Successful Approaches by Utilities and Co-ops in Providing Telecom Services

Main Points - Successful Approaches in Providing Telecom Services

1. Telecommunications 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.

2. Electric utilities, electric cooperatives, and municipalities are stepping in to fill the service void.

3. There are resources available to provide insights into the successful path to follow.

4. The community survey determines the potential user base for broadband, cable TV, and telephony services in areas that are considering establishing a telecommunications utility.

5. 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:

1. 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.

2. 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.

3. 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.

The next article in this series will discuss success stories and some ventures that were less than successful. In this article, we discuss the steps that successful organizations have used.

Considering telecommunications services? Here are the detailed steps that successful organizations have used

1. 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.

2. 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.

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.

4. 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". 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:

• Grants

• Revenue and general obligation bonds

• Rural Utilities Services (RUS) loans and grants

• 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, 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.

Russ Hissom is the owner of UAES, a company that offers online electric co-op and utility accounting, finance, rates, business process and strategy courses, custom courses, articles, and eBooks. Russ has over 35 years of electric co-op and utility industry experience, serving as a partner in a national public accounting and consulting firm’s energy practice. Russ has worked with electric investor-owned and public power utilities and electric cooperatives, learning and leading best practices. He is passionate about the power and utilities business, and his goal is to share his knowledge of best practices with you and provide value to your organization. You can find out more about Russ’ experience on his resume, or reach him at russ.hissom@puaes.com.

The puaes.com website has a wealth of articles and online resources on electric utility and co-op accounting, finance, electric rates, business processes, and strategy implementation in the electric business.