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for the network, too, as its original director and marketing chief are both gone, and the city operated with an outdated business plan for the first months of operation.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.”