Transcript: Community Broadband Bits Episode 54

Thanks Jeff Hoel for providing the transcript for the episode 54 of the Community Broadband Bits podcast with Brian Skelton on the municipal fiber network in Tullahoma, Tennessee. Listen to this episode here.

00:20:

Lisa Gonzalez:  Welcome to the Community Broadband Bits Podcast, from the Institute for Local Self-Reliance.  I'm Lisa Gonzalez.

Tullahoma, Tennessee, is home to LightTUBe, offering triple-play to residents and businesses, and recently adding 1-gig service.  Brian Skelton, General Manager of the Tullahoma Utilities Board talks with Chris this week about the network's growth and its success.  LightTUBe provides unique local channels on its television service, and also refuses to offer what he calls gimmick prices.   Tullahoma Utilities Board regularly raises speeds without raising rates.  Here are Chris and Brian.

00:56:

Chris Mitchell:  Welcome to another edition of the Community Broadband Bits Podcast.  Today I'm talking with the General Manager of the Tullahoma Utilities Board, Brian Skelton.  Welcome to the show.

01:07:

Brian Skelton:  Thank you, Christopher.  I appreciate it.

01:10:

Chris:  I'm really excited to get a better sense, because we spoke with Clarksville recently.  We're slowly making our rounds across Tennessee.  Maybe you can start by telling us a little bit about Tullahoma and where it's located.

01:22:

Brian:  Sure.  I'd be glad to.  Tullahoma is a mid-sized town in southern-middle Tennessee.  We are equidistant -- about 65 miles -- from Nashville, Chattanooga, and Huntsville.  So if you drew a dot in the middle of those three cities, you would basically have Tullahoma.  We're about 12 miles off the interstate.  So we don't have an interstate highway to bring manufacturing here.  It is a technology community.  We have Arnold Engineering Developmental Complex, which is adjacent to Tullahoma.  They have about 2,000 employees.  It's the largest wind tunnel complex in America -- maybe in the world, I can't remember.  Lots of engineers, scientists, technology people working there.  We do have a moderate amount of industry in town.  Goodrich Landing Gear, which has since been bought out by United Technologies.  It's probably out largest manufacturer.  They make landing gear for various aircraft.  And we are a regional medical center for this part of southern-middle Tennessee.  Our hospital complex is the largest within about 45 miles.

02:32:

Chris:  The reason you're on this show is because you're doing some interesting work with fiber optics, and offering Internet access.  Maybe you can just tell us, briefly, what the utility does in terms of communications.

02:43:

Brian:  Well, we are -- first of all, we are an electric, water, and wastewater provider for the city of Tullahoma, and some adjacent communities outside of Tullahoma.  And we recently -- I guess back in 2007, the board made the decision.  And we served our first customer -- telecommunications -- we billed our first customer in January 2009.  And we offer triple-play services via fiber-to-the-home.  We're a GPON system.  And we offer telephone, Internet, and television.

03:16:

Chris:  OK.  So, now that we know where Tullahoma is, and a little bit more about the community, let's go back in time, and learn a little bit about why you decided to get into the communications business.

03:27:

Brian:  Tullahoma Utilities Board had looked at going into the telecommunications business in the late '90s, around 2000.  It would have been an HFC build-out.  And the city, at that time, decided not to move forward.  And I came to Tullahoma Utilities Board in April of 2006.  And that's one thing the board wanted me to look into, was the feasibility of building a fiber-to-the-home telecommunications system.  So, we started working on that in late 2006.  Went through a feasibility study.  Got approval from our board -- unanimously.  Got approval from the city board in April of 2007.  And, sometime late that summer, we went through the process of issuing $16.9 million in bonds.  And started with RFPs to build the system out.  In between the fall of 2007 and the, I guess, late summer to fall of 2008 is when we built the system out.  We put, I think, approximately 200 miles of fiber in.  We are an all-fiber system.  We service the city limits of Tullahoma, and we also service a few hundred customers outside of the city.

As you probably know, state law in Tennessee is written to where electric municipal utilities can serve broadband.  But they can only serve their electric customers.

04:51:

Chris:  Right.

04:51:

Brian:  So, if it's a customer outside the city -- if there's some outside the city that's not a TUB electric customer, we cannot provide them with communications services.

And we branded our system -- our -- the brand of our telecommunications system is LightTUBe.  L-i-g-h-t-T-U-B-e.  And in the logo, the T-U-B is a different color.  Because it's also the acronym of the parent company, Tullahoma Utilities Board.

05:17:

Chris:  Right.  I've enjoyed that.  You've got some of the mixed capitals going on, as well.

05:22:

Brian:  Right.

05:23:

Chris:  So, it's always interesting to me to reaffirm the way in which utilities often move forward on this.  Which is that they are really rather cautions.  You started off by -- well, before you even got there, the Utilities Board looked at doing something.  Because even back in the '90s, it was apparent that there was a need.  And you -- the utility evaluated doing a cable system, and decided that it wasn't quite right for them.  And then they came back in later years and found that the numbers did work out to do this fiber system.  And so, I just -- I like to -- I always like to make sure we hit that part of the story.  Because some to the opponents of governments' doing this is that they just jump in, and they don't look, and they don't know what they're doing.  Which is totally rebutted by the actual practice of what we see.

06:10:

Brian:  Absolutely.  And municipal electric utilities are typically -- they've been in business for long periods of time -- often for a hundred years or more.  They're generally very fiscally conservative.  And they are not going to go into this business unless they have gone through the process, to make it's a sound business practice, and will financially do the things that it's supposed to do.  And, of course, we're not in this business to make money.  That's the difference between us and privately-owned telecommunications companies -- is, we do not have the motive of trying to make a 10- to 20-percent profit.  We do want to pay our bills.  We want to provide good services.  We pay our bond debt, pay our employees.  But our goal is to provide good services and grow our community.  If you go back to the reasons that Tullahoma decided to do this, economic development is the reason.  It was to provide an opportunity for us to try to recruit technology businesses, to recruit residents to this town who valued having a high-quality, extremely high-speed Internet availability.  And, being a small rural community, and off the Interstate -- I mean, we were not going to get the transportation-driven facilities, because they didn't want to travel the 12 miles off the interstate.  While that seems like a very short distance, surprisingly, there is a strong effort made, with a lot of these manufacturing companies, to be just within a mile or less of the interstate.

07:44:

Chris:  Right.

07:44:

Brian:  And unfortunately, we don't have that ability.  But we do have the broadband interstate going in Tullahoma.

07:50:

Chris:  One of the ways that we often can tell whether or not a network is doing well is by looking at a lot of the numbers associated with the network.  And you guys are doing well in terms of your debt payments.  You haven't missed anything.  You haven't had to worry too much.  And your churn is quite low.  So, maybe you can just walk us through, just very briefly, some of the ways in which we know that your network is succeeding.

08:11:

Brian:  Well, as you pointed out, we're very proud of the success we've had, and the growth.  We've been, now, billing customers -- I guess, with the July bill that will be four and a half years.  We have never had a month with negative growth.  We've always had a positive growth number, each month during those four and a half years.

So, if you look at our potential customer base, we have drilled down, and we think we have about 9,000 or so potential customers.  Out of those potential customers, as of today, we have just a few more than 3,130 customers.  So, that's over 34 percent penetration, in less than four and a half years.  And that's really been, also, in a very tough economic time.  This is not -- I think that those numbers would be even higher if this system would have launched a few years earlier.  But we've really had to grow this customer base in a really tough economic time.

09:07:

Chris:  Yes.  It's entirely recession-based growth, which is very impressive.

09:12:

Brian:  So, we've grown every month.  We've been cash-positive, now, for the last two full years, meaning, we've covered everything, including our bond payments -- EVERYTHING except we didn't have enough to fully cover depreciation.  However, we have, now, become net-income-positive for four of the last six months.  We've got our plans for next year, and I can say with 100-percent confidence that we will be net-income-positive for fiscal year 2014, which began today.  We borrowed, as I mentioned, about $16.9 million in bond indebtedness that was issued through the city.  It's a general obligation bond, paid by the revenue of the system.  And we've already paid back almost $2.2 million of that.  So, we've been making our interest payments.  We've already started making our bond payments.  Everything has been on time.  We haven't had get an extension or a waiver on any of those.  So everything is moving forward exactly as we have expected.  Now, our customer numbers -- are they where we expected?  They are not.  We thought we would probably have a few more hundred customers at this point.  But, you know, because of the reasons we talked about, with the economics, it just didn't happen as quickly as we thought.  But the financial plan has actually worked exactly as we had expected.

Our churn over the last three years -- and I think we could actually go back to the day we launched -- we have averaged less than 1 percent.  We've had a few months that we've had a 1.1, 1.2 percent.  But a lot of months we'll have 0.6, 0.7 percent.  And I think that's incredible, considering we're such a small community.  So, if someone moves out of Tullahoma, and then moves to the neighboring next town -- I mean, we don't have a chance to keep those.  But the MSO -- the big MSOs -- you know, you can move across the state, or move from one state to the other, and they will potentially still keep you as a customer.  If a customer moves, we've got to replace them with another customer.  So, ...

11:04:

Chris:  Right.  And just for people who are not as steeped in the industry, the "MSO" is the cable company.  What I find amazing is that, you know, for four and a half years, you have all these customers who are probably being bombarded, with these temporary, promotional offers, to save a lot of money.  And what you might see would be, you know, a higher churn rate, as some customers are going back and forth between the two networks, to try and temporarily get a better deal.  The fact that you have almost no one doing that, I think, really shows the value of what you're doing.

11:39:

Brian:  It really does.  And I don't have the exact numbers, but I can give you indicative numbers.  But let's say, on a typical month, maybe we gain 20 customers.  And to gain those 20 customers, we have to sign up 50 new customers and we lose 30 customers.  Well, those 30 customers that we lose, of the 30, 20 of them have moved out of town, 5 of them have been cut off because they got delinquent, and we just had to, you know, turn them off for non-payment.  And maybe 3 or 4 will have moved to another provider.  So we are -- if you drill down on the churn, to say how many people are actually leaving you to go to another provider, we think the number is less than one tenth of one percent per month.

12:22:

Chris:  And do you have any sense of what you can attribute that to?  Is it loyalty to something that's locally owned?  Is it -- are the providers -- just have that bad of a reputation?  What do you think the reason is?

12:35:

Brian:  I think there are several reasons.  I think the fact that it's a local company, and being owned by the utility, and ultimately being owned by the city and the people who live in this community.  You know, our goal is to provide good services, and not to make money, just to, again, be in a good cash position to be able to operate the business.  The fact that we're locally owned.  The fact that anything that we make, margin-wise, goes back and is reinvested in the system, or is invested in paying off what we have borrowed.  I think the fact that we do a tremendous amount of local programming, which no other provider does anything to that extent, including showing a majority of -- well, all high school football games, most if not all high-school basketball games, a majority of baseball games, some softball games, and the occasional soccer game -- for the high school, in high-definition.  And, really, with a quality broadcast on football that would rival some of the things you would actually see on a local network program.

13:38:

Chris:  Wow!

13:39:

Brian:  Those kind of things.  There's a couple other things that we've done.  And one thing that we did -- and -- we debated this to start, and we debated this for the last five years -- is, we have not done gimmick pricing.  We have said that, from day one, that everyone in this town that has the same services will pay the same amount of money.  So if a customer comes to us and threatens to leave because Charter, who's our MSO competition, offered them, you know, $90 for triple-play for 6 months.  I mean, we tell them, we don't want to lose their business.  We really hope they stay.  But we will not match that offer.  I mean, our prices are the same for everyone in town. And we -- and I think, you know, that's cost us a customer here and there, but a majority of the customers like the fact that they don't have to call their MSO every six months to try and get the next promotional offer.

14:29:

Chris:  Absolutely.  I know I value that tremendously.  And surveys show that people value that tremendously.  And I should just throw in, for people who are listening from other communities, the record has been mixed, quite frankly.  And some communities have struggled because, although people say they don't want that sort of gimmick pricing, they do respond to it.  And so it's always good to hear from a community where people, I think, are making more educated decisions, and supporting the local provider.  Because, you know, as soon as Charter can drive a competitor out of business, those -- the promotional pricing tends to escalate, and you don't get those good deals so much anymore.

15:09:

Brian:  Well -- and the other thing I wanted to point out that we've done -- and, again, unfortunately, with video -- on our fiber Internet, and also on our telephone, we have -- we've been in operation over four and half years -- have had no price increases, expect to not have any price increases.  Unfortunately, on video, we're getting hit with 6-9 percent increases every year on video programming.

15:33:

Chris:  Right.

15:33:

Brian:  So, we had a video increase in January of 2012.  And what we did, to try and soften that blow, and to try to tell people we're not like the regular cable company, is that we gave a two-year rate guarantee.  And you do not have to sign a contract, but our board passed a moderate rate increase.  And our board, you know, endorsed -- and we publicized and have stood behind it -- that we're doing a rate increase, but we're guaranteeing that for 24 months, we're not going to come back and get another one.

16:00:

Chris:  That's terrific.  And I just really have to salute the not raising the prices on the phone and the Internet.  Because, you know, it's been hard times for everyone.  People living on fixed incomes.  It's really terrific to have a utility that can keep the pricing affordable.  Now, well, you didn't mention, and I know is true, is that you've -- even as you've held the pricing steady, you've increased the capacity of the Internet connection.  And, I don't know, I wouldn't be surprised if you'd added features to the telephone package while you were doing that.

16:31:

Brian:  Well, we did change wholesale phone providers, and we did add some features to telephone about a year and a half ago.  Because our residential package for telephone is $31.95 a month.  That's the only thing we offer, is that price.  But it comes with all call features -- a list of about 25 call features -- including voicemail, for that price.  Now, if you get triple-play, you get about an $18 discount, so you can basically take about $6 off that service, if you get triple-play service.

We offer the same exact thing on the commercial side.  And this is what's phenomenal -- and we've had so much success on the commercial telephone side -- is, for $29.95, if you sign a 3-year contract, you get commercial -- a commercial telephone line, with all call features, including unlimited long-distance.

17:22:

Chris:  Wow!  That's got to be very popular among the local businesses.

17:26:

Brian:  Well, it is.  And we've had lots of success with that.  And we're happy that we're saving, you know, our customers, both residential and commercial, lots of money.  In fact, we've done some studies, and I don't the number right in front of me, but we certainly estimate that we save our businesses, we think, in the -- somewhere in the neighborhood of a million dollars a year.  Now, that that's a combination of how much they're saving by going to us and also a combination of what they're saving because the competitor has sharpened their pencil, and is offering them the kind of offers which people that don't have this kind of competition don't have.  I mean, they don't -- if you go one city away from us, where there's not competition, they don't get the same offers that our residents and businesses do.

18:08:

Chris:  In addition to all those savings, you're also contributing more money to the community, because I'm sure you pay the in-lieu-of-taxes fees to the city.  I'm sure the schools are getting a much better deal.  You said in a -- when we were talking previously, you said that the schools get a gigabit between each facility.  I'm sure that the savings to the community, and the benefits, go far beyond that million dollars that you mentioned.

18:35:

Brian:  Well, we do.  We certainly are offering them -- we're offering them speeds that are much greater than they can get anywhere else.  And I'll talk a little bit about our speeds.  You mentioned gigabit.  And we had launched gigabit about a month ago.  And it's new.  It's priced at $299.95 a month.  So, it's $300 a month.  It's not for everyone.  And we think it will be slow in adding those customers.  But there are going to be some customers who end up signing up for it.  But what we wanted to do -- as I said, we are doing this for economic development.  And we wanted to be able to show, hey, we can offer gigabit, and we certainly can offer you anything less than that, if you want it.  So, you know, technology companies are out there.  We want them to know that Tullahoma is ready for their technology company to come here.

The upload speeds of fiber are such a differentiator.  I mean, I know that coax is getting better on download, and even DSL is getting a little bit better, but none of them have the capability to do the kind of uploads that we're looking at.  Our board just approved, last month -- we reduced -- we had what was a 100-meg down 50-meg up residential package that was $150 a month.  Well, last month, our board approved us reducing the price on that to $99.95 a month.  And we bumped the uploads to symmetrical, so it's 100-meg symmetrical now for $99.95 a month.  And that is a phenomenal Internet package for 100 bucks.

20:04:

Chris:  Yeah, it sure is.  I pay Comcast on the order of $80 a month for what they advertise as 60 by 10.  You know, they do an OK job of hitting that target.  But, boy, I'd sure like to pay just a little bit more and get a whole heck of a lot more speed.

20:20:

Brian:  Well -- and if you go down one level, which is, to me, our most economical package for someone who really wants really great bandwidth, we have a 60-meg down 30-meg up package that is $55.95 a month.  And to give you an example of what we're trying to do to help our community, that package launched at 20-meg down 5-meg up.  Then we bumped it up to 30-meg down 10-meg up.  Then to 40-meg down and 20- up.  Then to 50-meg down 25- up.  So, over the last four years, we've given all of our customers this speed increase at NO extra cost.

20:55:

Chris:  Yeah.  Over that time period, I'm just thinking, you know, Charter probably raised their prices in the surrounding community every time that you are increasing your speeds but never increasing your prices.

21:07:

Brian:  Well, we're just trying to do what's right for our community.  And, you know, Internet is going to continue to become faster and more affordable for customers.  And, on the business side, we've got quite a few customers that are taking advantage of 50- and 100-meg symmetrical offerings that are, you know, hosting web servers here in town.  We've got one technology company that hosts all of their engineering drawings for around the world here in Tullahoma.  And everybody from around the world can access that.  And they've got to have a pretty big and certainly a reliable pipe to build a -- to push that information back out to their other offices around the world.

21:48:

Chris:  Right.  And I think one of the most interesting pieces of these networks often is the demand from nearby communities.  And, as you had mentioned, Tennessee law prohibits you from expanding, no matter how much nearby communities really want to see you expand your service, and no matter how much you may want to expand, or may want to have that option available to you in the future, it's not on the table.  But I'm sure you get calls from people regularly, saying, please, sign me up, who are outside your service territory.

22:20:

Brian:  Well, we do.  And, I mean, in -- not only people who are just outside the perimeter of our service area, but we get calls from neighboring towns, in Winchester and Lynchburg and Manchester, who are all, you know 10-15 miles away.  Of course, we don't have the ability to serve them.  The group of fiber municipal utilities in Tennessee has been active for several years, trying to get some relief, to at least be able to service some of these customers within a limited area outside our communities.  And, so far, we have had no success in doing that.  We're certainly, you know, having to fight in the legislature against the two big MSOs, Charter and Comcast, who are in Tennessee.  And also AT&T.  But we, you know, again, we will probably try to pursue that again.  And I don't think, speaking for Tullahoma -- I mean, we don't have a goal to go out and service an area that's 20 miles away from here.  But we would like to be able to service, you know, some businesses that are really close to our service territory, where we could maybe extend, you know, fiber a short distance and maybe pick up, you know, some good customers, and some customers that offer some economic development value.  I -- there's an example of a machine shop that's here, just outside of our service territory -- probably, maybe less than a mile.  And they would like to have much better -- more robust Internet.  And we just don't have the ability to do that.  There's also a joint industrial park that's about four miles from our service territory, that, actually, the city of Tullahoma and the county and the adjacent city of Manchester have all put money into developing.  And, you know, they do now have, I think, cable-based Internet.  But we would like to, you know, provide fiber out there, so that they could really go after technology companies that might want to come in there and open.

24:12:

Chris:  Well, we hope that that changes in the near future.  Is there anything else we should know about Tullahoma?

24:16:

Brian:  To tell you a couple of things that we're doing, we are doing an automated metering infrastructure project, and we're using our fiber to bring in the meter readings -- at 55 points around the city, for 21,000 total electric and water meters.  And it's really -- it's going to be fantastic, because we can give our electric customers, now, real-time data.  And they can pull in reads instantaneously.  We can pull in really close 15-minute reads.  As power begins the process of being priced on a time-of-use basis.  And I think that's certainly where everyone is headed in the future.

24:55:

Chris:  Now, are you using a combination of wireless and fiber for -- the wireless for people who don't take telecommunications services?

25:03:

Brian:  We are.  And we're actually using it even for people that are.  We're using the fiber to pick up readings at 55 collectors around town.  And we're using a wireless mesh system to go from meter or -- either meter-to-meter-to-collector or just meter straight to collector.

25:20:

Chris:  OK.

25:20:

Brian:  And I think, the last I heard, about 80 percent of our meters -- electric meters -- read directly to a collector.  So they don't even have to hop from one meter to the next to get to the collector.  Because we put enough collectors out there to be dense enough to get a -- I guess, a more -- a quicker reading ability.

25:40:

Chris:  OK.

25:40:

Brian:  But this is going to be -- we are in the very final stages of doing that.  I think we have only maybe 100 or 150 electric meters left.  And we'll be utilizing that system very soon.  We're already utilizing, just not fully.

A couple things we're doing on the video side.  I talked about local programming.  But we have about 110 HD channels, which is certainly more than your average provider.  But we have, actually, three local channels.  And we do a lot of local programming outside of sports.  We have a 24-hour-a-day automated weather channel that's focused in Tullahoma.  So you get the weather centered in Tullahoma.  It gives you weather in the surrounding communities that you might be travelling to that day.  So you don't have to go to the weather channel and wait for the local on the eights.  And we do have a couple of local high-def weather webcams of our airport and our civic center here.  And they've proven very popular.  People can tune in and see what's going on at the airport.  I flipped over yesterday, was eating lunch or dinner, and had the webcam out at the airport, and here comes a skydiver.  We have a skydiving school at the airport.  So I got to see a skydiver come into the airport.

But, anyway -- And the other thing -- one other thing on the business side.  In addition to just offering Internet, we can offer point-to-point VLAN service.  And we do a lot of that in town.  We're doing that especially in the medical community, between the hospital and various doctors' offices.  But it's fast, it's secure, it's very reliable, and that's been a really big hit for a lot of businesses around town that have multiple locations.

27:21:

Chris:  For people who are a little bit confused, the VLAN is -- it's one of those services that, I think, not a lot of people are familiar with, who are outside the industry -- or, outside of business.  But it allows you -- it enables you to tie together multiple offices as though they're on one local network.  And that can be just incredibly valuable for productivity.  Unfortunately, a lot of times, because it's such a business product, it's priced very high by incumbent operators.  And so, a number of municipalities are able to keep the prices much lower.  And that's just a tremendous benefit, especially for those small businesses that have multiple locations.

27:58:

Brian:  Right.  And we have more than one option for less than $100 a month.  And, typically, as you probably know, oftentimes, you know, just to get a VLAN connection, you're talking several hundred dollars a month.  So, it's really been popular.

But, I guess, in conclusion, this has been a really good thing for our community.  From a growth perspective.  From a community pride perspective.  Just the ability -- you know, we built this for the Internet.  And the telephone to some extent.  And the TV was really something that we had to build to make it work financially.  And on the residential side, certainly the TV has been extremely popular because of the high-def and the local programming.  But it's just been a great thing for community pride.  It's been great for saving both our businesses and our citizens, we think, a tremendous amount of money.  And, being locally owned, you know, if they want to come in and see me, as the manager, if they want to talk to someone face-to-face, they can do that.  We're open 8-9 hours a day.  We have a board of directors that meets once a month.  If they're not happy with something, they can come to that board of directors.  If you're dealing with one of the other companies that we're talking about, good luck on that.

29:10:

Chris:  Right.  That's something that we often think about, being from an organization called the Institute for Local Self-Reliance.  You know, it's -- even your linemen, I think, have a different perspective, I think, than would a typical contractor person working for Charter.  Because your linemen live in the community, they go to church in the community, they go to the grocery store in the community.  And so, there's just a different kind of pride, and of service, I think, that comes with that.

29:37:

Brian:  Absolutely.  And we even have a residency policy, where our employees have to live a certain distance.  So we don't have employees driving in 50 miles away to work, and then take their money back to their home town and spend it.  I mean, we want them to be living and shopping and patronizing businesses in the communities that we serve.

29:55:

Chris:  Well, excellent!  Thank you so much for coming on the show.

29:58:

Brian:  I was glad to do it.  It was nice to talk to you, Christopher.

30:00:

Lisa:  We have several stories about Tullahoma at muninetworks.org , including posts about TUB's smart meters, economic development due to the network, and its new 1-gig service.  You can also visit tub.net for more about LightTUBe.

Please send us your questions and comments.  E-mail us at podcast@muninetworks.org .  Our handle on Twitter is @communitynets .  This show was released on July 9th, 2013.  Thank you, again, to the group Eat at Joe's for their self-titled song, licensed using Creative Commons.  Thanks for listening.

 

Tags: