Broadband Advocates

I’m writing this blog while sitting in a meeting of NCHeartsGigabit, a non-profit started in North Carolina to promote the expansion of broadband. The group started five or six years ago as an informal group of folks who were interested in expanding broadband coverage around North Carolina. A few years ago they realized that they needed to move from talking to action and created a non-profit organization that now brings together the various broadband stakeholders to look for broadband solutions.

Today’s meeting is a great example of the progress they’ve made. There is a wide range of attendees representing state and local government, telco cooperatives and ISPs, bankers, foundations, equipment vendors, consultants and engineers. Most impressive is that they attracted both current Governor Roy Cooper and former Governor James B. Hunt to speak to the group. I think their presence highlights the importance that broadband coverage is now getting in this and other states. North Carolina is like the majority of states where there are some pockets of fiber-to-the-home, cities served by the big cable company networks, a smattering of rural areas served well by small telcos and cooperatives, and much of the rural parts of the state with poor or nonexistent broadband.

Sitting in this meeting reminds me how important it is to have what I call broadband advocates – folks like NCHeartsGigabit who have taken it as a mission to promote broadband. I’ve written many blogs about why broadband is vital for rural America and these are folks who get it.

I work around the country in communities of all sizes and I regularly interface with broadband advocates. Sometimes these groups are formal like a broadband committee that is empowered by the local government. I recently worked with such a group in Davis, California and it is one of the most knowledgeable and engaged advocacy groups I have ever worked with. I can tell that this group, which is also backed by widespread citizen support is going to hold the city’s feet to the fire on broadband issues.

Sometimes there is no formal group, but instead the public acts in mass to make their voices heard on the issue. As an example, I was at a public meeting in Pope County, Minnesota last year to give the findings from a broadband feasibility study. This is the most sparsely populated county in the state and there was little broadband outside of the county seat. The public meeting was standing-room only and the county officials heard story after story about how lack of broadband was affecting people’s lives. The County officials heard this message and have since provided funding in a public private partnership with a telco cooperative to bring broadband to the County.

The more common situation is that there only a few broadband advocates in a community who push for broadband. If these few broadband champions are persistence enough they can sometimes finally pull the rest of the community along. The best example of this I can think of is my friend Mark Ericsson who was the one-man force behind bringing broadband to Renville and Sibley Counties in Minnesota. He went to hundreds of local meetings and eventually got a lot of other volunteer help, but without his early persistence this project would have died in the early days.

His success is memorable because it is rare. Bringing fiber to a rural area requires a huge amount of effort. It means convincing politicians to support the idea. It means raising the money needed for doing the feasibility analysis. It means raising even more money for customer education and marketing and in many places a referendum. It takes yet more money to raise the funding. And unless a community wants to be an ISP it means finding an ISP partner to operate the business. More often than not, a community with only a few advocates can’t make it through this daunting gauntlet of tasks.

This is why I always recommend that communities with poor broadband make a push early to involve as much of the community as possible finding a solution. I don’t understand the sociology of why it works, but I know from practical experience that unleashing a group of broadband advocates often creates momentum that is hard to stop. Households in rural counties generally want broadband badly enough that many of them will agree to play some role in getting a broadband network. If a community really wants broadband, my first advice is to create the advocacy group first and then get out of their way.

Financing New Fiber Networks

Numismatics_and_Notaphily_iconTraditional financing is not always the solution for financing a new fiber network. For example, many rural communities don’t have the borrowing capacity to fund a fiber network strictly from bonds. And banks are still being extremely cautious about lending to infrastructure projects or for floating loans over twelve years in length. Recently I have seen several creative ideas in the market that are worth highlighting. These concepts could be used to fund municipal fiber projects or public private partnerships that combine a municipality partnering with a commercial operator.

I note that I am on the Board of an infrastructure banking firm and our firm would be interesting in helping to financing fiber networks using these or other financing ideas. Our firm can help in those cases where traditional financing might not offer a solution. We will consider looking at projects as small as $50 million but we have found that its much easier to get funding for projects of $100 million or more. If you have a fiber project of this size in mind please contact me.

TIF Financing. Wabash County Indiana wants to use Tax Increment Financing (TIF) as a way to finance a new fiber network. TIF financing works by borrowing today against future increases in property taxes. TIF has been used for decades to finance infrastructure projects, but I don’t think I have ever seen it used to build fiber. This is very different than the normal way of financing municipal fiber projects which has involved bonds that pledge customer revenues and the value of the network as collateral. In this case, the County is expecting that the project will be able to pay the annual debt service and the property taxes only have to be increased if the fiber network is unable to cover the whole cost of debt. This means that property taxes become the collateral for the project and assure a lender that they will be repaid for lending to the project.

There are also other counties and municipalities in the state looking at TIF financing. Interestingly the Indiana Association of Cities and Towns helped to recently defeat proposed AT&T legislation that would have stopped municipalities from using TIF financing for fiber projects. It is not unusual to see incumbents try to stop or ban any new financing ideas for municipal networks.

Utility Fees. Anybody who watches the industry understands the troubles that have plagued UTOPIA, a municipal network in Utah. The company has been refinanced several times and has never raised sufficient capital to build to enough homes in the area to become solvent.

UTOPIA is now working with Macquarie Capital of Australia on a financing plan that would finance the construction of the rest of the network and that would be funded by a monthly utility fee billed to each home within the network footprint for 30 years. This is similar to what has been done in Provo. There the City sold their fiber network to Google for a dollar and there, customers are billed a monthly fee of about $6. For that small fee customers can get 5 Mbps download Internet, or they can elect to pay more for Google’s gigabit speeds.

This plan differs from the one in Wabash Indiana in that customers begin paying the utility fee at the beginning of the project and will pay it for thirty years. Rather than act as collateral for a loan, the utility fees help to directly finance the project.

Economic Development Bonds / Local Bank Consortium. There is a new cooperative trying to get financed in Sibley and Renville Counties Minnesota that is combining two different financing ideas. First, a portion of the project would be finance with an economic development bond guaranteed by a number of municipal entities within a fairly large rural service area. This bonds would cover less than one fourth of the project cost and would act as seed equity in the project.

The rest of the project will be financed through loans from a consortium of banks. The idea of bank consortiums has been around for a while and has been used to finance other infrastructure projects. It generally requires the involvement of a local bank which then solicits additional banks to carry a part of the loans. It’s well known that local banks often have significant cash on hand to lend but often lack for quality borrowers. And local banks are also generally constrained by the amount that they are willing to lend to any one borrower. By combining many banks together, no one bank lends too much and each gets to participate in a quality loan.

This project is a great example of a public private partnership. It will be operated as a commercial entity, a cooperative, and will draw on both municipal and commercial funding. All three of these ideas step outside of the normal financing channels. In today’s world it often takes this kind of creativity to get needed infrastructure built.