Financing Mechanisms and Governance Models - Episode 524 of the Community Broadband Bits Podcast

Ben Matranga (00:07):

One of the things that, that we've discovered is the efficiency of what you can build per dollar invested is massive.

Christopher Mitchell (00:14):

Welcome to another episode of the Community Broadband Bits podcasts. I'm Christopher Mitchell at the Institute for Local Self-Reliance in Minneapolis, Minnesota, actually in my office for once. And having a call with two people that are doing really great work on community networks across the entire planet. let me introduce first Ben Meranga, who is the co-founder and managing partner of Connectivity Capital, which is an impact investing firm. Welcome.

Ben Matranga (00:45):

Thank you.

Christopher Mitchell (00:46):

and then we've also got someone who will be undoubtedly familiar to a lot of people, but I don't think we've had you on yet. Jane Coffin, the Chief Community Officer at Connect Humanity. Welcome. Thank you. It's wonderful to have you on. Jane. I feel like you probably don't take any credit for the tribal Broadband Bootcamp, but it never would've happened without all the great work that you were supporting and inspiring when you're at internet Society and and Sensee. So thank you for that. we are talking about a report that connect humanity and the connectivity capital folks have released together called Financing Mechanisms for Locally Owned Internet Infrastructure. And it's really I think Pathbreaking report in multiple ways. But let's start by just briefly explaining to folks what each of these organizations is. And we'll start with Connect Humanity, where full disclosure, I am on the advisory board. they always wanna have someone on a board that's just gonna be wrong to make everyone feel good. And so I like to play that role. but connect humanity's now what, like a year old, two years old.

Jane Coffin (01:52):

It's about a year and a half old.

Christopher Mitchell (01:53):

Yeah. What is Connect Humanity? Jane?

Jane Coffin (01:56):

We are Fund for Digital Equity and Inclusion

Christopher Mitchell (01:58):

And what a fund means, I feel like is an interesting question that a lot of people don't get right away.

Jane Coffin (02:03):

They don't, and, and they also are confused by the fact that we're a nonprofit because they haven't heard of a nonprofit fund where we actually are working at that intersection of how you can bring in more impact investment and capital through grants and loans. And so that does get confusing for some people who think that nonprofits don't do loans,

Christopher Mitchell (02:23):

Right? So you in some ways are like a hybrid kind of interesting thing that not only works directly with communities that are trying to solve this problem, but also works strategically to move the whole field forward in the entire planet. So you have your work cut out for you <laugh>,

Jane Coffin (02:40):

We do <laugh> and then we have connectivity capital which does impact investing. So Ben, tell us about connectivity Capital.

Ben Matranga (02:50):

Connectivity Capital is an impact investment firm focused on expanding internet access in emerging markets. we invest in ISPs mostly in Sub-Saharan Africa, a little bit in South Asia, but we, you know, my partner and I, Jim Forrester, we came out of doing direct equity investments in ISPs since kind of the, the mid two thousands. so had developed a portfolio sat on the board, kind of really in the weeds of managing and seeing these institutions grow. my background was in emerging market finance, so saw kind of the opportunity to develop an actually specific debt product. so that's when we started Connectivity Capital. And what we do is we manage and deploy a fund and impact investment fund, specifically providing loans to internet service providers in those markets.

Christopher Mitchell (03:40):

And, and here again, I feel like you have this divided mission in that you are trying to help specific ISPs to scale and to connect their communities, but you're also, you know, trying to figure out how to move the whole idea forward and, and help change policy ideas and things like that, right? That's kind of the impact I feel like in some ways, right? Yeah.

Ben Matranga (04:00):

We call it category creation. So like the idea is essentially in impact investing, you've kind of had categories over the years. kinda the most recent one that people will be familiar with is off-grid energy and kind of green energy. We think connectivity can be a distinct and unique category, and the idea is be first out of the gate demonstration effect, and then kind of the flood of capital that comes in behind that. is what, what, what's needed.

Christopher Mitchell (04:24):

Excellent. You know, I think it's gonna be fascinating because this is not something that I thought we'd talk about. I'm not gonna take us too far down this path, but like there's a question I have every now and then with, and talk with people about whether the first a hundred years of internet will result in significantly more change than the first hundred years of electricity. And I think people still don't appreciate how much the internet will change everything and the way humans will take advantage of it because a lot of people wanna deny the social aspect of ourselves, I think. And as long as we don't destroy ourselves in the process, we're gonna go to pretty interesting places with, with this tech, I think. So with that, let's jump into the report. And I I love the focus of the report.

(05:06):

I feel like one of the things that people sometimes assume about me and is certainly true for allies, is that we do this work because we hate big cable and telephone companies, <laugh>. And isn't that why I do this work that would certainly be doing other things if I was fueled solely by animus? But you and the report say basically that, hey, half of the planet has been connected, you know, more than half of the planet has been connected by these traditional business models. however, the rest of the people that need to be connected, which is, you know, I think on approaching like 35, 40% they are probably not gonna be connected by the same business models that connected the first half. And you say traditional solutions are showing signs of having reached their limits. And I just, I thought that was terrific framing, because we don't have to fight over whether or not capitalism sucks or whether different versions of capitalism suck or whether we should all be focused on socialism. Like it's all just like, we'll say, let's set that to the side and we're gonna focus on the fact that we have specific needs and, and these community networks, we'll talk about those in a second can move us forward in that way. So I I, is that more or less what you were going for? Did I just like, way overread it?

Ben Matranga (06:17):

<laugh> and I think, you know, I just also wanna mention there's two other organizations that were part of this effort. a apc the Association for Progressive Communications and the Internet Society, and the idea where all of us were kind of nibbling at the problem from a slightly different angle. and what we realized is there was a lot of research on regulatory environment. there was a lot of emerging research around operations, technological choice, things like that, but almost nothing around finance. So that was kind of the first objective. I'd say broader. The objective was to demystify these concepts. I think a lot of times most community networks and most networks around the world are usually founded and and operated by highly technical folks. and as soon as they get in a room with finance individuals that they tend to be intimidated. And we wanted to break that down, give them the language that everyone talks about and kind of let them go on offense, not, not necessarily be defensive about what they're building, but be very clear about what they're building. Here's the value proposition, and that's why we're doing that.

Christopher Mitchell (07:19):

And j you've long been a champion of the community network model, I know. Yeah.

Jane Coffin (07:23):

And we, we also wanted to make finance accessible to the basic community that might be looking at how they can be, they can start up, they can be more sustainable, and they can build community networks. And some of them that we've worked with, that I used to work with around the world when I was at the internet society, and that we're starting to work with more and more at connect humanity, there was a fear of finance. They, they don't like the term you know, business plan <laugh>. So we're trying to figure out a way, how do we come at this so that this is digestible? And that's what I think you see in the report. It's very well thought out in different pieces. And the case studies has Ben mentioned earlier, are one of the most important components, I think, for people to just go back and forth and say, oh, I see how they did it.

Christopher Mitchell (08:04):

Right. I think the report is a wonderful place to start for people that are trying to find their way in this world. And, and like you said, I think there's people who may be nervous about some of the talk about the costs and, you know, how do you structure different costs and how you drive costs lower in the business plan, because there's a fear maybe that if you get too focused on the business plan, you'll forget why we're doing all this work to begin with. But also if you run outta money, then you can't really help a lot of folks. So there's attention there.

Jane Coffin (08:34):

Well, there's also the tension that we found with some organizations that thought they could always get grants, just have grants, and somehow magically they were gonna continue to get them further down the road, and that was how they were gonna sustain themselves. And that was always something that perplexed me. yes. And some were very much wanted to be independent independent of the financing them because they thought they would be controlled by the people financing them. Right. It was a bit of a conundrum. <laugh>.

Christopher Mitchell (09:01):

Yes. And that's why, I mean, I think it's really important that we talk about finance in ways that are accessible, but by folks and we just talk clearly about it. We kind of demystify it, right? This is clearly a demystifying kind of report. The

Ben Matranga (09:14):

Other thing I would say is the format, you know, we purposefully published this in kind of deck like format. it's under Creative Commons. You know, our hope is that people actually take it and improve it. you know, this is kind of version one. but the idea is, you know, the nothing would make us happier than kind of seeing, you know, a a tribal leader use some of this content to explain to either their members or to a potential regulator why, you know, a network should be formed this way or that way. the other thing I would say that's really critical is we're still in the first inning. So what we tried to do is define to really build a, a very broad tent around community connectivity partners. That includes community networks, that includes municipal networks, but it also includes private sector actors with a clear social mission.

(09:58):

you know, I know in, in emerging markets, which is our expertise all of our portfolio is largely those private sector actors that have a clear stated social mission. And I think you know, right now I'm taking this call on you know, monkey brains. they're, they're in many ways, you know, a social enterprise. S i, fiber, I would argue in many ways is a, is a social enterprise with a clear social Ben. So it's, the idea is, you know less around nonprofit versus for profit. And I think that's how we move past that discussion. but more about like, you know, are you providing true overwhelming value to your consumers? Not trying to create false barriers to entry so people can be creative on the medium, that kinda stuff.

Christopher Mitchell (10:40):

I've tried to use language in that direction more and more over the years, especially as, you know, if we're, if we're being totally candid, like I could name nonprofit organizations that I think are more focused on the bottom line than companies like monkey brains, which are, you know, if they come down to it and they're like, well, if we do this thing for the community, it might put us in a difficult financial position in two years. They're generally gonna be like, it's worth it. Let's give it a shot <laugh>. So that barrier is not as distinct as some people think the profit for profit nonprofit,

Jane Coffin (11:10):

Even if they're breaking even and doing something great for the community and that's how they wanna roll, then that's fine with us. I mean, we're not triggered to sort of define, overly define what a, a community connectivity provider is, or community network. We just often can I've often heard people say, well, community network sounds a little squishy, doesn't sound very business-like. And so I think we tried to find a term that would bring in a different perspective for people right away. You

Christopher Mitchell (11:37):

Use the abbreviation CCPs throughout community connectivity providers?

Jane Coffin (11:41):

We do, yeah. I'm in a meeting right now where we can't even use the word community network at an international meeting. The reason for that is that some people just don't like the idea that there are these rogue networks that are not under their control.

Christopher Mitchell (11:53):

<laugh>. Well, that's one of the things that I found when I looked at, and I know that Ben, I know that you, you and then Jane both have a substantial experience around the world. And one of the things I found when I was getting into this is that most countries don't allow cities the level of autonomy that we find in the United States as well as Sweden. but even in Europe, there's a broad range of how much local autonomy there is and a lot of countries where they don't want, like mayors to have this level of power.

Ben Matranga (12:20):

Yeah, certainly. You know, one of the, the topics we hint on briefly in the report is this idea of the difference between a a nascent market and a market that hasn't been served largely in the United States. You have, you know, active commercial decisions from incumbent providers that have said it's just not, you know, it's, it's, it's, the economics don't make sense to reach that community. and federal government is coming in in a huge way to now subsidize that in emerging markets. It's just a much different situation where it's, it's, it's really a nascent market. Mobile is the only technology that existed. We're now back filling with that with that essentially we call fixed line infrastructure, but it's a combination of fixed and wireless, et cetera. but it's that dual ecosystem approach. I think we, we, you know, the one thing in emerging markets is, is people are now beginning to accept what we call the limits of the leapfrog, right? Mobile's great. Everyone's got a phone now, but you, you're not taking a zoom call. You're, you're chewing your one gig of data, and it's gonna be really expensive real fast.

Christopher Mitchell (13:17):

One of the, the pieces that I think was interesting to me is you didn't just dive into the finance of saying, yeah, you know, like everyone needs to be connected. you spend time talking about the quality of the connection and different capacities and what's unleashed with it along with different milestones in a development, you know, sense. and, and there's a specific distinction between universal, which is the, I feel like the term that I use all the time. and you, you juxtapose universal against meaningful meaningful connections. And, and I'm curious about that. Why is that important?

Jane Coffin (13:50):

Largely is partially important because when I've been doing work internationally and also in the United States, the word meaningful had been so loaded internationally because people were trying to attach speed and technology to that word, and then it broadened out later on. And what it brings with it, the word meaningful is that it can help you with regulators and policy makers and different other people that you need to influence to bring along the sense of why do you need this connectivity and how can we ensure that there's some protection from a regulatory and policy side as well? When you're talking about meaningful connectivity, it's a loaded term in some places. Universal is one that I liked better in the UN context, because it meant you were trying to get connectivity out everywhere. You weren't trying to limit the type of technology. It wasn't 4G because at one point in time that term meaningful had gotten attached to 4G alone.

(14:44):

Then the 5G movement was rolling along and there was all the spectrum that people were trying to snaf up. And so we wanted to make sure that the term we're balancing out that term. Now, Ben, I'd love to hear your perspective, because that's what I was seeing in some of the fora that I was working in. And I didn't wanna bring something in that would and you can appreciate this, Chris, would become a term that some of the incumbents could use to limit the ability of a small network to develop. Because if you said it's gotta be xpe y type of technology, they could easily go to the, the local puck or to the regulator, the fcc, and say they don't meet these requirements, so therefore they should not be able to exist. That's my biggest fear.

Ben Matranga (15:25):

Mobile networks, they're essentially drip feeding data to consumers in emerging markets. They have dominance and they just drip feed data, they toggle it back by it not being affordable. and <laugh>, you know what I mean, by and large, the networks that we finance are just providing a fair service at a reasonable price. And consumers are, are, you know, just opting into that. I think where, where it, where it differentiates is, you know, when you're serving customers that make less than $4 a day, you have to bend the cost curve. you have to, you know, just be ruthless on cost efficiency. the way you deploy is gonna be different than, than you would see in the United States. and you know, that's how we see, you know, so many, the, of the cases that we high, the, the examples that we highlighted in the case studies, their ability to do that by and large, the one thing that was unique across all of the 10 case studies that we did is they didn't copy the economic model of the incumbent.

(16:23):

Just a wholesale copy of it just doesn't work, right. and you have to do it differently. whether that's from, you know, starting with back haul and, you know, partnering with other organizations you know, one example that we highlighted in Uganda, they had partnered with the university with the, with the n ran there to, to get back haul at a much lower price. whether that's, you know, getting new technologies, working with technology companies in the United States to deploy CDNs, et cetera in these markets, you had to figure out a way to get your input costs less.

Christopher Mitchell (16:57):

I think we don't have time to dig into each of the case studies, but I thought it would be worth running through as a highlight to entice people that they should check out the report. we've got the broadband for the rural north barn with a four rather than an a. This I remember when they started when they were, they were talking to folks out here and Tim Nolte and others, and it was inspired. They were very inspiring to talk to Zen Networks in South Africa. the city of Ammond in here in the United States GFI net in Spain RAA in Mexico RS fiber here in Minnesota in the us alter muni in Argentina, Bosco in Uganda common room in Indonesia LA de France, in Dr. Congo and Net two home in Thailand. So a number of these networks, I mean, many of these have been around for a long time and it hit very interesting milestones along the way, but each of those is profiled and discussed throughout the report.

Ben Matranga (17:57):

Yeah, I, I think what's critical is this is the cadence with which they grew. and we often describe it as the crawl, walk, run. Like they didn't just get up and running and, you know, had a hundred thousand subs on network, you know, e even in, in year one there was a clear cadence to them. One of the cases studies that I found fascinating was talking to, to Bruce at with Amon, the city of Amon had connected their own governmental offices, had worked with some anchor tenants before they actually went to the market. So they had a ton of information about pricing capacity. They had bid out contracts before, so they had a lot of market intelligence that when they went to city council, they just had a much they had de-risked it in a lot of ways and showed that they could, they could manage and, and roll out that

Christopher Mitchell (18:44):

Asset. Yeah. And in particular, one of the things that's helpful is when you have an a monopoly or duopoly situation, and the prices are so high that you end up being in a position where you might be irresponsible if you don't do it yourself, because you can have such a better result and save so much money. Jane, any any thoughts from you on the, the case studies?

Jane Coffin (19:03):

Yeah, I think it's really important, as you said, Chris, to take a look at the case studies because it gives you a different range of technologies that are being deployed. And as Ben said, crawl, walk, run, some of them Griff's been around for a very long time. they're the commons model out of and started by a technologist who had worked for Oracle for years. Roman Roka,

Christopher Mitchell (19:22):

They're from Barcelona. I think being associated with Spain might get you a little bit of hot water with them depending on how they're feeling that day.

Jane Coffin (19:29):

<laugh> exactly. They're, they're over here. but they have, they're wireless, wifi, and fixed, and it's a great, they call it fiber to the farm in some of the areas that they're in because they just got frustrated with the incumbents practices not being able to get service quickly. And they figured, well, if we have the plows, we can actually dig and put the fiber in ourselves. And they also had some incredibly smart technologists, and they're all back hauling down into Barcelona from areas around the, around Barcelona, and they're interconnected with an ip. So they're really good example of how you can back out, out to the broader internet and actually provide great service to your customers. They have about 80,000 subs in their net in their network.

Christopher Mitchell (20:13):

That's one of the ones that's been around the longest, just a remarkable track record that they've mm-hmm. <affirmative> built up mm-hmm. <affirmative> and, and I, what are the things that I'll say that I see in common with these? I mean, some of these I was more familiar with than others, but I definitely feel like these are not people who are just arguing about what the perfect technology is, right? Like <laugh>, when you talk with any of the people associated with these projects, they might, they'll have an opinion on fiber versus wireless when and where, but ultimately they're just like, let's get something done. You know, like <laugh>

Jane Coffin (20:39):

Totally. The Zen project called us up one day, I was still at the internet site at the time, and we had been, we had granted them some funds to out their network. And one of the fellows, Carlos Ray Moreno, who worked on the report with us, who's at apc, called me and said, Jane, we need we need $2,500. And I said, Hey, look, we're not the bank of the internet. What do you need the money for? And he said, the incumbent wants to charge us $2,500 a month to lo co-locate our receivers and trans receivers on their mast tower. And we said, wait a second. You wanna take $2,500 and put up a ta a tower slash mast the term they used in South Africa? And we said, okay, there's no, it's a no-brainer. We're gonna help you. They immediately were able to then create two different pieces of their, of their nonprofit, well, sorry, of their network. One was nonprofit and one was for-profit. They created a a for-profit wisp with that $2,500 tower. So imagine that the $2,500 was gonna help them build out infrastructure, or they were gonna be charged $2,500 a month

Christopher Mitchell (21:40):

For one month. Yeah,

Jane Coffin (21:42):

One month. Yeah. It was kind of crazy.

Ben Matranga (21:44):

Chris, I wanted to give you another example. I, I think this cost efficiency that you see from CCPs is just, it is one of the key features of them. you know, the, one of our portfolio companies is a company called Jenny Internet that operates in South Africa and they doubled capacity, entire internet capacity for the country of ISI with a less than $700,000 investment. Wow. It's a total capa. And this is the nation of, you know, a little over 3 million people. total capacity into the country was 9.6 gigs. they brought in essentially the, the, the first fiber line into the country. now they're gonna triple it with a, another even smaller investment. So I think we, one of the things that, that we've discovered is we've work more and more on these markets, is just the efficiency of what you can build per dollar invested is massive. And I mean, for us, that's kind of our north star, right? When we partner with the US government or partner with a foundation or, or an impact investor, it's, you know, how many people are we gonna get on network with each dollar? and when you can get that massive leverage in these markets, it's, it's pretty incredible.

Christopher Mitchell (22:47):

Let me ask you both a question. I'm curious whether it's for the case studies or the, the work that you've done, because I feel like, like we said at the beginning, when you're trying to figure out who's gonna be doing right by the community, it's not just clear that the nonprofit is gonna be better than a for-profit, right? Each of you has people coming to you and they put their best foot forward and they say, I'm a great investment, or I am, you know, a great person that you should trust with grant money, and I'm gonna do this stuff for my community. And, you know, in that example that you just gave Ben, like, you have to figure out like, is this a person who's gonna take this, they're gonna double the impact or the, the capacity into the country, and then they're gonna sit on it and just milk it? Or are they someone that's gonna keep, you know, improving it? How do you tell those two people apart <laugh> when you're first getting to know them? That's

Ben Matranga (23:33):

A great question. I mean, essentially that's loan, I mean, that's credit underwriting, right? Like for, for us, we do almost all of our sourcing outbound. so what we do is we look at a series of given markets that we know, you know, at a, at a macro level, just internet penetration rates. Certainly on the fixed side, it's usually less than 1%. And then we go to find those non encumber operators and then go talk to them and say, let's talk about your growth strategy, your plans, you know, and then let's carve out a piece that we can finance. I think, you know, it takes time. Like you, you, you kind of assess them. you know, part of it is carrot and stick, right? So it's also like looking at their nstitute of documents, the decisions that they've made before. almost all of them have some variant in their bylaws of what we would call B Corp language, right? That you will serve both shareholders and stakeholders. and then the other thing we do on the back end is we measure everything. So we're pretty rigorous about impact metrics. we measure, you know, end nodes of a network cp and then how many folks are getting online because of those.

Jane Coffin (24:35):

This is more on the grant side, and this is from about 10 to 15 years of experience working with folks that you, sometimes it's the due diligence you conduct, right? You do need to do due diligence. Do they exist <laugh>? Are they legally registered? who's helping run that network? Or if it's a startup, you've gotta build trust with them. And you also have to ask people in the community, there is a lot of risk, right? At times you just sort of take a chance and you might have to give that organization another grant. But often we found a lot of our projects through others who had given us a heads up about the project, or that we had sort of put out an RFP recently at the Connect community called Build Build Better Broadband. And that's more for planning grants, but we're also assessing out different community actors at the same time.

(25:23):

So it really is, it's also like talking to people like Ben and you figuring out, you know, what do you think and have you heard anything about them? Do you know if they're they've got a solid team working with them? Do they really know what spectrum is <laugh>? Do they have any idea of what the policy and regulatory environment might be? there's a term that we're floating around internally at Connects Humanity, and it's something that Ben, you'll have seen in the, some of the financing you've done probably a different word as being used for it, but I've been really keen to make sure we're doing some preliminary community assessments. Because if you don't take a look at that community and get some of the basic checklists, it might've been like the doing business checklist that the World Bank had years ago, or any community has Chris from the mayor's office or wherever, you know, how can you trust this business?

(26:05):

And what we're trying to look at is can you do a quick pre community assessment before you give that community a grant? Because sometimes they're not gonna pass the, the test, right? Yes. From that community readiness assessment, I should have used that term, right? And a lot of people are testing this out across the United States with the bead funding that's rolling around to the I I J A and N T I A, and I just use three major acronyms there, which people know through you, Kristen <laugh>, others big money from the big government in the US <laugh>. Exactly. But, you know, we don't want, as a donor to be working with a community that we haven't sussed out, right? And so, I know it doesn't sound very scientific, but there's a community right image checklist that we're putting together based on the fact that we realize we've gotta like write it down, get something a little bit more solid. But we did this in other organizations I've worked in as well, try and figure out what's going on in the community and our people trustworthy mm-hmm. <affirmative>, and you build trust with them as you go.

Ben Matranga (26:58):

Building on Jane's point, I think one thing we tried to make pretty clear in the report is there's, you know, we define four different stages of growth for a typical network. We go starting, sustaining, then growing, then maturing. And each of those have various benchmarks in terms of number of subscribers you know, how big approximate size your network is, et cetera. And I think it's critical that, you know, every, you know, community network when you're starting out, or investor when you're choosing to interact with different actors, is figuring out what stage you're in because there's gonna be tra different trade officer, there's gonna be different sources of funding available. you know, we see a lot of times we typically focus on, you know, stage two, three, and four. So folks that already have thousands of subscribers on network, our goal is to take 'em from 2000 to 10,000 to a hundred thousand.

(27:46):

and, you know it's, you know, but it, it's doing that self-assessment on upfront and understanding what those trade-offs are because there is a cost to grant money. you know, most folks, you know, most operators in the United States right now, they're taking grant money from the US government, the reporting, you know, all of the, the elements that you need just understanding and have clarity about what those trade-offs are, and then kind of what's that next path in the next phase. In the case studies, we tried to chart each one of those networks as they went through each of those phases and got different sources of financing. There's a

Jane Coffin (28:20):

Pretty cool regulatory and policy flow too, if you look at that charting. And there's some sophistication that the networks start to develop as far as, you know, how they work with investors further down the road and how, how they attract investment or how do they make sure that they're not running foul of the regulator or the policymakers or convincing them, which is what Zenani had to do in South Africa for quite a few years that they were worthy of Spectrum or Rica, which actually got spectrum. It was the first new license type of license in the community network world called a social purpose license. And the Mexican government actually gave r Mada Spectrum a services license and a facil facilities license. So that was huge, especially in Mexico where there's a very large incumbent the community needed some more affordable service, and there were some really smart people like testing out some new technology, and they had a way forward. And it was really interesting that they were able to work with the regulator in Mexico to come up with something new in order to allow for that network not to get sort of karate chapped by the incumbent.

Christopher Mitchell (29:27):

And we're talking about a report that is called financing Mechanisms for locally Owned Internet infrastructure. A report is done by a collaboration of folks from Connect Humanity from the connectivity capital from Internet Society, and the Alliance or Association for Progressive Communication does wonderful work around the world in the report. We're not, we're not gonna talk about this. We're gonna jump into the recommendations here to wrap up, but I did, I did wanna highlight something we talked about a little bit, but there are recommendations for how to you know, how to think about the money that's involved the, the startup funds versus the recurring costs. understanding different kinds of recurring costs and understanding how to drive costs lower, how important that is and, and things like that. So there's a little bit for everyone in here, but there are recommendations that are aimed at specific sets of stakeholders. And the first one I'll ask you about, Jane, is for government and policy makers recommends creating an enabling regulatory environment that allows these community connectivity providers to operate cost effectively and encourage investment through fiscal incentive subsidies and technical assistance, which I think basically means make sure they're allowed to do it and give them some tools so they're able to do it, right?

Jane Coffin (30:42):

Yeah. And give them a break. You know, there's, there's a term that's been rattling around in the trade world called significant market power. And it was used years and years ago to allow mobile operators to enter certain fixed markets where they were duopolies. I, I think back to the fact that if we were trying to create that enabling environment to allow in small networks years and years ago, this is precisely what we're trying to do now, is create that enabling environment, work with the policy makers and regulators and sometimes the customs officials to make sure that the, there is less of a burden for those smaller networks to survive or get off the ground, right? It could mean easier. Li licensing regime, this is something that was just put in place in Kenya with APCs help and the internet societies and some others where they allow community networks and their licensing regulation for the first time.

(31:31):

And they're thinking about, they haven't quite decided on this, whether or not universal service funds, and Chris, this is a big one for me, I'd love to see this in the United States, use universal service funds to help fund these small networks getting off the ground. They could be a muni, could be a C C P, but you know, don't, you don't have to quite brand it, but like, give them the universal service funding at a a little bit longer term, right? don't give them as stringent terms as you might give some of the incumbents, cuz the incumbents can take care of themselves, right? So it's licensing and spectrum is a big one, right? How can you spectrum sharing secondary use. And there's different examples around the planet, and I hope in the US with C B R S, we're seeing that in North Carolina, there are some great networks there that are using C B R S spectrum. So it's a matter of how can you create that enabling environment and a friendly environment, making sure that it's not a contentious environment as far as thinking that these networks are, you know, rogue or actually not gonna be viable in the future. the market hasn't solved the problem to date, so changing some of the D dynamics from the regulatory policy side is really important to facilitate the community the community connectivity providers.

Christopher Mitchell (32:40):

Ben, would you add anything onto that in terms of the recommendations

Ben Matranga (32:43):

In the end? And a big point is just more and diverse forms of capital. and this is really this concept of blended finance and the need for whether it's sub commercial, whether it's credit enhancement mechanisms to be able to support more of these networks to grow. You know, one of the things that always surprised me every time I talk to an I S P or, or wisp in the United States, almost all of them used an S b A loan in the early days. This is the small business administration backed loans. by and large, the markets we serve in emerging markets mean the SBA credit enhancement mechanism just doesn't exist. So what we serve is that sub commercial slice of capital to be able to give these networks that are growing, showing promise, et cetera, that, that access to capital. We have the tools, it's making sure they're sector specific and just building out and, and having more capital, more liquidity in the market available for these operators.

Christopher Mitchell (33:33):

When it comes to these operators the, the second recommendation is aimed at them, which is to basically prioritize cost efficient deployments but to basically be savvy about financing. Like, you know, do your homework. you don't have to become an investment banker, but you kind of wanna have a sense of different sources of funds and how they might be appropriate in different points of time. So what else should we add on to that to help people understand it?

Ben Matranga (33:58):

Yeah, we talk a lot about alignment. Ask a ton of questions early on, like, where is your source of capital come from? What is your objective? What are you measuring? It? It's critical to understand that, you know, a a bank that takes deposits is not gonna take a ton of risk, right? Like, and that, and that's an important trade off for a network to understand. if I can plug one slide that I think is incredibly <laugh> interesting is this idea, the financial sustainability curve and the i the difference between operational breakeven, total cost breakeven and financial breakeven. And it's, as you move along this curve, that's essentially new ecosystems of finance that become available for you as a network operator. And as you understand that, it gives you your own internal objective of each build needs to produce this much excess cash flow to be able to access this sort of capital. It enables you to, to get further down that track.

Christopher Mitchell (34:48):

Is that on page 43, I think has the starting, sustaining, growing, maturing with the the risk is on the y axis? It

Ben Matranga (34:57):

Is. Yeah. We, and we reuse the theme again in, in 1 0 5, which is the sources of, of capital and the financial sustainability curve.

Jane Coffin (35:04):

Excellent. Educating the, the local providers, the small, these small networks is really important. and it's organizations like connectivity Capital connect Humanity and others who can help because they are mystified about funding, trying to do the due diligence. can actually, for some of one of our loan products, we've had to work very closely with some of the community providers and, you know, help them understand certain terms because they don't actually know them themselves. I mean, they're small businesses and I would love to, if anything try and do more across the country, the United States, to provide more training sessions for small small operators or people who are interested in providing building a network because they've, they've gotta have some savviness there and we can't, you know, we're not gonna be there with them all the way along the path, but if there was a better way to do it, you know, like than an SBA course if there were one that type of thing. Because they do need to understand the different terms as they're moving along that path, that financial path.

Christopher Mitchell (36:05):

The third recommendation is for funders and investors. And Jane, I'm curious if I was to, I mean, from someone who said SNF earlier, I think, you know, the, the informal way that I would take away from, from this language and this third one is basically look community connectivity. Par providers are serious freaking give them money. Like <laugh>, they

Jane Coffin (36:24):

Totally, it's,

Christopher Mitchell (36:25):

They're, they're doing a good job. Like they're needed. They're not just some like sort of like, like, like also ram these, this is a real solution.

Jane Coffin (36:32):

It is a real solution, and they, they're not flaky. It's, but they, they do serve a certain market. And the thing that I've been talking to people about is don't expect them to scale to the next city. Don't expect them right away. Let them serve that market and then they can figure out what the next steps might be. So we really do have to be careful about that term scale because some people, well, they're not gonna be able to provide, you know, these three states with connectivity. Well, that's not the point. The point is that the community that needs to be served, which has been redlined or excluded for years and years, wants a cheaper, better service and they don't necessarily wanna go through the incumbent because incumbents charging too much or hasn't up upgraded their technology. That's one of the biggest things we're seeing across the United States. And I think, Chris, it's one of those things, if I had a sort of little bit of a dream here with the US is that why do at least half of the states, and I think you've got this on your website, there are about 18 states that don't allow munies or

Christopher Mitchell (37:29):

Have some kind of major barrier to them. Yep,

Jane Coffin (37:31):

Absolutely. It's almost like there was some pre-planning by some folks out there <laugh> to lock in a market or lock out, you know, some of these smaller providers on procurement. We've discovered weird procurement rules that exist in some places too. But I would just say if I, if there were a message, it's let them try. Steve Song, who's one of the humans that worked with us on this report, has a great visual of three glass mason jars. One's a mason jar with big rocks in it, one's a mason jar with big rocks and medium size rocks, and one's a mason jar with big rocks, medium size rocks, and the small rocks. Think of these community operators as the small rocks or the medium size rocks that come in and fill a gap. You have to change the policies and regulations to go along with that because the big rocks have certain policy regs, the smaller rocks and the medium sized rocks need to be allowed in, right? So you might for bear. So I would say that there's, there's some changes that need to take place in the United States for, to create that enabling environment. And there are other countries that make it easier.

Christopher Mitchell (38:33):

And I, I feel like you did kind of go back to your favorite area, which is the government and policy making, which, which I appreciate like, is super important and that's where we really need to see significant changes. But I also, I I want to just give you a second to like note connect Humanity has elsewhere pointed out that philanthropy has been negligent. I would say not your words, my words negligent in how much it's put into this space and, and we need to do we need to do better if we're really gonna resolve these challenges?

Jane Coffin (39:02):

Yeah, it's 0.05%. We have an article that just came out Chrisman, one of our co-founders in the Chronicle of Philanthropy just put out an this article about the fact that it is 0.05% of philanthropy that's given to building connectivity solutions. So they really do need to get on it as far as the donations that go. And I think you're seeing thanks to the pandemic more and more of philanthropy is trying to figure out how they can help sort of fill those gaps. because we know that some of the small providers are not gonna be able to either apply for Be bead funding because it's too complicated, or if they apply for the funding they're not being seen as viable competitors. We've heard from some states that even the small networks that we're providing assistance to the C B R S network, the state came back in one place and said, ah, we don't think you'll be around in a couple years. And I'm like, how are you pre presupposing that, you

Christopher Mitchell (39:56):

Know, <laugh> Yes. Opposed to the companies that are declaring bankruptcy every other decade, <laugh>. although to be fair, they do come back right, better and for worse. The the ch the, the paper does a good job also of noting that, you know, community networks don't just solve one problem. They're active in rural areas and urban areas. There's different scenarios that they're commonly found. But Ben, last thoughts on the funders and investors recommendation.

Ben Matranga (40:19):

One point that's critical for both funders and operators to understand is, you know, risk exists on a spectrum. And what we tried to do is create a clear roadmap for operators or investors and the broad term of investors. You know, government can be an investor in an earlier stage network, but to understand how you de-risk your network through that life cycle and then be able to target the specific investors that are gonna help you where you need to go. So if you are a rural operator that has a deeper degree of subsidy, it's to understand that, be explicit about it and say, but here's the impact that we're making, right? We're making this impact and we're going to, you know, here's the benchmarks that we're measuring ourselves against. That's why that's successful. Whereas an operator in a par urban area, whereas an operator in, whether it's the English countryside in Sub-Saharan Africa, et cetera, there, that benchmark's gonna be slightly different, but they have that roadmap for themselves.

Christopher Mitchell (41:11):

So let's end with where we began in some ways I, which is I think too many people think of the problem of connecting the rest of humanity as a technological problem. And I feel like you have done a wonderful job of talking about community providers can help and how this is a, a financial problem that can be resolved. But fundamentally this is not something that is gonna be solved by people that are, you know, just like the big cable and telephone companies. So just sort of last thoughts in terms of like where we're going with CCPs and why they're so important.

Jane Coffin (41:48):

This is something I often tweet about, which is that the human nuts build the net nets, right? They build the networks, the internet networks, <laugh>, I had learned that before, but I love it <laugh> because, and, and it's not this sort of kumbaya, you know, <laugh> people are, are, are the, you know, the focus, but it, it is a matter of from a techno technological perspective, people design the technology, right? But you're also seeing people in communities pushing back and saying, no, we either want to bring somebody in that's gonna think about the community first, or we wanna build the network. And so I think there has to be a shift in mindset to allow for this. There just has to be an an experiment, right? And Ben, you had talked about the spectrum of risk. I think we have to allow for a little bit more risk in, in our environment or these CCPs are, are not gonna be able to take off.

Ben Matranga (42:35):

We have all of the technology we need to connect every single individual on this planet. And literally we know cuz we have networks operating in some of the most remote places on this planet that it's profitable to do it. so it's really a, a, a challenge of getting the regulatory environment, the operators that can be able to do it at that price point and being able to then marry the capital to you know, to be able to have those folks grow even more. I think that's what's critical is because if there's one thing the pandemic did, it was an accelerant for all of us to be the awareness of the importance of the internet. And we're kind of past that. and you know, our hope is really that we now start taking tangible action to say, okay, the technology's there. We know that these operators actually exist in the world. Here are the new pools of capital that are being formed, being deployed based upon the risk assessments that they have to be able to hit those numbers. You know, we're talking about 3 billion people connected. We, we kind of have to pick up the pace and, and our goal is to mobilize capital to do that.

Christopher Mitchell (43:35):

Excellent. Well, I really enjoyed the report one last time. It is financing mechanisms for locally owned Internet infrastructure. Thank you both for taking the time today. Thank

Jane Coffin (43:44):

You. Thank you for having us.

Ry (43:45):

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