Kandiyohi County was a recipient of a Minnesota Border to Border broadband grant. The County was working with CTC (Consolidated Telephone Company) to serve around 1700 homes in an area north of Willmar, in the Lake Florida-Norway Lake region. They were awarded $4.92 million.
The County was going to match the grant with tax abatement bonds. Proceeds from the bonds ($5 million) would be loaned to CTC for the project. The debt would be paid from tax abatement revenues and property taxes which will be reduced or cancelled by the loan payments from CTC. The loan would be paid back fully by CTC with no impact to the tax base in Kandiyohi County. The project started with a series of open house meetings in the communities in the proposed service areas. The goal was to get people to sign up for service and pay $25 down payment to show their commitment to taking services.
Getting residents to sign up in advance was key to CTC moving forward. This become key because the financials substantially changed from the time of the grant application submission to the project buildout timeline. Interest rate increases drove up the cost of debt CTC would be incurring substantially. Despite encouragement from several sources – including Representative Baker – they did not get as many signed up as CTC needed to move forward.
So what happened?
Connie Schmoll at the Kandiyohi County & City of Willmar Economic Development Commission was able to help me with some details.
One issue – CTC was looking for 50 percent of the residents to sign up and pay a deposit to move forward. What happened? More than 50% of the people in the project area signed up and more than 44% had sent in the $25 deposit at the time that CTC pulled the project.
While I’ve heard providers say they have seen a 50 percent take rate and higher, it’s a high amount to require before service is even available. But it’s high because the base number of possible customers is low. The costs of serving rural areas is higher because of the population density, distance, terrain. And the ROI is lower because you just don’t have the potential volume as is available in other (more densely populated) areas. Yellow Medicine County running into the same issue.
How can we fix it?
This speaks to the need to reevaluate the required grant match; currently there is a 50 percent required match. I’ve heard from several providers in rural areas (who offer FTTH!) that areas that still need service will require more grant dollars and lower match requirements to make the project financials work. With a lower match, CTC may have been able to move ahead with a lower advance subscription rate. (As would Yellow Medicine and other potential projects.)
Another issue – In July, TDS announced plans to expand broadband to parts of Kandiyohi. They announced they would be using A-CAM funding (federal funding for Rate of Return broadband providers) to expand to 2,200 homes to bring speeds ranging from 25/3 (25 Mbps down and 3 Mbps up) down to 4/1. Those speeds do not compare to fiber BUT word of improvement did impact a resident’s decision about whether to switch providers to sign up for service.
How can we fix it?
This speaks to an issue with the grant challenge process. Applicants for the MN grants are required to give notice to incumbent and nearby providers. Knowing a potential competitor’s plan in advance gives the incumbent a strategic advantage. So even if an incumbent doesn’t challenge a proposal they are still on notice regarding competitors’ or would-be competitors’ plans and are able to take the opportunity to offer some improvements. In Kandiyohi County the new service offerings the incumbent rolled out at the same time CTC was recruiting new customers did not match the symmetrical fiber network CTC planned to build; TDS’s upgrade was minimal but may have been enough to dissuade some residents to sign up. That leaves the residents who do want or need speeds that meet state goal (100/20 by 2026) out of luck.
How can we fix it?
An ongoing source of funding or at least multiple years of funding would make it easier for communities and other potential applicants to prepare applications. I have heard that from a few folks in the field. They have been working on feasibility studies with an end goal of submitting a proposal but as a deadline draws nearer they must decide whether to apply before they may be entirely ready or miss the deadline and risk an opportunity that may not return. I suspect that leads to more applications of lower quality, which in turns creates more work for the Office of Broadband Development.
So what do we do with this learning a week after the deadline for the 2017 applications?
We take the lessons to the 2018 legislative session. We talk to the powers that be. Minnesota is onto a really good thing here. Ohio and Virginia are looking at modeling our grant program. The Office of MN Broadband is receiving awards. Providers (such as CTC and others) are working hard to make the numbers work. Communities (such as Kandiyohi and others) are on the ground doing public education and encouraging action and adoption. We are leaders – and that means we learn from our own lessons to stay ahead of the pack.