Transcript: Community Broadband Bits Episode 161

Thanks to Jeff Hoel for the transcript of Episode 161 of the Community Broadband Bits Podcast. Chris speaks with Tim Roiniotis about Longmont's NextLight gigabit municipal fiber network in Colorado. Listen to this episode here.

00:06:

Tom Roiniotis:  You don't measure the success of a muni broadband network by looking at the financial books of the utility that's providing it.  If we were simply to just barely cover our costs, yet be able to bring this kind of capability to the city, we would be achieving our goals.

00:23:

Lisa Gonzalez:  Hello.  This is the Community Broadband Bits Podcast, from the Institute for Local Self-Reliance.  I'm Lisa Gonzalez.

We've written many times about Longmont, Colorado, as it has developed its municipal network.  This week, Chris talks with Tom Roiniotis, who is now the General Manager of Longmont Power & Communications.  Longmont voters decided in 2013 to bond, in order to speed up expansion of their fiber-to-the-home network to the entire community.  Since then, LPC has been amazed by the demand, and has come up with all sorts of creative ways to keep the momentum going.  Tom shares some history and a few of Longmont's strategies to get the whole town wired.  Now here is Chris and Tom Roiniotis.

01:07:

Chris Mitchell:  Welcome to another edition of the Community Broadband Bits Podcast.  I'm Chris Mitchell.  Today I'm speaking with Tom Roiniotis, the General Manager of Longmont Power & Communications.  Welcome to the show.

01:20:

Tom Roiniotis:  Hi, Chris.

01:22:

Chris:  It's great to have you on.  I've been out there.  I think I've actually visited you.  I have a hat looking at me right now from Longmont Power.  It's -- you've got a wonderful community out there.

01:31:

Tom:  Well, thank you.  We've got to get you, now, a new LextLight hat with our new logo ...

01:36:

Chris:  Yes!

01:36:

Tom:  ... emblazoned across the top.  Yeah.

01:38:

Chris:  Yeah.  I would definitely like that.  Why don't you -- for people who aren't familiar, tell us a little bit about Longmont, and what you're doing.

01:45:

Tom:  Well, Longmont is, you know, about a middle -- a medium-sized city.  We have about 92,000 residents here.  The city itself is about 30 square miles in size.  And our municipal electric utility, Longmont Power & Communications here, serves the entirety of the city and some of the surrounding communities.  And we serve around 38,000 customers.  The vast majority of those customers are within the city of Longmont.  And what we're doing is, as of November of last year, we first began offering our brand-new fiber-based broadband services to our city.  We began on the south side of town.  And, like I said, in November, we first began providing the service.  And people are very excited about it.

02:40:

Chris:  It sounds like it.  I mean, one of the things that I constantly hear -- and just for viewers -- or, listeners, I guess, would be the appropriate word -- we're going to get into the history.  But, for a quick thumbnail sketch, one of the things that we've seen in Longmont is tremendous support in these early months.  And so, can you just give us some numbers, in terms of what kind of take rate you're seeing?

03:02:

Tom:  In order to meet our financial goals, we wanted to -- we needed to see about a 37-38 percent take rate at the end of the fifth year.  And what we saw after the end of the first three months -- I should say, at the end of the first three months marketing cycle in our first launch area -- was 40 percent, right out of the chute.  So, we were absolutely ecstatic about that.  But that also created some issues.  We weren't staffed up with installation crews to be able to handle that type of demand, you know, immediately.  So, we ended up having to hire about double our inside install crews, plus bringing in a contractor, to help us keep up with the demand.  And we're pretty much seeing -- since that launch, we're seeing anywhere from 40, sometimes to 60 percent take rates in some of these areas within the community.

04:02:

Chris:  You know, one of the things that that just brings to mind is some of the challenges that we've seen in other communities that have experienced those remarkably high take rates.  One of them is just having enough money set aside for the capital purchases.  Because if you're planning on buying, you know, the number of devices that would be required for 20 percent of a neighborhood, but 40 percent or 60 percent are signing up, then you start going through that inventory pretty quickly, don't you?

04:29:

Tom:  Well, you know, in terms of money, you know, we financed this thing to be able to build this thing out for five years.  So, you know, it's not really hurting us, in terms of a budgetary standpoint.  As a matter of fact, it's helping us.  Because, as you can imagine, getting a 40 percent take rate from day one, versus expecting 38 percent, you know, in a gradual take rate over five years, we're seeing significantly higher revenues a lot earlier in the build.  And so that's going to make up for any additional what you might call "success-based" expenditures that we're going to have to make because of the higher take rate.

05:12:

Chris:  Well, I'm really glad to hear that, because I've -- some of the experiences -- maybe -- you know, maybe we've just learned from that in the industry.  I think the economics of this just get a bit complicated, in the sense of -- at least originally, you sort of budget to connect the first three years of people with proceeds from the bonds, and then you would try to finance the rest out of the revenues.  And so, if you had too many customers too early, then it would just sort of throw off later projections.  And ultimately you'd have all the revenue you needed.  But it might not be coming at the right time, because of when the ongoing revenue sort of caught up with the initial capital costs.  And, anyway, it's really -- I'm not doing a particularly good job of explaining it, but I'm really happy that you're doing well.  And I think, you know, given how much interest there is in your model of the double-play, I think there's a lot of people who are excited to hear that.

06:09:

Tom:  Yeah.

06:09:

Chris:  And, just to remind people, what are you offering for services?

06:13:

Tom:  We're offering phone -- digital voice -- and high-speed Internet.

06:17:

Chris:  And what are you doing when people say, hey, what are we going to do about video?  I need to watch my Rockies games.

06:24:

Tom:  Well, you know, to watch your Rockies games, all you need is an antenna here.

06:29:

Chris:  [laughs]

06:29:

Tom:  And you can get local content -- high-definition, beautiful -- right over the air.  A lot of people don't realize that.  That -- we do have information on our website.  And we refer people to certain sites that talk about, you know, sort of "cutting the cord," and what you can do without a cable TV connection.  But, I mean, if somebody really wants to continue to have cable TV, they -- you know, that is a competitive business here.  You can go to either Comcast, you know, and continue to have your cable TV, or you can go to Dish, or any of the other -- or DirecTV, the other satellite providers.  So that's always an option for a customer.

07:03:

Chris:  Yeah.  That's definitely a good reminder.  And clearly, the question as to whether or not people, you know, will sign up for Internet and telephone only, without cable, is -- at least in Longmont, where you have a rather sophisticated -- I mean, I think, above average sophistication, given your high-tech nature.  Do you think you're similar to other communities, in terms of makeup?

07:28:

Tom:  We think we're probably a little more towards the high-tech end.

07:33:

Chris:  Yeah, I thought so.

07:33:

Tom:  We've probably got a little bit more of a high-tech community than normal.  You know, we've got, you know, major hard drive manufacturers here.  Like Seagate, the headquarters.  Digital Globe is headquartered here.  I don't know if you've ever heard of Digital Globe.  They're the ones that do the satellite imagery for Google Earth.  And we've just got a -- there -- it's just a lot of high-tech companies located here in Longmont.  And, of course, they have their employees.  Many of them live within the community as well.  So, yeah, we --  And we banked on that.  We realized, you know, as we took a look at the business case for that that we were hoping we were going to see significantly higher demand for a service like this than you might find in a community that didn't have that type of a population.

08:17:

Chris:  Right.  So, I've been bouncing all around, on a couple of different things here.  I was going off on tangents, because I enjoy that sort of thing.  But there's a couple of key facts I want to make sure we hit.  You had said the number of customers you have as a full utility.  Do you have a number of the approximate number of premises that will have access to the fiber within Longmont?

08:39:

Tom:  About 37,000.

08:41:

Chris:  OK.  That's the number of premises.  And then you borrowed $40 million.  After a major referendum.  I mean, you guys really had overwhelming support demonstrated in 2013.  Is that right?

08:53:

Tom:  That's correct.  Yeah.  A two-thirds majority voted in favor of the $40.3 million -- electric revenue bond, by the way.  It kind of gets back to that first question you had, or you talked about -- when you said, you know, well, gee, what would you do if you didn't have enough revenue, you know, immediately, to be able to, you know,  cover some of these excess costs.  That's one of the reasons why we backed this entire build by the financial strength of our electric utility, is that, you know, we do have the ability -- if we have to do that -- to borrow money from our reserve funds on the electric side, to cover any short-term cash situations.  But we haven't had to do that yet.  But that certainly is available to us.  And, again, it's basically leveraging the strength of an asset this community has already invested in, to bring itself, you know, high-speed Internet service at the lowest possible cost.  Because of that strength, we were able to obtain capital at a very low interest rate.

09:56:

Chris:  And we've written about this in the past, but I was actually -- I was really heartened to see that, even before your time at Longmont, the mayor, back in the '90s, went to visit Cedar Falls.  And then the utility ended up building a ring, in cooperation with other local municipal electric providers, that has, in some ways, laid the basis for the current network.  Do you want to just remind people as to what happened there?

10:23:

Tom:  Well, yeah.  Back in the mid-'90s, our electric utility was look for ways we could improve the connectivity, particularly, between our electrical substations and field equipment for, you know, what we call SCADA -- or Supervisory Control And Data Acquisition -- network.  And -- because, back in the day, I think, what we were doing, we were leasing T1s from third-party providers, at, probably, pretty high cost.  And, back at that time, we were looking at options like microwave, but we decided to go ahead and bring fiber, and build fiber, and tie all these substations with a fiber ring.

And they knew, back in the mid-'90s, that if you're going to go ahead and spend the money that would be required to essentially loop the city with a fiber-optic cable, the incremental cost of throwing in a few extra fibers is pretty small.  So even through we only need a handful of fibers to take care of the electric utility needs, we went ahead and put 144-fiber cable -- backbone ring -- in the city.  And our City Council and Mayor had the vision back then that they could use that as the backbone for a robust fiber-to-the-home network someday.

11:36:

Chris:  And I think one of the things that people don't always realize is that even while you're building out to every home, you've actually just partnered with the schools as well.  And you're building them a terrific network, that, from what I could tell, is dramatically reducing their costs, and giving them some of the just incredible capacity to each school.

11:55:

Tom:  Well, you're right.  Matter of fact, we had that network constructed prior to us offering services to the general community last year.  And we're providing them today a 10-gigabit ** network **, that they're utilizing, you know, tying all the schools within their school district together.  And that's upgradable, whenever they'd like, to 40 gigabits.  So, you know, a lot of people brag about, you know, maybe their school's being tied into a gig or a gigE.  I like to say that, you know, we've got kindergartners having access to 10 gigabits here in Longmont.

12:25:

Chris:  [laughs]

12:25:

Tom:  So it's a pretty exciting thing.

12:28:

Chris:  Right.  Well -- so, at $50 a gigabit, for customers who sign up early, when you're going through town, you have one of the best deals in the nation for gigabit service.  And I just saw in Communications Daily, a subscription-only service in DC that reports for Capitol Hill, that Comcast claims that they're not doing anything special in any of the areas of Colorado that have gigabit municipal networks or are working toward it.  And I'm curious if you've seen a reaction from the incumbents in any way contrary to what they might be claiming on Capitol Hill.

13:06:

Tom:  It's interesting.  There is -- we do have a history with the incumbents sort of responding to moves we make.  But -- it kind of -- to keep this interview on time, we'll just talk about what we're seeing now.  The very week that we announced -- in November, that we announced service was beginning to be available -- our NextLight service here in Longmont, Comcast announced that they were doubling their speeds for folks in Colorado at no extra charge.  Now, it could have been a coincidence.  I don't know.

13:38:

Chris:  We see a lot of those coincidences across the country.  [laughs]

13:41:

Tom:  [laughs]  Yes.  Well, and, you know, we did a lot of research before we did this.  And we do understand that, you know, the incumbents do step up to the plate.  Which I think is a good thing.  And it -- you know, it provides true competition.  And at the end of the day, the consumers win.  But --  And we also that, you know, when customers are calling to disconnect their service, to join NextLight, they're being offered some pretty sweet deals by the incumbents.  And we anticipated that as well.

And that's why we knew that, you know, no matter what type of a network we were building, that we were going to have to provide s powerful incentive to our community to come over and to invest in NextLight fairly shortly after we made the investments within their neighborhoods.  And so that's why we came up with this charter membership program that you referred to, where --  The bottom line is, they have three months to take up our service.  And they would become a charter member.  Three months from the time service is available at their address.  And as a charter member, they will receive a gigabit symmetrical service for $49.95.  And, like you said, I believe that is the lowest-priced symmetrical gig residential service in the country.  And, by the way, that's not an introductory price.  Once they get that price -- that $49.95 price -- they keep that price for as long as they maintain the service.

15:12:

Chris:  And I actually saw that, if I'm in Longmont, and I'm a charter member, I have that price, and I move, it's potential that that will stick with the house.  Did I read that correctly?

15:22:

Tom:  One of the reasons why we did this in the city is, we -- we're future-proofing the city.  And we want people to future-proof their homes as well.  And so, what we tell them is, you know, you make the investment and you become a charter member, that charter membership can, number one, stay with your home.  And you can advertise that, maybe, when you're selling your home, that it's eligible foe charter membership, so you can get a gig for fifty bucks.  But if you move within the city limits, not only can you keep that within your home, but you can also take that charter membership with you, as well, to your new address.

15:54:

Chris:  That's clever.  I like that.

15:56:

Tom:  We really think it's a really powerful incentive.  And people are reacting to it extremely positively.  Like I mentioned with the high take rates.

16:03:

Chris:  I'll bet!  Because I think the dynamic, to spell it out for people who may not have seen this in action, is, if I'm a homeowner, and I hear about NextLight, I call Comcast, or CenturyLink, or Dish, or someone, to cancel, and they say, hey, how about if we cut your bill in half?  Will you stick with us?  And I might think to myself, yeah, I'll stick with you for six months or a year, until you raise my rate, and THEN I'll go to NextLight.

16:28:

Tom:  Exactly.

16:28:

Chris:  And that can be really damaging for a new network.  So that's -- charter memberships is a brilliant way of going forward.

16:35:

Tom:  Yeah.  And -- we do think it has been very -- well, obviously, it's been very effective.  Yeah.

16:40:

Chris:  So, way back in the day, when we started this podcast three years ago, we actually -- one of our early interviews was with Vince Jordan, who had been with the utility.  And he told us about some of the economic development successes.  You know, what's been happening in the last two years, in terms of job development and that sort of thing, around NextLight?

16:59:

Tom:  Well, you know, like you said, we first began providing services last November -- to the general community.  And that began in a predominantly residential area.  So, today, we've probably got around 15 percent of the build complete.  The majority of the build so far has been in the residential area.  But we have -- we are, just within the last couple of months, really beginning to get more into the commercial areas of the city.  But, like you said, one of the primary reasons we built this network to begin with was for economic development.

And, in a way, you know, Longmont kind of sits north of Boulder -- in the shadow of Boulder.  And we saw this as an opportunity to sort of differentiate our community from the rest.  And -- in a positive way.  That we think kind of strengthens from an economic development standpoint.  And it has.  The business community has been extremely excited about it.  I've had -- we've had local businesses that were looking to expand, and looking to expand outside the city, that have sat down and talked to us, and have cited that one of the reasons they elected to stay was because of the availability of the NextLight service.  Matter of fact, just last week, my city manager here just moved into a new home and met his next-door neighbors for the first time, and they actually came right out and told him that they worked out of their home, and they were looking for a new home somewhere in the north Denver area, and actually decided on Longmont.  One of the primary reasons was because of the availability of the gigabit network.

So, we are hearing -- we're getting that kind of feedback from businesses here in the community.  And folks here are real excited about it.

18:48:

Chris:  Yeah, I'll bet!  And, you know, one of the things that I think is getting lost -- to give you another tangent, briefly -- is that -- and I wouldn't expect you to speak ill of any of your competitors.  But I'm in a city that's served by Comcast and CenturyLink.  And I can just say, from my experience, that both of those companies are investing more than I expected to.  But, frankly, I'm really not that interested in a gigabit from them.  One of the things I love about getting a gigabit would be a provider that would give me good customer service, a sense that prices weren't going to go up every year, and all kinds of other things.  So, you know, in the Denver metro, you may have gigabit rolling out in some areas, by some of the existing providers, but that's not the same thing as what you're doing there.

19:31:

Tom:  Well, you know, I think one of the things that we underestimated was how much dislike there is for the incumbent providers.  [laughs]

19:42:

Chris:  [laughs]

19:42:

Tom:  And I'm trying to be gentle here.  But I -- we had one neighborhood that told us -- and this was probably about a month and a half ago -- they actually had a block party in celebration of being able to kick Comcast to the curb ...

19:57:

Chris:  [laughs]

19:58:

Tom:  ... when NextLight was available.  And so, yeah, I mean, you know, you combine the fact that we're offering the fastest broadband at the lowest prices in the nation with the fact that people are generally not happy with the incumbent providers, and that's been a very powerful combination for us.

20:16:

Chris:  Right.  Well, as we're wrapping up the call, I saw something that I'd like to ask you about.  Which is, every community that builds a fiber network has this challenge of connecting low-income people, because local government is responsive to everyone.  It certainly should be.  And we know that some people aren't able to afford $50 a month, or even, sometimes, less than that, certainly.  But I saw that you were trying to think outside the box a bit, and maybe looking at community development block grants that might help you to expand access.  And what can you tell us about that?

20:52:

Tom:  At this point, we're really not doing anything about that with our fiber network.  But since 19 -- or, actually, I should say, 2005, we've had, in the city of Longmont, a citywide Wi-Fi network, that we actually ended up inheriting here about a year ago.  And we've been providing what we call a digital divide program through that wireless network for several years.  And we are continuing to do that with the wireless network today.  And once we finally get this network constructed -- and, by the way, we, because of the overwhelming response, we accelerated the build, and we're hoping to have the entire city constructed with the fiber network by the end of 2016.  And so -- but we're going to wait until we get the complete network completed.  We -- you know, we get about a year or so of operation under our skin a little bit, and be able to really take a look at our financials, before we figure out what we can do in terms of, you know, low-income type rates, utilizing the fiber itself.  But, like I said, in the meantime, we are providing a digital divide program via Wi-Fi.

22:10:

Chris:  And one of the things that I really like about public ownership -- one of the reasons that the Institute for Local Self-Reliance is so supportive of it -- is because we know that if you have an extra take rate, that's more money that's going to be flowing into the community, you know.  And so, rather than a private company, that might be taking that money and giving out bigger dividends to shareholders across the world, you're going to be able to do interesting things and make sure that people's rates are low.  So, I just think it's really terrific to p- -- see what I think of as people investing in themselves.

22:41:

Tom:  Well, you're absolutely right.  And, quite frankly, you know, I'm the manager of a 103-year-old municipal utility that was based on those same principles.  And, you know, we've been -- it's been a very successful organization.  We have some of the lowest electric rates here in the state of Colorado.  And that also goes a long way in terms of economic development, as well, as you can imagine.  But you're absolutely right.  I mean, to the extent that we bring in revenues in excess of our operational costs, that either goes to either improving the network or maintaining or lowering rates to the citizens, because, you're right, we are a not-for-profit organization.  And we didn't do it for profit.  I say, you don't measure the success of a muni broadband network by looking at the financial books of the utility that's providing it.  If we were simply to just barely cover our costs, yet be able to bring this kind of capability to the city, we would be achieving our goals.

23:43:

Chris:  Terrific!  Well, thank you so much for coming on and giving us a sense of what's happening in Longmont.

23:48:

Tom:  Well, thanks for the opportunity, Chris.  I appreciate the opportunity to talk to you.

23:52:

Lisa:  Send us your ideas for future shows.  E-mail us at podcast@muninetworks.org .  Follow us on Twitter.  Our handle is @communitynets .  You can also find us on Facebook.  Search for "Community Broadband Networks," and like our page.  Once again, we want to thank bkfm-b-side for their song, "Raise Your Hands," licensed through Creative Commons.  And thanks again for listening.