Successful Approaches by Utilities & Co-ops in Providing Telecommunications and Broadband Services
Main Points - Successful Approaches in Providing Telecom Services
Broadband services are robust in large urban areas of the United States, but some US regions (mainly smaller communities and rural areas) are underserved by broadband and other telecommunications services offerings.
Electric utilities, electric cooperatives, and municipalities are stepping in to fill the service void.
There are resources available to provide insights into the successful path to follow. There are grants available for underserved areas in the Infrastructure Act of 2021.
The community survey determines the potential user base for broadband, cable TV, and telephony services in areas that are considering establishing a telecommunications utility.
Feasibility studies are used to forecast the costs involved in providing telecommunications services - operating, capital, and debt service - and developing rates to cover those costs.
Telecommunications services encompass cable TV, internet, business, and broadband internet phone services. There are generally several choices for broadband or telecommunications service providers by private sector companies in large urban areas. Private telecommunications companies have been serving smaller communities and rural areas also. However, many regions of the United States still do not have "broadband" services, as defined by the Federal Communications Commission (FCC) as a minimum of 25 Mbps (megabits per second) download speed and 3 Mbps upload speed.
Telecommunications service is one of the foundations of a successful society, powering commerce, education, utility services, and government. Where there are gaps in service, local electric co-ops, utilities, and communities have formed telecommunication systems to fill the void. How do these systems get up and running? This article discusses the steps to consider.
Resources
Organizations considering being a telecommunications provider can draw on many resources, several examples include:
American Public Power Association (APPA) - APPA is an association of public power utilities across the United States, the Caribbean, and Micronesia. APPA has long been an advocate of public sector telecommunications services and offers resources on strategy, legal issues, funding, and operations.
National Rural Electric Cooperative Association (NRECA) - NRECA is the trade association for electric cooperatives in the United States. NRECA offers resources through its examples on its website.
Consulting firms - firms provide a wide variety of services in forming a telecommunications utility, from feasibility studies, to financing, to construction. The process of a municipality, electric co-op or utility issuing a request for proposal for telecommunications feasibility services will yield a number of proposals to evaluate.
Grant funding is also abundant for underserved areas, due to $65 billion of funds available in the Infrastructure Investment and Jobs Act. File early, funding runs for 5 years.
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Considering telecommunications services? Here are the detailed steps that successful organizations have used
Buy-in by management - Management is convinced that their organization can deliver telecommunications services through the use of existing resources but also by hiring employees with experience in providing telecommunications services.
Buy-in and approval by Oversight Board - Once management is convinced that providing services can be done by the organization, the next step is to convince the oversight board that delivering services should be looked at seriously. With that approval, we can move to Step 3.
Community survey - the city/utility/cooperative will have the contact information for every residence in its service territory. A survey can be constructed, sent to the potential customer base, and a statistically correct sample of community desires can be arrived at. We see the trend in electric cooperative and utilities to providing the pipeline for services, i.e. contracting with a gateway provider for allowing customers access to the internet. This allows the customer to choose their services with a third-party provider, i.e. streaming instead of cable, high speed internet available. This removes some of risk to the co-op or utility for service obsolescence, as more customers “cut the cord”.
Feasibility study - the Feasibility Study is what makes or breaks going forward with offering broadband services. The study simulates operating a telecommunications utility. In consulting speak, we call this a "financial forecast". Some specifics:
The forecast uses the community survey to estimate the penetration rate for services, i.e., the number of customers that would sign up for service.
The cost of operations, construction costs, and debt service to pay for construction are estimated based on the penetration rate.
Once costs have been forecasted, rates for service can be developed. Area competition will also influence final rates.
After the rates are developed, revenues are forecasted based on the penetration rates for services.
While the feasibility study makes or breaks the determination to go to the next step in providing services, the community survey is the foundation of the feasibility, i.e., without potential customers, there is no need to invest in providing broadband services.
What happens after the feasibility study?
If the feasibility study is favorable, management will seek oversight Board approval to offer services. Then the process moves first to financing the project. Funding sources include:
Revenue and general obligation bonds
Local financing
Loans from other city departments (usually the electric department)
References of state and federal funding programs are found at the National Telecommunications and Information Administration website. An excellent resource for federal grants is also the Internet Society.
Once financing is obtained, the final steps are to construct the system, set up operations, accounting, business processes, and go live with providing services. Easy, right!?
Not so, but that is the process in a nutshell. Our next article will discuss success stories of utilities, co-ops, and municipalities that established telecommunications utilities. To help avoid some pitfalls, we will also discuss the approach of a few organizations that did not fare as well.
Telecommunications Services
Electric utilities and co-ops and municipalities can provide telecommunications services in under-served areas. Up-front due diligence is needed to be able to forecast that the venture will either break-even or be profitable, or, at the very least, provide revenue streams in other areas, such as economic development, that can be used to provide cross-subsidies for telecommunications operations.
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About Russ Hissom - Article Author
Russ Hissom, CPA is a principal of Utility Accounting & Rates Specialists a firm that provides power utilities rate, expert witness, and consulting services, and online/on-demand courses on accounting, rates, FERC/RUS construction accounting, financial analysis, and business process improvement services. Russ was a partner in a national accounting and consulting firm for 20 years. He works with electric investor-owned and public power utilities, electric cooperatives, broadband providers, and gas, water, and wastewater utilities. His goal is to share industry best practices to help your business perform effectively and efficiently and meet the challenges of the changing power and utilities industry.
Find out more about Utility Accounting & Rates Specialists here, or you can reach Russ at russ.hissom@utilityeducation.com.
The material in this article is for informational purposes only and should not be taken as legal or accounting advice provided by Utility Accounting & Rates Specialists. You should seek formal advice on this topic from your accounting or legal advisor.