Transcript: Community Broadband Bits Episode 198

This is episode 198 of the Community Broadband Bits Podcast. Mark Erickson and Jake Rieke join the show to discuss the new cooperative model of RS Fiber. Listen to this episode here.

 

Mark Erickson: With the cooperative, yes we have to make some money, yes we have to pay the bills, but how can we serve our customers first and the bottom line second?

Lisa Gonzalez: Welcome to Episode 198 of the Community Broadband Bits Podcast from the Institute for Local Self-Reliance. I'm Lisa Gonzalez. Rural homes and businesses don't need high quality internet access only for streaming movies, checking email, and watching funny cat videos. Today's agriculture, including family farms, need access to fast, affordable, reliable connectivity for uploading crop reports, checking real time commodity prices, and to remotely monitor the status of crops and livestock. Unfortunately, farm technology is far ahead of large corporate provider infrastructure investment in rural areas. Farmers must depend on slow connections that nullify the advantages of modern technology. In Episode 198, Chris talks with Mark Erickson and Jake Rieke. Mark is the Director of the Economic Development Authority in Winthrop, Minnesota. Jake is a farmer in Renville County, Minnesota. In Renville County and nearby Sibley County, both farmers and people in town tired of waiting for the incumbents to provide 21st Century connectivity, in order to bring the connections they needed for economic development, education for their kids, and to help keep their rural communities competitive, they formed the RS Fiber Cooperative. The organization is owned and controlled by members and this now brings service that outperforms the internet access found in the metro. How did they do it? Mark and Jake who were instrumental in moving the project forward share their story. You can learn more by reading our new report, RS Fiber: Fertile Fields for New Rural Internet Cooperative. Download it at ilsr.org. Now, here are Chris, Mark Erickson, and Jake Rieke.

Chris Mitchell: Welcome to another edition of the Community Broadband Bits Podcast. I'm Chris Mitchell. Today I'm speaking with Mark Erickson, the Director of Winthrop Economic Development Authority, that's the City of Winthrop, and a member of the RS Fiber Cooperative Board. Welcome to the show.

Mark Erickson: Hi Chris. Thank you.

Chris Mitchell: We also have Jake Rieke on the line, a 5th generation farmer in Renville County and a member of the RS Fiber Cooperative Board as well. Welcome to the show.

Jake Rieke: Hi Chris.

Chris Mitchell: RS Fiber was our inaugural show, the very first show of the Community Broadband Bits Podcast. You were on almost a hundred shows ago, Mark, to talk about your progress. Finally, we're talking about how the project got structured and actually broke ground. Let's just start off. Mark, just briefly remind us, where is RS Fiber located and what is the region like?

Mark Erickson: The RS Fiber Project is about 70 miles southwest of the Twin Cities here in Minnesota. Our cover is most of Sibley County and a little bit of surrounding counties. It's about 700 square miles and it's a Fiber to the Farm, Fiber to the Home network.

Chris Mitchell: You're mostly farming communities, right?

Mark Erickson: We are. This is a heavy Ag area. We have 4 other cooperatives, Ag cooperatives, in our small community besides RS Fiber. This is an Ag community, an Ag area, Ag school district. We live and love Ag.

Chris Mitchell: Can you tell us a little bit about the cities that are part of the project that are within the bounds of the project?

Mark Erickson: Sure, Chris. There are 10 cities. The largest is about 2,300, the smallest is about 400, 1 county seat, 2 major school districts between the 10 cities, 1 high school in the 10 cities. There are some middle schools and some elementary schools. These are communities that have faced the decline of rural communities in the last 15, 20 years and we are hoping and we are working towards this fiber project making a difference.

Chris Mitchell: Jake, Mark had mentioned that this is a wireless and fiber project. Can you tell us how RS Fiber decided to move forward? What's the technology plan?

Jake Rieke: Originally, we had intended to bring fiber out to the farms at the same time as the cities, but logistically when you looked at how you actually put this network down it made more sense to do the cities first with fiber with the wireless overlay. Actually the hybrid network really works well. They complement each other quite well because all of our wireless towers are fed with the fiber optic cable. The rural area is covered with the point to point wireless, and that can do about 25 megabits per second internet, upload and download. It's symmetrical. Our range is about 5 to 7 miles out from each of the towers. The towers are located in all of the 10 or 11 cities that are involved in the project. I believe it's 10 cities and then we have an extra tower out there to kind of fill in the gap.

Chris Mitchell: You've been a customer for quite a bit now. Tell us what your experience has been using the wireless.

Jake Rieke: Yeah, I was one of the first to get hooked up off of the Fairfax tower. I see a pretty consistent 25 megabits per seconds of feed and it has been terrific internet and no complaints. The latency is great. No complaints at all.

Chris Mitchell: How does that compare with what you had before, both in terms of quality and in terms of price?

Jake Rieke: The price is about equivalent of what we had before, but the quality is far better. Really the options out in the country, out in the farms are you have satellite as an option. You have Verizon like a Verizon hotspot type setup as an option or there is a couple of other wireless ISPs out there, but their speeds are typically between 2 megabits per second and maybe up to 5 megabits per seconds, somewhere in there. That's on the download side. The upload side is always considerably slower than that. Apart from that, there's dial-up but you can't really consider that an option anymore with the modern internet.

Chris Mitchell: Mark, one of the things that you and I have talked about over the years was how important it was for you to make sure that everyone in the county had service. You noted on multiple occasions it would have been more cost effective and easier frankly to just build a high quality network to the cities. Can you remind us why is it important to go to these areas where it's more expensive to serve?

Mark Erickson: We started out originally looking at just the cities and then a county extension agent and economic development person came to us and said, "Please make it a Fiber to the Farm Study." His point was we're all symbiotic out here. I mean this is Ag and we have kids in school that go home and have no internet connections at all for their iPads because we're an iPad school. It just made great sense that we make this a rural study as well. That got submitted and placed pretty darn quick. We have tremendous support in our efforts from the rural area and we're really in lock-step on this. I mean we would, if forced to, go forward without the rural, but we don't want to go forward without the rural because our school districts, our healthcare providers, our businesses, we rely on one another.

Chris Mitchell: Can you give us a sense, Mark, of what the cost difference is between serving the cities versus serving the farms that are harder to reach?

Mark Erickson: When we had our study done and we had these numbers checked by some construction folks, it's about $2,500 per pass, per resident or business in the cities to build the networks. That's around $10,000 per pass or a home in the rural area. That's a large difference. We actually have a couple of our rural connections that could go as high as $15,000 or $16,000. We have some that will be much less than $10,000. It averages around $6,000 per pass if you throw everything in. That was a tough number to reach with our business plan. We had to figure out a way to make that cash flow. Through some creative financing, we got that done.

Chris Mitchell: Well Jake, one of the things that we have seen in communities around the United States where people are in your position is that people don't often give the kind of effort that you did. I know that you're not alone. There were many people from the townships in Sibley and Renville County and their surrounding areas that give a lot of their time. Can you just tell me what motivated you to spend so much time, year after year, trying to find a solution when you couldn't be sure that something would actually result?

Jake Rieke: We had really boiled down to 3 things. First of all it was poor service out in the rural area. My business of farming needs a broadband access of internet and a high speed internet connection. I have 2 kids that are age 2 and 4 and when you really think about it, if we don't have a plan, if nothing were to change out in the rural area, by the time they hit adolescence and high school age in 10 years or so, the internet connection would be a real struggle out here, living out here on the farms. The service out here, the service options that we have are either satellite or some sort of cell cover, either Verizon or AT&T and both of those have very prohibitive data caps. As soon as you start using the internet, you reach your data cap and it no longer allows either the high speeds or they cut the internet connection off. The other options were the wireless ISPs out here, where they have a very slow connection. Oftentimes in a 2 to 5 megabit range and have very slow upload speeds, it's sad.

Chris Mitchell: Well Jake, one of the things that I thought was particularly pointed in some of our discussions when we were working on the RS Fiber was I think some people think, "Well, it would be nice to have internet access." The way you were phrasing it was that you were afraid you'd actively be harming your daughter's chances to live on a 5th generation farm and that you might have to move. To me I can't imagine how hard that must be as a parent to be thinking what are we going to do? This is something that has been in my family for so long, but yet my children just won't have a chance. Could you just tell us a little bit about that, those feelings?

Jake Rieke: For me I was seriously considering having to move off the farm, a farm that was homestead by my family in 1862 and moving to a town with better broadband access, because I felt that there was a serious possibility that I was putting my kids at a disadvantage compared to those living in the city, and those with better broadband access. Today with modern technology and whatnot, it's a serious need for kids to have a good understanding of how everything works and to be interested in computer technology and things like that for employment in the future.

Chris Mitchell: One of the conversations we recently had on the podcast was with Fred Pilot who had written a book about universal service and the problems we're having with extending high quality internet access to everyone. I can't help but notice that you haven't listed DSL as one of the options. I know that I called you on your cellphone. What is the situation with your telephone provider there that you don't have either a good telephone line that's high quality or DSL?

Jake Rieke: Cellphone lines out here that were put in by the telephone company I think in the 1950s, somewhere in there, they're seriously eroded and they're 75 years old. It's kind of hit or miss whether or not you'll get a decent landline connection. DSL is not an option for us out here, because we're outside of the 2 or 3 mile range that you need to be within one of their nodes to get DSL service. CenturyLink is our provider out here now and they don't have an internet option for us.

Chris Mitchell: Mark, I also called you on a cellphone but you're located in Winthrop, which is a city that I would assume you're right there within. You presumably have better service. Why did I have to call you on your cellphone?

Mark Erickson: Well, it's kind of the same thing. It's a copper network operated by our local phone company. Their quality isn't bad. It's just not that good. There's a lot of pops and hissing in it. It's just an older network that requires a lot of maintenance, and they haven't been able to do it. I have farmers over on the eastern side of the county who say that they have phone service, but they work half the time because when it rains all of the pedestals go under water or they're knocked over. It's a high cost maintenance area for copper network and the phone companies are just, because of their business structure, unable to provide that maintenance out here. It just doesn't make sense for them.

Chris Mitchell: Well, one of the things that I know is floating around and I'll just say it, I know that you guys you're not able to talk about it because there's some pending litigation. As I understand it, HBC could offer telephone service in Winthrop but is having trouble porting numbers over because Winthrop Telephone is trying to play hardball with them basically or making it difficult. I think it's one of those issues that's floating out there that I just wanted to note that we can't talk about, because you guys are part of the structure that's involved in negotiations. People should be aware of that. Over time HBC will be offering high quality phone service to everyone there. That actually reminds me of something that I wanted to make sure we mentioned. You're a cooperative, Mark. You're not actually providing service directly. Just briefly tell us how people get services over the RS Fiber network.

Mark Erickson: Well, you become a member of the cooperative. We hired Hiawatha Broadband Communications out of Winona, Minnesota to be our operator. They actually do everything for the network.

Chris Mitchell: That's HBC, which I had just referenced, Hiawatha Broadband.

Mark Erickson: Yeah, it's HBC. They're a wonderful provider. They have been the answer to many of our prayers. We trust them. They do an outstanding job. You become a member of the cooperative. You go to the website and you can either call or email or stop in at one of the offices and you sign up for service, and they schedule your installation. There's no cost to have it installed, to have the fiber dropped to your house or to have it installed in your house. There's no long-term contract. There's no price change. There's no, this is the cost now and this is the cost down the road. It is what it is. When you call somebody, you get a local person on the phone. They respond as soon as they can. We just think that the quality of service that we're going to provide over the fiber, the customer service that's going to be available on a smaller network is really going to make a difference. I have a fiber at my house. I live in Winthrop and I have a hundred megs up and down. It's just incredibly phenomenal to be able to do that. My video is just crystal clear. It's just outstanding video.

Chris Mitchell: All right, all right. You can stop bragging. I'm jealous.

Mark Erickson: I have a gig if I wanted too, Chris.

Chris Mitchell: Probably for less than I'm paying for my Comcast asymmetrical, slow. Although it's somehow quite reliable frankly for a cable connection. It's not what I would call super reliable, but for cable it's pretty good. Now, one of the things that I think people should know is that HBC is not just the service provider, but they also were essential in I think 2 of the twists that made RS Fiber come to fruition. One of them we discussed, which was breaking the project into 2 parts, making sure that they built a ring first to connect wireless nodes and to start connecting some of the cities. They're going to finish connecting the cities and then they'll eventually then go out to the farms in Phase 2 with fiber. Immediately everyone, almost everyone, can take service from the wireless, which is important and something that HBC was one of the ones that helped think about how to do that. The second piece is what I want to talk about now, which is the financing. Mark, I'm curious if you can just walk us through it I think briefly. How does it start in terms of the local governments? What did they do to make this happen?

Mark Erickson: The local governments formed a Joint Powers Board and the original plan was to float a revenue bond and build the network all at once. The bond market kind of turned against us during the downturn and we had to come up with a new plan. The Joint Powers Board on the advice of Shannon Sweeney from David Drown, our financial provider, said why don't you do a public-private partnership that works like this. The Joint Powers Board will sell a GO, a General Obligation Tax Abatement Bond and loan it to the cooperative as an economic development loan. The amount of their loan is about 25% of the cost of the project. We put the down, down. There are at this point no public dollars involved. It's just a pledge of public dollars. Then the cooperative leveraged that down payment into additional financing from the private market and some USDA financing. It's still inflexed a bit and it's still being worked out, but it's workable. It was a great solution for us because it brought the cost of our project down in the amount of interest that we're going to pay by a substantial amount. Under the revenue bond, we had to borrow all $70 million at once, because we had to have extra dollars for cash flow and extra dollars for debt service reserve fund that was a requirement. We don't have to do that under this financing scheme, and we borrowed the money as we needed. The interest payments are much less. It really helps the business plan and we're lucky that we had the advisors and the partners that we did to recommend and make this thing work.

Chris Mitchell: Well, I think there's 2 additional sources that deserve credit. I thank you for not going on to list all of them, because it can take a while. One is the State of Minnesota has a program that is allowing you to connect some of the farms right off of the backbone. You've gotten a grant from that, from the Border-to-Border Fund as it's now called. Then the other is Blandin Foundation. Just briefly let us know how Blandin helped out along the way.

Mark Erickson: Blandin, the C.K. Blandin Foundation out of Grand Rapids, Minnesota has been our star work supporter. They provided the first $40,000 grant for a feasibility study or the matching grant. Along the way over the next 3 or 4 years, they provided some additional grant dollars to help us do our marketing and get it down the road. The grant from the State of Minnesota was for a million dollars and it's going to unserved people. We made the distinction that we wanted to direct those grant funds to unserved, so that's what we will do this year with those dollars. Between the Blandin Foundation and their initial support and their ongoing support and the million dollars from the state, it made a big difference in our project.

Chris Mitchell: I want to just say that one more time in terms of the financing arrangement, because I think people's heads often spin a little bit. I would simplify it by saying the city is basically bonded to raise some money. They loaned it to the co-op and then they set an agreement where if the coop, once it began offering service, struggled to make any of its debt payments, the cities would be repaid last. Which takes the risk out of the project and allowed local banks to participate more fully, because they would have much less risk. The project would have to fail so catastrophically for them to have any losses on their loans, that it's impossible to imagine that happening. Because even if the project doesn't work out well, it's still going to be generating a lot of revenue from all of the people that desperately need the service. Did I get that right?

Mark Erickson: You did. We subordinated our loan to the cooperative to all of the banks so we're the last ones to be paid, but we're the most secure form of financing. That gave a lot of comfort to the private lenders knowing they had that base of support for the bonds, if the co-op couldn't pay them. Of course our private lenders would be the first to receive their money if the project failed.

Chris Mitchell: Now, Jake, I know that you're over in Renville County so you didn't have to worry too much about Sibley County, because I know at one point everyone in Sibley was going to have service. When the county backed out, the townships themselves had to choose. I'm curious of the 4 townships that chose not to go forward with the project, the overwhelming majority of townships did go forward. Do you have a sense of whether any of those who have opted out, the cities or the townships that are not a part of the project, will they have a chance to get back into this?

Jake Rieke: Yeah. That is yet to be decided, but ultimately we have a business plan that we're looking at. The business plan has to pay the bills. That's what it boils down to. We would kind of take that as a case by case basis. There's no policy that the board had set that says absolutely not to anybody who wants to jump in. That's something that the board will have to discuss and make a decision based upon the cost of construction and the number of subscribers and the revenue that will ultimately come out of that.

Chris Mitchell: Jake, I want to follow up then with something that I deliberately held over. We could have talked about it earlier, but how has your life changed now that you've gone from having slow internet access to having faster? It's faster than the minimum broadband definition that is set by the FCC. What's different for you now out on the farm?

Jake Rieke: I'd say it boils down to everything just works more efficiently. The internet just simply works better. If my wife and I are watching Netflix or Hulu or something at night, you hit the button and you don't have to walk away while it streams. The program just starts. If I'm using the internet for farm use, I no longer have to plan ahead when I do software updates on my monitors that I use on my tractors and combine. You can go online. You can download the software that you need and it's there within a minute or 2. It doesn't take an hour. Really I started using Dropbox and Cloud storage and things like that, because before it just took the internet connection up the entire day. If you wanted to use some backup services, you pretty much shut your internet connection down for the day as it was trying to upload that information. We set up network cameras out at our hog space and now if there's ever a question of what's going on out there at the hotlines, you could bring them up on your phone. You could bring them up on the computer and there's no glitching up, there's lag. It's high definition video and that all works tremendously.

Chris Mitchell: Well, I'm curious if in the future we'll see. I know we have sort of the cage-free chickens and that sort of thing. Will we have video surveillance-free hogs violating our privacy?

Jake Rieke: Yeah.

Mark Erickson: Are you starting a cause, Chris?

Chris Mitchell: Well, now that you've developed the model for solving our rural internet access, I have more free time on my hands. I am curious, Mark, we were in the Iowa Association of Municipal Utilities Conference and you wowed people with how much opportunity you see for economic development because of having this high quality internet access throughout the community. Tell us about one of the things you're most excited about.

Mark Erickson: I learned about the potential of the economic development regarding fiber networks from you and Jim Baller, but it is phenomenal. We are going to make a big difference in our schools. We're using the network as leverage to bring in the University of Minnesota extensions. We're going to enhance and create new STEM curriculum in cooperation with US Ignite and the University of Minnesota. We're also going to provide for a full blown makerspace over in Fairfax and it's going to provide opportunities for students and adults to learn coding, robotics and drones, and learn 3D printing and injection molding perhaps in our metal manufacturing and welding. We are going to make a difference with our healthcare because we're going to leverage this network for new Telehealth opportunities. We're going to develop a broadcast journalism center, where the kids will have their own TV channel on the lineup and they'll be able to write, produce, and direct their own original programming. We're just so excited about the potential that this fiber network will bring to change the way we live, learn, work and play. It's really exciting. It's real and if you work at it and you find those little springs that lead to the right places, you can make it happen.

Chris Mitchell: Well, you already have a new investment, don't you? That's already been committed to, is it a medical school?

Mark Erickson: Right. Over in the City of Gaylord 7 miles to the west there's 2 towns hooked up right now with fiber, Gaylord and Winthrop, because of the fiber network, directly because of the fiber network, there's an organization out east that wants to put a 600 student medical school in the City of Gaylord in an old high school there they renovated. I believe it's going to happen. It's not 100% yet, but there's a lot of support in the area for it. This is a school that will train doctors for rural Minnesota, for rural practices. We're very excited. It could change the landscape here dramatically, but for the better. It all started with fiber. It's not going to happen everywhere, but when you can get that kind of connectivity in your home or your business or your farm, you can begin to improve a lot in life. You can do things more efficiently. You can participate in the 21st Century.

Chris Mitchell: Now, one of the things that I'm curious about, Jake, is looking toward the future. Can you tell us a little bit about you're on the co-op board, in 2 years the cities will finish getting the fiber and they'll start looking at building the fiber out to the farm. Now, are you at all concerned that the co-op might decide not to connect the farms with fiber? They might just say wireless is good enough.

Jake Rieke: We've heard some of that out in the rural areas talking with neighbors and whatnot who have received the service. Their first thought was, "Well, boy this 25 megabits per second is good enough for me, why would I ever need more?" When you look at the data over, I don't know how long the trend line is, but I think it's since the early '90s, about every 3 years there's a doubling in demand for household bandwidth. Right now if you take that 25 megabits per second speed in 3 years, households will be looking for 50 megabits, in 6 years we'll be looking for 100 megabits and so on and the trend continues. There's no evidence that that trend is going to slow down any time soon. That's why wireless is a terrific temporary solution. It mixes well with fiber, because you can source those wireless towers with fiber optic connection, which can be a bottleneck in other ISPs, in other wireless ISPs network. If you think of the wireless as a temporary solution to build the business, to start the business, and then ultimately take revenues from the business to continue to stretch it out into the rural area, that's a really terrific solution for getting fiber out to the farms and for getting fiber built in low density areas.

Chris Mitchell: As a final question, I'm just curious for people who may not have as much experience with cooperatives. I kind of think that you and Mark think of cooperatives as being as natural as can be. You're from basically the cooperative capital of the country. Why is the structure of a co-op important in this case?

Jake Rieke: I would say cooperatives are just a lot more focused on service to the customer as opposed to increasing shareholder profits. I think that's what it boils down to is when you have a cooperative network or people involved in a cooperative, they're looking at what that cooperative can do to better the service for the customer.

Chris Mitchell: Great, and Mark do you have anything to add onto that?

Mark Erickson: I just hearken back to what Jake said about the doubling of bandwidth and the poor network that's out there now for the rural areas for a little time and thank goodness we have those incumbents building up to a 10, 1 standard. Because we only have to go back 5 years to make that a realistic goal for them.

Chris Mitchell: I think that's an important comment because I actually think it's possible that at the same time that Jake is getting fiber to his field from RS Fiber, the federal government will be paying centrally to extend 10 megabit download, 1 megabit upload to his farm. That's what the federal government is doing with the Connect America Fund. I think you're right to poke light at it. I think it's atrocious that you guys had to scramble to try and find the funding to build the network that's a generation of tomorrow. Whereas the big incumbents just go and they lobby and they set the federal programs to be subsidized to build the network that was obsolete 10 years ago, 5 years ago. I think it's a very good comment. It's apropos at least.

Mark Erickson: The incumbents by and large do a great job, but unfortunately for us out here, they have a business model that doesn't work. Some people call it a market failure. They have to keep their shareholders happy. They have to maximize profits. They have to. That's their job or else they're not doing their job. With the cooperative, the board of director's job is to maximize benefits. Yes, we have to make some money, yes we have to pay the bills, but how can we serve our customers first and the bottom line second? That's the business model that works for this long-term investment.

Chris Mitchell: Right. I certainly wouldn't want to suggest that the CEOs of the telephone companies are evil. In fact, if they decided to suddenly try to build a network like that that you're building, they would be forced into a sudden and unplanned retirement by their shareholders.

Mark Erickson: Yes, they would and they know that.

Jake Rieke: I would liken this conversation to what Paul Bunyan Communications is doing in Northern Minnesota. If you look at that, that's a well established cooperative with good asset to debt ratio. Look at what they have been able to do with those cooperative funds. Correct me if I'm wrong, but I believe they have the largest by area fiber network in the nation. That I think boils down the debate between the cooperative and investor owned utilities.

Chris Mitchell: Right, I absolutely agree. We come down fiercely on the side of the cooperative model. This has been a terrific conversation. There is so much more that we could talk about that we could write a 30-page case study on and in fact have. Even then, we had to leave things out. I hope people will go back and listen to the previous interviews, but I really want to thank you both for taking time to come out and tell us more about how you've established the model and how it is moving forward. Thank you.

Jake Rieke: Thank you, Chris.

Mark Erickson: You're welcome. Yeah, you're welcome.

Lisa Gonzalez: That was Chris talking with Mark Erickson, Director of the Economic Development Authority in Winthrop, Minnesota and Jake Rieke, a 5th generation farmer in Renville County, Minnesota. Be sure to go to ilsr.org and check out the new report on the cooperative, RS Fiber: Fertile Fields for New Rural Internet Cooperative. Send us your ideas for this show. Email us at podcast@muninetworks.org. Follow Chris on Twitter. His handle is @communitynets. Follow muninetworks.org stories on Twitter. The handle is @muninetworks. Thank you Kathleen Martin for the song "Player vs. Player" licensed through Creative Commons. Thank you for listening to Episode 198 of the Community Broadband Bits Podcast.

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