Transcript: Community Broadband Bits Episode 77

Thanks to Jeff Hoel for providing the transcript for the Episode 77 of the Community Broadband Bits podcast with Chris Schweitzer on the fiber network in Auburn, Indiana. Listen to this episode here.

 

00:08:

Chris Schweitzer:  You know, we're not going out there, trying to win customers with the lowest price.  We're trying to go out there and serve the community with a healthy, sustainable, quality product.

00:19:

Lisa Gonzalez:  Hi there.  This is the Community Broadband Bits Podcast, from the Institute for Local Self-Reliance.  This is Lisa Gonzalez.

Today, Christopher Mitchell speaks with Chris Schweitzer, Director of Auburn Essential Services in Indiana.  Schweitzer describes how the AES network began in the late 1990s.  The community deployed the network primarily for electric services, but over the years investigated other possibilities.  When a major employer could not get the services it needed from an incumbent, AES expanded to begin serving business clients.  Over the years, AES has branched out to also serve residential customers, and now offers triple-play to the Auburn community.  Keep your ears peeled for Schweitzer's description of the AES business model.  The approach allowed the network to become self-sustaining within a relatively short time period.  Here are Chris and Christopher, delving into Auburn Essential Services.

01:11:

Chris Mitchell:  Welcome to another edition of the Community Broadband Bits Podcast.  I'm Chris Mitchell.  And today I'm with another Chris: Chris Schweitzer, the Director of Auburn Essential Services.  Welcome to the show.

01:22:

Chris Schweitzer:  Thanks, Chris.  Glad to be here.

01:24:

Chris M:  Chris, can you tell us a little bit about the Auburn area?  What's the population like?  What kind of history do you have there?

01:32:

Chris S:  Auburn is in northeast Indiana.  We're in the top right-hand corner of the state.  We're a fairly small community, a fairly rural county, actually.  So, we're the county seat.  We have a population of about 12,000 or 13,000.  Auburn's just really steeped in automotive history.  Auburn is famous for Auburn Cords and Duesenbergs, the luxury cars back in the '20s and '30s.  Every year, over Labor Day, it's the Auburn Cord Duesenberg Festival, so our town swells from 12,000 to several hundred thousand, as we get celebrities and lots of folks from all over the world coming in to -- for the collector car show.

02:07:

Chris M:  So, we're going to get into the history of the Auburn Essential Services in a minute, but first, can you just give us a thumbnail sketch?  Auburn Essential Services.  It's a good name, that suggests, obviously, that these things are needed, and that you're providing a valuable service for the community.  But what exactly is it?

02:24:

Chris S:  Auburn Essential Services is a sub-department of our electric utility.  We are tasked with providing Internet, phone, television for the businesses and residents of Auburn.  And we also provide a little bit of data center colocation space, as well as provide point-to-point circuits -- private data circuits.  That's our principal mission.

02:47:

Chris M:  How did you get into this?  Can you take us back to the beginning, when utilities said, you know, we really have to get involved in this information stuff

02:56:

Chris S:  Yeah.  It was kind of long transaction for us.  So, kind of the rooted history is, we've actually -- the Auburn Electric Utility has been doing fiber since the mid '80s, actually.  Some of the first fiber put in the Midwest.  Between our substations, for relay protection and control.  And so they've got some -- they -- our engineering group had some experience with that.  But, early, what happened was, us as a city government who had a movement for connecting our government facilities and just better serving our community, we put in a municipal fiber network, just for city/county government operations.  That was back in 1998.  Well, when we did that, we actually put together a very formal master plan.  It was called the Information Technology Master Plan.  And that included, you know, doing some fundamental things from an IT perspective.  Getting departments connected, hence a municipal gigabit network, for our city/county facilities.

03:50:

Chris M:  So you actually were doing gigabit even back more than ten years ago.

03:54:

Chris S:  For city/county government facilities, kind of like an enterprise network, yes.  Yeah.  So, we put that in, put in a geographic information system, put in some new communication tools, and a software administrative system, that really kind of culture and the paradigm of how we kind of operate city government.  So, that was that master plan, phase 1.  Well, there was a phase in that document that we called phase 2, kind of a real quick study in, what would it be if Auburn ** aware and agile to support a need if there was a larger community broadband need.  So we looked at what are other communities in our region doing with non-traditional municipal utilities?  So, cable TV, telephone service, and Internet, or broadband.  So we went around to various locations here -- this was in the early 2000s.  That was fine.  We had an awareness.

Well, the catalyst for us, Chris, was in 2004.  There was a long-time community resident here, Cooper Standard.  Cooper Tire, actually.  They had a plant here.  And actually, not only did they have a plant here, but they also had a large portion of their accounting and their data center was here.  So what was happening was, they were having some problems with continuity of service.  They came to us and said, you know what, we have something going on in our company.  We're going to be sold, and we are evaluating whether to stay or to go -- their data center, that is.  The mayor said, you know what, yes, we've been studying these things.  But this really isn't something we need to do.  The incumbents should be able to take care of you.  Let's go talk to them and let's figure this out, so you guys can stay and get healthy and have your continuity of service that you need.

So we tried that.  And unfortunately -- I think it was maybe in three to six months -- Cooper came back to us and said, OK, we're not satisfied with what's happening there.  And so we are actually going to put an RFP out on where we're going to go -- where we're going to take and move our data center.

06:09:

Chris M:  You developed the plan for your -- the city needs, basically, in the late '90s, and then you spend a number of years sort of evaluating what was possible, and seeing what other communities were doing?

06:21:

Chris S:  It wasn't a formal study, per se, but it was actually our community leaders getting kind of educated and aware that, hey, you know, municipal utilities ARE doing some kind of non-traditional services, like Internet, phone, and TV.

06:33:

Chris M:  Right.  And then the other question was -- I understand if you don't want to name the incumbent, but I'm always curious if it was sort of a big national company or whether it was more of a local company.

06:41:

Chris S:  Yeah, it was definitely a big, national company.  Yeah.

06:44:

Chris M:  OK.  So, the big, national company's not meeting the needs.  And the company has gotten to the point where they're saying, look, we're going to have to go somewhere else.  And you were about to explain what the community response was.

06:56:

Chris S:  Yeah.  So, they went and talked to the incumbent.  And they came back to us and said, you know, we're not able to get the solution that we're requiring.  So we're going to consider and evaluate our other alternatives for moving our data center.  You know, as they detach from the parent company and essentially reestablish themselves.

So, this was a big deal.  The mayor -- you know, on the one hand, he had to say, no, we will not enter that space.  And I'm really sorry.  And there was about a $7 million payroll that was going to leave with the company.  You know, the other option, which he did, he said, what we'll do is, we'll step up, we have some opportunity here.  We've got a -- there's another carrier that actually has a large point of presence that runs right through our community.  We can build facilities to them.  We've got some experience with fiber, with delivering broadband with customer service.  So he said, let's do this.  So, we had been studying the feasibility of that, as this think kind of started, 3-6 months prior.  We had, in earnest, put together some rudimentary feasibility numbers, to see if -- OK, if we did this -- this is major first move -- is it sustainable?  Is there a way to go from here?  And so, that indicated, yes, there would be.  So, we essentially, in March of 2005, hooked up our first broadband customer.  And that was Cooper Standard.

08:21:

Chris M:  Now, were you a part of Auburn Essential Services at that point?

08:24:

Chris S:  I started here actually in 1998.  I graduated from college and started here as an urban planner.  And filled the IT Manager role in 2000.  You know, and so, as we got closer, I was the guy who helped out in launching that new service.  And have been managing this since the beginning.  So it's been -- I'm very thankful for that opportunity.

08:44:

Chris M:  I'm always curious.  When you go from operating a network in which you're just dealing with municipal agencies, and you take on that first private customer, what kind of changes did you have to make, in terms of how you did business, if any?  In terms of billing, and making sure the service was available and meeting their needs, and that sort of thing.

09:02:

Chris S:  At the end of the day, and still today -- you know, this is eight or nine years later for us, after first deploying -- I mean, all about good customer service.  Yes, the product has to be there; yes, it has to be reliable.  But we -- you know, we live and we work here in the community with our folks.  So we have kind of an acute awareness of who they are, what they do, what's important to them -- 'cause we communicate probably more frequently than maybe another larger company smaller company relationship might.  So I think the biggest thing there has just been understanding that customer service really matters.  And if something happens, we follow up and we make it right.  And so, just kind of that implicit accountability that's present kind of makes a lot happen.  So as you transition from an enterprise network, you know, to a broadband network, you know, a lot of the technicalities are very similar.  But I think the major difference is just --

But even so, even with an enterprise network, you know, you have users.  Users are customers.  And you want to do a good job caring for them, of course.  But I think the difference is that if we don't do a good job, you know, people can make a choice.  And so we want to do a good job.

10:12:

Chris M:  How did you go from the hard decision of serving one customer to ultimately deciding to serve many?

10:19:

Chris S:  Our growth has been very much organic.  And it's been very much phased, and kind of methodical, and probably, I guess you could characterize it as somewhat conservative.  So, we really didn't put a plan together, and get our first customer, and then go out and build everything at once, and try to be everything to all people at once.

So, I think the strategy from our community leadership -- our mayor, and the staff, and the Council -- has been to do a lot of due diligence.  I mean, there's certainly a plan **.  There's a feasibility plan put together.  There was a business plan put together.  And all along the way, --  You know, there were some internal champions are there, of course -- the mayor and myself and some key folks.  But all along the way, we made those key presentations and had those conversations, and the public -- with our Board of Works, with the Council.  And so there was very much a grass roots effort there.  And making sure that all the key decision-makers were included along the way.  We had focus groups from the business community.  We had focus groups from the residential community -- who really understand the need to really understand what our motives were going to be.  So, with all of that in play --

We also had designed a fiber -- a passive optical fiber network, for the entire community, as kind of a generalized plan.  We knew what those numbers were.  And so, what we actually did was, we didn't go out and get any external debt.  We're pretty fortunate to have a successful electric municipal utility -- it's been around since 1900 -- they've done a great job.  They had -- they've got a great power system.  So they have a history of quality service and low rates.  And so we -- you know, that's definitely a leveraging asset for us -- us being a sub-department of the electric utility.

So, what happened was, we were able to take an internal loan from our electric utility, to kind of catalyst or start the project.  And so what happened was, we started to build the first cabinet, the first local convergence point.  The first LCT **, if you will.  And kind of started to serve some customers in a pilot fashion.  We got our feet wet with billing, with customer service, with the kind of aggregate -- adding some aggregate customer base.

12:34:

Chris M:  And so, as you have expanded, have you been able to lower your costs of doing so by coupling it with other capital projects at any point?

12:43:

Chris S:  The way we're structured is, we are a sub-department of the electric utility.  Our electric utility -- because a lot of the fiber is used for core business, for -- we've got projects, for example, that are just fiber between substations, but also automatic meter reading and smart grid -- that's another project that we're about ready to complete as well -- all components made possible by a very strong and reliable and high-speed communications network.  So, what happens is, the Auburn Electric Utility owns and operates and maintains the fiber optic network -- the passive element -- and then the sub-utility, Auburn Essential Services, we own and operate the electronics that will light up that fiber.

And so, from that perspective, I think you can start to understand how the business, if you will, is kind of unbundled.  There's a passive optical network in that business plan, that floats on its own -- expenses and revenue and capital deployments.  And then, on our side, the customer-facing side, the active side, that business plan model kind of floats on its own.  And so there's a lease rate that we pay back and forth to one another.  So it's kind of -- that's kind of the internal business model.

So we make sure that we're sustainable and healthy and everything.  So, from a capital outlay perspective, obviously, in the early years, the fiber is a kind of capital-intensive project.  But we did that -- they did that very phased.  So we obviously coordinated that with them, and marketed around that phased approached, and educated the community on what was happening.  And then, so we had, obviously, some capital projects, you know, buying a lot of ONTs and ultimately deploying video.  There's various capital projects throughout there.  But it was very much a phased organic growth over time.

14:30:

Chris M:  And what has the financial result been?  As you said, you didn't really have to seek external financing, in the initial phases.  But have you been able to repay your loans and meet your business objectives?

14:42:

Chris S:  You know, we started in 2005.  And we, literally, last year, 2013, or the end of this year here, we've kind of wrapped up all but maybe one or two little pockets of construction.  And we didn't actually take a loan out.  Our Auburn Electric Utility has never taken a loan out for that.  What -- our loan that we took from the electric utility, you know, the project can only go on for so long.  And it was time.  It was time for us to finish the project.  So we took out a meager loan, to kind of 1) pay back out electric utility, but also, then, to finish our video project, and to make the final push to kind of get all this done.  So, we did take a loan out a few years ago, when we first started, back in 2005, from a cash flow -- statement of cash flows -- we were actually cash flow positive, you know, looking at expenses and revenues, within the first 12 months.  And it's just been good from there.  And right now, from a cash position, doing well.

You know, I think it's for us just it's been very methodical, kind of mitigating a risk by way of serving in incremental ways.  Not trying to overextend ourselves.  Doing business first -- enterprise business first -- and small business next, and residential next, and adding video at the tail end, all of those folks -- you know, residential and video systems -- they all benefit from having kind of a business-class network that was installed back in 2005.

16:07:

Chris M:  So, to recap on the financing, you took out a loan from the electric department -- like an inter-departmental loan -- originally.

16:14:

Chris S:  Correct.

16:15:

Chris M:  Now, that was for the capital expense of some of the equipment that you would be needing.  But the electric department also built the fiber, because it would be needing that fiber for electrical operations.  And so a lot of the expense of that plant stayed with them.  And then, if I'm guessing right, your Auburn Essential Utilities reimburses them based on how much you use.

16:38:

Chris S:  That's exactly right.  So the way the business model flows is, Auburn Essential Services pays a lease rate of the fiber to Auburn Electric.  And so those metrics are built in a way that the fiber network is sustainable on its own.  You know, looking at it from a cost and revenue perspective, it -- as well as us.  So we're kind of like two organizations working together, under a larger business plan.

17:06:

Chris M:  Right.  It's almost as though the city had put down a lot of fiber and then was charging a separate business or entity to use that fiber.  I just wanted to make sure that we clarified that, because it's kind of abnormal to do so well financially within a year.  A lot of times, these networks take three or four years to pay off.  And I wanted to make sure people understand that you financed yours in a little bit different way than the way a log of municipalities have.

17:33:

Chris S:  Yeah, I think that's true.  And I think the other part of that, you know, there's -- the passive optical plant has -- certainly has a longer depreciation schedule.  It has a little bit longer rate of return.  I mean, so, to be clear on that as well, I guess.  So, you know, they're not -- the -- when you spend that much money on buying an optical network plant, you know, the rate of return, in terms of paying for all that capital depreciation, the schedule is just so much longer than, say, the active side, where you've got set-top boxes and ONTs, you know, which depreciate in a matter of a few years.  The passive optical plant, you know, is 30+ years.  So, that business model reflects that.  So, yeah, but from a -- you know, there is core business value there as well, with SCADA, substation, control, smart grid projects that are going on.  So there's definitely an integration of the network and the communications space that benefits the community in multiple ways.  So it's kind of a cool project.  And it's -- feedback's been pretty neat and pretty fantastic, from our users, and from the community at large.

18:38:

Chris M:  Just to summarize, I think, like you said, the network -- the fiber network -- that the utility, the electric side owns, is like 30+ years.  You said the set-top boxes are probably a few years.  And ONTs, I'm hoping -- I'm guessing -- and the servers, you're probably hoping are about seven-years-ish.  Is that pretty close?

18:55:

Chris S:  Yeah.  You know, I think, in that space, I think you can get different opinions.  But, you know, anywhere from five to ten years is kind of what that depreciation schedule might look like.

19:05:

Chris M:  The last question is, what are the impacts been?  You have this incredible network.  Has the community seen lower prices?  Are you seeing more entrepreneurial development?  What kind of impact has it had on the community?

19:18:

Chris S:  You know, where the price point is obviously lower and probably a lot more competitive in a residential area, we do well there.  We save folks money all the time.  We're not always the cheapest, but we're definitely, I think, the most valuable.  And I think that's what we hear.  We have very little turnover rate.  It doesn't mean that we get 100 percent of the customers.  I don't know that we -- it would be healthy for the community to -- for us to get 100 percent of the customers.  But our intent is to go out and make sure we have our project priced appropriately so we're competitive -- or helpful to the consumer.  But we're sustainable.  So we can continue to invest in the network, invest in the product, and provide good service.

It's interesting, when you go to the other end of that -- enterprise side -- that's really kind of our flagship product.  And that's really where we do well, in terms of helping the customer with alternatives.  So, you know, in the community, certainly 2005, you know, you had traditional T1s, and no other fiber in the community.  And so, being able to provide them with a differentiated service at the same or less money was obviously helpful, from a business operations perspective.  And the same thing with business on voice.  I think we're super-competitive.  We save folks a lot of money.  And sometimes it's a few dollars, and sometimes it's a lot more than that.  And sometimes we're a few dollars more expensive.  So, you know, honestly, Christopher, it's really a value proposition.  We spend a lot of time educating customers on our system.  You know, we're not going out there, trying to win customers with the lowest price.   We're trying to go out there and serve the community with a healthy, sustainable, quality product. And, interestingly, in a town like ours, the impact is been -- word-of-mouth has been our best marketing element.

21:08:

Chris M:  Excellent!  Well, thank you for coming on this show and telling us about your approach.

21:12:

Chris S:  Thanks for the opportunity, Chris.  It was our pleasure.

21:14:

Lisa:  Visit auburnessentialservfices.net for more on the network.  We provide a few stories about Auburn Essential Services at the Auburn tag on muninetworks.org .  We encourage you to contact us with questions or ideas for the show.  You can e-mail us at podcast@muninetworks.org .  Our handle is @communitynets on Twitter.  Follow us for up-to-date developments in communications.  This show was released on December 17th, 2013.  Thank you once again to the group Haggard Beat for their song, "Lazlo," licensed using Creative Commons.  And thank you for listening.

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