Lighting Up The 21st Century – Part II

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Spotlight on Rural Connectivity | TelecomDrive.com

By Doug Mohney, Principal at Cidera Analytics, for ADTRAN

Gigabit Broadband’s First Wave of Benefits

High-speed broadband connectivity delivers immediate economic benefits to electric utilities and the communities they serve. Offering broadband services provides a diversified revenue stream separate from the fixed-rate business of power generation and delivery.

Demand for electricity is typically fixed or declining as members buy newer energy-efficient appliances. Margins are low while the cost of producing power is always inching upward due to inflation, rising labor costs, servicing, and replacing aging physical infrastructure.

In comparison, broadband services have much higher margins and offer the opportunity to introduce other value-added services in the future based upon customer needs.

Providing fiber broadband to schools, hospitals, and libraries is a considerable economic and social benefit, especially in rural areas with little or no high-speed internet access. The Schools, Health and Libraries Broadband Coalition (SHLB) believes broadband for community anchor institutions is a win-win.

“Anchor institutions provide essential services to the community,” said SHLB Executive Director John Windhausen, Jr. “Access to information, online education, and telehealth services over broadband are one order of benefits. Ancillary benefits extend to the community around it, including the residential and business communities.”

Providers interviewed noted that high-speed broadband access also is now a part of the equation for both school quality and home selection. Educational access to online resources for everything from homework assignments and basic research tools to interactive lectures for K-12 and college courses taught in virtual classrooms is vital today.

Families choose where they live based upon the quality of public schools available and on the availability of fiber, access to take advantage of resources for richer K-12 experiences, and more diverse homeschooling curriculums.

Fiber broadband opens new avenues for providing quality health care while lowering costs for insurers and patients. Patients don’t have to travel hours to “the big city” to get tests done. Instead, X-rays and other scans can be conducted locally with imagery examined by a specialist hundreds of miles away from his home.

Minor ailments can be diagnosed through a video telemedicine consultation with a doctor either from home or at a local clinic, saving time and the expense of traveling to an emergency room, especially outside of regular office hours.

Fiber broadband also provides the underpinnings for new medical facilities to be built in underserved areas, improving the quality and availability of care.

Electric utility fiber deployments, as noted earlier, provide competition for incumbent cable and telecom providers. In the short term, incumbents adjust pricing, provide competitive bundles, and offer specials to keep customers from leaving.

Longer-term, they will selectively invest in upgrading infrastructure to provide more reliable and faster services, with cable companies more likely to spend money on improvements. Copper-based providers have, in select instances, deployed fiber to stay competitive with electric co-op fiber, usually selectively “cherry picking” more economically lucrative areas based on housing density and property values.

“We Can’t Build It Fast Enough”

The one major disappointment electrics share once they start deploying fiber is customer demand to get gigabit broadband installed in their neighborhoods and homes as soon as possible. “We found people want their internet more than they want power,” said Russell. “They don’t realize they go hand-in-hand. We had such a high demand for our services that we had to become an internet cooperative as well as an electrical cooperative.”

GVEC started its broadband effort as a for-profit subsidiary owned by the co-op to generate extra cash flow that could be used for different purposes and to maintain a retail presence with its customers. Moving the internet business into a co-op structure enabled GVEC to commit maximum investment in growing its fiber network, enabling it to put more financial resources into expansion.

As a for-profit entity, the internet subsidiary needed to deliver fiber services to 11 to 13 homes per mile to meet financial objectives. Switching to a co-op changed tax and investment needs for deployment to as little as three to four homes per mile.

“The angriest customers we get right now are the ones we couldn’t quite get fiber to at this time,” said Russell. “It’s very, very rewarding when we get internet deployed. It takes us back to the old days when we first brought telephone service out, first brought power out.”

Anza Electric also found its membership clamoring for fiber broadband. “We needed a 40 percent take rate among our membership,” said Winger. “We are at over 53 percent, and we are still building. As soon as we go into an area, as soon as they see our technicians, they flood the [online] signup list, with new signups every day.

There is a backlog where we are already connecting people; we will go into a new area, that is when we get more signups, it is on-going. We do not know our eventual take rate. We are increasing our membership with broadband, adding new members.”

High-speed Broadband, Higher Property Values

Access to fiber provides significant value for both residential and commercial real estate. Residents in bedroom communities outside of cities, seasonal renters, and year-round businesses all want access to the highest speeds possible, and they are willing to pay for it.

“It is hard to quantify the property value increase,” said Russell. “Several studies add up to $5,000 per lot. Broadband is becoming one of those mandatory questions being asked by residential property developers who know we can provide fiber along with power. They will move those residential neighborhood projects into our territory. We have several subdivisions split between other power providers and us, with 100 percent of our lots built and occupied while less than 10 to 15 percent of the rest of the neighborhood is occupied. It is like a school district line.”

A Brightly Lit Future

University of Tennessee studies assessing the impact of EPB’s fiber build in Chattanooga cite up to a four-to-one return on investment after five years, with the initial project costing $300 million and economic benefits up to $1.2 billion occurring. Similarly, Purdue University examined what it would take to extend broadband to the entire state. Using a model based on installations within the service territory of seven electrical co-ops with 93,000 members, Purdue also arrived at a 4:1 return on fiber project investment.

Chattanooga has over a decade of experience in operating a fiber network. As such, it is a model for electric utilities everywhere as to the true long-term benefits of fiber deployment. EPB’s take rate for broadband after a decade is around 60 percent, with many customers also buying phone and video services. Improved power reliability and gigabit speeds opened the doors for hundreds of entrepreneurial startups to move into town, along with two venture capital investment firms. Electric co-ops should embrace what they do best, said Espeseth, and move forward accordingly.

“If I am a small rural co-op, it is a heavy lift to do it all,” Espeseth said. “You do not have to do it all. You do not have to build 24 x 7 monitoring or a video head-end, you can build partnerships. It is the local brand that matters to your customers, they know you. Big guys are not going to build in the middle of Mississippi, Alabama, and Tennessee.”

A utility’s ties to the local community are the most important asset for a fiber project. “Our people live here,” said Espeseth. “This is a secret weapon that every one of those municipalities and co-ops has. You can buy services from anyone. The way you treat them, the trust that you have, only your local brand has that trust.”

According to an analysis conducted by NRECA last year, electric co-ops can bring high-speed internet to an additional 6.3 million households in areas where there is no existing service. Electric utility providers are uniquely positioned as the engine for deploying high-speed broadband to underserved and unserved rural communities.

They achieved an historic mission in household electrification and now have a similar calling in terms of gigabit broadband service. Electric utilities have a civic involvement and duty to their customers as the only organizations possessing the local knowledge and resources to bring high-speed broadband to rural America.


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