Fibranet Struggles to Balance Expenses with Revenue, Seeks "Conservative Growth"

Today we continue our look at two very different community-run broadband strategies in North Carolina—approaches to the next chapter of broadband that still include a great deal of uncertainty and varying degrees of risk. Yesterday's focus was the newly launched super Wi-Fi network in New Hanover County, NC, and today we zero in on Fibranet, a city-owned fiber network that went live one year ago in Salisbury, NC.

To date, Salisbury's former City Manager David Treme says that Fibranet has more than 1,700 customers, with 13% market share—all after billing its first customer back in December of 2010. But with those numbers, the network is behind its projected revenue and subscriber forecasts. Initially, the project stalled with technical deployment issues: private companies were slow to move their lines to free up space on the utility poles, the customer service center had to be redesigned because of its designation as an “essential” structure by Rowan County (something that cost the city an extra $1m), and so on... all struggles that are all too often a part of any fiber deployment.

All told, the city of more than 33k people will spend $70m on Fibranet. This year, the debt payment increases to approximately $3m annually (up from $1.7m the first year), and this level of repayment will continue from 2013-2029.

Leadership has been a struggle for the network, too, as its original director and marketing chief are both gone, and the city operated with an outdated business plan for the first months of operation. So far, Salisbury hasn't found a suitable replacement for director, either, and Mayor Paul Woodson acknowledges that it's a critical time for the network. Last week, city council members made Fibranet's future a strategic priority and urged staff to treat the network as a competitive business, not a municipality. “I’m very encouraged about what’s happened down there,” Woodson said. “They are thinking like businessmen now.”

The truth is, many of Fibranet's employees are from the private sector, and Woodson said that some of them even took pay decreases to join the network. For instance, Plant Manager Barry King and New Sales and Customer Service Manager Jenny Waisner both left Windstream for Fibranet. King said that the network's competition has actually driven down rates by other providers, and Waisner believes that the network has the best interest of residents in mind—rather than simply trying to make money.

Still, no network survives on good will. Fibranet cannot raise rates beyond current levels, because the network is already undercut by other providers. Instead, to drive up revenues and drive down expenditures, Woodson said he would like Fibranet to cut between $500k to $1m in costs—a hefty goal for a new fiber build. He's optimistic, because the network is experiencing what he calls “steady growth,” saying that an average of 30 new customers sign up for the service every week and that retention rates are at 99%. After completing its first year of operation, the network is also more able to negotiate existing contracts, Woodson said.

The question is, can revenue ever catch up with expenses... and soon? Fibrant currently pays about $1,350 for each residential installation, with commercial installations costing even more. (These installations are free for Fibrant customers, unless they unsubscribe within the first year, at which point they're charged $360). Altogether, the network's list of expenses is challenging at best: Fibranet will pay $1.2m in programming costs this year, in addition to total installation costs of $2.5m and debt service of $1.7m. Fiscal expenditures for the year will total approximately $5.5m—a very, very steep climb.

Interim City Manager Doug Paris said that what the network needs is “conservative growth,” as the cost of expansion and new installations are quite pricey, but also essential. He added that Fibranet is expected to generate $2.4m in revenue this year—enough money to cover the debt repayment so that by 2015 the city hopes to generate enough revenue that they can stop borrowing money from other city funds to support it.

Like many municipal fiber networks, Fibranet has had critics from the start, and last year the North Carolina General Assembly passed a bill limiting municipal broadband in the state. Paris, Treme, and other officials mounted a significant defense against the cable companies who lobbied for the bill, and in the end Fibranet was awarded the most favorable exemption of any city with a publicly owned broadband network.

Like so many other start-ups, time will tell if this venture will survive and be profitable--or at least break even. It's a question, too, of whether publicly funded broadband is the answer for underserved areas or if private companies are still better qualified to build and service these networks. When Salisbury first discussed plans for fiber coverage, they solicited private companies but couldn't reach an agreement. Now, they've chosen to go it alone.

From the beginning, Treme said he “knew this would be harder than we thought... I knew it was going to be the most difficult thing we’ve ever done.” But he also promised that, while many municipal networks “do not make it, we are one that is going to make it.”

Super Wi-Fi and City-Owned Fiber Networks Make NC a Testing Ground for the Future

It's a tale of two start-ups in North Carolina—at least as far as city-owned broadband is concerned. And two announcements coming out of the area in the last few weeks prove that it's an interesting test case for the adoption of broadband, nationally. New Hanover County, in the southeast corner of North Carolina, announced that it has become the first county in the U.S. to deploy a super Wi-Fi network, and Salisbury, in the central part of the state, said that after one year of operation, its city-owned Fibranet now had 13% market share and 1,700 customers. But as anyone in the broadband provider industry knows, today's successes don't necessarily equal longevity, especially when considering federal regulation of Wi-Fi spectrum, costs of fiber builds, and operating costs for networks of any type. So can city-owned broadband make it? And can they make it profitable?

In New Hanover County, hopes are as high as the newly installed Wi-Fi transmitters. The county is home to Wilmington, NC, and has been able to capitalize off of its previous transition from analog to all-digital television. Now, the county's 'super Wi-Fi' is the first to deploy in the U.S., and it operates over the so-called “white spaces” spectrum that the FCC opened up for use in 2008. Because the mobile data network utilizes this low frequency spectrum, hot spot signals can travel farther distances and penetrate structures better than traditional Wi-Fi networks.

At the Jan. 26 launch of the network, Allen Stillwell, deputy chief, FCC Office of Engineering and Technology, said, “We at the FCC are really most pleased to see this new service potential being made available to the American public. This is in fact … the first commercial deployment of white space technology in the world.”

So far, New Hanover County, with more than 200k residents, is the only local government that the FCC has certified to deploy a super Wi-Fi network. County Commissioner Jason Thompson, said, “For me as an elected official, I’m looking at it as an economic development tool — job production, those kinds of things. And anything we can do to facilitate that, that’s what I’m going to do.” Thompson has been one of the board's leading advocates of bringing super Wi-Fi technology to the area.

Of course, super Wi-Fi is not compatible with laptops and other Internet-ready devices, but, instead, is what IT Director Leslie Chaney described as a “wireless extension cord.” In other words, super Wi-Fi operates between two or more Wi-Fi base stations to provide backhaul capabilities. Chaney said, “So you can’t get an iPad with a white-space chip in it now... That’s some of the future development that we think will come as the rules settle out, as more people get into the market of developing for this space.”

Currently, the super Wi-Fi network will also work to provide security to public parks in Wilmington, and Chaney says the county believes, in the future, the network can also monitor and test water quality in local wetlands and estuaries. “With the white space initiative, we’ll actually be able to put in these little monitoring systems, and in real time, check the contaminant levels in our waterways ‘live,’” Thompson added. Chaney said that the county has already successfully tested super Wi-Fi for this purpose.

To this point, the cost has only been “in kind” services provided to its partners in the project—KTS Wireless and Spectrum Bridge. To be sure that the network doesn't interfere with television broadcasts and other licensed usage, Spectrum Bridge maintains a database that, according to the company, “assigns non-interfering frequencies to white space devices on-the-fly, and adapts to new TV broadcasts, licensed wireless microphone users and other TV band users operating in the area.”

But being a super Wi-Fi pioneer is not without its uncertainty, to be sure. Because New Hanover County is the first adopter of super Wi-Fi, the county is trying to figure out how much to spend for super Wi-Fi radios to extend transmission, as they are not yet mass produced. According to Chaney, the county is “working out with our partners, what do we pay for those first-generation devices, and how do we ensure the county that we don’t pay a large premium for being an early adopter? We’re buying endpoint devices, and we’re still working out the radios and what those costs will be.”

Up in the central part of North Carolina, the town of Salisbury is marking the one-year anniversary of its city-owned fiber network, Fibranet, with some uncertainty of its own. “It’s a start-up and it’s a battle, and we have not arrived yet,” said David Treme, Salisbury's former city manager who helped create the high-speed network. “But we have taken the first year and I would have to say, it has been good.”

In tomorrow's Part 2 installment, I will take a closer look at Fibranet, to understand how yet another broadband strategy is playing out in a small community of the Tar Heel State. Whether it's a super Wi-Fi network, traditional Wi-Fi, FTTH or any other kind of configuration, the value of start-ups like these in North Carolina can often prove to be a fitting glimpse into the many hurdles and modest victories that may come with the next chapter of broadband deployment—no matter if it's a city, a county, a CLEC or an ILEC.