Oregon's MINET: New Approach, New Expansion - Community Broadband Bits Podcast 340

Don Patten: You know, I stress to my people, if they never fail at something, they're not working hard enough, and that holds true with those ventures that we look at for growing our business.

Lisa Gonzalez: This is episode 340 of the Community Broadband Bits podcast from the Institute for Local Self-Reliance. I'm Lisa Gonzalez. Christopher has been out on the road again. This time he was in D.C., at a launch event for Next Century Cities' new toolkit on broadband readiness for local communities. While he was there, he spoke with Don Patten from Oregon's Monmouth Independence Network, a regional Fiber-to-the-Home network that serves the two cities of Independence and Monmouth. In the past, the network has faced some challenges, but in recent years the situation has changed, and now they've turned it around with a take rate higher than 80 percent. Don and Christopher discuss some of the problems that MINET has endured and the choices that led to those problems. Don describes the changes that they implemented to overcome those challenges, including a shift in their approach from utility to competitiveness. Don also talks about the need to push the envelope to keep up improvements in rural connectivity and gets into the details of their current expansion into Dallas. Now, here's Christopher with Don Patten from the Monmouth Independence Network.

Christopher Mitchell: Welcome to another edition of the Community Broadband Bits podcast. I'm Chris Mitchell with the Institute for Local Self-Reliance, sitting across from a chuckling general manager of MINET in Oregon, Don Patten. Welcome to the show.

Don Patten: Well, thank you very much Chris. And I was not chuckling at you; I was chuckling with you because of your enthusiasm. I appreciate that.

Christopher Mitchell: There's actually — one of the people who has listened to every episode, Travis Carter, who runs US Internet in Minneapolis, his wife is supremely annoyed by hearing that every Wednesday morning. So I ham it up a little bit for her, for both of them.

Don Patten: [laughs] Just for her.

Christopher Mitchell: That's right. So let's get started, and let me ask you, what is MINET?

Don Patten: MINET is actually an acronym for Monmouth Independence Networks. Monmouth and Independence are two adjoining communities in the Willamette Valley of Oregon.

Christopher Mitchell: Which I have to admit, the first time I saw that and pronounced it, I got laughed at for "Williamette."

Don Patten: Or "Willaminette" or something like that. Actually, you know, the hint that we give non-Oregonians is "It's Willamette, dammit." [laughs] It's one of the most beautiful places on the planet. We're about 45 minutes from the coast, we're about 15 minutes from the state capital of Salem, and we're about 45 minutes from the grand city of Portland.

Christopher Mitchell: And MINET was one of the early networks. I'm sure you know the history. I know you haven't been there since the beginning of it, but how did it come to be that the twin cities worked together on this?

Don Patten: Well, you know, it's actually amazing that these two cities were able to pull together on a joint project because it's like many cities. Minneapolis and St Paul have a similar kind of a Hatfields and McCoy feud going on, on just about everything.

Christopher Mitchell: And that one is clearly better than the other.

Don Patten: Oh, absolutely. Very competitive and at least in the political arena, not always in a real nice fashion either. But in this particular instance, they saw joint need, they both had the same need, and it's the traditional reason why they got started. They realized that they were going to be overlooked for broadband. Western Oregon University sits in Monmouth, and they realized that they were going to be on the have nots side of the formula and said that's not acceptable. The communities did reach out to the incumbents and said, "What can we do jointly with you to bring broadband into our communities?" And they got the traditional answer: "We'll tell you when broadband's available. We'll tell you when you need it." And they said that's not going to fly here and chose to go ahead and build their own network.

Christopher Mitchell: And that was — was it 2005?

Don Patten: That was almost 12 years ago now. Yeah.

Christopher Mitchell: Yeah, so it's been quite a ways. Now what I find interesting and what I want to talk about — there's several interesting things to talk about with you, but the thing that I really want to get out of you is the secret sauce of how you came into a network that, from what I could tell from afar, was succeeding but barely. It was not a pretty picture in terms of repaying the debt over time, there were some struggles to get the take rate up, and after you had been there for awhile, all of a sudden, it seemed like things were going very well. And so I'm curious if you can just walk us through how it was when you got there and what you did.

Don Patten: Well, yeah, I'll try to. And there is no secret sauce, first of all. It's merely rolling up your sleeves and not — if you had become what you tried to replace, to unwind that and definitely no longer become what you're replacing. And that was certainly the case with MINET. MINET had some significant debt issues because the cities chose to borrow money to pay for the original borrowing to build the network, which was a very poor business decision on the city's part and they're very open to admitting that, but that's what they did.

Christopher Mitchell: I'm sorry. So just to understand what that means. So, borrowing money to build the network?

Don Patten: They initially borrowed money to build the network, and then they borrowed money to operate the network, from which they were making the debt payments to the original bonds from. And that's just not a good business model in any stretch or sense of that.

Christopher Mitchell: Let's talk about why for a second. One of my understandings is that if you need to borrow money, typically it's hard to borrow money, so probably it's coming with a higher interest rate. I mean, is that one of the issues or is it just that there's less pressure on you to make those operating expenses pay for themselves?

Don Patten: The latter.

Christopher Mitchell: Okay.

Don Patten: Because cities do enjoy the ability to borrow money at very attractive rates.

Christopher Mitchell: Okay. So that's the issue then, is that they didn't have the right incentives to really dig into their business model to make sure it could stand on its own two feet.

Don Patten: Well, you know, I think the very original business model probably applied, but the operation was poorly managed quite frankly from the get go. As with so many municipal projects, there [were] too many political hands in the kitchen. There were too many government employees attempting to operate a business that government certainly has and should invest in doing it, in some form of partnership, but they got absolutely no business operating it. One of the very first things that I had to do is wrestle away the operating influences from the cities and from the political aspects of the cities.

Christopher Mitchell: And so, one of the things that we often see is a marketing challenge in particular cities. I mean, cities do a fine job operating electric utilities, water utilities, and things like that, but one of the things that sets them apart is marketing. And so I'm curious if that was one of the issues or if you can elaborate just a little bit more on where the challenge was. I mean, procurement and personnel issues can be challenging . . .

Don Patten: I would say this: that there was the mentality that if we build it they will come. And that has never worked anywhere ever, and that was the case with this operation as well. Plus there was the expectation that it could be operated like a municipal utility, and quite frankly we can't because we compete with Charter, we compete with CenturyLink, we compete with both the dish networks.

Christopher Mitchell: Right. I remember that from one of the talks you gave. You don't like calling this a utility. This is one of sort of the downfalls of the English language I think. The term utility means something different to everybody, and so a lot of the arguments sort of go past each other. But for your point of view, you really have to understand that you're in a competitive environment.

Don Patten: Absolutely. It has to be operated exactly like a competitive environment because in fact it is.

Christopher Mitchell: And so what does that mean? Does that mean having fewer staff than might be convenient? You know, what's one of the differences?

Don Patten: Well, utility is merely a monopoly. If you want that service, you have to go to that monopoly source to get it. In our instance, we're not the only source to get the products that we vend.

Christopher Mitchell: So the difference between operating as a utility, certainly that's the experience from the consumer's point of view, but if you're running the operation, how do you run it differently? Is it that you just can't afford — because this is one of the things I'm curious about. Municipal networks that have struggled in my experience, one of the things is they have too many people, which drives their operating costs too high relative their revenues.

Don Patten: Well I think there's a natural tendency to have built in inefficiencies in a utility. And that has to do with government process and until that process has changed, it's almost required law. But the difference between a for-profit business and a utility — a utility has the ability to set their pricing based upon their expenses, and a for profit business has to earn the money, earn the margin that they can obtain and do so against their competitors' pricing. But quite frankly, one of the things — and you're correct — one of the things that I had to correct when I got out there was a bloated staff, an inefficient staff, and make the operation as absolutely as efficient as we could possibly make it and do it very, very quickly because MINET was on the slippery slope.

Christopher Mitchell: This actually reminds me a lot of the Chattanooga story. It's something that they did before they got into the telecom business. They significantly reduced their FTE staff, and they improved on every single metric that they were tracking. And so it's this same sort of culture shift away from the idea of a utility and into a more nimble, you know, competitive enterprise.

Don Patten: Exactly. And until our most recent expansion endeavor, we have been operating with roughly about — we've been able to bring the customer count up. I'm very proud to say we've been able to bring the customer penetration rate up to in excess of 85 percent.

Christopher Mitchell: And that puts you in like the top five percent of municipal broadband, from what I understand, take rates.

Don Patten: Indeed it does, but far more importantly, we're able to hang onto it. We didn't just reach it by lowering prices or throwing some shiny special out on the marketplace. We just earned it the hard way with good old customer service and making sure that we were talking to everybody that could possibly be our customer. But the point I wanted to make was, as far as efficiencies, we support somewhere between 5,600 and 5,800 customers in our legacy markets of Monmouth and Independence. For the longest time, we did that with 14 FTEs, full time employee equivalents. In our industry, that is tremendously low. You know, there's companies even in Oregon with municipal ruts that have that customer count that are needing 50 to 60 employees to do that same.

Christopher Mitchell: So the secret sauce, you haven't said it officially, is you kidnapped all of the children in the town and told their parents they had to sign up for your network before they can see them again, right?

Don Patten: Well, yes we did do that. [laughs] No. The secret sauce is this: we applied business acumen in everything that we did.

Christopher Mitchell: So I mean, I can see that getting to 70 - 75 percent. An excess of 85 percent — is this a matter of hometown pride that then emerged to put you over the top?

Don Patten: Well, we certainly tried to take advantage of it, if in fact we could take advantage of it, if in fact people felt guilty not supporting their hometown entity.

Christopher Mitchell: Right.

Don Patten: But you know, that's very, very difficult to quantify. Even [with] as many questions as we ask every customer as to why they're there to become our customer or why they're there to leave us as a customer, some things are just impossible to quantify and that's very hard to do. But if we were able to do it, we were certainly trying. Actually, I think we closed out December at 87.3 percent penetration rate. And we have absolutely current counts on available passings, so we know that our penetration rate is extremely accurate. But one thing to remember is that with the other 12 or 13 percent that we don't have available to us, by and large, we really don't want them. I mean, we'll continue to try to get them, but most of them have been our customers at one time and in fact, they're probably still in our system. They just happen to be in our accounts receivable system because they forgot to pay their bill, and that's why we don't really want them back.

Christopher Mitchell: Right. That's a hard case.

Don Patten: And, you know, there's also another 4, 5, 6, 7 percent of the available customers [that] are always going to be changing, chasing that next shiny object. They'll be our customers sometimes; sometimes they won't be.

Christopher Mitchell: I interviewed Doug Dawson last year and he had said that you guys were — one of the things you were doing was recruiting farmers to the area. Now you're in an area that's outside the state capital, but it's still fairly rural.

Don Patten: It is.

Christopher Mitchell: And so, one of the things you're trying to do is to use your system to see what you can do on the farm, from what I understand.

Don Patten: One of the things that we are trying to do is to not — and you know, at today's meetings, today's symposium, we were talking a lot about thinking outside of the box to make rural broadband more successful. And quite frankly, thinking out of the box isn't going to get it done. You got to blow the box up.

Christopher Mitchell: Okay.

Don Patten: There can be no boundaries, even in your rear view mirrors. We're looking at doing anything and everything that we can possibly do to not only attract new potential customers into our system or to attract businesses into the communities as well. If that includes putting mobile devices on hops and wine grape trucks and bringing them through the community so we can have them ping through our system to report the quality and condition of those crops, we're trying it. You know, one of the things that — I hail originally from South Dakota, and we had a governor that was notorious for saying, "Just do — even if it's wrong, go do something." And we at MINET have that attitude in spades. You know, I stress to my people if they never fail at something, they're not working hard enough. And that holds true with those ventures that we look at for growing our business.

Christopher Mitchell: So, speaking of growing your business, we'll talk a little bit about what you're doing in Dallas. And that's Dallas, Oregon, not Dallas, home to the worst team in the NFC East by my opinion as an Eagles fan. So you're in Dallas. It's a unique approach and for people — we'll talk about it but also Doug Dawson wrote about in his blog, POTs and PANs, so there's a little more detail there. But what's the broad sketch of what's happening?

Don Patten: Basically, you know, Doug Dawson and I have been kind of partners in crime for a lot of years, and so we knew each other in a lot of past lives. And I was stressing to Doug that, you know, our efficiencies and our abilities should afford the attention of investors, and Doug at the same time was talking with some institutional investors that were looking for new growth opportunities. Investors that were traditionally building prisons and schools and leasing them back to states and counties were looking for new investments because quite frankly we as a nation aren't building more prisons and all the schools were built 10 or 12 years ago that are ever going to be built because brick and mortar schools are going by the wayside as a result of data, right — broadband. Because of our effectiveness and our efficiencies, Doug agreed with me that we'd be a strong candidate to expand our network if there was a private investor group interested in doing so. We've talked about a number of expansions, but Dallas is the closest community to our existing footprint. It's really about 10 miles away. We already have a path, a backbone path, going through the area, which makes it a lot easier to serve. We don't have to do much headend expansion to serve that community. And being that close, we knew that there was a great deal of interest in Dallas in MINET coming there simply because literally on a daily basis we would get calls from Dallas customers wanting to know when we were coming to their community. And we started tracking the volume of that and it was very substantial. And that's when we started doing some surveys into the community in conjunction with CCG, Doug Dawson's group, and found out that this might be a very viable partnership to pull together. So much so that the investor groups took a look at the data that we'd pulled together for them and they actually drove it to fruition. They wanted to do this. They wanted to do more communities with us, larger communities, more and larger communities off the bat, but together we decided we're writing a new book. We're going to see how Dallas goes, and if it goes as expected, I suspect we'll be doing some more expansion. Because really we have unlimited capability as long as we can reach them with fiber.

Christopher Mitchell: So the question that I like to wrestle with is the unpopular one, which is kind of what happens if things don't work out as expected? So, who's taken on the risk of this project?

Don Patten: First of all, the cities have absolutely no risk. MINET has a risk in that its name would be dragged through the mud as a result of a failure in that marketplace, but we don't have any financial risk that could potentially fall on the cities if that were the case. But that is not the case. It's purely the investors. It's no different than investing in Google or investing in General Motors.

Christopher Mitchell: So who owns the network, in that, if I came along and I said, "I really like what's going on here. I want to buy it from someone," who do I talk to?

Don Patten: Our services or the network?

Christopher Mitchell: The network.

Don Patten: Well the network is actually owned and being built by American Fiber Optics, the company that is marketing it is Willamette Valley Fiber, and MINET is hired to manage that network and to sell our services as Willamette Valley Fiber.

Christopher Mitchell: Okay.

Don Patten: Eventually, and without getting into details which I'm not at liberty to share, part of our agreement is that eventually MINET will own that network that's being built.

Christopher Mitchell: Okay. So this is a . . . I mean, I think of it as similar to a capital lease kind of arrangement then.

Don Patten: Very similar.

Christopher Mitchell: Okay. And so then the cities of Monmouth and Independence will own the fiber and the services and everything at the end of the term basically.

Don Patten: Yes. Exactly.

Christopher Mitchell: Okay. Are you serving rural areas outside of Monmouth and Independence?

Don Patten: We've been approached by a number of nearby communities, mostly populations of, I would say, 10,000 or less — maybe 5,000 or less. In one case, a couple of thousand individuals. Because we are government, other governments, other communities are reaching out to us to get advice, direction, guidance, whatever you want to call it, on how do they get broadband into their communities. And we've been working very closely with a number of very small communities. I think we're coming getting closer to a solution for them, but we've got a number of political hurdles to cross here in Washington, D.C., to make that happen for those small communities. The formula is very similar to what we're doing in Dallas, only with the city either getting grants or borrowing money to build a network and then hiring someone — perhaps us, perhaps someone like us — that would operate it for the city because again, a city has no business being in the business we're in. They have every reason [to] and should be investing with those who can operate it successfully, but they themselves should not be the operator.

Christopher Mitchell: The question I guess I want to wrap up with is, how is MINET different than if Verizon had made a priority to build Fiber-to-the-Home to everyone in Monmouth and Independence? What do you do differently that helps the community in ways that go beyond just the technology that's available?

Don Patten: There's the obvious ones. Our customer service is local. Our employees live in the towns. We see each other in the grocery store. When you call with a technical issue, chances are our technician's going to be in driveway in about 20 minutes and you're probably going to know that individual. But the other is, is that we are a partner with the city in creating economic development opportunities for the cities. And I don't know that a Verizon's business plan or a Charter's business plan or Comcast's business plan, would ever afford them to actually go hand in hand with the city after seeking economic development opportunities that does not play out or does not feed Verizon directly, does not feed Comcast directly, etc.

Christopher Mitchell: One of the things that we've been hearing for years is that partnerships are a major way forward, and I'm curious what you're thinking about in the way of partnership,

Don Patten: Chris, they really are as far as I'm concerned, and they give us a lot more opportunity to increase our margins. You know, traditionally every operator would only use network that they built or they owned. They would not lease it to anybody, and they wouldn't lease any network from anybody. If they couldn't build it and own it themselves, they didn't have any interest in it. We've taken the position over the years that we do a lot of fiber sharing with other entities, and it's proven very valuable to us to be able to reach out using someone else's network and having a profitability tool that wouldn't have been at our disposal if we would have had to build it.

Christopher Mitchell: Now, when you say sharing, I've heard of swaps and I've heard of leases. Is this something different, or is it along those lines?

Don Patten: Same thing, different terminology. But as an example, you know, I have a significant number of unused fibers going to one of our POPs, one of our colocation points where we reach out to the Internet as a whole, and one very large — very large — commercial entity was looking to get access to a number of those fibers. And I was interested in giving them access to a number of those fibers as long as I could get access to a number of fibers that they had that, quite frankly, were headed over to Dallas. And we've determined the value of "by mile" like you always do, and we found the right agreement by which they could use our network, we could use theirs, and we support one another.

Christopher Mitchell: And so —

Don Patten: And that really does open up a lot of opportunities to do business that we couldn't have done on our own.

Christopher Mitchell: Right. One of the things that I wanted to make sure to ask you about came up in Susan Crawford's new book, which is called Fiber and is terrific — just came out. She talks about a program that I think sort of gets to the root of what we want broadband to do for us, which is to give people more opportunities and improve quality of life. And it's teledentistry in your schools. Can you tell us what's going on there?

Don Patten: Where we live, we have a very diverse population. In fact, we have probably I think somewhere between a 38 and 42 percent hispanic population because of the amount of migrant workers that we have working in the valley. But unfortunately, the income level of that demographic is not very high. And we've worked very closely with Central School District — one of the largest school districts in the state of Oregon by the way, individual school districts in the state of Oregon — to bring telehealth into reality so that the children would have access to healthcare. At that time, we weren't able to get an interest from our regional health traditional health partners. We were able to get an interest from dental providers, and we actually have a teledental clinic setup for Central School District, which to give you an understanding of Central School District, they have near 68 percent free or reduced lunch participation. And these children are able to come in and actually receive dental services via telemed, no charge.

Christopher Mitchell: And this is remarkable. I mean they both have, you know, information about whether they have a cavity or not, but they also use a procedure that allows them to have the cavity filled. And it's very little pain, no drilling, by people that are able to — you know, I don't know exactly what their title is, but they're not full dentists, so there's a lower cost for them to work for the school or work for this program.

Don Patten: That's exactly right. And this is another thing that a small town, a small entity such as ourselves, when we're engaged with the community, we actually sat down with the school district and determine what would be needed in conjunction with the teledentistry program as far as bandwidth, and we decided to build fiber directly into the building that was providing that so that we would have no latency, no bogged down, because it is a high bandwidth pig operation. And for, you know, the other providers, the traditional providers in the community which would be Charter or CenturyLink, getting them to build to that entIty probably isn't ever going to happen.

Christopher Mitchell: Right. Well then the final part of it, which I know you're not an expert in but I'm guessing you may have a sense of the impact on the community, is that a lot of these children would have been trying to go to local dentists with Medicaid dollars. A lot of dentists either have a long waiting list or struggle to deal with Medicaid patients because of the reimbursement rate. And now, those dentists can use their time to work with patients that have more significant problems, and the kids that just need a routine exam or basic cavity filling, they're not sort of in line at the dentist when other people may need to get that spot.

Don Patten: That's exactly right. And quite frankly, what drove my decision to participate in and to absorb some of the economic costs of building it correctly for the school district was that while yeah, they may be doing it with state subsidized dollars, more likely than not, they would just avoid dental services altogether.

Christopher Mitchell: Sure. Right.

Don Patten: And that just breaks my heart that children would have to go through life like that.

Christopher Mitchell: Right. It leads to all kinds of problems. And so these are the kinds of outcomes that I love to see. I mean, it's easy to talk about, oh, we have lower prices and we have good local customer service, but here you're giving these kids much more opportunities, and they're going to do better at school not having a tooth ache every day, if they're having a problem.

Don Patten: That's exactly right.

Christopher Mitchell: Yeah. Well thank you so much for taking the time while we're here in D.C. for the Next Century Cities bipartisan tech event. It's been a good day, and tomorrow, which will have been in the past by the time people listen to this, but you're going to help launch the toolkit for Next Century Cities.

Don Patten: Yeah. I'm looking forward to it. And Chris, thank you very much for taking the time to talk with me.

Christopher Mitchell: All right, thank you.

Lisa Gonzalez: That was Christopher with Don Patten from the Monmouth Independence Network in Oregon. We have transcripts for this and other podcasts avaIlable at muninetworks.org/broadbandbits. Email us podcast@muninetworks.org with your ideas for the show. Follow Chris on Twitter. His handle is @communitynets. Follow muninetworks.org stories on Twitter. The handle is @muninetworks. Subscribe to this podcast and the other podcasts from ILSR, Building Local Power and the Local Energy Rules podcast. You can access them wherever you get your podcasts. Don't miss out on our original research from all our initiatives. Subscribe to our monthly newsletter at ilsr.org, and while you're there, take a moment to donate. Thank you to Arne Huseby for the song Warm Duck Shuffle, licensed through Creative Commons, and thank you for listening to episode 340 of the Community Broadband Bits podcast.