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Co-Mo Success Shows Possible Route to Electric Cooperative Broadband Entry

Randy Sukow Feb 11, 2014

Co-Mo Electric Cooperative, providing electric power to 32,000 customers in the rural central Missouri, is five months into a four-year project to build fiber-to-the-home (FTTH) broadband service. Its board has approved funding for the first two years of the project, which the cooperative began in response to a steady stream of requests from area residents.

“I came here nine years ago and it wasn’t long after I arrived that I started to get questions about, ‘How could you help us get improved broadband here.’ Those questions came up quite often,” said Co-Mo Electric General Manager and CEO Ken Johnson during a webinar hosted by NRECA’s Cooperative Research Network (CRN). The decision making Co-Mo used to enter the FTTH project could be a guide for other utilities considering broadband business entry.

Kurt Schaubach, NRTC chief technology officer, said that one of the first things to do when considering broadband entry is analyze the population size, density and demographics of a market.  “Perhaps one of the most important things to look at is the competitive landscape. I can’t emphasize enough the importance of looking at the current situation with broadband as well as the potential future,” he said.

That is exactly what Co-Mo did. It commissioned in-depth studies of the area and surveyed customers to determine demand for broadband and the particular broadband features they desired – broadband data, IP voice, video or mobile services. It used the survey information to decide on FTTH as a “future-proof” technology that would be able to handle all of the desired features and constantly growing demand for capacity.

Beyond the research, a map of Co-Mo’s service area (pictured) illustrates “a perfect storm in terms of making a broadband service successful,” said Randy Klindt, general manager of the FTTH subsidiary, Co-Mo Comm Inc.  Independent telephone companies in the area (represented by the pink areas) had done “a decent job” in providing broadband, he said; as had the areas served by cable TV providers (yellow areas). “But the rest of it is served by the large, national telephone carriers that typically have not done a good job of deploying broadband into rural areas,” Klindt said.

As Schaubach noted, there are historical reasons why large carriers operating in rural areas have been unwilling to build rural broadband services. Until the recent reorganization of the Federal Universal Service Fund (USF), they tended to be ineligible for such support.  Schaubach showed two rural broadband cost models from NRTC members, both predicting more than 20 years to pay back the cost of investment in an unsubsidized project.

“For a typical cooperative, pay-backs of 20 to 30 years are really quite common. These sorts of numbers are why large ILECs have not made investments in rural territories,” Schaubach said.

Co-Mo, however, estimates its pay-back time will be about 11 years, even though its project is unsubsidized.  Co-Mo is fortunate to have some high-income areas in its service area. “The southern point is more recreation and second homes. A large majority of those second homes are around the Lake of the Ozarks,” Co-Mo’s Johnson said.

At the beginning of its project, Co-Mo sought federal assistance through the $7 billion in stimulus funds in the 2009 Recovery Act.  The government rejected its application. But during the application process, the cooperative publicized its activities among its customers. “It was interesting … the grassroots movement took off on its own. We had members asking us what they could do to help,” Klindt said.  The excitement led two local banks agreeing to help finance.

That led to a pilot project in which Co-Mo covered 90 line miles and attracted 550 subscribers in the first year. That was a 24 percent higher take rate than Co-Mo had expected.

Other cooperatives considering broadband will want to look at the available federal relief nonetheless. Martha Duggan, NRECA’s senior principal, Regulatory Affairs, said that the first legal step should be to review whether the cooperative bylaws or laws of the state put any restrictions on electric cooperatives entering telecommunications businesses. Next, she suggested learning how to have the cooperative named an “eligible telecommunications carrier” (ETC). A company must be an ETC to be eligible for federal USF support.

State governments usually accept applications from companies seeking USF status, although companies in some state must apply through the FCC. “ is fairly detailed and the FCC will look for all the supporting documentation,” Duggan said. She was “optimistic,” however, that response to applications would be within months rather than years because new FCC Chairman Tom Wheeler has a reputation for efficiency and is placing a priority on broadband issues.

As an example, Duggan mentioned the recent FCC order that seeks to accelerate the pace of telecommunications transitions from TDM systems to full, broadband Internet protocol (IP) systems.  Part of the order calls for federal funding of broadband experiments in rural areas. “As part of that order, the FCC … wants to test the notion that nontraditional carriers like rural electric cooperatives, can go into the broadband business and successfully serve these rural areas,” Duggan said.

Duggan’s remarks were similar to those of speakers at the Rural Telecom Industry Meeting & Expo in San Antonio, TX, last week, who suggested that the IP transition order could be the basis for forming rural electric/telco broadband partnerships.

For those who would like to hear the entire hour-long webinar, titled “Fiber Optic Broadband: A Co-op Success Story,” CRN said it would be post it on NRECA’s Coperative.com site later this month.

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