Electric Co-ops as a Vehicle for Bringing Fiber to Rural Areas

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March 5th, 2015

I recently listened to an interview with Randy Klindt, General Manager of Co-Mo Connect, a rural electric co-op building a gigabit fiber network in Central Missouri. It reminded me that the nation’s rural electric co-operatives can be effective vehicles for deploying advanced communication infrastructure in relatively high-cost and underserved rural areas.

Like most electric co-ops, Co-Mo serves a very rural area. Its service area spans 2,300 square miles and includes roughly 31,000 electric meters. That’s only about 13.5 meters per square mile.

As Klindt points out, member owned co-ops like Co-Mo have a different perspective than private companies when it comes to investment horizons. While the latter tend to prefer payback in a 3-5 year timeframe, co-ops view both electricity and communication networks as long-term infrastructure investments with payback timeframes in the 10-20 year range.

According to Klindt, Co-Mo, as a member-owned organization, approached the network investment as a long-term economic development project. He also notes that it was funded without the benefit of government grants or loans (Co-Mo had applied for funding under the ARRA broadband stimulus program, but its application was not approved).

The co-op is also using the network to support smart grid functionality for its core electric power business, which improves the project’s overall economics. And, like other electric utilities, Co-Mo already has in place much of the infrastructure needed to support construction, maintenance, billing and customer service for a communication network within its footprint.

To reduce its risk, Co-Mo began with a pilot project designed to gauge demand. When that went well, it made the commitment to build out the network across its footprint.

Noting that most of Co-Mo’s service area receives phone service from “big price-cap carriers,” Klindt says Internet service is a mixed bag, with roughly a fifth of the co-op’s members able to get broadband service from a cable operator.  Others—mainly those residing near the region’s towns–can receive relatively low-speed (and distance-sensitive) DSL, while much of the co-op’s footprint has access to only dial-up and/or satellite-delivered Internet service.

To encourage early sign-ups and achieve efficiencies in construction and installation, Co-Mo charges a discounted installation fee during the pre-construction and construction phase. According to Klindt, in some areas 50% of co-op members have signed up for service within a few weeks.

The co-op’s Internet access prices range from $39.95 a month for 5 Mbps service, to $49.95 for 35 Mbps, $59.95 for 100 Mbps, and $99.95 for 1 Gbps service. Unlike most services delivered over cable or DSL networks, all speeds are symmetrical. Co-Mo also offers TV and phone service, along with discounts on multi-service bundles.

Klindt says Co-Mo’s owner-members save quite a bit when they switch over to the co-op’s fiber network. As he explains, members submit a copy of their current phone bills to Co-Mo as part of the number portability process. Based on a review of these bills, the co-op estimates that members switching to its network save an average of $20-$25 per month. Over a ten year period, that’s $2,400-$3,000 per member.

Though certainly challenging in key respects (mainly the relatively high per-premise cost of construction), Co-Mo’s example is a reminder that the business case for a rural electric co-op to deploy fiber to its member-owners may be surprisingly solid.  Among the factors supporting this conclusion are a co-op’s relatively long-term payback horizon, the network’s smart grid benefits, the lack of strong and competitively priced options already available in many co-ops’ service areas, and the fact that the interests of a co-op’s “customers” are inherently well aligned with those of its “owners.”

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