Thanks to Jeff Hoel for providing the transcript for episode 99 of the Community Broadband Bits podcast with Mark Erickson and Cindy Gerholz on RS Fiber coop in Minnesota. Listen to this episode here.
Mark Erickson: The folks in the cities decided that everybody was going to be the same. We exist because of the farmers. And the farmers exist because of us.
Lisa Gonzalez: Hello there. You're listening to the Community Broadband Bits Podcast, from the Institute for Local Self-Reliance. And I'm Lisa Gonzalez.
In rural Minnesota, a project is underway that will significantly improve access for people in the region. The project was originally intended to expand over Renville and Sibley Counties, but over the past three years, it evolved into a model we expect to see more of in the future: a fiber cooperative. Today, two guests join Chris to talk about the project. Mark Erickson, City Administrator of Winthrop, Minnesota, and Cindy Gerholz, Vice Chair of the RS Fiber Coop.
The fiber-to-the-farm project focuses on getting broadband to everyone, because everyone in the area recognizes its area utility. Cindy and Mark describe the poor connectivity situation in the area, and how residents are fixing it, through community ownership. More rural communities, recognizing that large corporate providers will not expand to areas without dense populations, are taking action to serve themselves. The RS Fiber Cooperative model brings access to everyone who wants it and gives everyone a voice.
Before we run the interview, we want to refer you specifically to the rsfiber.coop page and the Renville-Sibley Facebook page. In addition to information about the project, you can check out the tools RS Fiber advocates are using to reach out to potential coop members.
Now, here are Chris, Mark, and Cindy.
Chris Mitchell: Welcome to another edition of the Community Broadband Bits Podcast. I'm Chris Mitchell. And today, I'm speaking with two folks: Mark Erickson, the City Administrator of Winthrop. Mark, welcome to the show.
Mark Erickson: Hi, Chris. Thank you.
Chris: And Cindy Gerholz, the Vice Chair of the RS Fiber Coop. Welcome to the show.
Cindy Gerholz: Hello, Chris. Thank you for having us.
Chris: Long-time listeners to the show will be familiar with your project, because we started our very first episode -- ninety-nine episodes ago -- with Linda Kramer, on the Marketing Committee. And if you haven't listened to that interview yet, I highly recommend it to people. The RS Fiber Project, which is the Renville-Sibley Project, southwest of our Minnesota metro, is a very exciting project.
And, Mark, let's start with you. Just tell me a little bit about the project. Who's involved with it?
Mark: Well, at this point, you know... A year ago, when you spoke with Linda, it was kind of a joint-powers-led project. It was going to be kind of owned and operated by the ten cities and the two counties that made up the joint powers board. We were unable to attract financing for that. A nervous bond market kind of precluded that. So now, it's a private cooperative. And it's going to serve the same footprint, essentially. The joint powers board of ten cities and now seventeen townships are going to sell a generally obligated tax abatement bond, and LEND that to the cooperative as an economic development loan. The cooperative will then take that and leverage that into $40 million in primary financing so the $55 million project can be built. It's about a 600-square-mile project area now, involving ten cities, and a couple thousand farms and ag producers.
Chris: And, Cindy, why don't you explain a little bit about why this project is necessary. You know, if you look at some maps, it would suggest that most of Minnesota already has access to broadband. Why are you spending so much time -- it's been over five years of your effort -- to try and build this fiber network?
Cindy: I live in the rural area. And in the rural area, I'm actually an ag producer -- I have two interests in the project: ag producer, as well as the medical field. But, working and speaking about the agricultural part of it, yes, we do have access to some Internet. We do. However, the speeds out in the rural area, especially where I live, is at most, like, 1 mega[bit] or less. Now, you compare that to the communities, like the towns, they're able to get DSL for 5-6-7-8-10. One of the big providers, now, that a lot of folks were using -- it came out of the Mankato area -- they closed up their shop in this area in February, which left those folks high and dry. So now they have moved on to other carriers. And, again, still, we're below -- that 1-1.5 mega[bit] area. And we're paying a lot of money for that 1.5. So this project is very exciting to me and my neighbors, because we're looking at getting 50 mega[bit]byte of speed, which is reliable, up and down, for close to, if not less than, what we're paying to get a 1 meg.
Chris: Now, one of the things that I've long loved about this project is that -- the commitment of so many people involved with it, to make sure that everyone was served. What's the difference between building a network that would just serve in the town centers, versus serving the larger region?
Mark: From a business plan perspective, it's much easier to build a fiber-to-the-home network in the cities, because they're around $2500 per pass to build that network. And you can cash-flow that relatively easily. When we add in the rural areas, they average around $10,000 per pass. And that becomes more of an obstacle from a business plan. Early on, from the very beginning, the folks in the cities decided that we were going to blend these costs that everybody was going to be the same. We exist because of the farmers, and the farmers exist because of us, and we're all interdependent. We have the same -- Our kids go to the same school districts. So we just decided that everybody was going to be treated equally in this. So, on average, this is going to cost around $5500-$5600 per pass in order to build.
Chris: At one of the public meetings, or immediately afterward, there was a discussion about maybe not serving the townships -- the more rural areas. And, Cindy, you were quite emphatic about making sure that no one was left behind, I believe. It was described to me as reaching across the table, and your eyes glowing red, to make the point...
Mark: Yeah, she did that to me, Chris. She almost came across the table at me and said that's not going to happen, so....
Cindy: Well -- and, again, the reason why is because I's sitting and listening to this presentation that sounds awesome, and hear them talking about the towns getting this 50 mega[bit] -- or whatever it's going to be -- there's this fiber optic system. It sounds great. And finally, I had to say, WHAT ABOUT THE RURAL? And -- there you go -- that's why I've been on this project ever since. Because -- like Mark says -- it needs to be all of us together. I have worked in the medical business and the agricultural business. And, you're right, our kids are in the same schools, we're going to the same doctors, we're going to the same nursing homes. You know, we are -- this is a close-knit community. By that, I mean the whole county area. We're working together. It's very farm-related, but we're also looking for -- I guess one of the things that I'm looking at, too, for this whole project is that hopefully it will expand companies, and make invitations to companies, to come to this area. Which will then give, you know, more jobs for our kids, and keep our kids at home. Because we lose our kids. They go to college, and they're gone.
Chris: Cindy, can you tell us a little bit more about the coop approach? Why does this make sense, in terms of how to structure the project?
Cindy: A coop lets you take ownership -- let's your patrons become members of that coop, of that product, of that service. So, one of the selling points that I've had for folks in rural areas and communities is, being that it is coop-driven, you have to come to those meetings, and you have to speak up and say if things aren't going right in the area, because it's all about us. The service, the cost, the reliability -- those are things that we can go to these meetings and question our board and get answers for. It's not a private business that's located down south. It's your neighbor, you know, it's -- somebody you know is on that board. So, coop, to me, is very strong. We hope to give dividends one day. That's a long ways down the road. But more so on the front of it, we know, by running a coop, our costs will keep down, because our money is going back into OUR coop. So, Mark, I'll let you handle the financial part of it.
Mark: Well, that's a good segue, Cindy. Thanks. A coop approach -- and there -- it's a private business. A coop is a private business. It's member-owned and member-driven. They focus on not making as much money as they can, but on bringing as much benefit to their members as they can. And it came about this way. We know that we can't put together this financing -- traditional bank financing -- to build the entire thing. You just can't get terms from a private bank. So we tried to figure out a way to have the cities and the townships make a down payment of sorts on the financing, and then have the cooperative borrow the rest. So we have some skin in the game from the cities and the townships. And we'd lend that money, and they'd leverage that. What it did over our first round of financing, it not only reduced the cost of our borrowing by $15 million, which is significant, but also allowed us to draw our interest -- to draw the cash slower, so the interest that we pay on it is a lot less. So we borrowed less money, paid less money in interest. Plus we're going to access some guaranteed loan programs from the federal government. So, these are loans; these are not gifts. Everything will be paid back. We will have some local equity from some banks in the area. So, the cooperative approach allowed us to have not only a better financing model. I really think it allows us to have more of a buy-in from the whole project area.
Chris: One of the things that's been amazing to me is watching, over the many years that this project has been evolving, just how many public meetings there have been. Why don't we just go through the number of times that local boards and local governments, the townships, have had to make decisions?
Mark: I know where you're going. We made presentations to over -- in over a hundred public meetings. Then there were private meetings besides that. Our joint powers board had met probably 30 or 40 times. We have vetted this thing publicly. We have talked about all the negatives. We looked at all the warts and talked about all the bad things that could happen. And then finally, about a month ago, one person stood up and said, you know, you guys have been telling us what can go wrong with this. What can go right with this? You know, what's the up-side? What's the benefit? Can it make money? Yes, it can. Will it bring benefit to folks? Well, we talked about that with them. And, yes, it changes the way people live, work, and play. So, through that process of being very, very public, we have educated a lot of people. The Fiber-to-the-Home Council's Fiber Primer has been very influential in that, I think, because it lays out what the opportunity is for fiber-to-the-home.
And by the way, I hope your listeners know that this is really a fiber-to-the-farm project -- fiber-to-the-farm AND fiber-to-the-home.
Cindy: The rural folks, you know, they're -- they were kind of like brought to the table -- abruptly, if I could say. Because at first, it was a commissioners' decision, and that happened way back in October here, a year and a half ago.
Chris: But the commissioners -- I think you mean county -- at first was representing the interests of all the townships. And then, I think, made some decisions that very frustrated the townships. And the townships had to step up. Is that fair?
Cindy: The townships were there in favor of the project. The commissioners had to make a decision based on what they knew at that time. And, in their eyes, they made the right decision. The next day, the coop was formed, because we had a lot of support from the townships. The numbers that were coming in from returns were strong in the township areas, because they need it. So then we knew that we had to do something to keep the rural folks -- somehow get hooked up with this infrastructure of this fiber optics. So we start with a coop. We develop the coop. Things are moving forward. Yada, yada. You know all that already. Which brings us up to just a month and a half, when these townships had to make a huge decision. Because there is a $15 million GO obligation that they MAY be on the line for. So they had a huge decision to make. So, as Mark was saying a few minutes ago, we did spend a lot of time educating town folks and rural folks. Meetings were being held at township meetings. Attendance was amazing. Where normally you would have just a few people come for question-answers, we're talking, some meetings had fifty people at them. Because they wanted answers to their questions they had. And this team went out there, and just tried to -- tried to attend all townships meetings that they could, and bring information to them. So the whole bottom line was, these townships, and the towns, could make a good decision based on the good information they had in front of them.
Chris: And so, just to recap briefly, the county decided ultimately that it would pull out of the joint board -- the joint powers board. And then, at that point, you formed the coop the very next day. And of the 21 townships that ultimately could join the joint powers board, you had 17 join. That's pretty impressive. And now, what happens is -- and correct me if I'm wrong but -- the $15 million of the bond is going to be split among all of the different members of the joint powers board. They will each have to have information sessions to present to their local citizens what's going on with the project. And then they'll have to have a vote. And then the joint powers board will ultimately have a vote. So there's still a lot more public process that's coming.
Mark: We have to have a public hearing in each of the 27 entities that are a part of the joint powers board. And they all have to have votes. And after they have votes, then the joint powers board will vote whether to go ahead. So, yes, there's a lot of oversight. And the other thing that we have discovered with the -- a cooperative approach is -- even if the joint powers board, and all the townships and cities, decide they want to provide this $15 million loan to the cooperative, that doesn't mean it's going to happen. The rest of the business plan, these loan guarantees from the USDA and HUD, have to go through a fine-tooth comb. I mean, these business plans are going to be scrutinized and turned inside out, and we have to justify them. So there will be a lot of people deciding whether this makes sense to go forward.
But the good news is, the first time around, we had 56 percent of the homes in the area say they were interested in taking service. So we think there's a lot of support for it.
Chris: Now, I'm curious, Cindy, if I can put you on the spot and just ask you. Over the course of these five years, what are some of the things that inspired you to keep working toward this future where your home would have this great access, and everyone in the community would have this great access to the Internet?
Cindy: Probably the most that kept me going was hearing the same story from a lot of people -- probably from most people. The same story being, we need something better. We need something reliable. We need to be cost-effective for our bottom lines, for agriculture -- and communities as well. But the main thing is, getting our rural area caught back up to what the general public is able to get. As agricultural folks, we use a lot of Internet. I think agriculture, in my opinion, is leaning to be one of the bigger users of technology today. Things are exploding in front of us, for new ideas and new ways that we're using it. It's amazing. So I think the agricultural sector is leading, as far as needs, of technology. We need the speed to be able to do the job that we're doing today. This infrastructure, when they're building it for us, wants to give us that opportunity.
The biggest interest that kept me going was hearing the same story from folks -- that my Internet speed -- it's horrible. The cost is exorbitant. The reliability is not there. I lose my signal. I get a few snowflakes on my satellite, it's gone. The tree moves, I lose my connection.
Chris: Hey, Mark, let me ask you the same question. What's kept you inspired?
Mark: Folks like you, Chris. I mean, you've really done a lot of work. And the more I find out about the kind of transformative technology fiber optics technology is -- how it's going to change the way we receive healthcare, we do our work, we educate our kids, older people can live in their homes longer -- all of those things -- that's what keeps me going. You know, I told you the story once, I think, about the lady up in Green Isle, who, at the end of a public meeting, raised her hand and offered to go door-to-door in the City of Green Isle to get pledge cards. And when I brought them to her the next day and asked her why -- she's an educated lady, she manages a bank there -- she said this is the biggest no-brainer I've ever seen in my life. Why wouldn't we do this? No one else is going to do it for us.
And that's really what it boils down to, Chris. We went to the phone providers, we went to the cable providers, and we said, please do this, and they said, no, we can't. We said, we'll put the money up. Would you please do this for us if we put the money up? And they said, no, we can't do that either. So, we're stuck out here. No one else is going to do it for us. So, we need to do it ourselves. And people need to realize that. And it's the buy-in that's kept me going. It's the enthusiasm for it.
Chris: One of the things that I was just thinking about as I was preparing for this, today I was running numbers, for getting a sense of Windom, that municipal network in the southwest of the state that you're both very well familiar with, I'm sure. It's expanded into several other communities. And I was examining what they have now available, compared to what the incumbent provider was offering. And they have much faster services. And, in aggregate, they save about $100,000 in Windom on the services, because they're less expensive. And $200,000 per year in the surrounding area that has access. It's really quite incredible what happens with these kinds of networks. That's real money that's going to be staying in their communities. And I have to assume you're going to see the exact same kind of impact there in your communities.
Mark: None of the communities here have competition for video. Except for satellite, which, you know, goes out in the bad weather, which we have on occasion. And you can't get your Internet from it. So, they -- when you introduce competition into an area, you see prices plummet. And our prices are based on a fair return. And they're going to have to lower their prices in order to compete with us. And we think that even those who don't get the service from us are going to win, because their current telecom bills are going to be lower.
Chris: Do you have any final comments, Cindy, as we wrap up the interview?
Cindy: I'd like to thank everybody who has been researching and looking into this fiber optic project in our area. I came into this project five years ago. Didn't know much about fiber. But I know more today than I did five years ago. And so, thanks to folks who are wanting to learn about it, and who are trying to figure out a way to bring it into our daily lives, whether it's a business or a home, or a school, or a medical -- it doesn't matter. This is a huge project -- 10 communities, 17 townships -- two county lines we've actually crossed over into. I think it's a great thing, and I want to thank those folks, and let's keep moving it forward.
Chris: It's a great way to end. It's something that reminds me that so many of us started off not really knowing much about this field. It's something that people really can dig into. It shouldn't be intimidating to anyone who really wants to get in and make a difference. So, thank you for all of your work.
Mark: Thank you, Chris.
Cindy: OK, thanks, Chris.
Lisa: We have followed the project since the beginning. So you can learn more at muninetworks.org. Just follow the Renville, Sibley, or RS Fiber tags.
We want your ideas for the show. Please e-mail us. You can send a note to email@example.com. You can also follow us on Twitter. Our handle is @communitynets. This show was released on May 20, 2014. We want to thank Valley Lodge for their song, "Sweet Elizabeth," licensed using Creative Commons. And we want to thank you for listening. Have a great day.