If your co-op is eyeing the broadband business, it’s probably because your members are clamoring for it. But you can’t wire the community overnight—nor should you.
The National Rural Utilities Cooperative Finance Corporation(CFC), favors a phased approach.
“At the end of each phase you’re looking at how things went, comparing it to your projections, comparing it to your assumptions, seeing if there are any tweaks you need to make, and then having a go-or-no-go decision,” said Joel Allen, CFC senior vice president, member services group.
Allen stressed that’s “not necessarily a negative thing,” citing a case where the first three phases went so well the co-op then approved the next two together.
And while it’s easy to measure success on the electric side by factors such as kilowatt-hour sales, on the broadband side “success is defined in a lot of different ways,” said Allen.
“Early on it’s usually take rate—we’re meeting the number of subscribers we expected; we’re hitting our financial forecast,” Allen told a session at the NRECA Regions 1 and 4 meeting. “But later down the line, you want to see positive cash flow, positive margins. Because in the long run, for this to be a sustainable project, you’ve got to have those positive cash flows and positive margins.”
All of which takes time.
“Positive cash flow might be two to five years. Positive margins might be three to six years. And the project break-even might be 10 to 20 years. So you need to understand that when you’re looking into this,” said Allen.
Keeping your broadband customers happy impacts the bottom line, noted Shirley Bloomfield, CEO of NTCA—The Rural Broadband Association, which represents 850 communications providers.
“The ability to offer video is very important to your consumers. They like that one bill, they like that set of services,” said Bloomfield. But here’s the rub.
“Video is absolutely a loss leader. It is the retransmission consent agreements, the pricing of programming that just continues to escalate,” she said. “Know that that video piece is not going to be your moneymaker.”
Bloomfield also said NTCA is a “big fan of finding partners” to collaborate with—local telephone co-ops, for example.
“You have your expertise,” she said, “these folks have their expertise.”