Transcript: Community Broadband Bits Episode 407

This is the transcript for episode 407 of the Community Broadband Bits podcast. In this episode, Christopher speaks with Brian Skelton, president of the Tullahoma Utilities Authority about fiber network in Tullahoma and how the pandemic has affected their service. Listen to the episode, or read the transcript below.

 

Brian Skelton: We try to have low rates and have the best service for our customer so they want to stay with us, but we do understand this is a very difficult financial time for a certain segment of our population. So we know those people are going to need some time to catch up with any kind of debt they may have whenever all of this COVID-19 situation is over with.

Jess Del Fiacco: Welcome to episode 407 of the Community Broadband Bits podcast. This is Jess Del Fiacco, Communications Manager here at the Institute for Local Self-Reliance. Today Christopher talks with Brian Skelton, president of the Tullahoma Utilities Authority. Brian walks Christopher through some of the history of the Tullahoma Utilities Authority. He explains that they've been operating their network for 12 years now and have reached nearly 4,000 subscribers. He tells Christopher that unlike big companies like Comcast, small providers like his are unable to offer low cost or free service during the pandemic due to financial barriers. But the Tullahoma Utilities Authority is already providing high quality, affordable service to their community and is offering flexible bill payment options for anyone who needs them. Christopher and Brian also discussed how the network contributed to local economic growth before the pandemic hit and Brian shared some advice for communities considering investing in a municipally-owned network or pursuing a partnership. Now here's Christopher talking with Brian Skelton, president of the Tullahoma Utilities Authority.

Christopher Mitchell: Welcome to another episode of the Community Broadband Bits Podcast. I'm Christopher Mitchell at the Institute for Local Self-Reliance and I'm talking with Brian Skelton, the president of Tullahoma Utilities Authority. Welcome back to the show, Brian.

Brian Skelton: Thanks Chris. Good to catch up with you.

Christopher Mitchell: I think you've had a slight promotion since the last time we spoke. You were the head of the LightTube network, I believe previously, but now you run all the utilities, is that right?

Brian Skelton: Well, I've actually always ran all the utilities, but we did go through a change. We became an authority, we used to be Tullahoma Utilities Board and we became an independent authority of the State. So it's given us a little more flexibility by getting out from, I guess under the direct ownership of the city. We still have a great relationship with the city. They appoint our board members, but we're still a city owned broadband network and trying to do what's right for our customers.

2:15

Christopher Mitchell: Do you have more flexibility to build to customers who are not in your electric footprint or is that still a limitation?

Brian Skelton: That is still a limitation by State law because any governmental owned entities and I think cooperatives are under the same restriction, they can only build within the service territory of their electric customers.

Christopher Mitchell: So let me just ask it. So I think it's 12 years of running this network.

Brian Skelton: Wow.

Christopher Mitchell: Can you give us a thumbnail reminder of how it's gone?

Brian Skelton: Oh, it's gone well, going back and just giving a little bit of history, I came to work here in 2006 and our board of directors who hired me at the time wanted to look at providing a broadband network to the residents of our community. And so they had actually looked at that a couple of other times and couldn't get it past the finish line with the City Council. But we started looking at that really I guess in late 2006 and by early 2007 we had done a customer survey and had prepared, I guess a forward looking document as to how we thought the system would operate financially. And we were able to go to the City Council that winter in 2007 and secure approval from the city. And at that point we had to go to the State and get approval. So we got approval from the State and by the fall of 2007 we were already building our fiber optic network.

Brian Skelton: We pretty much had it built out by summer of 2008 and that's when we began customer testing. And so we tested for about six months with active beta testers and in January of 2009 we actually build our first customer. So we've actually been in business now from a financial perspective of billing customers a little over 11 years. We built a passive optic network, it was originally a wave Seven network. We have since pre updated that system to Calix, that's been in operation now for a couple of years. So the system is running really well. Our goal when we launched with our plan was, we wanted to hit 3,500 customers. I will say we did not hit that number as quickly as I expected. It was a little bit more difficult taking customers away and we overbuilt Charter, that's the legacy old cable network that's here. We also compete with AT&T but it took us a little longer than we expected but we've since passed that number and we're currently at 3,979 customers and we expect to pass 4,000 with the minute the next few months.

4:53

Christopher Mitchell: Have you seen an uptick in interest with the stay at home orders and people having a lot more time to think about their Internet access?

Brian Skelton: I think so. I know in the month of March we met 23 new customers in that month. I mean that being the number of customers we lost versus the number of customers we gained. We are still adding customers through all this. We do have some limitations on what we will do. Our techs are not installing set top boxes and TV extension outlets and telephone outlets, but we will put an Internet drop in for the customers. Of course Internet continues to be our only growing utility in terms of the three services we offer through LightTube, I ran these numbers and I think they're probably pretty reflective of what the industry is seeing. But if you look at the last 12 months, our TV customer numbers have gone down 5.9 percent, our phone customer numbers have gone down 6.8 percent, but our Internet customers have gone up 5.2 percent.

Brian Skelton: We're growing rapidly with the Internet and I think you're exactly right, people are more interested in getting better Internet and the difference in having fiber is, especially if you get outside of our entry level package, you get so much faster upload speeds than any other provider can offer with the fiber.

6:12

Christopher Mitchell: Yeah. Don't make me jealous, I'm on a cable system myself. I'm curious about your Internet rates over time. When we did an analysis of all the Tennessee fiber optic cities, it was quite clear that it was far superior in terms of if you compare your rates to the big cable companies, they seem to increase their Internet service rates all the time. Whereas you all did it quite rarely.

Brian Skelton: Right? We have not gone up on our Internet rate. We have increased the speeds based on what tier it is, but most tiers have seen at least six or seven increases in speed compared to what we launched with. I remember our lowest launch speed was 10 megabit down and one megabit up, Chris, this was in 2008 while our entry level speed, and we keep the speed down because we've got a low price tier at 39.95 that we really have trouble making money and making it work at that price, because we built a $17 million fiber network, we have to pay that back. But if you start at that entry level tier 39.95 is 30 megabit down and 5 megabit up, then you go to 49.95 you've got 80 megabit down, 40 megabit up. Then you go to 59.95 you've got 150 megabit symmetrical for 69.95 you've got 300 megabit symmetrical and for 79.95 you've got gig symmetrical.

Christopher Mitchell: Every time I hear people telling me these sorts of things every week and every time I reflect on my bill and it's quite a deal. Leading into that question, are you seeing a lot of people staying home now in your part of Tennessee?

Brian Skelton: Certainly, we're just like other parts of the country, we have more people at home. Our school system has been out since when they went on spring break, the middle of March, the governor announced yesterday that he's recommending that they not go back to school until the fall. So you've got students at home doing gaming and you've got students at home doing online learning, plus you've got more parents at home because many of them are not in their central jobs, so they're at home with the kids. There's definitely a lot more usage of the network. It is not stressed our network, I will say that it's a very robust fiber to the home network. We've got three separate circuits going out to get Internet from three different providers and so we haven't had any issues with delivering the bandwidth that they need. I will say that typically in the daytime, the network has always been under utilized because our busiest times of the day have always been between 7 and 9 and 10 at night. Because of the stresses of Netflix and people watching television online versus traditional cable TV.

8:47

Brian Skelton: It's never been a stress on our system, but that's just been our highest usage and the day times have always been very under utilized. So today the daytime, there's much more traffic on the daytime Internet compared to what we used to see. But at nighttime, I don't know that there's a lot of difference.

Christopher Mitchell: I want to come back to economic development in a few minutes, but I want to ask you a couple of other questions about COVID-19 related things. One, I think takes advantage of you being in charge of the whole utility because I was having a conversation with some folks in North Carolina that are dealing with small electric utilities. And in many parts of the country, there is noble intentions to say no cutoffs of telecom, of gas, of electricity for people who can't pay. And I've insisted that is a good idea if it's accompanied with assistance because utilities like yours can't just see a lot of nonpayment and continue to operate. I'm curious to me just tell me a little bit about the stresses that you see as a smaller operator that has to pay its bills.

Brian Skelton: Well, we actually have done the same thing. We implemented a policy across all of our utilities about the middle of March, around the 20th I believe that said, we will not turn off any customer for nonpayment until a certain day. We've extended that day now that date is May the fourth and it may be extended again. But it's just difficult. I mean, we are very fortunate financially, we've made the right decisions, the board has let us do increases on cost and that's been 100% on cable TV. Because we haven't increased the cost on telephone or on Internet really since we launched over 11 years ago. But we've been able to increase the cost. So we've kept an ample amount of reserves and quite frankly, most of our customers are still paying their bills. We are watching it carefully and we definitely have much more at risk subject to disconnection across all of our utilities today than we've probably ever seen ever because of the policy that we put in place.

10:51

Brian Skelton: That being said, out of 12,000 utility customers, and I'm talking utilities now rather than LightTube itself, I think we only have less than 5 percent that are delinquent past the cutoff date. So 95 percent of our customers at this point are making payments as they should. But that day is going to come to an end where we quit doing cutoffs and customers will be subject to cut off. But what we will do, and that's again, some of these things are fluid and we haven't made decisions on how we're going to do this, but we will give them a certain amount of time to catch up their old bill. But they will have to sign an agreement that they're going to agree to pay this much per month over the next how many months to get caught up and everything paid. It does have the potential to hurt us financially because our LightTube system itself, we operate telecommunication side with about a $6 million budget. I mean we certainly have the ability to be exposed to hundreds of thousands of dollars in bad debt when this is over with. So that will hurt us.

Christopher Mitchell: And I'm curious, when we look at some of the providers around the nation, they have announced really generous plans in terms of either a very low cost or no cost for some period of months. My reading of Tennessee law is that you're pretty limited in terms of what benefits you can offer. Are you able to navigate those or is that a challenge for you?

12:11

Brian Skelton: We have not made any consideration on that because we operate it at such a low margin that if we were to say we were going to give a so much of a discount or give something free, I mean we would be upside down financially very quickly. Again, we try to have low rates and have the best service for our customers so they want to stay with us. But we do understand this is a very difficult financial time for a certain segment of our population. Because there are a lot of people who have lost income or have had reduced income because their job responsibilities have changed, maybe they still have a job, but they're only working 25 hours a week rather than 40 hours a week. So we know those people are going to need some time to catch up with any kind of debt they may have whenever all of this COVID-19 situation is over with. But we haven't had any discussions about offering lower rates or anything like that.

Christopher Mitchell: Well the $40 intro rate is certainly lower. I mean when I look nationally, even among you know them, you know the economics of it, it's very hard to offer anything below $50 a month and be able to continue expansion and that sort of thing. So it's certainly a benefit already.

Brian Skelton: Yes, and it's our largest plan because most people want the least expensive option that there is available on top of that, if you do subscribe to video service and also telephone service, we have about an $18 triple play discount that comes into play. So it technically actually reduces that number even more. We'd like for people to try to be up on that 50 or $60 plan because we can offer them just what I consider to be super fast, robust Internet that I understand why people want gig Internet. It's great in certain applications, there are noticeable differences, especially if you have a big household of people using it. But gosh, if you've got 150 Meg symmetrical, that's pretty rock solid for 59.95 a month.

14:07

Christopher Mitchell: Yes it is. I'm curious when we look at the business connections. I think one of the, it was a great story that was done many years ago from the Center for the Public Interest maybe.

Brian Skelton: Maybe that was it.

Christopher Mitchell: I think CPI is in my head. It was a guy named Allen who did, I thought a fantastic reporting on it. He talked about the economic gains and I'm curious, what have you seen lately in terms of your network attracting jobs and economic development before the pandemic shut it all down?

Brian Skelton: Well, it continues to help us attract jobs to this community. I will say this is more of a retail and office community. It's not a big manufacturing community because we just don't have a lot of land for that. We do have an industrial park and we have a handful of small industries here that employ maybe up to 500 people each, but we did recently have a call center that located here. I think they've maybe been here six or eight months now. They handle insurance claims, it's an inbound call center, not an outbound call center. And certainly that was a big driver for them was having access to fiber Internet because unfortunately we're not providing their phone service, but we are providing the circuit that connects them to their phone service. And that's fine with us because it's brought lots of jobs to our community and we're glad to provide the Internet service and or the telephone service.

Brian Skelton: And in this case we only had their Internet service but they were able to successfully run a VoIP service from a company we're not affiliated with only because they've got rock solid Internet that's a hundred percent dependable.

Christopher Mitchell: And I think they actually noted that several times in their press releases and things like that. We have that in our archives.

Brian Skelton: That's very good. Yeah, they've been a great employer and I think they're ramping up to continue to hire more people and grow even more. The one advantage of coming to a community like Tullahoma, certainly even in Tennessee, if you step 65 miles to the North in Nashville, labor rates get much more expensive because the cost of living is so much more. So employers can come here and locate qualified people and then they won't have to pay those exorbitant labor rates that they do in Nashville and get hopefully comparable services.

Christopher Mitchell: So I'm curious now, you've been running this network for a long time and from what I understand of everyone who runs networks like this, it's a lot of sleepless nights. There's all kinds of challenges that pop up. It's frustrating. What makes it worth it to you, to have done that for this time period?

16:32

Brian Skelton: Well, I mean I don't give credit to myself. I mean I can take some credit for it, but certainly I'll give a lot of credit to the board of directors in 2006 and 2007. Who had the forward thinking to say we need to step out on a limb and take some chances, put some of the rate payer money at risk and build this network because we have asked the local company charter to improve their network and they have not done that to the level that they felt like was adequate. And then the people who built this, I mean we had contractors that came in, we've got a supervisor, a VP of our fiber department. I mean there's a lot of people who have had input on this. We definitely had a lot of sleepless nights when we were building it for sure. I would say I got a lot of gray hair that first five years, not only in building it, but trying to make sure we met some financial goals.

Brian Skelton: And as I said earlier, we didn't hit 3,500 quite as quickly as I expected us to, but we did stay on track with the financial goals and that's what I had to always communicate to our board of directors. Is we're a little bit behind based on what we expected so far as a customer can't go, but we're actually ahead of where we expected to be from a financial perspective. Which that was the one that we needed to be at least where we expected to be because we had $17 million worth of debt to pay back. We had hired about 10 or 11 full time equivalent employees to work for our company, to run the system and then we've had other sleepless nights along the way. As I said, we made a conversion from wave Seven to Calix. That actually went really well. We changed middleware providers on the video side last year and those things.

18:12

Brian Skelton: I guess what we learned when we built the system out is, if something's not working, every vendor wants to point the finger at the other vendor and it's hard to navigate that finger pointing to try to get your end result. But we've been fortunate to work with a lot of good folks and we've made a lot of bad decisions along the way and we've tried to share those with people who are following in past similar to what we have and we certainly stolen a lot of good ideas from other utilities. Everything we've done is not always original. I'm not above taking a good idea from somebody else and implementing it here.

Christopher Mitchell: Well, I guess my last question is building off of that in terms of advice for other communities. When you were building it, I mean fiber was so much better than cable and it was obvious that the path that offered so much more promise for communities now, they often still just have one very high speed provider, but the cable is better. It's certainly a lot better than it used to be, reliability, things like that. What do you tell communities that come to you for advice in terms of how should they think about the challenge versus opportunity of considering a municipal network or partnership?

Brian Skelton: Well, I think every community has to make their own decision based on how much risk they're willing to take. And looking at the situation with the cable provider that's incumbent there in that local community. Things have changed a lot, we offer TV service, we will continue to offer TV service. I would expect 10 years from now we will still be in the TV service because we've put a lot of money in building a head in for video and we're not having to spend a lot of money to upgrade that and keep it up. I mean, it's already a sunk cost to us, but if you're building a new network, do you invest an extra million and a half dollars to build a video network? Maybe not. A lot of the electric cooperatives certainly are not doing that. They're just doing Internet and telephone, which allows them not to really put a lot of money in their head in, they just put the money in the outside fiber and the transported sale. So I think you got to look at how much risk you're willing to take.

20:15

Brian Skelton: I do think that if it's a local community that has a good electric system that's willing to be forward thinking. I've had to think differently, my board, our employees have had to think differently with our LightTube service system, we do with our electric water and wastewater. With those electric water and wastewater customers have no choice, if they want those services, they have to get them from us if they live in our service territory. But with LightTube, we've got to earn their trust, offer a great product, and be better than the competition to get them to leave. We're not always cheaper, I've always said we're going to price our services to where we can be physically sound and responsible, but we're not in the business to try to make money, but we certainly can't lose money because we have seven more years to pay on the fiber debt. Seven years from July we will be debt free. I mean that will be a great feeling for our LightTube system to be debt free.

Brian Skelton: And it will change our operation quite a bit I think because we won't have that indebtedness, we may be able to even lower rates at that point because of that. But I think most communities, if they make the choice to do this, if they're willing to give the operator, the electric system, the city, whoever, the flexibility to think about doing this different than just a regular government operation, they will still continue to be very successful. We not only in terms of offering services, we have two employees that are almost full time doing a three day a week television news program for us and most of them are delayed. But we televise all of the high school football games, a lot of the basketball games, some of the baseball and softball games, wrestling matches. A large cable provider is not going to do any of those things for us. We televise graduation, we put it on YouTube Live so everybody can see it. We televise the Christmas parade. There just a lot of things that our LightTube subscribers are helping pay for that just benefit our community that you won't get from another large cable system.

22:13

Brian Skelton: If you're willing to take a little bit of risk and you're willing to give the operator flexibility to operate it more like a business, less like a government, I think you're going to always be successful.

Christopher Mitchell: Thank you. That's a wonderful note to leave on. I think it paints a really great picture of some of the benefits that can really help a town that has a real local identity like that stick together and build on it.

Brian Skelton: I think so too and as I said, it's been a great experience for us. One of the proudest statistics that I'm going to tell people is the fact that our churn rate since we've launched has averaged less than 1% per month. And you think, well that's a pretty good churn rate? But what you've got to think about is, we've got a community of 10 or 11,000 households and businesses, if they move two miles outside of our service territory, we can't keep them as a customer. But if charter, if they're sitting here with charter, they can move to any of the dozen surrounding towns. And it's not a churn for them because they can still stay with charter. So anytime anybody moves, that's our churn. So we've tracked our customers who leave and consistently more than 80% of them are churning because they're moving outside of our community, not because they're leaving us to go to another provider.

Christopher Mitchell: And that is truly remarkable. And it really, I mean that's the benefit also of having the transparent pricing. I think people really come to love that. They like the customer service they get, there's so many benefits.

Brian Skelton: I think so too. It's a great service, but we're again thankful to our customers for being faithful to us.

Christopher Mitchell: Well, Brian, I really appreciate your time. I know that there's always things that president of major authority like this working with all these different services has going on. So thanks again for talking to us.

Brian Skelton: All right, Chris. Good to catch up with you.

Christopher Mitchell: Take care.

23:55

Jess Del Fiacco: That was Christopher talking with Brian Skelton, president of the Tullahoma Utilities Authority. We have transcripts for this and other podcasts available at muninetworks.org/broadbandbits. Email us at podcast@muninetworks.org with your ideas for the show. Follow Chris on Twitter, his handle is @communitynets. Follow muninetworks.org stories on Twitter. The handle is @muninetworks. Subscribe to this and the other podcast from ILSR, Building Local Power, Local Energy Rules, and the Composting for Community Podcast. You can access them anywhere you get your podcasts. You can catch the latest important research from all of our initiatives, if you subscribe to our monthly newsletter at ilsr.org. While you're there, please take a moment to donate, your support in any amount keeps us going. Thank you to Arne Huseby for the song, Warm Duck Shuffle licensed through Creative Commons. This was episode 407 of the Community Broadband Bits podcast. Thanks for listening.

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