Despite what the telecom industry says, RS Fiber is a house of opportunity, not a house of cards

A guest post from Mark Erickson, Former Winthrop EDA Director

I read Brent Christensen’s Minnesota Telecommunications Alliance (MTA) response regarding the growing pains faced by the RS Fiber project and just shook my head. He just doesn’t get it.

As hundreds of community leaders in Minnesota and across the nation explore the opportunity to build fiber optic networks in their townships, cities and counties, Mr. Christensen continues to ignore the systemic problem of inadequate Internet in rural Minnesota while trying to convince you that local governments can’t be trusted or aren’t smart enough to make decisions regarding such important things as fiber networks.

The dilemma for MTA members is they need government money – your tax dollars – to upgrade their outdated copper networks to fiber. But how do they continue to discreetly reach into the state and federal cookie jar with one hand while using the other to slap yours for using of your own taxes?

Mr. Christensen’s plan is to convince you HE is looking out for your taxes. Really? Let’s look at some of the facts.

He didn’t mention the fact that nearly every telephone company in the U.S. since Ma Bell first strung wire on poles has needed tax dollars to make their business plan work. Minnesota’s rural phone network was constructed and has been maintained for decades using tax dollars. Why? It cost more to build networks in rural America; there are fewer people per mile, so the networks are larger and require more dollars.

Books have been written about it. The phone industry was built with money from the federal government and has received billions in state and federal tax dollars during the past eight decades. Notice Mr. Christensen didn’t express concern about the use of those tax dollars. By-the-way, those state and federal tax dollars are YOUR tax dollars.

Just a few weeks ago, the phone industry told regulators in Washington they will be unable to make the needed investment in rural fiber networks without more federal tax dollars. Again, YOUR tax dollars.

Why isn’t he concerned about the use of those tax dollars? And how come he can use your tax dollars for his networks but RS Fiber can’t use your tax dollars for theirs?

The answer is quite simple. He needs to protect his members from spurious upstart local leaders who have the temerity to want to do something positive for their communities by investing in fiber networks.

In short, he wants to limit the competition, not enhance your opportunities. He believes that by raising the specter of taxes, you can be turned against projects like RS Fiber.

Mr. Christensen’s letter is about one thing; preserving the status quo (preventing competition) by scaring people into opposition.

RS Fiber is about one thing; building a future proof, world class fiber network that will provide more opportunities for everyone.

The folks who worked hard to make RS Fiber a reality, the city and rural leaders who decided it was time to act, tried hard not to use any tax dollars.  And they have done a pretty good job. To date, no local tax dollars (except for a $1 million grant from the state of Minnesota) has been used to build or operate the RS Fiber network. RS Fiber did receive two loans through a local electric coop via the USDA, but they are loans and will be paid back.

Every dime the cities put in to kickstart RS Fiber has been refunded.

Okay, but the fact is local tax dollars will be used. Exactly how many dollars are we talking about? The cities loaned the RS Fiber cooperative $8.8 million dollars on a 20-year note at around 4% interest.

In Winthrop that works out to about $2,100 per home, or $105 a year, or $8.25 a month. Amounts vary in each of the 10 communities because Minnesota has a complicated property tax structure, but everyone is in the same ballpark. Some a little more, others a little less.

I’ll come back to taxes in a minute but there are a few other things in Mr. Christensen’s response that need explanation.

He pointed to four successful projects in the state that should be copied. I’m on board with that.

All four projects are fiber projects. All four used tax dollars to make them successful, and in three of the projects it was a cooperative that stepped up to the plate. In the case of Rock County, the cooperative that partnered with the county hails from South Dakota.

It’s a little talked about fact that large areas of rural Minnesota, North Dakota and South Dakota are served today with blazingly fast fiber to the home and farm networks owned and operated by cooperatives.

So why would a local government put up tax dollars to help finance a fiber project? Because they know that’s the only way it’s going to get done.

And it happens with cooperatives because the coop business model fits the situation. The mission of a cooperative is to maximize benefits to the subscriber, not dollars to the bottom line. It’s about making as much of a positive difference as possible, not adding as much profit to the bottom line as possible.

It’s about making a business plan work for the customer, not the stockholders.

Cooperatives are a lot like cities in that respect. They aren’t out to make as much money as they can from taxpayers (the patron). Their goal is to provide the best possible service while keeping taxes (prices) as low as possible.

Mr. Christensen wrote that “RS Fiber entered a telecommunications market that is highly competitive.” That’s just a bunch of hogwash. There was very little, if any, competition in the 10 cities before RS Fiber. And there continues to be very little, if any, competition in most rural communities in Minnesota and the United States today.

In the great majority of cities, the cable company is the Internet provider of choice because their copper technology is a few degrees better than the phone company’s copper technology.

That was the case in eight of the communities who were served by one cable provider before RS Fiber. Two cities didn’t have a cable provider. Those towns, Green Isle and New Auburn, had just one wired Internet provider, CenturyLink.

In late 2008 when the Winthrop city council decided to explore a fiber network, the city was served by Winthrop Telephone and Mediacom. The phone company offered Internet speeds of 1/4 of a meg down (256k) and an 1/8 of a meg up (128k) for $50 a month. If you wanted more bandwidth you could get a 1/2 a meg down (512k) and a 1/8 of a meg up for $100. Mediacom, if I remember correctly, offered something around 15 megs down and 5 megs up for $60 a month.

Is that competition? Which Internet service would you choose?  The one that was OK or the one that was incredibly slow and more expensive.

The other cities were served either by CenturyLink and Frontier, both known for their below average internet service in rural areas. And both of those companies recently took hundreds of millions in tax dollars from the federal government to upgrade their rural copper networks to the blazingly fast speed of 10 megs down and 1 meg up. Again, YOUR tax dollars.

It might sound to some that I’m purposely dissing the phone and cable companies. That’s not my intention. I’m just stating facts. Phone and cable companies operate copper networks that are, for all practical purposes, outdated. Fiber networks are to copper networks what the tractor was to the horse.

From the beginning, RS Fiber was never an anti-phone or anti-cable company project. We provided the facts, we educated people as to their situation and let them make up their own minds.

So, what about the competition? How did the other providers respond when RS Fiber announced they were going to build a fiber network? Did they take their bat and ball and go home or did they step up to the plate? In Winthrop’s case, and to everyone’s benefit, it was batter up.

Mediacom and Winthrop Telephone, faced with new competition, increased Internet speeds and, in the case of Mediacom, lowered prices. Competition can be a good thing.

On a side note, Winthrop Telephone just accepted $8 million in federal tax dollars to build a fiber network in a few partial townships. We applaud their effort, and we’ll take a little credit, but I need to point out again that they are using YOUR tax dollars to make their business case work.

I believe Mediacom did the same in other communities and I’m not sure how CenturyLink responded.  I would hope they increased Internet speeds and lowered prices. That’s usually what happens when you have competition.

For me, one of the nice side benefits of RS Fiber is the money I have saved. And while my taxes might go up $9 a month, I am saving $40 on my monthly cable and Internet bill. In fact, I have saved about $1,200 in the 30 months I’ve been an RS Fiber customer.

I suspect other area residents, whether they are RS Fiber customers or not, find themselves in a similar situation. Perhaps not so much for some because RS Fiber just began operations in their community. And others not at all because they don’t have RS Fiber in their community and no real competition.

Ask people in Arlington and Henderson if their Internet speeds and cable service has improved or their prices have dropped. Both of those communities opted out of the RS Fiber project.  My guess is that customers in those two communities pay more for Internet and cable service than customers in RS Fiber communities.

Truth be told, that’s one of the reasons the Brownton city council voted to join RS Fiber. They discovered that similar Mediacom packages in the city of Hutchinson (where they have competition) were about $50 less than the same packages in Brownton. When the council asked Mediacom to come to a council meeting and explain the difference, the representative told them they charged more in Brownton because they could. That didn’t sit well with the Brownton council.

Internet from the area phone companies really isn’t very robust. What’s sold as 10 megs down and one meg up is too often four megs down and a half a meg up, and sometimes not even that.

If you are lucky enough to live close to the central office, you might get faster speeds, but that speed will also depend on how many people are using the Internet when you are. The more people online, the slower it becomes.

With the RS Fiber network, it doesn’t matter how far you are from the central office or how many people are online. If you pay for 100 megs, you will always get something very close to 100 megs. Pay for a gig, get a gig, 24-7-365.

In one sense you can‘t falter the phone and cable companies for their lackluster Internet speeds. They do the best they can with their copper networks and they are unable to make the needed investment to upgrade their networks unless, or course, they get more federal money. I’ll remind you one more time, those dollars are YOUR tax dollars.

Mr. Christensen is right in one respect. It IS very difficult to build a business case for constructing fiber networks in rural Minnesota. RS Fiber worked hard to come up with a viable plan.

Further, he wants you to believe it’s not fair that residents who aren’t RS Fiber customers will have their taxes raised as well. That’s true, residents who choose not to take RS Fiber will also have their taxes raised.

That’s not even a downside because the upside is those residents and businesses can also save more money on their monthly cable bills than their taxes will go up. It’s that competition thing again.

At least they SHOULD be saving money. Perhaps not everyone has figured it out, so let me explain.

If you live in an RS Fiber community and choose to stay with Mediacom, that is your choice. But you don’t have to pay more while your neighbors pay less. Just call Mediacom and tell them you are thinking about switching to RS Fiber (you can always switch later). I can almost guarantee your monthly bill will go down. Darn that competition.

Mr. Christensen says that RS Fiber really isn’t really a cooperative, just a “thinly veiled joint powers agreement.” Well, that’s just not true either.

RS Fiber is a fully constituted 308B cooperative duly registered with the Minnesota Secretary of State.

What I think Mr. Christensen means is the RS Fiber project isn’t a traditional cooperative and that is true

In its entirety, RS Fiber is a public-private partnership (PPP) that has the 10 cities partnering with a private business (the cooperative) to finance the network. There are scores of PPPs in Minnesota. I don’t know for sure, but I think RS Fiber is the first PPP created around the idea of a fiber network.

Let’s talk again about Internet service. Notice Mr. Christensen didn’t mention Internet speeds from the phone companies? As you may have already figured out, copper-based networks don’t have a lot to brag about when it comes to Internet service..

So just how fast is RS Fiber Internet?

RS Fiber customers can subscribe to symmetrical gigabit Internet for $70 a month. That’s 1,000 megs up and 1,000 megs down. For the geeks and gamers, that bandwidth comes with a latency of around 10 milliseconds and no data caps. What does the cable company tell you about data caps? They tell you that if you go over the limit you will pay more. RS Fiber doesn’t have data caps.

In addition to that, nearly 800 farms located outside the cities get wireless Internet service from RS Fiber of 50 megs down and 25 megs up for $70 a month and no data caps.

Mr. Christensen further complained that “taxpayers are caught in the middle.” I’m not sure what he means by that, so I will assume he is again talking about taxes. He believes taxes that will support RS Fiber are unfair to you, the taxpayer.

It seems to me in this case fairness, like beauty, is in the eye of the beholder.

The competition RS Fiber brought to the area has done a beautiful thing to my monthly cable bill as well as the speed of my Internet service. The bill is down, the speed is up and that’s just beautiful.

Or perhaps he means you were hoodwinked and not told about the possibility your taxes might be needed. It’s possible but not true.

The dozens of elected and unelected men and women who promoted RS Fiber convened more than 100 public meetings and mailed information to more than 14,000 households. The possibility of a tax increase was talked about at every meeting as part of the regular presentation. The possibility of a tax increase was included in every mailing. The same information was repeated to townships, city councils and county commissions. Anyone who listened or read about RS Fiber was told about the risk.

What is interesting is that in those public meetings the discussion about a possible tax increase was usually followed by a conversation that there is perhaps more risk in doing nothing.

It’s a fact of life that if you want to something to change, and you choose to do nothing, nothing will change. Fortunately, the reverse is true. And sometimes, when we choose to do something for the right reason with the right partners, good things happen. In my opinion, that’s exactly what has happened with RS Fiber.

The real risk is from community leaders do nothing. If community leaders continue to wait for phone and cable companies to upgrade their networks to fiber, they will fall further behind a world that relies more and more on faster Internet speeds, speeds that only fiber networks will be able to deliver in the years to come.

RS Fiber cities don’t have to worry about being left behind because they are served with a network capable of increasing symmetrical Internet speeds to 10, 50 or even 100 gigabits. That’s GIGABITS, not megabits.

If the folks in Gaylord had decided not to participate in RS Fiber and instead wait for CenturyLink to improve residential Internet speeds to gigabit levels, the proposed four-year medical school (expected to have its first class in 2020) would never have happened. I was involved in the early medical school discussions and I can tell you with 100% certainty that without RS Fiber there would be no possibility of a medical school in Gaylord. No fiber network, no medical school. It’s as simple as that.

Said another way; no new fiber network, no new opportunities.

Fortunately, the city councils and residents in all ten communities realized if they wanted to improve their circumstances they had to take steps to change those circumstances.

Waiting for the phone companies to make fiber investments is like watching molasses come out of a bottle on a cold Minnesota winter afternoon.

RS Fiber took the pledge of a tax increase, built a fiber to the home network in ten communities and a wireless network in most of the rural area in just three years. That’s like molasses coming out of the bottle on a hot summer afternoon.

I’m sure we will hear more from Mr. Christensen about the unfairness and the dangers of projects like RS Fiber project and the poor decisions obviously duped local leaders made to put your tax dollars at risk for your benefit. They will throw big dollar numbers around and tell you the world, as you know it, is coming to an end if you are foolish enough to allow your elected leaders, like those rubes in the 10 RS Fiber communities, to go down the same ill-fated path.

They will complain, like Mr. Christensen did in his letter, about the “hundreds of thousands of dollars” folks in RS Fiber communities will pay in additional taxes and then turn around and take hundreds of millions of your tax dollars to make their business plans work.

Several years ago, I had the opportunity to talk with people at the Courtland community center about RS Fiber. During the Q&A, representatives from three different area phone companies started asking technical questions I couldn’t possibly answer in what turned into a team effort to ridicule me. They succeeded. It wasn’t any fun, but I learned an important lesson.

I learned you can’t believe the misinformation, obfuscation and Chicken Little talk that comes from the telecommunications industry today about the “danger” of community-based fiber projects.

More importantly, perhaps, I realized those affected the most by substandard Internet service should have the most say about how to improve their situations, not those who have the most to gain by doing nothing.

Too many telecommunications providers look out for themselves first and you second. They aren’t concerned about your taxes, they are concerned about their profits.

Too many phone companies don’t have the time – or their own money – to worry about the tens of thousands of homes, farms and businesses in Minnesota or the millions of people throughout the country that suffer from less-than-adequate Internet service.

Sadly, the people in those homes and businesses will continue to suffer unless they decide to do something about it.

I’m proud of RS Fiber. I would do it all over again in a heartbeat.

Respectfully submitted,
Mark Erickson
Former Winthrop EDA Director

RS Fiber Cooperative Enters the Growth Phase

A press release from RS Fiber...

As the high-speed broadband project enters its third year, RS Fiber Cooperative (RS Fiber) customer growth has increased by 62% over the past year.

Phase One construction has been completed with the final four member communities being connected to the Fiber-To-The-Home (FTTH) Gigabit network in the first quarter of 2018. The company is now in the customer acquisition stage for all ten Fiber to the Home communities. To date, RS Fiber serves more than 30% of the homes and businesses in the ten communities and that number continues to grow at a steady rate each month.

The customer acquisition phase moves RS Fiber Cooperative beyond the high risk of a start-up company in construction mode.  This also means that the company financing will need to shift to a model that will support continued growth to not only to a positive cash flow but also to profitability as planned by 2021.

At a recent presentation to the Joint Powers Board, Shannon Sweeny of David Drown Associates, Inc., stated that the subordinated debt payments will not be made for the next two years and that the cities will need to make the GO bond payments. The subscriber growth on the network will determine when RS Fiber will be able to take back the payments from the cities. That determination will be looked at annually.

Kevin Lauwagie, the RS Fiber Board Chair, stated that “RS Fiber was founded due to the lack of interest by existing companies to serve the towns and rural townships in our area.  Now that the first phase is complete and more than 2,000 residents have already benefited by the service, we know we’ve done the right thing and look forward to continuing with expansion of the service across our region”.

With the project now in its third year, RS Fiber continues its steady growth trend. The company now serves more than 2,000 homes and businesses and has increased revenue by 65% over the past 12 months.

RS Fiber Air, the fixed wireless solution for the 17 townships served in phase 1, continues to expand wireless broadband coverage to new areas of rural Renville and Sibley counties. Five additional towers have been added in the project area in 2018.

These towers will continue to expand the reach of broadband services throughout the area.

Ely uses first fiber connection to connect a coworking space

The Minneapolis Star Tribune reports…

Just off the main drag in the North Woods town of Ely, often described as the “end of the road,” a side door to a brick building offers locals and visitors a little haven of modern technology.

The new Ten Below Coworking space — a basement office with desk seats for a dozen people — boasts the city’s first fiber-optic broadband-connection available to the public.

The city and the nonprofit group Incredible Ely used a $15,000 grant from the Blandin Foundation to create the open floor plan office as well as a couple of meeting rooms in the Klun Law Firm building. The money was used to furnish the space and should be enough to keep the lights on and the internet working for a year, officials said.

The coworking space is just a first step…

Ely Mayor Chuck Novak said he’s enthused about the energetic people who are working to make the space viable, including advertising it so people are aware of it. It’s part of a larger plan to bring internet fiber to the rest of downtown and get high-speed internet out to the entire school district, in some places using wireless access points, Novak said.

“We’re tired of legislators at the state and federal level always talking about broadband and not providing a sufficient amount of support for it. … It’s one of the most important things for economic development in greater Minnesota,” Novak said. “We’re going to have to take care of this ourselves. … We’re going to start getting creative here. We will find a way.”

The space in Ely will serve as a pilot project for getting local people exposed to working with truly high speed internet, officials said.

Blandin report on Public ROI for Public investment in rural broadband in Daily Yonder

It was fun to talk to Tim Marema from the Daily Yonder in Austin (Texas) after presenting with Bernadine Joselyn on the Case Studies Measuring the Impact of Broadband in Five Minnesota Communities – which I worked on with Bill Coleman. Then it was funny to see that interview in the Daily Yonder yesterday.

One question I really liked was sort – why do the study?

Marema: What interested me in this report is that someone could look at this for their own community and, in a rough and ready way, come up with a back-of-the-envelope estimate on what the public return on investment might be in high-speed fiber-to-the-home. Are the methods you used useful to other communities that are looking at broadband investment? 

Treacy: I think it would be …  Because all of a sudden if you’re having a conversation about how much tax money are we willing to put into a solution, well that factors in. I mean if it’s going to increase taxes by only $100 a year, and you know that you’re going to see an increase in value on your home, and an increase in economic benefit of $1,850 [on average for each house], well that $100 seems pretty minor. 

We’re looking at helping people do that back on the envelope math at the broadband conference this fall. (That’s still in development.)  I do hope people are able to use the formulas to figure out ROI for the community and household.

Measuring ROI of Rural Broadband Investments: MN Presentation at Fiber Connect

Bill Coleman and I are in Nashville this week at the 2018 Fiber Connect conference. We are here talking up Minnesota – specifically the five communities we highlighted in our recent report Measuring ROI of Rural Broadband Investments.

Turns out the Minnesota reputation precedes us. Lots of questions about the Minnesota Office of Broadband Development and the broadband grants.  Also lots of praise.

Also I think people were pleased to think about community ROI. The idea that a community reaps economic benefits (even if the provider doesn’t) helps create a more compelling case for public private partnership.

I am taking notes on various sessions and will report back with what we’re learning.

Lincoln County Broadband Feasibility Study: wireless is more affordable but not permanent fix

With funding from the Blandin Foundation, Lincoln County worked with Finley Engineering and CCG Consulting on a study that would look at if and how the county might take on bringing better broadband to all corners of the county.

Here’s the executive summary of the Lincoln County Broadband Feasibility Study – check out the full study for greater details and next steps…

Finley Engineering and CCG Consulting submit this report of our findings and recommendations for the feasibility of finding a broadband solution for those parts of the county without broadband today. The county is typical of many rural counties where a substantial part of the county has or will soon have good broadband, including fiber, while other parts of the county have little or no broadband. This disparity in broadband coverage will eventually harm those portions of the county without broadband and you can expect those areas to suffer lower housing prices and become places where families and business don’t want to be located.

Our study area looked at the feasibility of bringing broadband to the parts of the county that are not expected to have fiber construction over the next few years. In Lincoln County that means the rural areas served Frontier Communications and CenturyLink. The western part of the county is served today by Interstate Telephone Cooperative, and those areas are expected to get fiber. The study area also excludes all of the towns in the county except Arco since the other towns are served by Mediacom.

We then looked at two different business plan scenarios for getting broadband to everyone: building fiber everywhere and building a hybrid network that is a mix of fiber and fixed wireless. Finley Engineering developed estimates of the cost of deploying each network option and CCG used these costs in the financial business plans to see if there is an economically viable model for providing broadband in the rural areas.

The primary purpose of the study was to determine the breakeven penetration level for the rural study area. This represents the number of customers necessary for the scenario to always remain cash positive throughout the life of the financing. This analysis told us the following:

  • It does not look to be economically feasible to build fiber to the study area without significant grant funding. This is not a surprising finding and is directly the result of the high cost of building fiber to farms.
  • The scenarios that mix fiber and wireless technology look feasible. The scenarios can work even without grant funding, but some level of grant funding make the scenarios safer for an investor.

The wireless network designed by Finley is intended to supply at least 25 Mbps download to rural homes in the county, which is a significant improvement for those homes with no broadband today. Some customers will be able to get speeds faster than that on the wireless network.

However, implementing a wireless network would not be a permanent solution. All of the broadband trends in the country show that the amount of bandwidth needed by a typical home will keep growing, and at some point in the future the wireless network will become obsolete in the same manner that happened in the past with dial-up and DSL broadband.

The report discusses the next steps the county needs to take after digesting the results of this study. These include such things as looking for a partner to bring broadband to those areas without it today. The goal would be to have a partner by next year to hopefully be ready for future state grant funding.

Murray County Broadband Feasibility Study: fiber in stages may be possible over years, fixed wireless already available

With funding from the Blandin Foundation, Murray County worked with Finley Engineering and CCG Consulting on a study that would look at if and how the county might take on bringing fiber to all corners of the county.

Here’s the executive summary of the Murray County Broadband Feasibility Study – check out the full study for greater details and next steps…

Finley Engineering and CCG Consulting submit this report of our findings and recommendations for the feasibility of finding a broadband solution that meets the state broadband goals of 100 Mbps download speeds for those parts of the county without fast broadband today. The county is typical of many rural counties where a substantial part of the county has or will soon have fiber to residents, while other parts of the county will be served by slower broadband technologies.

Our study looked at the feasibility of bringing fiber broadband to the parts of the county that are not expected to have fast broadband to homes and businesses over the next few years. The areas served today by Woodstock Communications already have fiber. Redwood County Telephone Company will be building fiber to customers in the Walnut Grove area and thus that area was excluded from the study. There is fast broadband provided by cable companies in the towns of Slayton, Lake Wilson, Currie, Fulda, Avoca, and Hadley and those towns were also excluded from the study. That leaves a study area consisting of the rural areas served today by CenturyLink and Frontier Communications including the towns of Iona, Chandler, Dovray, and the Lakes area.

The studies looked at the business plan for bringing fiber to the service area. The vast majority of the study area has (or will soon have) fixed wireless broadband. This technology can deliver broadband connections in the range of 25 Mbps download, and sometimes faster.

However, we know the county’s goal is to eventually have fiber everywhere and the current wireless broadband is not a permanent bandwidth solution. Broadband trends show that the amount of bandwidth needed by a typical home will keep growing, and at some time in the future these wireless networks will seem too slow and become obsolete in the same manner that has happened in the past with dial-up and DSL broadband.

Our analysis shows that it is not economically feasible to build fiber everywhere in the rural parts of the county using the existing Border-to-Border grant program—the 50% grant matching in that program is not high enough to create a sustainable network. However, it would be possible to fund fiber using these grants if the percent of the grant matching is increased above the 50% level used in awarding these grants today. It might also be feasible to build the fiber in stages over multiple years to get the needed grant funding.

It is likely to be a challenge for a service provider to building fiber today since almost all of the rural area is served with newly-built fixed wireless technology that is capable of delivering speeds of at least 25 Mbps download. Any potential fiber provider is going to worry that many households will be satisfied with that level of broadband speed.