Less than 25 miles separate them, but two small rural electric cooperatives in Southeast Virginia are a world apart when it comes to internet access and all the opportunities it brings.
Electric cooperatives across the country have taken up the cause of rural broadband, finding ways to provide high-speed, reliable access to their communities when no other provider would. Dozens have already begun build-outs. Hundreds more are considering it.
But for all the value co-op broadband brings, making the “go/no-go” call can be complicated. Essential factors like calculating total cost, state laws and regulations, financing options, geography, available technology, member interest, pricing, and actual take rate can quickly muddy what might at first seem like a simple business decision.
“The equation is far from straightforward,” says Brian O’Hara, NRECA’s senior director of regulatory issues for telecom and broadband. “A co-op has to meticulously look at all the factors individually and in relation to their own unique situation.”
What follows are the stories of two Virginia co-ops that took divergent paths on providing retail internet access.
Prince George Electric Cooperative: ‘They asked for this’
It began with a goal and a partnership. And a lot of money.
Prince George Electric Cooperative (PGEC) wanted to deliver broadband internet access through fiberoptic cable to every member in its Southeast Virginia service territory.
Leaders in Prince George County believed in the co-op’s vision and, in 2017, provided $1 million for a pilot program to connect 500 members by 2021.
PGEC got the job done two years ahead of schedule.
More government partnerships emerged with more grant money, and the co-op solidified its decision to step into broadband. Now its subsidiary, RURALBAND, is well on its way to delivering the highest internet speed available to its rural members.
“We are building a fiber network like we did electricity 80 years ago: Start in a core location and build out to central points to serve everybody,” says Casey Logan, president and CEO of the 12,000-meter co-op based in Waverly, Virginia.
“As more members came on, we were able to take electricity farther and farther out to rural areas to have everybody served in 1950s. With broadband, we’re going to do it in four to five years versus 20.”
Logan, the co-op’s chief engineer during the pilot, recalls how PGEC helped spotlight the need for rural broadband at a 2018 gathering of 200 state legislators, members of the governor’s cabinet, and state agency officials.
In the Prince George Central Wellness Center—an early recipient of the co-op’s broadband service— PGEC livestreamed Ted Raspillar, president of John Tyler Community College, 20 miles away, as he spoke on the importance of broadband to rural America.
Raspillar talked about “the opportunity to bring education to rural America, to bring certification training to firehouses and in public buildings, and how that would allow students to acquire degrees much closer to home,” Logan says. “That seemed to spur a lot of energy on how electric cooperatives could meet the needs of our communities, where no other solution has been provided.”
After the meeting, more funding followed, and PGEC prepared to expand fiber-to-the-home service across its electric service territory.
Sussex County and the Virginia Tobacco Region Revitalization Commission gave RURALBAND a $1.2-million grant in 2018 to connect 500 homes. This year, Surry County offered $1 million over two years to hook up 500 homes by 2020.
PGEC also won $15.4 million from the Connect America Fund II (CAF), a Federal Communications Commission (FCC) program that incentivizes broadband providers to serve specific rural areas. The 2018 CAF auction was the first time the FCC opened the fund to electric co-ops, and 32 co-ops won 35 bids, securing more than $250 million over 10 years.
“We were one of the fortunate winners in Virginia as far as the CAF auction goes,” Logan says. “We are very excited about this project and look forward to serving the community and our members.”
The co-op’s foray into broadband began with a fiber-optic backbone network for communications among its substations. RURALBAND leases unused bandwidth, or dark fiber, from this loop and connects it to a “middle mile” built by a state and private consortium that links to the internet through a data center in Ashland, Virginia.
RURALBAND plans to deliver broadband to all PGEC members even though the co-op averages between four and eight meters per mile.
“It’s the electric co-ops being put in a situation to create opportunities for rural America, just like the Rural Electrification Act” of 1936, Logan says. “Eighty percent of our members have no high-speed option available to them. Our members need this. They asked for this. Our response as the electric co-op in their community is to give it to them.”
Community Electric Co-Op: Overwhelming costs
For Community Electric Cooperative (CEC), the decision to forego providing broadband came down to dollars and cents.
The estimated cost of deploying high-speed internet access to unserved members was too high to justify CEC’s investment, says Jonathan Thompson, chief operations officer at the 11,000-meter co-op, tucked in bustling Tidewater, Virginia.
“We operate in a somewhat conservative mindset when it comes to utilizing members’ money,” Thompson says. “When we plugged the [operations and maintenance] costs in, it was too much to recover considering the volume. That ultimately set us on the track of not doing it.”
The co-op serves the suburbs of the state’s largest urban centers: Virginia Beach, Norfolk, and Hampton Roads to its east and Richmond, the state capital, to its north. Many sprawling new neighborhoods there get their broadband from national, for-profit providers. Only the most rural or remote members lack an internet connection.
But when Isle of Wight County inquired if the co-op could bring broadband to its unserved residents, CEC put pencil to paper and began a feasibility study.
The co-op had been eyeing the progress of other electric cooperatives deploying broadband. It considered a hybrid model that would run fiber across its overhead electric system, build fiber to the curb and then shoot wireless “last mile” connections for residential areas in its service territory.
The price tag for Isle of Wight broadband came in at $11.2 million, and a “rough extrapolation” for CEC’s entire service territory reached $35 million to $40 million, Thompson says.
“We would have had to build out five to 10 miles to get to the first customer,” he says. “That was going to cost quite a bit.”
And those costs skyrocketed when factoring the region’s low density.
CEC determined that 18 percent of the county’s population was without internet access. It then applied the national average take rate for broadband of 29 percent.
“We had 900 people we felt confident would pay for the service,” Thompson says.
Even if the co-op picked up more subscribers along the way, the take rate would remain below 2,000, he says. At that level, subscribers would have to pay $250 per month for “the bare bones cost of service” and getting the equipment up and running.
“From a business standpoint, the return on that was going to be very thin,” he says. “At $250, there is no way the take rate would be 29%. It would be a lot lower.”
The wireless equipment the co-op was considering would have met the FCC’s minimum requirements for broadband—25 megabits per second (Mbps) to download data and 3 Mbps to upload. But running 100 percent fiber would have been prohibitive.
“We don’t have a clean connection in our service territory to connect our substations” with fiber, Thompson says. “The cost to get through our connection points would be very expensive.”
Further, Thompson explains, CEC’s “chopped-up” service territory would complicate a broadband build-out and add costs for negotiating access to customers of an investor-owned utility and a municipality in the area.
“We would have to cut joint-use agreements [with the other utilities] and pay joint-use costs to go across their territories and get to their customers who fell into the unserved areas,” he says.
The co-op’s research also found that building a fiber network from its facilities to members’ homes would consume about 10 percent of CEC’s capital costs.
The co-op’s board was “in total agreement that we couldn’t risk that volume of money with such a high retail rate number and for such a low rate of return,” Thompson says.
For now, CEC is keeping an open mind for delivering rural broadband. If prices fall on technology and equipment to get the job done at less cost, the co-op would reconsider taking on the task, Thompson says.
In addition, CEC would “happily partner with anyone willing to own the risk,” such as neighboring co-ops or incumbent providers.
“We are shutting the door for now, but if anything changes with the calculations, we definitely will be interested in exploring it again,” he says. “But until we see a drastic change, we are done.”
Published: December 3, 2019
Author: Cathy Cash