Transcript: Community Broadband Bits Episode 188

This is Episode 188 of the Community Broadband Bits Podcast. Eric Cramer, President and CEO of Wilkes Communications and RiverStreet Networks, describes this North Carolina's approach to providing Internet service in rural areas. Listen to this episode here.

 

Eric Cramer: We're not like Wall Street. We're not publicly traded. Our mission essentially is to serve the unserved. That's why we're here. 

Lisa Gonzalez: Good day and welcome to episode 188 of the Community Broadband Bits podcast from the Institute of Local Self Reliance. I'm Lisa Gonzalez. Co-operatives are playing an increasingly important role in bringing high-quality internet access to people in rural areas. In some places like Wilkes County, North Carolina, residents and businesses can get faster, more affordable, more reliable connectivity than many urban centers. Why? Because local, member-owned cooperatives consider themselves part of a community. They recognize the need and often choose to invest in future-proof fiber infrastructure. 

In this interview, Chris talks with Eric Cramer, President and CEO of Wilkes Communications and RiverStreet Networks. 

Eric describes the beginnings of the co-op and how the organization has gone from offering telephone service to services more in tune with today's market. Eric also describes how the co-op plans to expand. Neighboring communities also passed over by big and common carriers are turning to the co-op because they realize they may wait forever if they wait for the big providers. Check out the cooperatives website at wilkes.net and learn more about our expanding list of stories on cooperatives at the co-op tag at muninetworks.org. Here's Eric Cramer, president and CEO of Wilkes Communications talking with Chris about the cooperative and much more.

Chris Mitchell: Welcome to another addition of the Community Broadband Bits podcast. I'm Chris Mitchell. Today I'm speaking with Eric Cramer, the president and CEO of Wilkes Communication and RiverStreet Networks in North Carolina. Welcome to the show. 

Eric Cramer: Thank you. Glad to be here. 

Chris Mitchell: Well, Eric, I'd like to start off by asking you to tell us a little bit about the area you're in and then we'll talk about your organization and how you're expanding internet access. Where are you located?

Eric Cramer: We are in the northwest quadrant of North Carolina. Right where the Appalachian Mountains start is kind of where we are. When you're heading northwest in North Carolina there's something called the Piedmont then the foothills, the foothills run up to the mountains. We serve a rural area that is rolling into a mountain range basically. It's a very hard territory to serve. It's a rural area, very remote.

Chris Mitchell: Is that mostly farming area?

Eric Cramer: The Mountains themselves aren't, but there's a history of chicken farming here. Holly Farms Chicken started here, and then that eventually turned into Tyson Foods, if you've heard of that.

Chris Mitchell: Sure, yeah.

Eric Cramer: The area is known as the birth-place of Lowe's Hardware, it started here as well as Holly Farms Chicken which then eventually turned into Tyson. It's really Wilkes County, North Carolina, and we're right here with Wilkesboro and North Wilkesboro. We are basically a rural broadband provider. We started off as a phone company. We’re a cooperative, so we’re a nonprofit. We’re owned by our members. There are some farmers that got together that needed phone service. These larger companies just wouldn't come here, and how a lot of small rural companies got started was there were these spaces in between where these large companies just wouldn't go. 

We've been around for about 60 years. I've been in the industry for 19 years. I was a consultant for 8, and from Maryland moved down here. At that point in time we had just started putting fiber in the ground. We just completed a complete overbuild of our copper network with fiber. We are completely fiber to the home, to every single member, those up in the mountains and those out in the middle of nowhere, and all of them have access to a gig. It's an all-IP network. We're one of the few companies that are completely done with their, build. We didn't leave anyone on copper, we decided to go there and we have an all active network. 

Every single customer has their own fiber all the way back to what you call remote or a host. It's a little bit different than a coax network, a whole lot better. It’s different than sort of what Google's doing and Verizon that’s a shared ... It’s a PON network; it's a passive optical network. Ours is active. It's completely dedicated for each customer. There's no issues with latency or speed or sharing of the network like on a coax network. It's about as good as you can get.

Chris Mitchell: How many members do you have? 

Eric Cramer: Cooperative members we have about I believe 8800. That's the voting members, the owners. That’s really Wilkes Telephone Membership Corporation. The name we use in Wilkes is Wilkes Communications. It used to be telecommunications. We want to move away from using tele because really we see ourselves as a broadband company, that's our identity. Since we're done with our co-op build and we feel like the level of speed we offer to our membership is 25 and 5. 25 down 5 up. That is a pretty good beginning tier, and then we go all the way up to a gig. You can get 25 and 5 for as low as $35 and then we offer up to a gig. 

Chris Mitchell: You have the television service as well, right?

Eric Cramer: Yes. We offer voice, broadband, IP TV, security systems, camera systems, business phone systems, IT managed services, we have a whole suite of business services. We are in the process of beginning to resell wireless service over Verizon's network. We're looking at potentially reselling Direct TV dish as a compliment because ... Our TV product, it took a little while to get it right but right now we feel really good about it. It's right for some people. There's just some content we just can't get. It's very hard to offer IP TV as a small carrier. You just don't have a lot of negotiating power. It’s something we lose money on, but we're moving away from the traditional platform that we used and now we're going to be going completely over-the-top. 

Chris Mitchell: That was your original co-op territory. Tell me about what you're doing in the areas where you're expanding now.

Eric Cramer: Our territory in Wilkes, it's basically Wilkes County, North Carolina. By land that is the largest county in North Carolina. We kind of serve a doughnut hole. There's 2 towns in the middle of the county. That is where CenturyLink is. Our co-op serves the remote rural regions in the outside. We had to create another company, it's a CLEC, is the name. It's where you can compete with other carriers. We started that about 7 years ago, and that's all fiber. We really kind of ran that. Now we're going outside of Wilkes County and we created another brand called RiverStreet really because we thought that we didn't want to tie a name just to Wilkes and so RiverStreet really it's our address. We went through a bunch of names and it just had a ring to it. We created our own logo and that kind of thing. We started looking at places that needed broadband. Those areas that didn't have 25 and 3. We feel like there's a lot of areas that got left behind with some of these large carriers that just are not going to get there any time in the near future. 

We were approached by several counties asking us how to start a co-op. We kind of told them well it's a little hard, but we have another company that we can help you with and we can work some business cases. We worked with several counties as RiverStreet. That's one angle to figure out, how do we make a business case. The other angle is we acquired 3 small companies. They were independent telephone companies and 2 of them were in Asheville in North Carolina and then another one is on the eastern side of the state in Wilmington. They were purchased 2 of them back in the 70s and 1 in the 90s by a large company and they just haven't upgraded the network so we thought it would be a good opportunity for us to acquire them, which we did and now we're going to upgrade those areas to fiber the home. We've started that relationship. 

This project we have in a rural county in North Carolina, it's about an hour and a half from where we are. We have already spent $2 million toward a 110 mile fiber build. We won the county business. That was a way to get that started; that process. Our model in those areas that are not acquisitions, it's basically to work with the local county government officials, find stakeholders in the community, throw out sort of a value proposition that's a win-win for everyone. What we would like to do is say if you have a need to get broadband out residentially, because that's the hardest sell, where to build a network that provides residential rural broadband especially fiber to the home and an active network, you have to have at least the county business which is the biggest customer, the school system. Those are what these large companies care about. 

To get the stakeholders involved, and try to put together a long-term plan to win that business and then take that money and invest it back in the community by edging out on a residential basis in an area where no one else could go, seems to be a pretty good proposition for some of these areas. Especially the ones that just don't have a lot of coverage and they're economically depressed and are being held back from an economic development stand point.

Chris Mitchell: When you're building out on those areas it sounds like you've separated the historic co-op from the new CLEC ventures, do they have any chance of becoming members in the future or ...?

Eric Cramer: Yeah.

Chris Mitchell: They do?

Eric Cramer: Yes they do. Our co-op it's a regulated company and they've voting members. The 3 companies we purchased, they're a regulated company they're just not co-op. We can merge those 3 companies we purchased into our co-op and have them be voting members, it has to be approved by our membership. But anywhere we expand throughout the entire state we could eventually merge all that network, whenever we get to that point, and make them non-voting members of the cooperative. And that's our plan really, is to build a state-wide CLEC where there aren't any existing telephone cooperatives. There's 8 total in the state, but there's a lot of places in North Carolina where there isn't an existing telephone co-op. 

We love to partner with potential electric co-ops, and help them leverage fiber that they are putting in the ground, to either operate their networks or to help them get into the business as well as town municipalities. We can build the network and fund some of that or we could help them, a town or county build their network and they fund 80% and we could fund 20. The 20% is electronics and then we could operate it for them. Be that retail partner that they would need, subject to us getting enough of the anchor business.

Chris Mitchell: We've actually covered that model a lot. I think our listeners will be familiar with the importance of that.

Eric Cramer: Right. Right now you have these large companies that are taking the most profitable parts of the county and sucking that money out of that rural area and then leaving everything else sort of as a wasteland. Our situation there's a difference. We're a co-op, we have a cooperative mentality. We're not like Wall Street; we're not publicly traded. Our mission essentially is to serve the unserved. That's why we're here. We're a broadband company; that's what we do. We understand rural, we are rural. We appreciate rural customers. I think there's a business case to be made to put fiber out residentially in areas, but it takes a community effort and understanding to say we are willing to take the money that you have in this county that you pay your taxes with and put that back into your community. That's a 7, 10 year business case. Wall Street does not like 7 and 10 year business cases. We're willing to wait that far out to do that just because we are that passionate and believe in that mission. 

Our mission for our co-op is essentially to provide excellence in customer service and add value to the lives of our members. We want to do that exact same thing. We view ourselves as a community partner, not just a service provider. 

Chris Mitchell: You had mentioned that people could become non-voting members, and I think people who aren't very familiar with co-ops might be thinking, well what's the point of a non-voting member?

Eric Cramer: This year, our owners consist of anyone who has service. Because a co-op, you have to be in the original service area that the co-op is formed in. And so our regulated area, study areas that were created by the FCC and regulated. Our traditional membership in Wilkes is in these 4 rural exchanges. They will always be the traditional owners of the co-op, anything outside of the co-op is more of an expansion into these other traditionally-regulated service areas created by the FCC. In our case, a lot of that is CenturyLink or AT&T. Cable companies may expand over multiple service areas. For instance, we compete with Charter in our service area. Anything outside of that traditional customer base as long as they reside in that original co-op footprint, they have voting rights. Anyone else that just has service outside of the traditional co-op area, that was established with FCC, can be non-voting members meaning they're members, they get allocating capital credits, they can receive distributions and that kind of thing. They just can't vote in the governance of the membership. 

Chris Mitchell: I think you're saying is, just to really nail it down, is that they will still get some of the benefits in terms of a return on their ownership stake, but they will not be able to steer the direction the co-op takes.

Eric Cramer: They essentially have access to the same rates that our co-op members have. We have the same prices for anyone whether they're a member or non-member. All it does is turn that business into a non-profit status, so there would be no taxes on that operation that is essentially what it is. It's very hard to build these networks in these areas, so by making them non-voting members and bringing the into the co-op, it helps us further that model and make it a little bit more sustainable by making them non-voting members of our co-op. 

Chris Mitchell: Here in Minnesota we have one of the few areas where people have found a way of creating a new co-op for fiber. Like you said, it's very difficult and very rare. In this case they're funding the infrastructure basically, and they're working with another local ISP to provide services in the way that you're describing that you do for others. Is that the sort of thing that you'd be willing to do? If a county or even a group of people built their own fiber and wanted to lease it to you presumably under the speck that would work for you, is that something you're open for?

Eric Cramer: Absolutely. That's the project that we started in Stokes County. That's what I mean by public-private partnership. In North Carolina our telephone membership cooperation are essentially like entities of the state. We are a public entity, so to speak, even though we have our own board and that kind of thing. Our CLEC this other company we created called “RiverStreet,” we are their private entity, telecom provider/technology expert working with the county. In Stokes we own the network. In other counties, we would much rather have the county come up with the capital and we help them design, engineer, build a fiber network with their money. That's an investment that sits in the ground for 20, 30 years. We design the network, then we put our electronics on the end, and then we can operate it for them. It would be an open network, they own it. We would operate it with a, let's say a 20-year right to use. 

We would sell commercially half of it, potentially give them back a percentage of the revenue for the use of that fiber. Then provide connectivity out to the world, or a retail presence if they so wish, and then if some other provider wanted to use it we would serve as their agent for that as well. It's really a way to sort of open up municipalities to take the money they have and put them into tangible assets with a trusted partner that understands their mission and what they want to do. We think that there's a huge value proposition, a huge opportunity in this state in a lot of counties that are really begging for that type of partner. 

Chris Mitchell: Right, although I think the HB-129 law may complicate things in terms of just how they could work with you. 

Eric Cramer: That's where we come in as the operator. We are the telecom provider, all they are is an infrastructure provider.

Chris Mitchell: Just the way I remember reading the law, I have to think that there are some ways that if like CenturyLink or others wanted to shut you down there'd be ways of monkeying with that even though they're not providing any services. I thought there was some sort of limitation on even dark-fiber-type approaches, depending on how one reads the law.

Eric Cramer: I think in North Carolina we have that flexibility. I believe that's the only way really around it, is to engage in an operator. I know multiple counties that have their own fiber for their own IT services. They already have that asset in the ground that they could leverage. There are some school systems that have built their own fiber. USAC, which is a funding mechanism for schools through E-rate, they provide funding for Lit services, but there's also a program where if it makes sense, they will take a, I believe it's a 8 or 10 year run of what the Lit service cost would be and invest that in capital. The models is there for school systems, counties. Most school systems are funded by the county government or a large portion of it, to help them own their own assets. The issue is actually who is the provider of the services. 

We are a registered ÇLEC in the state of North Carolina, and now in Virginia as well. We can be their provider and help provide them the expertise that they would need to actually ... If they're going to build fiber or purchase an asset, to think the most efficient, way most reliable most scalable way for that investment to provide service to whoever they want. That's more so for the backbone network. We sort of have this model where if you have a backbone network, and we have most of the anchor business and there's a case there, if there's a 30% take rate somewhere we will build taps off of that network as RiverStreet and provide residential service to those customers. Really all the county or municipality would own is the backbone. That is really then and edge out into these residential areas. We think that with certain tools that we can use to gauge interest, crowd fiber is one of them. That is something we're starting to use to isolate areas and look at demand and having customers that want service be the champion for those roads or areas to let us know where to build.

Chris Mitchell: One of the things I'm very curious about when you started describing your history, it sounded like the co-op's been involved in fiber for a long time. As you noted, you've gone to fiber to everyone and I'm curious if you can explain how you funded that because if you listen to CenturyLink and the other telephone companies, they'll claim it’s just not possible to get a return on investment in these rural areas.

Eric Cramer: Their return is a little bit different than our return. We have a longer horizon. It gets back to these publicly traded companies. They're not going to build a network unless there's a certain amount of density. Now don't quote me, if the density's less than 30 customers per route mile or 30 subscribers per square mile they're just not going to go there. They also expect less than a 4 year return on all these investments. If the density's not there it gets kicked out. If the case is less than a 4 year return, they're not going to do it. They look at profit centers. They have a lot of copper out there, a lot of these incumbents. It's going to take them a long time just to upgrade the areas that have the density. Let alone those remote areas, we call them places in between. 

We're not as large as they are. We don't have the luxury of being located and having a nationwide network, or even a regional network for that matter, in multiple states. For us it's a huge opportunity for us to try to get scale through passing customers. We're not just going to build it and they'll come; that's not how it works. There has to be demand there, and there has to be a root business case with being recurring revenue from anchor customers or commercial customers. It's a slower process, but as a co-op, as a small company, we can absorb a longer acceptable time frame for return of that investment.

Chris Mitchell: But where does the investment come from originally? I certainly understand that idea.

Eric Cramer: All of our debt here recently has been through USDA, the Rural Utility Service, which is RUS. Our network was about a $44 million network and our co-op. We have about $24 million in debt for that. Now, half of our network was just straight RUS loans, and the other half was stimulus. We received a 70-30 stimulus grant loan. That's how we finished the most remote portions of our network. These edge-out opportunities in RiverStreet, the funds are generated from the cash flow from our existing business. There's a reimbursement for us committing to provide service to areas where no one else would go. These large companies get the same thing, just in a different form. You may hear some people call it subsidies. It's really what it is. It's a mechanism to at least keep you where you can provide that service. RiverStreet receives no such subsidies, and so there has to be a business case there. That's where it requires some kind of a contribution you're going to help with something, even if we wanted to own the whole network, it can't be 100% on us. It just doesn't work. 

Chris Mitchell: When you're talking about the way in which you do get that subsidy in the areas where you historically served, where no one else wanted to serve, where the cost of providing that network is so much greater than in urban areas which is why we have that transfer from the more urban networks to the more rural ones historically. It seems like the FCC is moving away from that, where basically over time you're not going to be able to count on that. They're using that money to try, in my opinion I'll just say, to give it to AT&T and CenturyLink and others so that they'll upgrade to a slightly better version of DSL because we know they're not going to do fiber. I just want to rip my hair out. I find it so aggravating.

Eric Cramer: It's frustrating. USAC disperses this money and the fund they say, is kind of gotten out of whack. A lot of the money that they've stored by giving it to these large companies, it gets funneled different places and they're for profit and they answer to Wall Street and shareholders and dividends and thing like that. It seems like their investment really goes to their profit centers. I don't think if they agreed on a period of time that they've used the money the way it should be. We wouldn't have this many customers out there with copper and just getting dial-up. Let alone 10 and 1, I think it's embarrassing that the definition of broadband is now 25 and 3 but the FCC is still only funding 10 and 1 for everyone, let alone price gap companies. The issue is there's a budget.

Chris Mitchell: As we're running out of time, I wanted to note that it is worth noting that CenturyLink has the urban centers of your county, the population centers, and they didn't do anything with it. You actually built fiber all around them and then actually through them because they just refused to take action.

Eric Cramer: We overbuilt them, and we want the school system away from Charter. We took pretty much picked up in our doughnut hole 80% of the business. We won the county business, the hospital, the community college, just because the people here get it. They want to do business locally. We invest the money back in the community. It works. The proof is in what's out there. You can see a national broadband map and you can see where the money's being spent. The large companies have their funding, our small companies have ours. There's a shift between taking it away from those that have already built, which is unfortunate because we've already spent the money. I think because we spent the money we should at least be reimbursed for what we thought we were spending at the time when the system that we thought, that's the real issue. We're kind of knee deep in that conversation right now. 

There's a lot going on with the FCC. They're about to put an order out rearranging or changing the way things are and that they want to try to take the money and funnel it to companies that have not overbuilt or upgraded just to give them 10 and 1. There needs to be a second round, there should be a higher bench mark of maybe 100 meg or gig and let it go out for auction. We're in some changing times. Unfortunately there's a lot of people that just don't have access to it. They're not as fortunate enough to be served by an existing co-op that's out there or a small rural carrier that cares.

Chris Mitchell: Well I think it's really great that you're expanding, that you're presenting a solution for people in these areas that have been left behind. One of the things that I hope will happen is that the state of North Carolina would establish a program that would make some money available for communities to be able to work with you as well. Let's hope something like that can help augment your efforts and thank you so much for coming on the show.

Eric Cramer: Thanks for having me. I appreciate it.

Lisa Gonzalez: That was Chris and Eric Cramer, president and CEO of Wilkes Communications in North Carolina. Send us your ideas for future interviews. Email us at podcast@muninetworks.org. You can follow Chris on Twitter, his handle is @communitynets. You can also follow Muninetworks.org stories on Twitter where the handle is @muninetworks.org. Thank you Cathleen Martin for the song "Player vs. Player" licensed through Creative Commons and thank you for listening to episode 188 of the Community Broadband Bits podcast. 

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