And there lies the opportunity. There are very few communities that want to be in the telecom business. Most of them are in the water and sewer business and some of them have municipal electric companies, but these are all monopoly businesses. Most cities are very uncomfortable when looking to enter a competitive business. Given a choice they want somebody else to be in the bandwidth business and will only take that path if they see no alternative.
It’s a natural reaction of a local cable or telecom company to look at communities that are building fiber systems as threats, when instead they are opportunities. You can’t blame them for wanting adequate broadband. They look around the country and see that rural America is becoming a world of broadband haves and have-nots. Most urban areas now have decent broadband, but many rural areas still no or slow broadband that putting their citizens and businesses behind the rest of the country. While the FCC may define broadband as starting at 4 Mbps download, this is totally inadequate for a household today and certainly doesn’t cut it for the business community. Communities that don’t get enough broadband are worried that they will become irrelevant. Their populace will slip away. Kids won’t stay in the area when they graduate. Being on the wrong side of the broadband divide is a scary place to sit today.
My advice to small telcos and cable companies is that you ought to be the first one in the door to these kind of nearby communities offering to help them to find a solution. And if these communities are in your own service territory you need to listen to them – because if you won’t help them they will find a way to get what they feel they need.
Communities that feel strongly enough about bandwidth are generally willing to contribute money to bring a solution, and that creates an opportunity. I know of one community that went to an ILEC and said that they would be willing to pay for a fiber network in their town, have the ILEC operate it, and then hand it to the ILEC for $1 when the financing was retired. Incredibly, the telco turned down this opportunity (which still has me scratching my head).
There are a number of successful business plans that I have seen for PPPs between cities and local ILECs. Consider the following:
- Operator Only. The municipality can build a network and then hire somebody to operate it. Operating another network can create a good new long-term revenue opportunity for a telco because it lets you leverage your existing backoffice and technical staff and to turn some of their time into revenue.
- Building a Project Jointly. Another option is for both parties to make an investment. This can be a tricky option to make work because this makes you a financial partner with a City. It is vital under this kind of arrangement that both parties fully understand the other’s goals and motivations for being in the business because it’s hard to maintain a partnership where the partners have different goals. This kind of arrangement also calls for some creative financing since you are likely marrying commercial loans and municipal bonds. But there are many examples of this kind of opportunity working.
- City as an Anchor Tenant. Under this scenario the ILEC will build the network, but you would have the City, the schools and other key broadband customers sign on as long-term anchor tenants to help assure you of the revenue stream.
If you are in a rural area the chances are that these opportunities are all around you. Telcos tend to think about expansion in terms of how much money you are able to borrow to build new networks and grow. But by looking at PPPs you can leverage your borrowing power with the borrowing power of the municipality and together you can build more, and faster than either of you could have done on your own.
I have been in a number of partnerships myself and have seen some that work great and some not so great. But generally if partners are realistic about what they need to achieve it can be made to work well. Getting the financing and governance right are essential so as to head off future problems before they happen. At CCG we probably have more experience in creating these kinds of PPP arrangements as anybody in the industry and we can help you do this right.