Timothy & Leslie Nulty: Rural broadband the right way

Editor's note: This commentary is by Timothy Nulty and Leslie Nulty, who are respectively, CEO and CFO of Mansfield Community Fiber Inc., in Jericho, a new company currently providing Fiber-to-the-Premises broadband services in parts of Underhill, Cambridge, Fletcher and later this year, Fairfax.  Both authors were original organizers and managers of East Central Vermont Communications District (ECFiber) from 2007-2014.

Rural broadband is fashionable. Covid-19 has raised awareness of poor rural service. Resulting federal programs promise to flood Vermont with grants to “solve” it. Beware! “Free money” invites waste and misuse!! Over the last decade, establishment Vermont telecom companies have received nearly $150 million in government broadband grants. That could have provided world class “fiber-to-the-home” service to at least 40,000-50,000 rural families and businesses. In fact, the few rural Vermonters with such service got it from non-traditional providers who built fiber-to-the-home networks with loans on commercial terms. 

Based on 45 years of experience in rural telecom we state categorically: World class fiber-to-the-home can be built and operated profitably anywhere in Vermont without resort to “free” taxpayer money! We have actually done this -- and are doing it now. 

Despite denials, establishment companies know this is true. So why do they resist it? Simple: Big companies have other markets where they can make even larger profits. Wall Street demands that companies maximize profits ... so profits from Vermont go to rich urban/suburban communities elsewhere. Small, local companies, however, concentrate on their local communities.

Naturally, if the government distributes free lollipops, the “big guys” will try to hog the lion’s share. Washington has approved huge sums for rural broadband, so Comcast et al. want to grab the loot. The New England Cable and Telecommunications Association’s recent VTDigger op-ed piece announces their campaign to do so. 

In contrast, in 2017 when Comcast renewed its cable license, the Vermont Public Utility Commission required it to build 550 new miles of cable in rural areas. The cost was tiny compared to the profits Comcast takes out of Vermont. ECFiber, a co-op of 24 rural towns, has built far more than that in eastern Vermont using loans on market terms. Five hundred fifty miles is also small compared to the thousands of miles of poorly served roads in Vermont. Yet Comcast not only refused to comply, it actually sued the state for imposing that condition.

Now, Comcast wants to build in rural Vermont. Why the change? Simple: They smell free taxpayer money. Carriers like Comcast and Consolidated fear losing the cash cow provided by their legacy Vermont networks to local competitors. Their high-cost networks cannot be extended profitably without subsidies. Government grants will enable them to extend their second-rate legacy networks and beat back potential competitors by offering subsidized prices. Taxpayer money should not support this.

There’s a better way for Vermont to ensure that taxpayer funds reach everyone and deliver top quality service:

 -- Create a revolving broadband fund and place any federal money into that. 

-- Loan such money to applicants on commercial terms.  No freebies for anyone! Repayments to the fund should be re-lent for further development. 

-- Require all recipients to build the best networks possible. These should be upgradeable for decades to come. Do not waste public money on services that are obsolescent already or will be in a few years. For today, 100/100mbps should be the minimum. Ability to upgrade to one gigabit in five years and 5 gigabit in 10 years should be required. 

-- Beware of “no one size fits all” language. This is code for justifying grants for inferior technology. All Vermonters enjoy the same access to the same quality of electricity.  Broadband should be no different. The discipline of repaying commercial loans will help discourage companies from investing in inferior technology. 

-- Telecom industry expertise to manage such a fund is scarce in Vermont. (Grants, of course, require no expertise at all other than penmanship to sign checks with taxpayer money!) Vermont Economic Development Authority administers a small broadband fund this nature. VEDA is new to this and is successfully acquiring the required expertise. However, managing a fund 10 or 20 times larger would be challenging. Vermont can leverage this existing knowledge by strengthening VEDA and involving local banks. Participating banks should put some of their own assets at risk and get their return from a share of the interest (rather than collecting fees for handing out money). This will stimulate them to take the task seriously. Multiple local banks should be recruited to introduce competition. The bank(s) that manage successful portfolios will see their own profits increase while banks that perform poorly will experience the opposite.  

-- Simplify the process for awarding loans: Local companies should be able to apply for loans without needing high-paid consultants – as do many federal programs.

   a) the application process should be similar to that for any small company that seeks a bank loan;  

   b) Make all initial loans small -- even for large companies. VEDA and participating banks can then monitor performance as usual with regular borrowers.    The projects that do well will qualify for additional loans in escalating amounts. Those that don’t won’t. There will be failures, of course -- but little money will be wasted on them.

It is fine that rural broadband is getting attention. But the risk of waste and misuse is great. Let’s not repeat past mistakes.  Making good use of this opportunity is both imperative and feasible.  Let’s do it right!

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