Thanks Colin and Tom for chiming in. I've been following on Mike's forum and haven't been watching for posts here. Eventually, when I have more time I'll post on Mike's forum. This response is going to be long, because I don't have time to make it concise.
I have been trying to encourage OPALCO members to think like owners and not just think like consumers. This was the theme of a presentation I gave to approximately 50 co-op owners on Lopez last weekend. 3 board members and 3 coop staff were present.
One of my primary concerns right now with our co-op's broadband plan has to do with quadrupling our long term debt load, increasing our plant assets by 70 percent, and that we as owners have no visibility into the financial risk management plan and almost no understanding of the structure of the $7MM per year operating expenses for broadband.
Owners being able to examine the business plan will allow us to gain confidence whether future and present competition are being correctly assessed. Consumer broadband is a dynamic competitive environment. If we manage to take 5,800+ subscribers (mostly from CTL) then that will mean significant losses in revenue to CTL and perhaps their wholesale customers (local ISPs).
We need slightly more than 5,800 broadband subscribers to break even. That is based on some difficult assumptions. If competitors take back just 1,000 subscribers so we have only 4,800 and we have no flexibility in our $7MM per year Op Ex then it could add up to $1 million a year in losses which our energy members will have to cover in our electric bills. In fact, our current plan calls for an $8MM LOC that will cover the revenue shortfall up to 2016 as we grow to the break even point. There are lots of examples of utilities burdening their electricity consumers when broadband did not pay for itself.
About $2MM of that $7MM per year (for 25 years) will go to service the debt for the initial build out of the broadband plant assets including the LOC. The remaining approximately $5MM per year will go to the operating and maintenance (O & M) costs of those new assets. Which by my estimation exceeds the O & M costs of our entire power distribution assets which are far more extensive.
So the $5MM O & M even after accounting for the approximate Internet connectivity and backhaul costs seems way high. Perhaps there is some capital expansion provided for in there, but if that is the case we as owners need to know what those added plant assets will be and how much it will cost us.
I am in agreement with Tom in spirit. It is a problem that requires more than a technological solution. There are local economics to be considered and it is an established competitive environment which should be nurtured to the benefit of broadband consumers, as well as, present and future businesses. I'd like to think that local ISPs have a place in our future.
I have not had time to completely explore how Mount Vernon did their wholesale community broadband, but they might be worth looking at. They have an open access network with about 8 service providers connecting consumers with a variety of competitive choices. Further they appear to have achieved this with an organic growth model that required no loans, but did have a grant. More here:
www.muninetworks.org/content/washington-mt-vernon-attracts-businesses-open-access-network-community-broadband-bitsAnd audio interview here:
muninetworks.org/sites/www.muninetworks.org/files/audio/comm-bb-bits-podcast38-kim-kleppe-jana-hansen-mt-vernon-wa.mp3This is what I call a "market maker" approach rather then the "market taker" plan currently being proposed by our co-op.
Adequate competition can provide the most amount of choice and pricing options for broadband consumers. We see this in Friday Harbor.
However, as a wholesaler I don't know that our co-op could legally restrict who connects. So Rock Island could become one of our wholesale customer/retailers, but so could CenturyLink. Both are co-op members. Likewise a mainland WISP could potentially expand into our county. Neighborhoods could even get into this and local businesses could grow to provide them the support needed to maintain their solutions.
Where our co-op can exercise quality and performance control from these retailers we should. Retail broadband customer satisfaction and performance should be monitored and could be used as a criteria for whether an ISP, ILEC, CLEC, WISP gets to continue leasing our fiber backhaul. Likewise, co-op policies could be put in place that require wholesale bidders to take on some amount of less dense demographic service areas in exchange for high profit areas.
Collin thanks for your kind words of appreciation.
Gray
