Transcript: Community Broadband Bits Episode 240

This is the transcript for episode 240 of the Community Broadband Bits Podcast. Christopher Mitchell speaks with Darren Farnan of United Electric Cooperative in Missouri. The electric co-op has undertaken a fiber project to bring high-speed Internet service to their members. Listen to this episode here.

Darren Farnan: We're seeing almost 70 percent of our customers either take 100 Mbps service or above. That's telling the story of what that real demand is out there.

Lisa Gonzalez: This is Episode 240 of the Community Broadband Bits Podcast from the Institute for Local Self Reliance. I'm Lisa Gonzalez. It seems like every day we learn of yet another electric cooperative bringing high quality connectivity to rural communities. In areas with low population density, national providers don't offer high speed service and electric cooperatives are already offering electric services, so providing fast, affordable Internet access is often the next logical step. In this interview, Christopher talks with Darren Farnan, Chief Development Officer of United Electric Cooperative in Missouri. The Cooperative is working on a fiber project and in addition to talking about that, the guys discuss the logistics and financing of bringing fiber to very rural areas. Darren also gets into why it's so important and why cooperatives are picking up the slack where national providers won't serve. You'll hear Darren use the term ILEC. If you're not familiar with the term, it's an acronym for Incumbent Local Exchange Carrier. It's a telephone company that's already established and providing telephone service in a local area.

Christopher Mitchell: Hey folks. This is Chris Mitchell, the host of Community Broadband Bits. I just wanted to ask you if you could do us a real big favor to help us spread this show around. That's to jump on iTunes or Stitcher, wherever you found this show, and to give us a rating. Give us a little review, particularly if you like it. If you don't like it so much, then maybe don't do that, but if you're enjoying the show, please give us a rating and help us to build the audience a bit. Thanks.

Lisa Gonzalez: Now, here's Christopher and Darren Farnan, Chief Development Officer of United Electric Cooperative of Missouri.

Christopher Mitchell: Welcome, to another edition of the Community Broadband Bits Podcast. I'm Chris Mitchell. Today, I'm speaking with Darren Farnan, the Chief Development Officer of United Electric Cooperative in Missouri. We're going to be talking about the United Fiber Project, a broadband expansion project, that United Electric Cooperative is in the middle of. They're actually finishing up, really. Welcome to the show, Darren.

Darren Farnan: Thanks for having me, Chris.

Christopher Mitchell: One of the things that I find interesting working in this space is that people will assume if I told them that we're talking about an area in one of the most rural regions of Missouri, they would naturally assume there is not very good Internet access there. Maybe you can tell us a little bit about the United Fiber Project and dispel that myth.

Darren Farnan: At one time, your thoughts are correct. Back in 2010, when we were originally looking at this project, whether or not, as a co-op, we could apply for Reinvestment Act funds. As we did a survey of our membership, nearly 89 percent, almost 90 percent of our members, we found were either unserved or underserved with 5 Mbps broadband. We knew, obviously, being from the area, we're ingrained in the communities and ingrained in the region, and knew that there was a severe lack of broadband. Even then, when we saw the survey results, it really opened our eyes to just how big this problem was. That was the driving force behind it. Again, as you mentioned, we're such a rural area, we're in extreme northwest Missouri, we have the fortunate, or unfortunate, case of being the lowest density co-op in the State of Missouri, averaging just around 2.4 meters per mile. Everything we do, that is a challenge for us.

Christopher Mitchell: That is a remarkably low density. For comparison's sake, I think a lot of people assume that the private sector really struggles and is not interested in doing fewer than 11 homes or, as in electric parlance, meters per linear mile. That's pretty low density. You reach across six counties, I think, right?

Darren Farnan: That's absolutely right. With our fiber footprint, we do reach across six counties. We were a little bit unique in that some of our area was also served by Rural Telephone Co-op. Those were areas that we could not apply for in the original grant process.

Christopher Mitchell: We're going to get into some of those, a sense of how many of your members have access to the fiber and look forward to learning more about that. I wanted to start off with a little bit of the philosophy and little bit of the anecdotes, I think, around this and get a sense of -- You said, you had almost 90 percent of people didn't have access to what we would consider broadband at that time. Why was it important for your electric co-op to solve that problem?

Darren Farnan: Well, obviously the one thing is with co-ops, I think, really across the country, by being ingrained in those communities, we're always the part of the economic development process, I would say for the most part. I was involved with that process here in our local community. It was just the fact that we see population being a real problem. Obviously, we're losing population in these rural counties. Kids are moving off. That talent drain where they're educated here, may go to university here, but then they're off to the Kansas Cities or other areas for the jobs. We're always looking at, "How can we revitalize these areas?", because we see from the farm standpoint, where the farms are getting larger. There's fewer family farms. The small rural communities sometimes dry up. Really trying to figure out the first thing in economic development you have to do is stop the bleeding, so to speak, even before you start talking about drawing in new businesses or new people, how do you retain what you have? We felt like broadband was obviously a very critical piece to doing that and keeping people here in this region.

Christopher Mitchell: Are you seeing fruits from that? I mean, you've had in some of your areas, I'm presuming it's been multiple years of you having this high quality service. Are you getting the results that you were hoping for?

Darren Farnan: Well, you know, we started the service back in the middle of 2013. What we have done as part of this process, not only build out our rural footprint, which is what we did to begin with, we've also served a lot of the adjoining communities. A lot of small communities that have access to very low grade DSL, at best, some of them had cable services in the past, but those cable companies have pulled out. We went in and started serving those businesses especially, whether it be schools, clinics, mom-and-pop businesses, whatever that may be. We felt that has been some of the most rewarding experiences out of this whole piece is as a region we're so interrelated, whether or not we serve them electrically or not. Most of these communities, we do not serve electrically. I always like to bring up one good example of, it's a dairy. Now, this one is on our line. They had really reinvented themselves. It was a small family dairy that has grown into a large operation by doing flavored milks. They deliver throughout the Kansas City area and have really created a really successful business. When our services came out to them in the first part of our building phase, they were to the point where they could hardly even do a credit card transaction in their buildings. They have lots of visitors every year. They have a visitor center that they bring children's groups into and things like that to try all their flavored milks and tell their story. Those are the types of stories that are really gratifying. Those are the types of things that story-after-story of companies or individuals that are now able to work from home or their business because everything's gone to cloud-based. They're now able to do their business in our area. Countless stories of how's that's helped, I believe, in our region.

Christopher Mitchell: I really like that story. In part, because you're talking about a business that impacts both the urban and rural areas. I think it gets out one of the points that I always try to make when we're talking about rural broadband policy, which is that if you live in a major city, you will be better off if we make sure that everyone is well-connected. It's not the case that somehow people in Kansas City would be better off if that dairy farm had poor connectivity. Right? In fact, they're better off because of it, because people who are innovative, the entrepreneurs, we want to make sure that they can succeed wherever they are.

Darren Farnan: The largest community in our region is St. Joseph, Missouri, which is about 75,000 people, but we've gone in there, even at the request of the major healthcare provider there. They wanted us to connect some buildings. That provided such a great opportunity. We do have some nursing home facilities, some clinics, either on our line or in small communities where some of the broadband is challenged. We look at it that, "Hey, we're able to connect this major provider to all the other providers in the region whether or not it may even be one of their affiliated clinics or one of their affiliated locations. What does that do now for the potential of telehealth?" Whatever that may be, as those services become available, not only are we filling an immediate need, I think we're also putting a possibility in place that really allows for the growth of what broadband services can provide out to these rural markets.

Christopher Mitchell: Let's talk a little bit about the number of people involved. How many households and businesses are in your area? How many of them are able to take service from you?

Darren Farnan: Well, our original footprint, when we built our rural market, was about 4,500 homes. Since then, we have, just over this last year in 2016, we completed our first community build, which is a municipal that is on the fringe of our area.

Christopher Mitchell: When you mention municipal, you mean there's a municipal electric provider that then welcomed you in?

Darren Farnan: Correct.

Christopher Mitchell: It's always good to hear that because I know sometimes different electric providers may not be super-friendly across their boundaries. That was a community that already had both DSL and cable or one or the other?

Darren Farnan: Correct. Also, looked at a community that was a non-competitive market as well. We're just ending the completion of the competitive market for the municipal electric community that we had. Then, we're also in the middle of completing the small community that we looked at from a full Fiber-to-the-Home residential build. What we have seen is, in the competitive market, are take rates have been very strong and growing quickly. The one interesting thing I'll say about the non-competitive market, the small community that we went in, there's a little over 400 homes in this community. We went in on the first night, went over to start getting sign-ups, and this was this summer at a community event, thinking that we would start off maybe with 20 or 30 sign-ups that night. I know we hit our pre-registration mark that very evening. We had over 80 people sign up in one evening for service because they're so desperate for some type of service that will allow them to do Netflix and all the other things that people want to do with a good broadband connection. I think we're seeing, depending on whether it's a competitive market or a very poorly served uncompetitive market, that desire, that need for better bandwidth is really driving that take rate.

Christopher Mitchell: How does it work where you are dealing with a cooperative telephone provider already in your territory? How do you work that out?

Darren Farnan: Typically, what we have done is because, again, they faced the very same rural issues that we serve with the low density, that because we were both really utility borrowers, we did not -- Obviously, we could not even request funds in those areas for the original Reinvestment Act. While we have crossover in some fringe areas, we typically don't have a lot of crossover there. They have typically done a better job of reinvesting in their markets than what the large ILECs have done. We try to focus our efforts, what we can do, on those markets to me that are the most poorly served and most challenged and really have the least hope of ever really getting good broadband service to their market.

Christopher Mitchell: Obviously then, there are people within your electric territory that do not have fiber service from you, but they may have service from one of those co-ops that you just mentioned. Is there anyone within your territory that just doesn't have service today?

Darren Farnan: There still are a few. That's why we have, within the original footprint, because again, we were a very small co-op. We only have about 10,000 meters total and because of our density, we looked at that primary area of the ILEC provider that provided in our region. Now, there still are a few pockets, what I would call "ILEC customers" or "large ILEC customers" that are also members. We are trying to work through ways to get to those members as well. We're always looking for opportunities. Obviously, with the Connect America Fund, some of the things that are happening with that, we're staying on top of that situation and trying to get any funding help that we can get. Also, as we become more successful with what we've done in some of these communities, especially from a business standpoint, which has been surprising, honestly, as to how much demand there's been there from the business sector. It's really helping us as far as speed up our timeframes from what we originally thought on our income statements and that sort of thing. We're really hoping to take that money and eventually reach those pockets. We tend to serve those now with wireless or with satellite services, but honestly, that's what we're trying to do is get as much fiber out there as we can.

Christopher Mitchell: As a co-op then, would you feel that your mission is ultimately to make sure that everyone has equitable service in the end?

Darren Farnan: That is definitely our goal is to make sure that everyone we can reach realistically, obviously, without threatening the financial stability of the co-op, that we're out there aggressively searching for ways to do that. The other thing we have found that I'll just add to that, is the one thing this has allowed us to do, now with more fiber capacity, and we have fiber to most of our substations and those areas now as well, it has allowed us to improve our wireless services. In those areas, those pockets, we are trying to continually reach those with wireless in the short term until we can get either additional funding or other ways to reach those members.

Christopher Mitchell: Let's talk about that wireless. How long has that been going on?

Darren Farnan: Honestly, we have been doing wireless services since, gosh, in the early 2000s. It was when we worked with a neighboring co-op. As a matter of fact, Randy Clint, I believe, who's been on your show before, was at a neighboring co-op. We have worked together for a long time. We piggybacked off of his wireless network to start extending wireless services to our members well before we even thought about fiber services or anything like that. We have been working at that for a long time and continue to look for resources and access. It is a more challenging model in and of the fact that the equipment changes fairly regularly. There have been real strides made in that market to where we're able to provide much better bandwidth, much better services to that end user. Again, you still have some terrain issues where we have rolling hills, trees, that sort of thing. It's hard to provide 100 percent coverage with wireless but where we can, where we can fill that in, we feel like we're bringing those members a much better service than what they would have, again, with any low grade DSL or satellite service.

Christopher Mitchell: What kind of capacity can you offer now? You're mentioning that it's better now that you can do some of the back hole with the fiber. What kind of speeds can you offer to a person out there in those areas?

Darren Farnan: We're seeing we can easily offer 10 Mbps services and often up to 25 Mbps services, again, depending on the distance from the tower or wherever that access point resides to that customer. That's basically given us the potential to get a much better, a real broadband service to them, whereas in the past, that was usually a lower bandwidth service that while it would suffice for the needs. As we've seen, the demand has grown so much that we are able to add it, at a good price, and at a good service level, provide wireless service again, in the interim, at least to get these people on a service that they can use.

Christopher Mitchell: Right. That's for, I mean, a lot of people in these kinds of areas, that's incredible because that's the difference between their children having a good ability to learn in school, doing their homework, and accessing educational materials. Also, if they want to sell their home, making sure that they can get a good value for it rather than having to price it way lower because no one wants to move into a home where they can't stream Netflix is what I hear from the local folks.

Darren Farnan: Absolutely. You know, it really becomes an issue of -- What a lot of it is capacity. That's what we tend to focus on speed and things like that so much, but what we find is, that some of our folks on satellite, the speeds are fine. That's not the problem, but latency and then capacity, and if you go to stream Netflix or if the kids are downloading a lot of material, looking through YouTube or whatever it may be, you just hit those bandwidth constraints. At least with our wireless service, that's something that, especially when they're fiber-fed, when we have that fiber backbone to feed those wireless services, that really opens up the potential for us to not worry about usage caps and those sorts of things that they might experience on a satellite service. That's why we see those as being so restrictive. I sometimes compare that to, they say in that pretty red sports car, that you can only drive it about 40 mph. It's one of those things that we really look at the wireless as an extension of the fiber service to reach out in areas that maybe unattainable to us right now from a financial standpoint, but that we hope we can push out into further-and-further with fiber as time progresses.

Christopher Mitchell: I want to note that you mentioned a wireless person might be expecting a 10 to 25 Mbpsabit service as the new fixed wireless that you're contemplating, but you're pushing a Gig to people that have Fiber-to-the-Home and at a very reasonable cost, $100 a month, is what I'm seeing on your website.

Darren Farnan: That's right. The one thing we're seeing in usage trends and things like that as well, or what I should say is, customer preference. When we first started this business, and I think you'll see there that our minimum package on fiber is 25 Mbps. What we saw originally was that over 50 percent of our customers were taking that base service because it was, obviously, such an advancement from what they'd had before. As time progresses and as we keep moving forward, we've seen a real change in that. Now that we're seeing almost 70 percent of our customers either take 100 Mbps service or above.

Christopher Mitchell: Wow!

Darren Farnan: I think that's telling the story of what that real demand is out there. One other thing I'll add to that as a managed wireless service, I think obviously we feel like this doesn't end at making the fiber connection to the side of the house. This really ends up at the antennae inside the house. We look to provide a managed service we call, "Unify." Since the first of the year as well, we've been tracking this. When I say, "the first of the year," I'm talking about 2016, nearly 70 percent of our customers have taken this managed wireless service. Even though they may have a router in their house, they want that service in the house to be as high level as possible. That means to reach the kids' bedroom, the basement area, wherever that may be. They want ubiquitous service throughout the house and they don't experience speed drops or service drops. We're really trying to make that a priority is to make sure we manage that experience inside the house, not just getting fiber to the outside of the house.

Christopher Mitchell: I think one of the reasons you probably have such a higher uptake is that your pricing is totally reasonable. It's $50 a month for the 100 Mbps service. One of the questions I always have is, "Do you foresee having to raise the cost of these tiers over time or is technological change driving the cost down and allowing you to basically expect to keep that price steady over time?"

Darren Farnan: We're really -- Our goal is to keep that price steady. I think, obviously, when you're in a small rural market like what we are, we've found that, and I know others have, some other co-ops that have looked at this business, sometimes getting that back haul is difficult into your head and getting it at a price that can make these types of services available at an effective rate, like we believe we provide. We've seen that continually come down. We talk about the value of the network. I think the more you expand, the more that network's out there, the more opportunities arise. We've found as we've gotten into some of these other communities, we've been able to make interconnections with other folks, with other providers that are allowing us to actually drive down our wholesale costs even though the demand from the customer side is going up. We believe that we can hold the line on our data prices into the future.

Christopher Mitchell: That's what I like to hear although I know that myself, as a Comcast subscriber, I'll be paying more every year or two because they know that I'm not going anywhere else.

Darren Farnan: Right.

Christopher Mitchell: I'd like to talk a little bit about the cost of building such a great network out across such a rural area. Do you have a sense of the cost per average house?

Darren Farnan: Because we've done such a mix now of rural and residential, obviously our rural market was, like I said, towards the upper end. When we originally looked at the applications through RUS was towards that $5,000 threshold per home, which is obviously on the high end. That has drastically come down as we've gone into some communities obviously, where we've picked up both business and residential to help drive that average cost down. You know, cost is always an issue. These are expensive networks to build. There's no doubt about it, but we've made that investment. Our outlook from a Comcast or our outlook from a CenturyLink is totally different. We're investing in the region. We're used to long term investments. For us, honestly, fiber service compared to our electric service, is a very solid investment. We believe, even though we don't need three and five year paybacks like most of the competitive carriers do, we still have to have a payback at the end of the day. I think we're able to do things, we're able to invest differently, we're able to invest long term. We're able to, just because we're the only provider in the area, does not mean we're going to raise a price because we can. We're looking to make our region as competitive as possible and that's the real difference, I think, between what a co-op provides and what a competitive carrier provides.

Christopher Mitchell: To some extent, I wonder if when you look at this, doesn't the investment in fiber in improving the economic viability of the region, improving the quality of life, doesn't that really make your electrical future more safe? I mean, I would think you have long term power purchase agreements. The more you can do to make sure that people are going to want to live in your area, that's just better for your other line of business.

Darren Farnan: Absolutely. It's about the region. We've invested, even in areas again, where we don't provide electric service, but we know that if you don't have those small communities, where do those people go? They're not staying in the area potentially. We feel it's just as critical to bring these small communities up to speed as it is, our rural members, and I think again that's the approach. It's a regional approach. It's a regional focus rather than just looking at what benefits us as a company the most. Absolutely, that is why we're investing in the region is to try to revitalize, try to keep those folks where they are, give them the tools to do either the type of business, telecommute, whatever that may be, that they're wanting to do, give them the tools they need to live their life. You mentioned quality of life, and that's really a part of our Mission Statement, is to improve the quality of life to the members we serve. That's exactly what we feel like these types of projects do.

Christopher Mitchell: In talking about the Connect America fund, I'm curious, and some of the conversations I've had with John Chambers and Randy Clint and folks that are working electric utilities is that you all can be much more efficient. You seem to be able to extend fiber at a lower cost than what, particularly, the big companies are doing. You look at CenturyLink to pick on one. Just looking at them recently in Wisconsin and Minnesota, and it seems like, if we gave you the money that they're getting in some of these areas, where they're just doing DSL. I get the sense that you could probably do fiber over a long period. Am I overstating that?

Darren Farnan: Not at all. As a matter of fact, I think that is probably one of the most frustrating pieces. As the more we've gotten to know about how rural broadband is being funded, it is frustrating because typically what is happening is, that these things are being funded to some of the larger ILECs and it seems like they're just meeting that next threshold of broadband, whatever that means. Obviously, we know now that the FCC defines that as 25 Mbps down and 3 up. Just a few years ago when we were looking at the beginning of our project, that was defined as 4 down and 1 up. If we keep putting a patchwork quilt out there, so to speak, to try to keep up with broadband service by using outdated copper whenever we could run fiber at a one time expense, often cheaper than what the incumbent can, there's a problem there that it's not being done. That's what we're trying to rectify. There's about 900 co-ops in the country, rural electric co-ops nationwide. They cover about 70 percent of the land mass of the United States. There's already existing infrastructure there. While there is make ready cost, there's things that you have to do to your existing plant, you're talking often, at the very least, half the cost of running underground service, often closer to a third of the price of underground service from what we've seen on our own numbers. Again, that can vary slightly, you know, depending on the quality of your infrastructure and the things that each individual co-op would have to do, but, for the most part, yes, that cost is extremely lower than what a large ILEC carrier, another carrier that is putting in all underground service would have to provide. People say, "Well, it's an overhead service." Well, absolutely, and that same overhead service has provided electric service to rural America for the last 75 years, businesses, whatever it may be, our people are used to keeping the lights on. I think the very same motto or the same ethos would apply to broadband service as well.

Christopher Mitchell: I think for my last question, there's so much more I'd like to ask you, but since you do both electricity and fiber, people talk as though fiber's the most expensive thing in the world. Can you give us a sense of how it compares to building and operating electrical networks?

Darren Farnan: Honestly, it's become a fraction of the cost of what we would see on a new mile of electrical construction. The other thing we can find is that we're running fiber on existing infrastructure already so we're not necessarily putting up new poles. We'll run a new carrier wire, but for the most part, we're not adding large structure. We're adding basically a carrier, a messenger, and a piece of fiber. Typically the fiber itself, by the foot, is relatively inexpensive. The network itself, the labor, those are the things where you add your cost up. For the most part, again, we're talking a fraction of the cost of what it would cost to build a new mile of existing plan. For these co-ops that are looking at providing this over their existing infrastructure, it's a much different economic outlook than what it would be to go out and build all new plant for a provider that's just looking to go into a new area.

Christopher Mitchell: One of the things that I just want to get a quick take from you on, is there's a sense from some people that we shouldn't even try to bring fiber out to everyone. When I talk to folks like you, where you're doing this at less than two-and-a-half people per mile, I've got to think, "We can actually get high quality networks out to everyone in this country if we put our minds to it and at a reasonable cost too." Am I crazy?

Darren Farnan: No, absolutely. I think we're proving it. Cosmos proved it. There's been others building these networks throughout the country. This is not a phenomenon to Missouri. This is not a phenomenon to another state. This is really just about a local business of taking initiative into their own hands and building a service that their membership or their communities need. We don't feel like we necessarily recreated the wheel here. There's models out there. It can be done. Again, if for a co-op that's as rural as us, if CAP funding or other services that are being spent already, when those dollars are being spent to provide again, a low grade 10 Mbps service, we feel like that money could be much better used investing in one-time shot into fiber. Now, the possibilities are virtually endless on what you can do. As you said, we're providing gigabyte service in extremely rural America for $100 a month. We're providing 100 Mbps service for $50 a month. If we can do that here, I think it can be done all across the country and be replicated. I'm a firm believer that you're absolutely right. This can be done through our type of initiatives and can be replicated throughout the country.

Christopher Mitchell: To be perfectly clear, you have no operating subsidies. You operate this network entirely on your own without any outside money, without any subsidies from the electrical side. There are some capital one-time subsidies to build the infrastructure, but then you can run this constantly just on the revenues it generates.

Darren Farnan: Absolutely. That's exactly how we have to look at it. We, like you said, we've had capital infusion from the electric side to help generate this, to help start this business, but this business is now standing on its own. We've actually become profitable in less time than what we had even expected on our original balance sheets. Again, that's not necessarily the driving force to what we're doing. We're out there trying to get a service out with a long term approach, but we've found it's even surprised us with the demand we've had from both the residential and commercial side, how much opportunity has come to us, just by having this network in place. We are constantly getting more requests to build further-and-further-and-further. The demand is there. Us, with others, have shown that the model can be successful. Again, I believe it can absolutely be done. I think it needs to be done or if not, rural America's going to left behind. We're already seeing it and the numbers are there. The FCC still says that nearly 40 percent of rural America does not have access to the 25 Mbps broadband whereas about 4 percent of urban America does. That number has been pretty constant for the last two to three years. What little we're doing here to try to help that in our region and in our area, I think if we could get a ground swell to keep pushing that forward with the other cooperatives throughout the country, I think we can really start making a dent in the needs for rural America.

Christopher Mitchell: Thank you so much for coming on the show to tell us some more about the United Fiber approach.

Darren Farnan: You get, Chris. I appreciate your time.

Lisa Gonzalez: That was Christopher and Darren Farnan, Chief Development Officer of United Electric Cooperative of Missouri. We have transcripts for this and other Community Broadband Bits Podcast available at MuniNetworks.org/broadbandbits. Send us your ideas for the show. Email us at podcast@MuniNetworks.org. Follow Chris on Twitter. His handle is @CommunityNets. You can also follow MuniNetworks.org's stories on Twitter. The handle is @MuniNetworks. Subscribe to this podcast and all of the podcasts in the ILSR family on iTunes, Stitcher, or wherever else you get your podcasts. Never miss out on our original research. Subscribe to our monthly newsletter at ilsr.org. Thanks to Admiral Bob for the song, Turbo Tornado, licensed through Creative Commons. Thanks for listening to Episode 240 of the Community Broadband Bits Podcast.