The long version
We find ourselves on the cusp of an economy defining decision. A tremendous weight rests on the shoulders of the elected board members who manage our member-owned electric cooperatives. The decision is whether or not to bring world-class, high speed Internet to our rural communities.
If you build it, they will come.
I don’t think we can possibly downplay the significance of this decision - and its impact on the economic development and future prosperity of this area we love and call home. Fast and reliable Internet has become essential for modern commerce and communication - every bit as vital as the road systems or electric grids that predate it. Much of today’s business is conducted online, yet many of us find ourselves in a massive dead zone - incapable of participating. My wife and I moved to the area three years ago … but we almost didn’t and lack of fast, reliable Internet was the reason why. We are both blessed to have the opportunity to work from home, bringing our careers and an outside economy to an area that we love so dearly, but does not otherwise currently provide compatible career opportunities. I’m a software engineer and I work for a fully distributed company with co-workers across the country. She runs an intellectual property consulting business with clients in the Bay Area and across the world. For us, priorities in life are water, food, shelter and Internet - and in that order. The hoops we had to jump through to make a connection viable where we wanted to live are hoops that most would not jump through. I can think of no better place to live, but I can think of few worse to maintain a successful career for tech and knowledge professionals. Our area has a well documented aging population and one that is highly dependent on service and tourism - but there’s no reason it has to be that way. Our cooperatives have the enormous opportunity to start planting the seeds of a successful economic future. If we build it, they will come!!!
I went to a meeting this past Tuesday evening where Traverse City Light and Power presented the results of a year-long feasibility study regarding construction of a high-speed fiber Internet network throughout the city. The study presented a couple of options for the construction and operation of the high-speed fiber Internet network. All the options presented in the report indicate that they are feasible and financially viable.
Jonathan Chambers (formerly Chief of the Office of Strategic Planning for the FCC) and Randy Klindt of Conexon presented their findings. They work exclusively with rural electric cooperatives to bring fiber to the home in rural communities. They were originally contacted by a group of eight cooperatives in the state (including Cherryland) to do a feasibility study – and then also brought in by TCL&P to do the same.
While at the FCC, Chambers was tasked with studying ways to bring fiber to rural areas. It turns out that because 85% of the infrastructure cost is in the poles and access to homes, electric utilities are uniquely positioned to be able to deliver fiber to the home in rural areas in the most cost efficient way possible – a more economically viable way than literally any other entity. If the utility wants to only establish the network and lease access (to 3rd party providers), the system can pay for itself in two years. If the utility wants to become an ISP and offer Internet, television and phone service itself, the pay off is 6-11 years, with higher long term upside. Either can be done in a way that is rate neutral to existing subscribers. In other words, existing subscribers who only have electric service do not have to subsidize Internet service via higher rates. As a matter of fact, it usually ends up going the other way, where revenue from the Internet business allows the utility to either maintain or decrease electric rates. Further, the fiber network has additional benefits/cost savings for the electrical system because it allows for a double-dipping with smart grid and smart metering setup – and provides greater stability to the grid due to better component and substation communication. With or without Internet, fiber is an integral part of the future of the electric system.
Rural ISPs all over the country have been doing this successfully for the past half decade – many places with greater geographic complexity, larger scope and less income to support than our area. This is no longer pioneering or theoretical. The numbers are real and the numbers all say you can do it with very little risk.
After much community discussion, the board members of TCL&P appeared to overwhelmingly express their favorability in moving forward with building the fiber network in the city, but only having to further consider whether they would want to take on the operation/service side of things.
Where does that leave the rest of us?
That’s amazing progress and great news for downtown TC, but where does that leave everyone else? The feasibility studies are currently being digested by the boards. Cherryland, for instance, will be meeting on February 20th to decide how to proceed based on the results.
How do the TCL&P findings apply to the rest of us?
Particulars will certainly vary based based on meter density, but the findings all boil down to the same conclusion. I approached Mr. Chambers after the meeting and asked him if what he said about this being able to be done in a rate neutral manner for existing subscribers also applied to Cherryland and the other cooperatives and he said it did. That’s also when he explained to me that the Internet side of the business usually ends up helping maintain or reduce the electric rates eventually. Granted, given meter density, the turnaround time could be longer for a cooperative like Cherryland, but it can still be done in a rate neutral way.
If a business model is seemingly a no brainer proposition, where is private business?
As stated by Mr. Chambers, 85% of the infrastructure cost is in the poles and access to homes. Our utility companies have that. Private business does not, giving our cooperatives an 85% head start on private enterprise - making it a no-brainer for our utilities that possess the key infrastructure.
Why should electric companies be getting involved with Internet service?
The co-ops brought electricity to rural areas after the Great Depression when no one else would - and now they have a similar opportunity and some would say, duty, to do the same on behalf of their members with high speed Internet. Serving rural areas of the country when nobody else is willing has always been at the core of the cooperative. The 85% infrastructure head start gives our cooperatives an advantage not afforded to private enterprise. I will detail many more competitive advantages below.
Cherryland has low meter density. Won't that impact the decision?
There is no question that a less dense population makes this more challenging, but I go back to the mission statement of the cooperatives. Had density logic been applied to bringing electricity to rural areas post Great Depression, then they would've looked around and said, "There aren't many homes here, so it doesn't make sense to bring in electricity." It was bringing in the electricity that allowed the population density to increase. The same will be true for high speed Internet. Lack of viable Internet options directly impacts home sales, new construction and TC being a viable destination for today's modern workforce. Our future could be full of well-paid knowledge workers and technology professionals contributing to our economy. Many studies show that more than 50% of the US workforce already has options to work remotely. If you had a great, high paying job in an urban area downstate and your boss told you that you could work anywhere in the world with a broadband connection - why wouldn't you consider one of our communities as a destination? My wife and I did. I'm pretty sure we're not alone. Per GlobalWorkplaceAnalytics.com and according to US Census Bureau data:
This is an amazing trajectory. Let's be ready to benefit from it.
Do people who only want electricity pay more?
No. With regard to people wanting their lights on at an affordable price, all of the case studies indicate that folks who only want their lights on do not have to subsidize the folks who also want Internet - and that the opposite is what usually happens. This is something that can be implemented in a completely rate neutral manner.
Are we dangerously pioneering something? Is this a leap of faith?
This is not a leap of faith. This has been a successful venture across the country for the past half decade. The cooperatives do not have to jump blindly and hope for the best. There are hard numbers and numerous case studies to draw from when assessing risk. All of which clearly indicate that there is no financial risk, but only risk in proper execution. The latter is far easier to mitigate than the former. Every venture fits each cooperative in a different way and the success at one cooperative does not guarantee success at another - but we are not talking about one cooperative. This is something that is having widespread success across the country in a great number of cooperatives. 40 cooperatives in the past 6 months alone have elected to follow suit in that journey paved by so many others (who already absorbed the risk). We’re not talking about an insignificant sample size. What could possibly make Cherryland (and others) so different from the inherent diversity found across that spectrum?
Will the utility companies have a hard time competing in areas that have existing broadband options?
The electric utilities will literally have access to every home with electric service. That is an ENORMOUS competitive advantage. I have heard many mixed numbers on the percentage of people who are either underserved or have no options, but for sake of argument, even a 20% monopoly is still an amazing competitive advantage. I also don’t believe it’s fair to assume a low take rate where competition exists, as some board members have suggested. Look at the comments on cooperative blog posts on the matter. People hate Charter’s customer service, their prices are too high, upload speed is terrible (vs a symmetrical fiber connection), download speed of fiber can blow current cable capability out of the water and it’s hard to call DSL competition. Based on models presented to TCL&P, which use the price point Conexon advocates for all of their studies, the co-ops would be offering a faster connection than Charter for less money. To get the base 100mbps package that could be offered for $49, people have to pay Charter $130!!! Even Charter’s 60mbps package costs more than the base 100mbps package could. People will switch for that alone. Anyone who does video conferencing, gaming or file uploading (literally any individual or business engaged in cloud storage) will switch based on the symmetrical upload speed, alone. The best Charter can do for a business customer is a sluggish 7mbps - the cooperative base package would be 100mbps! On top of that, the cooperatives have a dramatic advantage when it comes to new construction - who’s the first company called when a new home goes in - that’s right, it’s the electric company - and guess who also has awesome Internet to offer? We are in a growing area and that is a point not to be discounted. People in rural Northern Michigan are screaming for a fast and reliable pipe. Our cooperatives would be met with the kind of eager consumer demand afforded to few endeavors. There is so much competitive advantage, it’s not even funny.
TCLP electric customers are 80% commercial while Cherryland is 95% residential. Isn’t there a far greater opportunity for profit serving a commercial account with fiber than there is a residential service?
You can look where the puck is or where the puck is going to be. Fiber could help change those numbers in dramatic ways. Further, many existing customers don’t even have a competitive alternative, giving our cooperatives a lucrative monopoly in many areas. This gives the cooperatives a dramatic advantage.
Cherryland also doesn’t have nearly the competition that exists in TC, so take rates (acquiring business from competitors) and new customer acquisition rates would be dramatically higher than in the city. People out here are screaming for a fast and reliable pipe. This offering would be met with the kind of eager consumer demand afforded to few endeavors.
How does this impact electric service reliability?
Arguments were made at TCL&P - by TCL&P representatives - that fiber communication between substations and components only helps with reliability and that outages can be identified, mitigated and isolated with a greater degree of precision than now. Smart grids and smart metering are the future in any case and fiber across the electric configuration is an assured part of that. Win-win.
Can TCL&P and the cooperatives benefit from working together?
We absolutely need to take into account the timing and the special opportunity afforded around potential synergy that can be leveraged by other utilities in the area taking part in this in unison. TCL&P sounds all but certain they are moving forward in some form. Imagine the resources, expertise and buying power that can be leveraged by tackling this problem with neighbors. No one has to go it alone - risk further mitigated.
What can I do?
Please, if this matters to you, reach out to your co-op board members - who are elected officials - and remind them about how vital this is to all of our interests. They absolutely hold the keys to making this happen. Cherryland, who affects many of us will be having a closed door meeting on the 20th to review the feasibility study. I have requested that this meeting be opened to the public, but was denied, so the best we can do is call and email. Tony Anderson, GM of Cherryland, also mentioned that he will be at the Builders Expo at the GT Resort Saturday from 1-5, so there is an opportunity to express your feelings in person. You can find Cherryland contact info here: https://cherrylandelectric.coop/about/#meet-your-board-of-directors
The flotsam and jetsam of a techie mind...