Transcript: Community Broadband Bits Episode 251

This is the transcript for Episode 251 of the Community Broadband Bits podcast. Carole Monroe and Irv Thomae discuss connectivity in East Central Vermont and the future of the ECFiber Network. Listen to this episode here.

 

Carole Monroe: What we see, in this area, is that most of the customers coming to ECFiber are customers that are coming from FairPoint.

Lisa Gonzalez: This is episode 251 of the Community Broadband Bits Podcast, from the Institute for Local Self-Reliance. I'm Lisa Gonzalez. ECFiber is a consortium of 24 member towns in East Central Vermont that banded together in 2008, on a mission to bring high quality connectivity to their small, rural towns. The project began with funds from many local investors. Since then, the network has expanded, and a new structure will allow ECFiber to continue to grow. In this interview, we learn about ECFiber's past, present, and future plans. Christopher's guests, Carole Monroe and Irv Thomae, describe what it was like getting the community network going. Now, here's Christopher with Carole Monroe and Irv Thomae, talking about ECFiber in Vermont.

Christopher Mitchell: Welcome to another edition of the Community Broadband Bits Podcast. I'm Chris Mitchell, and I'm enthusiastic today, to be talking with Carole Monroe, once more. Carole is now the CEO of ValleyNet. Welcome back to the show.

Carole Monroe: Thank you. Glad to be here.

Christopher Mitchell: And we also have Irv Thomae on, who is the district chairman of the governing board for the East Central Vermont Fiber Network-

Irv Thomae: Telecommunications district.

Christopher Mitchell: Right. We're going to explain for a second, how that used to be ECFiber, and now has a different name because it has a new, exciting approach. So welcome to the show, Irv.

Irv Thomae: Thank you.

Christopher Mitchell: Maybe that's actually just a really good place to start, quickly. Irv, can you just remind me how ECFiber is now structured?

Irv Thomae: We were and still are a collection of 24 municipalities in East Central Vermont, but we formed, originally, under an obscure provision in Vermont law, for what's called an inter-local contract. We worked that way for several years, but it became clear that outside of Vermont, people who might have chosen to invest had no idea what that meant. So in the spring of 2015, we successfully asked the state legislature to pass new law, creating a structure called a communications union district, which is essentially like a solid waste district, or a water district, or even a union school district, with the important distinction that, under preexisting Vermont law, although towns can own and operate telecom networks, for the benefit of their residents, they can't fund them from local taxes. So the district is a union district of 24 municipalities, that does not have local taxing authority, but it is, under the laws of Vermont, a municipal entity. That gave us standing to go out to the municipal bond market, and seek revenue bonds in the name of a recognizable government entity. That's why we are now the district.

Christopher Mitchell: Wonderful. The network itself, or the governing board, doesn't actually have employees. That's all handled by Carole and ValleyNet, as I understand it.

Irv Thomae: That's correct. The district itself doesn't have employees. It contracts with ValleyNet, to design, and build, and operate the network. The network is now owned by the district, but the district is, in turn, owned by its member towns.

Christopher Mitchell: Carole, can you tell us a little bit about ValleyNet. Where did that come from?

Carole Monroe: ValleyNet originally started as an ISP, doing dial-up connections in the Upper Valley Region, and was that entity when these towns in Vermont were trying to determine what kind of a structure they could have, and what it would look like. ValleyNet, itself, was on its way out, because dial-up was going away, and that structure of ValleyNet came into play to become the operating entity of ECFiber, or East Central Vermont Telecommunications District now. It's always sort of been this ISP, and some of its revenues at that time were also invested into this network. So ValleyNet is the operations company. It's a not-for-profit in the state of Vermont. We have 12 employees at the present time. What we primarily do is exactly that. We build and operate the network for ECFiber.

Christopher Mitchell: So you don't have a larger service territory, that ECFiber's just a part of? You are entirely focused on the ECFiber telecommunications area?

Carole Monroe: We are, at this time, completely focused on that. There's enough to do.

Christopher Mitchell: So how is the network doing? What kind of footprint are you looking at, and how many customers?

Carole Monroe: Right now, we're looking at about 1,650 customers, that are active, live customers, and we have about 375 miles of fiber up, to serve those customers. We're looking at about a 35 to 40% take rate overall, in those areas where we have service.

Irv Thomae: And we have at least some service in -- I'm losing count, 17, 18 of our 24 member towns. Or is it 19, now, Carole?

Carole Monroe: It is 19. And there are another 1,600 who have subscribed, that are just waiting for service, and waiting for us to get to them, in their towns, and along the routes that we're serving. As you know, we offer only fiber to the premise. It's all symmetrical service. We have levels at 10, 25, 100, and 500 meg. That is going to be moving up again. We keep increasing the service instead of increasing prices in any way, or decreasing prices. We just keep increasing the amount of service. So we expect that we'll be at a gig within the next year.

Christopher Mitchell: Well it sounds like pretty impressive growth, by my calculations, because we just happened to do a story about y'all about a year ago. It looks like it's more than 30% growth since then.

Carole Monroe: That's about right, and we're looking to add about 800 customers this year, and that's on top of the building of 250 miles, so when you add miles, you add customers.

Christopher Mitchell: Well, it looks like you must be -- I don't know exactly how the geography works, but the thing that I saw was that you plan to cover 21 of 24 towns by 2019, fully, which suggests you're not just plateauing, you're continuing to ramp up.

Irv Thomae: We are.

Carole Monroe: We are, so it's 250 miles this year for a build, and then we're planning the 350 miles for 2018, and 450 mile build for 2019, which will bring us to about 1,450 miles complete by that deadline. That represents all of the un-served areas in our territory. Un-served meaning they don't have a cable connection. They don't have service at an FCC definition of 25/3, so we still have work to do after that, but we will have served all of the un-served areas by that time.

Irv Thomae: And the reason we speak of 21 out of our 24, the other three have very extensive coverage by a cable company. By and large, the folks in those remaining three towns are not already hurting for true broadband.

Christopher Mitchell: That makes sense. I have to wonder if, in the years that you've been working on this, do you have more towns that are clamoring to be the 25th, or the 26th community connected?

Irv Thomae: We get some inquiries, and what I often say when somebody asks if we have plans to expand geographically is, "We don't have any imperial ambitions." We'd be happy to encourage other groups of towns, elsewhere in the state, to form their own communication union districts. We're glad that we helped get that all in place, and we believe it can benefit others. We might add a few neighboring towns, but we really got to take care of the un-served population within our own towns before we think about getting bigger.

Christopher Mitchell: That makes sense to me. I mean, it really resonates, although it does seem like just getting something started is an intimidation, that you need a certain kind of community, willing to really just do it, to go out there and to do the hard work to bring something new in, whereas expanding seems less intimidating.

Irv Thomae: That could be partly true. Certainly, we were extremely fortunate in two ways. At the very outset, that there were three individuals who were able to invest a quarter million dollars each, as seed money, long term loan. That helped us get the network operating center built, and the first 25 mile loop of cable hung. We were also fortunate that this happens to be a group of towns with a lot of very energetic people, who are willing to pitch in and work hard to make something happen. Some of the towns, certainly not all of our towns, but enough of the 24 member towns, had sufficient numbers of people with some money, that we were able to grow initially, by small amounts of investment, by local individuals who wanted it to come to them, and by the time we wrapped up that phase, we had about 475 different people who'd invested, and at least 90%, I think, of those 475 people, had invested in small multiples of $2,500.

Christopher Mitchell: So I guess one of the things I'm always curious about is, with all that grass roots involvement, are people pretty excited? What kind of stories do you hear about people that just get connected or respond?

Carole Monroe: We get a lot of stories from people who are working from home, whose family comes up to visit and needs to work from their house. That's generating a need, so we'll get a customer who will say, "Can you get to my house, and can you get to the house across the street that my son's going to buy for when he's up here?" And, "He can't come unless there's high speed Internet here." I think there's a number of people who generally work from here, and work for somebody outside of Vermont, but then a lot of homegrown businesses throughout. We know that, because if we have any kind of an outage, small outage, we get calls from people who say, "I need to process these transactions today or my employees aren't going to be paid," and I look at their account, and they're sitting on a residential connection. I think that's hard, from an economic development perspective, to get a handle on, to find out how many people are actually doing that, but it is-

Irv Thomae: Well there's some data that indicates Vermont has a very high percentage of people in self-employment. We know that there are many young people, who've grown up in Vermont, and they've gotten started in a specialty, in a career, maybe from college or through military service, and they want to come home and live where they grew up. They have faced a Draconian choice. There's one part of the state that's relatively urban, for Vermont. That's the city of Burlington and its immediate surrounds. There, there's plenty of high speed connectivity available, but the cost of living is quite high. Then, across rural Vermont, there has been very little real broadband, so young people that would like to come home, and build their career and their family, end up not coming back to Vermont, but wishing they could. We're trying to solve that problem, and stop the loss of rural population in our area.

Christopher Mitchell: Well, I guess one of the things that springs to mind, Carole, when you were describing those folks who have friends that come up, or maybe have second homes, they probably have cable connections where they're from, and they come up and they might be surprised, I wonder, how great the symmetrical connectivity is for them, from ECFiber and ValleyNet.

Carole Monroe: We often hear that, sometimes, that they have better service here, on our network, than they do from where they come from, in a very urban area, and it's more consistent. So they enjoy being here, and of course the more that people with second homes, and people that can work from here, are in Vermont, the more they spend in Vermont. It's good for economic development across the board. It's great to see that happening. So we don't rule out second home owners. They're really a good part of our subscription base, and they may be here three months out of the year, or six, or one, and yet they enjoy being here in Vermont, and they like to have that kind of connectivity that they can continue to work, or do what they need to do, from afar.

Christopher Mitchell: Now, Irv, I wanted to pick up on something that you were saying about you're now able to issue bonds, because you are this public district. Is that how you plan to finance the rest of the infrastructure?

Irv Thomae: That's what we've been doing. Last year, we sold $9 million in revenue bonds. We used about half of that to refinance some of our more expensive short term debt, and to do the design and pole preparation work for this year's construction of 250 miles. This year, we will be announcing a closing, very soon, on $14 million of additional revenue bonds. With that, we will do the 250 miles of actual construction. We will refinance our remaining expensive debt, from past financing arrangements, and we will do the engineering work and pole preparation for next year's 350 mile build. Then, next year, we won't have any more of the old, expensive debt to refinance, but we will once again, build the prepared miles, and design that last tranche of mileage.

Carole Monroe: That will get us to where we need to be by 2019, and then we'll see where we go from there. We all know that the areas with a cable footprint have a different business model, so as we build out the rural areas, that still leaves about 300 miles of, we call it dense here in Vermont, but it's still very rural compared to the rest of the country.

Christopher Mitchell: Right.

Carole Monroe: Higher density areas, where you see about 100 premises a square mile, versus our average towns are about 25 premises a square mile. They have a higher density, but it costs more to build them, mostly because there's about a 15% higher cost in doing that make ready work on the poles, because you're dealing with more carriers. The cable company, and some other carriers that might be on the poles, so they're a higher cost to build, and the take rate ends up being about 17%, versus the 35, 40, or 45 that we experience in other areas. That, in itself, creates a different kind of business model for building out those areas, and thinking about how to do that effectively. Those towns want us to do that, particularly through their business districts, because they want those business districts to have competition, that doesn't exist there today. So with some competitive pricing, they may see some business pricing go down in those areas. And they also have a lot of small businesses in those areas, and those small businesses, even the business pricing of a Comcast or a FairPoint, is too expensive for those small businesses, but our business pricing is perfect for them. So they're looking for us to get through their business districts first, and then look at some other areas, but that's one of the reasons they'd like us to be in those towns.

Christopher Mitchell: Well, I can certainly imagine that.

Irv Thomae: We have a small amount of experience, already, with take rate in cabled areas, because we have concentrated on outskirts of our more densely populated towns, where there wasn't anything else, but to get to the outskirts, we had to go through the inskirts, as it were. Although those more densely populated areas are, in the towns we've touched so far, chiefly residential, there we see some people making the switch, or cutting the cord, but not so much because they want to save money by switching to us, but because they have some ideological point of view, or active discontent with the cable company, as a supplier.

Christopher Mitchell: Right, Vermont being just wonderful for independent businesses, historically. Not being a big fan of the chains.

Irv Thomae: Yes.

Christopher Mitchell: So one of the things that I think surprised me, may have surprised you at the time, is that in some of these rural areas, where you were the first to provide broadband, you're now seeing FairPoint start to build connections that may not be able to offer broadband as the FCC defines it, but some kind of DSL service. What's happening there?

Irv Thomae: Will your listeners be familiar with the Federal Communication Commissions CAF II, Connect America Fund Phase II?

Christopher Mitchell: I don't know how familiar they are with it, specifically, but they've heard me complain about it many times, and they are well aware that it is not well administered, and it is resulting in massive amounts of subsidies for subpar connections. That part you can assume.

Irv Thomae: It is indeed. We couldn't have put it better than you just did. The plan was, FCC wanted to make every effort that incumbent phone carriers would take on the burden, before they asked independents to tackle it. A phone company was now required either to take all of a service territory, and take on the CAF II mandate, or none, and if the incumbent passed, then there would be a reverse auction. But because FairPoint decided to take up the offer from the FCC, we never got a chance to bid on providing service in any part of Vermont. There are about 28,000 eligible locations in the FCC's list, to be serviced under CAF II, and the phone company cheerfully agreed to take on all of them, ignoring the fact that the list that the FCC was working from was a year-and-a-half old, so there were already a few hundred locations on that list that had ECFiber service. FairPoint committed to a six year process, during which they will provide at least, no not 25/3, but at least 10/1 service. The FCC has officially defined broadband, for most of the country's residents, at 25/3. The definition in rural areas remains much lower. 10/1 actually often translates to 10/3 quarters. FairPoint's got this big job to do. We can't tell what they're doing in other parts of the state, but we do know that they are rolling out fiber to DSLAMs, fiber to neighborhood nodes, in places where we already have customers. They're going to be offering these new potential DSL customers a service that doesn't match what the customer can get from a fiber to the home connection. And what the customer can get depends very heavily on exactly where the customer happens to be, relative to the neighborhood node.

Christopher Mitchell: Carole, I don't know if you wanted to add anything.

Carole Monroe: CAF II funding is funding connections in 14 of our 24 towns. In many cases, they were completely overbuilding where we already have existing fiber. In the town of Barnard, for an example, there's 14-and-a-half miles of which we already have fiber, and we've already connected those customers, but they're overbuilding that with DSL, about 120 premises. In our calculations, based on what they indicate, about $1,800 per connection is what they're getting paid, we can provide that service for that same amount of money, without too much difficulty. It doesn't make any sense to us, but it all stems from the fact that this is a small company. We're growing rapidly. In 2013, we didn't have the connections that we have today, and they were using old data to create the lists in which FairPoint is building from. That's partly the inconsistencies of the FCC, and some of this not doing it effectively.

Christopher Mitchell: Carole, one of the things that I just think when I see that is that if your roles were reversed, if you were getting some kind of federal subsidy to compete with FairPoint, I have to think that given the power of these larger companies in DC, that someone in DC would notice, and they would pull the funding back from you, and say it was wasteful. But somehow, that just doesn't seem to happen when small companies are getting the short end of the stick.

Carole Monroe: You're talking to a company that has gotten no federal funding.

Irv Thomae: We're not in it to make a profit. We're able to do this to serve our residents, and we're able to do it at lower costs, because we don't have to return dividends to stockholders.

Christopher Mitchell: And Carole had noted that ValleyNet itself, as the ISP, is a nonprofit.

Irv Thomae: Right.

Christopher Mitchell: You know, it's just one of those things that I find so frustrating. I mean, here you've gone to this trouble, and now you have to deal with this massive subsidy going to FairPoint, which is then taking it, and putting it into DSL. We've been wrestling with this in a few other states, as well, with the massive subsidies, and I was trying to figure out exactly how much a company like FairPoint itself has to put in. It's not clear. And in talking to experts that follow it closely, it's really not clear, although one of the things that I want to ask you, Carole, is I think some of that, because you mentioned it's $1,800, and it's split up over six years, I think some of that money is actually destined to be operating costs, because as you know, running those DSL networks has a high operating cost. So they are going to be expecting future handouts as well, whereas you've built your network in a responsible manner, using a technology that has lower operating costs, so you will not require -- You know, you didn't get any past handouts, but you're not going to get any future ones either, and you don't need them.

Irv Thomae: I thought that the FCC, with CAF II, was telling phone businesses, large or small, "We are shifting here, from ongoing support, to capital investment, and after that you have to be on your own."

Christopher Mitchell: That's what the intention was. I think there's been some mixed messaging, and I think that when you look at the technology choices, honestly a lot of this stuff is rumor and innuendo, I feel like, because so much of the real negotiation happens outside the public record.

Irv Thomae: The rules for CAF II indicate that there will be some statistical sampling to ensure that the recipient of the money has indeed delivered the bandwidth that they were supposed to produce, but the rules aren't clear as to whether that testing happens year by year, or after the six years of build-out is completed, and the rules also aren't clear how they do the statistical sampling. If you do the sampling by taking a list of the 2,800 locations, if you're just randomly drawing people out of that list, then because there are more people living in village centers than out on the dirt roads, you're going to over-represent areas where it's easy for DSL to meet the specs, and you're going to under-sample areas where it's not.

Christopher Mitchell: Sure.

Carole Monroe: It will be difficult to deliver a 10/1 service to the rural back roads of Vermont. In our territory, they probably won't have an opportunity to prove that, because many of these customers won't be their customers. Many of these premises won't be their customers, but will be our customers, and so they'll be getting good service here, in Central Vermont. It's the other areas of Vermont that I'm concerned about. What we see in this area is that most of the customers coming to ECFiber are customers that are coming from FairPoint. There's about a 10% of our customers who move over, come from a wireless ISP, that was a stopgap measure to begin with. Then, most of them are coming from FairPoint. About another 10% come from the cable companies. What bothers me is, of course, that that money could be better spent. There are certainly areas of Vermont and elsewhere, very rural areas, that are trying to create projects, and move forward, and deliver some sort of broadband that's real broadband. It just is money that could be better deployed. That's not happening, and I don't know what will happen in the future, particularly as it seems like the FCC is moving towards more of an alignment with big business.

Christopher Mitchell: What I'd like to wrap up with is a sense of the local anchor institutions. You know, when we wrote a story about this situation, I saw that you are providing a pretty affordable service to schools, and libraries, and that sort of thing. Can you tell me about it?

Carole Monroe: Sure. We're providing a great service to schools, and libraries, and municipal institutions. They receive our highest level of service, which is right now at 500 megabits per second, but we'll go up to a gig when that occurs, for the lowest residential price. That's $74 a month. That's in contrast to what they're paying today, in many cases. Many cases, they're paying 400 to $800 a month, for 100 meg. It's really going to allow them to cut their costs dramatically, and to reallocate those costs to using this technology in ways in which they can share information across their networks, and with other schools and school districts. We'll have six towns that will be fully built out, at the end of this year. That's great for the schools, because then you can send the homework home. You know that they will have an affordable connection at home, so they can count on their students having a network connection. Those schools are thinking about how they can best utilize that, now that will be happening. So it's a great opportunity for the schools in our area. We don't think of them as a profit center, as most of the bigger companies do. We really see this as a community endeavor.

Christopher Mitchell: Not only is that a great deal, but it's in comparison to much higher costs. It looked like the high school in Woodstock needed a gig, and is ended up paying something on the order of, I don't know, 30, 40 times more than what the schools are paying in your area, but you're unfortunately not in Woodstock yet, so they had to go with a private provider and really get fleeced, it looks like.

Carole Monroe: And when you think about it, the private providers have a whole government and education business sales arm. They think of a school district, or a government facility, as an opportunity for a big sale.

Christopher Mitchell: Well, and especially because a lot of the school districts can tap into the e-rate funding, and so the federal government will pay those outrageous charges, so there's less of an incentive for the local person to really seek alternatives, which is, I think, just not with fault with them, but it's the perverse results of the system. I was just at an event, and I was talking with a municipal provider. They were talking about the challenges of e-rate, and he said, "You know, we got around e-rate. We just decided that we'd charge the schools so little it wasn't worth it for them to go and try and get reimbursed." I would guess that at $74 a month, your schools may not be doing that paperwork to have federal folks picking up the tab.

Carole Monroe: No, the only e-rate we have is potential construction to get to a school that's sort of off the beaten path, that's been approved for this coming year. That's under that new construction guidelines, that e-rate opened up last year.

Christopher Mitchell: Great, well thank you so much, both of you, for taking the time to give us a sense of what's going on, and I really want to congratulate both of you, because I know that your competitors have run you down. They've said for years that you were going to disappear. You weren't going to make it. I know that this is a hard business, whether you're in an easier area or in the middle of Vermont, so I just really want to thank you for all of your dedication and work in making this happen.

Carole Monroe: Take care.

Irv Thomae: Thank you.

Lisa Gonzalez: That was Christopher with Carole Monroe and Irv Thomae, discussing ECFiber in Vermont. We have transcripts for this and other Community Broadband Bits Podcasts available at muninetworks.org/broadbandbits. Email us at podcast@muninetworks.org with your ideas for the show. Follow Christopher on Twitter. His handle is @CommunityNets. Thank you to Arne Huseby, for the song, "Warm Duck Shuffle," licensed through Creative Commons, and thank you for listening to episode 251 of the Community Broadband Bits Podcast.