Cooperation among Cooperatives: The Best Approach for Broadband in Minnesota: Full meeting notes

There’s a lot in the notes from today’s meeting – especially for communities or cooperatives that are looking for ways to improve broadband in their area. What’s most valuable really depends on where you are in the process but I will say there were a couple of clear messages:

  • Communities without broadband will not survive
  • Now is the time to get started
  • Money is being spent to expand broadband, we just need to get smarter about the investment
  • It’s possible to build if you are deliberate and incremental – it doesn’t have to be fiber right away (wireless plans and data caps negate wireless as an option)

Cooperation among Cooperatives: The Best Approach for Broadband in Minnesota: Full meeting notes

Hosted by Blandin Foundation, Calix, Co-Bank & Great River Energy

July 19, 2016
10:00 am – 2:30 pm
Great River Energy, Maple Grove, Minnesota
get handouts (PTTs scattered below)

Welcome – Tom Lambrecht, Great River Energy

Setting the Stage – Bernadine Joselyn, Blandin Foundation

The Opportunity

Introduction by Dave Russell, Calix

First deployment of FTTH was done by Kevin Byers. First discussions happened with Paul Bunyan. Everyone cooperative and independent telco in Minnesota is doing FTTH.

First electric cooperatives happened in this area – collaborations and ARRA were instigators.

Who is delivering broadband service? There are probably 40 cooperatives in the US – most are fiber based, many are wireless based. It’s always fiber to the antenna. It’s just a matter of where the antenna is – in the home or outside.

Virtually all of the providers are in areas where there are price cap carriers. For example, AT&T has said they will not be serving certain areas – so electric coops have started building to serve those areas.

We’ve seen more activity in CenturyLInk states too.

After ARRA – cooperatives asked if they could serve areas without government funding. They found they could. Cooperative have been able to learn from the first success. One difficulty has always been the electric coop board; the key has been the ability to work with the board.

How do coops do it?

  • Do it alone
  • Work with other entities

Jonathan Chambers, Conexon (formerly with the FCC)

Back in the day, broadband meant – not dialup or always on. Businesses that got broadband back in the day succeeded; those who didn’t get it didn’t succeed.

Commercial providers will choose to provide service where there is a profit to be made. That’s their prerogative. It’s a business decision. Cable DOCSIS 3.0 covers 82%. The other 18 percent is rural.

If you don’t have broadband in your community – your community will cease to exist. Maybe 10 years, maybe more.

People want the latest thing. They don’t want to be left out. 4K TV will require better broadband.

You can’t ask broadband users to only do “good things” they want entertainment too.

Joined the FCC in 2012 – thinking the mobile industry would satisfy most needs. But I was convinced it wouldn’t when we looked at home internet usage. Around 2012, home use exploded it went from 10-15 MB per month to 150 MB. Nobody designs a wireless network to handle that traffic today. Why? The iPad came out – devices become more commonplace.

Wireless devices work on wireline networks – fiber. That’s what runs wireless devices. They run on WiFi. Video is also the big player. People watch, create and upload video.

Device users use WiFi for real usage. People have multiple devices at home and uses them at the same time.

People are on track to use a terabyte a month for home broadband access.

Five Tenets of Rural Broadband

  1. Broadband is not a speed
  2. Fiber-to-the-home is economically feasible to deploy to every rural home that has an electric line.
  3. Government operating subsidies in rural areas are unnecessary and should be ended.
  4. Statewide broadband cooperative should form the basis of partnerships among like-minded entities.
  5. The time to start is now.

Broadband is not a speed

  • The definition – even by the same agency (FCC) changes speeds regularly.
  • Also they have a definition for everyone – and then the poor.
  • It’s the capability that’s necessary to operative whatever number of devices you have in your home/business to access the internet at any time.

We need to stop making broadband a politic issue – especially in rural areas – it’s a life and death issue.

FTTH and Cable DOCSIS 3.0 are the only sufficient modes for broadband today. Maybe that will change. But not today.

Fiber-to-the-home is economically feasible to deploy to every rural home that has an electric line.

  • We got electricity to everyone back in the day. We can do broadband now.
  • You can get a low interest home.
  • Electricity is up to $200,000/mile; broadband is more like $20,000
  • Revenue for broadband is similar to electricity
  • Take rate is a little lower than electricity – but so are the costs

Government operating subsidies in rural areas are unnecessary and should be ended.

  • It’s being done.
  • Level 3 has 100,000 miles of fiber. Coops can build more.
  • The key word is “operating”
  • It does get hard in areas with population density below 5/mile
  • If you can get someone to take care of CAPEX, it can be done.

Statewide broadband cooperative should form the basis of partnerships among like-minded entities.

  • In Michigan all of the electric coops are working together to do this once. (There are only 9). Each distribution coop will be responsible to FTTH. There’s no electronics between substation and the home. And you don’t need to replace the fiber. So it’s a lot like electricity. The operating entity will take care of the access to members. Statewide scale will open up to new members.
  • The scale that helps is on the operating side. Aggregate busying is helpful for deployment – but really ongoing savings comes from operation. You don’ need 40 head-ends – you need one. (Well you could have one in the nation – like Google.)
  • There’s more risk on operative side. Operating entity gets paid like ark fiber lease. Banks will fund this.
  • This model assumes conservative take rates. Prepare to deal with getting services out to people.

The FCC decided on auction for broadband. They asked about the need for broadband. Commissioners didn’t think rural areas need broadband Lamborghinis. They are OK with broadband Chevys.

The time to start is now.

  • Danna MacKenzie was the best person we had in her role connecting us at the FCC. But she can’t help you. You need to help yourselves.
  • The internet isn’t new. We know how to do this.
  • The internet is physical. It’s a network of network.
  • The time for contemplation is gone – time to build.

Look to models where you can get a private loan. Think about how a third party would value your assets and needs.

There’s enough money available to build real broadband in rural areas – for the money that’s already being put into the state. CAF 2 is investing $500 million. We have to quit squandering money.

There is a blueprint for getting broadband everywhere in Minnesota. It needs to be designed.

Harvesting ROI from Broadband Investments

GRE Data Center and Economic Development Initiatives; Tom Lambrecht, GRE

Community Strategies and Benefits; Bill Coleman, Community Technology Advisors

Partnership Examples

Rock County (via video); Kyle Odre, Rock County and Ross Petrick, Alliance Communications

Started with ARRA – got $10 million but ran into problems (well Woodstock did) related to prevailing wage and fiber shortages. Then we saw the Broadband incentive funds. So we ramped up again with Alliance. They were reluctant, since they already served their own community but if we could find the money, they would help.

So we started looking at grants and tax abatement and Alliance joined too. What’s nice is that they are local so we know they’ll be staying with us and spending with us.

For Alliance, proximity helped. Knowing the area, just being close, having the reputation. It was tough – because Rock County is built on rock. We have 180 miles of construction in – two draws down on the grants. We hope to sign customers in September.

What mattered for partnership to you both?

County: We learned how great the need was. With the original grant, there wasn’t going to be a county contribution – but later in the game the county joined the effort to close the funding gap. Rock County doesn’t spend a lot on economic development but the feedback from residents was strong – we need it every of us! County commissioners voted unanimously. There were some hoops to legally invest.

The County is comfortable working with a cooperative – over a commercial entity.

Alliance: We understood the need to bring everyone on board. We’re a coop. We would not have done this if our own members weren’t already well served.

QUESTION: Alliance put in $9 million – how did they recoup that?
Revenue for services will eventually help us recoup.

Added thoughts:

It’s refreshing to be sitting in the county administrator’s office not having to ask for permission or forgiveness for something as large FTTH project unfolds.  Sitting here giving him a progress report on a jointly funded project is much more enjoyable.

Also the amount of resources (right of way) and governmental connections, adds a considerable amount of value when building out and planning a project such as this.  There were more people at our pre-construction meeting this spring than I have seen at other similar meeting in the past and I am sure that interest level had something to do with the county being involved.

An lastly the local cheer-leading, education and overall backing from the Rock County government has been greatly appreciated and an important ingredient to the recipe as well.  We were about as local as you can get having served portions of the county in our Coop but we were and still are “unknown” to many.  Having the county back the project helps a long ways with customer demand, education and acceptance.  I will not share the take rate (number of interested customers) we are looking at this time but I have to say it’s very high and truly a great number to see as Alliance adds money into the project too and as we get ready for service turn ups in the fall.

RS Fiber Cooperative; Jake Rieke, RS Fiber Cooperative and Phil Keithahn

In 2010 – the Joint Powers Board was formed for towns and 2 counties. We were looking at the municipal model – borrow, build and use revenue to pay back loan.

In 2011 – built support, drafted legal documents.

IN 2012-13 – we realized that model wasn’t going to work.

In 2012 – Sibley County opted out of the Joint Powers but the effort progressed.

IN 2014 – we developed an alternative financing structure and invited the townships in on the effort. The counties and towns loan the money to the cooperative.

RS Fiber is public-private. Phase one is build wireless in communities. Phase two is build FTTH. There’s $13.7 million from municipalities to coop.

Three key players:

  • RS Fiber
  • Joint Powers
  • HBC (provider)

Lessons learned:

  • HBC has been essential
  • Important to build deliberately and incrementally

All about the financing…

We need to rethink, take risk.

Lessons learned:

  • Lots of people will talk to you about rural failures – so you need to overcome that barrier.
  • We have been working on new ways to do things – cobank is one example.
  • Business plans that involve too much technology that don’t work. You need to include market research.
  • Needed to align shareholder interest with other interests.
  • If we had electric utilities that became partners with RS Fiber we could work with Cobank and provide an ROI.

Arrowhead Electric & CTC; Jenny Kartes, Arrowhead Electric and Joe Buttweiler, CTC

We are pretty small – we have about 45% seasonal homes, 45% yearlong homes and 10% small business. Cook County was the least served county in 2009 – that motivated us. Mostly we had DSL, satellite and some cell coverage – although much of the county didn’t have cell coverage either.

Local leaders worked on the ARRA application. Arrowhead applied for round 2 ARRA funds. We applied for $20 million. The county support helped. We were 76% grant funded. We looked at several operating options.

The Arrowhead decision was based on the value we place on working with our customers. For many people in the county broadband is entirely new. We found CTC and they were willing to have us work with our people with them.

Arrowhead went from Frame Relay to fiber. CTC staff come to do dog and pony shows to introduce local residents to the Internet. That was helpful. CTC staff worked with Arrowhead staff to bring them up to speed.

Lessons learned:

  • Backhaul to cell towers have been an amazing benefit
  • Local economic benefits includes – having people stay in their vacation homes longer
  • Better customer service has been valuable

Funding Tools

MN DEED Office of Broadband Development; Danna MacKenzie, DEED

DEED BOrder o BOrder

Local government funding options; Shannon Sweeney, David Drown and Associates

With tax abatement – each unit of government acts on its own behalf. Tax abatement should:

  • Provide public facility
  • Help review/redevelop
  • Provide public infrastructure
  • Provide jobs

With tax abatement we can levy taxes to repay bonds could be 15 years.

There’s a limit on amount – usually $200 million per year.

Co-Bank; Cliff Bolstad, Co-Bank


Could you work with some cities, not everyone?
Economically it doesn’t make sense to go to town/rural first. We went to cities first to help build capital.

Why is magic take rate 35%?
Demand aggregation software can help promote better take rate.

Where do the individual coop members come in?
When we do a feasibility study on a meter by meter basis. One filter is – what’s the competition? SO if there’s a cable competitor, we need to consider including video options. The actual take rates are higher – but you can get a loan at 35-40%.

The assumptions are a realistic look at fixed cost and a balance with an unknown – the take rate.

Closing Remarks

Bernadine Joselyn, Blandin Foundation

It sounds like leadership is important and always. And this is an important ongoing conversation.

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