Partners are Where You Find Them

An interesting new partnership has been formed between Windstream and Colquitt Electric Membership Corp. of Georgia to build a rural fiber network. Windstream is a large price-cap telco that recently emerged from an interesting bankruptcy. Colquitt is a rural electric cooperative.

Only high-level terms of the partnership have been released. Windstream will own the fiber network, will provide broadband and other services, and will own the customers. Colquitt will provide access and rights-of-ways on poles and Colquitt technicians will place the new fiber on poles. Colquitt will get access to some fibers on the new network to connect electric substations and other electric network components to fiber. The partnership is described as having a network that is ‘jointly built and jointly-owned’.

The area to be served is rural and is described as having around 7 people per square mile. It’s a little hard to put that statistic into perspective because the most commonly used metric in the industry for understanding density is the number of homes per mile of road – however, the area sounds sparsely populated.

The state of Georgia decided a few years ago to allow electric cooperatives to become ISPs – a restriction that was imposed years ago by legislation prompted by telco incumbents. Many states have recently lifted such restrictions in an attempt to find more solutions to solve the rural broadband gap.

Partnerships with larger price-cap telephone companies to provide fiber broadband is a new phenomenon. An argument can be made that decisions made by price-cap telcos over the years are one of the major reasons why much of rural America is still served by DSL broadband provided over old and poorly-maintained copper networks.

But we’ve seen several similar partnerships with price-cap telcos. CenturyLink has partnered with the City of Springfield, Missouri to provide fiber. Consolidated Communications has partnered with several villages in New Hampshire to build fiber. Cincinnati Bell has partnered with the Butler Rural Electric Cooperative in Ohio.

This announcement is a reminder to rural communities and electric cooperatives that broadband partners might be found in unexpected places. It’s easy for rural folks to assume that the telcos that built and have been operating the dreadful copper networks are not interested in providing better service. In this case, the network is being built in a rural community and it’s extremely unlikely that Windstream could justify investing the full cost to build fiber – the return and payback on investment would never meet corporate earnings metrics and would make no sense as an investment. However, sharing the costs with the electric cooperative must have reduced Windstream’s costs to the point where the project makes financial sense.

That is the power of partnerships. Investing all of the cost to build fiber in this case probably didn’t make financial sense to either the electric cooperative or to Windstream. Both parties have something to gain out of the transaction. Windstream gains customers who will like the broadband service on fiber. The cooperative gets a fiber network connecting substations. Both are contributing to an improved community that will benefit both companies in the long-term. We’ve seen that fiber can reinvigorate a rural community. Many people want to live in rural areas but need good broadband to work from home – having a fiber network should attract new residents and keep residents some local people from leaving the area to find better broadband.

During the last year, my advice to rural communities is to have a serious discussion with the incumbent providers. Historically I’ve always advised to not bother with the incumbents because over decades I had never seen a large incumbent telco respond to plea to improve service. This is still a rare occurrence, but this partnership, and the ones mentioned earlier illustrate that it’s worth having the discussion on the outside chance that you hit the right note and the right opportunity to get the attention of the incumbents.

The Last Bell Company

Bell_logo_1969Cincinnati Bell is the only company in the US still using the Bell name. Founded in 1873 as a telegraph company, even before the invention of the telephone, the company has been serving a small 3-state area around Cincinnati since the founding of telephony. The company operated independently from the old Bell system because AT&T only owned a 32.6% share of the company.

The company abandoned the Bell name for a while in the 90s, changing its corporate name to the Broadwing Corporation, but changed its name back to Cincinnati Bell after a few years. The company has ventured outside its small footprint over the years. It bought IXC communications, a nationwide fiber network, and also spread out at one point as a CLEC to many parts of Ohio. The company’s biggest non-traditional offering was its wireless business which it sold to Verizon last year for $194 million. Like all independent wireless operators it was feeling the pinch of competition from the price wars going on in the wireless industry.

The company has seen the same drop-off of its traditional line of business as all telcos. The company’s traditional voice business of selling telephone lines fell from $520 million per year in 2004 to $203 million in 2014 and now represents only 16% of the company’s revenues. As homes and businesses ditched voice, the successful telcos have had to look elsewhere to replace those revenues.

Cincinnati Bell has undertaken a number of new business lines, and its most successful is its Fioptics business of building fiber to homes and businesses. The company reported at the end of 2014 that it had FTTP service in 91,000 homes and businesses, up from 11,000 in 2009. The company has also put a big emphasis on building fiber to businesses districts and has connected 5,800 commercial buildings in the region, compared to roughly 500 by main rival Time Warner.

In 2014 the company’s fiber business generated $310 million and expects those revenues to grow significantly as they expand the fiber network. The company plans on using the cash from the sale of its wireless business to further expand the fiber business, planning to spend $210 million on fiber expansion in 2015. At the end of 2014 the company had covered about 40% of the region with fiber and expects that to nearly double by the end of 2016.

The company has also done well serving the large corporations in their footprint like Proctor&Gamble and General Electric. The company has a full suite of large company products, such as cloud services, which it has now pushed down to smaller businesses. This business line generated $168 million in 2014 and is growing by double digits.

This effort makes Cncinnati Bell one of the largest fiber builders after Verizon FiOS. And like many fiber companies, they now offers a residential gigabit product priced at $89.99 per month for the first year and then going to $99.99. This is in a market where today Time Warner’s fastest product is 50 mbps download priced at a promotional price of $64.99 and reverting to $107.99 at the end of the promotion. Of course, we’ve seen Time Warner get much faster and become price competitive in other fiber markets like Austin.

For a company to reinvent itself is not easy or without risk. Like many companies that ventured into the CLEC business in the late 90s, Cincinnati Bell’s CLEC business came up a big bust. The company racked up $3 billion in debts and the business badly underperformed, threatening bankruptcy in 2003.

But the company made the right calls and changed directions again towards fiber and now seems to be on a solid path. The company has clearly reinvented itself again to be a fiber ISP. Companies who have been able to make that transition seem to be thriving. Offering the fastest data speeds of fiber in a given market seems to be a winning strategy and is letting companies like Cincinnati Bell benefit from the continuing growth of broadband services.

The company’s history is a good object lesson for others in the industry. The company foresaw the eventual death of voice as a viable business and took chances on launching into other areas. It fared poorly as a CLEC, a little better but not spectacularly as a wireless carrier, and seems to have hit a home run with fiber.

No company in this space can ever stop reinventing itself. The fiber business has thrived in part due to the continually growing demand for broadband, which has now achieved around 75% nationwide penetration of all households. But when that growth tops out, and as cable companies offer faster speeds, even fiber companies will need to stay nimble and creative to protect their revenues. Cincinnati Bell seems like a company that is always willing to take a fresh look at itself, and that’s a good lesson for all carriers.