Wyoming Town Creates Broadband Bonanza
[imgbelt img=powell%2Cwyoming.jpg]How does a town of 5000 people in a sparsely populated region get its own fiber-to-household broadband system — WITHOUT relying on federal funding? Powell, Wyoming, is one of the great broadband success stories of the decade.
Powell, Wyoming, at first glance may appear to be the typical rural community that large and even some small broadband service providers avoid. The town has just over 5,000 residents in a county with a population density of four people per square mile. The last place for a fiber network, right? Wrong! Powell’s community-owned network, Powellink, is one of the great success stories in broadband.
Powell’s network broke even in 18 months and has operated profitably ever since. Two service providers, including the town’s partner, Tri-County Telecom, compete for subscribers of data, voice and video services. And most stunningly, this $5 million project put no taxpayer dollars at risk.
In 2005, constituents and businesses decided they needed better, faster broadband than incumbent providers were willing or able to deliver. Powell already had built a fiber ring around the town in 2000. The next step was to extend this ring with a fiber-to-the-home (FTTH) network. Powell would have been an ideal candidate to apply for a broadband stimulus grant or Google gigabit network – if either had existed at the time. Instead, Powell opted to follow a do-it-yourself path that today provides a valuable lesson for rural communities and small towns everywhere.
Powell’s method is relatively easy to describe; the devil, of course, is in the details. Every community is different and each will need to tailor the approach. Some may even reject it. But here’s how Powellink became a reality.
careful forecasting, Powell, Wyoming, has put together a community-owned
The team’s business due-diligence, financial modeling and municipal investment skills intersected for the third step of the process: crafting the bond arrangement. Powell structured its deal so a bond would be issued that covered the cost of the buildout plus a number of related expenses. TCT would go on the line with a “take-or-pay” guarantee: if the network didn’t generate the expected revenue, TCT would pay the shortfall to the town. Powell maintained ownership of Powellink and, according to the contractual arrangement, the provider and the city both share in the profits.
The particulars of the financial arrangement are complex and include additional safeguards for Powell, but the bottom line is straightforward.
For example, suppose the network needs to reach 30% market penetration (also known as “take rate”) three years after it launches. If the take rate exceeds 30% or the network reaches the 30% take rate sooner than three years, this results in free cash flow (gross profit). The planning team did enough thorough and accurate research, sufficient engineering design and financial modeling that TCT had confidence the break-even point was attainable. Since TCT contractually agreed to pay Powell the difference if network revenues were below breakeven, the city wasn’t at risk.
To summarize, planning is crucial. A community cannot scrimp here on time and resources. Small towns do not have much wriggle room in the accuracy of their revenue projections. It also is important to have a reliable service provider with a credible track record as partner. And it is wise to have a well-thought out contingency plan in case the provider is bought or has operational issues later.
Finally, the public/private partnership agreement has to be clearly written and structured so both parties are motivated to succeed. In Powell’s case, the agreement to split the free cash flow with TCT is a great motivator. TCT is driven by the fact that, the greater the profit, the more they get to take to the bank. Powell is similarly motivated to find creative ways to market the network. Powell can work with local TV stations to educate constituents about the network’s benefits to local education, distance learners and senior citizen entrepreneurs. Working with various stakeholders, the town can develop locally focused services on the network that drive up traffic.
Ultimately, it was imaginative thinking and the selection of effective, creative partners that gave Powell its opportunity to make a big broadband impact on its small community. They finished Powellink’s buildout in just over a year, in 2009 and broke even by the end of 2010. Revenue was so strong the city was able to buy back its bond debt. Others should pay close attention to the lessons learned here.
Craig Settles, of Oakland, California, is an analyst and business strategist in the broadband industry.