponsored training. http://wp.me/p3if7-1GC

Lake  County
The  ARRA-funded project moves forward despite opposition from incumbent provider. http://wp.me/p3if7-1IT

Leech  Lake
Leech Lake Temporary Employment Program, a MIRC-supported  project, is featured on Lakeland Public TV, talking about how their program  boosts digital literacy skills and increases access to computers for the whole  community. http://wp.me/p3if7-1H0

Minneapolis
City of Minneapolis recently released the results of their Digital  Community Survey, showing demographic and technology adoption differences by  neighborhood. http://wp.me/p3if7-1Ik

Monticello
Hiawatha  Broadband steps down from project management position in Monticello http://wp.me/p3if7-1Je, as City of Monticello  makes contingency plans to move forward. http://wp.me/p3if7-1Jh Success of the project is still up for interpretation, based on criteria for  success. http://wp.me/p3if7-1ID

New  York Mills and Akeley
University  of Minnesota Extension highlights MIRC broadband business training in latest  semiannual publication. http://wp.me/p3if7-1IV

Todd  County
Todd  County decides to move forward with community broadband plans. http://wp.me/s3if7-6549

Winona
Winona is looking for workers – and the MIRC broadband project   is helping them to attract new residents with a new website and wi-fi hotspots to  attract folks interested in relocating. http://wp.me/p3if7-1Ix

Events

June  12 – Minnesota Broadband Task Force meeting – (TBD)

June  20 – Technology and the Design of Personalized Learning (Minneapolis) http://wp.me/p3if7-1J4

July 15-18 – OPASTCO Summer Convention – (Minneapolis ) Organization for the Promotion and Advancement of  Small Telecommunications Companies  http://tinyurl.com/7wn7yy7

Looking  for more events? Check out Tech.MN’s calendar http://tech.mn/events/.   Many events are based in the Twin Cities but it is a comprehensive list. (If  you have an upcoming event, consider submitting it.)

Stirring the PotBill Coleman

It is June and  that means graduation season!  I am happy to report that I just returned  home from my son’s college graduation from Westminster College in Salt Lake  City.  It was a fun and gratifying weekend of events that brought back  many memories of dropping him off at college, seemingly just a moment ago.   Just as four years ago, the new graduates have been receiving plenty of  advice on this new phase of their lives – from parents, professors, career  counselors, friends and now, commencement speakers.  I know that I have given  my son more than my fair share of advice as most conversations seem to come  back to “what’s next?”

I also advise  rural communities as they work to increase the economic vitality of their  communities, using broadband and Internet technologies as primary tools.   Luckily for my consulting business, rural leaders seem to listen more  intently than it appears my son does  😉 .  In fact, it can be a bit  scary when you see either progeny or community leaders following through on the  advice I give them!

Bruce Bastian,  co-founder of Word Perfect, gave the commencement address to my son’s class.   I agree with his words on taking advice – to listen and consider, but to  make your own decisions, to follow your own passions.  As each new  graduate is unique, so is each community.  As there is no single path for  individuals, the same is true for communities.  Each community needs to  assess its own situation, then determine which community strategies will move  it forward into a more positive future.  Some will focus on  infrastructure, some on digital inclusion, others on economic development.   All are valid; all can be very productive for a community.

I saw this  clearly last week in Alexandria at a joint Blandin Foundation – University of Minnesota  Extension event with our MIRC communities.  All communities started with a  similar assessment and planning process, but each has followed their own path  with their own unique set of activities and partnerships.  It was fun to  hear of the success and the plans for continued action around broadband,  e-commerce enhancements, digital inclusion and online community.  It is  also very exciting to hear Blandin Foundation’s announcement of a new two-year  commitment to ongoing support of rural Minnesota broadband.

Just as the past  years have been fun, interesting and productive for our MIRC communities and my  son, I look forward to the future and the paths that are created and followed.

Update on Granite Falls ARRA-funded project: Good news!

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Thanks to Julie Foote at MVTV Wireless for sending an update on the progress of their ARRA-funded network…

Federal stimulus project delivers internet service to un-served and underserved communities in southwest Minnesota
In March 2010, MVTV Wireless of Granite Falls, MN was awarded federal stimulus funding through the American Recovery and Reinvestment Act (ARRA). Since then MVTV has been hard at work upgrading and expanding their system in accordance with the stimulus project.

According to MVTV Wireless President, Dan Richter, “Only about 8% of the population of the United States does not have high-speed Internet, but it’s almost all in rural areas. We were awarded this funding through ARRA because rural areas in southwest Minnesota were deemed un-served or underserved.”

“Now, the terms un-served or underserved does not mean there aren’t Internet service providers out there, what’s happening is people need higher speeds.” Richter said. “Our goal is to give customers more choices by providing better service. We’re excited to help make high-speed Internet more accessible for people in southwest Minnesota.”

There are 3 main sections to the MVTV ARRA stimulus project.

  • Upgrade the current system: MVTV Wireless has completed all 11 upgrades to areas within their existing system. The upgrades have quadrupled backhaul capacity.
  • Expand service coverage: The plan calls for 34 new sites to be built in communities that were previously un-served or under-served. As of today MVTV Wireless has completed the required expansion and continues growing with a current total of 39 new access locations added.
  • Service new customers: Lastly the ARRA project calls on MVTV to add an additional minimum 1500 new subscribers within the expansion area. So far MVTV Wireless has completed 500 qualified installations and continues to grow rapidly, completing 100+ new installs per month.

One of ARRA’s main objectives is to stimulate economic growth through job creation. Due to the expansion, through the ARRA project, MVTV has grown to employ 16 full-time positions. To meet the needs of a growing customer base MVTV has added 5 new service technicians, 2 new customer service members and an operations manager in the last 12 months.

While so many funded projects have yet to get off the ground, MVTV Wireless is excited to say they have fulfilled almost all of the ARRA expectations and hope to finish by the end of 2012, well ahead of its original end date of May 31, 2013. Most of all, MVTV Wireless is proud to have the opportunity to expand broadband coverage to help serve more of rural Southern and Southwestern Minnesota.

More information about MVTV Wireless can be found on their website, www.mvtvwireless.com.

 

USF Changes worrisome to rural communities

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Universal Service Fund, Intercarrier Compensation, Connect American Fund – big topics, technical topics, wonky topics, topics that most people avoid like the plague – but avoid at your own peril. USF, ICC and CAF are federal funding mechanisms that help build and maintain broadband to rural areas. Without federal funds many areas will not get broadband coverage, in fact some areas may lose coverage because between difficult terrain and low population density it is very difficult to make a business case to serve those areas.

Last week, the Minnesota Intelligent Rural Communities (MIRC) participants and leaders met to talk about broadband adoption. USF/ICC/CAF came up several times – and I was lucky enough to have a video camera with me. (Serendipity for the following videos was great – actualy footage not as much – but I thought the content was worth the lower quality video.)

First Colleen Landkamer from USDA Rural Development mentioned USF during the keynote lunch…

Then Kevin Beyer from Federated / Farmers Telephone stepped up to give a chalk talk on USF for interested attendees. This is one of the most accessible explanations of USF/ICC that I have seen. In fact, the conversation went much longer and I’m hoping to process more later. Kevin explains USF/ICC/CAF, how wireline broadband supports wireless, fiber to the node versus fiber to the premise…

As Kevin points out someone will have to pay for the network to rural areas. For years we’ve talked about local independent telephone companies, cooperatives and in some cases communities rising to the occasion. While the bigger providers have focused on metro areas – and building backbone. When I got back to my office Blandin Foundation’s Jennifer Bevis sent me an interesting article on AT&T’s plans for rural broadband. (As a quick reminder/aside – a couple of weeks ago I noted that the USF-CAF changes are coming in phases. Phase One changes are happening now. Phase Two changes have not been announced. I think that’s important background for the AT&T article.

AT&T is considering its options with their rural lines…

AT&T Inc. (T) (T) Chief Executive Officer Randall Stephenson said he’s “cautiously optimistic” about using new broadband technology to wring more value from rural phone lines, backing away from a plan to sell them off.

The company aims to use an enhanced version of digital subscriber line technology to speed up Internet access in rural areas, Stephenson said today at an investment conference hosted by Sanford C. Bernstein. AT&T had targeted the lines as an asset it could offload, though he said today that a deal would face regulatory hurdles and require multiple state approvals.

The article indicates that red tape involved in selling their existing infrastructure may be the reason they are thinking about reviving a product they earlier called “underperforming asset”. But given the changes in USF/CAF you have to wonder if that change is also a factor. I suspect the details of Phase Two changes will help them make a decision.

The big question I think rural areas should be asking is – Will the changes in federal funding support world class broadband in rural areas? I’ve commented earlier at the sanctioned two-tiered service supported by the National Broadband Plan (100 million homes at 100 Mbps) and 4 Mbps for the rest. It seems as if this funding mechanism continues to support that two-tiered outcome.

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

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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.

Carver County ARRA Project on Track

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I’m a little slow on this – but in April Carver County posted an update on their ARRA-funded fiber project. As they report…

According to conversations with Fed staff, the CCOFI project continues to be meeting expectations and on a number of sustainability, interconnectivity and collaborative aspects of the project, the County is well ahead of many other ARRA fiber projects, in how we are operating during this construction phase of the project and how we are planning for the future operational and management phase of the project once construction is complete.

As we’ve reported the federal government is taking a closer look at the ARRA projects, so I thought it was particularly interesting to see Carver County’s update because they callout two of the main considerations I have heard from the various projects (fiber and permits) …

  • Construction – As of March 30, we have completed approximately 92 miles of the overall 132 miles of construction consisting of approximately 83 miles of our overall 89 miles of base ring construction and 9 miles of our overall 33 miles of lateral construction.
  • Fiber Availability – When we celebrated our fiber construction kickoff in the fall of 2011 there continued to be an industry wide shortage of fiber caused by a number of economic, supply demand and environmental factors. The Carver County Open Fiber Initiative (CCOFI), along with a number of other American Recovery and Reinvestment Act (ARRA) fiber projects, was impacted by this lack of fiber availability, causing us to change how we had originally planned to construct the project. Instead of installing the fiber at the same time as we installed the two 1.25” communication conduits, we are instead installing the conduits first and as fiber becomes available, we go back and blow the fiber into the conduit. As of this past quarter, the pressure of the fiber availability issue has eased considerably as we have received approximately 95% of the fiber needed for our 89 mile base ring. We are still awaiting the shipments of our 33 miles of smaller count lateral fiber, which is slated for delivery in the first to mid part of the second quarter of 2012.
  • Permits – There are a number of jurisdictions that the County is communicating with regarding the variety of permits needed for the project including city, railroad, DNR, MN DOT, township, pipeline and even the County itself. As of this past quarter we have submitted and received approval for approximately 80% of the permits needed to complete the construction of the project. With changing how we were originally going to construct the project due to the fiber availability issue, for some of the permits that have limited timeframes to complete the requested construction, we are waiting to submit for these specific permits to avoid them expiring before we are able to complete the respective construction.
  • Fiber Huts – There are three fiber distribution huts that are identified in the project. The huts are located in Cologne, Victoria and Mayer. During this past quarter, the County finalized discussions on the needed permits for the huts at all locations and began initial drafting of the bid proposal for their construction.
  • Building Penetrations – As of this past quarter, approximately 50% of all locations in the project are ready for fiber conduit installs.
  • Splicing and Network Design – Over the past quarter, CCOFI staff have spent a considerable amount of time discussing and beginning the design of the overall network and splicing plan, which is the equivalent of adding intersections, turn lanes and bridges to a stretch of currently open highway, allowing vehicles or in the case of fiber, data, to get to the locations where it is desired.
  • Equipment Bid –We look to issue the equipment bid in June or July.
    Carver County Schools Network (CCSN) – As one of the collaborative initiatives of the fiber project, the County assisted in the creation of the Carver County Schools Network (CCSN), which is a Joint Powers Agreement (JPA) between the seven school districts in Carver County. This JPA established a consortium to allow these entities to collaborate on a variety of opportunities. During the past quarter the CCSN used this newly formed consortium to apply for and receive eRate funding.
  • Additional Laterals – Outside of the ARRA Funded CCOFI project, the County has been in discussions with Community Anchor Institutions (CAIs, the entities participating in the project) regarding potential additional connections into the fiber ring. The County has provided CAIs with construction costs for upwards of 90 additional laterals and discussions are ongoing on the number of these sites that will be actively pursued for construction during original and future construction timeframes for connection into the fiber ring.
  • Budget – As of March 31, we have expended approximately $4.5 million of our overall project budget of $7.5 million, with the majority for construction costs.

Lake County Fiber Project: How much is smoke and where are the fires?

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The Lake County Fiber Project has garnered attention from the media, public and competition since receiving $66 million from the USDA Rural Utilities Service as part of the BIP/ARRA funding in 2010. They received considerably more funding than any other Minnesota-focused project with a $56 million loan and $10 million grant. (BIP funding for all 18 Minnesota projects totaled  $228 million. I’m including only projects that really focused on MN; not where MN was a partner state.)

I provided a rough history of the Lake County Project in a post in February. They have had issues with open meeting laws, concerns with original consultants managing the program and negative marketing from an existing local broadband provider (Mediacom). They have received attention locally and nationally. There are a few questions that concern me:

  • How much is smoke and how much is fire?
  • Will decisions made based on this situation create policies and precedent that have an impact on future community networks?
  • Will the unwanted attention hinder and/or stop the project?

It seems as if the main barriers to the project now are allegations raised by Mediacom, an incumbant provider in the area. The May 8 Communications Daily, a trade publication for the telecommunications industry (sorry archive not available online) outlines many of the allegations. In pretty plain language Communications Daily spells out the situation …

Mediacom Communications, which serves some of the less sparsely populated parts of Lake County, Minn., complained last year to the US Department of Agriculture’s office of the inspector general that Lake County’s Broadband Initiatives Project (BIP) loan application appeared to be fraudulent, designed to set the county up for financial failure and allow outside consultants handpicked by local officials to buy the fiber-to-the-home systems at a discount (CD March 17/11 p6). More recently it has been taking its case to nearly anyone else who might listen, including federal prosecutors in DC and investigators with the House Commerce Oversight and Investigations Subcommittee, and apparently gaining some traction.

Here’s a short list of allegations gleaned from the same article:

  1. Lake County didn’t have the funding required at the time it.
  2. Lake County didn’t use the most recent census data in its original application.
  3. To be successful, the Lake County plan would require 100 percent take rate, which would be very difficult to obtain.
  4. Lake County has been assured that even if they default on the loan, the RUS would not seek repayment beyond the proceeds of a foreclosure auction on the network.
  5. The replacement consultants hired to manage the project are more like an extension of the County than a separate entity.
  6. There are questions on how much the consultants are getting paid to run the network versus the amount they set to pay the County for access to the network ($8 per line per month).
  7. Minnesota law prevents municipalities from owning a telephone exchange without a super majority approval through a referendum.

Last week, the House Subcommittee on Communications and Technology announced that they would be taking a closer look at all ARRA projects – the concern was progress (or lack of progress) of ARRA projects. The implication being that projects weren’t as shovel-ready as indicated in their original applications. I think there are some legitimate reasons for projects running behind (slow response from sponsoring agencies and fiber shortage being two) and I suspect that, as Lac qui Parle project report reflected last month, most projects still have time to make up for lost ground. Testifying at the meeting Jonathan Adelstein said something similar…

Big infrastructure projects, whether done by telecommunications, water or electric utilities, are transformative and take time to build out.  Projects have to be carefully planned, constructed and operated.  All awardees must comply with federal and state environmental, historic preservation and in some cases tribal or intergovernmental reviews that often require significant consultation with the public.  Large telecommunications projects, like those financed under the Recovery Act, often take between three and five years to complete, although many are able to move more quickly.

I’m including video of the session. It’s long – but interesting because the questions asked by the subcommittee members reflect the concerns of their constituencies. The Lake County project was mentioned by name twice during the meeting; some of the allegations mentioned above were addressed.

Funding, & Demographics

Adelstein outlined the scrutiny that each project undergoes as part of the funding process. (I especially appreciated Congressman Terry’s (R-NE) question on USF changes and RUS grants! Borrowers are indicating that the changes are hurting their business plans – an issue that Hubbard County is working on.) Around about minute 59, Congresswoman Christensen (D-VI) asked specifically about the Lake County project, asking why the project was not investigated further once a formal complaint was made, alluding, I believe, to at least the first two (maybe three) allegations listed above. Deputy Inspector General Gray responded that after preliminary investigation they didn’t see a need to delve deeper.

Business Plan / Take Rate

The third allegation is less clear-cut than the first two. Adelstein talked about evaluating financial feasibility of projects. They look into business plans but there are more moving pieces and the local market can change. I wouldn’t presume to evaluate the Lake County plan, but I would say that the RUS’s approval of the project seems indicates that they found it to be a viable plan.

Repayment of Loan

Adelstein was also asked about the allegation that Lake County might not be required to repay the loan (at about 1 hour and 52 minutes). He emphatically denied reports that anyone at RUS had told a borrower for a fiber project in Lake County that RUS would not seek repayment of its loan from the borrower.

Consultants or Staff? Compensation

The questions of contracts and consultants were not raised in the subcommittee session. The Communications Daily article raises some concerns (the article alludes to email correspondence) …

In July 2011, an RUS official overseeing Lake County’s loan told Lake County Coordinator Matthew Huddleston that RUS has concerns that Lake Communications (LCI) appeared to be an extension of the county itself and not an independent consultant. “It appears that LCI has no capital formation.  If LCI did not receive an equity investment to operate on, we have serious concerns since all employees of the system will be LCI employees and there are a number of expenses that LCI must be able to handle,” RUS Broadband Division Director Kenneth Kuchno wrote. “If the County is covering 100% of all LCI expenses, then this is another indication that LCI is an extension of the County and possibly should be treated as a political subdivision of the County.”

LCI may have been formed to provide telephone service. Documents (dated Sep 8, 2011) provided to me by Lake County (as result from a request under the Data Practices Act) would indicate that access to a CLEC license would have been a factor…

LCI is not funded or formed by Lake County. Lake County is currently paying two Limited Liability Corporations to provide consulting services on the RUS broadband project. Principals of the consulting companies are also principals of LCI. LCI is raising capital to cover its startup costs, which include engaging  an accounting firm and legal representation, who are assisting in its application for a Certificate of Authority  as a Competitive Local Exchange Carrier (CLEC) from the Minnesota Public Utilities Commission, to provide  telecommunications services in the Lake County area.

LCI intends to use its CLEC to resell telephone service over Lake County’s broadband network. This service will be separate from its contract to operate and manage the network. LCI will purchase access for telephone, on the network from Lake County at the wholesale price. LCI will purchase the dial-tone from an existing provider. The interconnection for this “resell service” must be between entities  who possess Certificates of Authority. As described in the application, Lake County will not possess the CLEC or provide the telephone on the network. LCI’s telephone service will be bundled with Internet (ISP) and Video services provided by Lake County. LCI will receive the revenue from the telephone  customers.

I think part of the concern is the manner in which the consultants were selected. There was no formal RFP as far as I know. I don’t know that an RFP process would or should have been required. But having watched the oversight subcommittee meeting in its entirety, I could see that having received multiple bids for work is helpful if you find yourself asked to explain a purchase or contract. I guess the question is, would issuing an RFP have made a difference in the selection, and/or would an RFP process have slowed the progress?

A related issue is one of compensation – and this is where a competitive bidding process might have been helpful. It would allow outsiders to compare other bids and glean from other business plans. The Communications Daily article links to the Lake County Operate and Management Agreement. I don’t know the going rate for running a network or leasing phone lines in NE Minnesota. Others may have insights to share on the topic…

An “Operate and Management Agreement” (O&M) between the county and Lake Communications calls for Lake to received more than $4.4 million from the county over five years for running the network. Additionally, Lake Communications will pay just $8 per line per month for access to the county’s local loops on the network – a figure cable officials say is below market rates.

RUS has seen these documents; they continue to support the project, which would indicate to me that they are within their margin of reasonable.

Municipalities and Telephone Exchange

The issue of municipally owned telephone exchanges has come up many times in Minnesota. In short to provide telephone service, a municipality must hold a referendum seeking permission from the public to take on that role and the referendum must pass by 65 percent (a super majority). It’s been an issue in Monticello, Cook County, North St Paul and Sibley County to name a few communities. The issue came up again in the Minnesota Legislature this year (very short-lived!).

The policy was put in place to protect taxpayer investment. Some folks question the wisdom of requiring a super majority.  I think that unfortunately this requirement has become a tool that slows down progress – because a super majority can be difficult to pass, and because ambiguity in the regulation means that even winning the referendum does not guarantee a path forward. This came up in a community meeting in Sibley County earlier this year. They are opting to not pursue a referendum because of the time and cost. Also it is unclear whether their project would be considered a municipal network under the law because the term “municipality” is not really defined. It may mean a city; it may refer to something broader. So there’s little incentive for local governments to take on the time and cost of a referendum if it can be avoided. If they lose, they lose. If they win the opposition can claim that as a county the municipal law doesn’t apply.

Lake County Fiber Forges On

Some of the allegations have been addressed; I’m sure more questions will be asked. The Lake County Fiber Optic Committee had made plans to meet every Monday. I know that the meetings were cancelled in early May. I don’t know if they met this week – and unfortunately there are no minutes posted for the meetings after March 5, 2012. It would be interesting to attend or get notes from previous meetings. (I have requested them but have not heard back on the request.)

From the perspective of focusing on expanding broadband coverage in Minnesota, it’s good to see that the Lake County project forges ahead. You can track some of the progress of the project through County Commissioner meeting minutes. They are signing cable franchise agreements, approving utility permits and sending payments to various consultants. So they are addressing two objectives that concerned the Subcommittee on Communications and Technology – networks are moving forward and money is stimulating local economies.

[Added 6/6/2012 – more on Lake County: Who is Accountable if the Lake County Network Fails?]