Make no mistake: The broadband business is not the electricity business. If your co-op is considering going that route, there’s a lot you need to know—and maybe never thought of—to make the right decision.
During a session at the Region 1&4 meeting, Jessica Healy, NRECA assistant general counsel, discussed a variety of legal considerations for cooperatives thinking about broadband. A threshold question co-ops should address with their attorneys is whether state law permits the cooperative to engage in broadband, or own an entity to do that.
Article Source: Cooperative.com
Co-ops should also evaluate their easements and state law to determine whether the easement includes the right to use, sell or lease excess fiber capacity for commercial broadband activities, Healy said. And whether a broadband business is operated directly through the electric co-op or through a separate entity, there are tax considerations that should be explored with the cooperative’s attorney and tax professional.
While co-ops generally don’t face competing retail electric businesses, that’s not necessarily the case with broadband. Healy noted that under federal antitrust law, a cooperative may even be required to grant broadband competitors access to its infrastructure.
Once you’ve cleared those hurdles, you’ll need to borrow money—and you can expect the lender will ask more questions. CoBank considers selecting the contractor to be a “critical component” of the project.
“How are you going to manage that vendor? Are you using a feasibility study to match that vendor’s performance against that—something we would recommend,” said Cliff Bolstad, CoBank regional vice president, electric distribution.
“Do you have engineering staff internally that can also watch that vendor and be sure, for example, that the staking is being done in a proper fashion?” asked Bolstad. “Are there performance standards within that contract that have to be met? Can you hold them accountable for not meeting performance standards?”
Bolstad said board engagement is “especially important.”
“Does the board have the composition and competence to manage a for-profit business and drive member engagement?” he asked.
“It’s critically important because it’s different. It’s not a cooperative model that is not for profit. It’s a for-profit business that is highly competitive.”
And forget the idea that if you build it, they will come. You need a marketing plan.
“You cannot simply expect that the customer base will come to you,” said Bolstad. “There is a sales component to this that is probably not customary to the cooperative.”
CoBank recently issued a report, “Making the Move into Broadband,” which details the experiences of six co-ops. The PDF is available here.