High-Profile Examples Put the Focus on Co-Ops and Broadband

Despite a long history of wiring rural America to provide telephones and electricity to underserved areas, consumer-owned cooperatives have been reluctant to get into another line of business – broadband. But that may be changing.

In 2015, only 27 out of over 900 co-ops were pursuing broadband, but new coop broadband projects are attracting attention.

“The successes of several high-profile pilot projects definitely helped,” said Michael Keyser, CEO and general manager of BARC Electric Cooperative, which serves about 13,000 customers in five rural Virginia counties. “These pilots demonstrated to other co-ops that building networks wasn’t as hard as they imagined. Every co-op survey I’ve seen shows 60% or more members saying that if their co-op offered it, they would take broadband services.”

Co-ops go where others fear to tread

It can be hard to serve rural markets because they don’t have the same customer density as urban markets. It can take more infrastructure to reach fewer homes and businesses. But co-ops that have built networks list several reasons they can successfully run affordable broadband businesses.

Co-ops are not for-profit organizations, so they can spread the upfront buildout costs over 20 or 30 years.
There is often cash on hand because co-ops tend to be conservatively managed.
Typical co-ops already have the things they need to build a network: bucket trucks, expertise, rights of way, polls, customer relationships.
Co-ops have a built-in customer base and trust coming from decades of community experience.
Some electrical co-ops already have broadband infrastructure in place to perform functions like reading meters and collecting data.

“Initially, our buildout is just in Rockbridge County as a 400-mile fiber project,” Keyser said. “But we plan to expand the network to our entire territory, which covers about 2,500 square miles.”

Kit Carson Electric Cooperative in New Mexico, which has 29,000 members, received $64 million broadband stimulus grant in 2011 to cover Taos (where Kit Carson is located), Colfax and Rio Arriba counties. The network represents 3,000 miles of infrastructure that covers all of its members.
Not all co-ops have high membership numbers. Lismore Co-op Telephone Company’s original territory included about 320 subscribers. With aggressive growth tactics, they expanded outside of their territory and added around 500 additional fixed wireless broadband subscribers.

Co-ops on the money hunt

While it is true that co-ops have financial and financial management advantages, money still can be an issue. A number of co-ops received millions in federal funding from the 2009 economic stimulus package or regular funding through USDA Rural Utilities Services. Most, though not all, of this funding went to middle-mile infrastructure, which connects networks on a regional level, instead of last-mile infrastructure, which is the connection from a home or business to the local internet service provider. The future of federal funding for rural broadband is in question as Congress and the White House work on a budget.

Creativity is the watchword as co-ops try out different financing strategies. Kit Carson is getting members to share in the on-going costs. “We might say the network hookup cost is $300. If the homeowner puts in $150, we will match that, or if we put up the full $300, you have to commit to taking our service for two years. We can’t sell stocks or bonds.”

Co-ops don’t need to build all of a network all at once. Some plan to build their network incrementally over several years. Such co-ops pick one or two communities based on where they expect to get the most sign-ups. That costumer revenue means co-ops won’t have to borrow as much for construction. They design the network to be expandable so when the first phase reaches its “take rate” goal, they begin building the next community.

Delta-Montrose Electric Association expects to take five years to complete its buildout. The co-op has 32,000 electric meters in their service area and 4,000 miles of line that serve two small counties and part of a third in western Colorado.

“We divided our service area into 49 zones and each zone has its own pre-registration goals,” said Virginia Harman, vice president of member relations. “Once the zone reaches its goal, we begin construction. The build out becomes very dependent upon our members’ goals. If the zone wants to get people to sign up faster, they have to motivate members.”

Another financial strategy is to form partnerships.

“There is a co-op near us in Minnesota that wasn’t totally comfortable with the logistics required to manage a broadband business, so they found a telephone company to manage it,” said Mark Mrla, Business Unit Manager at Finley Engineering Co. “The co-op funded some of the buildout.”

Cooperation is the key, said Mrla.

“You can make just about any combination work if you get the right players together and they are willing to work together. You have to be creative at times. Partnering with local government can also open the door to grant money.”

Merging phone and electric co-ops to provide broadband

One partnership resulted in the merger of an electric cooperative and a telephone cooperative. The 2011 creation of NineStar Connect from Hancock Telecom and Central Indiana Power took a while but was worth it, according to NineStar President and CEO Michael R. Burrow.

“After the merger, which took about 18 months to complete, we fielded an entire team of people who have experience operating a telephone business,” Burrow said.

Mergers between phone and electric co-ops are unusual, but some see potential in that model of cooperation. Eric Freesmeier, CEO and president of the rural fiber company Pulse Broadband, said his company now brings together phone and power co-ops to look at ways to provide broadband in places where their service areas overlap. Freesmeier, speaking at this week’s Broadband Communities Summit, said that last year Pulse was purchased by NRTC, a national association of phone and power co-ops that offers business planning and other services to its members.

Ultimately, communities need more say in how state and federal governments invest in broadband, said Drew Clark, president of the Rural Telecommunications Congress, a national nonprofit concerned about rural broadband access.

“We need rules established that give communities, or at the very least the co-ops, a say in where state and federal funds for broadband go,” Clark said. “Ideally, communities should get to pick their solutions, providers, and the role of co-ops and other community organizations.”

Craig Settles is a broadband industry analyst, consultant to local governments, and author of “Building the Gigabit City.” He’ll be his Gigabit Nation booth at the Community Broadband Summit with his latest report, “The Co-op’s Broadband Plan for Success.”

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