As Traditional Services Decline, Cooperative Says Broadband is THE Future

As our Richelle Elberg reported last week, telcos providing broadband serve about half of all broadband connections in the U.S.—numbers that, so far, are holding steady against cable-provided broadband connections. In the same study, Richelle predicted that ILEC broadband connections would overtake the number of access lines as early as 2015, as ILECs increasingly are deploying fiber and upgrading their broadband offerings.

As a case in point, Paul Bunyan Communications in Minnesota has aggressively incorporated broadband into its business strategy and is about to complete its final year of a fiber-to-the-home upgrade for its entire 4,500-square-mile service area. The cooperative's broadband initiative has been well-received, too, with take-rates at 60%, representing some 17k subscribers.

But Paul Bunyan isn't just a small company benefiting from a forward-thinking business plan; it's an ILEC that attests to the collective power of a cooperative to implement broadband buildouts and forge strategic partnerships with local electric co-ops.

In fact, the Minnesota cooperative has made broadband a focus of service for many years, according to Brian Bissonette, marketing supervisor for the company. Paul Bunyan first started offering broadband in its service areas in 1999, and now Bissonette says that 100% of its service area has broadband access. In the majority of its service area, Paul Bunyan is the only provider of high-speed Internet. “In rural areas [of the state], there are no real competitors. Wireless and satellite service is available, but it's much more expensive, with slower speeds, and less reliability,” Bissonette said.

Paul Bunyan's service packs a good punch too, with speeds up to 10Mbps for both upload and download, and up to 25Mbps service and higher available. The co-op's extensive fiber build has allowed it to offer digital and high-definition television services to all its customers as well, complete with DVR and On Demand. According to Bissonette, these television services have about a 50% take-rate so far. The company now uses vendors like Calix, Minerva, ADB, and Clearfield, but Bissonette said television services will be transitioning to offer the Microsoft Mediaroom IPTV platform.

Last month, Minnesota received some press for the release of Connect Minnesota's Consumer Broadband Adoption Survey, which reported that “only” 28% of Minnesota's consumers do not subscribe to a broadband service. Among those who don't subscribe, the majority said they don't need broadband or that there isn't content relevant to them on the internet; the second reason was that it was too cost-prohibitive. But while that 28% figure is lower than the national average of 35% non-subscribers, once again there was a marked gap in broadband availability in rural communities versus more populated areas. In rural parts of the state, 39% of Minnesotans do not have broadband, usually due to lack of availability, not lack of desire.

Because Paul Bunyan's service area is primarily rural, Bissonette said its diverse services and broadband deployment are even more dependent on federal stimulus monies. Just this year, the cooperative was awarded a $19.7m Rural Utility Service (RUS) grant through the USDA, and will use the funding to expand broadband FTH service into two more underserved areas—rural areas of Park Rapids and Trout Lake.

Overall Paul Bunyan has seen a steady increase in broadband subscribers and revenue, something Bissonette credits to the “millions of dollars” the company has invested in “upgrading and expanding our network to offer broadband services. And they have been well received.” He says that back in 1998, the company had just 8k access lines and no broadband Internet customers. “Today we have more than 28k access lines and more than 17k broadband subs,” Bissonette said. But even while noting these gains, he added, “This could be radically affected by access and universal service reforms if they are unfavorable to high-cost-to-serve rural areas.”

According to Bissonette, service availability is overwhelmingly contingent on sustained FCC funding. “The biggest challenge we face is intercarrier compensation and universal service reform,” he said. “The majority of our service area is rural and high-cost to serve. If these mechanisms are eliminated or drastically reduced, the result would be much higher costs for the services to consumers. That would create a significant barrier to receive the services that most [of our customers] consider essential. We'd also be unable to continue to expand our broadband services to those rural areas, and that includes our planned expansion with the recent $19.7m RUS loan.”

As a cooperative, Paul Bunyan has also realized the advantages that come from local and regional partnerships. Bissonette cited one such example in Paul Bunyan's alliance with Beltrami Electric Cooperative. Together, the two formed Cooperative Development, “a construction company that serves both cooperative's network expansion and replacement needs,” Bissonette said. “This greatly reduces the need for both cooperatives to outsource this work and provides dozens of full-time local jobs during the construction season.”

Paul Bunyan has also partnered with seven regional electric co-ops to form Northern Safety and Security—an entity that provides security systems, smoke and carbon monoxide sensors, a latch-key feature, gas leak monitoring, agricultural environment sensors, camera systems, and more, along with a 24/7 response center. Together, Bissonette said the group “shares investment costs and a resource base providing a variety of services to 52k co-op members and 150k households throughout Minnesota and eastern North Dakota."

Going forward, the cooperative is planning on taking advantage of cloud services for its data hosting and online backups, which it already provides for some of its larger customers. Ultimately, Bissonette said it all returns to broadband and its potential—be it for cloud services, high-speed internet, or IPTV. Facing the current reality for telecommunications providers, Bissonette stated, “We anticipate that wrapping more service around our broadband will be important in the future, as our traditional services decline.”