Transcript: Community Broadband Bits Episode 431

This is the transcript for episode 427 of the Community Broadband Bits podcast. In this episode, Christopher speaks with Lee Brown, president and CEO of Erwin Utilities, to get an update on the Tennessee municipal network since we last spoke with them in January of 2017. Listen to the episode, or read the transcript.

Lee Brown: And I used to say, we were too small to do this, or we were too small to do that. But I finally realized we're just the right size, just the right size.

Ry Marcattilio-McCracken: Welcome to episode 431 of the Community Broadband Bits Podcast. This is Ry Marcattilio-McCracken here at the Institute for Local Self-Reliance. Today Christopher welcomes back Lee Brown, president and CEO of Erwin Utilities to talk about what's been going on since we last spoke with them more than three and a half years ago. Erwin is a town of around 6,000 and the County seat of Unicoi County, Tennessee, along the state's Eastern border. The two revisit the success Erwin has seen with an incremental fiber to the home build-out over the last six years, the utility at this point has no debt, and covers the whole town aside from one remaining pocket to be complete early next year. It has expanded into the county bringing affordable 25 megabit per second, and gigabit Internet access to residents and enjoys a take rate of nearly 50%. in 2019, it completed the transition to becoming the Erwin Utilities Authority, which will give it the flexibility it needs moving into the future. In April this year, it connected its 3000th customer.

Ry Marcattilio-McCracken: Lee reflects on the benefits of Erwin's strategic approach to building a fiber network and lessons learned over the last six years. Now here's Christopher talking with Lee Brown.

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 in Saint Paul, Minnesota. Today. I'm bringing back one of my favorite networks, and we're bringing back a guest we talked to about four years ago, Lee Brown from Erwin, Tennessee, who is the president and CEO of Erwin Utilities. Welcome back to the show

Lee Brown: Thanks, Chris. It's great to be here.

Christopher Mitchell: I've always just loved your approach. I love that you did the modeling. You found that you couldn't take the same path some others had and you found your own incremental way, but let me ask you first, I actually have a colleague heading down there to the Great Smokies, not too far away from you. Are your leaves turning colors yet?

Lee Brown: Yes. We're beginning to see just some slight hint of color in the mountains, and it's a good time to visit Northeast Tennessee and every season's good, but fall is especially a great time to be in the mountains of Northeast Tennessee.

2:36

Christopher Mitchell: That's great. Yeah. And you're in a very picturesque community right off the Appalachian Trail. And for people that want to get a better sense of how you started the network, I think they can dig into that episode we did in January, 2017. But can you give us a 30 second thumbnail sketch of how you did it?

Lee Brown: Sure. Chris, going back, we decided that nobody was to save us, save our community and provide a reliable broadband service. And so we had looked at a broadband for about the past 20 years, and it was just cost prohibitive. And so as technology improved and the price of fiber came down, we put together a plan that we could build out just broadband and voiceover Internet phone service only with no video. We did it in a phased approach that allowed us to control our capital investment, and also to start seeing that revenue come in early on. And it also gave my board comfort that we're not going to spend all of our money all at once. And it gave them a real comfort and assurance if we needed to slow down, we just put the brakes on and we never needed to, thankfully. And it has all worked really, really well. And it's an amazing story for our little community here tucked into the mountains of Northeast Tennessee.

Christopher Mitchell: And where are you right now with that expansion? Do you have almost the entire town covered then?

Lee Brown: We do Chris. We started in the very late fall of 2014, to build our first phase and connected our first customer in March of 2015. Today we have over 3,400 customers connected and we have one small little pocket of customers out in the fringes of our service area that we'll start construction on soon. That will be the last area that we need to build out. And we've got about 500 customers up there that do not have access to our service, but they will by the first quarter of 2021. And that will complete our entire service area.

Christopher Mitchell: To have 6,000 people and to have 3,400 customers without even having finished connecting all of them yet, it sounds like there's not many people left over.

5:09

Lee Brown: So we have a total of residential and non-residential electric customers of about 8,900. So we're probably approaching half of our residential customers being connected. We stay booked up on installs about two weeks out. And so we're really fortunate that our growth is steady. We don't have a really big backlog, which is good for our customers. We don't like to have a four or six week backlog of installs. So we'd like to be able to get to our customers quickly and do a really, really good job on that install, and take care of our customer, when we leave they're happy. So

Christopher Mitchell: Sounds good. So am I incorrectly remembering that there's 6,000 people in town, or is it just that your service territory spreads pretty far outside of town then?

Lee Brown: That's the population of downtown of our city limits, and we'd go beyond our city limits. We serve the majority of our Unicoi County as well. So that's where the rest of our customers-

Christopher Mitchell: Oh, so you've connected a lot of the county then at this point?

Lee Brown: Yes, we have. We have, our service area, our density much looks like a large metropolitan area, but our service area is more rural and mountainous. And so it's really cool when you have somebody that's sitting on top of the mountain and they've got ability to connect our fiber and have, have a gigabit service sitting on top of the world.

Christopher Mitchell: Yeah. I believe that. And I've looked at the map that you have on your website and it's not topological, but at someone who's looked at enough maps, you can just tell by the way the roads are that there's some interesting geography and formations around there.

Lee Brown: Absolutely. When you see a lot of curves in the road, it does not identify a flat piece of property. So yeah, we're sitting in a beautiful place in the mountains and we're so thankful that we've been able to provide this service to our community.

Christopher Mitchell: Yep. In Minnesota, we have a lot of curves in the roads. Generally it's a dodging lakes. So it's a little different.

Lee Brown: Yes.

7:36

Christopher Mitchell: When we had spoken before John Williams was on the call and he was talking about some of the benefits to the wastewater and the water plants in terms of all the higher tech gadgets you could use to make sure you were monitoring all the different things you need to monitor. And I'm curious if you've seen a lot of benefits to the electric side, to the water and wastewater side from the network?

Lee Brown: Oh, absolutely. That was our first venture into a fiber was to build a backbone and connect all of our electric water and wastewater infrastructure, and the local school system. So that's where we started in 2012. And yes, we've seen lots of improvements. And shortly after that, we installed the new SCADA system and brought back more data and information and have been able to use all of the technology to monitor our water losses and identify where we might have a pressure zone that has a leak earlier than we've ever been able to do that before. And it's really helped to manage and correct leaks when they occur and reduce our water losses. So big benefits to electric water and wastewater from being connected with our fiber.

Christopher Mitchell: For someone whose main experience with water is just pulling it out of the tap. What does that mean, that you can get earlier intelligence into some of those issues?

Lee Brown: Typically in the old days, the leak had to come to the top of the ground and somebody had to identify, oh, there's a wet spot. Or if it's bad enough, you'd have running water on top of the ground. But with this, now we have the ability to identify different pressures zones, where we could possibly have a leak, from when we see a trend upward on our volume of water, that's going out of our tanks, and it doesn't match or historical patterns. Then we can have our crews go out with a leak detection equipment and begin to survey that pressure zone and identify that a leak and repair that before it possibly even comes to the top of the ground.

9:57

Christopher Mitchell: Okay, so is that primarily a cost savings of not having to run through more water or is there a larger... Does it have a safety issue involved with that at all?

Lee Brown: So several things, it is a cost savings, but we operate under guidelines from the state that they require you to maintain a lower loss percentage of water loss in your system. And so that's really helped us stay in compliance and well ahead of our regulatory requirements.

Christopher Mitchell: Sure. I can see how that would be a benefit. You always want to keep those people on your side.

Lee Brown: Absolutely. That's for sure.

Christopher Mitchell: So what's changed with the Internet product for the residents since you launched a... I think you've changed your billing structure around a little bit, and I'm just curious if you can share how it's changed over the years.

11:26

Lee Brown: So when we first rolled out our offerings of broadband, we had three different speeds that we offered. A 25 megabit service, a hundred, and a gig. And our 25 megabit service was $49.95 and the 100 megabit service was $69.95 a month. Then our gigabit service was it's been so long now, I think it was $199 a month. We're always looking, how can we improve things, but make things simpler. So we decided the choice of three, really isn't doing that much for us, and let's really try to take this up where it needs to be. And so we dropped the hundred megabit and reduced the price of the gig down to the $69.95. So now you just have a choice of 25 and a gig. And we think one day that the gig service is probably going to just be standard. That'll be the only thing that we offer, but we've not made that decision yet

Christopher Mitchell: In almost all the networks I'm familiar with, people tend to cluster around the standard tier, whatever the basic lower rate is. Although we're seeing oddities in a number of places where there are a lot of people that are jumping, particularly people who are signing up more recently during the pandemic. And so I'm curious what your kind of patterns are that you see with which package people take.

Lee Brown: Well early on, and it still is primarily, I think most of our customers take our 25 megabit package, but there's definitely been with the price reduction and then what has happened with COVID, there are more people that are signing up for our gigabit service today than before.

Christopher Mitchell: Do you see the lack of a cable package? I mean, that's something that you were toward the front end of utilities that were doing that. Now it's pretty common for people not to have that. Have you seen any changes in terms of how that impacts how many people sign up for your service?

Lee Brown: We think it's worked to our advantage. And we've got all the business that we can take care of today. Occasionally I will run into a customer, and ask me how many channels do you have? And I say, "Well, we have them all, but you just have to decide which streaming service that you want to use and which channels you want." The thing that we have noticed, that our installers called this to our attention, is two years ago, they spent time trying to explain to people how to stream video content. Today they already know how so that change... Yeah, we were kind of on the leading edge of providing a broadband service without video. We knew video, traditional video, cable TV was on the decline. We did not have any idea of how quickly that decline was coming, and how quick the adoption rate of streaming was going to come.

13:53

Lee Brown: So we're just kind of at the right place at the right time. But again, we wanted to try to make our service just stellar broadband experience, and video tends to drag that down. And if you have problems, it's going to be with video. And we just decided that's not what we wanted to deal with, was with the problems that came with video. Plus the margins on video-

Christopher Mitchell: They're negative.

Lee Brown: Are just not really good. They're not really good. And so why would you want to be in a business that causes you a lot of problems and does not provide you with a return on your investment? So it's worked out really well for us.

Christopher Mitchell: Excellent. I'm curious to see what we see in terms of the numbers as it seems like a lot of people are now moving away from satellite as well to the streaming. And I would assume there's probably a lot of satellite customers out in your area, who may be particularly interested in coming online now. Even if they're not big on the Internet, they may just want to get their television programs over Hulu or YouTube TV kind of thing now.

Lee Brown: We have seen a few customers switch and do away with their satellite TV service. And I think that will be a more common thing over the next two or three years, as people have access to reliable broadband, why would you want to pay for a satellite TV service? And again, it's more traditional. Satellite is more like traditional cable TV, and it's expensive.

15:33

Christopher Mitchell: One of the things that I saw when I was just refreshing myself, is that you don't offer email addresses for your customers. And it just brought back something I hadn't thought of for so many years, which was why would any ISP spend their time doing that at this point? And I'm just curious if that's been something that has been a pure positive for you, or if it's been a little bit mixed.

Lee Brown: It has, and occasionally somebody will ask for that, and we will provide it, but it is just, it's a thing of the past. People just, they don't ask or me anymore. And that's another thing that you have to keep up, with and takes up your time. And so we've tried to tailor our service to really doing the things that make that service to the customer just a great experience and reliable.

Christopher Mitchell: As you've been building this, have you seen any competitive response from other providers in the market? Has anyone tried to come in and compete with you more strongly, or have they basically just let you take the people that care about their high-quality, all those customers?

Lee Brown: We've not really had any head to head competition. We were last year, we were awarded a grant and our competition from the phone company was successful in getting that grant rescinded.

Christopher Mitchell: Oh, come on.

17:03

Lee Brown: And they were able to prove by some calculations and algorithms that they did provide a 25 by three service, which was the definition of the grant. And so we got that taken away from us last year and that kind of slowed our build-out down, but that's the only real pushback that we've had from our competition.

Christopher Mitchell: And so the last thing I wanted to ask you about was you did transition to being an authority. And this seems to be something that is not uncommon. I mean, I'm, I know that Johnson City had done this and I've seen a few others, but I'm curious if you can tell us why you decided to change that structure from being a city owned, municipality, to, I think it's correct to describe you as an authority of the state of Tennessee.

Lee Brown: Correct. That's correct, Chris. And we just felt like it was time now that we were in the broadband business and being an authority really doesn't change anything. As far as our governance, we still have a five member board, and the city fathers approve those people that come back onto our board. So that's pretty much the same. It gives us a little bit more latitude to do some things that are a little more creative, and an out of the box that maybe we couldn't do under the city's umbrella. Discussions with the mayor, we just felt like that it was the right move for us, and our utilities and our community. And then it preserves the local structure of providing electricity, water, wastewater, and broadband that we can make put up on the auction block under the authority. Sometimes cities might get in trouble and then the utility could be a way out of some financial problems. And we've seen some things like that in the state of Tennessee happen already, but we just felt like it was the right thing for us to do here in our community.

19:28

Christopher Mitchell: And who appoints the board, then once you're an authority, how does that work?

Lee Brown: That structure can be set up several different ways, but the way ours is set up, is our board would make a recommendation back to the city council, the board of mayor and aldermen. And they would either confirm that nomination or ask for another.

Christopher Mitchell: Okay. So the city still has some role in who's on the board and that sort of thing.

Lee Brown: Yes, they do.

Christopher Mitchell: Actually, there's one other question that I love to ask and that is everyone I've talked to on these networks, there'll be honest and say, this was worthwhile. It's been hard. You've had sleepless nights, as you've tried to fix things. What has made it all worthwhile to be providing this service? What makes you look back and think all these years, trying to figure it out, all the energy I put into it, I'm really glad we did it.

Lee Brown: No question hands down, absolutely glad we did it. Right place at the right time. And for years, I've looked at our community and because we're a small community, and we have a small number of employees, and we serve a small population, and we're tucked up here in the mountains of Northeast Tennessee. And I used to say, we were too small to do this, or we were too small to do that. But I finally realized we're just the right size, just the right size. And one thing that really helps is we have a density much like a metropolitan area that really helps, when we have average 34 customers per mile. But then being able to attract the top talent and put together a really robust plan to roll this out, and being able to do it in phases. Everything you do in a startup business is not perfect.

21:37

Lee Brown: If you go in phases, you can learn from things that are not perfect and make it better in the next page. So by the time the third or fourth phase comes out, you've really perfected your processes and how to manage your business and serve your customers. So that's really been key to our success, keeping it simple, keeping video out of it. It's not anything that we've worried about. I don't know that anybody's had sleepless nights, except when we would lose our connection from our providers and our customers are without a broadband. But that's the only things that has ever kept us up. And that's something that's going to happen.

Lee Brown: But early on our business plan, we projected it would take us five years to have 2500 customers. We did that in the first two or three years. And we said it would probably take four and a half or five years for us to make cash flow positive, that happened in 18 months. And so everything that we planned for, we beat all of our projections and it's been an incredible story. And again, nobody was coming to provide this service to our community, and we've been able to do that and do it really, really well. And our customers really appreciate that.

Christopher Mitchell: And just to further finish up with that, you also, I think you don't have any debt do you?

23:19

Lee Brown: We do not have any debt for our fiber system. We had a small loan early on for some cash flow. And when we transitioned to an authority, instead of carrying that debt over, we just paid that off and got that out of the way. So we're debt free, and building up some cash reserves that are going to be able to do some other great things for our community that we're working on. So we're excited about the future.

Christopher Mitchell: That's great. And I know way across the state, a million miles away from you is Clarksville, where I know they've used their revenues from their system to do quite a lot of interesting things. So there's a bright future there when you have the cashflow to be creative. So I'm looking forward to seeing what you do and really appreciate your time today.

Lee Brown: Thanks, Chris. Always good to catch up with you.

Ry Marcattilio-McCracken: That was Christopher talking with Lee Brown president and CEO of Erwin Utilities. We have transcripts for this and other podcasts available at Muninetworks.org/broadbandbits. Email us at Podcasttmunietworks.org, with your ideas for the show. Follow Chris on Twitter. His handle is @Communitynets. Follow Muninetworks.org's stories on Twitter. The handle is @muninetworks. Subscribe to this and other podcasts from ILSR, including 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 Arnie Husby for the song, Warm Duck Shuffle, licensed through Creative Commons. This was episode 431 of the Community Broadband Bits Podcast. Thanks for listening.

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