This is Episode 9 of the Community Broadband Bits Podcast. Chris interviews Leslie Nulty on how rural Vermont organized and bootstrapped its own network. Listen to this episode here.
Chris: Welcome to the Community Broadband Bits podcast. I'm Christopher Mitchell with the Institute for Local Self-Reliance and the editor of muninetworks.org. For the 9th episode of our show, we are excited to discuss a new model in building a community fiber network. The East Central Vermont fiber network is bootstrapping their own network. Funding the effort with money raised within the community. This is a unique and fascinating example of how rural towns can pull together, and solve their own problems locally. Leslie Nulty is the project coordinator for ECFiber. She will walk us through some of their history, and how they are financing their fiber network. I've known some of the people working on this project for many years and have long appreciated their transparency and willingness to share their proverbial secret sauce with anyone who asked. Here is my interview with Leslie. Leslie thank you for joining us on the Community Broadband Bits podcast. We're excited to learn more about Vermont.
Leslie: Thanks for having me.
Chris: Absolutely. You're involved with a project commonly called ECFiber. Can you tell me about that project?
Leslie: The full name is actually East Central Vermont Community Fiber-Optic Network. The name sort of puts us on the map. We're pretty much in the center of Vermont, for those who know the geography. The green mountains are on North South, at the ridge through the center of the space. We're on the East Side, and encompass 23 towns between the slope, the Eastern slope of the green mountain over to the Connecticut River which is the border with New Hampshire. We are organized, as a legal municipality through something called an inter local contract. Which is simply an agreement that has then signed after a town wide vote by everyone of the 23 member town.
Chris: You're in a contiguous area, right? The way towns work in that part of the country, it's like ... They're all connected, and you're not leaving anyone behind.
Leslie: Right, I should explain that in Vermont, while we have county. They don't really have a governmental purpose. Every square inch of Vermont is designated as being part of a town and you could stand in the middle of some of the towns, and all you see is a lot of trees. The state is essentially divided up into square. Each one which is called the town. Now some of our member towns have dense village centers, that would be recognized as a town anywhere. One of our members which actually the state capital, Montpellier which with only 7,000 residents is the only state capital in the country without scheduled air service. This is ... Vermont is I think now designated the second most world state in the United States, and we are, we encompass one of the most rural areas of the state of Vermont. Every town is governed by a ... Essentially a town council, except for the city of Montpelier. Which is called the select board, in Montpelier, the city of Montpelier is called the City Council. The select boards are elected by the residence of the town, and they have appointed delegate and at least one alternate to the ECFiber governing board. The ECFiber governing board needs monthly under Vermont. We have an open meeting role, these meetings are open to anyone in the public. Delegates and alternates attend. The governing board has adopted the Set of Bylaws. It has ... It elects an executive committee, which is the chair, vice chair, secretary treasurer and 3 at large members who are elected on rotating 3 year terms. The executive committee needs in between the monthly governing board meetings, almost every week by conference call. This structure has endured since 2008 really, which was the founding year of the organization.
Chris: You started in 2008, and what was your original plan?
Leslie: The original plan was to try to build out the entire area which encompasses something like 1200 square miles, 55,000 people, 22,000 premises. Built it out all at once, and we retain Oppenheimer & Co. to offer certificates of participation in the capital least in the public capital markets this week, in a CC compliant public offering. Oppenheimer had told us that once they had signed up commitments for 80% of the required financing they would take the remainder. At the governing meetings, I believe it was September 7th, 2008. They told us they had raised 70% of the required financing which was a $90,000,000 financing because all kinds of debt service reserved funds were required, so there were all kinds of layers, not to mention Oppenheimer's fees and the legal fees which were on the order of half a million dollars or something. They said they had 70% and they figured it was a done deal, and one of our folks stood up at the meeting and said the only thing that can stop us now is some international financial meltdown. Guess what, one week later, that's what we got.
Chris: I hope that person has stop making suggestions.
Leslie: Eh ho, he still does. Anyway, so that was the end of that. Back to the drawing board.
Chris: You said build out, and I don't think we have yet touched on. You're going to be building a fiber to the home network. You've actually indeed will get to as you started.
Leslie: Right we are committed to a fiber optic solution. Because we believe it's the only sustainable solution for the kind of connectivity that sustainable communities and sustainable economies we required going forward, as far as we can see into the future. That is our commitment and our mission. Our mission is to have a universal network that is also open access. We reach every single from every business, every civic institution every household throughout this very rural area.
Chris: Right, okay so the economy collapses, and what do you do next?
Leslie:Well the economy collapses, and then the Obama administration creates the ARRA program through the rural utility service. We submitted 2 different application for the stimulus funding. None of which was given to us, it was given to other Vermont applicants. We found ourselves in a competitive situation. We were a startup, and the other applicants were operating businesses. We were frozen out of the stimulus funding. I'm proud to say that applicants who received money to build outside their existing network footprint have not yet connected one customer. We now have 225 delighted customers.
Chris: You don't have to deal with federal paperwork or all the other issues that come along with it?
Leslie: After we got turned down, and we also submitted several applications for grant funds available for the state of Vermont. We were turn down for those I think probably for the same reasons. Well-meaning that we were startup, that we were unproven. It's just like going to a bank. The people who need money, can never get a loan. The people who have money can get a loan. We try to be philosophical about it, and we decided to do a bootstrap effort. In 2010, we decided to basically issue unsecured promissory note that would where we would raise funds from local investors. We started out and our first closing, we raised a 175,000 from local investors. We had some very large investors who were willing to essentially provide seed financing to the tune of an additional 750,000. That 900 something thousand enables us to start building our phase 1 loop with approximately 26 miles through an area of the town ... 3 towns. Phase 1 which is on our website ecfiber.net. Once with the bits of Royalton, Bethel, and Barnard. The town Barnard Vermont, was a place where almost everyone has been on dial-up. The way we take Barnard, was that when we organize in 2008, we run to the test, what the actual appetite was for high-speed Broadband. We have a preregistration campaign which was organized and conducted by the delegates to the governing board. The governing board adopted a policy that when and if we started to build we would build first in whatever towns came up with the highest pre-registration rate. We have a very active delegate from the town of Barnard who manage to pre-subscribe 92% of the residence of that town. We knew we had to build Barnard, we have to start our build ...
Chris: Right when you started the original plan I believe was to offer television, telephone and access to the internet. Then you scale that back a little bit, when you began the bootstrapping.
Leslie: When the ops all from the public offering failed. We knew we had to skinny down the network in terms of engineering design and we had to drop the idea of video. By that time we began to see what people were beginning to get video over the internet, many of them. We just offer internet and the ... We resell a VoIP telephone servi- Our internet cost is high because this volume pricing on access to the cloud. We have very small subscriber base right now. Internet alone is very expensive. Telephone servicing per month is expensive, because a lot of in state calls are treated as long distance calls. When we can offer a telephone service that has unlimited long distance calling in the US. That is extremely valuable and cost effective to people here. We have about an excess of I believe 50% of our subscribers are taking both internet and phone. We now offer 3 tiers when we started out. 3 tiers of internet we started out with 5, 7, 8, 10 megabytes per second. This spring we change that to 5, 10, and 20. We're expanding our customer base at a nice script and it was appetite for that, and so that's what we're offering right now. It happens to be one of the best in Vermont.
Chris: What is your financing mechanism precisely. Maybe you can just walk us through the latest round, was just close how it works?
Leslie: We basically issue a piece of paper which is a promissory note. Which is we will pay you, principle and tax exempt interest. Now that's important because we're municipality. Our interest is tax exempted state than federal levels. We will pay you the note has the face value of 7% tax exempt interest. Payback he and I over 15 years. Now we ask for a 1 year holiday, because it takes us a year before we have a revenue stream from the infrastructure that we build with the promissory. That comes out in an effective interest rate of 6% We offer this units and we offer the notes and units of 2500. People combine as many as they wish, the medium so half of our investors have invested $5,000 or less. We have many, many small investors and then we have some larger investors. We have found that the most effective way to do this, and this solve been by trial and error. Is that what if people see, their neighbors getting the service or seeing our trucks on the road. They get all excited and said, "What it's going to take for you to get to me." We say, "Well, it cost us on average in the neighborhood of $25,000 to build a mile and commit 6 customers along that mile. We need 6 per mile to make this work financially. 6 customers per mile to make this work financially. What some people don't understand is this arithmetic. You can build in a sparsely populated area that only has 6 premises per mile, if all 6 will subscribe. Or you can build where there's 18 per mile and only get a 30% take rate and you're still okay. While in the industry, there's a lot of discussion about "take rate" We've decided that, that is really not the useful metric for us. What we need to look at is subscribers per mile. I should add, in our region whatever average were that if you take out the larger town which have denser town centers. The typical density is somewhere at 12 to 14 premises per mile. We estimate right now, in the rural areas where we build, because we have to go through a town center, in order to get to Barnard that town centers serve by both DSL and Comcast. We don't market there, but there's a couple of miles we have to get through. Once we're through there, we estimate our take rate is an excess of 70%.
Chris: That's sort of that odds, which what we're told by Washington DC policy makers and what many people in state capitals seem to believe. Which is that the only thing lacking at rural areas is a willingness or an understanding of why Broadband is important. That's not been your experience.
Leslie: There was a wonderful little piece many years ago that unfortunately we don't have the footage that Vermont Public Television did. Interviewing a typical Vermont Rural Business. It was just typical of any American rural business. Which is a guy who repairs small engines, like chainsaws or chillers, or lawn factor and that's the thing. Such a typical rural business, if you will. This guy was saying, "I can't do my business without high speed connectivity. Because I cannot get exploded diagrams on paper anymore." Everything is online, I can't go to park unless I have an exploded diagram and I'm dealing with hundreds of different kinds of machines. Everything is only available on the web. You can be sitting there for hours, and call him out before he can get through. Now what happens is that people for whom connectivity is vital sign up for satellite connectivity. It drives them nuts, it's very expensive, it's unreliable, if you live in a place like Vermont where you have severe winter weather. Your satellite connection is out half the time, you cannot run a business that way. That's at the most simple level of the typical rural business. What we have found in our limited build so far is a much higher proportion of business subscribers than our business plan ever expected. We are finding that there are graphic artist, videographers, medical practitioners who need to do professional training online, a whole host of business economic uses and application. Even leaving that aside. When we just started to build, we were getting e-mails from people saying, "Please, please get me soon. My middle school children cannot do their homework without adequate access to the internet."
Chris: You find that there's a lot of people that have a desire. They just don't have a good option. You out there are dealing primarily with I think really degraded copper lines and fair point primarily right?
Leslie: Correct, yeah. Vermont was viewed as a backwater by the big guys. They always ... They skin the cream, and we're not viewed that way, despite hard quality there in business. Even under Linux, which then gave birth to Verizon, which then gave birth to FairPoint. None of them have maintained their copper wires. There are areas of our territory where people do not have reliable phone service, simply because with degraded copper.
Chris: Let me ask you, the final question. What would you recommend to someone who's in another part of the country and must have try and do something along these lines. What's a good first step for them?
Leslie: I would tell you that we just had many people come to us, to see what we're doing and talk to us on the phone and even visit us to see how we've done and what we do and we are always happy to talk to people about our experience and we continue to do that. I would say one of the most important things that has sustained the ECFiber has been our strong [success and] structure. In which we are embedded in the community, and we are seeing to be embedded in the community. We don't even have to have a marketing budget because people already know our brand, they know who we are, they know who their delegates to the governing boarder. The way we got kicked off, and I should roll the video back to November 07, which was the early organizer was there had been broadband committees and handful of these towns. In those areas out there, and the rest of the country where there are broadband committees, and I want to underscore committees, groups of people who are trying to get something done in their community. They then came together, they just put out a call by word of mouth. Common help us get organized, and we had a community meeting at something over a 100 people showed up. We broke up into little brain storming group, that one was charge with outreach, one was charged with doing legal research, one was charged with trying to figure out a financing plan. Everybody came out, and from this process emerge this government structure and this trajectory. For building and organization. I know that there are places where people have tried to jump in to initiate a broadband effort, without doing this work first. I think that makes everything that much harder. I would put a lot of emphasis into that early organize.
Chris: Is there anything else that we should know about ECFiber before we end the discussion?
Leslie: When we had to apply ... When we were applying to stimulus money. We found that our inter local contract, which by the way has a ... It has ... There are similar kinds of legal entities in other state, that permit that kind of agreement between municipality. We found that it was not legally strong enough to do the application and the legal work involve with getting a dozen grand. The interlocal contract, created a wholly owned subsidiary that is a limited liability company and LLC. It's the LLC that issues the promissory note. Separately the interlocal contract at 23 towns is an awkward entity for running a fiber optic network. I mean 23 towns in the middle of Vermont, where do they find the technical capacity to build, to design build and run fiber optic network. Well we were very fortunate here, in that, in the early 90s. A group of Dartmouth College alumni have formed a nonprofit known as ValleyNet. That brought dial service to what's call the Upper Connecticut Valley. ValleyNet is a 501C3, with a bunch of ... With the boards that had some physical capacity to it, and technical experience. When dial up became a commodity, ValleyNet sold that business to a for profit company called Sovernet. ValleyNet has been sitting on a bunch of money, trying to figure out what it would do next to fulfill its mission of community building through communication. ValleyNet was able to lend some of that seed money to ECFiber, and ValleyNet and ECFiber now have a design build operate context such that ValleyNet is actually the operator of the network.
Chris: You're taking advantage of some expertise that's been there for quite some time?
Leslie: Yes, we were fortunate in that. There was also, we have found that we have not had a problem finding confidence staff as we have grown. We find that people like the concept of what we're doing. In Vermont people like to work for community organizations. That means we don't have to pay top dollar because we offer a nicely work experience and a more rewarding work experience in terms of relationship to the local community. Which in the culture here is a great value.
Chris: That's probably true in some of the other rural areas as well, where people have made a choice to live there, rather than moving to some place where they may just get the highest salary.
Chris: Thank you so much for coming on and explaining the background of ECFiber and how you're moving forward. I hope that other communities will be able to take some nuggets away from there and figure out how they can build their own networks.
Leslie: I'd like to emphasize that we're always happy to help other people that are interested in doing something similar and they can contact us at email@example.com. Thank you so much Chris.
Chris: Sure, thank you. That was Leslie Nulty the project coordinator for the East Central Fiber Network in Vermont. To learn more, visit our show page on minutenetworks.org where we have links to some of the materials discuss in the show. If you have any questions or comments, please tell us directly. E-mail firstname.lastname@example.org. Our handle on Twitter is @communitynets. This show was released on August 21st, 2012. Thanks to my colleague Lisa Gonzales for putting the show together and fit in the conniptions for the music. Licensed using creative comedies. The song is called Storm's Over.