Broadband Strategic Plan

Sierra County, New Mexico

May 11, 2020

Finley Engineering

CCG Consulting

Sierra County Broadband Strategic Plan

Page 2

Table of Contents

Page

Project Description ................................................................................................................................... 3

Executive Summary .................................................................................................................................. 4

Findings ...................................................................................................................................................... 6

Recommendations / Strategic Plan ........................................................................................................ 11

I. Market Analysis ................................................................................................................................... 14

A. Providers, Products, and Price Research .................................................................................. 14

B. Surveys / Interviews ................................................................................................................. 23

C. Broadband GAP Analysis ........................................................................................................ 29

1. The Gap in Broadband Speeds ........................................................................................... 29

2. The Gap in Broadband Availability ................................................................................... 46

3. The Gap in Broadband Affordability ................................................................................. 48

4. The Computer Gap ............................................................................................................. 51

5. The Gap in Broadband Skills ............................................................................................. 52

6. Future Broadband Gaps ...................................................................................................... 53

7. The Consequences of the Broadband Gaps ........................................................................ 56

II. Engineering Design and Cost ............................................................................................................ 64

A. Existing Provider Analysis....................................................................................................... 64

B. Network Design........................................................................................................................ 69

C. The Technology........................................................................................................................ 82

D. Competing Technologies ......................................................................................................... 85

III. Financial Projections...................................................................................................................... 100

A. Operating Models ................................................................................................................... 100

B. Services Considered ............................................................................................................... 107

C. Financial Assumptions ........................................................................................................... 110

D. Expense Assumptions ............................................................................................................ 121

E. Financial Results .................................................................................................................... 124

IV. Other Issues ..................................................................................................................................... 140

A. Funding for Broadband Networks .................................................................................... 140

B. Partnering Potential ................................................................................................................ 154

C. Our Recommendations / Strategic Plan ................................................................................. 162

EXHIBIT I: Service Areas of the Incumbent Telephone Companies .............................................. 175

EXHIBIT II: Summary of Financial Results ..................................................................................... 176

Sierra County Broadband Strategic Plan

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PROJECT DESCRIPTION

Finley Engineering and CCG Consulting were hired to create a Broadband Strategic Plan for Sierra

County. The original RFP that defined the project set the following goals:

The selected firm shall be responsible for the development of a broadband master plan for the

County of Sierra, NM. The purpose of this Broadband Plan is to provide a comprehensive

evaluation of existing broadband conditions and potential solutions to problems, both now and in

the future throughout the entire county. This evaluation should include a comprehensive inventory,

accurate simulation, problem area identification and problem source/cause, and a comprehensive

list of capital improvement projects, including costs and funding mechanisms, designed to address

the broadband deficiencies.

Sierra County is a rural community with limited-to-no broadband

services

Project scope of work shall include:

• To have clear communication on projects.

• Establish a professional relationship with staff.

• Assess available broadband/fiber optic studies and master plans, GIS Data, or other.

• Data collection including limited survey, as required to verify existing conditions.

•

This project will identify current

broadband infrastructure in rural county.

•

Identify gaps in service areas and identify infrastructures, hospitals, and

schools.

•

Needs to provide broadband services to county-wide businesses and users.

• Preparation of an overall model for the entire county-designs, installs and operations

• Preparation of a Local Capital Improvement Plan (ICIP) program that includes budget

estimates for proposed improvements.

• Recommended prioritization of ICIP projects.

We believe this report is responsive to all the requirements identified in the goals and the project scope of

work.

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EXECUTIVE SUMMARY

Finley Engineering and CCG Consulting submit this Broadband Strategic Plan that provides our findings

and recommendations for bringing better broadband to Sierra County, New Mexico. The stated goal of

the County in awarding the project is to “provide a comprehensive evaluation of existing broadband

conditions and potential solutions to problems, both now and in the future throughout the entire county.”

The first phase of the study was to look at the need for broadband in the county. We tackled that task in

two ways. We first communicated with residents and businesses through surveys, speed tests, and

interviews to understand the broadband needs in the county. We also drove extensively through the county

to identify the facilities used to provide existing broadband. Our two firms have worked extensively with

rural communities all over the country and we observed almost immediately that the county has some of

the worst broadband conditions we’ve witnessed anywhere. Outside of the county seat of Truth or

Consequences and the town of Elephant Butte, which have broadband provided by a cable TV network,

there is almost no broadband anywhere else in Sierra County that meets even the FCC’s outdated definition

of broadband as being a connection of at least 25/3 Mbps. The overwhelming and universal response we

got through our market outreach was that homes and businesses are desperate for better broadband.

We were asked to specifically identify the broadband gaps in the county. We went about this in a number

of different ways. For example, we compare the broadband situation in Sierra County to other places in

the US and other places in New Mexico. We discuss the various broadband gaps we witnessed during our

research and our public outreach. This includes things like the urban / rural gap mentioned above. We

discuss the homework gap where students without home broadband don’t perform as well in school. We

discuss the computer gap where homes without computers don’t do as well as homes with them. We look

at the broadband speeds available in the county today and compare them to other places. We discuss a

number of ideas for overcoming the various identified broadband gaps.

Finally, we created our own version of a broadband map showing the speeds we think are available in the

county today – which differs significantly from the FCC maps that overstate the broadband in the county.

Unfortunately, the faulty FCC maps are used by the FCC when determining the areas that are eligible for

federal broadband grants. We discuss steps you might consider to get the FCC maps corrected.

The next phase of the study quantified the cost of bringing broadband to the county. Finley Engineering

estimated the cost of building fiber to reach all parts of the county. For now, the engineering is summarized

in two parts—the cost of building to just Truth or Consequences and Elephant Butte and the cost to build

to the rural areas outside those two cities. Finley Engineering undertook the engineering analysis in such

a way that they could generate the cost for building to any portion of the county if an ISP wants to consider

coming to Sierra County. We think this might be one of the most important parts of our product, since

knowing the cost of building a network is generally the number one question for any ISP considering

serving there.

As we were writing this report, The Rural Utility Service (RUS) that administers broadband grants on

behalf of the Department of Agriculture announced that Sacred Wind Communications of Yatahey, NM

has filed for a grant under the ReConnect grant program to build broadband in parts of the Sierra County.

There are no guarantees that they will win this grant, but if they are successful it would mean bringing

fiber broadband to a section of the county—a great first step towards solving the rural broadband problem.

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This wouldn’t change any of the recommendations we’ve made in this report but would focus your

attention on the areas that will not be getting fiber as a result of this grant.

Next, CCG Consulting created financial models that reflect the potential profitability for an ISP operating

a broadband business in Sierra County. In the report we summarize these opportunities in three ways –

serving just the rural areas, serving just Truth or Consequences and Elephant Butte, and serving the whole

county. Just like with the Finley Engineering analysis, we could modify our work to fit some smaller

footprint if an ISP is interested. These studies include assumptions that we think are representative for

estimating the revenues and the costs from operating a broadband business.

We were not surprised to find out that grants would be required to finance construction in the rural parts

of Sierra County. That was fully expected, and we’ve never seen a rural area where customer revenues

fully support the cost of fiber without some grant assistance. Our analysis shows that if the customer

penetration rate in the rural areas is 70%, then the needed grant would need to cover about 65% of the cost

of the network. That percentage of needed grant is also pretty normal; we’ve studied rural places where

the grant funding would have to be much higher. We also demonstrated that if more than 70% of

households will buy broadband that the amount of grant funding required is less – at an 80% customer

penetration rate the level of needed grant funding drops to 54%. Finally, we demonstrated that if an ISP

is willing to build fiber to everywhere in Sierra County that the profitability from serving in the more

densely populated parts of the county lowers the needed amount of grant assistance.

We conclude the report by providing a strategic plan in the form of a list of specific recommendations that

Sierra County should consider after getting this report. The most obvious next step is to share this report

with ISPs. This study is going to answer a lot of questions about serving in Sierra County and might bring

interest from an ISP that might not have otherwise considered coming to the county. There are a number

of other recommendations talking about ways that Sierra County can address the various broadband gaps.

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FINDINGS

Following are our primary finding:

Existing Providers and Market Rates. The current broadband providers in Sierra County today are two

incumbent telephone companies (Windstream and CenturyLink), an incumbent cable company (TDS),

two WISPs – fixed wireless ISPs (Wi-Power and Fastwave), and two satellite broadband companies

(Viasat and HughesNet). Some rural homes get home broadband using the cellular broadband from

AT&T, Verizon, and T-Mobile, which recently merged with Sprint. Residents can also by satellite TV

from DirecTV and Dish Networks. We looked at the key products and prices currently offered by the

existing broadband providers.

Quality of Broadband. The broadband in Truth or Consequences and Elephant Butte is typical of what

is available in county seat towns in rural counties. The cable modem service from TDS today delivers 100

Mbps broadband and the DSL from Windstream in the towns is much faster than what is available in the

rural parts of Sierra County. There are complaints that broadband in the towns is sometimes inconsistent,

but overall, there are reasonable alternatives for broadband. However, when looking even just a few years

into the future, this broadband is not going to be adequate. The first way that the current broadband will

likely begin feeling inadequate is with upload speeds.

Our two firms work all over the country and the broadband in the rural areas of Sierra County is among

the worse we have ever witnessed. The alternatives in the rural parts of the county are extremely slow

DSL with few homes seeing broadband speeds over 5 Mbps, fixed wireless broadband that can be a little

faster than DSL (but not always), or satellite broadband that can have decent speed but which has high

latency (delays) and small monthly data caps. The broadband in the rural area is not sufficient to support

people working from home, for students to do schoolwork from home, or for businesses to operate

normally. One of the most common complaint from rural businesses is the inability to consistently process

credit cards. That’s a function that requires low bandwidth but a steady upstream data path for the duration

of a credit card transaction. To make matters worse, rural broadband in the county is expensive,

particularly considering the poor bandwidth quality.

It’s worth noting that all the problems with the quality of broadband were magnified during the COVID-

19 crisis as employees and students tried to function from home.

The Study Areas. We studied three different study areas. The first was the two cities of Truth or

Consequences and Elephant Butte. The second was comprised of all the rural areas outside of the two

cities. The last scenario looked at bringing fiber to everybody in Sierra County. Finley Engineering

undertook the network design in such a way that they could help interested ISPs look at other study areas

comprising some smaller portion of the county.

Fiber Network Design. Finley Engineering considered several technologies before designing a

reasonably efficient network for each of the scenarios studied. The chosen network design uses Passive

Optic Network (PON) technology on fiber to bring gigabit broadband to every home and business in the

county. The network design also allows any large customers to be serviced using Active Ethernet

technology that can deliver dedicated bandwidth up to 10 gigabits per second in speed.

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The fiber network is designed to go primarily on poles where other utilities are on poles but would be

buried underground where other utilities are currently buried. The network design is robust. The fiber

network is designed to provide fiber for every home and business in the county today and well as capacity

for future expansion or growth. The extra capacity could be used for numerous reasons such as supporting

electric smart-grid, supporting smart-city applications, or for providing for new housing and business

growth.

The telecom industry uses the term passing to mean any home or business that is near enough to a network

to be considered as a potential customer. Finley Engineering primarily used the county’s GIS database to

count passings. This is a very robust and expansive system that has data on structures, type, location, etc.

Our engineers settled on the following as the count of potential passings for the study. Note that the two-

cities scenario looks at serving only Truth or Consequences and Elephant Butte.

Total

Passings Rural Two Cities County

Residential Customers 2,756 5,469 8,225

Business Customers 169 730 899

Total 2,925 6,199 9,124

Miles of Fiber Construction

The study contemplated building fiber to every part of Sierra County where there are homes or businesses.

Finley Engineering identified the following road miles of fiber required to bring fiber everywhere:

Miles Cost Cost / Mile

Rural County 563.65 miles $21,121,352 $ 34,572

Two Cities 105.56 miles $12,584,135 $119,213

Total 669.21 miles $33,705,487 $ 50,366

Asset Costs. Below is a summary of the cost of the needed assets to support each primary option that was

studied. It’s worth noting that these costs estimate a customer penetration in the rural areas of 70% and in

the towns of 50%. The investments change as the number of customers change to recognize the cost of

customer drops and electronics.

Total

Rural Two Towns County

Fiber & Drops $23,373,224 $14,825,297 $38,180,705

Electronics $ 1,814,770 $ 3,076,426 $ 4,811,601

Huts/Land $ 0 $ 139,500 $ 139,500

Operational Assets $ 383,185 $ 393,968 $ 731,677

Total $25,571,179 $18,435,191 $43,863,482

Cost per Passing $ 9,278 $2,974 $4,807

Cost per Customer $12,498 $5,937 $8,514

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Our Approach to the Financial Analysis. We used the following approach in estimating the revenues

and costs for operating a new fiber network for each of the three scenarios:

• A base model was created for each operating model. We arbitrarily chose a 50% market

penetration (the percentage of customers using the network) for the scenario of serving Truth or

Consequences and Elephant Butte, and a customer penetration rate of 70% for serving the rural

area. each base model. We don’t have any idea how many customers a new fiber business might

win and chose these penetration rates as typical of other similar fiber markets.

• All financial models cover a 25-year period. All projections include projected financing costs for

borrowing the money needed to build and launch the network.

• We believe the engineering cost estimates are conservatively high.

• All studies include an estimate of future asset costs that are needed to connect future customers

and to maintain and upgrade the network over time. We’ve assumed that electronics wear out and

need to be replaced periodically during the studied time frame.

• Products were priced at a modest discount from the existing prices of products sold in the market

today. The expectation is that the internet speeds offered on the network will be significantly

faster than the speeds available in the county today.

• The estimates of operating expenses represent our best estimate of the actual cost of operating

the fiber business and are not conservative. Most operating expenses are adjusted for inflation at

2.5% per year.

Key Financial Study Results. The assumptions used in creating the various business plans are included

in Section III.C of the report. The results of the financial analysis are included in Section III.E of the

report. A summary of the financial results is included in Exhibit II. Following are the key financial findings

of our analysis.

• To bring fiber broadband to all the rural parts of Sierra County will require substantial grant

funding. For example, at a 70% customer penetration rate we calculated that a grant that covered

65% of the financing would be required. If the rural customer penetration rate climbed as high as

80% the required grant would be smaller, at 54% of total financing, but is still substantial. It’s easy

to understand the need for grants when seeing the cost of the rural network, shown above as $9,278

per passing. Customer revenues alone cannot pay for a network this expensive.

• We note that we have studied other rural counties where the funding needed from grants was as

high as 80% of total financing – so the results of our analysis is not out of line with what we’ve

seen elsewhere.

• It looks feasible to bring fiber broadband to Truth or Consequences and Elephant Butte, with no

need for grant funding. Our analysis shows that a customer penetration as low as 45% of the market

would be adequate to maintain a self-sufficient business in the cities. This is a typical result for

county seat communities.

• The amount of grant money needed to build all of Sierra County is substantially lower than

building just the rural areas. This is due to averaging together the low-cost and the high-cost parts

of the county. The grant needed to build to the whole county is only 28.5% of total financing with

a 70% penetration in the rural areas and a 50% penetration in the two cities. To the extent that the

rural penetration rate would be even higher, the amount of grant funding drops significantly.

• A fiber broadband business in Sierra County will be highly sensitive to a few key variables. The

most important is customer penetration rate, and it would be essential before building fiber in the

county to better understand the number of customers likely to buy broadband. Another key variable

is price, and even shifting broadband prices by a few dollars has a big impact on the bottom line.

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The base studies in the analysis started with a base broadband product priced at $60. Any ISP that

is going to serve the area will need to carefully consider prices. The financial performance is

somewhat sensitive to interest rates on debt, but not nearly to the extent of the other key variables.

Funding Options. As mentioned above, any broadband expansion into the rural areas will require

substantial grant funding. The most likely grant funding is going to come from various federal broadband

grants. At this time there is no consistently available federal grant program and the amount of money

available each year has been determined by Congress. There is a lot of talk in Washington DC about

making more money available for rural broadband, so there is the chance of upcoming substantial

broadband grants. Now that the county has this study in hand, especially the engineering cost estimates

made by Finley Engineering, you are well-positioned to help ISPs consider any future grants.

There is a New Mexico state broadband grant program, but it is currently one of the smaller State grant

programs, funded last year at $5 million. Hopefully the COVID-19 crisis will also prompt the state to find

more money for broadband grants.

We believe there is sufficient loan funding available to any ISPs that find the needed grant funding. We

are seeing ISPs getting funded at commercial banks, getting funded by taking advantage of federal loan

guarantees that lowers the risks of bank loans, and through funding directly from the federal government.

Sierra County Has Been Harmed by FCC Decisions. Two specific actions by the FCC are harming the

county’s ability to get better broadband.

• First, the FCC determines that places that have good broadband through a process of collecting

broadband data from existing ISPs. ISPs report broadband customers and speeds twice a year by

Census block. Census blocks are small geographic areas determined by the US Census Bureau that

normally cover 40-60 homes or businesses (but can cover more). ISPs are supposed to report the

fastest broadband speeds available to customers. There is also an odd rule that says that if even

one customer in a Census block can get a fast speed, say 25 Mbps, then the ISP can claim the

whole Census block as having that speed.

There are several glaring problems with the ISP reporting. First, customers that live close to where

there is good broadband are counted by the FCC as having fast broadband. For example, a customer

just outside the TDS cable network is likely to be classified as being able to buy broadband from

TDS, even though they can’t. The bigger problem is that ISPs routinely overstate the broadband

speeds available, and often report “marketing” speeds rather than actual speeds. Both Windstream

and CenturyLink have overstated rural DSL speeds and often report that DSL speeds of 10/1 Mbps

or 25/3 Mbps are available when actual speeds are slower than that. This report contains maps that

show the speeds as reported by the ISPs to the FCC as well as a map we created that we think is

more accurate and that shows much less rural broadband coverage.

There are significant consequences of the poor FCC data since the FCC uses this information to

decide areas that are eligible for federal broadband grants. There are many areas of Sierra County

that should be eligible for grants, but which have been excluded from consideration to date.

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• The next issue comes as a result of an FCC grant that was awarded in 2018 by a process referred

to as a reverse auction. In that auction, ISPs were invited to bid for receiving grant money that

covered specific rural Census blocks that didn’t have broadband speeds of at least 10/1 Mbps.

Unfortunately, the only ISP that bid for the grants in the county was Viasat, the satellite broadband

company. Viasat is required by the terms of that grant to offer broadband speeds in the grant areas

of at least 25/3 Mbps broadband. This is something that Viasat already offered, so the households

in the grant areas are not going to see any improvement in broadband. Worse, the FCC now

considers those areas as having adequate broadband and is excusing these areas from future FCC

grants.

Because of a faulty grant process, the grants went to a satellite broadband company – something

that never should have been allowed to happen. As a result of that FCC blunder, the homes in those

areas are likely not to be eligible for FCC grants for at least another decade, or perhaps even longer.

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RECOMMENDATIONS / STRATEGIC PLAN

The following recommendations embody a strategic plan for getting better broadband in Sierra County.

The description of each recommendation has been shortened and the full recommendations are included

in Section IV. C. of the report. We view the list of recommendations as a broadband strategic plan for

Sierra County. Following these recommendations will move the county towards achieving your goal of

bringing good broadband to everybody in Sierra County.

Set a Broadband Goal

After reading this report, we recommend that Sierra County establish a specific broadband goal. The goal

could be something simple, such as wanting to get fiber broadband to every home and business. There are

many other possible goals. The goal that Sierra County chooses will then define how you approach the

rest of the recommendations below.

Identify Staffing Resources?

If Sierra County is going to seriously pursue a lot of the recommendations made in this report, you’re

going to need staff resources tackle many of the tasks. This means identifying somebody for whom

broadband is a primary job responsibility. Tasks of this magnitude will not get done if you layer the

workload on somebody who is already full-time busy. This doesn’t necessarily mean creating a full-time

position to oversee broadband, but it does require giving sufficient priority to broadband if you want to

see solutions.

It’s also worth considering finding volunteers from the public to help with the effort. There are different

ways that communities have used volunteers to good effect.

Attracting ISPs to Serve in Sierra County

Since the Sierra County government doesn’t want to be an ISP, your best strategy is to take steps that

make it as easy as possible for one or more ISP to bring better broadband. This might include the following

steps:

Reach Out to Potential ISP Partners. The first step taken is to share this report with ISPs in the region.

One or more of them might find things in this report that convinces them to consider Sierra County. Finley

Engineering and CCG Consulting have seen these studies used to convince ISPs to look harder at

opportunities that they were not considering.

After reaching out informally, you can also consider more formal ways of reaching out such as issuing an

RFI or RFP to solicit ISPs. Just note that many ISPs are not going to willing to go through a formal

solicitation process and would much prefer to sit and talk off the record about opportunities.

Offer to Help Quantify Demand. One of the biggest concerns for any ISP is that there is enough customer

demand for broadband in order for them to be profitable. This study includes some of the needed research

that ISPs will be interested in. However, ISPs ultimately will want to undertake a more formal process of

understanding customer demand for broadband in the specific area they are considering building. Sierra

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County could offer help at the appropriate time to conduct a statistically valid survey, a canvass, or a

pledge card drive.

Review County / Town Policies Related to Fiber Construction. There may be existing policies in place in

the towns or at the County that ISPs will view as an impediment to construction. We recommend having

all of the government entities within Sierra County review policies for requirements like rights-of-way,

permitting, locating of existing utilities, traffic control, franchise agreements, and inspection requirements

with the goal of making it as easy as possible for ISPs to bring new solutions.

Be Prepared to Support Grant Filings. Most state or federal grant programs require a showing of local

community support. Sierra County should be prepared to help an ISP by gathering government and

resident support for the grant applications. This means soliciting as many letters as possible to support a

fiber grant.

Educating the Public

This can take many different forms. Start by publishing this report online. Hold public meetings to discuss

the findings of this report and to listen to public concerns about lack of broadband. Many communities

create a broadband web site as a place to post informational resources and to keep the public informed

about progress in finding a broadband solution. Other communities have created a broadband newsletter.

One common practice is to hold outreach meetings to discuss broadband with interested groups such as

the PTA or service organizations.

Lobby for Larger State Broadband Grants.

The state broadband grant program is smaller than similar programs in other states. Both the county

government and citizens in the county should regularly lobby the state and state elected officials for more

help to fund broadband solutions.

Be Prepared to Challenge the FCC Broadband Maps.

Many federal grant programs rely on the FCC “maps” that are derived from the Form 477 data that the

FCC gathers from ISPs. We’ve shown in this study that the FCC broadband is lousy in parts of Sierra

County where ISPs claim broadband coverage that doesn’t exist. The only way we know to challenge the

maps is by the use of speed tests.

We helped Sierra County to establish a speed application site that has been placed on the County’s web

page. We recommend that the speed tests remain in perpetuity and that the County periodically encourages

homes and businesses to take the speed test. Accumulating speed test results is the best way we know of

to help challenge the poor FCC mapping data.

Get Creative in Finding Grants.

The big obvious grants are those that help ISPs construct broadband networks, and those grants are

awarded directly to ISPs. There are a number of grants that Sierra County can pursue to help promote

broadband in other ways. For example, there are grants that can be used to expand WiFi hotspots. There

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are grants that can help to get more computers for students. If the County gets creative enough, there may

be grant funds available for addressing many of the items we’ve identified as broadband gaps.

Consider Providing Some County Funding.

We’ve seen that it’s often easier to attract grant funding if a county puts some “skin in the game.” Even

small grants provided by Sierra County can make a big difference. The people who award big grants,

including the giant federal grant programs like to see that there is local dollar support for programs.

Consider Finding Technical Assistance for Businesses.

We observed that there are businesses that are having current problems using their broadband connection

that could benefit greatly with professional computer and networking advice. As an example, we talked

to businesses that had problems holding the connection needed to make credit card payments. Sierra

County might help to identify a local resource that could help such businesses, and you might even

consider assisting them in the name of economic development. It’s also possible to find grant money to

assist businesses in this manner.

Push the Incumbents to do Better.

Asking the incumbent telephone and cable companies to do better often falls on deaf ears – but not always.

It’s sometimes easiest to start with small things like asking for help to create more public WiFi hotspots

for students or to bring broadband to public housing. We’ve seen communities and ISPs work together to

solve specific problems.

Push for More Participation in the FCC Lifeline Program.

Encourage every ISP that offers broadband and telephone service to enroll in and them promote the FCC’s

Lifeline program. This provides a $9.25 discount for broadband to homes that qualify by participating in

various low-income programs. The program is done at no out-of-pocket cost to the ISP which collects the

$9.25 subsidy from the Universal Service Fund.

Find Solutions for the Homework Gap.

The lack of broadband in Sierra County means that many students don’t have broadband at home. This

became abundantly clear during the COVID-19 crisis. Communities are tackling this issue in a number of

ways. It starts with getting computers to students, be that a computer for every student or computers that

students can use occasionally. Many communities have created new WiFi hot spots to provide locations

closer to neighborhoods where students can do homework without the family having to travel.

Be Persistent.

It’s the rare county where one ISP comes forward and provides a broadband solution for the whole county.

That means that even if Sierra County finds a partial broadband solution to cover part of the county that

the effort is not done, and the County will need to continue with the above tasks until everybody in the

county has broadband.

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I. MARKET ANALYSIS

A. Providers, Products, and Price Research

The eastern portion of Sierra County is covered by the White Sands Missile Range, with little or no

existing coverage by telephone companies. The northern two-thirds of the rest of the County is served by

Windstream. The southern portion of the County is served by CenturyLink.

TDS is the incumbent cable TV provider in Truth or Consequences and parts of Elephant Butte. The

company upgraded to digital service in 2016 and offers speeds of up to 100 Mbps.

The FCC 477 data shows that there is some fixed wireless service in the county provided by Wi-Power

(TWN Communications) and Fastwave.

Most rural homes and businesses can buy satellite broadband from Viasat and HughesNet. Rural

customers can also buy cable TV from DirecTV or Dish Networks.

Following is an analysis of the prices being charged in Sierra County today. We know from experience

that prices vary widely by customer for many ISPs. Over the years, customers have purchased bundles or

participated in promotional pricing and might be charged differently than their neighbors. It seems almost

counterintuitive, but the customers paying the most from most incumbents are often those that have been

with them the longest. The wide variance in rates charged in the community means there is no longer

anything that can be considered as a “standard” price in the market. Nevertheless, we wanted to understand

the average prices being charged today for broadband and the other triple play products.

Incumbent Telephone Company

Windstream Corporation. Windstream is a publicly traded telephone company created in 2006 with the

merger of Alltel and Valor Telecom. The company is headquartered in Little Rock, Arkansas. The

company offers telephone service plus broadband service provided by DSL. The company also offers a

bundle that includes cable TV provided by Dish Networks.

The company operates in 16 states and had $1.27 billion in revenues for the third quarter of 2019, down

from $1.38 billion the year before. At the end of 2019, the company had 1,049,300 broadband customers

and had gained 28,300 broadband customers during the year.

As the incumbent provider, Windstream is considered the “provider of last resort” in its service areas.

This means the company is required to serve all residential and business customers for basic telephone

service, and it must provide facilities to all customers. The rules that govern the way that Windstream

serves customers are embodied in their “General Customer Services Tariff,” which is approved by the

New Mexico Public Regulation Commission. This tariff contains all the regulated products and prices,

along with the terms and conditions under which the company will sell them to customers. The tariff sets

forth rules for such customer service procedures as the manner and amount of customer deposits, the rules

by which they will disconnect service for nonpayment, and the rules by which they will reconnect service.

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Windstream decided in January 2014 to spin off its assets into a REIT, which is a real estate investment

trust, a formal kind of investment vehicle defined by law. Windstream was a traditional, mostly family-

owned regulated telco. Windstream moved its fiber and copper assets to a REIT owned by the newly

formed Uniti. In the split of assets, Robert Gunderman remained as CFO of Windstream while his brother

Kenneth become CEO of Uniti. The Uniti REIT is attractive to investors because Windstream pays

roughly $650 million per year in “rent” to Uniti for use of the network. Since formation, Uniti has added

other assets to the portfolio, but the Windstream assets still represent 70% of its assets.

Windstream filed bankruptcy recently. This was triggered when Aurelius Capital, a lender to Windstream,

filed a lawsuit claiming that the REIT arrangement was a violation of Windstream’s corporate bonds.

Windstream immediately filed for bankruptcy when a judge ruled in favor of Aurelius Capital.

Windstream and Uniti immediately went to mediation to try to resolve the issues raised by the Aurelius

Capital lawsuit. When the two companies could not resolve the issues, they took the dispute to court.

The two parties reached an agreement on the dispute in March 2020. The deal must still be accepted by

the bankruptcy count. In the agreement the Windstream debt is to be reduced by more than $4 billion.

Further, Uniti will provide Windstream with $1.75 billion over 10 years to make capital improvements,

$490 million in cash now, and $285 million to buy unused and underutilized assets. This agreement will

make Windstream stronger financially, but it’s hard at this early stage to understand how the settlement

might translate in improvements for broadband in Sierra County. It’s likely that Windstream will use cash

to improve broadband in larger markets.

Windstream has gotten poor reviews from several firms that rank ISPs. The JD Powers poll gives

Windstream a ranking of 2 out of 5 and said they were the lowest rated telephone company in the South.

Windstream Pricing

Windstream offers 3 DSL speeds. The faster speeds may not be available to rural customers. The products

and prices are as follows:

6/1 Mbps $57.99

10/1 – 25/1 Mbps $67.99

50/1 Mbps $77.99

Modem for first two products $ 9.99

Modem for 50/1 Mbps $11.99

Installation $35.00

Service Activation $50.00

Inside Wire Insurance $ 8.00

There are no data caps on the broadband products

Windstream does not advertise their telephone prices online. We found the following price at noncompany

sites:

Phone with Unlimited Long Distance $44.99

All telephone products are loaded with a number of fees that total to at least $7.50.

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CenturyLink is the third largest telephone company in the country with headquarters in Monroe,

Louisiana. Several years ago, the company purchased Qwest, which was formerly Mountain Bell and US

West, and was part of the Bell Telephone system. At the end of 2019, the company had 4,678,000

broadband customers, having lost 134,000 customers during the year. The company has a small number

of cable TV customers but has announced that it is phasing out that business line. For most of the areas it

covers the company bundles with DirecTV.

As the incumbent provider, CenturyLink is considered the “provider of last resort” in its service areas.

This means that CenturyLink is required to serve all residential and business customers for basic local

services, and it must provide facilities to all customers. The rules that govern the way that CenturyLink

serves customers are embodied in their “General Customer Services Tariff,” which is approved by the

New Mexico Public Regulation Commission. This tariff contains all of the regulated products and prices,

along with the terms and conditions under which CenturyLink will sell them to customers. The tariff sets

forth rules for such customer service procedures as the manner and amount of customer deposits, the rules

by which they will disconnect service for nonpayment, and the rules by which they will reconnect service.

We’d like to note here that a recent trend is to get states to deregulate many services as competitive and

take them out of the tariff.

In 2019 CenturyLink had asked the Commission to deregulate landline telephone services in the state. The

company didn’t want to stop offering the services but wanted to shed the old regulations put in place at

the heyday of the telephone monopolies. Most states have deregulated the big telcos from a lot of the old

telephone rules. The New Mexico Public Regulations Commission rejected the request and said that

CenturyLink had not demonstrated that there was “effective competition” for residential telephone service.

That might sound like a surprising ruling since in most places everybody has shifted to cellular phones.

However, the FCC data shows a lot of areas in the state with little or no 4G coverage for cellular, meaning

a lot of houses still rely on a landline.

In recent years CenturyLink invested significant capital in improving data speeds in metropolitan areas.

For example, in 2016 the company built fiber to pass 900,000 homes in major markets like Seattle,

Phoenix, Denver, and the Twin Cities. Since then the company has merged with Level 3 Communications

and last year the new CEO announced that the company would not be making any future investment in

assets with “infrastructure returns,” meaning it’s not going to build new fiber to residential customers and

is probably not going to invest any more money in its copper networks.

Telephone Rates

CenturyLink’s telephone rates were as follows when last tariffed. This does not mean that these

are the rates any longer and with a de-tariffed rate, CenturyLink is allowed to charge whatever

they want, within reason. The following rates were the last listing of the flat rate option, meaning

a telephone line using these rates can make unlimited local calls. There used to be options available

for customers who wanted to be able to make and pay for fewer local calls.

Monthly

Flat Rate Residential Phone Line $18 - $22

Flat Rate Business Telephone Line $42 - $45

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Business PBX Trunk Lines $45 - $51

These rates do not include the Subscriber Line Charge which is currently $6.50 for both a business

and a residential line and would be added to the above rates. The rates also do not include the

Access Recovery Fee (ARC), which is an FCC fee that is currently capped at $1 per month, and

CenturyLink could be charging any amount up to and including the $1 rate.

CenturyLink telephone line prices don’t include any features. These features are either sold a la

carte or sold in bundles and packages. Some of the most commonly purchased features are call

waiting, 3-way calling, voice mail, and caller ID. CenturyLink offers dozens of features and they

range in price from $2.95 to $8.50 per feature for residential service. These products are also now

de-tariffed, and CenturyLink can charge whatever it likes for these products.

CenturyLink DSL

CenturyLink sells high speed Internet using DSL technology. They sell both a bundled DSL

product, meaning that you purchase it along with a telephone line, and also a “Pure” product,

meaning a customer can buy just DSL (most of the industry refers to this as naked DSL). As

discussed above, CenturyLink offers a lot of specials, with special rates available on their web site

for new customers. But as typical with most big ISPs, a subscriber’s rates will revert to “normal”

rates at the end of a special promotion. Following are base list prices for residential DSL. Note

that the quoted speeds offered by CenturyLink DSL are “best effort” speeds, meaning they are not

guaranteed. In fact, rural customers typically get speeds significantly slower than the advertised

speeds.

Residential DSL

Pure DSL is CenturyLink’s name for a DSL line that is not bundled with telephone or

DirecTV. There is one price for the first year, a higher price for the second year, and after

that the customer pays the list price:

Year 2

Year List

1.5 Mbps download, 896 Kbps upload $30.00 $40.00 $42.00

7 Mbps download, 896 Kbps upload $35.00 $45.00 $47.00

12 Mbps download, 896 Kbps upload $40.00 $50.00 $52.00

20 Mbps download, 896 Kbps upload $50.00 $60.00 $62.00

40 Mbps download, 896 Kbps upload $60.00 $70.00 $72.00

Pure DSL also requires a DSL modem. The charge for this seems to be negotiated and

ranges from $1.95 to $6.95.

We don’t expect that there is any DSL in Sierra County faster than 12 Mbps. Generally,

the faster speeds are available only in the metropolitan markets.

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CenturyLink Business DSL

CenturyLink no longer publishes business DSL prices. There are no prices on the website

and no prices listed in any of their sales literature or tariffs. Basically, CenturyLink will

negotiate a price with a business customer based upon both how many other products they

purchase as well as how long they are willing to sign a contract.

When CenturyLink last published rates their slowest business DSL ranged from $40.00 per

month for a 3-year contract up to $62.50 for a month-to-month product and no contract

commitment. But today each customer will negotiate with a salesperson and rates charged

in the market are all over the board for the same product.

Cable TV Providers

TDS is the incumbent cable provider within the city limits of Truth or Consequences. As such they operate

a hybrid/fiber coaxial network that provides traditional cable services including the triple play of cable

TV, broadband, and telephone service. TDS was founded in 1969 and is the seventh largest telephone

company in the country, headquartered in Madison, Wisconsin. Most of the company’s networks are based

upon telephone copper or fiber-to-the-home and the company only owns a few coaxial cable networks

like the one in Truth or Consequences. While the company operates in a few larger cities like Madison,

Wisconsin, most of its properties are rural.

In additional to the typical array of residential services the company also offers business services, such as

business Internet phone bundles, phone and VoIP solutions, Internet and security, managed services, data

networking, and phone systems. In addition, it offers business resource centers. It connects rural and

suburban communities in the United States. TDS Telecommunications Corporation operates as a

subsidiary of Telephone and Data Systems, Inc. TDS had 455,200 broadband customers at the end of 2019

and had added 31,800 customers during the year.

TDS also owns US Cellular, a company that it founded in 1983. Between all of its subsidiaries the

company now has over 6 million customers and had revenues of over $5 billion in 2017, with US Cellular

providing $3.9 billion.

Broadband

TDS offers three broadband products on their coaxial cable networks.

100/10 Mbps $ 62 (Web special - $39.95)

300/10 Mbps $ 82 (Web special - $59.95)

600/20 Mbps $102 (Web special – $79.95)

All broadband products come with a WiFi modem at $10.00 per month.

The web special prices are a reminder that TDS is willing to negotiate with customers. This means that

customers willing to call every few years and negotiate can get prices lower than the list prices. Customers

that don’t negotiate will even be billed at the list prices.

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Telephone

TDS Cable TV can be bundled with telephone service. With cable service telephone rates are:

Phone $15.00 plus $.05 per minute long distance

$35 with unlimited long distance

We couldn’t find if TDS offers a standalone phone product – meaning a customer could buy telephone

service and nothing else.

Cable TV

The survey indicated a small interest for buying cable TV from a new provider. We also know that a new

ISP venture is not going to make any margins from selling cable TV, so we’ve left cable prices out of the

analysis and out of the forecasts.

Dish Network is a large satellite provider and has customers nationwide. The company had around 9.5

million cable customers nationwide at the end of the third quarter of 2019. Dish Network can be bought

as a standalone service and is also available as a bundle for Windstream customers.

Dish Network now also offers an Internet-based cable product branded as Sling TV. This service offers

an abbreviated channel line-up and costs less than traditional cable products.

Dish Network has the same pricing nationwide. The standalone price with no discounts is as follows:

190 Channels $ 79.95

190 Channels + $ 84.99

240 Channels + $ 94.99

290 Channels + $104.99

DirecTV is one of the largest cable providers in the US. The company is now owned by AT&T. The

company had 16.8 million cable customers at the end of 2019, down almost 2.4 million customers during

2019. AT&T has decided to end all discount packages, resulting in significant rate increases for many

customers who were getting various promotional discounts. DirecTV can be purchased in Sierra County

as part of a bundle with CenturyLink.

DirecTV now offers an online version of its programming that was called DirecTV Now but which was

recently renamed as AT&T TV.

Current prices after any promotional discounts are:

155 Channels – Select $ 85.00

160 Channels – Entertainment $ 97.00

185 Channels – Choice $115.00

235 Channels – Xtra $131.00

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250 Channels – Ultimate $142.00

330 Channels – Premier $197.00

The above rates include increases effective January 2020 that range from $4 to $8 per month.

WISPs (Wireless ISPs)

WISPs (wireless ISPs deploy a technology called fixed wireless where they mount a transmitter on a tower

or other tall structure like a water tower. They beam broadband to customers which is received through a

dish receiver. The speed that a customer can receive is affected by the distance to the transmitting tower

– the further from the tower, the lower the broadband speeds.

TWN Communications (Wi-Power)

is a fixed wireless provider that delivers broadband using radios

on towers that connect wirelessly to homes and businesses. The business started in Indiana in 1988 and

today covers 250,000 square miles in Indiana, Arizona, New Mexico, and Texas. The business partners

with 115 electric cooperatives to offer broadband services. TWN has had a partnership with Sierra Electric

Cooperative. During our work on the study we found that the relationship is coming to an end. We don’t

know if that means that TWN will cease business or else might act directly as an ISP outside the

partnership.

Following is the residential broadband product line:

Wi-5 5 Mbps Down / 2 Mbps Up $ 49.95

Wi-10 10 Mbps Down / 2 Mbps Up $ 79.95

Wi-15 15 Mbps Down / 2 Mbps Up $ 99.95 and Up

Wi-5 with Telephone Line $ 75.00

Wi-10 with Telephone Line $105.00

Wi-15 with Telephone Line $125.00 and Up

The company doesn’t list prices for businesses, but through the surveys and questionnaires we can see

that business prices are higher than residential rates.

Fastwave

is a wireless ISP headquartered in Las Cruces. As a WISP they deliver broadband wirelessly

from a tower to homes and businesses. On their web site they claim that the average speeds they deliver

are between 2 Mbps and 5 Mbps. Their broadband allows for unlimited usage.

Basic WISP 3 Mbps Down and Up $50

Premium 6 6 Mbps Down and Up $65

Premium 9 9 Mbps Down and Up $80

Premium 12 12 Mbps Down and Up $95

Public IP Address $15

Installation $50

The company’s website is at https://www.twncomm.com/

The company’s website is https://fastwave.biz/

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Satellite Broadband.

There are two satellite broadband providers available to homes and businesses in Sierra County. Both

Viasat and HughesNet utilize satellites that are parked at a stationary orbit over 20,000 miles above the

earth.

There are a few problems that customers consistently report with satellite broadband. Customers complain

that satellite costs too much (Viasat claimed in their most recent financial report for June 2019 that the

average residential broadband bill is $84.26). Customers also hate the high latency, which can be 10 to 15

times higher than terrestrial broadband. The latency is due to the time required for the signals to go to and

from the satellites parked at over 22,000 miles above earth – that adds time to every round-trip connection

to the web. Most real-time web connections, such as using voice-over-IP, or connecting to a school or

corporate WAN prefer latency of less than 100 ms (milliseconds). Satellite broadband has reported latency

between 400 ms and 900 ms.

The other customer complaint is about the tiny data caps. As can be seen by the pricing below, monthly

data caps range from 10 gigabytes to 150 gigabytes. To put those data caps into perspective, OpenVault

announced recently that the average US home used 344 gigabytes of data per month in the fourth quarter

of 2019, up from 275 gigabytes in 2018 and 218 gigabytes in 2017. They also reported that the average

cord-cutting home used 520 gigabytes per month in 2019. The small data caps on satellite broadband make

it impractical to use for a household with school students or for a household that wants to use broadband

to work from home.

Viasat (was formerly marketed as Exede or Wildblue) offers broadband from one older and one

newer satellite. Following are the products from Viasat:

Price Speed Data Cap

Liberty 12 $30 12 Mbps 12 GB

Liberty 25 $50 12 Mbps 25 GB

Liberty 50 $75 12 Mbps 75 GB

Unlimited Bronze 12 $50 12 Mbps 35 GB

Unlimited Silver 12 $100 12 Mbps 45 GB

Unlimited Gold 12 $150 12 Mbps 60 GB

Unlimited Silver 25 $70 25 Mbps 60 GB

Unlimited Gold 50 $100 50 Mbps 100 GB

Unlimited Platinum 100 $150 100 Mbps 150 GB

Online reviews say that speeds can be throttled as slow as 1 Mbps once a customer reaches the

monthly data cap.

HughesNet is the oldest satellite provider. They have recently upgraded their satellites and now

offer speeds advertised as 25 Mbps download and 3 Mbps upload for all customers. Prices vary

according to the size of the monthly data cap. Their packages are as follows:

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10 GB Plan $ 59.99

20 GB Plan $ 69.99

30 GB Plan $ 99.99

50 GB Plan $149.99

These packages are severely throttled after meeting the data caps.

Cellular Data

There are four primary cellular companies in the country—AT&T, Verizon, T-Mobile, and Sprint. As this

paper was being written, the courts approved the final challenge to a merger between T-Mobile and Sprint.

Part of the merger conditions was that Sprint would provide spectrum that would allow Dish Networks to

become the fourth cellular nationwide carrier.

The residential surveys showed that some households in Sierra County that use their cellphone data plans

for household broadband. There are several problems with this. First, customer speeds decrease with

distance from a cellphone tower. Speeds for rural cellular data generally are not fast.

Following are the nationwide average 4G data speeds for the four carriers, shown for 2017 and 2019.

Speeds are improving over time. However, these are nationwide averages and rural customers likely get

slower speeds than these averages.

2017 2019

AT&T 12.9 Mbps 17.8 Mbps

Sprint 9.8 Mbps 13.9 Mbps

T-Mobile 17.5 Mbps 21.1 Mbps

Verizon 14.9 Mbps 20.9 Mbps

All four carriers now offer “unlimited” data plans. The plans for AT&T, Sprint, and Verizon are not

actually unlimited and have monthly data caps in the range of 20 – 25 gigabytes per month of downloaded

data. These plans might provide some relief to homes that rely on cellular broadband, although there have

been reports of Verizon disconnecting rural customers who use too much data on these plans. These plans

allow have limits on how much data can be used when tethering from a cell phone for use in other devices,

so the plans are not much more useful for home broadband than normal cellular plans. T-Mobile claims

to offer unlimited data but begins throttling customers after 50 GB of data usage in a month.

There are two different cellular data standards in use: 3G and 4G. 3G data speeds are capped by the

technology at 3.1 Mbps download and 0.5 Mbps upload. There are likely to still be some 3G cellular

towers in rural parts of the county. The amount of usage on 3G networks is still significant. GSMA

reported that at the end of 2018 that as many as 17% of all US cellular customers still made 3G

connections, which accounted for as much as 19% of all cellular connections. Opensignal measures actual

speed performance for millions of cellular connections and reported the following statistics for the average

3G and 4G download speeds as of July 2019:

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4G 2019

3G 2019

AT&T

22.5 Mbps

3.3 Mbps

Sprint

19.2 Mbps

1.3 Mbps

T-Mobile

23.6 Mbps

4.2 Mbps

Verizon

22.9 Mbps

0.9 Mbps

B. Surveys / Interviews

Residential Survey Results

The survey was conducted online using Survey Monkey. The survey was posted on Sierra County’s

website and was advertised on social media. Unfortunately, an online survey is not easily available to

those with poor broadband. During the survey we talked to a few folks on the telephone while they tried

to take the survey online, and some of them were not able to maintain a connection to the survey for long

enough to complete it. We got 99 homes to take the survey. The survey produced some interesting results.

Broadband Customers

86% of survey respondents have some form of broadband. The ones without broadband took the survey

using their cellphones or used broadband at their office.

The respondents used all of the available ISPs in Sierra County. 21% used Windstream, 27% used TDS,

22% used the fixed wireless WISPs, 17% used satellite broadband, 7% use their cellphones for home

broadband access, and 1% used CenturyLink.

For the homes that don’t have broadband, 50% said they can’t afford broadband. 29% said broadband is

not available at their home, and 7% said they didn’t know how to use the Internet. While this was a small

sample of respondents, these are typical of the responses we’ve seen in rural counties all over the country.

Cable TV Penetration

In an interesting response, only 44% of respondents said they have cable TV at home. That is significantly

lower than the nationwide average, which dipped below 65% at the end of 2019. 35% of respondents are

cord cutters and only watch online content like Netflix. That’s one of the highest percentages we’ve ever

seen in that category, and the nationwide number of cord cutters is thought to be between around 20%

(nobody has figured out how to count it on a national scale).

Telephone Penetration

Only 26% of homes have a telephone landline. The nationwide landline penetration has dropped into the

range of 35% to 40%.

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Customer Bills

The survey asked customers what they pay each month for the triple-play services (Internet access, cable

TV, and telephone). In interpreting the results below it’s important to note that TDS is the only company

in the county that offers the triple play of Internet access, cable TV, and telephone service. That means

that most bundles in Sierra County represent Internet service and telephone service combined. With that

said, here is what customers say they are spending:

Customers buying a bundle of service $89

Customers buying standalone broadband $63

Customers buying standalone cable TV $64

Customers buying standalone telephone $50

Uses of Broadband

68% of respondents say that somebody in their homes uses the Internet to work from home. We note that

the survey was mostly taken before the Covid-19 crisis when that number probably went even higher.

That is made up of those that work at home fulltime (12%), those that work several days per week (31%),

and those that work from home occasionally (25%). These are significantly higher percentages of people

that work from home than we typically see in urban places. 59% of all respondents said they would work

from home more if they had better broadband.

24% of respondents report having school-age children at home. Only 23% of them said the home

broadband is adequate to support homework.

Satisfaction with Existing Broadband

53% of respondents say they are unhappy with their Internet download speeds at home, while 19% are

satisfied.

48% of respondents are not happy with the customer service from their ISP, while 27% are satisfied with

customer service.

62% of respondents say that they are unhappy with the value they get from their ISP compared to the price

they pay. Only 10% of homes are satisfied with the value they are getting.

Support for a Fiber Network

One of the key questions asked in the survey is if respondents support the idea of Sierra County attracting

somebody to build a fiber network. 73% of households support the concept. Another 23% said they might

support the idea but need more information. Nobody said they don’t support pursuing a better broadband

solution.

We asked the reasons why respondents support bringing a new network to the town. 63% said they hope

for more competition. 57% of households hope for lower prices. An overwhelming 89% hope for faster

speeds. 45% hope a new broadband solution would mean better customer service.

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Switching Service to a New Network

In probably the most important question of the survey, we asked households if they would buy Internet

service from a new fiber network. 64% said they would definitely buy. Another 29% said they would

probably buy service and 5% said they would consider buying service. Only 1% said they were unlikely

to buy service.

When asked if respondents would buy a landline telephone, only 15% of the respondents said yes with

another 19% saying probably. 44% said they were unlikely to buy a landline.

Cellular Service

95% of respondents say that they subscribe to cellular service – that’s right at the national average of 95%.

32% of homes said the cellular coverage is not adequate at their homes – one the highest percentages

we’ve ever seen.

Interpreting the Results of the Survey

It’s always a challenge to interpret survey results. It’s first important to recognize that an online survey is

not statistically valid, meaning you can’t take the results from this survey and assume that they are the

same answer you would get if you were to ask the questions to everybody in Sierra County. With that

said, online surveys are considered a good way to understand sentiment, and many of the questions in this

survey are sentiment questions.

Dissatisfaction with the Incumbents. Half of respondents are unhappy with download speeds and

with existing customer service. 62% don’t think they get value for the price they pay. In our

experience these are high results and show widespread dissatisfaction with the existing ISPs.

Support for a New Network. Every respondent was either in favor of attracting a new fiber network

to the community or wanted more information. Nobody opposed the idea. This is the first time I

can ever remember when somebody didn’t oppose the idea.

Download Speeds. This seemed to be the predominant issue for respondents. 50% of respondents

said they aren’t happy with broadband speeds. An overwhelming 89% said that the primary reason

they would consider moving to a new network is to get faster speeds. In the vast majority of

communities where we’ve done surveys, the primary reason people are interested in a new network

is to save money. I’m sure that is important in Sierra County, but speed is a more important factor

since the quality of existing broadband is so poor.

Price Consciousness. You must read between the lines a bit, but I think price consciousness is still

an important issue in the county. 57% said that lower prices would be a factor in getting them to

change to a new network. It’s likely that price consciousness is a factor for the lower than average

penetration for both traditional TV and landline telephones.

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Potential Customers on a New Network. One of the most important reasons to do a survey is to

get a feel for the number of households that might buy broadband from a new network. This is one

of the questions where it matters that the survey was not statistically valid – meaning that we need

to take the results with a grain of salty. However, even an online survey can give us a feel for the

popularity of a new network.

64% of all respondents said they would definitely buy from a new network. Another 21% said they

would probably buy. 5% said they might buy. We interpret these results as follows:

o Customers who say they will definitely buy probably will. We typically see between 20%

and 30% of customers saying they will definitely change to a new network, so your survey

result of 64% is far higher than what we typically see.

o We’ve always found that around 2/3rds of those that say they will “probably” change will

also do so. Some won’t make the effort to make the change, and some will be lured with

low-priced packages aimed to keep them on the current provider. Overall, such respondents

have indicated a decent interest in changing providers. In your case, 29% of respondents

said they would probably change to a new fiber network.

o The “maybe” respondents are just that. We’ve always seen that a third of these customers

can be gained as customers – but at a cost. This is the part of the market that requires the

marketing budget. These customers can be won if you have products and prices they find

attractive and if you make the effort to explain the benefits of your network.

o In summary, the responses we got indicate that 85% of the folks in the rural area would

buy broadband.

o However, we can’t forget that 99 responses on the survey don’t represent the way that

everybody in Sierra County feels about broadband. Since the survey measures sentiment,

we can take the survey to mean that a lot of folks are unhappy with broadband in Sierra

County. We universally got that same response in every interview we conducted.

However, as mentioned earlier, the online survey is not a statistically valid survey. We

know folks are unhappy with broadband, but we can’t use these results to bravely say that

85% of folks in the rural areas will buy broadband on a new fiber network, because other

issues come into play. In every community there are homes that can’t afford broadband.

There are always homes that don’t use broadband either because they just aren’t interested

or because they don’t know how to use it.

In our studies we used a penetration rate of 50% in Truth or Consequences and Elephant

Butte and a penetration of 70% in the rural areas. We based this upon our experience in the

last two years working in other rural counties. We think the 50% goal for the towns is a

solid goal, but one that we wouldn’t want to predict any higher without first doing a

statistically valid survey. We believe the 70% penetration in the rural areas is

conservatively low. We have never worked in a county where the rural broadband was

universally as poor as it is in Sierra County. It’s conceivable that 85% of household would

buy broadband if it came available – that’s the national average penetration rate of

broadband.

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Business Questionnaire / Interviews

As part of the study, we interviewed a number of businesses in Sierra County. We also circulated a

business questionnaire to businesses that asked them to tell us their broadband stories. Following is what

we learned from the interviews and questionnaires:

Not every business has poor broadband. There are businesses in Truth or Consequences using the coaxial

network from TDS for broadband that find the speeds to be acceptable. The primary complaint about TDS

is that speeds tend to vary a lot during the day, but generally are still adequate.

We also talked to Baquera Grocery in Arrey. The store has a 100 Mbps connection from CenturyLink.

Finley visited the store and they are getting fast broadband because they happen to sit directly across the

street from a school that has a fast broadband connection. We don’t know the technology being used – it

could be paired VDSL circuits emanating from the tower at the school, or G.Fast, which is a superfast

DSL product that is only good for up to 600 feet. The rest of the businesses in Arrey can only buy DSL

from CenturyLink and the home broadband there is described as “very slow.”

However, most of the stories we heard were about inadequate broadband.

• We talked to Bartoo Sand and Gravel. This is a 4-generation old business started in 1957 and that

employs 50 people at their facility. The company specializes in creating “gradation” customer

mixes of materials to be used to create asphalt. The company gets broadband wirelessly through

Fastwave. While the connection is adequate most of the time, the broadband does bog down and

even stop, and when that happens the business can’t function. The plant communicates with the

cloud in determining the right mix of materials, and when that process stops the business can’t

function. The company also uses broadband for other purposes such as measuring the gas used to

fill trucks, reporting to OSHA, taking orders from customers, and participating in auctions to buy

raw materials. The company would do a lot more with better broadband. As one example, they

still use punch card timecards because they don’t have enough bandwidth to automate time

keeping. The business says they feel at times like they are in the dinosaur ages.

• We talked to Animas Creek Nursery that grows hardwood trees, conifers, and ornamentals most

for highway projects. The farm has 4 employees. They business uses Windstream for broadband

and the service is described as very slow. The biggest complaint with the broadband and telephone

service is that it sometimes goes out of service for “days.” The business uses the Internet to

communicate with the main office in Santa Fe, and when the connection is down, they lose all

record keeping, including payroll. They also use the Internet to look up instructions for using

various chemicals and fertilizers. They routinely buy parts and materials from Amazon and other

web vendors around fifteen times per week. They would like to use the Internet to do more

advertising to grow the business, but that isn’t possible today. Interestingly, the manager of the

business owns a second home just across the border in Mexico, where the whole residential

neighborhood is wired with fiber – something that doesn’t exist in Sierra County.

• We talked to Elephant Butte Lake RV and Resort. The business has access to broadband, but the

broadband is expensive and inadequate for their needs. In total the business pays $5,100 per month

for telephone and broadband service with a connection from both Windstream and TDS. This

includes 5 Mbps service to run the business, plus the RV park provides 2 Mbps service to RVs.

The owner would obviously like to pay less for the broadband, but the major concern is that their

speeds are inadequate. The business already loses a lot of customers when they find out the

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broadband is slow – and that means lots of other businesses in the community lose out as well.

The owner recently attended a nationwide RV convention and was told that visitors today expect

at least a 10 Mbps connection. Experts at the show said that within a few years that will grow to a

60 Mbps connection needed for each guest. We agree with the prediction for the future because

that’s the same advice that’s being given to hotels. Travelers today often want to work while they

travel and expect the same kind of broadband connections they have at home.

• We talked to the mayor of Elephant Butte. The city’s office had adequate broadband with a 40

Mbps connection from TDS for most of their purposes. The biggest concern of the businesses in

the community is that there are 4 – 5 major citywide broadband outages per year where all the

businesses lose service at the same time. Elephant Butte is a tourist town on a lake and these

outages are massively disruptive to the business community. The community is frustrated with the

outages and further frustrated by annual rate increases. The city communicates with the public

mostly on Facebook. Outages often force them to have to post paper copy of city communications

around the city. The city has incurred fines from the state in the past when broadband outages

stopped them from making timely reports to the state. Outages also have impacted timely payroll

for city employees.

• One of the issues we identified between the interview and questionnaire is that businesses outside

of Truth or Consequences don’t feel like they have a competitive choice of provider.

• A common thing we heard all over Sierra County was an inability to reliably process credit card

transactions. A credit card transaction requires a steady internet connection for at least a minute.

If credit cards don’t work on a landline broadband connection it’s due to either extremely slow

speeds, or more likely due to a broadband signal that fluctuates wildly so that the connection won’t

hold. The situation is more complicated with satellite broadband. There are big numbers or rural

businesses that use satellite broadband to process credit cards. For example, most rural gas stations

use satellite broadband at the gas pumps. Satellite broadband has a very high latency, meaning a

lot of delay in the signal. Rural businesses like gas stations that use satellite for credit cards

generally don’t use the same connection for anything else. It’s possible that a way can be found to

handle credit card processing better.

• We note that businesses in Sierra County don’t use broadband in the same way that we see in other

communities. For example, we only found one business that uses Voice over IP – Internet based

telephone service. VoIP is generally less expensive than telephone service from the telephone

company and comes with a host of features not available from the phone company. But you can’t

use VoIP over a poor broadband connection. We also noticed that very few businesses use cloud

services, due no doubt to slow broadband speeds.

• About half of the businesses said there were functions they would tackle if they had better

broadband. One common theme was that many businesses want the ability to post videos talking

about their business or allow visitors to post videos to social media. A number of businesses had

problems today connecting to various cloud services used for taking order, making reservations,

ordering inventory, etc.

• Most businesses expressed dismay that they were unable to work from home due to slow

residential broadband. One business had the opposite problem and had far better broadband at

home in Truth or Consequences than the poor broadband at their rural business.

• We talked to half a dozen businesses that previously used HughesNet satellite broadband. They all

said the broadband was slow but that the customer service was good. They all said they dropped

HughesNet after the company moved customer service overseas and they could no longer resolve

problems.

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C. Broadband GAP Analysis

A broadband gap is a situation where there some customers with an advantage compared to others in

relationship to using the Internet. This report will look at the different kinds broadband gaps as described

below.

• The Gap in Broadband Speeds. The broadband speeds vary widely throughout Sierra County.

• The Gap in Broadband Availability. There are homes with no landline broadband available.

• The Gap in Broadband Affordability. In every community there are households that don’t

subscribe to broadband because of the cost.

• The Gap in Computer Ownership. There are households that don’t subscribe to broadband because

they can’t afford a computer.

• The Gap in Broadband Skills. There are citizens who don’t buy broadband because they lack the

skills needed to operate in the digital age.

• Future Broadband Gaps. Even where there is adequate broadband today, we can look forward to

the natural progression of technology that will create new broadband gaps that don’t exist today.

After describing the different broadband gaps, this report will look at the consequence of the broadband

gaps and will ask the question if there are any practical solutions to the broadband gaps that the county

could facilitate.

1. The Gap in Broadband Speeds

The first step in trying to define the broadband speed gap is to look at the official definition of broadband.

FCC Definition of Broadband

In 2015, the FCC established the definition of broadband as 25/3 Mbps (that’s 25 Mbps download and 3

Mbps upload). Prior to 2015 the definition of broadband was 4/1 Mbps, set a decade earlier. The FCC

defines broadband to meet a legal requirement. Congress established a requirement for the FCC in Section

706 of the FCC governing rules that the agency must annually evaluate broadband availability in the

country. Further, the FCC must take action if broadband is not being deployed in a timely manner. The

FCC report the state of broadband to Congress every year.

In these reports the FCC compiles data about

broadband speeds and availability and offers an opinion on the state of broadband in the country. In every

report to date, the FCC has acknowledged that there are broadband gaps of various kinds, but the FCC has

never determined that the problems are so bad that they need to take extraordinary measures to close any

broadband gaps. Most recent FCC reports have acknowledged that there are broadband gaps but claim

that the broadband situation is improving due to actions taken by the FCC. As you will see in the following

report, the annual reports to Congress are largely fictional and don’t describe the state of broadband in

places like Sierra County.

The FCC didn’t use empirical evidence like speed tests in setting the definition of broadband in 2015.

They instead conducted what is best described as a thought experiment. They listed the sorts of functions

The FCC report to Congress for 2019 can be found at https://docs.fcc.gov/public/attachments/FCC-19-44A1.pdf.

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that a “typical” family of four was likely to engage in, and then determined that a 25/3 Mbps broadband

connection was fast enough to satisfy the broadband needs of a typical family of four.

The FCC asked the question again in 2018 if 25/3 Mbps was still an adequate definition of broadband.

They took no action and decided that 25/3 Mbps was still a reasonable definition of broadband. There

were comments filed by numerous parties in that docket that thought that the definition of broadband

should be increased.

The FCC Measures Broadband Speeds

Since the FCC is required by law to state an opinion as to the state of broadband deployment, they collect

data from ISPs about broadband that is deployed and sold to customers in the US. The FCC collects ISP

data using a process called the Form 477 process. The FCC collects data from every landline broadband

ISP in the country (they don’t require this data from dial-up providers, from satellite providers or from

cellular companies). The FCC collects the following data twice per year from every ISP (even though we

know there are small ISPs that don’t participate).

• ISPs report broadband customer counts by Census Block. Those are finite geographic areas defined

by the US Census bureau that typically cover between 600 and 1,200 homes. In a city a Census

block might be a city block and in a rural area it might cover a large portion of a county.

• For each Census Block the ISP reports the fastest speed available to customers.

After the FCC gathers this data from ISPs, they make it available in the form of databases showing the

speeds reported by each ISP in every Census Block. The FCC also maps the broadband data in various

ways. The most common maps produced by the FCC show areas that don’t have broadband that meets the

25/3 definition of broadband, areas that meet the 25/3 speed, areas that achieve speeds of at least 100/10

Mbps, and areas that have gigabit broadband capability. Many other variations of these maps are also

possible.

Unfortunately, the FCC rules mean that the fastest speed available to one customer in a Census Block is

available to all customers. For example, if an ISP has one customer in a corner of a Census Block that can

buy 100 Mbps broadband, then the FCC interprets that result to mean that every customer in that Census

Block can get that same 100 Mbps speed.

To make matters worse, ISPs are supposed to report actual speeds to the FCC, but there is no penalty for

reporting any speed number they want. Many ISPs, particularly rural telcos, have been accused of

reporting marketing speeds instead of actual speeds. As an example, an ISP might advertise DSL as a

speed of “up to 30 Mbps” and then report the 30 Mbps speed to the FCC. In actual practice the DSL speeds

might be significantly slower than the advertised speed. Those two factors – reporting by Census Block

and reporting by advertised speeds means that the FCC’s reported broadband speeds are significantly

overstated, particularly in rural America.

One place where coverage is often overstated is rural in areas adjacent to towns and cities that have decent

broadband speeds. Homes in the surrounding area are often shown as having the same broadband

capabilities as the town even though homes might have no broadband available. This can also happen in

rural areas. For example, a big telco might place a DSL cabinet at the opening to a subdivision and provide

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decent DSL service there. The FCC mapping will show the entire Census Block as having good DSL,

even though it is only available inside the subdivision.

The FCC doesn’t monitor what is reported and has allowed big reporting errors into the mapping

databases. The 2018 Broadband Deployment Report reached the conclusion that the state of rural

broadband was improving rapidly. It turns out there was a huge error in the data supporting that FCC

report. A new ISP in New York, Barrier Free, had erroneously reported that they had deployed fiber to 62

million residents in New York. Even after the FCC was forced to correct the error, they still drew the same

conclusions that broadband was getting better, even though the revised report showed million fewer homes

with good broadband. This raises a question about what defines “reasonable and timely deployment of

broadband” if having fiber to 62 million fewer people doesn’t change the answer.

All these factors taken together mean that the FCC broadband databases and maps are generally dismal.

The broadband speeds in towns might be reported reasonably correctly, although the speeds reported

sometimes reflect marketing “up to” speed instead of actual speeds. Speeds for areas just outside of towns

and cities are routinely overstated and often show broadband coverage where there is none. Rural areas

served by DSL or fixed wireless generally overstate the broadband speeds – and these are the two

technologies most widely used in rural America.

Following is a series of maps that demonstrate the inadequacies of the FCC mapping process and which

show how broadband speeds have been overreported.

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Windstream FCC Reporting – Data from FCC Form 477 for June 2019

= 10/1Mb Broadband or Less Census Blocks

= 10/1Mb thru 25/3Mb Broadband Census Blocks

= 25/3Mb Broadband or Greater Census Blocks

The yellow areas are likely accurate, and Windstream says in these areas they deliver broadband of 10/1

Mbps or slower. The problem is with the green areas where the company reports to the FCC that they can

deliver speeds of 25/3 Mbps or faster.

I won’t repeat this with each map, but as a reminder from an earlier discussion, ISPs report broadband

speeds by Census block. That means that if an ISP can deliver 25/3 Mbps to even one customer in a Census

block that the ISP can report that block as having that capability. At the end of this section we’ll show our

version of speeds in Sierra County; we don’t believe anybody in the rural areas can get broadband speeds

of 25/3 from any of the ISPs.

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CenturyLink FCC Reporting – Data from FCC Form 477 for June 2019

= 10/1Mb Broadband or Less Census Blocks

= 10/1Mb thru 25/3Mb Broadband Census Blocks

= 25/3Mb Broadband or Greater Census Blocks

CenturyLink has a smaller service area, but they still have the same reporting issue as Windstream, in that

we don’t believe that the customers shown in the green area can get broadband speeds of 25/3 or faster.

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TDS FCC Reporting – Data from FCC Form 477 for June 2019

= 10/1Mb Broadband or Less Census Blocks

= 25/3Mb Broadband or Greater Census Blocks

The TDS map is a close-up of Truth or Consequences and Elephant Butte. The TDS FCC maps are far

more accurate than the maps of the telcos. However, it’s likely that there are customers at the edge of the

cities who are not covered by the TDS cable network, but which are shown on the map to have faster

broadband available. This is due to the FCC requirement to report speeds by Census blocks.

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Wi-Power FCC Reporting – Data from FCC Form 477 for June 2019

= 10/1Mb Broadband or Less Census Blocks

= 10/1Mb thru 25/3Mb Broadband Census Blocks

= 25/3Mb Broadband or Greater Census Blocks

Wi-Power is a WISP that uses fixed wireless technology to deliver broadband. It’s always a challenge for

WISPs to define their service area to the FCC because they can report places where they have customers

today and places where they could reasonably serve customers if they got a request for service.

We know that a WISP network consists of radios on a tower and the WISP can service customer around

that tower for some distance depending upon the technology used, the frequency used, and local barriers

in topography that might block calls in some directions.

We don’t believe Wi-Power can serve the whole area shown on the map from the existing towers, but a

lot of the mapping issue comes from the FCC rule that if they serve one customer in a Census block, they

show the whole Census block as served.

We also don’t believe the speeds shown. Wi-Power only advertises speeds up to 15 Mbps, so the green

areas have overstated speeds. They likely can deliver speeds greater than 10 Mbps to other areas (the blue

areas), but we communicated with several customers getting speeds slower than that.

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Composite FCC Map for all providers combined – Data from FCC Form 477 for June 2019

= 10/1Mb Broadband or Less Census Blocks

= 10/1Mb thru 25/3Mb Broadband Census Blocks

= 25/3Mb Broadband or Greater Census Blocks

This is the composite map when you overlay the reporting from every ISP that reports to the FCC. We

note that Fastwave does not report to the FCC. Their fastest advertised speed is 12 Mbps and adding them

to the map wouldn’t likely change it.

When the FCC looks at the speeds that are reported to them, they believe that Sierra County is almost

completely covered by broadband that is faster than 10 Mbps, and in the green areas above, faster than 25

Mbps.

The Real Broadband Speeds in Sierra County

We believe that the reporting to the FCC covered above is largely a fiction. As requested by the RFP, we

created our own version of a speed map for the county based upon our extensive field survey and other

investigation. In a finding that we’ve discussed earlier, the speeds as reported to the ISPs are largely

overstated. Most of what is shown as having 25/3 speeds in the above map of FCC data (in green) actually

have speed at or under 10/1 Mbps.

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The following map is our best attempt at mapping the broadband speeds currently available in the county.

= 10/1Mb Broadband or Less Census Blocks

= 10/1Mb thru 25/3Mb Broadband Census Blocks

= 25/3Mb Broadband or Greater Census Blocks

Sierra County is so large that some of the detail is not apparent on this map:

• Truth or Consequences and Elephant Butte are served by TDS and have speeds significantly faster

than 25/3 Mbps

• There are small circles of DSL coverage of perhaps 1.5 miles around each fiber-fed CenturyLink

DSL cabinet that likely can get DSL speeds of 25/3 Mbps (or something close to that).

• It’s possible that there are a few wireless customers in the county who can get speeds over 25/3

Mbps, although both ISP advertise speeds significantly slower than that.

Consequences of Inaccurate FCC Maps

It’s been CCG’s belief for years that the FCC has been hiding behind the bad maps because those maps

give them cover from having to take stronger action to fix rural broadband. It’s likely that 90% or more

of counties in the country have overstated broadband coverage on the FCC maps like what is seen on the

map above. If the FCC were to acknowledge how bad the maps are, they would be required by

Congressional mandate by Section 706 rules to undertake extraordinary efforts to fix the broadband

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problems. The bad maps have allowed the FCC to issue a report to Congress every year stating that rural

broadband coverage has problems but is improving.

Unfortunately, the speeds reported by the FCC maps have other real-life implications. For example, the

FCC constantly cites the statistics from the broadband mapping system when developing various policies

or making decisions that impact rural broadband. The FCC is fully aware of the inadequacies of their

mapping data, and yet they still cite their own faulty data as proof that broadband isn’t as bad in rural

America as critics might suggest.

Probably the biggest impact from lousy FCC mapping is that the FCC maps are still used to define where

federal and state grants can or cannot be awarded. Since the maps overstate the broadband at many rural

homes, those homes are excluded from being upgraded using the grant money. The lousy maps were used

to define the areas that needed to be upgraded by the big telcos in the CAF II grant program. That program

provided funds in 2015 to upgrade DSL in areas that didn’t have speeds of at least 10/1 Mbps. As can be

seen by the CAF II coverage map below on page 44, the FCC funded too small of an area for CAF II. On

that map, Windstream and CenturyLink were given money to upgrade the area in green – when in reality,

most homes and businesses outside of Truth or Consequences didn’t have speeds of 10/1 Mbps in 2015

(and most still don’t).

Since then the maps were used again in the CAF II reverse auction where ISPs could get grants to build

broadband in rural areas that weren’t covered by the original CAF II. Again, some areas of Sierra County

were not eligible for these grants because the FCC believes the County already has adequate broadband.

Later in 2020 the FCC will be awarding the largest broadband grants ever and will be providing $16.4

billion in grants for selected rural areas that don’t have broadband speeds of at least 25/3 Mbps. This grant

program has been named the Rural Digital Opportunity Fund (RDOF). There will an additional $4 billion

of RDOF grants awarded in 2021. These grants will continue to use the same lousy existing FCC

broadband maps.

As can be seen by the map above on page 37, significant areas of Sierra County are considered to have

25/3 broadband, even though the people in those areas have poor, or even no broadband available. This

means that for purposes of these grants – the biggest broadband grants ever awarded – that the FCC will

use the flawed maps when defining eligibility for the RDOF grant program. That will harm not only Sierra

County, but also most of New Mexico and numerous other rural communities.

There are federal grant programs like the ReConnect grants administered by the USDA that allow a grant

requester to challenge the FCC mapping data. There are no predetermined ways to undertake such a

challenge, and the incumbent providers get to comment on the protests. The best way to challenge the

FCC grants is with speed tests. They also can be challenged by on-the-ground observations by a qualified

engineer that can show the presence or absence of the technology required to provide rural broadband.

Finley Engineering undertook this kind of field analysis.

New FCC Maps Coming

In August 2019, the FCC voted to change the method of collecting data to support its broadband maps.

The primary new change is that ISPs have to produce “polygons” (or geographic shapes) that cover areas

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where they have broadband customers today. The ISP maps can also cover areas without current coverage

where an ISP could provide a broadband connection within ten business days of a customer request and

without an extraordinary commitment of resources or construction costs exceeding an ordinary service

activation fee.

The new polygons will fix some big holes in the current FCC maps. The polygons are going to make a

noticeable difference when showing coverage for cable company or fiber-to-the-home networks. Those

networks have hard boundaries that stop at the “last home” to have broadband. Today’s mapping by

Census block doesn’t recognize these hard boundaries and routinely counts customers outside these

networks as having access to faster speeds. This mapping change will more adequately show the

boundaries of cable or fiber-to-the-home networks.

Unfortunately, changing to mapping using polygons is not likely to make a significant change in the rural

parts of Sierra County. The polygons might highlight areas better where the telcos have zero customers.

But it won’t change most of the reporting by the telcos unless they get scrupulously honest with reporting

actual speeds. If the telcos continue to report marketing speeds, then the maps for the rural parts of Sierra

County might continue to look the same as today.

Unfortunately, while the FCC is changing to the polygons for mapping, they are not requiring the ISPs to

report more honestly about broadband speeds. We hear from customers all the time who are being sold a

rural DSL product that is marketed to deliver speeds up to 25 Mbps while they are receiving only a few

Mbps.

The Technology Gap

To a large degree, the broadband speeds available to customers is dependent upon the technology used to

deliver the broadband. Our reports will discuss various technologies in more detail when we describe the

engineering cost estimates to bring better broadband to the counties.

The general speeds available on various technologies is as follows:

• DSL delivered on one copper pair can deliver speeds as fast as 25 Mbps for a mile or two from the

DSL transmitter, assuming the copper is in good condition and other factors are ideal. There are

older and slower types of DSL deployed that might have maximum speed capability of 3 Mbps, 6

Mbps, 12 Mbps, or 16 Mbps.

• DSL delivered on two copper pairs can deliver twice the speeds. This technology is usually only

deployed using the latest types of DSL and has maximum speeds around 50 Mbps.

• High orbit satellite broadband can deliver speeds as fast as 75 Mbps. The problem with this

broadband is that the satellites are so far above the earth that there is a lot of delay (latency) in the

signal and it’s hard to do real-time web activities like streaming video, connecting to a corporate

WAN or a school server, making VoIP calls, or even shopping on some web sites.

• Fixed point-to-multipoint wireless is capable of speeds up to 100 Mbps, although the equipment

and configuration of most networks delivers speeds significantly less than this, sometimes as slow

as only a few Mbps.

• A hybrid-fiber coaxial system (used by cable companies) can deliver fast broadband speeds.

Networks using the DOCSIS 3.0 standard can deliver speeds up to around 400 Mbps. Networks

upgraded to the most recent DOCSIS 3.1 standard can deliver speeds up to a gigabit. Cable

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companies typically sell broadband products with speeds a lot less than the theoretical fastest

speeds.

• Fiber networks also deliver fast broadband. Fiber networks with the older BPON technology are

limited to speeds of about 200 Mbps per system. More modern GPON technology can deliver

speeds up to a symmetrical gigabit (same speed up and down). There are newer kinds of fiber-to-

the-home technology that offer speeds up to 10 Gbps.

Every technology has some limitations in real-life networks that can produce slower broadband speeds.

Consider as example all of the following factors that can affect the broadband speeds delivered over DSL:

• The distance between the customer and the DSL transmitter (called a DSLAM). DSL speed

decreases with distance.

• The size of the copper wire serving the customer matters – the larger the gauge of the copper wires

the stronger the DSL signal.

• The quality of the copper (copper wire slowly degrades over time, particularly if the copper gets

in direct contact with the elements or with longstanding water).

• By the quality of the telephone wiring inside of a home (this varies a lot, particularly for wires that

were installed by the homebuilder rather than by a telco).

• The type of DSL electronics used to serve a customer. There are still older DSL technologies in

the field that have maximum download speeds of only a few Mbps and newer DSL that can deliver

speeds as fast as 48 Mbps.

• The backhaul network used to provide bandwidth to a feed the DSL network. DSL is like most

broadband technologies and bandwidth is shared between users in each neighborhood. If the total

usage demanded by the neighborhood is greater than the bandwidth supplied to the neighborhood,

then everybody gets slower speeds when the network is busy.

• And finally, speeds can be impacted by how a customer gets broadband to devices. For example,

an old WiFi router can cut down the speed between what is delivered to the home and what makes

it to computers and other devices inside the home.

All these factors mean that DSL speeds vary widely in the field. Two adjacent homes can have a

significantly different DSL experience. It’s extremely difficult for an ISP to understand DSL speeds for

customers since the speeds can very during the day. It’s impossible for them guess the speeds that would

be available for homes that don’t buy their service.

The same sorts of factors also apply to fixed wireless. Customer speeds vary according to distance from a

tower, the spectrum used for any given connection, the types of impediments between the tower and the

home (speeds are often slower in summer when the leaves are on trees). It’s nearly impossible to map

DSL and fixed wireless speeds in the field.

The Urban / Rural Gap

The most dramatic broadband and noticeable broadband speed gap is often called the Urban / Rural gap

and is due to the big speed difference between broadband speeds offered on most cable TV networks and

the DSL and other slower technologies available outside of towns. The “urban” designation used isn’t

accurate, because any small town that has an up-to-date cable provider network will have significantly

faster speeds than speeds available outside of the cable network.

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This gap didn’t always exist. Both DSL and cable modem technology were developed in the late 1990s,

and at first the two technologies delivered nearly the same speeds. For example, in 2001 a customer in a

town likely had the option between a 1 Mbps service from either the phone company or the cable company.

Over time the technology improvements provided more speed across the coaxial cables used in a cable

network (the copper wires that plug into your TV) than with the much thinner wires used to deliver

telephone service. As much as anything, the faster speeds on a cable network were due to the larger amount

of wire available in a coaxial cable.

Even as both technologies got faster, the speed offered by both competitors was roughly the same. For

example, by 2006 you probably could have bought a 6 Mbps connection in a town from a telco or cable

company that had made the needed upgrades. After that time, however, the cable company technology

improved a lot more than the telephone company DSL technology, and cable company executives decided

they could win the competitive broadband battle by offering faster speeds than telephone companies, at

the same price. Since then, the cable companies have unilaterally increased speeds to broadband

customers. In Sierra County, TDS increased the speeds to roughly 100 Mbps.

That speed is drastically faster than the speed available to almost every other customer in Sierra County.

In the industry we always talk about the “last home” served by the cable companies, because at every

street emanating from a town there is a last home connected to the cable network, and past that point

customers can’t buy broadband from the cable company.

Homeowners who live just past the last home are often frustrated when they can’t convince a cable

company to extend their lines. Cable companies generally have some metric where they won’t pay to

extend cable unless there is some pre-defined number of homes per road mile. A typical metric would be

20 homes per road mile – if a road has fewer homes than that the cable companies won’t build. The cable

companies have a second issue in that they don’t extend their networks past the point where they have to

amplify the signal too many times, because that allows interference to enter the network and causes snow

and interference on TVs and degraded broadband. Depending upon the specific wiring and technology

used, cable company networks have a limit of 4 – 7 miles of coaxial cable, past which their signal begins

to degrade.

We have some dramatic evidence of the urban / rural technology gap. The firm OpenVault tracks

broadband usage in the US and around the world. In their latest report that was published in January 2020

the company says that 54% of homes now purchase broadband plans with speeds of 100 Mbps or faster.

Another 23.6% of homes are subscribing to broadband between 50-75 Mbps. This means that nearly 78%

of homes are subscribing to data plans of at least 50 Mbps and 54% to plans of at least 100 Mbps.

OpenVault further says that the average subscribed speed in the US grew significantly between 2018 and

2019 from 103 Mbps to 128 Mbps.

The only technologies that can deliver broadband faster than 100 Mbps are fiber-to-the-home and cable

coaxial networks. Fixed rural wireless can serve a tiny number of homes with speeds up to 100 Mbps, but

not on any mass basis. In big cities there are a few other technologies that can deliver fast speeds to

apartment buildings such as metro Ethernet or direct microwave connections. The bottom line, though, is

that people in cities are being offered fast data speeds of at least 100 Mbps per second. In rural areas this

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only happens for those rural places lucky enough to have fiber-to-the home. That’s still only a tiny fraction

of rural America.

The Business Broadband Gap

Businesses generally have the same issues as residents in terms of limitations of technology. A business

operating in a rural area won’t have any better broadband options than nearby residences.

However, there are some unique issues affecting business broadband:

• In many towns the original cable company might not have built the cable network to reach business

districts. Back in the 1970s and 1980s the cable companies didn’t expect to sell enough cable TV

service to justify the cost of the network. Now that the cable company is usually the fastest

broadband solution in a town, there are often still businesses that are not connected to the cable

company networks.

• In towns, if any entities have fiber it’s like to be either government locations like schools or some

of the largest businesses. The telephone and cable companies are often willing to build fiber to a

sufficiently large enough customer. Such fiber availability, if it even exists, is also often limited

by how close a business might be to an existing fiber.

• Businesses have drastically different broadband needs. For example, there might be one business

with a 100 Mbps connection from the cable company that is satisfied with the service. Next door

could be another business that finds the 100 Mbps connection inadequate and that struggles to

operate their business because of the broadband.

Microsoft Speed Data

Microsoft is in an interesting position when it comes to looking at broadband speeds. The vast majority

of computers in the country download sizable upgrade files from Microsoft. Even many Apple computers

are loaded with Microsoft Office products like Word, Excel, and PowerPoint.

Microsoft decided a few year ago to record download speeds of software upgrades. There is probably no

better way to measure a broadband connection than during a big file download. Most speed tests only

measure broadband speeds for perhaps 30 seconds. There are a lot of ISPs in the country that deploy a

technology generally referred to as “burst.” This technology provides a faster download for a customer

for the first couple of minutes of a web event. It’s easy for a customer to know if their ISP utilizes burst,

because during a long download, such as one updating Microsoft Office, the user can see the download

speeds drop to a slower speed after a minute or two. This burst technology has great benefits to customers

since most web activities don’t take very long. When customers visit a website, open a picture, or even

take a speed test, the customer only needs bandwidth for a short time. The burst technology gives

customers the impression that they have a faster download speed than they actually have (or it could be

conversely argued that they have a fast speed, but just for a minute or two).

Microsoft measured downloads starting in September 2018, and found:

• The 2018 FCC data claimed that 24.7 million people in the US don’t have access to download

speeds of at least 25/3 Mbps. In September 2018 Microsoft claimed that 162.8 million people were

downloading data at speeds slower than 25/3 Mbps.

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• The FCC claimed in 2018 that 75.5% of the people in Sierra County had access to broadband of

at least 25/3 Mbps. In September 2018 Microsoft said that only 13.1% of people in the County

used broadband of at least 25/3 Mbps. That is an eye-opening difference.

It’s important to note that the FCC and Microsoft are not measuring the same thing. The FCC is measuring

the percentage of homes that have access and can purchase 25/3 Mbps broadband. Microsoft is measuring

the actual speeds of downloads. There are a few reasons why the speeds might be different:

• Some people opt to buy broadband products slower than 25/3, even when faster broadband is

available.

• Some households receive slower speeds due to issues in the home like poor-quality WiFi routers.

• The biggest difference is probably due to the ISPs overstating the speeds to the FCC that they

make available to the public. As stated elsewhere in this report, the FCC doesn’t challenge speeds

reported to them by ISPs.

The Microsoft findings have implications beyond rural broadband. The Microsoft measurements showed

that a lot of customers in towns and cities also aren’t achieving 25/3 Mbps speeds. The Microsoft numbers

are astounding once it’s recognized that cable companies provide two-thirds of all broadband in the

country – and predominantly sell speeds thar are claimed to be faster than 25/3 Mbps, usually at 100 Mbps

or faster.

The Connect America Fund

Original CAF II

It’s worth noting that both Windstream and CenturyLink participated in the original Connect America

Fund II (CAF II). The FCC set aside $1.7 billion per year for the 6 years ending in 2020 for the big telcos

to build or upgrade rural broadband. These funds were made available to census blocks that had little or

no broadband at the time.

The FCC awarded these funds to Windstream and CenturyLink in Sierra County as follows:

• Windstream accepted $66,851 per year, or $401,106, to bring better broadband to 194 rural

customers - $2,068 per home.

• CenturyLink accepted $16,157 per year, or $96,942, to bring better broadband to 42 rural

customers - $2,308 per home.

These funds were distributed over 6 years, with the final year being 2020. There are buildout requirements

and the telephone companies should have upgraded at least 60% of the customers in the whole state at the

end of 2018, 80% by the end of 2019, and everybody by the end of this year.

Both telephone companies are using the funds to upgrade rural DSL. The CAF II program required that

customers must be upgraded to data speeds of at least 10 Mbps download and 1 Mbps upload. Note that

those speeds are far slower than the FCC’s definition of broadband, which is 25 Mbps download and 3

Mbps upload. Following are maps that show the areas that are supposed to be upgraded by CAF II (the

areas shown in green).

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CAF II Reverse Auction

In July 2018, the FCC awarded $1.98 billion of grants to be dispersed monthly over 10 years. These grants

covered areas that were not claimed by the big telcos in the original CAF II grants described above. This

money was awarded by reverse auction, meaning that the funding went to the carriers in each geographic

area that was willing to take the lowest amount of money per customer.

Unfortunately for Sierra County, the only bidder for the funds was Viasat – the satellite broadband

provider. Viasat won the funding to supposedly bring faster broadband to 123,000 homes in seventeen

states. The grant program requires Viasat to offer speeds of at least 25/3 Mbps broadband to areas that

didn’t have it before the auction.

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Following is a map showing the areas of Sierra County where Viasat won the broadband funding.

= ViaSat CAFII Award Census Blocks

One problem with this award is that Viasat already covers Sierra County and the other rural communities

and has always been free to sell and market in these areas. The federal grant money doesn’t bring a new

broadband alternative to anybody in rural America.

Worse, the satellite companies aren’t required to connect any specific number of new customers as a result

of the grant awards. They are largely free to just pocket the grants directly as profits. Even when they do

connect a new customer, they wouldn’t be building any new and lasting broadband infrastructure, instead

just installing an antenna at each new customer.

The biggest problem with these awards is that the FCC will not provide funding in the $20.4 billion RDOF

grants to cover these same areas – the FCC now considered these areas to have a 25/3 Mbps broadband

solution.

What we’ve learned during this and other studies is that rural residents don’t seem to want satellite

broadband. CCG has been doing broadband surveys for twenty years in rural America and we can’t recall

ever talking to a satellite customer who was happy with their broadband service. In every survey we seem

to encounter more people who have dropped satellite service versus those that still have it. Customers

complain that satellite costs too much - Viasat claimed in their most recent financial report that the average

residential broadband bill is $84.26.

Customers also hate the high latency on satellite, which can be 10 to 15 times higher than terrestrial

broadband. Latency is signal delay caused by the satellite being parked almost 22,200 miles above earth

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– it takes a while for a round trip communication over that distance. High latency causes major problems

with any web service that is real time. It’s hard to make a voice connection with high latency. It’s hard to

connect to a school or corporate web server. It’s difficult to watch live streaming video, although cached

video like Netflix works fine.

The primary complaint about satellite broadband is the tiny monthly data caps. The company has products

that satisfy the 25/3 Mbps speed requirements, starting with the Unlimited Silver 25 plan at $70 with

speeds up to 25 Mbps with a monthly data cap of 60 gigabytes of data usage. The fastest plan is the

Unlimited Platinum 100 plan for $150 with speeds up to 100 Mbps and a data cap if 150 gigabytes. Unlike

cellular plans where a customer can buy more broadband, the Viasat plans throttle customers to speeds

reported to be less than 1 Mbps once a customer reaches the monthly data cap. To put those plans into

perspective, OpenVault announced recently that the average US home used 344 gigabytes of data per

month in the fourth quarter of 2019. That was up an astounding 27% from a year early when average

consumption was 275 gigabytes. The average cord cutting home uses 520 gigabytes per month. The

satellite broadband is impractical for anybody with school students in the home, for anybody who works

from home, or for anybody that does even a modest amount of video streaming.

Giving grant money to satellite providers makes no sense as broadband policy. They don’t bring new

broadband to anybody since the satellite plans are already available. The plans are expensive, have high

latency and low monthly data caps.

2. The Gap in Broadband Availability

The National Telecommunications and Information Administration (NTIA) released the results of a

survey in 2019 that looked at households that don’t use the Internet.

The survey says there are around 28

million households in the US that don’t use broadband at home. Some of these homes fall into the

following circumstances:

• The most drastic case are homes that have no landline broadband options. Such homes are limited

to getting broadband from high-orbit satellites (assuming they can see the portion of the sky where

the satellites sit), or from cellular data from their cellphone plans. Almost every rural area has

homes that have no landline broadband options.

• The broadband availability gap also refers to homes that can’t get broadband that meets the FCC

definition of broadband.

• The availability gap also is sometimes used to describe the difference between urban and rural

broadband, which was described in some detail above in the discussion of broadband technologies.

The NTIA survey results are at: https://www.ntia.gov/blog/2019/unplugged-ntia-survey-finds-some-americans-

still-avoid-home-internet-use

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Comparing Sierra County with the Rest of the World

There are numerous ways to compare Sierra County to the rest of the state, country, and world.

FCC Adoption Rate

It’s worth first looking at how New Mexico compares to other states. In the 2019 annual report to Congress

the FCC reported on broadband adoption by various speeds by state. Adoption rate is the percentage of

households that have purchased broadband that meets or exceeds various speed thresholds. For some

reason that they don’t explain well, in the 2019 broadband report to Congress the FCC reported broadband

adoption rates for 2017. This means two things. The overall adoption rates are understated because we

know that the overall number of homes buying broadband has been increasing every year. However, since

the data used in the FCC report comes from the Form 477 data, the percentage that that buying a given

speed is likely overexaggerated. That makes for some confusing results, but since the same issues affect

every state, the overall rankings of broadband adoption by state is probably reasonable.

In the annual report to Congress the FCC reports on broadband adoption by various speeds by state. In the

2019 report to Congress, the FCC reported the following broadband adoption rates for New Mexico

(meaning the percentage of customers who can buy the listed speeds at their home):

Homes buying at least 10/1 Mbps 44.7%

Homes buying at least 25/3 Mbps 42.8%

Homes buying at least 50/5 Mbps 36.4%

Homes buying at least 100/10 Mbps 12.6%

Homes buying at least 250/25 Mbps 0.8%

To put the FCC numbers into perspective, the percentage of homes that get at least 10/1 Mbps broadband

(44.7%) ranks ahead of only Mississippi, which is last at 44.3%. The only other state with less than a 50%

broadband deployment is Idaho. It’s worth noting again that these numbers are based upon fault FCC 477

data reported by the ISPs in the state and the actual speeds being purchased are not nearly as good as the

numbers shown.

FCC Availability of Broadband

The FCC also looks at the availability of broadband by county, meaning the percentage of homes that

could buy broadband at various speeds. This is where the FCC data and the faulty nature of the maps are

quickly evident. Here’s what the FCC reported to Congress in 2019 about Sierra County:

Urban population: 7,477

% that can buy at least 25/3 broadband 93.6%

% with 4G LTE coverage at 5/1 Mbps 100%

% with both 93.6%

Rural population: 3,639

% that can buy at least 25/3 broadband 45.5%

% with 4G LTE coverage at 5/1 Mbps 94.4%

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% with both 41.9%

We know that everybody (or practically everybody) in Truth or Consequences can buy broadband from

TDS at speeds faster than 25/3 Mbps. When the FCC shows only 93.6% of urban homes can get

broadband, that result might be due to way that the data is reported by Census blocks that doesn’t match

the city boundaries, or it could be that they are counting one or more other cities as being urban.

The rural percentages are startling because the FCC data shows that nearly half of the homes in the rural

parts of the county can buy 25/3 Mbps broadband. We don’t believe that any of the 2,756 homes in the

rural parts of Sierra County can buy broadband that delivers 25/3 Mbps broadband or faster.

How Does the US Rank with the Rest of the World?

Cable Company from the United Kingdom has been gathering data each year that compares broadband

speeds and prices from around the world.

The most recent report on broadband speeds is from 2019.

The rankings are based upon many millions

of speed tests, and 2019 average download speed for the US is based upon over 132 million speed tests.

The US ranked 15

in the world in 2019 with a national average download speed of 32.89 Mbps which is

behind countries like Taiwan, Singapore, Sweden, Denmark, Japan, Netherlands, Spain, Norway,

Belgium, and others. The average speeds in the US have been increasing and was 25.86 Mbps in 2018 and

20.00 Mbps in 2017. During that time, the US climbed from 21

fastest to the current rank of 15

. The

speed increases are largely due to upgrades in speeds in urban areas by cable companies, although there

are also fiber-to-the-home builds in both urban and rural markets across the country.

Comparing Sierra County with the Rest of New Mexico

The broadband coverage in New Mexico varies more widely than any other state we’ve looked at. There

are four counties in the state – Colfax, Hidalgo, Socorro, and Catron – for which the FCC say there is less

than 5% broadband coverage (with zero coverage in Catron County). At the other end of the scale, the

FCC says that Los Alamos County has a 96.7% coverage of 25/3 Mbps broadband, followed by 90.4%

for Santa Fe County.

According to the FCC data, 44.5% of rural homes in Sierra County can buy 25/3 Mbps broadband. This

ranks Sierra County as 18

in the state out of 33 counties in terms of homes in the rural areas that can buy

25/3 Mbps or faster broadband. The counties with the closest similar rankings are Chaves and Torrance

counties. As mentioned throughout the report, the broadband coverage in the FCC report seems massively

overstated for Sierra County, but it’s likely that it’s overstated for much of the rest of the state as well.

3. The Gap in Broadband Affordability

The FCC reports that broadband adoption for the country is around 86%. Even after accounting for the

rural areas that have no broadband option, there are many millions of customers that can get broadband at

their homes, but that do not buy it. Numerous studies and surveys have asked people why they don’t buy

Broadband speeds around the world. https://www.cable.co.uk/broadband/speed/worldwide-speed-league/

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broadband when it’s available. The number one reason that’s always cited is price – people say they can’t

afford broadband.

Statistics on Affordability

In larger cities it’s somewhat easy to equate broadband penetration rates to household incomes. This is

because a Census block in a city might be as small as a block or two, and it’s easy to match Census data

to broadband data from the FCC.

An analysis of recent FCC 477 data shows that there is a direct correlation between household income and

buying a home broadband connection. Only about half (53%) of households with annual incomes under

$30,000 buy broadband. This contrasts sharply with 93% of homes with incomes over $75,000 buy

broadband. There is no clearer evidence that there is an affordability gap for broadband.

There are studies available for those who want to dig deeper into quantitative and qualitative research into

broadband affordability for low income households. The first was published by the Benton Foundation

and authored by Dr. Colin Rhinesmith.

The second report is issued by the Quello Center and is authored

by Bianca Reisdorf.

This report looks at a study conducted in three low-income neighborhoods of Detroit.

Both reports say that low-income households with a limited budget appreciate the advantage of having

broadband at home but can’t fit it into their budgets. They find it difficult or impossible to prioritize

broadband compared to paying rent or buying food. These studies indicate that a big part of the solution

for getting broadband into homes without it is going to have to involve finding a way to pay for the

monthly broadband access.

Such studies have little direct correlation to rural locations since the areas with broadband are generally

relatively small. The fact that Truth or Consequences has a cable provider is due more to the density of

homes (meaning it’s more affordable to build a network there) than it is to the incomes of people that live

inside and outside of the city. With that said, there is still always a direct correlation in that homes with

low incomes have a lower penetration of broadband when it’s available to everybody – it’s just not

something that can be easily mapped in a rural community.

Comparing US Broadband Prices to the World

Cable Company of the United Kingdom also tracks broadband prices around the world. The most recent

comparison of prices is from 2020.

The average price of broadband in the US in 2020 is $50. It’s worth

noting that these prices were gathered from advertised prices, and most big ISPs in the country advertise

temporary special prices that expire after a one or two-year period. The price also doesn’t include the cost

of a modem or WiFi router. The average price of the US ranks as the 119

most affordable out of 206

Digital Inclusion and Meaningful Broadband Initiatives. https://www.benton.org/publications/digital-inclusion-

and-meaningful-broadband-adoption-initiatives

Broadband to the Neighborhood. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3103457

Broadband prices around the world. https://www.cable.co.uk/broadband/pricing/worldwide-comparison/

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countries. However, it’s worth noting that most the countries that are more expensive than the US are

either third world countries or island nations. The few exceptions of first world countries that are more

expensive than the US are New Zealand, Norway, and Switzerland.

In that same report, the US looks better when looking at advertised prices compared to advertised

bandwidth. In that comparison the average cost per megabit of speed in the US is $0.26, placing the US

in terms of affordability. However, we know that many ISPs advertise speeds that are faster than what

they actually deliver – but this may be true in other countries as well. We also know that many ISPs in the

US charge prices to many customers that are higher than advertised prices. The real price of broadband in

the US is higher than is shown in this analysis.

Broadband Prices in the County

Earlier in the report we discussed the prices for CenturyLink, TDS, Windstream, and the various WISPs.

ISPs Bridging the Price Gap

Federal Lifeline Program

Windstream and CenturyLink both participate in the FCC’s Lifeline program that is part of the Universal

Service Fund. With the program a customer can receive a discount in New Mexico of $9.25 per month off

a telephone bill a broadband bill for qualifying customers. The program works by the telephone companies

providing a discount to customers and the FCC then reimburses the companies for the discount. This

means it costs the telephone companies nothing to offer the discount – the discount is funded by the FCC.

To qualify a customer must participate in one of the following programs: Medicare, SNAP (formerly Food

Stamps), SSI, Federal Section 8 housing, VA Veterans pension, or VA survivor’s pension. The FCC has

recently established a web portal where participating carriers can check the eligibility monthly of

households to meet one of the above tests.

The telephone companies don’t aggressively pursue giving this discount to eligible households – but they

will enroll anybody that qualifies and who asks for the discount.

TDS also uses this program in markets where they are the incumbent telephone company. We don’t know

if they offer this in Truth or Consequences where they are the cable provider and not the telephone

company.

FCC Modifies the Lifeline Program

In November 2019, the FCC announced major changes to the Lifeline program.

These rules make it

harder for some companies to participate in the program, but it opens up the door to many new participants.

New FCC Lifeline Rules https://docs.fcc.gov/public/attachments/FCC-19-111A1.pdf

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The FCC has obsessed for years about fraud in the program. There are numerous cases over the years of

the program providing Lifeline subsidies to people who are no longer eligible or who had died. However,

a lot of that blame must be placed on the FCC. Carriers have never had any ways to know if a Lifeline

participant gets a job and or is no longer eligible. The FCC has finally taken the steps to fix such problems

through the creation of the National Lifeline Eligibility Verifier – a database updated monthly by

government agencies that provide the support that makes participants eligible.

The following new rules are lifted directly from the FCC, which says the new rules will improve the

program by:

• Prohibiting participating carriers from paying commissions to employees or sales agents based on

the number of consumers who apply for or are enrolled in the Lifeline program.

• Requiring participating carriers’ employees or sales agents involved in enrollment to register with

the program administrator, the Universal Service Administrative Co. (USAC).

• Strengthening prohibitions barring Lifeline providers from claiming “subscribers” that are

deceased.

• Taking additional steps to better identify duplicate subscribers, prevent reimbursement for

fictitious subscribers, and better target carrier audits to identify potential FCC rule violations.

• Increasing transparency by posting aggregate subscribership data, including data broken out at the

county level, on USAC’s website.

• Increasing transparency with states by directing USAC to share information regarding suspicious

activity with state officials.

• Restoring the states’ traditional role of designating carriers to participate in the Lifeline program.

The last bullet point highlights an opportunity for ISPs that want to participate in the program. For the last

several years it’s been exceedingly difficult for an ISP to enter the Lifeline program. During that same

period, we’ve seen big telcos like AT&T withdraw from the plan in most of the states where they operate.

An ISP that wants to offer a low-price broadband product for low-income households can collect the

Lifeline subsidy to offset price discounts. For example, an ISP could offer a low-income broadband

connection and collect $9.25 Lifeline subsidy from the Universal Service Fund and the rest of the bill

from the customer. The Lifeline funds are paid directly to the ISP from the Universal Service Fund.

More importantly, ISPs now can apply to become eligible for Lifeline with state regulators rather than

from the FCC – which has been blocking new applications for several years.

4. The Computer Gap

One of the things that digital inclusion advocates have learned is that it’s not enough to get affordable

broadband to a home if they can’t afford a computer or other devices to use the broadband. It’s also now

clear that cellphones are good tools for things like shopping online, but they are inadequate for students

trying to do homework. Any plan to close the digital divide must find solutions for closing the computer

gap.

A survey by Pew Research Center in 2019 shows a huge disparity between income and technology

adoption. Consider the following results of that poll:

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Less than $30,000 to Over

$30,000 $100,000 $100,000

Home Broadband 56% 81% 94%

Smartphone 71% 85% 97%

Desktop 54% 83% 94%

Tablet 36% 55% 70%

All the Above 18% 39% 64%

Other studies have shown that the percentages of homes that have any these technology tools shrinks

significantly for homes making under $25,000 per year.

A big problem for low-income homes is that they can’t afford both broadband and the cost of buying and

maintaining a computer or similar device. Computers are some of the shortest lived electronics we can

buy and typically have to be replaced every 3 or 4 years.

The above numbers highlight the problem of getting broadband into low-income homes – a solution is

needed for both broadband and for a computer. As will be discussed below, low-income homes also often

need computer training.

The historical solution to lack of computers was to put computers in libraries and public places. However,

in communities like the rural parts of the counties, this solution is inadequate for many reasons. First, it

requires students to travel to where the computers are. In communities where a lot of students don’t have

computers it’s difficult to have enough to meet the demand. There is the additional issue that rural libraries

often don’t have good enough broadband to support multiple simultaneous users.

However, the best reason to get computers into homes compared to libraries is that numerous studies have

shown that computers in the home have a huge positive impact on students compared to any other

alternative. Computers have the biggest positive impact on students when they are part of daily life and

convenient to use when needed.

We can’t forget that computers aren’t only for students. Adults need computers today just to participate

in the modern world. Computers are needed to hunt for a job. Computers are needed to pursue online

training and education. Computers are needed to consider jobs that all employees to work from home.

Computers are needed today to interface with many government programs.

There are a number of different approaches that communities have tried to solve the computer gap that

will be discussed below in the section talking about solutions for the digital divide.

5. The Gap in Broadband Skills

The current US job market appears to be robust due to the low unemployment rate, which is low by historic

standards. However, a closer look at the statistics tell a different story.

Workers with upper income jobs are faring extremely well. For example, starting jobs for new computer,

engineering, and similar tech graduates are at an all-time high. It’s a good time to be a high-tech worker.

However, over half of all job openings in the country are classified as middle-skill jobs (with the three

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categories being high-skilled jobs, middle-skill jobs, and unskilled jobs). These jobs generally don’t

require a college degree. An analysis by the Benton Foundation a few years ago showed that over 80% of

middle-skill jobs require some degree of digital literacy. Unfortunately, a lot of people seeking middle-

skill jobs lack the digital skills needed to land these jobs.

This lack of sufficient digital literacy to find middle-skill jobs is perhaps the best way to describe the

broadband skills gap. These are not jobs that need coders, but rather than need people to know basic

computer skills like knowing how to use Microsoft Word or Excel. It means being able to type fast enough

to do data entry, write emails, or other expected tasks in the average workplace.

In the early days of the computer age the federal government operated many training programs that taught

the basic computer skills. Today it seems to be assumed that students graduate from high school with these

skills. However, a student who has never had a home broadband connection or a computer and who only

did homework on a cellphone probably doesn’t have the needed digital skills. Since the federal, and most

state governments don’t offer any significant training programs in computer literacy, it’s up to local

communities to find their own solutions.

I talked to Deb Socia who heads the Enterprise Center in Chattanooga, Tennessee. This is a nonprofit that

is looking for ways to solve the digital divide in the city. Chattanooga is a city that has invested in

broadband and offers gigabit broadband on fiber to every resident of the city. However, like in all cities

they found out that low income homes couldn’t afford the broadband, didn’t have computers, and didn’t

have the digital skills needed to use a computer. The Enterprise Center began offering basic computer

training a year ago and was overwhelmed by the huge number of people who wanted basic training. The

Enterprise Center is now looking for ways to greatly expand the training to meet the demand.

A Pew Research Center survey in 2016 showed that a lot of adults were interested in digital training. 60%

of adults were interested in learning how to use online resources to find trustworthy information. In today’s

world of misinformation, I would think that percentage is even higher today. 54% of adults were

interesting in training that make them more confident in using computers and the Internet.

6. Future Broadband Gaps

The Future of Broadband Speeds and Capacity

This gap analysis so far has discussed existing broadband gaps. It’s important to realize that there will be

new broadband gaps coming in the future that we can already predict. One of the issues to consider when

looking forward is that broadband speeds are a moving target – that is, the demand for residential and

business bandwidth grows every year. This is not a new phenomenon and the need for bandwidth has been

growing at nearly the same rate since the early 1980s. Home and business need for bandwidth has been

doubling every three to four years since then.

As an example, 1 Mbps DSL felt really fast in the late 1990s when it was introduced as an upgrade from

dial-up Internet. The first 1 Mbps DSL connection was nearly twenty times faster than dial-up, and many

people thought that speed would be adequate for many years. However, over time, households needed

more speed and the 1 Mbps connections started to feel too slow and ISPs introduced faster generations of

DSL and cable modems that delivered speeds like 6 Mbps, 10 Mbps, and 15 Mbps. Cable modem speeds

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continued to grow in capacity and eventually surpassed DSL, and in most cities the cable companies have

captured the lion’s share of the market by offering internet speeds starting between 100 Mbps and 200

Mbps.

Bandwidth requirements are continuing to grow. Firms like Cisco and Opensignal track speeds achieved

by large numbers of households by examining Internet traffic that passes through the major Internet POPs.

Both companies estimate that home internet need for bandwidth downloading as well as the need for

broadband speeds are growing currently at about 21% annually. Business use of bandwidth is currently

growing at 23% annually.

This report earlier discussed how the FCC set the definition of bandwidth in 2015 at 25/3 Mbps. If you

accept that speed as an adequate definition of bandwidth in 2015, then growing the requirements for speed

every year by 21% would result in the following speed requirements by year.

2015

2016

2017

2018

2019

2020

This is somewhat arbitrary because it assumes that the broadband needs in 2015 were exactly 25 Mbps.

For example, if the actual broadband need for the average household in 2015 was 22 Mbps, then the

predicted speed for 2020 would be 57 Mbps. What is not arbitrary is that the need for bandwidth and speed

increases over time.

If we accept the premise that 25 Mbps was the right definition of broadband in 2015, then it’s reasonable

to believe that the definition of broadband today ought to be at least 50-60 Mbps. That would infer that

there is a broadband gap today for any customer who can’t buy 50-60 Mbps broadband.

Broadband is not only measured by speed and there are firms that track the volume of data that households

and businesses use. The firm OpenVault measures total usage by households using software deployed by

the biggest ISPs around the country and around the world. They recently announced that the average US

household in in the fourth quarter of 2019 used 344 gigabytes of data per month (downloads and uploads

combined). That number leaped from 275 gigabytes in 2018 and 215 gigabytes in 2017. Further,

OpenVault says that the average cord-cutting household now uses over 520 gigabytes per month – a

number that would have floored any network engineer a decade ago.

These various statistics infer that the FCC should be periodically increasing the definition of broadband.

The agency looked at broadband speeds in a docket in 2018 and concluded that they were going to keep

the definition at 25/3 Mbps. However, there was a lot of compelling filings in that docket that argued that

the definition of broadband should be 50 Mbps to 100 Mbps.

The point of this section of the report is that we can’t get hung-up on the FCC’s definition of broadband

when looking at the broadband gap. Practically every home that uses broadband would acknowledge that

they download and upload a lot more data today than they did just a few years ago.

It’s also important to look into the future when considering broadband needs for Sierra County. For

example, if an ISP builds a new broadband solution today, that solution should be prepared to handle the

broadband requirements a decade from now. Consider the following chart that predicts broadband needs

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moving forward. This applies the same 21% annual growth rate for bandwidth demand that we’re currently

seeing. Forward predictions are always criticized for being too aggressive, but when considering that the

need for broadband has been growing at roughly the same rate since 1980, it’s not a big stretch to predict

broadband needs into the future.

2020

2021

2022

2023

2024

2025

2026

2027

115

139

169

204

247

It’s not hard to put this prediction into perspective. Cable companies that serve over 60% of all broadband

customers in the country already provide minimum speeds today of between 100 Mbps and 200 Mbps.

That speed varies a bit by market due to the condition of local coaxial networks. But in markets where the

coaxial cable in in good condition, big ISPs like Comcast and Charter provide 200 Mbps broadband today

as the target speed for their introductory broadband product.

The above chart suggests that by 2027 (or some year close to then) that the Comcast 200 Mbps product

will start to feel sluggish to many households. Comcast has unilaterally increased speeds over the years

and it would not be surprising to see them increase the basic speed again before 2027. The company seems

to have a policy to stay in front of the demand curve. I’m sure this greatly cuts down on complaints and

customer service issues. If the cable companies are staying ahead of this curve voluntarily, it raises the

question of why the FCC isn’t keeping up with the events in the marketplace.

It’s not hard to imagine that seven years from now that the national definition of broadband ought to be

around 250 Mbps. That doesn’t mean that the FCC will continue to increase the regulatory definition. In

2018 the FCC rejected numerous filing asking them to increase the 25/3 Mbps definition. There is a

political downside if the FCC increases the definition of broadband – it would reclassify numerous homes

as not having broadband. Today the 25/3 Mbps definition of broadband is lower than the reality of what

many homes need, but my guess is that there will have to a big difference before an FCC will react and

change the definition.

One of the conclusions that can be reached by this analysis is that any new network built today ought to

be capable of meeting the expected broadband speeds of the next decade. The only technologies capable

of that are fiber-to-the-premise, cable company hybrid-fiber networks, and some wireless technologies

using millimeter wave spectrum that are just now being trialed in a few markets.

The FCC and state governments should not support grants, or in other ways promote technologies that

can’t meet the expected future broadband needs. Any gap analysis needs to consider future needs and not

just the speeds used by households today.

Section II. D. of this report looks at the existing technologies in place in Sierra County today, at how those

technologies might improve in the future, and at other expected technologies we are likely to see

introduced in the not-too-distant future.

The point that should be taken from the lengthy discussion on technology is that any technology built in

Sierra County today should be ready to handle today’s broadband needs as well as the expected broadband

needs of the future.

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7. The Consequences of the Broadband Gaps

There was a time when academics theorized about the impacts of poor broadband. We don’t need to

theorize today because you can go to any rural community with poor broadband and residents and

businesses will fill your ear with stories of the negative consequences of having poor broadband. The

problems with lack of broadband just got magnified due to the COVID-19 crisis.

Impact of Poor Broadband for Citizens

Lack of good broadband causes major problems for rural homeowners:

• Lower Property Values: There are numerous studies showing that homes without broadband are

worth less than similarly placed homes with broadband. Realtors have been reporting across the

country that broadband is at or near the top of the wish list for most homebuyers today. From

everything we hear it is now difficult to attract people to move to rural places that don’t have good

broadband. That is a big negative for the small towns without good broadband. Without a

broadband solution, the rural parts of Sierra County will become undesirable places to live, and

this is only going to get worse over time as broadband speeds keep increasing in the places that

have broadband.

• Education: The concern for the schools is that they are unable to send computer-based work home

with students since they know that many of them don’t have good home Internet. It’s incredibly

hard to raise kids today in a home without adequate broadband. The issue is not just data speeds,

but also the total amount of downloaded data that even elementary school students need to do

homework. This is one of the major problems with satellite broadband, which has speeds up to 50

Mbps, but with tiny data caps and high latency the satellite broadband is inadequate for doing

homework. The same is true with cellular data; we have heard horror stories of people with kids

ending up with astronomical broadband bills for using broadband from cellphone hotspots for

homework.

Schools want students to be able to use broadband outside the school. An increasingly common

practice in places with adequate broadband is to have students watch video content at home as

homework and then discuss it later in the classroom. That frees valuable classroom time from

watching video in class. The whole education process is increasingly moving to the web and kids

without access to the web are lacking the tools that their peers take for granted.

There was a major study performed to look at what is being called the homework gap by the

National Center for Education Statistics (NCES),

an agency within the US Department of

Education. That study compared test scores for 8

grade students both with and without a home

computer. The results showed:

https://nces.ed.gov/pubs2017/2017098/index.asp

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o On tests of reading comprehension, students who have a computer at home had an average

score of 268 compared to a score of 247 for students without a computer.

o In testing for mathematics, students with a computer at home scored 285, while those

without scored 262.

o In testing science, students with a computer scored 156 compared to 136 for students

without a computer.

o In testing competency in information and communication technology, students with a home

computer score 152, compared to 128 for students without a home computer.

Education is not only for K-12. Adults are using broadband to train for new job skills or to take

advanced courses online. There is a huge range of undergraduate and advanced degrees that now

can be achieved mostly online. Online training courses require decent broadband speeds, but also

low latency since the training is usually done in real time.

The COVID-19 crisis has highlighted the need for good home broadband for students since in

many places in the country both K-12 and college students were sent home to complete the school

year online. This has instantly created a crisis in rural homes outside of Truth or Consequences

that don’t have enough broadband to allow students to successfully do schoolwork from home.

A connection between a student and a school is typically activated through the creation of a VPN

(virtual private network). This is a dedicated connection of bandwidth that is carved out of the

Internet path and that remain live for as long as the connection to the school WAN is open. One

of the important aspects of a VPN is that it carves out upload bandwidth as well as download

bandwidth. All of the types of broadband available in Sierra County have much smaller upload

speeds that download speeds and even homes with adequate download bandwidth might not be

able to establish a VPN connection due to the inadequacies of the upload path.

Many school systems are trying to recreate the classroom feel using videoconferences where a

teacher and all of the students can see each other. That requires a 2-way video connection that can

use a 1 – 3 Mbps connection for both upload and download. Students without good home video

are not going to be able to participate in this kind of remote classwork.

Both VPN connections and video conferencing require reasonable latency (delay) to maintain a

connection. This makes it nearly impossible to make either kind of connection reliably over

satellite broadband – one of the more common kinds of rural broadband connection.

Doing schoolwork from home is also going to use a significant amount of bandwidth during a

month, and that raises the issue of data caps and data overage charges. Both satellite broadband

and cellular broadband have small data caps – and all data usage about the data caps can be

expensive. We talked to one home in Sierra County who had cellular bills as high as $500 to

support two kids that are homeschooled. That size of bill is going to shock homes that suddenly

have students doing schoolwork from home.

• Working at Home: More and more jobs today can be done at home, even if only part time. But

people without adequate home broadband can’t participate in this part of the economy.

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Increasingly, companies are willing to hire people who work out of their homes. The beauty of

such jobs is that they can be done from anywhere.

Working from home is one of the fastest growing parts of the national economy. Many of your

residents could find work that would allow them to work at home and to make a larger income

than they can make today locally – if they have great broadband. After years of experiments with

telecommuting, companies have seen that employees are often more productive from home due to

missing the various distractions that are in the work environment.

The COVID-19 crisis highlighted the need for good home broadband when as many as 30% of the

nationwide workforce was sent home to work in early March. Across the country employees that

live in rural areas were unable to work from home due to inadequate broadband.

Working at home requires an encrypted VPN connection for most corporate and government

WANs, in the same manner as described above work connecting to school WANs. Working at

home is also coming to mean connecting by video conference with others as an alternative to face-

to-face meetings. This requires a dedicated 1 – 3 Mbps connection for both upload and download

– again, something that is a challenge for somebody working from home with a slow Internet

connection.

Both VPN connections and video conferencing require reasonable latency (delay) to maintain a

connection. This makes it nearly impossible to make either kind of connection reliably over

satellite broadband.

What’s become painfully obvious due to the coronavirus crisis is that homes need more than the

ability for a student to do homework or a person to work from home – because many homes have

multiple students and possibly also more than one adult all trying to function on the Internet at the

same time.

• Medical: We are finally starting to see a big uptick in the use of telemedicine. This is the process

of using broadband to connect patients to specialists without having to make the long drive in for

an appointment. Patients can talk to doctors using a video connection if the home has adequate

broadband. The biggest benefit of telemedicine is being able to talk to a specialist without having

to make a long trip to some distant city.

One of the best uses that has been found for telemedicine is for administering non-intrusive

assistance for things like counseling. Patients can make scheduled appointments without major

disruption to work schedules.

A growing area of telemedicine is the use of medical telemetry devices, which can monitor patients

after they’ve had medical procedures. For example, Saint Vincent Health System in Erie,

Pennsylvania has been using these technologies and has lowered readmission rates of patients after

surgery by 44%. CoBank recently sponsored a trial in Georgia for rural diabetes patients and

showed a significant improvement for patients who could be monitored daily and who could

communicate easily with doctors.

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The coronavirus crisis has highlighted the need for telemedicine. Doctor’s offices and clinics all

across the county have shifted some of their office “visits” to video meetings on Zoom or other

video platforms in order to reduce contact between doctors and patients when it can reasonably be

avoided. There have been widespread reports that some doctors are requiring video connection for

all non-emergency visits. Councilors and mental health workers also report to largely migrating

most, or even all contacts with clients online. It’s immediately become clear that patients without

home broadband or without a strong cellular signal can’t make the needed video connection. There

is a lot of speculation that video meetings and telemedicine are going to become mainstream by

the end of the coronavirus crisis, once doctors understand how effective it can be in many cases.

• Taking Part in the Modern World: People with good broadband have access to features of the web

that require bandwidth. Households with good bandwidth routinely use broadband for things like

watching videos on services like Netflix, talking to friends and family on services like Skype,

playing video games (many of which have largely moved online), taking online courses from

numerous colleges, or even just browsing today’s video-rich Internet. Many of the businesses

people now interact with (utilities, insurance companies, shipping companies, etc.) assume that

people have a broadband connection. Many people’s social lives, for better or worse, have moved

to the web; it is not uncommon to now have friends all over the country based upon some shared

interest instead of based upon geographic proximity. Homes without broadband can’t participate

in any of these many activities and services available on the web.

Taking part in the modern world has grown to mean a lot more than just watching videos. Consider

some of the following ways that a lot of households routinely use bandwidth:

o Security. Millions of homes now have video cameras at the front door or elsewhere on

their property that they can view remotely. A video camera requires a 1 – 3 Mbps upload

connection for low-resolution cameras and up to 16 Mbps upload for an HD quality

camera.

o Machine-to-Machine Traffic. Our devices often connect with the Internet without human

intervention. Our computers and smartphones automatically upgrade software and apps.

Many homes have files automatically backed-up in cloud storage. Numerous appliances

and devices in our home periodically connect with the cloud wither providing updates or

just to make sure that the connection is still live. Many cars now communicate with the

cloud when they get into range of a home broadband connection to provide status of all

car sensors and to upload driving data that can later be used by the car owner. Cisco

predicted early this year that this traffic would represent over 50% of all the traffic on the

web by 2023.

o Online Everything. Many of the functions we do have migrated to being only online – we

couldn’t even begin to make a full list of things that are largely now online. This includes

both major and minor functions including things like applying for a job, applying for

government benefits, making insurance claims, making reservations for a restaurant,

banking, and a slew of other activities. Homes without broadband are being left out of

numerous activities that everybody else takes for granted.

• Keeping Talent at Home. An issue we often hear about in rural communities is what is called the

“rural brain-drain.” Most rural counties don’t have enough good-paying jobs to keep recent

graduates home, and so large percentages of each graduating class migrate to larger cities and

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towns to pursue careers. One of the promises of fiber is the ability to create new jobs and to also

provide the opportunity for people to either work at home or to create new businesses that allow

them to stay where they want to live.

Impact of Poor Broadband for Businesses

There are numerous consequences of poor broadband for businesses. While some businesses have unique

and specific requirements, there are a number of problems caused by poor broadband that affect most

businesses.

Impact on Day-to-day Operations. Just like with households, most businesses are seeing their broadband

needs growing rapidly year-over-year. Each one of the following routine business functions requires

decent bandwidth. Businesses without adequate bandwidth must forgo or compromise on how they

communicate with the world and function day-to-day.

• To Communicate with Customers. Businesses routinely have portals that make it easy for

customers to place and track orders and to communicate the with business. Inadequate broadband

means lower sales. The old days of calling purchasing agents are slowly passing away and most

commerce between companies is becoming automated – which improves accuracy and speeds up

the ordering process. Businesses that operate busy ecommerce ordering sites need big amounts of

bandwidth to make sure that all customers have a successful purchasing experience. A concern in

the rural parts of the county is that many businesses report that their broadband is not even

sufficient enough to consistently process credit card transactions. That requires almost the bare

minimum of bandwidth, which speaks volumes about the quality of rural broadband in Sierra

County. Businesses in the County report that they are unable to maintain ecommerce web sites for

selling goods or services, taking customer reservations, or other routine functions necessary to

conduct routine business.

• To Communicate with Vendors. Businesses also routinely use the portals of their own vendors to

buy whatever they need to operate.

• To Communicate with Other Branches of the Company. Many businesses are now part of larger

corporations and maintain open data connections to communicate with other parts of the company

and with headquarters.

• Working in the Cloud. It’s now common for companies to work in the cloud using data that’s

stored somewhere offsite. This can be in one of the big public clouds like the ones offered by

Amazon, Google, or Microsoft or it can be a private cloud available only to employees of the

business. This is the change in the ways that companies operate that has probably created the most

recent growth in bandwidth. A business doesn’t need to be highly sophisticated to work in the

cloud. Today banking is routinely done in the cloud. A lot of basic software like Microsoft Office

has migrated to the cloud. Even interfaces with local, state, and federal governments has migrated

to the cloud.

• Security Systems. Businesses often have their network and computer security monitored by offsite

firms. Security today also means the use of video surveillance cameras, which require upload video

streams to be viewed outside of the business.

• Sending and Receiving Large Data Files. Most businesses report that the size of data files they

routinely transmit and receive have grown significantly larger over the last few years. Some

surprisingly small businesses like photographers, architects, engineers, and others routinely want

to send and receive big data files.

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• VoIP. Many businesses now provide the voice communications between their various branches

using Voice over IP. A reliable VoIP system needs to have dedicated bandwidth that is guaranteed

and that won’t vary according to other demands for bandwidth within the business.

• Communicating via Video. We’ve finally reached the time when employees routinely

communicate via video both inside and outside the business. We saw a huge surge in this during

the COVID-19 crisis as students and employees increasingly used video conferencing services,

but these services had already become routine for businesses before the crisis. Another specific

concern in Sierra County is that rural broadband is so poor that tourists visiting the county are

routinely unable to upload videos of their activities, which locks tourism destinations in the county

from social media coverage.

• Email and Advanced Communications. While many businesses still rely on email, many have gone

to more advanced communications systems that let parties connect in a wide variety of ways.

Businesses are using collaborative tools that let multiple employees from various locations work

on documents or other materials in real time. These services require good download and upload

bandwidth.

• Supporting Remote Employees. Many businesses now save money by allowing employees to work

from home full or part time. They need reliable broadband links to provide home-based employees

the same access to systems that are on site. A complaint heard often by rural businesses is that they

must physically carry files to their homes or other places with good broadband in order to conduct

routine business.

• Data Back-Up. Companies are wary of hacking and ransomware and routinely maintain several

remote copies of all critical data to allow them to restore data after a problem. Data backup requires

a steady and reliable upstream broadband connection.

• Internet of Things Sensors. Companies of all sizes now routinely use devices that include sensors

that communicate with the Internet. One common function of this sort are burglar alarm systems

that monitor physical security and sensors inside equipment that monitors data security. Routinely

used office equipment like printers, copiers, postage machines, and many others only function

correctly when connected to the Internet.

Entrepreneurship. The fastest growing parts of many local economies is the growth of small business,

many which start in the home. Small businesses often begin with a few employees and grow over time as

they succeed. Start-up businesses generally are highly reliant upon good broadband. Lack of adequate

bandwidth and reliable broadband connections means that small businesses have a difficult or impossible

time starting in rural parts of the county.

Agriculture / Other Industries: Every industry has specific requirements for broadband. Perhaps the easiest

way to demonstrate this is to talk about how broadband is transforming one specific industry - agriculture.

A similar list can be made of the specific uses of broadband for numerous other industries.

• The most data-intensive farming application is the creation of real-time variable rate maps of

fields. Farmers can use smart tractors or drones to measure and map important variables that can

affect a current crop like the relative amounts of key nutrients, moisture content, and the amount

of organic matter in the soil. This mapping creates massive data files that are sent off-farm. Expert

agronomists review the data and prepare a detailed plan to get the best yields from each part of the

field. The problem farms have today is getting the data to and from the experts in a timely manner.

Without fast broadband, the time required to get these files to and from the experts renders the data

unusable if the crop grows too large to allow machines to make the suggested changes.

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• Using sensors for monitoring livestock is the most technologically advanced area and there are

now dairy farms that measure almost everything imaginable about each milking cow. There are

also advanced sensor systems monitoring pigs, chickens, egg farms and other food animals.

Ranchers that have good cellular data coverage over range areas can track the location of every

member of their herds.

• There has been a lot of progress in creating self-driving farm implements. These machines have

been tested for a few years, but there are not a lot of farmers yet willing to set machines loose in

the field without a driver in the cab. But the industry is heading towards the day when driverless

farming will be an easily achievable reality. Smart devices have moved past tractors and now

include things like automated planters, fertilizer spreaders, manure applicators, lime applicators,

and tillage machines. Machinery now comes with sensors that will alert a farmer of a problem and

can even automatically order a replacement part before a working machine fails.

• One of the more interesting trends in farming is to record and report on every aspect of the food

chain. When the country stopped eating romaine in late 2018 because of contamination at one

farm, the industry started to develop a process where each step of the production of crops is

recorded, with the goal to report the history of food to the consumer. In the not-too-distant future,

a consumer will be able to scan a package of lettuce or other crop and know where the crop was

grown, how it was grown (organic or not) when it was picked, shipped, and brought to the store.

This all requires creating a blockchain with an immutable history of each crop, from farm to store,

and making this history immediately available to stores and to consumers.

• The industry has been developing soil sensors that can wirelessly transmit real-time data on pH,

soil moisture, soil temperature, transpiration, etc. These sensors are still too expensive today to be

practical – but the cost of sensors is expected to drop drastically with sales volumes. Research is

even being done to create low-cost sensors that can measure the health of individual plants in

orchards and similar environments.

• The smart farm today measures an immense amount of data on all aspects of running the business.

This includes gathering data for non-crop parts of the business such as the performance of vehicles,

buildings, and employees.

Economic Development and Jobs: Reliable and affordable broadband is still one of the key elements in

traditional economic development to lure new companies to a community or to keep existing companies

from leaving. As vital as broadband is to residents it’s even more vital to businesses.

Businesses want more than just fast broadband. They often require multiple feeds of broadband from

different ISPs, on diverse routes to guarantee that they don’t lose connectivity.

Many businesses now want their employees to have broadband at home so that they can work from home

as needed while gaining access to data in company servers. A new business will consider the whole

broadband profile of an area before deciding to locate there. There are numerous municipal fiber ventures

that claim significant economic benefits from fiber networks they’ve built. Many of them have been able

to lure new businesses or have seen existing businesses expand.

The Reverse Donut Phenomenon. There is an interesting phenomenon to be aware of that CCG calls the

reverse donut phenomenon. If Sierra County can attract fiber to the rural parts of the county, but not to

Truth or Consequences and Elephant Butte, then the rural areas would have faster broadband than the

cities. The tiny towns in the County also would have faster broadband. At first that wouldn’t make much

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difference. But over time, as the need for broadband keeps growing, fiber-based broadband in the rural

areas would be better than the broadband in Truth or Consequences. That could have the effect of making

people want to live in rural areas or small towns rather than in the larger town. Many counties find this

problematical since they have structured the various services of the county based upon where people live

today. Many counties also don’t want their population to disperse to rural areas because it increases the

cost for a host of services like road maintenance, school transportation, policing and public safety, and

numerous other costs that falls to the county and the towns.

This is not an immediate issue, but the reverse donut is an inevitable outcome if the rural areas other than

Truth or Consequences and Elephant Butte get fiber. This means that any broadband plan for Sierra

County ought to have a goal for getting fiber-equivalent speeds everywhere. It makes sense to first

concentrate on the areas without good broadband first, but the County needs to not forget about Truth or

Consequences and Elephant Butte.

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II. ENGINEERING DESIGN AND COST

This broadband study looks at three options for bringing broadband to:

• Everywhere in Sierra County.

• Truth or Consequences and Elephant Butte only.

• The rural areas other than Truth or Consequences and Elephant Butte.

A. Existing Provider Analysis

Our analysis started with two field reviews in Sierra County by Andy Heins of Finley Engineering. Andy’s

goal was several-fold. First, he wanted to understand the broadband that was available today from the

incumbent providers. Andy made an extensive drive through Sierra County and identified existing

infrastructure that can support broadband. This meant looking at the various electronic sites supporting

broadband in the Windstream and CenturyLink networks, and looking at towers and electronics deployed

by the two wireless ISPs. Andy’s goal with this review was to make his best guess about the broadband

speeds available in various places across Sierra County. That effort is captured on a map included in

Section I. C. of this report.

Andy was also looking at local factors that would impact the cost of building a new fiber network in Sierra

County. One of his primary goals was to understand the conditions of existing utility poles that would be

used to support a new fiber network. Andy’s findings and conclusions are included below.

Windstream

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Windstream is the incumbent telephone company in most of Sierra County where they predominantly

have deployed copper-based DSL equipment capable of providing some basic internet capability.

Windstream is a Price Cap Carrier subject to FCC Regulation and per FCC data did not receive any

Connect America Phase II funds for the buildout of broadband in Sierra County.

Our review of Sierra County for facilities capable of deploying broadband concluded that Windstream in

many cases has deployed DSL technology for offering internet services. We believe the DSL platform is

only capable of providing a maximum of 10/1Mb broadband, and that would only be available within

approximately 8,500 feet of street miles from a Windstream central office (C.O.) or field equipment

cabinet.

In Truth or Consequences and Elephant Butte Windstream operates two central office locations that act

as the central hub for all copper distribution cables that serve the communities. We did not find any DSL

remote equipment locations in Truth or Consequence or Elephant Butte, meaning that the fastest Internet

speeds on DSL in the towns would only be within a little more than miles from each central office. The

lack of DSL equipment locations in Truth or Consequences is consistent with the low broadband speeds

reported by Windstream to the FCC in Truth or Consequences and Elephant Butte.

As you can see on the map on the prior page, Finley found several older DSL hubs in rural Sierra County.

We don’t think the speeds from these hubs is higher than 10/1 Mbps due in part to the vintage of the

electronics being used and also because of inadequate backhaul. It looks like the rural DSL network in the

county is served with repeated DS3 that provides a total of 45Mbps of bandwidth. This is not adequate

bandwidth to provide fast broadband to the many customers connected the DSL network.

We did find some newly deployed DSL cabinets with fiber backhaul at Cuchillo, Champagne Hills,

Palomas, Animus Road, and at the north end of Truth or Consequences. These new hubs are fed by fiber

backhaul, which means that they are likely capable of delivering speeds as fast as 25/3Mb broadband to

homes and businesses within a mile or so of each new cabinet. The speeds that can be achieved are also

affected by other factors such as the quality of local fiber connecting to homes, so it’s impossible to tell

from a field review the actual speeds that might be delivered.

Our understanding and review showed that there is a single fiber connection connecting the Truth of

Consequences C.O. to the Elephant Butte C.O. A single fiber path means no redundancy and it would be

possible for all of Elephant Butte to lose service from a fiber cut or an electronics failure between the two

locations. We were told by locals that there have been some significant outages.

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CenturyLink

CenturyLink is the other incumbent telephone company in Sierra County and offers service in the southern

Portions of the County; primarily from near Arrey and further south. CenturyLink has deployed copper-

based DSL equipment capable of providing some internet capability. CenturyLink is a price cap carrier

subject to FCC regulation and per FCC data has deployed some location with Connect America Phase II

funds for the buildout of broadband in Sierra County.

CenturyLink does not have any central office locations in Sierra County but does have DSL Remote

equipment locations fed from outside of Sierra County. It is our understanding that the broadband from

the DSL sites is connected by fiber to Hatch. We also believe that Windstream is connected to the

CenturyLink fiber at the Arrey School, which provides Windstream a connection to the outside world and

the Internet.

All the DSL equipment locations we found in the CenturyLink served areas are connected with fiber

backhaul. We found these DSL remote locations in Arrey, near the Caballo Dairy and near Old Hot

Springs Road. Fiber backhaul to these DSL remotes can provide adequate backhaul for broadband services

and CenturyLink may be able to offer DSL service package of up to 25/3Mb broadband to a few locations

within approximately 8,500 feet of road miles of an equipment cabinet.

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Wi-Power

Wi-Power is a fixed wireless internet service provider in Sierra County. We located Wi-Power fixed

wireless equipment at several locations in and near Truth or Consequences and Elephant Butte.

Based on these locations, we believe that the Wi-Power coverage area is significantly smaller than what

is reported on the FCC Form 477 data. This is partially due to FCC reporting method that would allow

showing coverage for an entire Census block even if only one customer can be served there.

We also don’t think the speeds offered by Wi-Power are as fast as are reported on the FCC 477 data that

shows some areas with speeds of at least 25/3 Mbps broadband available. While there is at least one fiber

connection as part of the Wi-Power network, the connections between towers is provided by microwave

wireless connections. As shown elsewhere in this report, the company isn’t advertising any speeds above

15 Mbps.

Wi-Power has had a marketing arrangement and relationship with Sierra Electric Cooperative. As we were

writing this report, we saw a notice that this arrangement has ended. We’re not sure what that means in

terms of Wi-Power continuing to offer services.

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Fastwave

Fastwave is another fixed wireless internet service provider in Sierra County. We located Fastwave fixed

wireless equipment at several locations in and near Truth or Consequences and Elephant Butte as

evidenced by the above map. Fastwave does not report broadband coverage to the FCC (they are supposed

to) so we have no information other than their web site about the speeds they are claiming to offer. The

web site shows the fastest speed of 12 Mbps download.

Fastwave operations are based in Las Cruces and it appears that they have a fixed wireless backhaul

connection from Caballo Peak back towards their operations in Dona Ana county. It also appears they

have a fiber connection to the Windstream central office in Truth or Consequences.

TDS

TDS is a cable network operator located solely in Truth of Consequences and Elephant Butte. Per our

review TDS has recently upgraded the coaxial cable system to a hybrid fiber/coax system. We observed

multiple cable nodes in their system; these nodes convert optical fiber signals to RF signals which operate

on the coaxial cables. There is a fuller description of the technology used by TDS below.

We have no reason to not believe that TDS is delivering the speeds that they are claiming on the FCC

Form 477. That is not to say that every customer in the market can get their best speed due to the local

network conditions.

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TDS has a fiber connection to the Verizon Point of Presence (POP) in eastern Sierra County. This

connection is presumably for backbone reliability and price competitiveness. We don’t know if TDS also

connects to CenturyLink.

B. Network Design

Evaluating the Network Options

In our evaluation of Sierra County, we considered the application all potential terrestrial broadband

network technologies. The two options that seemed worth considering were building fiber everywhere,

building a fixed wireless network, or building a network that is a mix of the two technologies.

In evaluating the options, we considered the following criteria that are necessary elements of a broadband

solution:

- Bandwidth capacity.

- Availability of funding source for the construction of a broadband network.

- Cost of the network.

- Expected lifecycle of each technology.

Our Thoughts on Wireless Technology

Finley considered the deployment of wireless technologies that could bring broadband to remote and rural

customers. Today there are wireless technologies that can deliver a 25 Mbps broadband connection up to

6 airline miles from a tower. This technology places transmitters on tall towers and beans the signal to a

small dish placed on customer homes and businesses. Customers living closer to a tower can get speeds

as fast as 100 Mbps.

There are several different frequencies of radios that can be used for the wireless deployment by broadband

providers:

• The primary frequency used for this technology today is WiFi. This is the same WiFi frequency

used to deliver broadband inside homes. WiFi is really two frequencies – one at 2.4 GHz and

another band at 5 GHz. Probably the biggest advantage of WiFi in this use is to use each frequency

to serve different customers – matching each customer to the one that gives them the best signal.

• New radios also often include the 3.65 GHz frequency that was recently approved for rural

broadband by the FCC. There are several advantages of this frequency over WiFi. First, the

channels in this frequency naturally allow for greater bandwidth delivery. The 3.65 GHz frequency

handles trees much better than WiFi. But no frequency is perfect with foliage and some customers,

particularly those farther away from the tower, might need to take some steps like cutting down

trees to improve reception.

• Radios used for this purpose today are largely software tunable and we envision networks that use

both 3.65 GHz and WiFi, and which might be able to accommodate future frequencies allowed by

the FCC.

• There is another wireless technology that will be available in a few years for rural wireless

broadband. The frequency is referred to as white space radio and uses the same frequencies that

are deployed by UHF television channels (channels above channel 13). The FCC recently finished

an auction where TV stations offered their frequencies which were then sold in an auction to

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bidders. The frequencies were bought by the wireless carriers like T-Mobile and AT&T. Dish

Networks also bought spectrum. The surprise buyer was Comcast, which is now entering the

wireless business and has announced partnering with Charter to do so.

Unfortunately, this technology is not a good fit for your service area. The wireless path between a tower

and a customer must be wide open without impediments, which in the industry is described as having line-

of-sight. The wireless signals are disrupted by foliage and hills and the terrain and trees in Sierra County

service area makes this technology unusable to serve any significant number of customers. There would

likely be some customers that could be served from any tower, but the technology could not deliver a

broadband product to everybody (or even not to a significant percentage of households), which doesn’t fit

the goals state by the RFP for this project.

Our physical inventory of Sierra County shows that there are a few wireless providers using this

technology in the area today, and the slow broadband speeds they offer show the futility of trying to deploy

this technology over a wide footprint. All the research we did for this study show that most customers on

the existing WISP networks aren’t seeing speeds any faster than a few Mbps.

After considering all the factors we elected to not quantify the use of wireless technology for the following

reasons:

• The speeds on a wireless network would be an improvement over today, with speed varying

between perhaps 25 Mbps and 75 Mbps depending on the distance a given customer resides from

one of the towers.

• Because of the mountainous terrain, a fixed wireless network would have required the construction

of a significant number of new towers. There would also be expensive construction to bring fiber

to the new towers. The overall costs for a network to sufficiently cover everybody in the county

looks to be excessively expensive.

• A wireless network would also require a significant fiber investment to connect the various towers

and to also connect to a broadband backbone connection to the world.

• The expected lives of wireless assets are relatively short with the electronics lasting from 3 – 7

years before the need for replacement.

• It is also becoming increasingly difficult to find grant funding for wireless networks. Both state

and federal grants are migrating to grant award systems that reward faster broadband speeds. We

think it would be difficult to find grant funding to build the needed new towers and fiber backhaul.

• While the speeds on a wireless network would be sufficient for customers today, the gap analysis

in this study shows that such a network would be perceived as obsolete within a decade.

After considering all these issues we elected to concentrate this study on building fiber everywhere. This

is not to say that fixed wireless technology does not have a place in the broadband marketplace, but we

don’t think it would be worth the high one-time investment needed to build a robust wireless network.

Network Design

The engineering study looks at building fiber to pass every home and business in each of the three

scenarios. Fiber broadband networks have been around as an end user delivery platform since the late

1990’s. The Fiber-to-the-Premise (FTTP) technology that is currently in the marketplace has been around

for over 15 years and the technology is now mature and widely used around the world.

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The design of fiber networks and the associated electronics are fairly straightforward, but every network

differs in the details of how the network will be deployed, the method of construction, geography,

topography, the number of customers and the long-term goals of the fiber provider. Below is a description

of the major component of a FTTH network and a discussion of the factors which influenced our design

decisions for the network.

There are two primary types of fiber electronics used in FTTH networks – passive and active. Finley chose

a passive network for several reasons, and a detailed comparison of the two technologies is included

below.

All the network architecture, the design elements, and the electronic equipment used in this design have

been used successfully by Finley in past projects. We note that Finley and CCG are both vendor neutral

are not recommending any specific vendors for network components. In the descriptions of our design

below you will see us referring to various brands of routers, switches, or FTTH electronics – but note that

there are numerous vendors that can supply the needed devices and in some cases we chose a typical

vendor for purposes of developing a network cost estimate.

The Sierra County network is designed as an all Internet Protocol (IP) network; meaning that all traffic

and connections are IP based. The FTTH network is broken into two distinct types of connectivity:

• Fiber network (Physical network of connectivity from central office to customers)

• IP network (IP packets with internet information on optical signals)

The easiest way to understand the distinction is that the fiber strands (the physical network) carry IP

packets which communicate to and from the Internet.

Overall Design Criteria

In Sierra County, the existing utilities and the telecom and cable operators use a mix of aerial and buried

construction. It is advantageous to consider the existing electric utility poles for FTTP network

deployment as terrain and topography dictate that buried construction is a comparatively expensive

venture compared to aerial construction.

The collaborative nature of the pole owners in Sierra County make aerial fiber construction the best choice.

Finley Engineering utilized GIS data provided by the Sierra Electric Cooperative and the Truth or

Consequences Electric Utility for FTTP designs on those systems and used aerial imagery to route the

small segment of the FTTP network on El Paso Electric pole lines. We also used address point data from

Sierra County GIS records to understand all the locations in Sierra County for a complete FTTP design.

The basis for any FTTH network design relies mostly on the network topology, fiber cable fill percentage,

and the number of potential broadband customers – these factors largely determine the size of fiber

required, the requirements to terminate the fiber in cabinets or frames, and the type of buildings or cabinets

required for the FTTH optical equipment.

In Sierra County, Finley worked with Sierra County GIS data to understand the mix of residential,

business, municipal and anchor institutions and designed the network accordingly.

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In the telecom industry the number of potential customers is referred to as passings. Using the Sierra

County records, we selected the following passing’s for the study:

Total

Passings Rural Two Cities County

Residential Customers 2,756 5,469 8,225

Business Customers 169 730 899

Total 2,925 6,199 9,124

The passings include:

• Residential. This includes single family houses, apartment units, and mobile homes, etc.

• Businesses. The GIS data included a detailed listing of business locations – something we rarely

get, and includes standalone businesses, churches, government buildings, schools, utility barns,

and water tanks.

We also considered the amount of capacity on the network needed for future growth. While we understand

that many rural areas are contracting in population, we know from years of building fiber networks that it

is prudent to plan for increased fiber utilization over time. In the network design we applied a 1.5 fiber

factor, meaning that for the number of meters being served on any given tap we multiplied that number

by 1.5 to determine the fiber cable size required, typically rounding up to the next industry standard fiber

size. We carried this factor throughout the network from the core hub to the customer locations. The

network design also includes additional fiber on routes which might be attractive for dedicated connection

for connections outside of Sierra County.

Fiber Network Design

There are two components of the fiber network design:

Backbone Fiber. Our network design includes nine (9) locations that will house electronics. These

locations include a primary central office location in Truth or Consequences and seven (8) remote hub

site; (4) located in rural Sierra County and (4) located in Elephant Butte and Truth or Consequences.

We are able to engineer a ring within Truth of Consequences and Elephant Butte which consists of 12

fibers that are connected to these sites and are dedicated for this purpose and that are not used to serve

customers. The ring configuration provides for redundant fiber paths between the six locations. This

means that each of the node locations has a fiber connection to two adjacent nodes in the ring so that if

connectivity is lost in one connection all traffic routes over the other connection in the ring network

ensuring that each node stays connected.

Due to the geography in the rural area of Sierra County, a network in the rural parts of the County would

have to be a “spoke and wheel” configuration which allows for electronic redundancy but not physical

redundancy. Initially only two of the 12 fibers are needed to connect to the redundant network. The

additional fibers can be used for future electronic upgrades, for creation of a transport network specifically

for smart grid purposes, for new transport connections outside of Sierra County, or for other future

endeavors. Following is a diagram of the basic fiber ring.

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CenturyLink

Following is a map of this same backbone fiber overlaid onto a map view of Truth or Consequences.

Last Mile Fiber Network. The last mile fiber network extends from each of the nine hub locations to reach

member premises. The total fiber network, including the backbone fiber, covers 686 miles of aerial line.

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Finley utilized standard fiber cable sizes for the Sierra County fiber network design; the fiber cable sizes

used were 12, 24, 48, 72, 96, 144, and 288 fibers in a bundle. We always try to design using standard fiber

sizes since such fiber is more readily available from contractor and vendors for additional network

construction and repair. Also, standard sized fiber is generally priced more competitively.

Our design tries to determine the right sized fiber cable for each route. One of the most significant costs

of deploying fiber is the cost of labor needed to splice fibers together, so our goal is to not include

unneeded fiber pairs so as to limit the needed number of splices. Every splice in a network also adds a

small amount of signal loss, so the ideal network is one that includes the least number of splices.

Aerial Fiber Basics. There are several factors that can determine the cost of aerial cable. We’ve estimated

these various factors in making construction cost estimates, but actual pricing will require detailed field

engineering that will determine the best construction method to use in various sections of the aerial

network. The primary factors that affect aerial construction costs include:

• The location of the new fiber on existing poles. The current poles in Sierra County include cable

television attachments and telephone cable attachments. From our observations, the existing cable

and telephone attachments are in the communications space (40 inches below the neutral).

• If the new fiber is to be placed closer than 40 inches from the neutral wire the installation would

have to be done using contractors who are qualified to work in the energized supply space. This

adds to the installation cost since qualified installers with that skill generally are paid higher

salaries than other installers. If the fiber is to be placed lower in the communications space the

primary issue is whether there is enough room to add the fiber and still provide enough space

between the existing cables on the poles. The NESC electrical code requires specific clearances

between different kinds of cables on poles, and any new construction is expected to meet these

codes.

• The chances are that there are places in the existing pole network where the spacing is not adequate,

and that often differs from pole to pole, even in the same neighborhood. Some of the spacing issues

might be due to short poles or to shoddy construction by the companies that previously put wires

on the poles. If there is not enough spacing, then a provider would have to pay to move existing

wires to create the needed space. Federal rules dictate that cost is strictly the new attaching provider

responsibility. In the industry the cost to make space on poles is called “make-ready” and we have

estimated rural make-ready costs as $3,550 per mile for cables between 12 and 96 fibers. We

estimate the rural make-ready costs for the larger 144 and 288 fiber cables to be $4,550 per mile.

We have estimated urban make-ready costs as $8,350 per mile for cables between 12 and 96 fibers.

We estimate the urban make-ready costs for the larger 144 and 288 fiber cables to be $9,350 per

mile. That’s a soft estimate and before undertaking construction of the network we recommend

that any provider fine-tune that estimate by looking in detail at the cable route to determine the

condition and spacing of current wires and talking with each specific electric utility regarding a

provider’s specific project and their Make Ready policy.

• It’s also sometimes necessary to place a new pole if rearranging the current wires still won’t meet

NESC code. The cost of placing the new pole and of moving everybody else’s wires to the new

pole would also be the responsibility and cost for a new broadband service provider.

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• The Finley network design assumes that a steel messenger will be placed 40 inches below the

power neutral (or at the lowest point of the electric network per NESC code) and an all dielectric

cable will be lashed to the steel messenger. This cable placement is acceptable in industry practices

and meets typical construction standards and the requirements of the NESC code.

Make-Ready. The most important aspect is something that the industry calls make-ready. There are

national electric codes that define the spacing between the wires of different utilities. In rural areas most

poles will already be carrying electric wires and telephone wires. There also could be existing fiber on

some roads that is used for some purpose other than serving households and businesses.

The national electric codes include two important requirements that can affect the cost of getting onto

poles. There must be sufficient space between the different providers on a pole. For example, a new fiber

must be at least 18 inches above the cable below it (be that a telephone cable or wires from a cable TV

company). There are also minimum clearance rules for the lowest that any cable can be above ground for

the safety of those beneath the pole. These rules are in place to provide safety for technicians that work

on cables during and after storm damage.

When there is not sufficient room for a new wire, then an industry practice called make-ready is invoked.

Make-ready is the process of moving the existing wires on poles, as needed, to make room for a new wire.

The make-ready can be somewhat simple, such as moving an existing wire by a few inches, or it can be

major, such as having to move all of the wires on a pole or possibly even replacing the pole with a taller

one.

Make-ready is expensive for two reasons. First, the new attacher must pay to make all the needed changes,

even if the old wires were out of specification. Second, there can be big time delays while other providers

using a pole come and make their changes to make room. Make-ready can be some expensive that in some

cases it’s cheaper to bury a fiber rather than to deal with the cost and delays doing the make-ready to be

able to add a new fiber.

One Touch Make-Ready. The FCC passed new rules that went into effect in May of 2019 that should

make it easier to get onto poles. The new rules apply only in the thirty states that follow FCC pole

attachment rules, and New Mexico is one of those states.

The most significant change in the rules is a new classification of poles as either simple or complex make-

ready. The order defines how to make this classification. In real life practice, the new attacher will suggest

this determination, although it could get overturned by the pole owner.

There are streamlined new rules and timelines for completing the make-ready on simple poles. If the pole

owner is unwilling to commit to fixing simple poles in the needed time frame, then the new attacher can

make the changes after properly notifying the pole owner. The new attacher is free to rearrange any

existing wires as needed, again after having properly notified all the parties. These new rules eliminate

situations where a pole owner refuses to cooperate with a new attacher, as happened in a few cities where

AT&T fought Google Fiber. Something to consider is that the rules require using a make-ready contractor

that has been pre-approved by the pole owner – but there are ways around this in some circumstances.

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These new rules can mean a big improvement in construction schedule where the needed changes are for

simple poles. That would be poles where wires need to be moved to make room for the new attacher.

However, the new rules are not necessarily faster for complex poles. Those are poles where the make-

ready could cause damage to existing wires or where the old pole must be replaced. The make-ready

process for complex poles has always been slow. The new rules tighten up time frames a little, but the

time required to get onto a complex pole can still take a long time.

For complex poles the process will still allow the existing wire owners to work sequentially – meaning

that they can invite each existing company on the poles to do their own work, one company at a time. This

coordination must be scheduled by the pole owner. The process could still take six months even if done

perfectly. The new rules don’t seem to provide a solution for when the pole owner or the existing attachers

drag their feet on complex poles. Other than some slightly improved timelines, the work on complex poles

looks to still be as dreadful and slow as the old make-ready rules.

Below is a map image of the complete Sierra County FTTP network design. We created the FTTP network

design in an all GIS format and is available to Sierra County for future purposes.

Miles of Fiber Construction

The total miles of fiber in the network design is as follows:

Miles Cost Cost / Mile

Rural County 563.65 miles $21,121,352 $ 34,572

Two Cities 105.56 miles $12,584,135 $119,213

Total 669.21 miles $33,705,487 $ 50,366

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Electronics Design

The predominant technology solution for FTTH networks deployed today is a gigabit passive optical

network (GPON). These networks are capable of delivering 2.5 Gigabits of downstream bandwidth to a

cluster of customers. There are future-looking PON technologies such as XGS-PON and NGPON2 that

can deliver 10 gigabits of downstream bandwidth to customers. We will discuss later in the report why we

did not choose these technologies. We have designed the network to allow for expansion to faster

technologies if needed at some time in the future.

One consideration when designing PON networks is the optical distance from an OLT port to the customer

ONT, the design of the 2.5 GPON network for Sierra County includes a 35km design limit and was

selected based on vendor optic availability. We designed the hut locations to account for this optical

budget limitation.

The basic design characteristic of a PON network is that multiple customers in a neighborhood can share

the same fiber. This is accomplished by use of splitters located throughout the network that are used to

split one fiber from the central office or one of the huts to serve up to 32 customer locations. The primary

advantage of this fiber sharing is that far fewer pairs of fiber must be deployed in the customer network.

Our design provides the ability to serve 100% of Sierra County locations. The design is also scalable so

that future customer or future electric meters could easily be incorporated into the network.

Future expansion of the network could utilize several technologies such as course wave division

multiplexing (CWDM) or dense wave division multiplexing (DWDM) to increase bandwidth without

having to remove and replace equipment in the network.

Each network node is also capable of offering metro ethernet services. Think of metro ethernet service as

the IP equivalent of traditional T1 type services offered by legacy telecom carriers. There are likely to be

businesses or large data users around the network that will want metro Ethernet connectivity.

Local Network Configuration

The following diagram shows the configuration of the network starting with one of the hub sites and

ending at each member premises.

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Connection to the Internet

The central office (C.O.) located in Truth or Consequences is the primary core location for the whole

network. In Truth or Consequences will be two redundant and diversely routed fiber connections to the

Internet. These connections could tie to the Verizon Technologies Point of Presence (POP) on the east

side of Sierra County and to CenturyLink in the southern end of Sierra County.

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While more desirable backbone internet connections would be ideal, due to the remote nature of Sierra

County these are the best options to provide redundancy. With the addition of fiber assets to the East side

of Sierra County and the location of Spaceport America in the vicinity it may be possible to attract

additional investment in order to complete a ring connection to in the southeast part of Sierra County and

make an additional backbone network connection. We have designed an additional 12 fiber connection

to Spaceport America for this purpose.

Central Office & IP Core Network

As shown in the Basic Fiber Ring Diagram of this report, our design assumes those connections could be

made using two 80-gigabit Ethernet routers. Using two routers will allow providers to balance the Internet

traffic load across two connections (send some Internet traffic on each route) and also will assure that

Sierra County providers will remain connected to the Internet should a fiber get cut or one of the routers

fail.

Also not shown on the diagram is a pair of redundant 10-gigabit Ethernet switches that are located in each

hub. The primary purpose of these routers is to light the fibers on the backbone fiber and communicate

with the two neighboring hub locations. These Ethernet switches can also be connected to other electronics

at a hub site that is used to provide customer products. For example, the Ethernet switches can be

connected to DHCP/DNS servers that route and receive traffic from the Internet. They can be connected

to network management servers that give technicians access to look at the network. They could be used

to connect to electronics that provide telephone service, smart-home services, or other future services for

members.

Optical Line Terminal (OLT)

The electronics used to light the fiber to customers is called an optical line terminal (OLT). This is the top

piece of electronics shown on the diagram. Our design places one OLT in the central office and one in

each remote hut. OLTs must be powered, and so each hut location will contain equipment needed to

provide power, including batteries and other back-up power to keep the network functioning in case of a

power outage.

An OLT functions using circuit cards which can each service between 128 to 256 subscribers. Multiple

cards can be installed in each OLT chassis and multiple chassis can be installed in each remote hub site if

ever needed, meaning that it’s easy to scale the network to accommodate significant future growth.

There are multiple vendors that provide an all-inclusive PON solution combining the cabinet and FTTH

equipment solution. All vendors meet industry standards and all of them are priced similarly.

PON Splitters

The next component on the network diagram is a PON splitter. This is a device that can “split” one fiber

in order to connect up to 32 customers. On the diagram you can see that there is only one fiber between

the OLT and the GPON splitter. This is the place in the network where significant fiber can be saved since

one fiber coming into the splitter can serve up to 32 customers. The splitters do not require power, which

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is why they are referred to as passive. The splitters can be located anywhere in the network where fiber

splits are needed to reach customers. Generally, some of the splitters are located in the central office core

or at the various network nodes, but many are located in small neighborhood cabinets located closer to

customers.

PON Cabinet

Associated with a splitter cabinet is a PON cabinet. The purpose of these device is to neatly arrange and

manage the fibers coming into or out of the splitters to make it easy to identify which fiber serves which

customer. The primary purpose of the PON cabinet is to accumulate customer connections at strategic

points with the design goal that no fiber in the network needs to be larger than 288 fibers. The PON

cabinets designed for the Sierra County network are of varying sizes that depend on the customers served

from a given hut location. These cabinets are all sited in areas adjacent close to road access and we would

recommend that Sierra County providers acquire a private easement for these sites. The exact location of

PON cabinets would be determined as part of the detailed fiber plant design.

Below is a picture showing the insides of a typical PON cabinet site. This site includes both a PON cabinet

and a splitter cabinet.

Fiber Drops

The local distribution fibers are built to emanate from PON cabinet sites to reach to every customer

location. The fiber design assumes a fiber built to reach each location in Sierra County, even if they don’t

initially buy service.

To connect a customer to the fiber network a fiber drop is built from the street to connect to the outside of

a customer premise building. The customer drop is a two-fiber cable which is fusion spliced to a single

fiber of the main line cable. These splices are housed in a splice case that is sized for each location

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depending upon the number of homes or businesses that can be served. Splice cases are installed

everywhere in the network to provide future access for connecting customers – even in locations where

there are homes or businesses that might not initially take service.

At the Customer Location

The piece of customer electronics used to serve customers is referred to in the industry as an ONT (Optical

Network Terminal). This is an electronic device that contains a laser, and which connects back to the OLT

in the huts or the central office. The ONT receives optical light signals from the fiber network and converts

the signal to traditional Ethernet on the customer side of the device.

Originally the ONTs were only placed on the outside of buildings in a small enclosure and powered by

tapping into the electricity after the power meter. But today there is also an ONT that can be placed indoors

and that is powered by plugging it into an outlet, much like the cable modems used by cable companies.

The cost of the two kinds of units are nearly identical and so the study doesn’t choose between the two

types of units.

Some companies still put the ONT on the outside of the home to give their technicians 24/7 access to the

units. Other providers are electing internal units since they are protected from the weather. The industry

is split on this choice, but it appears that internal units are becoming the most predominant choice for new

construction. One of the major contributing factors that favors indoor ONTs is that ISPs are tying the

ONTs to indoor WiFi routers to provide good wireless connectivity within the home.

ONTs are available in multiple sizes that can be categorized into units designed to serve homes and small

business and units designed to serve large businesses. The study assumes that the smaller unit will be used

for most customers, including most small businesses. These units provide one to four Ethernet streams,

which is sufficient for most customers.

Historically, many FTTH networks have been designed with battery back-up for the ONT. However, many

small fiber providers have stopped providing batteries. The batteries were historically installed to power

telephones in the case of a power outage at the home. Old copper phones received power from the line

and could be used when the power was out. However, there is no power in a fiber and thus a battery backup

is required to maintain phone service. In 2015 an FCC ruling declared that every voice provider must offer

a battery back-up solution for customers that buy telephone service that is not delivered on copper. That

ruling said that fiber ISPs only have to make these units available and that customers could be charged the

full cost of the unit.

Regardless of the type of ONT (indoor or outdoor), it will be necessary to drill through the side of the

home to bring wiring. ISPs have widely differing ideas on the best way to do this – but most ISPs look for

the installation method that requires the least amount of work inside of the customer premise. Much of the

wiring needed inside a premise is driven by trying to get wires to a cable TV settop box, but since we’ve

assumed the Sierra County provider won’t be offering cable TV your options are easier and costs lower.

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Multi-Dwelling Units (MDUs)

There are some apartment buildings in the Sierra County serving area, and there are several issues that

affect your ability to bring fiber to MDUs, which are apartment and condominium complexes. Generally,

the drop and electronics costs are lower for an MDU since these components can be shared among multiple

tenants. But the wiring costs to reach these tenants can easily offset these savings.

The study assumes that the cost of serving an MDU customer is roughly the same as serving an equal

number of single-family homes (a triplex would cost the same as 3 homes, for example). The most cost-

efficient way to serve these units is to bring fiber directly from the street to the individual units.

Apartment property owners are not required to allow anyone to build fiber on their property or bring fiber

to their tenants. You may find a few apartment owners that will not give access. This is generally due to

compensation and an apartment might already have a long-term contract with the telco or cable company

to provide service. This companies also often enter into financial arrangements where they might pay

commissions to the property owner for giving them access.

C. The Technology

Fiber Technology

As discussed above, and per Sierra County’s preference, we only studied fiber technologies. Following

is a more in-depth look at fiber technology.

The fiber design considered two technologies. Active Ethernet technology has been in widespread use for

more than 30 years; GPON has been used for over 15 years. These are both mature technologies that are

widely used and well understood industry wide.

Gigabit Passive Optical Network (GPON)

This technology was chosen as the primary way to deliver broadband. GPON makes use of optical splitters

so that as many as 32 customers can share the same fiber (i.e., light source). If fewer customers are served

from the same light source there is more potential bandwidth for each customer.

A GPON network can be designed in numerous configurations, but all designs include the same key

elements. All networks start at a network core where the connection is made to the Internet. At this core,

the ISP generally inserts the signals for the various products being delivered to customers.

From the core there are direct fibers to Optical Line Terminal (OLT), which are the devices that provide

the light source for customers. These OLTs can be located in the same location as the fiber core or else

can be spread around the city in neighborhood nodes, generally in huts or large cabinets.

There is one fiber leaving the OLT for each “PON” which is the local network consisting of up to 32

customers. These fibers go to splitter cabinets where each fiber is then “split” into the 32 separate fibers

that go to customers. The splitter cabinets can be located at the same location as the OLT electronics, or

they can be moved deeper into the network to be closer to customers. The name “passive” for the

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technology comes from the fact that the splitter site doesn’t require electronics or power – the splitting is

just what it sounds like – one fiber is spliced and split into 32 individual paths. The paths from the splitter

are “home runs” meaning that there is a dedicated fiber between a splitter site and each customer.

One of the biggest benefits of the GPON network is a savings in fibers in the network. Only one fiber is

needed to serve an OLT and one fiber goes from the OLT to each splitter. The fiber is only divided into

individual customer fibers at the splitters, which can be deep into the network. The GPON technology

chosen provides 2.4 Gbps down and 1.2 Gbps upstream from each group of 32 customers.

Another advantage of PON is the number of electronic interfaces is reduced by the split, since one laser

at the OLT can communicate with up to 32 customers. Increased bandwidth can be gained by reducing

the number of customers on a PON – reducing a PON to 16 customers would double the bandwidth

available per customer. Most fiber builders today choose GPON for residential service because it provides

acceptable bandwidth and is less expensive than competing technologies.

One consideration when designing PON networks is the optical distance from an OLT port to the customer

ONT; the design of the 2.5 GPON network includes allowance for 1.32 split and a distance limitation of

20 km (12.4 miles) design limit. This design was selected based on current vendor optical transmission

availability. Due to the limited size and distances within the electric service territory, the number of

remote cabinets resulting from detailed engineering will be mostly constrained by cabinet capacity rather

than distance.

Future expansion of the network could utilize several technologies such as course wave division

multiplexing (CWDM) or dense wave division multiplexing (DWDM) to increase bandwidth without

having to remove, rearrange, and/or replace equipment in the network.

The current vendors for PON equipment include Alcatel-Lucent, Adtran, Zhone, Nokia, and Calix. Today

passive optical networks use the gigabit passive optical network (GPON) technology primarily, even

though more advanced versions do exist and are discussed below.

Advantages.

• Lower Cost (typically 10-20% less than Active E for the core fiber electronics).

• Can support both RF Broadcast TV and digital IPTV.

• More efficient use of bandwidth at the customer premise. A GPON network delivers 2.4

Gbps of data to a small cluster of houses and an individual customer will normally have

access to much of this bandwidth for data transmission, thus giving the customer a faster

bandwidth experience at the home.

• For the most part the technology can utilize existing home wiring. The PON network is

designed to tie into existing telephone and cable wiring if they are conveniently located

and in good working order.

• Requires no field electronic devices. The key word about a PON network is that it is

passive. This means that no power is needed except in those locations, generally at central

offices and major hubs or huts, where the provider places electronics.

• Can easily provide traditional T1s for larger business customers using business ONTs.

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Disadvantages.

• Customer must be within 12 miles of hub when using 1x32 splitter. This means with large

installations that multiple hubs are required.

• More customers potentially are affected by a fiber failure in the field.

Active Ethernet (Active E)

Each network node in the design is capable of offering metro Ethernet services using active Ethernet

technology. This technology provides a direct data connection to a single customer.

An Active E network is essentially a fiber “home run” from the Central Office or other node, meaning

that one fiber goes from the electronics core directly to the customer. This technology has several

advantages and is well-suited for serving large businesses where the customer requires more stringent

network uptime and higher bandwidth. An Active E network also can provide symmetrical data

capabilities (upstream and downstream data rates are the same) at high data speeds. The downside to

Active E is that more fibers are required in the network since fibers are not shared between customers.

Electronic costs are generally also higher since there is a dedicated laser at both ends of the connection to

every customer. Active E also has higher data capabilities and can inexpensively provide for data rates up

to 10 gigabits per second. Faster speeds are possible, but with significantly higher electronics costs. One

of the biggest advantages of Active E is that it’s easy to change the connection to a single customer as

customer requirements change – the laser serving that customer can be changed without affecting any

other part of the network.

The primary vendors in the Active E equipment market are Cisco, Calix, Adtran, and Nokia-Alcatel-

Lucent. Since PON equipment has won a much greater market share than Active E equipment, this part

of the industry has been in a bit of a decline for a few years. Active E is easier to engineer and expand and

is useful for customizing solutions for small volume specialized applications.

Advantages.

• Can serve customers up to 36 miles from last active field device.

• Requires less pre-planning and engineering.

• A single point of failure will often affect fewer customers

• Offers true non-blocking 1 Gbps and faster speeds.

• Easily upgradeable to 10 Gbps by switching optics.

Disadvantages.

• Shares data and CATV bandwidth in the same data stream. Today an Active E system can

cost-effectively deliver up to 10 gigabits of data to each home, but more typically these

networks are designed to deliver 1 gigabit. This is not a shared pipe with neighbors and

each customer can get a dedicated gigabit pipe. However, this one data stream must

support CATV, data, and voice together. Thus, if a customer is watching multiple HDTV

sets, the amount of bandwidth left for data will be something less than a gigabit.

• Usually requires additional home wiring. Since Active E provides only one bandwidth (the

data stream), the video service (IPTV) always requires a high bandwidth data wire, such as

category 5 or 6 wire to each TV location. The increased use of WiFi and advances in WiFi

speeds have mitigated some of this.

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• More physical space is required for electronics because there are more fiber terminations

onto the electronics. If the electronics are in the field, the cabinets housing the electronics

and fiber terminations can become relatively large. This means most cabinets need to be

on private land and not on public rights-of-way.

• Fewer customers served per electronic chassis. Since only one customer can be served per

laser then there are fewer customers that can be served from a single card.

• Larger fiber cables are typically used due to the requirement of a single fiber per customer

from the ONT to the electronic chassis. The use of larger fiber cable in an aerial application

may significantly increases make-ready costs.

D. Competing Technologies

Existing Technologies

There are at least eight broadband technologies used in the county today to deliver broadband. Each of

these technologies will be explained below.

• Windstream and CenturyLink serve Sierra County with copper telephone wires using DSL

technology. There are many rural residents who live outside the range of DSL.

• TDS uses hybrid fiber/coaxial (HFC) technology to provide the triple play services in Truth or

Consequences.

• There is a small amount of active Ethernet technology used to bring fiber directly to large

businesses, schools, cell towers, etc.

• Fastwave uses Point-to-point microwave technology to connect to their core hub in Las Cruxes as

well as connecting directly with Windstream in Truth or Consequences.

• There are several Wireless ISPs (WISPs) that are delivering broadband using point-to-multipoint

wireless technology.

• Some rural homes buy broadband from satellites.

• Some rural homes get broadband using the data on their cellphone plans.

• There are likely at least a few households that still us dial-up to reach the Internet.

DSL over Copper Wires

Windstream and CenturyLink provide broadband using DSL (Digital Subscriber Line). DSL is used to

provide a broadband path over the copper. Most of the geographic areas of Sierra County is served with

telephone company copper wires. These networks were mostly built between the 1950s and early 1970s.

The copper networks were originally expected to have an economic life of perhaps forty years and have

now far exceeded the economic life of the assets. The copper networks are deteriorating as a natural

process of decay due to sitting in the elements. Maybe even more importantly, the copper networks have

deteriorated due to neglect. The big telcos started to cut back on maintenance of rural copper in the 1980s

as the companies were deregulated from some of their historic obligations. Maintenance has been reduced

even further as the telephone properties changed ownership and are now owned by CenturyLink and

Windstream. At some point the copper networks will die even though regulators continue to act like they

will keep working forever.

DSL works by using frequency on the copper that sits just above the frequencies used for telephone

service. There are different kinds of DSL standards, each of which has a different characteristic in terms

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of how much bandwidth they deliver and how far the signal will travel. The most efficient forms of DSL

can deliver up to 24 Mbps service over a single telephone wire. Most of the DSL in Sierra County is of

older varieties and delivers slower speeds.

The most important characteristic of DSL is that data speed delivered to customers decreases with the

distance the signal travels. This means that rural customers often get slow DSL, which in the worst cases

is not much faster than dial-up.

The general rule of thumb is that most of the types of DSL can deliver a decent amount of bandwidth for

2-3 miles over copper. The telephone companies transmit DSL from each of their historic central offices.

They also might transmit DSL from deeper in the copper network from field cabinets, such as one that

might be placed at the opening into a subdivision. The vast majority of rural households in Sierra County

are more than 2-3 miles from a town or a field transmitter, meaning that most rural customers in the study

area can get only very weak and slow DSL, if they’re able to get any DSL at all.

DSL signal strength is also affected by the quality of the copper. The newer the copper and the larger the

gauge of the copper wires, the better the signal and the greater the bandwidth. Many of the copper wires

in Sierra County are likely to be 50 or more years old and have outlived their original expected service

life.

Windstream and CenturyLink accepted a federal grant in 2014 that was supposed to be used to strengthen

rural DSL to speeds of at least 10/1 Mbps. This was done with the CAF II program and was described

earlier in the report. The CAF II upgrades are scheduled to be completed by the end of 2020.

Hybrid Fiber Coaxial Network

TDS purchased the existing small cable company that serves Truth or Consequences. The coaxial copper

wires in that network are also aging, like the telephone copper wires. The coaxial network there was likely

built in the 1970s. Coaxial cable networks exhibit signs of aging sooner than telephone copper networks

because the wires act like a huge antenna, and older networks attract so much noise that it become harder

to transmit the signals through the wires.

TDS upgraded the technology used on the purchased system, and built fiber to cut down on the size of

neighborhood nodes. TDS also likely replaced some of the coaxial cables during that upgrade. Parts of the

wiring are still old, but overall, the upgrades resulted in a significant improvement in the network.

The technology used in the network is referred to as Hybrid Fiber Coaxial (HFC). Hybrid refers to the fact

that an HFC network uses both a fiber backbone network and a copper network of coaxial cable to deliver

service to customers. HFC networks are considered lean fiber networks (meaning relatively few fiber

strands) since the fiber is only used to deliver bandwidth between the headend core and neighborhood

nodes. At each node is a broadband optical receiver that accepts the fiber signal from the headend and

converts it into a signal that is sent over coaxial cable to reach homes and businesses.

An HFC system handles delivery of customer services differently than an all-fiber network. For example,

in an HFC network, all the cable television channels are transmitted to every customer and various

techniques are then used to block the channels a given customer doesn’t subscribe to.

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In an HFC network, all the customers in a given node share the broadband in that node. This means that

the number of customers sharing a node is a significant factor - the fewer the customers, the stronger and

more reliable the broadband signal. Before cable systems offered broadband, they often had over 1,000

customers on a node. But today the sizes of the nodes have been “split” by building fibers deeper into

neighborhoods so that fewer homes share the data pipe for a given neighborhood. It is the architecture of

using neighborhood nodes that has always given a cable network the reputation that data speeds will slow

down during peak usage times, like evenings. If nodes are made small enough then this slowdown does

not necessarily have to occur.

The amount of bandwidth available to deliver Internet access that is available at a given node is a function

of how many “channels” the cable company has dedicated to data services. Historically a cable network

was used only for television service, but in order to provide broadband the cable company had to find

ways to create empty channel slots that no longer carry TV programming. Most cable systems have

undergone a digital conversion, done for the purpose of freeing up channel slots. In a digital conversion a

cable company compresses video signals and puts multiple channels into a slot that historically carried

only one channel.

The technology that allows data to be delivered over an HFC system follows a standard called DOCSIS

(Data Over Cable Interface Specification) that was created by CableLabs. All except a few tiny and rural

cable networks have upgraded in the past to the DOCSIS 3.0 standard that allows them to bond together

enough channels to create broadband speeds as fast as about 250 Mbps download. A few years ago cable

companies started upgrading to a new standard, DOCSIS 3.1, that theoretically allows all of the channels

on the network to be used for data and which could produce speeds as fast as 8–10 Gbps if a network

carried only broadband and had zero television channels. Since there are still a lot of TV channels on a

cable network, most cable companies have increased the maximum broadband speeds to between 500

Mbps and 1 Gbps using DOCSIS 3.1.

Since the TDS network delivers around 100 Mbps of broadband it’s likely that TDS has upgraded the

network to DOCSIS 3.0. There might be a lot of additional cost to upgrade to the latest DOCSIS 3.1 that

could involve changing the power taps in the cable network and even replacing a substantial amount of

coaxial cable.

The one big data limitation of a DOCSIS network is that the standard does not allow for symmetrical data

speeds, meaning that download speeds are generally much faster than the upload speeds. This is an

inherent design in DOCSIS 3.0 and 3.1 where no more than 1/8 of the bandwidth can be used for upload.

CableLabs has developed an upgrade being called DOCSIS 4.0 that will allow for symmetrical gigabit

data speeds. This will require even more empty channel slots on a cable network and the new standard

assumes that cable company would increase total system bandwidth of the network to at least 1.2 GHz of

bandwidth. So far, the big cable companies have been silent on the topic and there is speculation that few

of them will be interested in this expensive upgrade.

There is a distance limitation on coaxial cable, but since these networks are not often built in rural areas

this rarely comes into play. Unamplified signals are not generally transmitted more than about 2.5 miles

over a coaxial network. This limitation is based mainly on the number of amplifiers needed on a single

coax distribution route. Amplifiers are always needed for coax distribution over a couple of thousand feet.

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Modern cable companies try to limit the number of amplifiers on a coaxial route to five or less since

adding amplifiers generally reduces broadband speeds.

Metro Ethernet

Metro Ethernet is the primary technology used to deliver large bandwidth to a single customer over fiber.

This technology is used in Sierra County to deliver fiber today to cell towers, and possibly to a few other

places like schools that require a significant amount of bandwidth. This technology is often also referred

to as active Ethernet.

Metro Ethernet technology generally uses lasers that can deliver 1 gigabit or 10 gigabit speeds, although

lasers as fast as 100 Gbps are available. ISPs can choke these speeds to slower levels based upon what a

customer is willing to pay for.

Many ISPs dedicate a fiber for each metro Ethernet customer, but that’s not mandatory. For example, an

ISP could light a fiber to deliver 10 Mbps and string that fiber to multiple customers each buying 1 Mbps

service.

Point-to-Point Microwave.

This is a wireless technology that also delivers Metro Ethernet using a wireless technology instead of

fiber. We know there are microwave links being used in Sierra County to bring in broadband connections

from outside the County. Wireless point-to-point technology today can deliver speeds as fast as 2 Gbps

for one mile, or smaller amounts of bandwidth for greater distances, with the longest being around six

miles. ISPs elect to use wireless point-to-point technology because it can be significantly less expensive

than building fiber, particularly in areas with challenging terrain, such as atop the many mountains found

in Sierra County.

Satellite Broadband.

There are currently two satellite providers available in the US – Viasat (which was formerly marketed as

Exede or Wildblue) and HughesNet. For both, the availability depends upon having a clear line of sight

from a satellite dish at a customer location to a satellite.

The most limiting aspect of satellite broadband is latency, which means delay in the signal. These satellites

are parked at over 22,000 miles above the earth, and when an Internet connection must travel to and from

a satellite, there is a noticeable delay; that delay makes it hard or impossible to do real-time transactions

on the web. Current satellite latency can be as high as 900 milliseconds. Any latency above 100

milliseconds creates problems with real-time applications such as streaming video, voice over IP, gaming,

web sites that require real-time such as online education, and making connections to corporate WANs (for

working at home). When the latency gets too high such services won’t work at all. Any website or service

that requires a constant connection will perform poorly, if at all, with a satellite connection.

Satellite broadband also comes with tiny data caps, meaning a customer is highly limited by the amount

of data they can send or receive during a month.

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Cellular Broadband.

There are rural homes in Sierra County using their cellphone data plans for home Internet access. There

are a number of issues with this, First, the amount of broadband available is small. Most cellular data plans

are for less than 10 gigabytes of total broadband usage in a month.

The cellular companies also offer “unlimited” data plans, but these plans only provide only 20-30

gigabytes in a month, after which they get restricted to extremely slow speeds. There have been reports

across the country of cellular carriers that refuse to honor unlimited plans for rural customers who use this

for home Internet access. The unlimited plans typically restrict the amount of broadband that can be

“tethered,” meaning connected to a computer or other device other than the cellphone. CCG has talked to

rural customers across the US who have monthly cellular data bills in excess of $500 per month if they

use cellular data to support students doing homework.

AT&T and T-Mobile have started to offer what they call fixed cellular data plans. With these plans the

carriers place a small dish on a customer home and use cellular frequencies to deliver fixed wireless

broadband. These plans also have data caps, but they are much larger than the caps on regular cell phones.

For example, the AT&T fixed cellular plan has a monthly data cap of 215 gigabytes. These plans are

probably not in Sierra County today. Currently, AT&T only offers this plan in places where they are the

incumbent telephone company. T-Mobile has said they will offer this nationwide if they are allowed to

merge with Sprint – so we’ll have to see if this shows up in Sierra County over the next few years.

Point-to-Multipoint Wireless.

There are wireless ISPs (WISPs) using this technology to deliver rural broadband. The network generally

consists of radios placed at a tower or other tall location and connections to homes and businesses are

beamed wireless. This is the technology being deployed by WISPs (wireless ISPs). There are several

current frequencies of spectrum that can be used for this purpose and more that will be coming on the

market in the next few years:

• WiFi: WiFi is short for wireless fidelity and is meant to be used generically when referring to any

type of 802.11 network. The FCC has currently set aside two swaths of frequency for WiFi: 2.4

GHz and 5.7 GHz. In a point-to-multipoint network, these two frequencies are often used together.

The most common way is to use the higher 5.7 GHz to reach the closest customers and save the

lower frequency for customers who are farther away.

In practical use, in wide-open conditions, these frequencies can be used to serve customers up to

about 6 miles from a transmitter, although speeds can be slow at the far end of six miles.

Nationwide many wireless carriers advertising speeds in the range of 25 Mbps. We know of

networks doing speeds up to 75 Mbps for short distances. Such a network must have fiber built to

the radio transmitters and also can’t carry too many customers on a given radio system.

The FCC has approved the use of 6 GHz WiFi for indoor use but is still investigating the use in

outdoor point-to-multipoint networks. There are around 100,000 existing outdoor microwave links

using the frequency and the fear is that unlicensed spectrum could interfere with existing links.

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• CBRS Spectrum - 3.5 GHz: In 2019 the FCC approved the use of the 3.5 GHz spectrum band

known as the Citizens Broadband Radio Service or CBRS. This is a huge swath of spectrum

covering 150 MHz of spectrum between 3550 and 3700 MHz.

The FCC has set aside 80 MHz of this spectrum for public use, similar to WiFi, and will auction

the remaining spectrum of 70 MHz in June 2020. In all cases this spectrum is shared with military

uses and the military will always get priority to use the spectrum.

The spectrum also must be shared among users in the public space – something that will be

monitored by authorized SAS administrators. The FCC named five administrators in the docket:

Amdocs, CommScope, Federated Wireless, Google, and Sony. It’s expected that the cellular

carriers are going to heavily use the public bandwidth for delivering 5G, so in many places this

spectrum might be too busy for using in a point-to-point application. However, in some rural

markets the public spectrum could go unused, in which case it would be available to boost the

speeds for fixed wireless broadband.

The FCC is also making it a little easier for smaller companies to win some of this spectrum in the

coming auction. The spectrum will be auctioned by county, one of the smallest coverage areas ever

used by the FCC. There is hope that the bigger carriers won’t pursue the licensed spectrum in rural

areas since they can use the free spectrum. The FCC has provided bidding credits to smaller entities

to help them bid against the larger carriers.

There are already a few rural carriers using the public portions of the spectrum for fixed wireless

service. This spectrum sits in the middle between the two WiFi bands used for fixed wireless today

and has great operating characteristics.

• White Space Spectrum: The FCC has been doing trials in what is called white space spectrum.

This is spectrum that is the same range as TV channels 13 through 51, in four bands of frequencies

in the VHF and UHF regions of 54–72 MHz, 76–88 MHz, 174–216 MHz, and 470–698 MHz. The

FCC order refers to whitespace radio devices that will work in the spectrum as TVBD devices.

The FCC approved greater use of these frequencies for point-to-multipoint radios.

The FCC auctioned a lot of this frequency in 2018, with the buyers ranging from the big cellular

companies and Comcast. This was called an incentive auction, because TV stations that gave up

their spectrum got a share of the sale proceeds. The FCC is now expected to make some of this

spectrum available for rural broadband. The rules have not yet been worked out, but they will

probably be something similar to what governs WiFi and be available to anybody.

There are two possible uses for the spectrum. On a broadcast basis, this can be used to make better

hotspots. A 2.4 GHz WiFi signal can deliver just under 100 Mbps out to about 100 meters (300

feet). But it dies quickly after that and there may be only 30 Mbps left at 200 meters and nothing

much after that. Whitespace spectrum can deliver just under 50 Mbps out to 600 feet and 25 Mbps

out to 1,200 feet.

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There is potential for the spectrum to extend point-to-multipoint radio systems in rural areas. White

space radios should be able to deliver about 45 Mbps up to about 6 miles from the transmitter.

One issue to be worked out is that the FCC rules require the radios using this frequency to use

what they are calling cognitive sensing. What this means is that an unlicensed user of the spectrum

will be required to vacate any requests for usage from a licensed user. While this would not be a

problem where there is only one user of the white space spectrum, where there is a mix of licensed

and unlicensed users the unlicensed provider needs to pair radios with other spectrums to be able

to serve customers when they have to cede usage to a licensed user.

C-Band Spectrum. On February 7, 2020, the FCC announced an upcoming auction in December

2020 of C-Band spectrum. This spectrum sits between 3.7 GHz and 4.2 GHz. The spectrum has

historically been used by satellite companies for communication between satellites and earth

stations. This is prime spectrum for 5G cellular broadband, but also could provide a huge benefit

to fixed wireless providers in rural America.

FCC Chairman Pai is asking Congress to approve using 10% of the proceeds of the auction to

provide the spectrum for rural broadband. At this early stage there’s no way to know if Congress

will do this or how it might work. There are a number of members of Congress pushing for better

rural broadband.

The C-Band spectrum sits next to the recently released CBRS spectrum at 3.5 GHz. Just as

additional spectrum benefits 5G, fixed wireless technology improves significantly by combining

multiple bands of frequency. Rural carriers have been arguing for years that the FCC should allow

for the sharing of spectrum. Proponents of rural broadband argue that two uses of spectrum can

coexist since most 5G spectrum is only going to be needed in urban areas. They believe that such

spectrum can be used in a point-to-multipoint configuration without interfering with urban 5G.

The big cellular carriers have always been reluctant to share spectrum mostly because it causes

them extra effort, so only the FCC, and in this case Congress, can make it happen.

There are several factors that are critical to a successful deployment of point-to-multipoint radios for rural

broadband:

• Using Multiple Frequencies. The newest radios are much improved over radios from just a few

years ago because they use spectrum bands including 2.4 GHz, 3.5 GHz, and 5.0 GHz. Radios will

get even better if they include white space spectrum, CBRS spectrum or C-Band spectrum. Having

more spectrum matters because each frequency band has different operating characteristics in

terms of distance and ability to penetrate obstacles. Having multiple frequencies available means

an increased opportunity to find a good solution for each customer in the service area.

• Adequate Backhaul. The best fixed wireless coverage comes when there is fiber at the transmitter.

Customer broadband speeds are diminished if a tower doesn’t receive enough bandwidth – this is

the primary reason why many WISPs deliver speeds under 10 Mbps.

• Terrain/Topology. There are often physical barriers like hills or heavy woods that can limit or

block customer bandwidth. Most of these technologies require a line of sight, meaning that there

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must be a clear unimpeded visual path between the tower and the customer. Customers that live in

valleys or behind hills might not be able to get service. If the signal has to pass through trees or

other obstacles the strength of the signal is diminished. The signal can also degrade with rain or

snowstorms blocking some of the signal.

Future Technologies

This section looks at new technologies that are likely coming within the next years to the US.

Next Generation Fiber Technologies. There are two next-generation and competing fiber-to-the-home

technologies that will allow connections to customers to be upgraded to 10 Gbps broadband and even

faster - NG-PON2 or XGS-PON. The current widely deployed GPON technology will eventually hit a

technology wall. The technology delivers 2.4 Gbps downstream and 1 Gbps upstream for up to 32

customers, although many networks are configured to serve 16 customers at most. This is still an adequate

amount of bandwidth today for residential customers and can easily provide a gigabit product to every

customer if desired.

GPON technology is over a decade old, which generally is a signal to the industry to look for the next

generation replacement. This pressure usually starts with vendors who want to make money pushing the

latest and greatest new technology - and this time it’s no different. After taking all the vendor hype out of

the equation it’s always been the case that any new technology is only going to be accepted once that new

technology achieves an industry-wide economy of scale. That almost always means being accepted by at

least one large ISP.

The most talked about technology is NG-PON2 (next generation passive optical network). This

technology works by having tunable lasers that can function at several different light frequencies. This

would allow more than one PON to be transmitted simultaneously over the same fiber, but at different

wavelengths. That makes this a complex technology with multiple lasers and the key question is if this

can ever be manufactured at price points that can match other alternatives.

The only major proponent of NG-PON2 today is Verizon, which recently did a field trial to test the

interoperability of several different vendors including Adtran, Calix, Broadcom, Cortina Access, and

Ericsson. Verizon seems to be touting the technology, but there is some doubt if they alone can drag the

rest of the industry along. Verizon seems enamored with the idea of using the technology to provide

bandwidth for the small cell sites needed for a 5G network. However, the company is not building much

new residential fiber. They announced they would be building a broadband network in Boston, which

would be their first new construction in years, but there is speculation that a lot of that deployment will

use wireless 60 GHz radios instead of fiber for the last mile.

The market question is if Verizon can create enough economy of scale to get prices down for NG-PON2.

The whole industry agrees that NG-PON2 is the best technical solution because it can deliver 40 Gbps to

a PON while also allowing for great flexibility in assigning different customers to different wavelengths.

Still, the best technological solution is not always the winning solution and cost is the greatest concern for

most of the industry. Today the early NG-PON2 electronics are being priced at 3 - 4 times the cost of

GPON, due in part to the complexity of the technology, but also due to the lack of economy of scale

without any major purchaser of the technology.

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Some of the other big fiber ISPs like AT&T and Vodafone have been evaluating XGS-PON. This

technology can deliver 10 Gbps downstream and 2.5 Gbps upstream—a big step up in bandwidth over

GPON. The major advantage of the technology is that is uses a fixed laser which is far less complex and

costly. In addition, these two companies are building a lot more FTTH networks than Verizon.

While all of this technology is being discussed, ISPs today are already delivering 10 Gbps data pipes to

customers using Active Ethernet technology. For example, US Internet in Minneapolis has been offering

10 Gbps residential service for several years. The Active Ethernet technology uses lower cost electronics

than most PON technologies, but still can have higher costs than GPON due to the fact that there is a

dedicated pair of lasers—one at the core and one at the customer site—for each customer. A PON network

instead uses one core laser to serve multiple customers.

It may be a number of years until this is resolved because most ISPs building FTTH networks are still

happily buying and installing GPON. One ISP client told us recently that they are not worried about GPON

becoming obsolete because they could double the capacity of their network at any time by simply cutting

the number of customers on a neighborhood PON in half. That would mean installing more cards in the

core without having to upgrade customer electronics.

The bottom line of this discussion is that Finley Engineering chose not to consider NG-PON2 for the

primary technology to deliver FTTH services. The technology is still too expensive and since it has not

yet been accepted widely in the industry it might never get long-term support by vendors.

However, the Finley design allows for an eventual migration to XGS-PON or NG-PON2 through what is

called an overlay. That means introducing the new technology while maintaining the current network.

This would allow for an orderly transition over time while bringing faster 10-gigabit connection to

customers that need it immediately. The fiber network design can accommodate these future technologies

and faster speeds.

5G Cellular Technology. Today’s cellular network uses a technology called 4G LTE, although there are

still many rural cell sites using 3G technology. Nationwide, the cellular carriers in the US average data

speeds for 4G LTE is around 25 Mbps download, but the connection speed at rural cell sites are usually

slower than that average. Additionally, speeds drop in relation to the distance a customer is from a cell

site and good cellular data speeds only are available for 2-3 miles from a cellular tower. A customer that

is more than 3 miles from a tower will get slower cellular data speeds. This matters more in rural areas

since the cellular towers are a lot further apart than in larger towns.

The cellular carriers are in full 5G marketing mode. If you believe the TV commercials, you’d now think

that the country is blanketed by 5G, as each cellular carrier claims a bigger coverage area than their

competitors. However, almost all of their claims are marketing hype.

In 2020 there will be no cellular deployments that can be legitimately called 5G. Full 5G will not arrive

until the carriers have implemented the bulk of the new features described in the 5G specifications. For

now, none of the important features of 5G have been developed and introduced into the market. 5G

deployment will come in stages as each of the 5G features reaches markets – the same thing that happened

to 4G. For now, all the major 5G improvements are still under development in the labs.

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From what is discussed in the IEEE forums, most of the 5G features are 2 - 5 years away. The same thing

happened with 4G and it took most of a decade to see 4G fully implemented – in fact, the first US cell site

fully meeting the 4G standards was not activated until late 2018. Over time we’ll see a new 5G features

implemented as they are released from labs to field. New features will only be available to those that have

phones that can use them, so there will be a 2 to 3-year lag until there are enough phones in the market

capable of using a given new feature. This means every 5G phone will be out of date as soon as a new 5G

feature is released.

Most of what is being called 5G today refers to the introduction of new bands of spectrum. New spectrum

does not equal 5G – the 5G experience only comes with 5G features. Existing cellphones cannot receive

the new spectrum bands, and so the carriers are selling new phones that can receive the new spectrum and

labeling that as 5G.

Even when 5G is fully implemented, the cellular data speeds are not going to be blazingly fast. The 5G

specification calls for 5G cellular speeds of about 100 Mbps – which was also the specification for 4G,

but never realized. There will be reports of fast speeds using new spectrum, but that will die down quickly.

At first, anybody lucky enough to grab new spectrum will likely have a great experience. This will mostly

be because almost nobody else is using the spectrum at a given cell site. As more phones can use the new

spectrum, the performance will drop back to normal 4G speeds – and maybe even a little slower. Much of

the first wave of spectrum being released is in lower frequency bands such as 600 MHz for T-Mobile and

850 MHz for AT&T. These lower frequency bands don’t carry as much data as higher frequencies.

5G is likely not coming to rural America for a long time. It’s still more likely today for a rural caller to

snag a 3G connection than a 5G one using the new frequencies. Rural cell sites aren’t under the same

stress as urban ones due to fewer customers trying to use a given cell site, so there is no urgency upgrading

to 5G. Even when true 5G features comes to rural cell sites it’s not going to make much difference since

rural cell sites are far apart, and the cool bells and whistles with 5G involve having smaller cell sites close

together.

5G Hot Spots. There are commercials on TV showing cellphone speeds of over a gigabit. This is not 5G.

This is a phone equipped to use a new frequency band called millimeter wave spectrum. This is an ultra-

high frequency and is 10-30 times faster than traditional cellular frequency.

It’s easiest to think of this technology as a 5G hot spot, similar to a hot spot that might be found in a coffee

shop, only mounted outdoors on a pole. The signal only travels a short distance, mostly under 1,000 feet

from a transmitter. It needs line-of-sight and can be easily blocked by any impediment in the environment.

The signal won’t pass from outdoor transmitters into buildings. This technology only makes sense where

there are a lot of people, such as downtown urban corridors, stadiums, and business hotels.

There is a lot of speculation in the industry that this is a novelty product being deployed to convince the

world that 5G will be blazingly fast everywhere. The cellular carriers seem desperate to deploy something

they can call 5G, and super-fast cellphones are a good way to get headlines. However, it’s extremely

unlikely that any carrier is going to invest in cell sites that close together outside of major downtown

business districts. This technology is likely to never reach to residential neighborhoods in cities, suburbs,

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small towns, or rural America. A lot of industry experts are asking why anybody needs gigabit broadband

for cellphone, and only outside since there are no high bandwidth applications for cellphones.

Gigabit Cellular – Millimeter Wave Hot Spots

There are numerous articles on the web that talk about gigabit cellphone speeds. Ultrafast cell phone data

speeds rely on 5G hotspots using millimeter wave spectrum, with each cell site fed by fiber. This

technology does not provide what is typically considered as cellular coverage. This technology is being

deployed today in small downtown corridors in major cities.

There are characteristics of millimeter wave spectrum that make this an unusual broadband product. It can

be fast, and in ideal conditions a customer can receive a gigabit of cellular data speed. However, the

conditions are rarely ideal. The spectrum only travels a few hundred feet from a transmitter – meaning

that good coverage means having a cell sites perhaps every 600 feet. The spectrum is also only usable

outdoors – these high frequencies don’t penetrate anything. When a customer has a millimeter wave

connection, just walking into a building reverts to a 4G connection. The millimeter wave spectrum also

requires line-of-sight, meaning there must be an unobstructed path between the transmitter and the cell

phone. The signal will be lost by walking around a corner of a building and can even be lost of a customer’s

body blocks the signal.

Millimeter Wave Point-to-Multipoint Broadband

Another new technology that got a lot of press in 2018 is 5G point-to-multipoint radios using millimeter

wave spectrum. Verizon built this technology in a few neighborhoods in Sacramento and a few other cities

in 2018. The technology consists of deploying small cell sites on telephone or power poles and then beams

broadband to a small receiver attached to homes. To get fast speeds, this network requires building fiber

to feed the small cell sites. Verizon achieved speeds in the trials of 300 Mbps – with a hope over time that

they can get speeds up to a gigabit.

This technology has historically been referred to as fiber-to-the-curb (FTTC). The technology required

building fiber close to every potential customer and then using wireless, or some other technology other

than fiber to bring the broadband into each customer’s premise.

Millimeter wave spectrum is at extremely high frequencies of 24 GHz and higher. The only other common

use of this spectrum has been in the full-body scanners at airports. The primary operating characteristic of

millimeter wave spectrum is that the signal doesn’t travel very far. Most engineers set the realistic top

distance of this technology at about 1,000 feet from a wireless transmitter – and probably less is field

deployment.

The biggest impediment to the business plan is that it requires building fiber along each street served,

making this at least as costly as building fiber-to-the-home. The cost of putting fiber on poles can be

expensive if there are already a lot of other wires on the poles (from the electric, cable, and telephone

companies). In neighborhoods where other utilities are underground the cost of constructing fiber can be

even higher. Another challenge for the technology is that the millimeter wave spectrum requires a clear

path between the transmitter and a dish placed on the home – and that means that 5G is best deployed on

straight streets without curves, hills, or dense tree cover.

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The technology will only make financial sense in some circumstances. This means neighborhoods without

a lot of impediments like hills, curvy roads, heavy foliage, or other impediments that would restrict the

performance of the wireless network. It also means avoiding neighborhoods where the poles are short or

don’t have enough room to add a new fiber. It means avoiding neighborhoods where the utilities are

already buried. An ideal 5G neighborhood is also going to have significant housing density, with houses

relatively close together without a lot of empty lots.

This technology is not suited to downtown areas with high-rises; there are better wireless technologies for

delivering a large data connection to a single building, such as the point-to-point microwave radios used

by Webpass. This also makes no sense where the housing density is too low, such as suburbs with large

lots. This technology is definitely not a solution for rural areas where homes and farms are too far apart.

Verizon has not built any more of this technology since the trial in 2018. AT&T has said repeatedly that

they can’t see a business case for the technology unless the cost of radios come down significantly. It’s

hard to predict if this will ever be a viable business plan. However, for now, nobody is deploying this and

it doesn’t seem like a good fit for the topology in Sierra County.

One thing that is seldom mentioned in the press when talking about any of the 5G technologies is how

wonky all wireless technologies are in the real world. Distance from the cell site is a huge issue,

particularly for some of the higher frequencies. More important is local interference and propagation

issues. As an example, I live in Asheville, NC. It’s a hilly and wooded town and at my house I have decent

AT&T coverage, but Verizon sometimes has zero bars. I only have to walk a block away to find the

opposite situation where Verizon is strong and AT&T doesn’t work. 5G will not overcome the inherent

topographical and interference issues that affect cellular coverage today.

The Need for Small Cell Sites. Communities of all sizes are seeing requests for adding small cell sites.

These are small cellular sites that are placed on poles rather than on the big cellular towers. It’s likely that

when a cellular company, or one of their subcontractors makes such a request they will tell you this is for

5G.

The fact, is, for now these cell sites are being added to bolster the 4G networks. It’s not hard to understand

why the 4G cellular networks are stressed. The cellular companies have embraced the “unlimited” data

plans, which while not truly unlimited, have encouraged folks to use their cellular data plans. According

to Cisco the amount of data on cellular networks is now doubling every two years – a scorching growth

rate that would mean a 60-fold increase in data on the cellular networks in a decade. No networks can

sustain that kind of traffic growth for very long with becoming congested and eventually collapsing under

the load. There was no way for us to assess if the cellular networks in and around Truth or Consequences

or throughout Sierra County have adequate cellular broadband capabilities.

The cellular companies have a 3-prong approach to fix the performance problems for 4G. First, they are

deploying small cell sites to relieve the pressure from the big cellular towers. One small cell site in a

busy neighborhood eliminates a lot of stress from the big cellular tower in the neighborhood.

The cellular companies also have been screaming for new mid-range spectrum, because adding spectrum

to cell sites and cellphones expands the data capability at each cell site. Unfortunately, it’s a slow path

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between the FCC approving new spectrum until the time when new spectrum is installed in cell sites and

enabled in smartphones. The FCC has awarded several bands of mid-range spectrum in the year and are

looking at more.

Finally, the cellular carriers are counting on 5G. There a few aspects of 5G that will improve cellular

service. The most important benefit comes from frequency slicing that will right-size the data path to

each customer and will get rid of today’s network that provides a full channel to a customer who is

doing some minor broadband task. 5G will also allow for a customer to be connected to a different cell

site if their closest site is full. Finally, the 5G specifications call for a major expansion of the number of

customers that can be served simultaneously from a cell site. Unfortunately for the cellular carriers, most

of the major 5G improvements are still five years or more into the future.

There is a fourth issue that is a likely component of the degrading cellular networks. It’s likely with

expanding broadband needs that the backhaul links to cell sites are overloaded at times and under stress.

It doesn’t matter if all of the above changes have been made if the backhaul is inadequate – because

poor backhaul degrades all broadband services. The big cellular carriers have been working furiously to

build fiber to cell sites to eliminate leased backhaul. But much of the backhaul to cell sites is still leased

and the lease costs are one of the major expenses for cellular companies. The cellular companies are

reluctant to pay a lot more for bandwidth, and so it’s likely that at the busiest times of the day that many

backhaul routes are now overloaded.

Low Orbit Satellite Technology

There are several major companies planning on providing fleets of low-orbit satellites to provide

broadband service. This includes efforts by SkyLink (Elon Musk), Project Kuiper (Amazon), and

OneWeb that have announced plans to launch swarms of satellites to provide broadband. Following is a

list of the satellite plans that have been announced:

Low-orbit satellites have one major benefit over the current broadband satellites which sit more than

22,000 miles above the earth. The new satellites are proposed to orbit between 200 and 800 miles high.

Current

Future

Total

SkyLink

11,927

30,000

41,927

OneWeb

650

1,260

1,910

Telesat

117

512

629

Samsung

4,600

Kuiper

3,326

Boeing

147

Kepler

140

LeoSat

108

Iridium Next

SES 03B

Facebook

Total

13,153

39,728

52,881

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By being significantly closer to the earth the data transmitted from low-orbit satellites will have a latency

of between 25 and 35 milliseconds—about the same experienced in a cable TV broadband network. This

is much better than the current latency for high-orbit satellites which has been reported as high as 900

milliseconds. The low-orbit satellites will be able to easily support real-time applications like VoIP, video

streaming, live Internet connections like Skype, or distance learning.

One of the most interesting aspects of the technology is that a given satellite passes through the horizon

for a given customer in about 90 minutes. This means that there needs to be a fleet of satellites so that

there is always one in the sky over a given customer.

Elon Musk and his company SkyLink have the early lead. The company launched two test satellites in

2018 and launched 60 satellites in May of 2019. At the end of April 2020, the company had 440 satellites

in orbit. In 2019 the FCC established a rule where an operator must deploy satellites on a timely basis in

order to keep exclusive right of the spectrum needed to communicate with the satellites. Under the current

FCC rules, a given deployment must be 50% deployed within 6 years and completely deployed within 9

years. The company recently revised its launch scheduled with the FCC for the first phases of launches

with the following schedule.

Satellites

Altitude

(Km)

50%

Completion

100%

Completion

Phase 1

1,584

550

March

2024

March

2027

1,600

1,110

400

1,130

375

1,275

450

1,325

Phase 2

2,493

336

Nov 2024

Nov 2027

2,478

341

2,547

346

11,927

This is an incredibly aggressive schedule and would require launching 120 satellites per month just to

meet the 50% completion goal. Starlink also recently filed plans with the International

Telecommunications Union (ITU) to launch 30,000 additional broadband satellites over the 11,927 now

in the planning stages. The 20 new filings request to deploy 1,500 satellites each in 20 different orbital

bands around the earth. These filings are clearly laying down the gauntlet for other planned satellite

providers. Nobody knows if Starlink is serious about the huge number of planned satellites or if this is a

play to gain more favorable regulatory rules around the world for spectrum.

The other company with six test satellites already launched is OneWeb, founded by Greg Wyler of

Virginia in 2012. The company includes other investors like Virgin, Airbus, SoftBank, and Qualcomm.

The company’s plan is to launch an initial constellation of 650 satellites that will blanket the earth, with

ultimate deployment of 1,910 satellites. They plan to deploy 30 of the 65-pound satellites with each

launch. That means 22 successful rocket launches are needed just to deploy the first round. The company

is doing a polar orbit instead of an equatorial orbit and plans to start its marketing effort in Alaska. As we

were writing this report, OneWeb declared bankruptcy due to lack of working cash. The company is

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looking for a buyer, but if one doesn’t materialize the company may join a list of other failed satellite

ventures.

Another interesting entrant into the market is Jeff Bezos and Amazon. They recently filed plans to enter

the business and filed with the FCC under the name of Kuiper Systems LLC. Amazon has big plans and

the FCC filing said the company wants to launch a constellation of 3,236 satellites in low earth orbit.

That’s 784 satellites in orbit at 367 miles above earth, 1,296 in orbit at 379 miles, and 1,156 in orbit at

391 miles. Like Elon Musk, Jeff Bezos also owns Blue Origins, which has developed an orbital-class

rocket called the New Glenn.

The most recent announcement made at Christmas 2019 is that Apple is considering launching satellites

that will provide only data for cellphones. This could free apple phones from having to rely on a cellular

carrier.

We still know nothing about proposed broadband speeds or prices. Elon Musk recently acknowledged that

he is likely to limit his business to serve only rural areas where he can charge a premium price. Starlink

also provided a clue about the capacity of the satellites when it asked the FCC for permission to eventually

create one million links to earth-based receivers, meaning customers. That’s a good indication that the

satellite providers in total are going to be able to serve perhaps a few million customers in the US. There

are considerably more rural homes than this without broadband – so satellites may never satisfy the

existing demand for rural broadband. The satellite companies are likely to limit their business to rural

areas where they can command a premium price, not trying to bring broadband to every rural household.

Skeptics are doubting if the companies can launch all of the planned satellites. To put their plans into

perspective, consider the number of satellites ever shot into space. The United Nations Office for Outer

Space Affairs (NOOSA) has been tracking space launches for decades. They report at the end of 2019 that

there have been 8,378 objects put into space since the first Sputnik in 1957. As of the beginning of 2019

there were 4,987 satellites still in orbit, although only 1,957 were still operational. There was an average

of 131 satellites launched per year between 1964 and 2012. Since 2012 we’ve seen 1,731 new satellites,

with 2017 (453) and 2018 (382) seeing the most satellites put into space. The idea of putting many

thousands of satellites into space in a short period of time still seems like a daunting challenge.

While space is a big place, there are some interesting challenges from having this many new objects in

orbit. One of the biggest concerns is space debris. Low earth satellites travel at a speed of about 17,500

miles per hour to maintain orbit. When satellites collide at that speed, they create many new pieces of

space junk, also traveling at high speed. NASA estimates there are currently over 128 million pieces of

orbiting debris smaller than 1 square centimeter and 900,000 objects between 1 and 10 square centimeters.

NASA scientist Donald Kessler described the dangers of space debris in 1978 in what’s now described as

the Kessler syndrome. Every space collision creates more debris and eventually there will be a cloud of

circling debris that will make it nearly impossible to maintain satellites in space. While scientists think

that such a cloud is almost inevitable, some worry that a major collision between two large satellites, or

malicious destruction by a bad actor government could accelerate the process and could quickly knock

out all of the satellites in a given orbit. It would be ironic if the world solves the rural broadband problem

using satellites, only to see those satellites disappear in a cloud of debris.

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III. FINANCIAL PROJECTIONS

This section of the report looks at the detailed assumptions that were made in creating the financial

business plans. The business plans created are detailed and contemplate all aspects of operating a

broadband business. The business plan assumptions represent our best estimate of the operating

characteristics for such a business. As a firm, CCG consults to hundreds of communications entities that

provide rural broadband. This has given us a lot of insight into how rural ISPs operate. We believe that

the financial results shown in these models are characteristic of similar operations elsewhere and we

believe our assumptions are realistic.

The primary goal of the business models is to look at the various scenarios from the perspective of an ISP

that would operate the business. The purpose of these models is to provide a way for ISPs to understand

the broadband opportunities in Sierra County. We’ve learned with experience that almost every ISP is

theoretically interested in expanding. However, no ISP is really interested until they understand the

numbers. Only then can they decide if the opportunity is something they can get financed and that meets

their requirements as an investment opportunity. These studies help the ISPs understand the opportunity

of expanding broadband into the rural parts of the counties.

A. Operating Models

CCG considered the following business plan scenarios. Every scenario used fiber-to-the-premise

technology, described earlier in the report.

Retail Model – Single Provider as the ISP

This scenario considered the network being built and operated by a single entity. The results would be

similar if the operator was the County government or a single ISP. The goal of this scenario is to

understand if there are reasonably achieved scenarios that result in a sustainable business plan – defined

as permanently cash self-sufficient.

CCG has learned from experience that if a market can’t be profitable with one provider, then other options

like partnerships and open access also can’t be successful. By definition, those scenarios divvy up profits

among multiple entities. If there’s not enough profit for one provider, there’s not enough to support

multiple parties.

Open Access

This scenario would open up the market to multiple ISPs, which would then provide retail products to

customers. Under this scenario, the Sierra County government would build and operate the fiber network

and the ISPs would sell to and provide services to customers. A county’s only source of revenue is fees

collected from the ISPs for providing access to the fiber network.

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Public-Private Partnership

In this scenario Sierra County would partner with a single commercial ISP to operate the business. There

are almost endless variations on this concept and the studies examined a few of the most common

relationships:

• At one extreme, the County builds the whole network but hires an ISP to operate the network.

• The County builds the fiber network and fiber drops and the ISP partner provides customer

electronics and everything inside the home.

• The County builds only the fiber and the ISP supplies everything from the street to connect to the

customer.

• At the other extreme, the County owns none of the network. Instead Sierra County would take

steps to help an ISP succeed. That might mean being an anchor tenant and giving all your business

to the ISP on a long-term contract. It might mean contributing land, building space or other hard

assets. It might mean relaxing construction requirements such as permitting, locating, and

inspections to lower the cost of building the network.

There are also numerous models of how two partners share revenue, risks, and profits.

Pros and Cons of the Operating Models

The following discussion examines the pros and cons of each of the various operating models described

above. There are significant differences between a retail ISP, an open access arrangement and a public-

private partnership.

Retail ISP

A retail ISP is a single entity that operates a retail broadband network. A retail ISP normally owns the

network, hires the staff, operates the business, and benefits from any profits.

Advantages

Profits. A single owner/operator can make all the profit from a fiber business.

Flexibility. A single owner/operator can make instant decisions to change products or prices or to

respond to competition that seem needed.

Disadvantages

Risk. The flip side of the ability to make all the profits is that a single owner/operator also takes

all the risk. If the business doesn’t succeed the ISP can lose their investment.

Financing. The primary impediment to building and operating a fiber ISP is the cost of building

the fiber network. Cities often wonder why commercial ISPs don’t build fiber network if the

business plan to do so looks profitable. The fact is that there are not many entities capable of

borrowing the money needed to finance multiple fiber networks. Most small ISPs are limited by

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the amount of equity they can bring to a new market and by the collateral they can pledge to a

borrower.

Open-Access Model

Open access refers to the business model where a municipal entity builds a network and then sells access

to multiple ISPs. The government’s only revenues come from selling access to the various ISPs. ISPs have

the relationship with customers – ISPs sell, provide services, bill, and provide customer service.

The open-access model thrives in Europe but has had a more difficult time succeeding in the US. Europe

has seen success with open-access networks because a significant number of the large ISPs there are

willing to operate on a network operated by somebody else. This came about due to the formation of the

European Union. Before the European Union, each country on the continent had at least one monopoly

telephone company and a monopoly cable TV company. The formation of the European Union resulted

in a change in law that opened existing state-run monopolies to competition. All the state-owned telecoms

and ISPs found themselves in competition with each other and most of these businesses quickly adapted

to the competitive environment. This contrasts drastically with the US market where there is no example

of any large cable company competing with another and only limited competition between large telephone

companies.

When a few cities in Europe considered the open-access operating model they found more than a dozen

major ISPs willing to consider the model (large companies that would be equivalent of getting Comcast,

AT&T, or CenturyLink agreeing to use the new fiber network). There are now open-access networks in

places like Amsterdam and Paris as well as in hundreds of smaller towns and cities. The biggest networks

have over a hundred ISPs competing for customers—many of the ISPs with niche businesses going after

a very specific tiny slice of the market. Due to that level of competition, the European fiber networks get

practically every customer in their market since even the incumbent providers generally jump to the new

fiber network.

That hasn’t happened in the US. There is not one example in this country of a large telco or cable company

agreeing to operate on somebody else’s network to serve residential customers. The large ISPs in the US

will lease fiber outside of their footprint to serve large business customers, but they have never competed

for smaller businesses or residents in each other’s monopoly footprints.

This means that open-access networks in the US must rely on small ISPs. These small ISPs are generally

local and mostly undercapitalized. The small ISPs have all the problems inherent with small businesses.

They often don’t have the money or expertise to market well. They often have cash flow issues that put

restraints on their growth. In addition, many of them don’t last beyond the career of their founder, which

is typical of small businesses in general.

Open access network operators have struggled in this country due to the nature of the small ISPs on their

network. Consider the example in Chelan County, Washington that today has only one primary local ISP

that is selling to residential customers. The network originally had almost a dozen ISPs, but over the years

the ISPs either folded or were purchased by the remaining ISP. It’s hard to even call the Chelan County

network open access any longer.

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A similar thing happened in Provo, Utah before the city sold the network to Google Fiber. The network

had originally attracted eight ISPs, but over time they ended up with only two. It’s hard to make an

argument that a network with so few choices is actually open access—because the whole purpose behind

open access is to provide customer choice.

Examples of Open-Access Networks. Following is a list of some of the other municipal open-access

networks in the country.

• The Public Utility Districts (PUDs) in Washington State. These are countywide municipal electric

companies. The PUDs are restricted to offering open access due to legislation passed several years

ago. There are numerous different open-access models being tried at various PUDs, with the

largest networks in Chelan County PUD, Grant County PUD, Douglas County PUD, and Pend-

Oreille PUD.

• Utah has a similar law that applies to municipalities. This led to the creation of an open-access

fiber business in Provo and another network called Utopia that serves several small towns. The

Provo network was losing a lot of money and the city decided to sell the network to Google Fiber

for $1. Utopia is still operating a wholesale business but had significant financial problems since

inception.

• A similar law was passed in Virginia after Bristol Virginia Utilities (BVU) built a retail fiber

network. The legislation grandfathers BVU as a retail provider but only allows other cities to

operate open-access networks. So far, the wholesale model has been adopted by a few cities, the

largest being Roanoke, which offers open access on a limited basis to only parts of the city.

• Tacoma, Washington chose an open access model where the city is the retail provider of cable TV,

but connections to the network for telephone and broadband are sold wholesale to ISPs.

• Ashland, Oregon operates an open-access network, but the city also operates as a retail ISP on the

network and competes against a few local ISPs that sell on the network.

• There are a number of municipal networks that have built fiber rings, and which are promoting

“open access” to carriers. For the most part these networks only service business customers.

• Other communities have tried to build open-access networks but then were unable to find any ISP

partners. For example, Longmont, Colorado tried to launch an open-access network, but when they

were unable to find ISP partners, they now offer full retail services directly to residents.

Advantages

Customer Choice. The most appealing aspect of an open-access network for a community is that

it offers a variety of choices to customers over the same fiber network. The further hope on an

open access network is that having greater competition will lead to lower prices and better

customer service.

Disadvantages

Retail/Wholesale Revenue Gap. There is a big difference in the revenue stream between collecting

the retail revenue stream from customers versus collecting only the fees charged to ISPs. For

example, the average retail revenues on a fiber network serving residential customers might be

over $120 per customer per month. The average revenues on an open access network are far

smaller, at perhaps $30 per customer per month.

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There are some cost savings for the network owner in an open access environment. They don’t

have to provide the triple play products. They don’t have to see or bill customers, or provide

customer service. But it’s still extremely difficult for the network owner to be profitable with open

access. The network owner still must cover the full cost of debt. The network owner still has to

maintain the fiber network and provide the core electronics. In most scenarios the network owner

must continue to install fiber drops and/or customer electronics.

Not Many Quality ISPs. Every open-access network that has been tried in the US has had trouble

finding and retaining ISPs on the network. Some examples are discussed above. The ISPs willing

to operating in this environment are generally small and undercapitalized. Open access then forces

these ISPs to compete against other small competitors, which holds down end-user rates, but which

then also puts pressure on ISP earnings. Two of the largest open-access networks in Chelan

County, WA and Provo, UT essentially lost most of the ISPs on their network over a decade of

operations.

Leads to Cherry Picking. The open-access model, by definition, leads to cherry picking. If ISPs

are charged to use the network, then these fees will generally lead them to not want to sell to low-

margin customers. All the open access networks listed above report this as an issue. The only way

to get broadband to everybody in an open access network is for the network owner to lower their

fees – and that makes it impossible to pay for the network. CCG has never seen an open access

network that has a customer penetration rate as high as would be expected if the same community

had a municipal retail provider. Cherry picking means fewer customers on the network.

No Control over Sales Performance. The network owner in an open-access network has no control

over the customer sales process. That means they only do as well as the ISPs on the network. In

CCG’s experience, having talked to many of the ISPs that operate on open access network, the

ISPs tend to not have the resources for major marketing efforts or else they only want to serve a

niche market and don’t try to mass market. A retail ISP that owned the same network would try to

sell to everybody – but that never happens on an open access network.

Stranded Investments. One interesting phenomenon that especially affects open-access networks

is stranded investments at customer premises. When a customer moves or stops service with a

network operated by one entity there is usually a big push to reestablish service at that location.

However, in an open-access network many ISPs don’t make this same effort. Therefore, over time

there grows to be an inventory of homes and businesses with a fiber drop and ONT that are no

longer used and are not contribution to the cost of the business. CCG knows of one of the larger

open-access networks with 25,000 active customers that has 5,000 locations where the fiber has

been abandoned with no current service.

Public-Private Partnership (PPPs)

PPPs initially arose internationally as a way to finance infrastructure needs that local, regional, or national

governments could no longer pay for up front or could only insufficiently finance from taxes, bonds, or

other methods of raising government monies. Taken as a whole, governments in the US are today unable

to fund all the needed infrastructure and so more and more PPPs are being formed to finance infrastructure.

There have been estimates that collectively there are several trillion dollars more of needed infrastructure

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projects in the country than could be financed by the combined borrowing power of all the state and local

governments added together.

There are three major ways that a fiber PPP can be structured depending upon who pays for the network.

A fiber network could be mostly funded by the government, mostly funded by a commercial entity, or

funded jointly by both.

PPP Funded Mostly by a Government. There are not many examples of this in the US. This

scenario means that a government takes all of the financial risk of building a network and then

hands the operations to somebody else. This is the arrangement that is in place in the Google Fiber

partnership with Huntsville, Alabama. Reports are that Google Fiber is responsible for the costs

inside the customer premise and the city for the rest. There are similar partnerships between Ting

and Charlottesville, VA and Westminster, MD. CenturyLink has reached a similar arrangement

with Springfield, MO.

PPP Funded Mostly by the Commercial Provider. There are many examples where a commercial

provider built a fiber network and doesn’t consider the venture to be a PPP. Generally, any ISP

that uses the normal avenue of obtaining rights-of-way and then adheres to the franchise and

permitting processes in a city are free to build fiber.

It’s also not a PPP if a government gives concessions to attract an ISP. The first few markets for

Google Fiber are reported to have this arrangement. It’s widely believed that Kansas City granted

major concessions to Google Fiber to get them to build fiber there. This may have been things like

free rights-of-way, expedited permitting, use of city land for placing facilities, etc.

For this kind of arrangement to be a traditional PPP, a municipal entity would have to get

something in return for the concessions they make to an ISP. This could be almost anything that

is perceived to be of value. It might be free or reduced telecom prices provided to government

buildings or fibers connecting government locations together. It could also be the ISP agreeing to

help the city meet some social goal, such as building out to poorer parts of the city that a normal

commercial ISP might otherwise would not have considered.

PPP Funded Jointly. When a municipality and an ISP both contribute cash or hard assets to a

venture then it’s clearly a PPP. There are several examples of telecom PPPs working in the country

today. Such partnerships are structured in many ways and following are a few examples.

• Zayo partnered with Anoka County, MN. This is a suburban county just north of the Twin

Cities. Each party contributed money to build a fiber network together. The county received

access to a 10-gigabit network connecting all its facilities and Zayo received connections

to all of the major business districts. Zayo owns the network, but each party has affordable

access to the whole network as needed. Each party is also allowed to build outward from

any point on the jointly built network at their own cost.

• Nashville, TN partnered with a commercial fiber provider to build fiber to city locations as

well as to commercial districts. Both parties made capital contributions. The city eventually

sold its interest in the network but still retains fiber to most city buildings.

• There are dozens of small cities where the city built an initial fiber network to connect to

schools, water systems, etc. and now allows commercial providers to build spurs from the

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city-owned ring. The financial arrangements for this vary widely. Sometimes the two

parties just swap access to various locations on each other’s network and in other cases

they each pay to lease access on the other’s network. However, both parties share the same

network, portions of which each has funded.

• In Sibley and Renville Counties, MN, the counties, cities, and townships together

contributed an economic development bond which is being used to fund 25% of the cost

of a fiber-to-the-premise network.

• Several of the Public Utility Districts (PUDs) in Washington have built fiber into business

and residential neighborhoods but then allow ISPs to build fiber loops and electronics and

connect to the core network.

• There are hundreds of examples of government entities that have built fiber routes jointly

with some commercial enterprise. This is referred to in the industry as fiber sharing and

generally each contributor to the fiber route will get some specific number of pairs of fiber

for their contribution. For example, this is a common practice with school system fiber

networks.

There are several kinds of contributions that a government can make to somebody else’s fiber network.

This could include cash, real estate, excused fees, or sweat equity. Governments can allow a commercial

provider to use parcels of lands or give them an existing building. Excused fees might mean not charging

for something that would normally be due such as permitting fees or property taxes. The government could

excuse payments for poles, conduit, existing fiber, or towers. It could mean the commercial provider might

not need to pay taxes or fees for some period, as is often done in many economic development projects.

Sweat equity is assigning a value to the time contributed by the city. For example, we’ve seen a city assign

extra employees for free for tasks like the permitting process during a major fiber construction project.

There are almost unlimited ways to model and form a public-private partnership. The underlying

requirement is that the business must be profitable for the private commercial partner. Commercial

providers expect a healthy rate of return on any investment they make in the business. Most commercial

companies won’t invest in a business that doesn’t return at least a 20% to 30% return on their investment.

Advantages

Smaller Government Investments. The extent to which the private partner funds the network

reduces the needed investment from the public partner. A private equity partner can bring cash to

the business that might be hard to raise elsewhere.

Disadvantages

Matching Goals and Expectations. One of the primary reasons why there are not a lot of telecom

public-private partnerships is that it’s often difficult to reconcile the differing goals of the two

sides. The commercial partner is generally going to be very focused on the bottom line and returns

while the community part of the business often has goals like community betterment and lower

rates. One of the biggest sticking points in creating PPPs is that cities want fiber built past every

home, which ISPs prefer to build to only selected neighborhoods. It’s often very difficult to put

together a structure that can satisfy all of the different goals.

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Expensive Money. Since commercial partners generally want to make at least a 20% return on

equity investments this can be expensive funding.

Tax Free Funding Issues. It’s difficult to obtain tax-free bond funding to support a PPP. Tax free

financing can’t be used for a project that benefits a commercial entity.

Process Driven by Commercial Partner. Communities seeking equity partners for a public-private

partnership fiber optics project will have fewer choices for the structure of the business since the

external partner will probably demand a for-profit business structure as a likely pre-condition for

investment.

Length of Partnership. Many commercial investors only make investments with a mind to

eventually sell the business to realize the cash value. This may be difficult to reconcile with the

long-term desires and goals of a community-based fiber optics project.

Governance Issues. It’s a challenge to develop a governance structure that can accommodate the

government decision-making process. Governments generally must go through a defined

deliberative process including holding open meetings to make any significant decisions. This does

not match well with the decision-making process and timeline for a commercial partner. A

commercial partner might want to decide in days when the process can’t be any faster than weeks.

B. Services Considered

Following is a discussion of the products and services considered in the study.

Telephone Services (VoIP)

Voice over IP (VoIP) is a digital telephone service that transmits a telephone call to customers using their

broadband connection rather than establishing a more traditional analog telephone connection. VoIP has

been around the industry for a few decades. The first major seller of VoIP was Vonage, which still delivers

VoIP over the open Internet. Most VoIP arrangements now use secure private broadband connections

rather than the open Internet.

The study assumes that the retail provider of telephone service will purchase wholesale VoIP. This product

is available from numerous vendors. These vendors own a digital telephone switch and they deliver calls

to and from customers from that switch to the ISP. Our clients tell us that offering voice is still mandatory

when selling to businesses since many businesses insist on having a vendor that delivers all their

communications needs.

The alternative to using VoIP is to buy a telephone voice switch and then establish connection between

that switch and the public switched telephone network. These connections are referred to in the industry

as “interconnection.” We’ve found through a number of studies that it’s hard to justify buying a switch

and paying for interconnection costs unless a service provider expects to serve at least 5,000 telephone

lines.

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High-Speed Bandwidth (in excess of symmetrical 100 megabits)

The network design for the studies deliver a symmetrical gigabit bandwidth product to every customer in

the service areas. Additionally, the network can provide speeds up to 100 gigabits for the largest

businesses, although there are probably none that want more than 10 gigabits. It’s anticipated that there

would be residential and small business broadband products at speeds less than a gigabit. The study

assumes the basic product is 100 Mbps, but that could easily be changed to some other speed.

Internet Services (ISP, email, web hosting, etc.)/Security

It was traditional in the industry for an ISP to provide all services related to the Internet as part of their

ISP service. This included such things as email, DNS routing, virus checking, spam filtering, etc. Most

ISPs also offered services like helping customers create web sites and then hosting them at the ISP

headend. A decade ago, there was also a booming ISP business line of providing off-site storage for

customer data.

The majority of small ISPs now outsource these functions and product lines. None of these functions are

profitable when considering the cost of labor to perform them. In addition, all the basic ISP functions are

now available as a cloud service or from a large centralized help desk company. Most small ISPs have

decided that their primary function ought to be maintain a network designed to provide minimal downtime

and leave these various ancillary services to somebody else.

A good example of this is virus checking and security. Virus checking today means not only trying to

keep viruses away from customers, but today it means protecting against larger threats to the ISP such as

denial of service attacks or the many other kinds of hacking. Most ISPs have found that they can buy

better protection from a company that does this function for a hundred small ISPs rather than trying to do

this themselves. They’ve found that there is no particular glory from doing these functions well, but there

is a huge liability if they perform these functions poorly.

The feasibility studies assume these functions are outsourced. There is nothing to stop an ISP from tackling

some or all of these tasks, but that would be contrary to where the rest of the industry is headed.

Managed WiFi

Many small ISPs now offer managed WiFi, which means that the ISP installs and controls the WiFi

network at the customer premise. It’s become obvious over the past several years that a large percentage

of the problems experienced by customers have been due to poor WiFi networks rather than to the

broadband connection. ISPs began selling a product where they would install a high-quality WiFi modem.

If a house is large, the ISP installs a meshed network with several networked WiFi routers. Since these

routers are part of the ISP network, they can monitor the performance to make sure they are operating

properly. Many ISPs also offer related services like helping customers connect new devices to the WiFi

system – something that can be done easily from the ISP end.

This is a profitable product. A quality WiFi router costs around $100 and ISPs are charging between $5

and $10 per month for the service. CCG know of ISPs that have already sold this product to more than

60% of their customers.

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Other Future Products

Today many ISPs are expanding their product lines to add additional product lines that rely upon

broadband. Perhaps the best example of this is Comcast. They now offer a wide range of new products.

For example, they have sold home security monitoring to many millions of customers. They are now

probably the largest single nationwide provider of smart home products and they have a line of products

such as smart lighting, smart watering systems, smart door locks, smart thermostats, etc. Comcast has also

been selling a cellular product to compete with the big wireless carriers. Comcast even recently tested

bundling solar panels with their other products in a few markets.

CCG finds it likely that any ISP operating a fiber network will eventually offer some of these same kinds

of products along with products that have yet to be developed. This could include things like medical

monitoring to help the elderly live in their homes longer. It might involve intensive gaming connections,

including virtual reality and holograms.

It’s impossible to build a business case for products that have yet to be developed, but it’s reasonable to

believe that any sizable ISP will offer new products over the time frame of this study. Our business plans

incorporate a generic small future revenue for “new products” which is undefined. The assumptions used

will be described under the revenue assumptions below.

Wholesale Bandwidth Products

Wholesale bandwidth products are those sold to other carriers or to large business customers. Such

products can be a major source of revenue for ISPs in larger cities. For example, CenturyLink is one of

the biggest sellers of wholesale bandwidth products in the country after their merger with Level 3.

Following are the kinds of customers that buy wholesale connections:

• Cellular towers in most markets buy fiber connectivity and bandwidth to connect to the traditional

tall cell towers. In the last few years, we’ve seen the cellular companies building small cell sites

placed on power or light poles. Both kinds of cell sites require a fiber connection.

• Nationwide businesses like hotel chains, banks, manufacturers, etc. usually have an arrangement

with a single ISP to serve all of their locations nationwide. These ISPs will consider buying from

a new fiber network, but they probably already have reasonably priced connections from TDS or

Windstream.

• Complex businesses like hospitals and universities usually have complex needs and look for ISPs

that can provide a lot more than just bandwidth.

• Businesses with multiple locations in Sierra County need connections between branches. This

might include grocery stores, local banks or other businesses that might operate multiple locations

inside the County.

• Giant bandwidth users. This could be things like data centers or large stock trading houses that

want large bandwidth with low latency.

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Products

Following are the typical wholesale products that are sold to the above kinds of businesses:

• Dark Fiber. This involves selling a fiber that is not connected to electronics. The ISP buying the

dark fiber is responsible for providing and operating the electronics necessary use the fiber. Dark

fiber might be sold by the mile of fiber, or else by a set fee per dark fiber connection.

• Transport. Some wholesale providers only sell connections between points A and B. This might

mean the retail ISP might need to buy several transport paths to serve a customer – for example,

there might be one transport connection between and end-user connection and the wholesale hub

and a second transport connection between the wholesale hub and the ISP hub.

• Dedicated Bandwidth. Dedicated bandwidth means that the customer doesn’t share it with anybody

else. The typical products on an FTTP network share bandwidth at some point in the network, but

some businesses are willing to pay to buy raw, unshared bandwidth. The network can deliver

speeds up to 100 Gbps.

There are only minor wholesale revenues included in the studies. There is a chance over time for greater

revenues than we have projected.

C. Financial Assumptions

Incremental Analysis

It’s important to note that all of the projections were done on an incremental basis. This means that the

studies only consider new revenues, new expenses, and new expected capital costs. This is the most

common way that businesses of all sorts look at potential new ventures since the incremental analysis

answers the question of whether any new business line will be able to generate enough revenue to cover

the costs.

It’s important to understand what an incremental analysis shows and does not show. An incremental

analysis is basically a cash flow analysis. It looks at the money spent to launch and operate a new venture

and compares those costs to the revenues that might be generated from the venture.

An incremental analysis is not the same as a prediction of what the accounting books of a new venture

might look like. For example, if one of the existing ISPs in the area was to undertake one of these business

plans, they would allocate some of their existing overhead costs to the new venture. The classic textbook

example of this is that some of the existing cost of the general manager of the ISP would be allocated to

the venture in the accounting books. However, the cost of the salary of the existing general manager is not

considered in an incremental analysis since that salary is already being paid by the existing business. If

these studies were to show an allocation of the general manager, then they would not be properly showing

the net impact of entering the new market.

Timing

Timing is critical to any business plan. The faster that a business can start generating revenues the sooner

it can cover costs. These studies are somewhat conservative in the predictions of the speed of the roll-out

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of the business venture. That means that if an ISP could get customers faster than predicted by the

projections that they can have better results than we’ve shown.

All scenarios anticipate that the first customers will be added to any new networks in October of the first

year after starting the project. It could be possible for an existing ISP with customers in the region to start

customers a little earlier.

Following are the major milestones as predicted by these forecasts:

• Financing. All the forecasts assume that the financing is available in January 2021. This is

illustrative only and could be changed to any other future date.

• Construction. Fiber construction is assumed to last for two years in both the rural-only or the

towns-only scenarios. Construction of the whole county is estimated to last for three years.

Pricing Strategy

We assumed that the products would be as simple as possible. The incumbent telephone companies offer

a wide range of different telephone products. We assumed that an ISP would offer only a few telephone

options. For example, for residential service we have assumed only two products - a basic telephone line

and a telephone line with unlimited long distance. Broadband is also simplified with only three tiers of

speeds for residential or business customers. Businesses could buy customer speed packages as negotiated.

There are a number of different pricing strategies used around the country by various ISPs for broadband.

Following is a discussion of some of the more common models and a discussion of the pros and cons of

the various approaches to pricing.

• Competition. When building broadband into a market that already has existing competition it’s

important to consider the prices of the competition as well as predicting how they might react to

competition. In rural areas with little or no existing broadband this is usually not a factor.

• Market Rates. This asks the important question of what people are willing to pay for broadband.

As somebody who works for a lot of ISPs, I observe that a lot of ISPs are not good at this. I

regularly see ISPs that set prices too low based upon the assumption that nobody will change

providers with prices near to existing market rates. However, I have numerous clients that charge

market rates for broadband and get similar penetration rates to ISPs with lower rates.

• General Pricing Philosophy. ISPs often come to the market with predetermined notions of how

prices ought to work. A pricing philosophy is often based upon the overall goals for the business

and the way that an ISP thinks about business. For example, some ISPs have a goal of maximizing

cash flow or of maximizing profits (not the same thing). Other ISPs are more community based

and want to bring fast broadband to as many households as possible. These basic philosophies are

often the driving force behind a pricing strategy.

For examples, some ISPs believe in simplicity and only offer a few products. Other ISPs stress

bundles and price accordingly. Some ISPs think that the way to sell a lot of services is by having

low prices. Other ISPs think it’s better to have higher prices and fewer customers. Some ISPs think

it’s important to the community to have a low-priced product for low-income households. Some

ISPs charge the same prices to residents and businesses – others charge businesses a lot more.

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Those various philosophies result in a couple of different pricing schemes that we see in the marketplace.

A few key examples include:

• One Broadband Product. A few ISPs like Google Fiber, Ting and a handful of smaller ISPs have

one broadband product. They sell a gigabit of speed for a set price. Google Fiber had gone to a 2-

product offering, but recently announced they are returning to the flat-rate $70 gigabit. Any ISP

with this philosophy is likely not trying to capture a huge share of the market but is content to sell

a high-margin product to a smaller number of homes.

• Low Basic Price. Some ISPs set the price for the basic product low. This is done more often by

municipal ISPs, but there are small commercial ISPs with the same philosophy. As an example, in

these markets somebody might set the price of the basic product on the fiber network as something

like 50 Mbps for $40.

CCG Consulting has access to the prices and the resulting customer counts from nearly 200 ISPs

and what we have learned is that most customers will buy the basic broadband product if the speed

is okay. A basic product set at 5 Mbps likely wouldn’t sell, but in today’s market a product with a

decent speed like 50 Mbps or greater will be perceived as acceptable to most households.

As mentioned above, it’s debatable if an ISP with low rates captures more of a market – but it’s

obvious that low rates leave a lot of margin on the table. In setting rates, we began by considering

existing market rates in Sierra County. These are “permanent” rates and don’t recognize

advertising special rates that last for a year before reverting to full price. ISPs often make the

mistake of setting their own permanent rates to compete with existing provider special rates.

Following are the core rates in the market today:

o Windstream pricing begins at $57.99, but that only delivers a 6/1 Mbps product.

Windstream then charges $67.99 for “up to” 25 Mbps and $77.99 for 50 Mbps. It’s unlikely

that anybody except a few businesses close to the Windstream core switch in Truth or

Consequences could get 50 Mbps speeds.

o CenturyLink DSL starts with a list price of $47 for 7 Mbps DSL. The price for 12 Mbps

DSL is $52 and 20 Mbps is $62. From what we see around Sierra County, nobody is seeing

speeds even as fast as 12 Mbps on CenturyLink.

o The list price for TDS residential 100 Mbps service is $62. Prices step up to $82 for 300

Mbps service and $102 for 600 Mbps service. We don’t think there are many customers in

the towns that can receive 300 Mbps speeds.

o Wi-Power starts at $50 for 5 Mbps broadband. They charge $80 for 10 Mbps and $100 for

15 Mbps broadband.

o Fastwave pricing starts at $50 for 3 Mbps, and steps up to $65 for 6 Mbps, $80 for 9 Mbps,

and $95 for 12 Mbps.

In all cases, a new ISP with a fiber network will be able to offer significantly faster speeds than

most of these products. In our experience, ISP don’t have a big problem selling a superior product.

A customer buying a 5 Mbps service for $50 is usually willing to pay a little more for service that

is twenty times faster.

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In the models for this study we used $60 as the starting price for broadband. That’s slightly below

TDS and significantly better than the other ISPs. Even where the existing ISPs charge less, they

deliver extremely slow speeds – which we know are not wanted in the county. Recall that the

survey said that 89% of people want faster speeds.

• Price Steps or Tiers. Most ISPs price with tiers (like the above examples for incumbents). Probably

the key attribute to tier pricing is the price differential between tiers. Consider three different

pricing structures that begin with a $60 broadband product:

Rate 1 Penetration Rate 2 Penetration Rate 3 Penetration

100 Mbps $ 60.00 95% $60.00 80% $60.00 60%

250 Mbps $ 90.00 4% $75.00 15% $70.00 30%

Gigabit $120.00 1% $90.00 5% $80.00 10%

For 1,000 Customers:

Revenue $61,800 $64,000 $65,000

Increase 4% 5%

The difference in the steps or tiers is that “Rate 1” prices are set $30 between products, Rate 2 is

at $15, and “Rate 3” is at $10. The impact of smaller tiers is that it’s easier to upsell customer to

faster products. I derived the relative rate structure for the various tiers based upon what I’ve seen

at various ISPs. Customers might voluntarily choose a fast product when the step between tiers is

small, and they are more likely in the future to upgrade anytime they feel their speed is bogging

down or inadequate. Conversely, when the steps are too large, customer buy and then stick with

the lowest-priced tier rather than jump their bill too much.

It’s an interesting phenomenon and to some degree is psychological. Consider in the examples

above that more customers are likely to buy the gigabit product in Rate 3 for $70 than will buy the

200 Mbps product in Rate 1 for $80. Since both speeds are faster than what households likely need

you might think there would be a small difference between the public reaction to the prices – but

our experience is that the penetration rates of different products act much like the above tables.

We have seen that having too many price tiers confuse customers. The above examples have tiers

with three prices. We know of ISPs with seven to ten price tiers and in looking at their penetration

rates we see that this confuses customers. We have seen the most effective rate structures having

no more than four tiers, which can be explained to customers on a fiber network as fast, faster, and

fastest and gigabit.

• Setting Business Rates. Philosophies vary widely on business rates. The incumbent telephone

companies and cable companies generally charge a lot more to business than to residential

customers. At one time the philosophy behind this is that businesses consume more resources and

cost more to serve than residential customers. While that might still be true for medium and large

businesses, ISPs will tell you that the average home today uses considerably more bandwidth than

the average small retail store. The exception might be a coffee shop supporting a public hotspot,

or a business that deals in large files like photographers or engineers.

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We know a few ISPs that charge the same rates to businesses and residences, although that is rare.

Most ISPs follow the incumbent pricing practices and charge more for businesses.

One thing that a first-time ISP learns quickly is that incumbents don’t have standard rates for

businesses, but rather they negotiate with them. It’s not unusual to find two similar small

businesses in the same neighborhood paying rates for the same products that are 50% apart. This

creates a challenge for ISPs. Some ISPs set standard business rates that apply to all businesses and

others set rates on a custom basis compared to what a business is currently paying.

The other thing that a new ISP learns quickly is that most businesses care more about reliability

than price. They want their broadband and telephones to always work during business hours. They

don’t want to pay more than they can afford, but they are not afraid to pay for a quality connection.

While a new fiber provider might see good appreciation for a fiber-based ISP saving them money,

the chances are that they decided to change ISPs due to outages they have had in the past with their

current provider – if they perceive fiber to be a more stable technology. One of CCG’s clients

recently did a survey of businesses in a new market and over half of them had experienced a half-

day or longer broadband outage during the last year. For most businesses, such outages are the

deciding factor they cited when they talked about the willingness to talk to a new network provider.

• Rate Bundles. The large cable companies are well-known for having bundles of products where

they provide a discount to customers buying more than one product. Generally, customers have no

idea which products the discount applies to. I would estimate that no more than 15% of the small

ISPs that CCG works with provides a similar bundling discount. Most smaller ISPs set prices at

rates they perceive to be competitive and don’t discount them further. We know a few ISPs that

built a business plan and forecasts upon list prices and then found themselves in financial stress

when a marketing person at the company decided they could sell more by offering discounts that

weren’t in the business plan.

Interestingly, Verizon recently announced that they are doing away with bundled rates for new

customers. It will take a few years for customers with older plans to migrate to unbundled rates.

Verizon describes the new rates structure as more open and honest and say that this is what

customers want.

• Introductory Rates. The big telcos and cable companies are also well-known for advertising low

introductory rates that increase dramatically after a term contract of one to three years. Most of the

rates you’ll see from these companies on the web or in advertising are the introductory rates, and

the real rates of these companies are generally buried in the small print, if shown anywhere.

Customers dislike the introductory rate process because they invariably get socked with a big

unexpected rate increase when rates jump back to list prices. The time of big introductory discounts

might be starting to come to an end. AT&T decided last year to stop renegotiating customers to

the low rates and when introductory offers end the company is sticking with the list rates. This has

cost AT&T nearly two million customers on DirecTV, but the company says they’d rather have

fewer customers that are profitable than maintain customers that don’t contribute to the bottom

line of the company. A few medium-sized cable companies have made this same change.

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Most small ISPs have decided to not offer introductory rates. Such rates require having customers

signing contracts and then ties up staff when those contracts end, and customers want to negotiate

low rates again.

• Low-Income Pricing. This is covered in more detail Section I.C. of this report. Some ISPs, both

giant ones and small ones, offer products to low-income households. Most try to set rates to make

it affordable, and most have some criteria for how customers qualify for the low rates, such as

having students using the free lunch program. Most ISPs try to set the rates at a level that at least

covers costs and perhaps returns a tiny margin.

Rates Used in This Study

Telephone Rates

The studies used the following very simplified pricing for residential phone service:

Basic Local Line $25.00

Line with Unlimited Long Distance $35.00

We’ve assumed that both kinds of lines include a full package of features like voice mail, caller

ID, etc. The above prices also include any extra fees that the incumbent telcos show separately on

the bill, but which are part of the rate. These rates would not include true taxes on the service, such

as the tax that supports 911.

It’s worth noting that customers buying landlines from Windstream can call other Windstream

customers inside Sierra County for free but calls to CenturyLink or outside of the county are still

long-distance calls. CenturyLink customers can call to Hatch, NM for free but everything else,

including calls to Truth or Consequences are long-distance calls.

These calling scopes matter to rural customers who don’t have good cellular coverage at home.

Such households still must pay long distance on landline phones to place calls outside of their local

free calling scope as well as calls to the rest of the country. Homes with good cellular coverage

can avoid long distance fees using cellphone calling.

Customers who buy the unlimited long-distance plans considered by these studies would be able

to call anywhere in the country as part of their plan. Similar plans today often include Canada,

Mexico, and even some other international locations.

The studies are less specific with business phone rates. The models have assumed an average

monthly telephone revenue of $50 per business. There are a few larger businesses that would pay

more than this, so the financial projections are conservative. It’s worth noting that home

businesses, including farms usually buy residential products for both broadband and telephone

service.

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Cable TV Products

Offering competitive cable TV in a new rural market is a challenge. The study areas being

considered by this study are all areas that are not wired today by a cable company. That means

anybody with cable in the study area is buying from a satellite provider.

We decided to not include cable TV in the feasibility study. First, none of the ISPs in your region

offer cable TV today. Even should you find an operator willing to offer cable TV, there is little

margin on the product, so adding cable TV would make little difference to the financial analysis.

Finally, it’s nearly impossible for a small ISP to compete on price with the satellite TV providers

and small ISPs that offer TV generally have significantly higher prices. That makes it hard to

attract customers to the product even if it’s delivered on fiber.

Broadband Products

The studies do not specify data speeds, but we assume that broadband over fiber will be far faster

than any broadband available today in the rural areas. We have shown data speeds by 3 tiers. A

typical mix of products in three tiers on fiber might be something like 100 Mbps, 250 Mbps, and

1 Gbps.

Price Percentage

Residential Fiber Broadband

Tier 1 $ 60.00 80%

Tier 2 $ 75.00 17%

Tier 3 $ 90.00 3%

Business Fiber Broadband

Tier 1 $ 75.00 75%

Tier 2 $ 90.00 15%

Tier 3 $105.00 10%

Most ISPs charge more to businesses for broadband, and the studies assume a $15 additive to

business rates.

These would all be shared data products, meaning that the overall bandwidth to provide them is

shared among multiple customers. This is not to say that the data path to a given customer is not

secure, because the transmission to any specific customer is encrypted for privacy purposes. Still,

there might be some business customers that will want a dedicated data product that is not shared

with anyone else. The fiber network can accommodate this by providing such customers with an

active ethernet connection. Prices for these services would cost a lot more than shared data

services.

The financial models assume that the data products don’t have data caps and provide unlimited

broadband usage to customers. If there were data caps, then customers that exceeded those caps

would be charged more than the basic prices. The only provider in the county today with a data

cap is CenturyLink DSL, but it’s been widely reported that the company often doesn’t bill for data

overages.

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Managed WiFi

This is a relatively new product that’s been around for a few years. ISPs have found that one of

the biggest problems with home broadband is due to obsolete or poorly placed WiFi routers in the

home. A poor WiFi router translates to a poor broadband experience.

Many ISPs are now offering managed WiFi. This product places carrier-class WiFi routers in the

home that are placed and operated by the ISP. High quality routers, and the placement of multiple

routers for larger homes usually means better broadband coverage throughout a home. ISPs often

assist customers when adding a new device to the wireless network. The managed WiFi routers

provide a secondary benefit to an ISP because they provide a network monitoring location inside

the home, meaning that the ISP is more easily able to pinpoint problems.

The studies assume a monthly rate for managed WiFi of $7.00 for residences and $10.00 for

businesses. It’s further assumed that 70% of residents would buy this product and 80% of

businesses.

Large Broadband Products

There are potentially customers in Sierra County that buy larger bandwidth products. The studies

are conservative and predict minor revenues for such sales. Such sales are typically made to bring

service to cellular towers, schools, electric utility locations, or large businesses.

Cell towers are an interesting challenge. In some parts of the country we have clients with rural

fiber networks that get almost every cellular tower as a customer. But we have other similarly

situated clients that get none of this business. The cellular carriers like to buy large volumes of

connections from a single regional provider and they often already have a long-term contract for

an area much larger than the county.

The new opportunity for cell towers will be for small cell sites. These are smaller cellular

transmitters that are placed on utility poles or light poles and that bring improved cellular service

into neighborhoods. We are already seeing small cell site popping up in towns the size of Truth or

Consequences, and over time this should be a growing market opportunity.

There is a unique new opportunity for somebody building rural fiber in that it will often make it

easy for a cellular provider to put up a new tower in areas that have poor broadband. As we worked

on this study the FCC announced a new initiative to provide $9 billion in grants to cellular

companies to expand cellular coverage to the many places in the country that don’t have it today.

The new grant program has been named the 5G Fund, although it’s likely that if somebody brought

cellular coverage to the most remote parts of these counties that they’d likely use 4G LTE

technology. Somebody building rural fiber to remote places for the next few five years might have

an opportunity to partner with cellular providers as part of this new grant program – meaning at

least some fiber might get subsidized with grants.

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Network Capital Costs

The telecom industry uses the term capital costs to describe is the industry term for the cost of assets

required to operate the business. The capital expenditures predicted in these models reflect the results of

the engineering analysis described in Section II of this report.

Below is a summary of the specific capital assets needed for each base scenario. The amount of capital

investment required varies by the technology used as well as by the number of customers covered by a

given scenario.

Capital for broadband networks include several broad categories of equipment including fiber cable,

electronics for FTTP, huts and wireless towers, wireless electronics, and customer devices like cable settop

boxes and WiFi modems. In addition to capital needed for the network, there are operational capital costs

predicted in the projections for assets like furniture, buildings, computers, vehicles, tools, inventory, and

capitalized software.

We have tried to be realistic, but a little conservative in our estimates, so that hopefully the actual cost of

construction will be something lower than our projections. However, it is important to remember that the

engineering used to make these estimates is high level. The detailed engineering needed to be more precise

is expensive and would involve having an engineer examine all places in the potential network to look at

local construction conditions. That kind of engineering is generally not done until a project is ready for

construction. Instead, the engineering was done using some field examination of the county, along with

maps and other tools. Finley has made many such estimates over the years and we know that this level of

engineering is generally good enough to assess if a project is worth further consideration.

The studies all assume that the provider of service will not build a new cable TV headend or buy a new

voice switch for the provision of cable TV or telephone service. If the new provider is an ISP that already

offers those products elsewhere, the assumption is that they would transport in the products over the fiber

backbone. These services are widely available today on a wholesale basis.

Following is the capital required for the base case for each of the three primary scenarios. These represent

the capital expended during the first 5 years, by which time most of the customers have been connected.

The scenarios assumed different customer penetration rates. The rural scenario uses a 70% customer

penetration rate. We assumed a 50% penetration rate for Truth or Consequences and Elephant Butte. The

Total County scenario is a combination of those two different scenarios.

Total

Rural Two Cities County

Fiber & Drops $23,373,224 $14,825,297 $38,180,705

Electronics $ 1,814,770 $ 3,076,426 $ 4,811,601

Huts/Land $ 0 $ 139,500 $ 139,500

Operational Assets $ 383,185 $ 393,968 $ 731,677

Total $25,571,179 $18,435,191 $43,863,482

Cost per Passing $ 9,278 $2,974 $4,807

Cost per Customer $12,498 $5,937 $8,514

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To put the cost per passing and per customer into perspective:

• The cost per rural passing is a lot lower than costs we’ve seen in other rural counties. This is due

to several reasons. First is that most of the network would be put onto existing utility poles.

Burying fiber is a lot more expensive. The lower cost is also because there isn’t as massive of a

road grid in Sierra County compared to many other counties around the country – fewer road miles

equates to lower fiber cost.

• The scenario for serving Truth or Consequences and Elephant Butte works without the need for a

grant since the cost per passing is a reasonable $2,974.

Customer Costs

Residential Fiber Electronics Costs: The model assumes that the hardware electronics for an ONT cost

$433, including the cost of the labor for installation at the home, including inside wiring. In the projections

it was assumed that the installation would be done by external contractors. It might be less expensive to

do installations using existing company personnel or local contractors who can install at a lower cost.

We’ve also assumed that most businesses use the same ONT electronics used to connect to homes. Only

larger business would require a larger ONT with more data ports.

We’ve assumed that the service provider will supply a WiFi router for customers that want one. We’ve

assumed these routers cost $115.

Fiber Drops: Fiber drops are the fiber that connects from the street to the customer premises. In this study

the cost of fiber drops is significant. The assumption has been made that with the volume of drops needed

plus the anticipated speed of network deployment the drops during the first four years of the project would

be installed by external contractors.

Drop costs vary according to the length of the drop. The fiber drops in the two primary towns are shorter

than rural drops and thus less costly to connect. The cost for fiber drops in the towns are estimated to be

$682 for residents and $768 for businesses. The rural drops are assumed to cost $1,048 for residents and

$1,133 for businesses.

The prices included in the study represent recent pricing being paid in for projects in your region. The

drops are the one portion of the fiber network where an ISP might be able to save significant cost compared

to our study. For example, an ISP might be able to assemble their own construction team to build drops

for less. They might find a local contractor that will build the drops for less.

Customer Penetration Rates

One of the most important variables in the study is the customer penetration rate, or the percentage of the

homes and businesses in Sierra County that will buy broadband service.

The analysis looks at customer penetration rates in several different ways. The base scenario begins with

what we call expected rates. We used an expected penetration rate for the rural areas of 70% and used

50% as the starting point for the two cities scenario. CCG has witnessed the roll-out of broadband in

several rural markets in the last few years and we have seen customer penetration rates in those markets

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range between 65% and 85%, with a few even higher. We arbitrarily chose 70% as a starting point for

rural area as a level that we think is reasonably conservative. Everything we’ve looked at tells us that

broadband quality is worse in Sierra County than in many other places. The rural DSL from Windstream

and CenturyLink is slow and unreliable. Customers tell us that major outages are routine and last from

several days to a week. Even the WISPs offer slow speeds. We don’t think there are a lot of rural residents

seeing speeds much faster than 10 Mbps – there are some, but there are a lot more households with speeds

much lower than that.

It’s a lot harder to predict penetration rates in towns like Truth or Consequences, so we chose 50% as an

average penetration rate we see for similar county-seat markets. The success in competing in county-seats

vary a lot according to the quality of the network and the strength of the ISP. The TDS network in Truth

or Consequences and Elephant Butte is not as fast as many the networks found in other places in the

country that have upgraded to DOCSIS 3.1. While most customers in the town can get speeds in the range

of 100 Mbps download, the network can’t produce speeds up to 1 gigabit like are available in many other

places. The DSL in the two cities is older technology and not nearly as fast as the TDS network.

The best way to understand the potential broadband penetration rates would be to do a statistically valid

residential survey or a canvass to quantify the potential customer interest in buying broadband from a new

network. In this study we offered an online canvass, but we didn’t get enough results to have faith in the

results. With that said, the surveys we got were universally in favor of somebody bringing faster broadband

and download speeds were the most-requested improvement for broadband. In a county with over 8,000

homes you’d want to get 2,000 or more online surveys to begin having faith in the results.

The alternative is a statistically valid survey. We have found that surveys are a great tool for understanding

customer interest and are a good way to predict future customers. Surveys are not perfect, but the results

obtained from a survey done properly generally provide a good prediction of customer demand. We think

that it’s likely that any ISP interested in coming to Sierra County will want to better understand broadband

demand, so the County might get a request for conducting a survey (unless the ISP conducts their own).

We’ve listed this possibility under the next steps to take after receiving this report. It’s always important

for a survey to be current. For example, if we would have done a survey for this study before the COVID-

19 crisis the results would likely be invalid – we are sure that almost every market that the percentage of

homes wanting good broadband has increased after people were asked to work from home and do

schoolwork from home.

Since there are so many residents of Sierra County today without good broadband there are a lot of

potential customers for an ISP that builds broadband. The new customers assumed by the end of the fifth

year as are follows for the three primary scenarios:

Total

Rural Two Cities County

Residential Customers 1,928 2,737 4,665

Business Customers 118 368 486

Total 2,046 3,105 5,151

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D. Expense Assumptions

As a reminder, unless otherwise noted, all scenarios are created from the perspective of a small ISP

offering the services. There is one scenario that compares small ISPs to a municipal ISP. The assumptions

listed below are for the small ISP scenarios.

The following assumptions also assume that the same ISP owns the network and operates the business.

Expense Assumptions

Expenses are the recurring costs of operating the business once it’s built. We strive when building financial

projections to be conservatively high with expense estimates. It’s often less costly for an existing service

provider to add a new market than what is shown in these projections.

As mentioned earlier, expenses are estimated on an incremental basis, meaning that the models only

consider new expenses that would be needed to open the new market for an existing ISP. In an incremental

analysis it’s assumed, for example, that the existing ISP is already paying for positions like a general

manager, an accountant, etc. and that the ISP only needs to hire employees needed to open a new market

and add additional customers.

The primary expense assumptions are as follows:

Employees: Labor is generally one of the largest expenses of operating a broadband network. The

models assume that an ISP will need to hire additional staff to take care of the new customers. We

have assumed salaries at market rates with an annual 2.5% inflation increase for all positions.

We’ve assumed that the benefit loading is 40% of the basic annual salary. That would cover payroll

taxes and other taxes like workers’ compensation, as well as employee benefits.

As stated earlier, these models are incremental and only consider the additional labor needed

because of the customers added. At a minimum, the new business would require the following two

additional types of employees:

Customer Service Representative: Takes new orders, answers customer questions about

billing, services, etc. We’ve assumed the business will require the following new positions:

Rural 2 new CSRs

Two Towns 3 new CSRs

Total County 5 new CSR

Install/Repair Technician: These technicians provide maintenance and repair calls. The

technicians would maintain both network electronics and facilities as well as customers.

We’ve assumed the business will require the following new positions:

Rural 2 new technicians

Two Towns 2 new technicians

Whole County 5 new technicians

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The scenarios all assume that other positions are already staffed by an ISP. That might include

such functions as a general manager, marketing staff, accountants, etc. The whole-county

opportunity is large enough that some ISPs might hire an additional marketing person and perhaps

a regional supervisor for this opportunity.

We assumed that construction contractors will build the fiber network. We’ve also assumed that

customer installations will be outsourced during the construction process and for the first few years

thereafter. However, once the bulk of customers has been added the forecasts assume that future

installations will be done by company technicians.

Start-Up Costs: To be conservative, there are some start-up costs included in each scenario. There

are expenses associated with launching a new business or new market and rather than list them all

specifically we have included them as start-up costs. There are start-up costs even for an existing

ISP when entering a new market. In all three scenarios we’ve assumed the start-up costs are

$150,000.

Sales and Marketing Expenses: Every scenario is going to require a significantly high customer

penetration rate to be successful. We used the assumption that there would be a marketing effort

to sign customers (instead of the word-of-mouth that often happens in rural markets). It would be

too risky to spend the money to build a network without knowing for sure that there are enough

interested customers to allow the business to pay for itself. Marketing expenses shown in the

models are likely going to be for that effort. It’s possible that such money would be spent earlier

than shown in the model. There have been rural start-ups that have been able to sign up customers

using community volunteers, so it’s possible that the marketing costs could be lower than assumed

in the models.

The marketing budget for the first 5 years of operations for the three scenarios are as follows:

Rural $297,000

Two Towns $357.000

Whole County $522,500

Delivery of Products: The projections assume that the new business will not construct a headend

to provide the services. It’s likely that any ISP tackling Sierra County is already buying and

providing triple play products to customers.

The studies assume that a wholesale basic telephone line can be purchased wholesale at $5.00 per

month. A line with unlimited long distance is assumed to be $9.00. It’s possible to buy telephone

lines for less than these estimates.

The studies assume there is no cable TV product.

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Maintenance Expenses: There are a number of routine maintenance expenses that the new

business would incur on an incremental basis. These include:

• Vehicle expenses to maintain the vehicles required for the field technicians.

• Computer expenses to support the computers used by employees.

• Tools and equipment expenses.

• Power expenses to provide power to the network.

• General maintenance and repair of the outside plant network and the electronics to repair

damaged or nonfunctional electronics.

• Internet Backbone. Since this is an incremental analysis, we have shown only incremental

increases in the cost of internet bandwidth. If this business were served by a new ISP then

the cost of bandwidth would be higher to also cover the cost of transport to reach the

Internet.

• Internet Help Desk. The monthly fee for this service covers several different functions.

This fee would cover those functions used to deliver broadband such as spam monitoring

and security. This also includes network monitoring. The fee includes the help desk

function, which is the function of assisting customers with broadband and network issues.

The models assume a monthly cost of $4 per customer. That is a conservatively high

number and anticipates buying a whole suite of outsourced services. This could be done

for less and some of these functions can also be done by ISP employees.

Software Maintenance: Triple-play providers maintain a complex software system called

BSS/OSS (billing and operational support systems). This software provides a wide range of

functions: order taking, provisioning new customers, tracking of customer equipment, tracking of

inventory, creation of customer bills, tracking of customer payments (or nonpayment). Since most

such software is billed to providers on a per-customer basis we have assumed an expense for this

maintenance.

Billing: Billing costs are shown as the incremental cost used to bill customers. We assumed that

there would be some mix of mailing paper bills, of charging bills to credit cards, and of charging

bills directly as debits to bank accounts.

Taxes: The model assumes that the business that operates the business will pay state and federal

income taxes. These taxes would not apply if this were operated as a municipal business or as a

nonprofit.

We have assumed no property taxes on assets, but it’s possible that some amount of this might

apply. There are a few places in the country that charge property taxes on fiber networks, but most

of the country doesn’t. The issue of charging or not charging is usually county specific.

The forecasts do not include any taxes that are assessed to customers. For example, this business

would be expected to charge and collect various telephone taxes. These kinds of fees are normally

added to the customer bill, and thus customers pay these taxes. The models don’t show these taxes

and the assumption is that the taxes would be collected and sent to the tax authorities on the

customers’ behalf. They are not shown as revenue or expense to the forecasts, but rather are just a

pass-through.

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Overhead Expenses: The forecasts include various overhead expenses. Again, since this is an

incremental model it does not include allocated expenses such as an allocation of the general

manager’s salary. But there are incremental costs attributable directly to the new business. This

would include things like legal expenses, accounting audit expenses, consulting expenses, business

insurance, and other similar expenses that are directly related to entering a new market.

Depreciation and Amortization Expense: The forecasts include both depreciation and

amortization expense. These are the expenses recognized by writing off assets over their expected

accounting lives. For example, the depreciation rate for a vehicle is 20% per year (is written off

over 5 years). The cost of a new vehicle is then depreciated monthly to write off the asset over the

5 years, or 60 months. All hard assets are depreciated except land. Depreciation rates are set

according to the expected life of the assets—something that is usually determined to comply with

IRS rules and accounting standard practices. Soft assets like software are instead amortized, using

the same process as depreciation.

E. Financial Results

It is never easy to summarize the results of complicated business plans to make them understandable to

the nonfinancial layperson. In the following summary are some key results of each study scenario that we

think best allows a comparison of the numbers between scenarios. These summaries look at the amount

of cash generated over the life of the plan as well as at the years when each plan achieves positive net

income and debt breakeven. Those two new terms are defined as follows:

Positive Net Income: The year when the business shows a positive profit defined in the normal

accounting sense. This uses the taxation and public accounting definition of profitability and

includes depreciation and amortization, which are not cash expenses. The net income also does

not consider repayment of debt principle and annual operating capital. Reaching positive net

income is an important milestone for a new business and is one of the ways that the public will

judge your success. Just note, though, that the business can have a positive net income and still not

have enough cash to operate the business. But it’s even more common for an asset-intensive

business like this one for a business to reach positive cash flow but still have a negative net

income—due almost entirely to depreciation expense on the network, which is a non-cash expense.

Debt Breakeven: The year when the business has generated enough excess cash that would enable

the retirement of the remaining debt. Many loan and bond covenants don’t allow excess cash from

a business to be used for anything else, like dividends, until the debt has been retired.

The way to measure profitability in a new business is going to differ according to the structure of the

business. A municipal business, for example, generally measures success by the ability of the business to

generate enough cash to operate without any external subsidy. While for-profit business would generally

use something like net income to measure profits.

It is important that a business always has cash in the bank to meet its obligations. In this particular business

plan the ideal situation would be to always have at least $300,000 in the bank to have a cushion against

nonlinear monthly expenditures. Not all expenditures are spent evenly throughout the year and a business

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must maintain a cash cushion to allow for those times of the year when the expenses are higher than

normal or when the revenues are lower than normal.

Following are the results of the various scenarios. Note that a table of all the financial results is included

in Exhibit II. That Exhibit makes it easier to compare different scenarios.

Why the Projections Are Conservative

We always try to make our business plans conservative. By conservative, we mean that an actual business

plan ought to perform a little better than we are projecting. Following are some of the conservative

assumptions used in the business plan:

• If the network is constructed by “edging out” from an existing ISP there could be some savings

for ISPs in the cost of building fiber.

• In the model, we show an increase in the cost of wholesale bandwidth over time. However, industry

costs for raw data might be less than we are projecting and might even drop over time.

• Our model assumes a regular replacement of electronics. However, it is possible that upgrades will

be needed less often than we have shown. Further, our assumption is that the cost of electronics at

the time of each upgrade would cost as much as the equipment that is being retired. The experience

of the electronics industry is that electronics get cheaper and more efficient over time, so the cost

of upgrades is probably going to be less than is shown in the model. The vendors in the industry

have also gotten better at having phased upgrades that allow for keeping older equipment in place

and not having to replace everything at once, making upgrades less expensive than we have

projected.

• There are steps that the new business could take to improve upon these projections.

• Preselling. We’ve seen service providers that are able to get earlier revenues when they

presell to customers. This gives them the opportunity to begin connecting the network to

the homes of presold customers while the network is being built. This would allow

customers to be turned on in “nodes” or neighborhood-by-neighborhood as construction to

specific neighborhoods are completed.

• Adding Customers Sooner. These models assume that most customers will be gained by

the end of the fifth year. There is a significant cash boost from selling faster and adding

customers sooner.

• More Concentrated Build Schedule. It’s always possible to build faster than shown in these

forecasts if the ISP can execute on a faster construction schedule. The amount of network

that can be built in a given time period increases by adding more construction crews.

• Get Temporary Help. There are often other bottlenecks at small companies that can slow

down customer installations. This could mean the need for more sales and marketing staff,

additional customer service reps, or inside technicians needed to provision new customers.

Service providers should strongly consider using temporary employees during the roll-out

of a major new market.

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Rural County

This scenario looks at the feasibility of bringing fiber to all rural parts of Sierra County outside of Truth

or Consequences and Elephant Butte.

Base Study Breakeven Grant &

No Grant Grant Bond Financing

Asset Costs $25.57 M $25.57 M $25.57 M

Grant $ 0.00 M $17.22 M $17.22 M

Equity $ 4.49 M $ 1.38 M $ 0.00 M

Bank Debt / Bond $25.43 M $ 7.83 M $10.60 M

Total Financing $29.91 M $26.42 M $27.82 M

Passings 2,925 2,925 2,925

Penetration Rate 70% 70% 70%

Years until Positive Net Income Never Never Never

Years until Cash Covers Debt Never Year 22 Never

Cash after 20 Years (-$24.46 M) $1.07 M $ 1.03 M

This project covering the rural area is not feasible without grant funding. The breakeven grant represents

65% of total financing. Breakeven is defined as a scenario where the project never runs out of cash. We’ve

studied rural areas where the amount of grant funding needed was as high as 80%, so this result is not

unusual or unexpected. The challenge will be finding a grant program that will cover more than 50% of

the cost of funding a project – they exist, but some grant programs cap the amount of grant be setting some

fixed level of matching funds.

The third column shows the impact of financing with municipal bonds, like would be required in a public

/ private partnership where Sierra County owns the network. The financial results are almost identical to

financing the project with commercial debt. This is not always the case and the difference between bank

and bond funding differs case-by-case. In this scenario the amount borrowed with bonds is higher due to

having to cover capitalized interest and a debt service reserve fund. The primary reason this works with

municipal funding is the large amount of grant funding in the project. Had this project been 100% funded

by debt, then the commercial debt scenario would have generated more cash.

We know that the County government doesn’t want to float large debt and doesn’t want to be an ISP.

What these results show is that if all else fails that this could work as a public / private partnership with

the County owning the network and an ISP operating it. The impact to the bottom line for the various

other scenarios, such as increasing prices would have the identical impact regardless of the method of

financing.

Sensitivity Analysis

Every financial forecast is based upon numerous assumptions, but only a few of the assumptions have the

potential to significantly change the results of the analysis. For example, the results of a study would

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change only slightly by changing the assumed salary of one of the employees. Following are the sensitivity

results looking at the impact of changing the most sensitive variables, compared to the study above that

includes a breakeven grant.

Increasing Customer Prices: In this scenario, the broadband prices are increased by $5 per month

for both residents and businesses.

Increase

Base Case Price

Asset Costs $25.57 M $25.57 M

Grant $17.22 M $17.22 M

Equity $ 1.38 M $ 1.34 M

Bank Debt $ 7.83 M $ 7.60 M

Total Financing $26.42 M $26.16 M

Passings 2,925 2,925

Penetration Rate 70% 70%

Years until Positive Net Income Never Never

Years until Cash Covers Debt Year 22 Year 17

Cash after 20 Years $1.07 M $4.77 M

This shows that the business is sensitive to prices. In this case, increasing the price of the

broadband products by $5 increases the cash by a little more than $3.7 million over 25 years.

This raises the question of the right pricing for broadband. In order for the broadband product to

be competitive, it must be reasonably priced compared to the competition. However, if broadband

is underpriced it has a big negative impact on cash flow.

It’s not easy to compare a 100 Mbps product on fiber to the products available in the rural market

today. Comparing to products that are advertised as having at least 10 Mbps download shows

Windstream at $68, CenturyLink at $52, and the WISPs at $80 or higher. Realistically, almost no

rural broadband product in Sierra County is delivering the advertised speed.

The base analysis for this study sets the base broadband price at $60 per month for 100 Mbps

symmetrical on fiber. That’s far more speed and at a price that is in the middle range of the various

existing broadband products in the rural area. The above scenario of raising prices to $65 is still

not an unreasonable broadband product.

It’s worth noting that lowering prices by $5 would reduce cash flow over 25 years by the same

amount of a little more than $3.7 million.

Changing Customer Penetration Rate: The following shows the impact of increasing the

customer penetration rate from 70% to 75%. Shown next is the impact of increasing penetration

to 80% along with the amount of grant funding required to finance the project at an 80%

penetration.

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75% 80% 80%

Base Case Penetration Penetration Breakeven

Asset Costs $25.57 M $25.81 M $26.06 M $26.06 M

Grant $17.22 M $17.22 M $17.22 M $14.67 M

Equity $ 1.38 M $ 1.39 M $ 1.39 M $ 1.85 M

Bank Debt $ 7.83 M $ 7.82 M $ 7.88 M $10.48 M

Total Financing $26.42 M $26.45 M $26.48 M $26.99 M

Passings 2,925 2,925 2,925 2,925

Penetration Rate 70% 75% 80% 80%

Years until Positive Net Income Never Never Never Never

Years until Cash Covers Debt Year 22 Year 18 Year 15 Year 22

Cash after 20 Years $ 1.07 M $ 3.98 M $ 6.75 M $ 1.85 M

As would be expected, adding customers increases the needed capital (cost of the electronics and

drops needed to add customers to the network).

The bottom-line impact to cash of improving the penetration rate to 75% is an increase in cash

flow over 25 years of a little more than $2.9 million, or $582,000 increase for every 1% increase

in customer penetration.

The increase in cash for achieving an 80% penetration rate is almost $5.7 million. Perhaps the

most important change from a higher penetration rate is how the higher customer revenues impact

the need for financing. At a 70% penetration rate the project required 65% of the financing to come

from grants. If 80% of the customers in the rural area buy broadband, the need for grant financing

is reduced to 54% of total financing, and the amount of grant money is reduced to $14.7 million,

a reduction of over $2.5 million. While finding 54% grant funding is still a challenge, it’s easier

than finding 65% grant financing.

Paying a Lower Interest Rate: This looks at the impact of lowering the interest rate by 50 basis

points from 5.0% to 4.5%.

Base Case Revised

Asset Costs $25.57 M $25.57 M

Grant $17.22 M $17.22 M

Equity $ 1.38 M $ 1.36 M

Bank Debt $ 7.83 M $ 7.70 M

Total Financing $26.42 M $26.27 M

Passings 2,925 2,925

Penetration Rate 70% 70%

Years until Positive Net Income Never Never

Years until Cash Covers Debt Year 22 Year 21

Cash after 20 Years $1.07 M $1.77 M

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The impact of changing the interest rate is not as large as might be expected, mostly due to the fact

that such a large percentage of the project is funded with grants. In this case, lowering the interest

rate by one-half of a percentage (50 basis points) increases the cash generated over 20 years by

$700,000 – which is the saving on interest expense.

Using a Longer Loan Term: This examines the impact of increasing the loan term from 20 years

to 25 years. The primary change from increasing the loan is lower annual debt payments.

Base Case Revised

Asset Costs $25.57 M $25.57 M

Grant $17.22 M $17.22 M

Equity $ 1.38 M $ 1.36 M

Bank Debt $ 7.83 M $ 7.73 M

Total Financing $26.42 M $26.30 M

Passings 2,925 2,925

Penetration Rate 70% 70%

Years until Positive Net Income Never Never

Years until Cash Covers Debt Year 22 Year 24

Cash after 20 Years $1.07 M $0.79 M

Increasing the loan term has two impacts on cash flows. First, the annual debt payments are lower,

but the debt extends for five additional years in this case (meaning extra interest expense). The net

impact is a slight decrease in cashflow of $280,000 over 25 years.

Adding a 5% Construction Contingency: This examines the impact of adding a 5% contingency

to the cost of building the fiber network. In this case that adds approximately $900,000 to the cost

of the capital.

Base Case Revised

Asset Costs $25.57 M $26.47 M

Grant $17.22 M $17.22 M

Equity $ 1.38 M $ 1.54 M

Bank Debt $ 7.83 M $ 8.75 M

Total Financing $26.42 M $27.51 M

Passings 2,925 2,925

Penetration Rate 70% 70%

Years until Positive Net Income Never Never

Years until Cash Covers Debt Year 22 Never

Cash after 20 Years $1.07 M N/A

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Adding to the construction contingency without finding additional grant money pushes the project

into the red with as much as a $1.5 million shortfall. This shows that it’s vitally important not to

spend more on capital than was originally financed.

Two Cities - Truth or Consequences & Elephant Butte

This scenario looks at the feasibility of bringing fiber to the city limits of Truth or Consequences and

Elephant Butte.

Base Study Breakeven

Base Penetration

Asset Costs $18.44 M $18.04 M

Grant $ 0.00 M $ 0.00 M

Equity $ 2.98 M $ 2.94 M

Bank Debt $16.88 M $16.65 M

Total Financing $19.85 M $19.59 M

Passings 6,202 6,202

Penetration Rate 50% 45%

Years until Positive Net Income Year 5 Year 6

Years until Cash Covers Debt Year 19 Year 21

Cash after 20 Years $ 9.14 M $ 4.86 M

It looks profitable with a 50% customer penetration to build a fiber network inside of the two cities. No

grant funding is required. The key for anybody thinking about doing this would be the ability to compete

against TDS and the expected TDS reaction to competition.

This scenario can reach a cash breakeven with a 45% customer penetration rate – a goal that a lot of ISPs

would be more comfortable with than a 50% rate. There is still no guarantee that an ISP can do this well

in the towns, but we’ve seen fiber overbuilders achieve penetrations this good or higher in similar markets.

Sensitivity Analysis

Every financial forecast is based upon numerous assumptions, but only a few of the assumptions have the

potential to significantly change the results of the analysis. For example, the results of a study would

change only slightly by changing the assumed salary of one of the employees. Following are the sensitivity

results looking at the impact of changing the most sensitive variables, compared to the study above that

includes a breakeven grant.

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Changing Customer Prices: In this scenario, the broadband prices are increased and then

decreased by $5 per month for both residents and businesses.

Higher

Base Case Prices

Asset Costs $18.44 M $18.44 M

Grant $ 0.00 M $ 0.00 M

Equity $ 2.98 M $ 2.92 M

Bank Debt $16.88 M $16.53 M

Total Financing $19.85 M $19.44 M

Passings 6,202 6,202

Penetration Rate 50% 50%

Years until Positive Net Income Year 5 Year 5

Years until Cash Covers Debt Year 19 Year 17

Cash after 20 Years $ 9.14 M $13.06 M

This shows that the business is sensitive to prices. In this case, increasing the price of the

broadband products by $5 increases the cash by more than $3.9 million over 25 years, or about

$784,000 for every $1 change in price.

Paying a Higher Interest Rate: This looks at the impact of increasing the interest rate by 50 basis

points from 5.0% to 5.5%.

Base Case Revised

Asset Costs $18.44 M $18.44 M

Grant $ 0.00 M $ 0.00 M

Equity $ 2.98 M $ 3.02 M

Bank Debt $16.88 M $17.13 M

Total Financing $19.85 M $20.15 M

Passings 6,202 6,202

Penetration Rate 50% 50%

Years until Positive Net Income Year 5 Year 6

Years until Cash Covers Debt Year 19 Year 20

Cash after 20 Years $ 9.14 M $ 8.07 M

The impact of changing the interest rate is not as significant as other variables. In this case,

increasing the interest rate by one-half of a percentage (50 basis points) decreases the cash

generated over 25 years by almost $1.1 million. The decrease in cash is due almost entirely from

paying more for interest expense during the life of the borrowing.

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Using a Longer Loan Term: This examines the impact of increasing the loan term from 20 years

to 25 years. This would decrease the annual debt payments but add debt payments for five

additional years.

Base Case Revised

Asset Costs $18.44 M $18.44 M

Grant $ 0.00 M $ 0.00 M

Equity $ 2.98 M $ 2.86 M

Bank Debt $16.88 M $16.20 M

Total Financing $19.85 M $19.06 M

Passings 6,202 6,202

Penetration Rate 50% 50%

Years until Positive Net Income Year 5 Year 5

Years until Cash Covers Debt Year 19 Year 19

Cash after 20 Years $ 9.14 M $ 8.61 M

Increasing the loan term to 25-years reduces cash flow by $530,000 over 25 years. This is due to

paying interest expense for additional years.

Adding a 5% Construction Contingency: This examines the impact of adding a 5% contingency

to the cost of building the fiber network. In this case that adds approximately $620,000 to the cost

of the network.

Base Case Revised

Asset Costs $18.44 M $18.97 M

Grant $ 0.00 M $ 0.00 M

Equity $ 2.98 M $ 3.08 M

Bank Debt $16.88 M $17.43 M

Total Financing $19.85 M $20.50 M

Passings 6,202 6,202

Penetration Rate 50% 50%

Years until Positive Net Income Year 5 Year 5

Years until Cash Covers Debt Year 19 Year 19

Cash after 20 Years $ 9.19 M $ 8.39 M

Adding the construction contingency means borrowing an additional $530,000. This lowers cash

flow over 25 years by $800,000. It’s also worth noting that this pushed cash slightly negative in a

few later years – something that could be handled in several ways., The primary takeaway from

this result is that it’s vital to get a good engineering estimate of network costs before construction

so that projects don’t unexpectedly run over budget.

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Total Sierra County

This scenario looks at the feasibility of bringing fiber to all of Sierra County including Truth or

Consequences and Elephant Butte.

Base Study Breakeven

No Grant Grant

Asset Costs $43.86 M $43.86 M

Grant $ 0.00 M $13.07 M

Equity $ 7.26 M $ 4.91 M

Bank Debt $41.15 M $27.80 M

Total Financing $48.41 M $45.77 M

Passings 9,127 9,127

Penetration Rate 50% / 70% 50% / 70%

Years until Positive Net Income Never Year 13

Years until Cash Covers Debt Never Year 22

Cash after 20 Years (-$11.49 M) $ 8.28 M

Like the first scenario above, this scenario can’t be financed without a grant. However, the size of the

needed grant is reduced by building the whole County since the positive cash flows generated by operating

in the two cities helps to offset the costs of operating in the rural parts of the county. The needed grant in

this scenario is just over $13 million, which represents 28.5% of the total required financing. There have

been numerous broadband grants that have financed up to 50% of a project, so this is reasonably

achievable.

Sensitivity Analysis

Every financial forecast is based upon numerous assumptions, but only a few of the assumptions have the

potential to significantly change the results of the analysis. For example, the results of a study would

change only slightly by changing the assumed salary of one of the employees. Following are the sensitivity

results looking at the impact of changing the most sensitive variables, compared to the study above that

includes a breakeven grant.

Increasing Customer Prices: In this scenario, the broadband prices are increased by $5 per month

for both residents and businesses.

Base Case Revised

Asset Costs $43.86 M $43.86 M

Grant $13.07 M $13.07 M

Equity $ 4.91 M $ 4.80 M

Bank Debt $27.80 M $27.23 M

Total Financing $45.77 M $45.10 M

Passings 9,127 9,127

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Penetration Rate 50% / 70% 50% / 70%

Years until Positive Net Income Year 13 Year 9

Years until Cash Covers Debt Year 22 Year 19

Cash after 20 Years $ 8.28 M $16.56 M

This shows that the business is highly sensitive to prices. In this case, increasing the price of the

broadband products by $5 increases the cash by almost $8.3 million over 25 years, or $1.66 million

for every $1 increase in prices.

Adding 5% to the Customer Penetration Rate: The following shows the impact of increasing

the customer penetration rate from 50% / 70% to 55% / 75%. The middle column shows the impact

of getting 5% more customers in both the towns (55%) and the rural areas (75%). The third column

shows that the amount of grant needed for the project could be lower if there were more expected

customers.

Breakeven

Base Case Add 5% Grant

Asset Costs $43.86 M $44.50 M $44.50 M

Grant $13.07 M $13.07 M $ 8.73 M

Equity $ 4.91 M $ 4.92 M $ 5.70 M

Bank Debt $27.80 M $27.88 M $32.33 M

Total Financing $45.77 M $45.86 M $46.76 M

Passings 9,127 9,127 9,127

Penetration Rate 50% / 70% 55% / 75% 55% / 75%

Years until Positive Net Income Year 13 Year 9 Year 13

Years until Cash Covers Debt Year 22 Year 19 Year 22

Cash after 20 Years $ 8.28 M $16.34 M $ 9.62 M

As would be expected, adding customers increases the needed capital (cost of the electronics and

drops needed to add them to the network), and this slightly increases the needed amount of

financing.

The bottom-line impact to cash is an increase in cash flow over 25 years of just over $8 million,

or $1.61 million increase for every 1% increase in customer penetration.

It’s also worth noting that if customers are expected to be in the range of 55% / 75% penetration

that the needed grant becomes drops to $8.73 million and would only be 19% of the total financing.

There is perhaps no better way than this to demonstrate how all of the key variables are interrelated.

You can’t answer questions about the needed financing without also understanding other variables

such as the expected number of customers.

Adding 10% to the Customer Penetration Rate: The following shows the impact of increasing

the customer penetration rate from 50% / 70% to 60% / 80%. The middle column shows the impact

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of getting 5% more customers in both the towns (60%) and the rural areas (80%). The third column

shows that the amount of grant needed for the project could be lower if there were more expected

customers.

Effect of this Change Breakeven

Base Case Add 10% Grant

Asset Costs $43.86 M $45.14 M $45.14 M

Grant $13.07 M $13.07 M $ 4.57 M

Equity $ 4.91 M $ 4.92 M $ 6.45 M

Bank Debt $27.80 M $27.88 M $36.58 M

Total Financing $45.77 M $45.86 M $47.60 M

Passings 9,127 9,127 9,127

Penetration Rate 50% / 70% 60% / 80% 60% / 80%

Years until Positive Net Income Year 13 Year 6 Year 9

Years until Cash Covers Debt Year 22 Year 17 Year 22

Cash after 20 Years $ 8.28 M $22.94 M $10.30 M

Increasing customer penetration rates by 10% would improve cash over 25 years by almost $14.7

million, or a little more than $2.9 million increase for every 1% increase in customer penetration.

Like with the previous example, raising customer penetrations to this level would further reduce

the size of the needed grant to only $4.57 million, which is 14.5% of total financing. This scenario

might not be possible, particularly in the two cities because these penetration rates are possibly too

high to achieve. But this scenario demonstrates that the amount of needed grant funding can be

reduced by increasing expected cash flow. For example, a combination of changes such as a high

expected penetration rate, slightly higher prices, and lower interest rates could conceivably result

in a whole-county scenario that would not need a lot of grant.

Paying a Lower Interest Rate: This looks at the impact of lowering the interest rate by 50 basis

points from 5.0% to 4.5%.

Effect of this Change

Base Case Revised

Asset Costs $43.86 M $43.86 M

Grant $13.07 M $13.07 M

Equity $ 4.91 M $ 4.83 M

Bank Debt $27.80 M $27.38 M

Total Financing $45.77 M $45.27 M

Passings 9,127 9,127

Penetration Rate 50% / 70% 50% / 70%

Years until Positive Net Income Year 13 Year 13

Years until Cash Covers Debt Year 22 Year 21

Cash after 20 Years $ 8.28 M $10.76 M

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The impact of changing the interest rate is not as large as might be suspected, mostly due to the

fact that such a large percentage of the project is funded with grants. In this case, lowering the

interest rate by one-half of a percentage (50 basis points) increases the cash generated over 20

years by a little less than $2.5 million.

Using a Longer Loan Term: This examines the impact of increasing the loan term from 20 years

to 25 years. The primary change from increasing the loan is lower annual debt payments.

Effect of this Change

Base Case Revised

Asset Costs $43.86 M $43.86 M

Grant $13.07 M $13.07 M

Equity $ 4.91 M $ 4.85 M

Bank Debt $27.80 M $27.48 M

Total Financing $45.77 M $45.39 M

Passings 9,127 9,127

Penetration Rate 50% / 70% 50% / 70%

Years until Positive Net Income Year 13 Year 13

Years until Cash Covers Debt Year 22 Year 23

Cash after 20 Years $ 8.28 M $ 7.19 M

Increasing the loan term decreases the cashflow by just over $1 million, almost entirely due to the

extra years of interest payments.

Adding a 5% Construction Contingency: This examines the impact of adding a 5% contingency

to the cost of building the fiber network. In this case that adds approximately $1.5 million to the

cost of the capital.

Effect of this Change

Base Case Revised

Asset Costs $43.86 M $45.29 M

Grant $13.07 M $13.07 M

Equity $ 4.91 M $ 5.16 M

Bank Debt $27.80 M $29.25 M

Total Financing $45.77 M $47.48 M

Passings 9,127 9,127

Penetration Rate 50% / 70% 50% / 70%

Years until Positive Net Income Year 13 Never

Years until Cash Covers Debt Year 22 Never

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Cash after 20 Years $ 8.28 M N/A

In this example, the capital increases by over $1.4 million but the grant remains the same. The

extra interest expense in this situation means that in this scenario the cash goes as much as $2.1

million negative. While changing capital doesn’t have a drastic change on the cash flow of the

project – it’s vitally important not to spend more on capital than is originally financed. Cost

overruns can kill a project.

What Conclusions Can We Draw from the Financial Results?

There are a number of conclusions we can draw from the results of the business plan analysis:

Building in Rural Areas Requires Significant Grant Funding.

Building fiber in the rural parts of Sierra County requires a grant of over $17.2 million, or 65% of the cost

of the financing for the project to be feasible – at a customer penetration rate of 70%

This is not an atypical finding. The cost of building rural broadband in areas with low customer density

translates into a high cost of the network per potential customer. Over the last few years CCG has looked

at other rural counties where the percentage of grant funding needed was as high as 80%, so the

requirement of a 65% grant for Sierra County is typical.

With all of that said, there are factors that can lower the amount of needed grant money. As will be seen

below, some of the variables that drive the financial results – such as customer penetration rates and

broadband prices – can significantly alter the financial outlooks of a fiber business and could result in

lowering the amount of needed grants.

For example, in Sierra County the requirement for grant financing would drop drastically to $14.7 million

if the business is expected to achieve an 80% penetration rate. Changing other key variables also changes

the amount of grant needed – with broadband prices having the largest impact.

Fiber Could Work in the Two Cities without Grant Funding

The analysis shows that it is financially feasible to build fiber in Truth or Consequences and Elephant

Butte, and that such a business plan would be self-sustaining as long as the project was able to get at least

45% of the customers in the two cities. Getting 45% of the customers is no sure thing, but we know plenty

of ISPs who do that well or better in towns of that size when competing against a cable company.

I think ISPs are going to be interested in this finding, because being able to be profitable in these cities

would help to offset the high costs of serving the rural areas.

One of the primary uses of this feasibility study is to demonstrate to ISPs that it’s feasible and profitable

to build bring to Sierra County. We strongly recommend sharing this finding with ISPs.

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Will Require Significant Equity.

One of the issues highlighted by the analysis is that the size of commercial loans needed to build the rural

areas would be substantial, even with large grants. Banks rarely make commercial loans for 100% of the

cost of funding a project. In recent years, commercial loans have required between 10% and 20% equity

from a commercial borrower.

In the scenario to build the whole rural area, this required equity is likely to be in the range of $1.4 million.

While that might not sound like a lot of money, most ISPs typically don’t sit on very much free cash and

many ISPs that might be interested in operating in Sierra County could find this requirement to be a

problem. It is possible that a bank would consider grant funding as equity and determine that no additional

equity is required – but that’s not an automatic thing.

The Business is Sensitive to a Few Key Variables. All the scenarios are sensitive to changes in a few

key variables:

• Penetration Rate: The most important variable is customer penetration rate. We began our analysis

using an estimate of penetration in the rural areas of 70% and in Truth or Consequences and

Elephant Butte of 50%. These are fairly typical penetration rates we are seeing on fiber networks

built into similar markets.

The impact of achieving higher penetration rates is significant and could produce a big upside to

all the business plans. We’ve seen rural overbuilders that have achieved penetration rates between

60% and 85%, and one of the next steps the county should contemplate is to try to pin this number

down. This can be done using a statistically valid survey or else a canvassing effort, which will

be described in the recommendations of next steps to take after this study.

The studies show that there is a significant financial upside and improved cash flows by achieving

penetration rates higher than our starting best guess.

• Broadband Prices: The financial results are also highly sensitive to broadband prices. The studies

all used an assumed starting price of $60 for the basic broadband product. Our studies don’t say

what that speed might be, but many fiber networks begin with a base product of 100 Mbps

symmetrical (same speeds up and down). That product is magnitudes faster than the broadband

products available in the rural areas of Sierra County today.

There are rural ISPs in the state charging a lot more than $60 and it’s worth more research if you

do a survey to look at price sensitivity in the rural part of Sierra County. There is always a trade-

off between making sure that the business is successful and sustainable versus keeping rates low

to keep them affordable for the largest numbers of homes.

• Interest Rate: The financial analysis does not show a big sensitivity to interest rates. One reason

for this is that most of the scenarios we considered have significant grant funding, which reduces

the amount of money that is borrowed. However, the impact of interest rates could become

significant should interest rates ever move outside the current range of interest rates. We’ve been

somewhat spoiled in the US by historic standards by having some of the lowest interest rates over

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the last decade. There have been plenty of time in the last fifty years where interest rates were

significantly higher than today, and if interest rates increase dramatically there would be a large

impact on the ability to finance a fiber network.

• Loan Terms. The project doesn’t seem to be very sensitive to a longer loan term. The loan term is

the length of the loan. We used a base assumption of 20-year financing. It didn’t seem to make a

lot of difference by moving the loans to 25-years. That move lowers the annual debt payment in

early years, but overall costs of financing are increased due to adding on 5 additional years of

financing costs.

In the rural areas it doesn’t look possible to shorten the loan term to 15-years. The annual debt

payments are too high for a loan repayment period that short. However, if somebody were to build

fiber in the two cities it looks like that could be financed over 15 years.

It is essential before deciding to get into the business to pin down these key variables. This means that an

ISP can’t take the financial results listed above or in Exhibit II as the straight answer, because these

variables can change the result of any financial projection. To some extent the effects of the variables are

additive. For example, the improvements that might be achieved through raising the rates or lowering the

interest rate on debt can be added together if both variables change in a real business plan. The more the

ISP knows about things, like specifically how a project would be financed, the more concrete any

projection becomes.

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IV. OTHER ISSUES

A. Funding for Broadband Networks

For a large percentage of broadband projects, the biggest challenge is finding the funding. This section of

the report looks at the various ways that other communities have been able to fund broadband networks.

If a community wants fiber badly enough, there probably is a way to pay for it.

There are a number of different financing option to consider. Below we look at the following:

• Private Financing (loans)

• Public Financing

• Grants

o Federal Programs

o State Programs

• Loan Guarantees

• Customer Financed

• Public Private Partnerships

Private Financing Options

When commercial ISPs build networks, they must rely on traditional private financing, meaning loans.

Following are the key elements that determine the cost of bank financing:

Equity: Most forms of private financing require some equity. Equity means that the borrower

brings some sort of cash or cash equivalent to the business as part of the financing package. The

amount of equity required will vary according to the perceived risk of the venture by the lender.

The higher the risk, the more equity required.

Equity can take a number of different forms:

• Cash: Cash is the preferred kind of equity and lenders like to see cash infused into a new

business that can’t be taken back out or that doesn’t earn interest.

• Preferred Equity: For a stock organization (like an LLC or other type of corporation) the

business can issue some form of preferred stock that then acts as equity. Preferred equity

usually gets some sort of interest rate return, but the payments are not usually guaranteed

like they are for bank loans. If the business gets into a cash crunch, they must pay bank

loans and other forms of debt before they pay preferred equity interest.

• Assets: It’s possible to contribute assets as equity. For example, a new fiber venture might

be seeded by having one of the partners contribute an existing fiber route or another

valuable asset to the business. In such a case the contributed asset often must be assigned

a market value by an independent appraiser.

• Non-recourse Cash: Non-recourse cash means accepting a contribution to the business that

is not guaranteed to be paid back. To give an example, in Sibley and Renville counties in

Minnesota, a fiber business was launched in the form of a cooperative. The local

government provided an economic development bond to the business as a non-recourse

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loan. This means that the new fiber business will make their best effort to make the bond

payments, but if they are short of cash then the government entities that issued the bonds

would have to make the bond payments. The banks involved in that project looked at the

contributions from the bonds to be the same as equity.

Bank Loans: The banking industry as a whole does not like to finance long-term infrastructure

projects. This is the primary reason why the country has such an infrastructure deficit. Fifty or

more years ago, banks would fund things like power plants, electric and water systems, telephone

networks, and other long-term revenue-generating assets. But various changes in banking laws

have required banks to maintain larger cash reserves which makes them less willing to make long-

term loans. Banks have also increased their expectations over time to want to earn higher interest

rates. Many attribute this to the fact that giant publicly traded banks have captured most of the

banking market. Banks don’t like long-term loans since the interest rates get locked in for many

years, possibly depriving the banks from earning more on their own equity.

Most banks prefer not to make loans with a term much longer than 12–15 years, and many telecom

projects can’t generate enough cash in that time period to repay the loans.

There are exceptions. A few of the large banks like Key Bank and Bank of America have divisions

that will make bank loans to municipal ventures that look a lot like bonds. These loans will have

long payment terms of 20 years or more and reasonable interest rates. However, most of these

loans go for things like power generation plants and other projects that have a strong guaranteed

revenue stream. These banks have done a tiny handful of telecom projects, but they view most

broadband projects to be too risky.

Banks are also averse to start-ups and prefer to make loans to existing businesses that already have

a proven revenue stream. It’s extremely hard for a first-time borrower to be able to borrow the

kind of money needed to build a telecom project.

There is one unique banking resource available to companies who want to build fiber projects.

This is CoBank, a boutique bank and a cooperative. This bank has financed hundreds of telecom

projects, mostly for independent telephone companies and for electric cooperatives. CoBank is a

relatively small bank and has strict requirements for financing a project. They are leery of start-

ups and we can’t think of a start-up they have financed recently. They also expect significant equity

to be infused into a new venture. They tend to have somewhat high interest rates and somewhat

short loan terms of 10–12 years.

Cooperatives also have another bank that lends only to cooperatives. This is RTFC (Rural

Telephone Financing Cooperative) that is owned by cooperatives.

One interesting source of bank financing is local banks. Historically local banks were the source

in many communities for car and home loans. But over the last few decades those loan portfolios

have migrated to other lenders and local banks have been struggling for a decade to find

worthwhile projects in their regions. We know of many commercial projects for small telcos that

have been financed by local banks.

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The biggest challenge of borrowing from a local bank is that they typically have a relatively small

lending limit. Most local banks won’t make an individual loan for more than a few million dollars.

That obviously doesn’t go far in a fiber project. However, local banks have become adept at

working in consortiums of multiple banks to make larger loans. This spreads the risk of any one

loan across many banks. A banking consortium usually begins with a local bank in the area of the

project, with the local bank taking the role of finding other banking partners and of servicing the

loan. This approach requires a lot of extra effort from a local bank, but the approach has been used

to finance good telecom projects.

Collateral. The biggest issue that banks have in lending to broadband projects is the lack of

collateral, which is the assets they inherit if the project should fail. Banks like hard collateral like

buildings, vehicles, shares of stock, and things they know they can readily sell for a reasonable

price. Banks don’t like broadband networks as collateral, because even a little bit of web searching

shows them that networks are sometimes sold for pennies on the dollar.

It’s important understand the importance of collateral. Communities often ask an ISP operating

nearby to come build fiber in their town. What they generally fail to realize is that the ISP likely

had to pledge their entire business as collateral in order to secure the loan to finance a new market

– meaning that if the new venture fails they can lose the whole business.

Return on Bank Equity. Banks don’t only consider the interest rate when making loans. A bank

concentrates on its return on equity and will consider a combination of factors like interest rates,

up front and monthly loan fees, the likelihood that a borrower will pay a loan off early or default

on a loan, etc. A bank will look at a dozen financial parameters before making an offer of interest

rate and term – all based up their analysis of return on bank equity. There is a misperception that

interest rates are negotiable, but the same project offered to multiple banks is likely to get a nearly

identical financing package offered by all of the banks.

Federal Loans

Rural Utility Service (RUS): This is a part of the Department of Agriculture and is the only federal

agency that makes direct loans to broadband projects. The Rural Broadband Access Loan and Loan

Guarantee Program (Broadband Program) furnishes loans and loan guarantees to provide funds for the

costs of construction, improvement, or acquisition of facilities and equipment needed to provide

broadband in eligible rural areas. These loans can’t be used for any town with a population over 20,000.

The RUS acts much like a bank and follows similar lending practices. I like to describe the RUS as a bank

from the 1950s, because their lending rules were set by Congress to loan money for rural electrification

and have never been modernized.

RUS makes broadband loans and loan guarantees to:

• Finance the construction, improvement, and acquisition of facilities required to provide broadband

including facilities required for providing other services over the same facilities.

• Finance the cost of leasing facilities that are required to provide broadband if the lease qualifies as

a capital lease under Generally Acceptable Accounting Procedures (GAAP). The financing of such

a lease will be limited to the first three years of the loan amortization period.

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• Finance the acquisition of facilities, portions of an existing system, and/or another company by an

eligible entity, where acquisition is used in the applicant’s business plan for furnishing or

improving broadband. The acquisition costs cannot exceed 50 percent of the broadband loan

amount, and the purchase must provide the applicant with a controlling majority interest in the

equity acquired.

• Finance pre-loan expenses, i.e., any expenses associated with the preparation of a loan application,

such as obtaining market surveys, accountant/consultant costs for preparing the application, and

supporting information. The pre-loan expenses cannot exceed 5% of the broadband loan excluding

any amount requested to refinance outstanding telecommunication loans. Pre-loan expenses may

be reimbursed only if they are incurred prior to the date on which notification of a complete

application is issued.

RUS is allowed to make loans to a wide range of entities. Borrowers can be either nonprofit or for-profit

and can be one of the following: corporation; limited liability company (LLC); cooperative or mutual

organization; Indian tribe or tribal organization as defined in 25 U.S.C. 450b; or state or local government,

including any agency, subdivision, or instrumentality thereof. Individuals or partnerships are not eligible

entities.

To be eligible to receive a loan under this program, the entity must:

• Submit a loan application. We note that the loan application requires a lot of work including such

things as pre-engineering, surveys, mapping, financial business plan models, environmental

impact studies, and other things which make the application expensive to get prepared externally;

• Agree to complete the build-out of the broadband system described in the loan application within

3 years from the date the borrower is notified that loan funds are available;

• Demonstrate an ability to furnish, improve, or extend broadband in rural areas;

• Demonstrate an equity position equal to at least 10% of the amount of the loan requested in the

application; and

• Provide additional security if it is necessary to ensure financial feasibility as determined by the

administrator.

In practical terms here is how the RUS loans have been administered over the past few decades:

• The rules say that a project needs at least 10% equity, but in reality, this is often expanded to be

anywhere from 20% to 40% at the discretion of the RUS. In effect, the RUS acts as a bank and

they will require enough equity that the project can adequately cover debt payments.

• The loan terms are generally in the range of 12 years, sometimes up to 15 years for fiber projects.

This is much shorter than the terms available on bond financing, meaning the annual payment

would be higher under a RUS loan than with a bond.

• It is exceedingly hard to get a project funded for a start-up business. The RUS typically wants the

whole company of the borrower pledged as collateral. Thus, the bigger and the more successful

the existing company, the easier to meet their loan requirements.

• Their collateral requirements are overreaching in other ways that make them hard to work with for

municipal projects. For example, if the project is going to share fiber with some existing network,

such as one built by a school system, they would want that asset as collateral. This is generally not

possible.

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This makes the RUS a very unlikely funding source for a municipal venture or for any start-up venture.

To the best of our knowledge, the RUS has never yet successfully funded a municipal venture and they

rarely approve a project for a start-up business unless it is extremely well funded by a demonstrably

successful company.

The other big drawback of these loans is that they take a long time to process. They often have a backlog

of loan applications at the RUS of 12–18 months, meaning you have to wait a long time after application

to find out if they will fund your project. Very few existing companies are willing to wait that long unless

they are certain they will be funded. And if you are coordinating these loans with other forms of financing

this wait is not practical. The loans are granted by using a very detailed checklist and rating system. This

system gives a big preference to making new loans to existing RUS borrowers.

However, the loan fund is quite large and currently sits at more than $1 billion. Congress generally has

been adding additional funds to the RUS pot each year. The RUS also has some discretion and they have

it within their power to make a grant as part of the loan. This is something that can’t be counted on, but

we know of projects where the borrower only had to pay back 80% of what they borrowed. The interest

rates can be lower than market in some cases, but for the last several years, with low interest rates

everywhere, the RUS loan rates were not much cheaper than commercial loans.

These loans also require a significant paperwork process to drawdown funds along with significant annual

reporting requirements.

Public Financing Options

The two primary mechanisms used for public financing are revenue bonds and general obligation bonds.

There are some major benefits of using bond financing. First, the term of the bond can match the expected

life of the assets and it is not unusual to find bonds for fiber projects that stretch out for 25 or 30 years.

It’s also possible to finance a project completely with bonds, meaning that no cash or equity is needed.

The primary historic source of public money used to finance telecom projects is through the issuance of

municipal tax-exempt bonds, meaning the buyers of the bonds don’t have to pay federal and/or state

income taxes on the revenue from the bonds.

Revenue Bonds: Most of the municipal fiber networks that have been built have been financed

through revenue bonds. Revenue bonds are backed by the revenues and the assets of the fiber

network and the associated business. With a pure revenue bond, a local government will not have

to repay the bonds if the project fails. With that said, having a bond default is a financial black eye

that might make it hard for a community to finance future projects. So, to some degree, most

governments feel obligated to pay back revenue bonds, since there is a big cost for not doing so.

It has gotten harder to finance broadband projects with pure revenue bonds due to some failures

on the part of other municipal networks. Among these are Monticello, MN; Crawfordsville, IN;

and Alameda, CA. These kinds of failures have made investors leery about buying bonds that are

only backed by the business. This reluctance has made financing with revenue bonds more

expensive.

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The cost of a bond issue cannot be judged only by the interest paid. In fact, the other financing

costs of bonds can outweigh the interest rate in the effect on the bottom-line cost of repaying a

bond issue. Because of market reluctance to buy revenue bonds, they often have higher interest

rates than general obligation bonds, but they also can incur the following costs:

Debt Service Reserve Fund (DSRF): Many revenue bonds require borrowing additional

funds to be kept in escrow as a hedge against missing future payments. The DSRF is often

set to equal a year’s worth of principle and interest payments. This money is put into escrow

and is not available to operate the business.

Capitalized Interest: Bonds begin accruing interest from the day the money is borrowed.

Since fiber businesses take a number of years to generate enough cash to make bond

payments, the bondholders require capitalized interest that is used to make the interest

payments for up to the first five years of the project. Basically, the project must borrow the

amounts needed to make debt payments which can add a significant amount to the size of

the bond issue.

Bond Insurance: Bond insurance is an up-front fee paid to an insurance company that will

then pay one year of bond payments to bond holders in case of a default. We’ve seen bonds

issued that have required both a debt service reserve fund and bond insurance.

For several years now the interest rates charged to bonds have been lower than the interest rate on

commercial loans. But that has not always historically been the case. The difference between bond

interest rates and commercial interest rates both change over time; that difference is referred to in

the industry as the “spread.” Sometimes the spread favors bonds and at other times it favors

commercial borrowing. In our financial analysis we assumed that the interest rates are lower on

bonds. Interest rates are also not the same for all kinds of bonds. For instance, the interest rate for

revenue bonds can be considerably higher than general obligation bonds due to the perceived

higher risk.

General Obligation Bonds (GO Bonds): If revenue bonds aren’t an option, then the next typical

alternative is general obligation bonds. General obligation bonds are backed by the tax revenues

of the entity issuing the bonds. This backing can be in the form of various government revenues

such as sales taxes, property taxes, or the general coffers of a government doing the borrowing.

What these pledges mean is that if the broadband project fails and can’t make the bond payments,

then the backing, then the pledge revenue source, such as property or sales tax, would have to be

used to make the bond payments.

Many states require a referendum to approve general obligation bonds. Most states have a few

exceptions for things like economic development bonds that don’t require a referendum, but local

government sometimes hold a referendum anyway just to make sure the public supports the

initiative being financed.

There are other financing mechanisms that have been used by other municipalities to fund revenue-

generating projects. These include:

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Variable Rate Demand Obligations (VRDOs): VRDOs are a bond where the principal is paid in

a lump sum at maturity. However, the borrower has the right to repay the bonds in whole or in part

at any time (upon an agreed-upon notice). VRDOs are effective in circumstances when the

borrower wants to match the repayment of the bonds to a revenue stream that varies year to year

or a revenue stream that can vary from initial estimates and changes over time. In the case of the

new telecommunications system, this type of financing provides the flexibility to make bond

payments that match the actual revenues received. If revenues are slower than anticipated,

principal payments do not need to be made. If revenues come in faster than anticipated, repayment

of the bonds can be accelerated without penalty. We can recall having only ever seen this used

once for a municipal telecom system by the city of Alameda, California. This kind of financing is

used fairly routinely for other kinds of municipal needs.

VRDOs are most commonly structured as 7-day floating rate bonds. Interest rates are reset each

week, and this adds a lot of risk to this type of financing. Unlike fixed-rate bonds, the borrower

doesn’t know what the interest rate will be on the VRDOs over the life of the issue. Interest rates

on VRDOs are on the short end of the yield curve and have therefore historically been lower than

interest rates on fixed-rate bonds even with the additional ongoing costs for a liquidity provider

and a remarketing agent. There is typically a maximum rate stated which the VRDOs cannot

exceed. But in a market where there is a significant increase in overall interest rates this kind of

financing could end up being significantly more expensive.

Capital Appreciation (Zero Coupon) Bonds (CABs): CABs are bonds that are issued at a deep

discount and which do not bear any stated interest rate. Like a Series E savings bond, CABs are

bought at a price that implies a stated return calculated on a basis of the bond being payable at par

at maturity. With no stated interest rate there is no interest paid until maturity, at which time all

the compounded accreted interest is paid. With no interest payments required in the beginning

years of the bonds, this would enhance the cash flow in the beginning years of the business.

CABs do, however, have several drawbacks over other types of available financing. First, the

interest rates on CABs are typically higher than both the fixed-rate and VRDOs. Second, investors

prefer not to have a prepayment option on CABs, which limits the flexibility of the government to

call the bonds early if revenue collections are better than anticipated or if a restructuring of the

debt is needed. This structure is used frequently for various government borrowings, but we’ve

not ever heard of this being used for telecom—although there is no reason why it could not be

used.

Comparing Bond and Bank Financing

Benefits of Bond Financing: There are several major benefits for using bond financing:

• The term of the bond can match the expected life of the assets and it is not unusual to find

bonds for fiber projects that stretch out for 25 to 30 years. It’s difficult to finance a

commercial loan longer than 15 years. The longer the length of the loan, the lower the

annual bond payments.

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• Bonds can be used to 100% finance a project, meaning there is no need for cash or equity

to fund the new business. Lack of cash equity is generally the requirement that creates a

challenge for traditional commercial financing.

• Bonds often, but not always, have lower interest rates than commercial debt. The interest

rate is dependent upon several factors including the credit worthiness (bond rating) of the

borrower as well as the perceived risk of the project.

• It’s generally easier to sell bonds than to raise commercial money from banks. Sometimes

bonds require a referendum, but once bonds are approved there is generally a ready market

for buying the bonds and raising the needed funds.

Benefits of Commercial Financing: There are also a few benefits for commercial financing.

• Generally, the amount that must be borrowed from commercial financing is lower,

sometimes significantly lower. This is due to several issues associated with bond financing.

Bond financing often contains the following extra costs that are not included with

commercial loans:

o Surety: Bonds often require a pledge of surety to protect against default of the

bonds. The two most common kinds of surety are the use of a debt service reserve

fund and bond insurance. A debt service reserve fund (DSRF) borrows some

amount of money, perhaps the equivalent of one year of bond payments and puts it

into escrow for the term of the bond. They money just sits there to be used to help

make bond payments should the project have trouble making the payments. Bond

insurance works the same way and a borrower will pre-pay and insurance policy at

the beginning of the bond that will cover some defined amount of payments in case

of a default.

o Capitalized Interest: Bonds typically borrow the interest payments to cover bond

payments for some period of time, up to five years.

• Construction Loans: Another reason that commercial financing usually results in smaller

debt is through the use of construction financing. A commercial loan will forward the cash

needed each month as construction is done, and interest is not paid on funds until those

funds have been used. However, bonds borrow all of the money on day one and begin

accruing interest expense on the full amount borrowed on day one. Construction loans also

means that a borrower will only draw loans they need while bond financing is often padded

with a construction contingency in case the project costs more than expected.

• Deferred Payment: Commercial financing often will be structured so that there are no

payments due for the first year or two. This contrasts with bonds that borrow the money

required to make these payments. Fiber projects, by definition, require several years to

generate revenue and deferring payments significantly reduces the size of the borrowing.

• Retirement of Debt: It’s generally easy to retire commercial debt, which might be done in

order to pay a project off early or to refinance the debt. This contrasts to bonds that often

require that the original borrowing be held for a fixed number of years before it can be

retired or refinanced.

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Grants

It’s hard imagining the construction of fiber networks in rural areas without some grant support. This is

particularly true in Sierra County, which has rugged terrain and other issues that add to the cost of building

fiber compared to many other parts of the country.

Federal Broadband Grants: There are several federal broadband grant programs that might

benefit this project.

Rural Digital Opportunity Fund Grant (RDOF). The FCC has created a massive $20 billion grant

program that will be awarded in 2020 and 2021. This grant program is being funded from the

FCC’s Universal Service Fund. Following are a few key elements of this new grant program:

• The FCC proposes awarding the money in two phases. The Phase I award will be awarded

in late 2020 and will award around $16.4 billion. The Phase II will award will follow and

award the remaining $4.4 billion plus any money left from the Phase I grants.

• The grants will be paid out to grant recipients over 10 years. Grant recipients need to

understand the time value of money because they will likely have to borrow money and

then use the grant funding to make the grant payments.

• The money will be awarded using a reverse auction. This means that ISPs will bid on the

amount of grant money they are willing to accept for a given geographic area, with the ISP

willing to take the least amount getting the grant.

• The Phase I auction will only be awarded in areas that are wholly unserved using the

definition of not having any broadband capable of delivering speeds of 25/3 Mbps or faster.

This unfortunately is going to use the lousy FCC maps to determine the eligible areas. This

means that many parts of the country that ought to be eligible for these grants will not be

part of the program.

• The grant program will give priority to faster broadband technologies. The FCC will weight

technologies that can deliver at least 100 Mbps, and weight even more for technologies

that can deliver gigabit speeds. There is a grant disincentive for technologies with a latency

greater than 100 milliseconds.

• Recipients must complete construction to 40% of the grant eligible households by the end

of the third year, with 20% more expected annually and the whole buildout to be finished

by the end of the sixth year.

• Grant winners will be expected to agree to become the carrier of last resort for the grant

areas. Applicants must be able to obtain Eligible Telecommunications Carrier (ETC) status

to apply, meaning they must be a facilities-based retail ISP. This will exclude entities such

as open access networks where the network owner is a different entity than the ISP.

Applicants will also need to have a financial track record, meaning start-up companies need

not apply. Applicants must also provide proof of financing.

• Grant winners will be subject to controlled speed tests to see if they are delivering what

was promised. The current FCC speed test requires that only 70% of customers must meet

70% of the promised speeds requirements for an applicant to get and keep full funding.

e-Connectivity Grant Program. In March of 2017 Congress passed a one-time $600 million

grant/loan program to build rural broadband. The project was labeled as the e-Connectivity Pilot.

There is a lot of hope that Congress will continue this program.

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ReConnect Grants.

In the 2017 Farm Bill, Congress created a grant program called ReConnect.

The program awarded $200 million in grants, $200 million in loans, and $200 million in a

combination of grants and loans in 2019. Congress reauthorized an additional $600 million to be

awarded in 2020. Those grant applications were already due before the date of this paper. There is

a lot of hope in the industry that Congress continues to renew these grants. These grants are

administered and awarded by the US Department of Agriculture.

Community Connect Grants.

This program specifically targets the poorest parts of the country

and ones with little or inexistent broadband. This program awarded $34 million in 2018 and $30

million in 2019. Grant awards for the program are generally between $100,000 and $3 million and

require at least a 15% matching from the grant recipient.

BroadbandUSA Program.

This program is part of the Department of Commerce’s National

Telecommunications and Information Administration (NTIA). The agency provides an annual

database of grants that can sometimes be used for broadband (and are often used for other

purposes). Examples include the Appalachian Regional Commission and the Community

Development Block Grant (CDBG) Program.

State Grant Programs

New Mexico Broadband Program.

The New Mexico Department of Information Technology

(DoIT) was awarded a 5-year grant totaling at least $5 million with the goal to create more

accurate state broadband maps. As detailed throughout this study, the current federal databases

(referred to as FCC maps) massively overstate the availability of broadband in Sierra County and

most other rural places in the US. This program also is supposed to engage in training programs

to inform communities and anchor institutions about broadband. Another goal is what they call

capacity building, which they mean to bring together the various major sectors of the state

economy and public sectors to work collaboratively towards broadband solutions. Finally, the

Broadband Program is tasked with developing a digital literacy resource.

New Mexico Broadband Grants. The Rural Telecommunications Act of New Mexico allocated $5

million per year for broadband grants given to broadband service providers to bring broadband to

the neediest parts of the state. These grants are being funded from the state’s Universal Service

Fund (SRUSF). Grant are administered and awarded by the New Mexico Public Regulation

Commission. Announcements of grant cycles and grant award can be found on the

Telecommunications web page of the Commission.

https://www.usda.gov/reconnect

https://www.rd.usda.gov/programs-services/community-connect-grants

https://www.broadbandusa.ntia.doc.gov/new-fund-search

https://www.doit.state.nm.us/broadband/index.shtml

http://www.nmprc.state.nm.us/utilities/telecommunications.html

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Loan Guarantees

Another way to help finance broadband projects is through federal loan guarantees. A loan guarantee is

just what it sounds like. Some state or federal agency will provide a loan guarantee, which is very much

like getting a co-signer on a personal loan. These programs guarantee to make the payments in the case of

a default and thus greatly lower the risk for a lending bank. In return for the lower risk, the banks are

required to offer a significantly lower interest rate.

These guarantees are not free. There is an application process to get a loan guarantee in much the same

manner as applying for a bank loan or a grant, meaning lots of paperwork. And then the agency making

the guarantee will generally want a fee equal to several interest “points” up front. To some extent, this

process works like insurance and the agency keeps these fees to cover some of the cost of defaults. If they

issue enough loan guarantees, then the up-front fees can cover eventual losses if the default rates are low.

These points are a payment to the agency for issuing the guarantee and are not refundable.

There are several federal agencies that might be willing to make loan guarantees for telecom projects. The

following agencies are worth considering:

HUD 108 Program: The Department of Housing and Urban Development has a loan and loan

guarantee program that is allotted for economic development. There is both federal money under

this program as well as money from this program given to the state to administer. While these

loans and loan guarantees generally are housing related, the agency has made loan guarantees for

other economic development projects that can be shown to benefit low- or moderate-income

households. If enough of a fiber project can be said to benefit low-income residents, then these

loans can theoretically be used for a fiber project.

Small Business Administration 504 Loan Program: This program by the SBA provides loans

or loan guarantees to small start-up businesses. These loans or loan guarantees must be made in

conjunction with a bank, with the bank providing some loan funds directly and with the SBA

loaning or guaranteeing up to 50% of the total loan.

USDA Business and Industry Guaranteed Loans (B&I): The Department of Agriculture

provides loan guarantees through the B&I program to assist rural communities with projects that

spur economic development. Such a project must, among other things, provide employment and

improve the economic or environmental climate in a rural area. These loan guarantees are available

to start-up businesses. The program can guarantee up to 60% of a loan over $10 million or greater

percentages of smaller loans.

Opportunity Zones. Congress created a new tax opportunity as part of the 2017 Tax Cuts and Jobs Act.

The Act created Opportunity Zones in which investors can get special capital gains treatment and other

tax breaks for investing in qualified infrastructure within an opportunity zone. Each state governor then

designated specific opportunity zones. The good news is that most of Sierra County is classified as an

Opportunity Zone.

Qualified investments made inside an Opportunity Zone can get special tax treatment. The first benefit is

that taxes can be deferred from past investments if the gains are invested inside of an opportunity zone.

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For example, if an investor had a capital gain from the sale of a property, they could invest those gains

and not pay taxes on the gains now, but have those gains deferred until as long as 2047. Investors have

until 2026 to make such investments.

An investor also gets tax forgiveness on new investments made inside the opportunity zones if that

investment is held for at least 10 years. Most of the opportunity zones include sizable areas of low-income

residents and a qualified investment must meet a test of benefitting that community in some significant

way. A fiber optic network that will bring broadband to all the homes in an opportunity zone should meet

that test – there are lot of demonstrable benefits of fiber.

Any ISP building a network in Sierra County should consider getting at least part of their funding from

one of the many Opportunity Zone funds that have been created to invest in qualified investments. This

portion of the financing portfolio would likely have a smaller interest rate and might not have to pay back

the full cost of the investment.

New Market Tax Credit. The New Markets Tax Credit (NMTC) Program was established in 2000 as

part of the Community Tax Relief Act of 2000. The goal of the program is to spur revitalization efforts of

low-income and impoverished communities across the United States and Territories. Most of rural

America qualifies for new market tax credit financing. New market tax credits are normally used to fund

only a small portion of a project.

The NMTC Program works by giving big tax credits to investors that are willing to invest in infrastructure

projects in qualifying communities. The tax credits are so lucrative that often the other terms for accepting

the funding are modest. The tax credit equals 39% of the investment paid out—5% in each of the first 3

years, then 6% in the final 4 years, for a total of 39%.

The Community Development Financial Institutions (CDFI) Fund and the Department of the Treasury

administer the program. The process of how the Treasury allots credits is a complicated one and we won’t

cover it, but in essence, there are entities around the country each year that are awarded tax credits and

these entities work as brokers to allot the credits to specific project. The credits are often purchased by the

large national banks or other firms that invest in infrastructure.

Generally, in practice, these funds act like a mix of loans and credits to the recipient. For instance, a

community that received these funds might have to pay some modest amount of interest during the 7 years

of the tax credit, and at the end would have a balloon payment for the principal. However, often some or

even all of the principal will be excused, making this look almost like a grant.

Because the entities that get the credits change each year, and because you apply with the entities that hold

the credits, and not with the federal government, the process for applying for this money is somewhat

fluid. However, there are entities and consultants who help find New Market Tax Credits and who can

help you through the maze of requirements.

Customer Financing

When no ISP or municipality is able to finance a project, we’ve seen citizens to step up and agree to

somehow fund directly some or all of a broadband project. When you consider that the cost of building

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rural fiber can be $15,000 or more per home passed, getting some assistance directly from potential

customers is sometimes the only solution that can attract the rest of the needed funding. There are several

examples of places where this has been done in the country:

Property (or Other Kind of Tax) Revenues. It is possible to obtain some or all of the cost of a

broadband network through a pledge of future tax revenues. That pledge can then support a bond.

This is different than most bonds for a broadband network where the network would be secured

by revenues of the broadband venture. But a pledge of some other kind of tax revenue is one of

the easiest ways to get a bond. There are some real examples of this kind of financing:

• Lyndon Township, Michigan: This is a township of about 1,000 homes that voted to raise

property taxes to fund to build a fiber network. The township then partnered with a local

broadband cooperative to provide services. The project is a win/win for citizens. Property

taxes increased about $25 per month per household. The township provides free access to

the network to the cooperative which is charging about $25 for broadband – making the

total cost of getting broadband about $50 per month. This is an area that had no broadband

before the project.

• UTOPIA, Utah: UTOPIA is a consortium of a number of small towns in Utah that banded

together to get fiber. Each town has pledged property tax revenues to fund part of the cost

of the network.

• Cook County, Minnesota: Cook County funded about half of their fiber network using a

federal grant awarded from the Stimulus funding program in 2008. The county held a

referendum and used a sales tax increase to pay for the matching funds needed to build the

project.

Direct Customer Contributions: It’s also possible to pay for some of a broadband project through

direct contribution of possible customers. This has never been done on a large scale because it

would be exceedingly difficult to get a lot of residents to agree to write a check to fund a network.

But there are some examples to consider:

• Contribution to Aid in Construction: Most utilities have a program where they will agree

to extend their network to customers if those customers agree to pay the cost of the

connection. We are aware in the broadband area of numerous cases where small pockets

of rural home raised the needed money to get connected to a nearby broadband network.

• Ammon, Idaho: This is the only municipal attempt at funding a network in this way. The

City of Ammon will connect customers to a fiber network if they will contribute $3,500

up-front to cover the cost of construction.

Public Private Partnerships

A public private partnership (PPP) is formed when a government entity and commercial entity fund a

project together. There is no one model for a PPP and such an arrangement can be structured in many

ways. The main benefit of a PPP is that the commercial operator of a project benefits by getting some

bond financing from the municipal partner. This allows the business to blend the benefits of bond and

commercial financing and is one of the ways that makes it easier to get through the first few years of the

project.

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The general benefits of bond financing are what makes public money attractive to a commercial partner—

low interest rates, long repayment term, and small or no payments for the first few years. But the downside

is that there are more overall financing costs and in the long run a bond makes a project cost more in terms

of cash. The safety of a bond in the first few years, though, can be very attractive.

Combining Public and Private Financing. There are benefits to combining the two kinds of financing:

• Banks will often consider the financing that comes with bonds as the equivalent of equity, meaning

that the commercial partner will not require as much, or even no, cash equity.

• In terms of the amount borrowed, the two methods work well together if construction loans are

used to cover the construction and bond financing is used for the longer-term financing costs.

• Combining the two methods works to produce a payment term that is longer than a traditional

commercial loan.

• Combining the two methods also usually means lower debt payment during the first few critical

years while the network is being built.

• Both municipalities and commercial telcos have a natural borrowing limit—meaning that there is

always some upward limit on the amount of money they can borrow. Combining both kinds of

financing can mean that neither partner has to hit their debt ceiling. Just as an aside, the debt ceiling

is often the main impediment to funding project 100% with bonds. Fiber projects are generally

large projects and the required funds can easily exceed the ability of a government to fund it 100%.

Following are two examples of this type of PPP, both from Minnesota:

• RS Fiber: RS Fiber is a new broadband cooperative that was formed in Renville and Sibley

counties. The project was funded from various sources including a loan for 25% of the project

supplied by a bond backed by the cities and counties involved in the project. The Cooperative

raised the other money with a combination of bank loans and grants.

• Swift County: The county government there contributed a significant percentage of the cost needed

to construct a broadband network in the county. The bond proceeds were loaned to Federated

Telephone Cooperative and are expected to be paid back over time.

Other Sources of Financing

We’ve seen entities get very creative in finding sources of financing. Take the example of the RS Fiber

Cooperative formed in Sibley and Renville Counties in Minnesota. Their financing includes two unique

revenue sources we have not seen used before:

• Loans from Individuals: The Cooperative borrowed money directly from people and businesses

in the service area. These loans had loan contracts and covenants like any other loans. The money

borrowed in this manner reduces the amounts that must be borrowed from the larger external

sources, and generally these loans avoid the large fees associated with external financing.

• Loans from Other Cooperatives: Since RS Fiber is a cooperative, they found that they were able

to borrow from an electric cooperative at low interest rates. Cooperatives are a unique type of

business that is required by law to either invest their profits back into the business or else return it

as dividends to members. Because the level of dividends is limited by law, cooperatives often find

themselves with large cash reserves. They are allowed to loan out these cash reserves, but only to

other cooperatives.

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B. Partnering Potential

This section of the report discusses how to find ISP partners to bring broadband to Sierra County, As this

report was being written the Rural Utility Service (RUS), part of the US Department of Agriculture,

announced that Sacred Winds Communications of Yatahey, New Mexico has proposed a ReConnect grant

to bring fiber to some portion of rural Sierra County. There is no guarantee that they’ll win the grant, and

in the last round of grant filings there was $3 in grant requests for every $1 of grant that was awarded.

The following discussion on partnerships assumes a true partnership between Sierra County and an ISP –

meaning one where the county is somehow contributing to the venture.

The Best Characteristics for an ISP Partner

Experience. We know of several investor-driven ISPs looking to invest and operate broadband networks,

but which have never built or operated a network. This isn’t to say that such a group can’t be a good

partner, but it’s a higher risk to work with an ISP that doesn’t already have customers and that hasn’t

worked in a partnership before.

There are a few horror stories in the industry of public/private partnerships that went awry because of lack

of experience by the ISP partner. In the following two examples the ISP management team was made up

of folks with industry experience but who had never worked together as a team before.

• The first example is Utopia in Utah. This is a collaboration of small towns that are working together

through the Utopia organization to create economy of scale for the business. State law in Utah

doesn’t allow municipalities to be an ISP, so Utopia works as an open access network where the

cities build the network and various ISPs compete for customers.

Utopia started by hiring an external management team that had not worked in the open access

environment before. Several things went wrong – the networks were late in getting constructed

and came in over budget. The ISPs did not sell as aggressively as the business plan had supposed.

Utopia ran out of cash before construction was complete and almost folded, but the business was

eventually saved through several rounds of refinancing and is now large enough to be financially

stable. It took almost a decade of the business being in financial duress to get to that point.

• Another example is Lake County, Minnesota. The county decided to borrow money to build a

county-wide fiber network. This is one of the northernmost counties in the state and quite remote.

There are 11,000 residents in 2,100 square miles. They hired an outside firm to construct the

network and run the ISP. The project went way over budget and the project ran out of money with

a backlog of almost 1,000 customers they couldn’t connect to the network.

The project was funded through a combination of a $10 million federal grant and a low interest

government loan for $56 million. The county also bonded over $7 million locally for the project

plus floated loans to keep the project afloat. The project went completely underwater financially

and didn’t make enough money to cover debt payments. In 2019 the county sold the network to an

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ISP for $8.4 million. The federal government had to write off about $40 million in debt and the

county still must cover the original bonds plus the internal loans made to the project.

Experience Working with Municipalities. It’s somewhat important to work with an ISP that has worked

with local governments before. CCG has witnessed a number of public private partnerships with the

recurring theme that the two parties get frustrated with each other over time. This is due to two factors –

frustration with the decision-making process and a difference in goals and expectations.

Commercial ISPs become quickly frustrated with the municipal decision-making process. Most local

governments have a specified legal process that must be followed to make certain kinds of decisions. This

might mean listing the topic for a public meeting, waiting for a period of time, and allowing public

comment on the issue. Commercial ISPs are used to making decisions quickly and they don’t like the

drawn-out processes that government requires. Government entities get frustrated as well since their

commercial partners push them to make decisions quickly when they can’t.

A more fundamental issue in public private partnerships is a fundamental difference in goals. The issue

commonly arises when the two parties didn’t thoroughly discuss their long-term goals for broadband

before a partnership began. Commercial ISPs are often most worried about cash flow and profit margins.

If they’ve invested equity in a broadband network, they become unhappy if the business doesn’t meet their

earnings goals. Governments often have a different set of goals – serving every household, offering low-

priced broadband to low-income houses, providing subsidized broadband to nonprofits and anchor

institutions. In many cases, these kinds of fundamental differences can’t be overcome and eventually ends

up in a dissolution of the partnership.

The differences between the two kinds of entities often surfaces when there is a discussion of rates. Cities

often push back against rate increases – particularly in election years. Cities push partners for low rates in

general, and often want an ISP to give low rates for low-income households and even free rates to groups

like nonprofits.

These kinds of issues are less likely to be a huge problem if the ISP has worked successfully with other

municipalities before. A government entity that is working with an ISP that has not partnered in this

manner before should have an in-depth discussion up front about expectations. It’s a lot easier if the two

parties decide up front that they aren’t compatible instead of getting a divorce after the partnership has

been launched.

Financial Strength. Municipal entities often have a hard time judging the financial strength of partners.

Unfortunately, most public/private partnerships are not with big well-financed ISPs. The more typical

partnerships are with telephone companies, electric cooperatives, or fiber overbuilders. It’s typical for

commercial ISPs of this type to overstate their financial security – and they may even believe what they

say in doing so. But there are a few fundamental things about ISPs that a city should understand:

• Almost every ISP has a natural borrowing limit. There is only so much debt that bankers and other

lenders will allow them to carry. By definition, when an ISP nears that lending limit it means that

bankers think the company is pushing its financial limitations. Any ISP that has borrowed to its

limit can’t afford to make financial mistakes, and that means the partnership and all their other

ventures need to perform as expected. It’s not unusual to see budding partnership be dependent

upon obtaining financing, and it’s not uncommon for the ISP to not get the hoped-for funding.

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• The biggest issue with ISPs and borrowing is collateral. Banks don’t look at fiber networks as

good collateral for loans because there is very little value from repossessing a fiber network. This

means the only good collateral that most ISPs have is the value of their existing company. Even

surprisingly large ISPs might have to pledge their entire company in order to borrow a sizable

amount of money to build an expensive network. It’s often necessary for owners of ISPs to make

personal guarantees on loans, meaning that both their business and their personal assets are on the

line with a new fiber project. ISPs are highly unlikely to disclose to a government partner the

details of how they raise money – among other reasons they fear public disclosure laws and don’t

want their personal financial position discoverable as a public record.

Capacity to Grow. One of the hardest things to judge is the ability of an ISP to grow quickly. A traditional

ISP like a telephone company may have a lot of customers – but they acquired them slowly over decades.

ISPs (and all other types of businesses) often get stressed to the breaking point when they try to grow too

fast. It’s not unusual for an ISP to somehow assume that existing middle and upper management can

handle a growth scenario while still somehow handling the existing responsibilities they’ve always had.

Just because a company is a great ISP doesn’t mean that the company is capable of growing quickly.

Unfortunately, there is no way to judge this unless the ISP has already been growing prior to the creation

of the partnership.

Fair Recognition of Value. One of the important attributes of a good partnership is the full and fair

recognition of the value that each party brings to the partnership. Municipalities should be wary of a

partner that overvalues what they bring to and undervalues what you bring. A government can create value

for a public/private partnership in a number of ways:

• Funding. Any amounts paid towards funding a broadband network are valuable. Governments

often don’t know how to set a value for cash contributions – something that commercial partners

routinely figure out. It’s been my experience that ISPs don’t value government funding as much

as they do other funding sources. I think this is because government funding doesn’t come with

the same stringent strings and responsibilities. A local government is not likely (or even able) to

require things that a bank might require such as collateral or a lien on a partner’s assets. If an ISP

gets into financial trouble, the first entity they will try not to pay is a government partner. This can

be dealt with in creating a partnership agreement, but to some degree that requires a government

to think like a bank.

• Anchor Tenant. Government entities often make good anchor tenants – which is pledging to be an

early customer of a network and guaranteeing to buy services with a long-term contract. It’s not

untypical for a government entity to be one of the largest broadband and telecom customers on a

network.

• Other Assets. Governments often have other assets that can benefit a partnership. This could be

land for placing equipment; It could be a building to create a central office or a storefront. It might

mean towers, empty conduit, or spare existing fiber that can be used to defray the cost of

constructing a broadband solution. The value of such assets should be set according to what the

partnership would pay to get the same thing from a third party.

• Easier Construction Processes. Local governments often take a significant role during the

construction process. They might have to approve permits for rights-of-way. They might be the

entity that locates existing utilities. They might require inspection of construction work sites,

during and after construction. They might require things like traffic management during

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construction. Before tackling a major fiber construction project with a partner, a government might

review these various requirements to see if they can be streamlined to make it easier to build fiber.

Note in doing so that this likely means making any relaxed rules available to any other entity that

wants to build fiber.

• Contributed Labor. A government can contribute labor. Using the last example above, a

government could agree to conduct permits, locating, or some other service for free as a way to

contribute to launching a partnership project.

• Tax Abatements. Tax abatements have always been a tool for economic development.

Governments often have it within their power to excuse certain taxes to entities that bring

something of economic value to the community. For example, it’s common to not charge a large

new business any property taxes for some period to lure them to locate in the community. There

are numerous taxes and fees that might impact a new broadband network such as property taxes,

sales taxes, right-of-way fees, etc. that a government might be willing to waive to help a new

network get established.

The bottom line to this discussion is that a government can bring significant value to a partnership, and

that contribution should be fairly valued. Even when a government brings tangible value, such as

contributing funding, it’s not unusual for an ISP to undervalue that contribution. It’s even more prevalent

for an ISP to not assign a realistic value to the more intangible contributions.

How do You Find Potential Partners?

We’ve seen almost every partnership we know of come through three different processes:

• Request for Information (RFI). It’s typical for communities that want broadband to issue an RFI

aimed specifically at soliciting potential ISP partners. These RFIs typically describe the situation

in the community, typically describe whatever work has already been accomplished (such as this

feasibility study) and describe the role the municipality wants to take in a partnership.

The RFI then asks ISPs to describe themselves and their capabilities. The RFI generally doesn’t

go so far as to request a specific solution, but rather asks the ISPs to discuss how they might tackle

broadband issues in the community.

And RFI is generally a first step to determine which ISPs might be interested in partnering. After

the RFI the process typically moves to one of the two processes described below.

• Request for Proposal (RFP). And RFP is typically a lot more in depth. In addition to asking ISPs

to introduce themselves, an RFP might ask for specific proposed solutions. It might go further in

detail asking about the financial strength of the ISP business and details of how they operate in

other market.

• Direct Negotiation. It’s routine for governments to interact directly with potential ISP partners

rather than go through an RFI or RFP. This might involve a local government reaching out to ISPs

in the area, or it might be in response to an ISP making an unsolicited proposal to a local

government to bring broadband.

Comparing the Three Options.

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It’s first worth considering the issue from the perspective of an ISP. ISPs are leery of public records laws.

They are often highly reluctant to provide financial information, customer lists, or other information that

they feel is confidential. They don’t trust that local governments will fight to keep such information

confidential. ISPs are even more leery of spelling out specific details of their business plan and how they

approach a broadband market – they don’t want that information to be available to their competitors.

Many ISPs are not willing or able to respond to an RFI or an RFP that asks for lengthy written responses

to a long list of questions. Businesses that sell equipment and services are used to the idea of making

proposals and usually have a pile of pre-prepared canned responses to the typical questions they are asked

by a prospective customer. However, an ISP may never have been asked to make a proposal in writing in

the specific and detailed way that might be needed to respond to an RFI or an RFP. There are ISPs that

refuse to participate in an RFI or RFP for this and related issues. We know there are ISPs that eliminate

cities from consideration if they insist on going through the formal RFP process. They know there are

other communities that will talk to them directly without the formal process.

ISPs prefer direct discussions where nothing is put into writing during the negotiation stage. That’s the

same process that ISPs typically use when they partner with other ISPs – they sit and talk out the pros and

cons and mutually decide if there is a potential for a partnership. As often as not, such discussions end up

with the realization that a partnership is not a good idea, and the parties amicably go their separate ways

and nothing they discussed is in writing.

Here is the process that I like best, having been through a lot of discussions between governments and

ISPs:

For most local governments, the best first step is to invite known ISPs for a high-level discussion

about whether any kind of partnership makes sense. This process might involve several meetings

where an ISP might come back with ideas, and then another meeting where the local government

reacts. For smaller cities and for rural governments this is likely the only approach that will work

since small and rural communities are unlikely to attract ISPs from a distance.

I like the RFI process when it makes sense. For example, I was working with a geographically

isolated community where there was no local ISP candidate within fifty miles. An RFI made sense

since the community didn’t have a wish list of local ISPs to consider. An RFI also might make

sense for larger communities. In this case I define larger to mean that the cost of the project is large

– perhaps more than $25 million. I’ve known communities that found an ISP partner through an

RFI that they would never have otherwise found.

If a community issues an RFI it should ask for basic information only. That might include asking

an ISP to provide their history, telling about the products they normally sell, and talking about the

management team. While cities might have a hundred questions for a prospective partner, the ISP

is going to be a lot happier if the details of their business are not put into writing at the early stage

of meeting and negotiating.

I think RFPs only make sense for larger cities – probably those with network costs over $100

million. It’s not likely that a small ISP will respond to such an RFP. Even in an RFP, I recommend

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not asking for sensitive financial information about the ISP – that can always be provided if the

likelihood of a partnership develops.

Establishing Compatible Goals

At some point during the early stages of the process it’s vital for both sides to thoroughly discuss their

goals for the project. Misalignment of goals is the number one issue that plagues any partnership

eventually. Both parties need to fully hear, understand, and be fully comfortable with the goals of the other

partner.

Goals generally can be stated simply and don’t have to be complicated. Goals for a municipality might be

things such as serving the entire community, not needing to subsidize the project, keeping rates low, and

so forth. Goals for an ISP might be to generate a specific target of cash flows / profits. It wouldn’t be

unusual for an ISP partner to eventually want the option to buy the business. An ISP also might want just

the opposite and might want to capitalize on the success of the business by selling out after some period

of time.

It’s important to not only see each other’s goals, but it’s vital for a municipality to understand the ISP’s

goals. This is one situation where a municipality might want to discuss these goals with a consultant or

somebody with broad industry experience. It’s not unusual for two partners to be talking a different

language when discussing financial issues and it’s vital to fully comprehend what a partner is telling you

about their goals.

Alignment of goals is a make-or-break point in a potential partnership. Many of the differences that a

municipality and an ISP might have can be negotiated, but you can’t negotiate a difference in philosophy.

If an ISP has a goal that a municipality can’t live with, such as selling out in ten years – then our advice

is to not pursue the partnership. When an ISP tells you a goal of that nature, they mean it.

How to Rank Potential Partners?

There are hundreds of questions that a local government might ask an ISP that might range from big

important questions like, “Can you bring funding to this project?” to questions that are important but have

lesser impact on creating a partnership such as, “What’s your process of disconnecting customers who

don’t pay?”

I advise prospective partners (government or otherwise) to place their questions into three categories, 1)

make or break questions, 2) questions that might disqualify a potential partner, and 3) all other questions.

Every community will have its own list of make or break questions based upon their own priorities for

what a partner should bring to the table. Make or break questions might be things like 1) “How much

funding can you bring to the project?”, or 2) “Are you willing to serve everybody in the community?”

Questions that might disqualify a potential partner might be similar questions, again based on the specific

priority and goals of a given community. Keep in mind that some of the items in this category might be

subject to negotiation – something that should be asked.

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The first two categories of questions are the important ones that should be used to qualify and rank

potential partners. Other less critical questions are important, but probably don’t get considered unless it’s

close between two candidates. You choose a partner based upon the most important aspects of the

relationship.

There are several techniques that are used to compile rankings. Most rankings of this sort are done by

compiling the rankings by a team of reviewers. The most important questions might get weighted

somehow to have the biggest impact on the composite answer. At the end of this process is a numerical

answer that reflects the composite opinion of those doing the ranking. It’s likely that such rankings are

not even the final answer and often the ranking process will send a government back to ask more questions.

Since this is not a purchase of service, but a partnership, it’s also highly unlikely that it would be

mandatory to take the ISP that ranked the best.

Defining the Roles of Each Partner

It’s vital to define the specific roles and responsibilities of each partner. Ideally, this should be done before

formalizing the partnership arrangement.

CCG has often used a technique that seems to work ideally in defining a partnership. It starts with a list

of all of the tasks needed for launching and operating the upcoming broadband business. The level of

detail usually become readily apparent. For example, it it’s clear that the ISP is going to have 100% of the

interactions with customers, then having a task called “Interface with customers” would be sufficient

rather than listing all of the various ways that somebody might interface with customers.

The items on the list would include financial and other contributions as discussed earlier, issues having to

do with construction the new network, issues having to do with governance, issues having to do with

operating the business.

A responsibility must be assigned for each task on the list. The choices for each task are 1) the task is the

responsibility of the government, 2) the task is the responsibility of the ISP, 3) the task is a joint

responsibility of both parties (in which case that needs to be fully described), or 4) the task is the

responsibility of some third party (like an outsourced arrangement). This kind of process quickly shows

if the two parties are aligned and agree on all of the responsibilities and if there are tasks where the two

sides have a different view. The example used earlier involved setting of rates – this is a good way to get

it in writing from both parties about the roles in setting rates.

Making this list serves two purposes. It’s a great tool for getting both parties to acknowledge the specific

roles of each partner. It also then serves as a great template for developing a contract between the partners.

Maintaining Local Control

The RFP for the project asks how a community can maintain local control to insure long-term

responsiveness to local needs. This is one of the most challenging aspects of a partnership. The following

issues all have bearing on the level of control a municipality might have for an ongoing broadband

business.

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Before answering the question, I would challenge a municipality to make a list of items they would like

to have some control over. It’s likely that a list will include major aspects of operating the business such

as rates, installation intervals, business hours, priorities of repairing customers after an outage, etc. I then

ask the municipality to change hats and look at these same issues from their perspective of the ISP, who

is trying to run a profitable business. This exercise often highlights requests for control that are

unreasonable.

One of the stories I tell about politics and the broadband business concerns Bristol Virginia Utilities, which

was one of the first cities to enter the broadband business. The business was operated by the electric utility,

which was a branch of the local government, but which had a full standalone operating authority. The

bonds were fully backed by the electric utility, but since the city had to approve any bond issue, the city

reserved the right to set and approve rates. A few years after launching the business, and during an election

year, the city council voted to slash all the rates by 15%. The utility warned them this would put the

business underwater, and sure enough they were unable to meet a bond payment due six months later. The

city got the message and ended up raising the rates to a higher level than the original rates to correct the

shortfall, and the city also changed their ordinances so that no future city council could change rates.

There are numerous other examples of negative ways that local governments have meddled in a broadband

business. Politicians might make promises to constituents on behalf of the ISP. Politicians often press to

give special rates to friends or to forgive bad debts for a constituent. It’s not unusual for politicians to go

further and interfere in things like personnel decisions. It’s incredibly important to have clearly defined

boundaries and lines so that an ISP can say no to meddling.

ISPs are highly wary of ceding any control to a government entity. ISPs fully comprehend that a

partnership with a municipality is always tentative and can change drastically after an election. There are

plenty of examples of a council or board that changed from pro-broadband utility to anti after an election.

Political changes can put a huge strain on the business relationship even if there are no control issues. ISPs

know that the municipality they partner with today may not be the same in the future.

This is not to say that a municipality shouldn’t have any control over the business. One of the more obvious

aspects to maintaining control depends upon who funds the network. A municipality is going to get little

or no say in how to operate a network that includes significant funding from a commercial ISP. If an ISP

brings money to a project, they generally will not take the risk of letting a municipality tell them how to

operate the business – since the ISPs primary goal will be in getting a good return on their investment.

But even funding doesn’t always determine control. Many ISPs will only partner if they get to make all

the business decisions – even if the government funded the network. This is why potential partners need

to ask all of these questions before they create the partnership.

The only sure-fire way for a municipality to have control is to fund and operate the network. It’s going to

be difficult to find an ISP partner that will want a city to influence business decisions once the business is

operating. This is a case where a little authority is a bad thing. If a municipality has any authority to control

the business, then eventually somebody at municipality will go too far, either today or in the future as the

government changes.

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C. Our Recommendations / Strategic Plan

Following is a long list of recommendations that come from our analysis of the broadband landscape in

Sierra County. This is one of the longest lists of recommendations that we’ve ever made, but that is driven

by the fact that the County has a bigger broadband gap than any other place we’ve worked. You don’t

have to go very far outside Truth or Consequences or Elephant Butte to find homes and businesses with

no good broadband options. Even within the two cities there are complaints about broadband reliability

and price.

One of the first things that Sierra County should do with the following list is to understand each

recommendation and then prioritize the recommendations. It’s impossible to tackle everything on this list

in a short period of time, so setting priorities can define the items that you think are the most important to

tackle first.

Set A Broadband Goal

It’s hard to focus the public on broadband unless the Sierra County government has set a clear broadband

goal for the County. We strongly recommend that the County government adopt a clear and easy-to-

understand broadband goal. This will provide for a focal point when talking about broadband. We’ve seen

many different goals established by counties. Here are a few examples:

• Every student should have broadband adequate to let them do online homework.

• Every household should be connected with broadband of at least X speed. (We’ve seen these goals

set at different speeds such as 25/3 Mbps which is the FCC’s definition of broadband to 100 Mbps.

• No home that wants or need broadband should be without it.

Any goal that’s set should then become part of the daily conversation within the County government. The

goals should be repeated often to state and federal legislators. The goal should be mentioned to the public

often. It might sound trite, but one of the ways to find a broadband solution is to always be talking about

it in public. This shows that broadband is a priority and that can be a big step towards activating the public

to help find solutions. We’ve seen that a county government that constantly talks about better broadband

has a better chance of attracting an ISP than a county that never mentions it.

Identify Staffing Resources

If Sierra County is going to seriously pursue the recommendations made in this report, you’re going to

need staff resources to tackle many of the tasks. Finding a broadband solution takes a focused and

persistent effort, so it’s important to identify staffing for pursuing broadband and to fund the effort

required. We’ve seen many efforts to get broadband fizzle when nobody was dedicated to the community

engagement tasks. We’ve seen the following ways that cities have done this well.

• Dedicate Staff. The communities that have done this the best have dedicated at least one staff

person to concentrate on community engagement. The biggest challenge in doing this is usually

finding the funding. The person undertaking this task needs to be a big believer and advocate of

broadband for it to be successful. This is not a permanent position, but rather somebody dedicated

to this effort for some fixed period of time. This is also not a 9 to 5 job with a lot of demands

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placed on evenings and weekends.

A county in Minnesota found a broadband solution because the mayor of one of the smallest towns

in the county told his economic development director that getting broadband was his only priority.

This one person met with everybody imaginable in the county including city governments, county

governments, state representatives, and every civic and social group imaginable. After two years

of tireless effort the county found a broadband solution. This would never have happened without

this one dedicated staff position.

• Volunteers. Volunteers are also an important part of this effort. There are typically people living

in areas with no broadband who are willing to volunteer to help find a solution. In the example

given above of the Minnesota county, the one staffer assembled a group of active volunteers who

helped with the effort to engage the public. These folks created email lists, went canvassing door-

to-door talking about the need for broadband, and showed up at every government meeting to

stress that they wanted a broadband solution. It’s important that any volunteer effort have some

structure and working with a staff person can make sure such a group stays focused. The County

need to be prepared to fund efforts that the volunteers think are needed. In the case of the

Minnesota county, the volunteers engaged in several rounds of postcard mailings asking

homeowners to pledge support for broadband.

• Broadband Task Force. A more formal solution is to create a committee of citizens who are willing

to work to get better broadband. A Broadband Task Force generally is composed of citizen

volunteers and a few elected officials. These groups meet regularly and work towards finding a

broadband solution. It’s normal that such a group would report back regularly to the County

government about their progress. Such a group can collectively take on the needed community

engagement tasks, and we’ve seen effective committees do this well. It’s not unusual for a

Broadband Task Force to solicit help from volunteers.

Such groups are usually given a budget, but also restrained by needing to have expenditure pre-

approved. A Task Force might use funding to collect data needed to advance broadband. I’ve seen

funding approved for such things as statistically valid surveys, for pledge card drives, and for

hiring a consultant to answer their questions.

We could write pages on the dos and don’ts of operating a successful citizen’s advisory group.

The one issue I’ve seen with a Task Force is if the citizen group has a different vision of the right

broadband solution than the government – they are often impatient and want to see results. Most

governments have already experienced this in working with citizen groups on other topics. The

main keys for success are to make sure that the group has a specific agenda, a specified budget,

and the specific authority to meet their goals. Citizen groups can accomplish great things if they

are directed to do so – but can stray if not given good direction.

Reach out to Potential ISP Partners

We always recommend that the first step after undertaking this kind of study is to reach out to potential

ISP partners. That begins by sharing the results of this study. ISPs will be interested in much of the research

we’ve done. ISPs that have not undertaking any engineering analysis in Sierra County will be interested

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in the network cost estimates calculated by Finley Engineering. ISPs that haven’t created financial

business plans will be interested in the financial analysis that demonstrates how well they might perform

in Sierra County.

It’s rare for counties in the US to become ISPs and we can’t think of a single example of a county that has

decided to build and operate a municipal fiber network. The preferred business plan is to attract one or

more ISPs to bring broadband. I like to use the example of Cortez, Colorado, which is near Four Corners.

The city is geographically isolated and didn’t have any local ISPs interested in tackling bringing better

broadband. The city issued an RFI and got four serious responses from ISPs located elsewhere, including

one as far away as Nebraska. It’s possible for Sierra County to attract ISPs interested in coming to the

county. This is aided hopefully by the availability of grants to help them build a broadband solution.

We should that it might be difficult to find an ISP willing to serve all of Sierra County. As can be seen by

the engineering and financial analysis in this report that is an expensive undertaking. What we most

normally see are ISPs that tackle some corner of a county first. If you don’t find a solution for everywhere,

then Sierra County will have to keep working to find solutions for the remaining areas that are not served.

It would not be surprising for it to take many years to find a broadband solution for everybody in any rural

county, and Sierra County is no exception.

Sometimes the potential ISPs that are interested in a given county are obvious, and most broadband

solutions come from local ISPs. However, we have been surprised at times when an ISP comes to a county

that is not local, so Sierra County might want to consider a wider search for ISPs. There is a more thorough

discussion of this process in Section IV.B. of this report.

Offer to Help Quantify Market Demand. One of the most important ways that a community can help attract

ISPs is to help them understand the potential for operating a successful broadband business in the area.

The biggest concern that every ISP has about a new market is knowing if they can get enough customers

to be successful. Rural areas differ widely in the willingness of people to subscribe to broadband. We’ve

worked in rural communities in just the last few years where the demand for broadband varied between

60% and nearly 90% - and it’s vital for an ISP to understand where your communities fall within that wide

range.

We’ve seen local governments undertake research to help ISPs understand the market better. There are

several techniques that communities have used to understand market demand:

Statistically Valid Surveys. The goal for doing a residential survey is to be able to predict the most

likely range of customer broadband penetration should somebody build a broadband network.

We’ve found over the years that if a survey is conducted in a way to be statistically valid that the

results provide a good prediction of the likely customer penetration rates.

There are a few factors that are vital to get an accurate and believable survey. First, the questions

asked must be unbiased and can’t lead respondents into answering in a given way. It’s also

important for a survey to be random if you want the results to represent the whole County. For

example, since the goal is to predict broadband penetration rates, it’s just as important to hear from

those who don’t want broadband as it is to hear from those who do.

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It’s also essential to have confidence in the survey results and this speaks to the accuracy of the

answers obtained in the survey. Most business and political surveys are designed to provide an

accuracy of 95% plus or minus 5%. That accuracy would mean that if you were to ask the same

questions to 100% of the people in the area that the results should not vary by more than 5% from

what was obtained in the survey. That is a high level of accuracy, but other levels of accuracy are

possible by varying the number of completed surveys. For most communities, a survey with

between 350 and 380 completed surveys will produce this desired accuracy.

Surveys have gotten a bad name due to political surveys. There are several reasons that a political

survey can produce different results than what are seen in an election. The primary reason is that

respondents might not truthfully answer all of the questions for many different reasons. We’ve

found that we don’t see this kind of bias in broadband surveys because the topic doesn’t trigger

emotional responses – folks generally tell the truth about the topic.

The last factor to consider is a phenomenon called survey fatigue. If the survey asks too many

questions or takes too long, then a lot of people will hang up in the middle of the survey. In ideal

survey is done in 5 minutes, and no longer than 10 minutes.

There are only two ways to conduct a statistically valid survey of a whole community – either by

knocking on doors or by telephone. The effort required to knock on doors is massive, especially

in a rural area. You’d have to go to homes randomly, meaning hitting all corners of the rural areas.

You have to knock on door of all types from the smallest poorest home to the mansions.

It’s far easier to administer the survey by telephone, but makes no sense these days to do a

telephone survey using the white pages and calling just landlines. We know that the households

keeping landlines are older and more conservative and their responses on a survey probably don’t

represent all households in an area. A valid telephone survey needs a list of telephone numbers

that includes cellphone numbers.

Canvass. If you can’t get the needed list of phone numbers, the next best approach is to tackle a

canvass. In a canvass, you try to reach everybody, and since a canvass isn’t random, you need to

gather considerably more completed responses. Ideally, you’d want to get 25% of homes to

participate in a canvass – a big challenge. Canvasses can be done in several ways. This can include

online surveys, although this exclude homes with no broadband. You can mail surveys. You can

engage groups like the PTA and other volunteer organizations to circulate canvasses.

Pledge-Card Drives. A more specific form of a canvass is a direct question if a household would

buy broadband if a new network were built to them. A pledge card drive works best when you can

cite specific products and prices. For instance, if an ISP was partnering with a county to come to

a certain area, then naming that ISP and disclosing their products and prices provides a more

believable response. We’ve seen communities do pledge card drives and then see more than 95%

of homes that said they would buy broadband actually buy it when it became available.

Review County / City Policies Related to Fiber Construction. One of the other factors that worry ISPs is

that there will be local rules, ordinances, and processes that will slow down the construction process and

add cost to the fiber construction process.

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Sierra County and the various cities and towns in the county should coordinate a review of the following

kinds of policies to see if there are ways to be friendlier to ISPs. Changing these processes might require

new ordinances or new internal procedures. Local governments need to remember than any changes made

to accommodate a new ISP should also then apply to the incumbent ISPs operating in the County. Some

of the areas that should be investigated include:

• Granting rights-of-ways to construct a network.

• Issuing permits to construct a network.

• Locating existing underground utilities where fiber is to be buried.

• Inspecting and approving that construction is following the permits.

• Requiring things like traffic control during the construction process.

• Requiring other kinds of agreements like franchise agreements or rights-of-way agreements.

• Requiring records of what’s been constructed.

It’s likely that different parts of the county have different local rules governing these kinds of tasks. We

always recommend that the various local governments get together to review any such requirements, with

the goal of modifying ordinance or processes that would hinder fiber construction. The localities want to

make it was easy as possible to build fiber.

Be Prepared to Support Grant Filings. Most state or federal grant programs require a showing of local

community support. Sierra County should be prepared to help an ISP partner by gathering government,

resident, and business support for the grant applications. This means soliciting as many letters as possible

to support a fiber grant.

We’ve seen counties go even further – for example, we’ve seen counties that have undertaken a local

pledge drive to gather large number of signatures supporting a fiber project.

Educating the Public

One important aspect of community engagement is to provide useful information to the public to help

them better understand broadband issues. It also means providing basic information that explains

broadband in ways the public can understand. We’ve seen communities tackle public education in some

of the following ways.

• Publish This Feasibility Report. While not a lot of people will wade the whole way through a report

of this size, it has been written for the layperson.

• Hold Public Meetings. Meetings can be held to explain the results of this study, or meetings could

be more generic and be aimed at explaining the broadband issues. It’s worthwhile to have elected

officials at public meeting so they can directly hear the kinds of issues that households have due

to lack of broadband. It’s vital to advertise heavily to drive attendance at meetings. CCG and Finley

Engineering have been to a community meeting where only one resident attended, and to other

meetings that were standing room only in a large room.

• Broadband Web Site. Many communities that are looking for broadband solutions create a

broadband web page. Such a page can be used to educate as well as inform. For example, a

common educational feature is to have a lengthy section with responses to “Frequently Asked

Questions.” It’s important that if you create a broadband web site that you keep it current. You

want the public to think of this site as a resource.

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• Gather List of Broadband Proponents. One important tool is to create a database of local broadband

proponents – citizens who say they support fiber. Having list of emails, home addresses, and phone

numbers can be useful when you want to ask for public support for specific tasks or want to notify

people of upcoming meetings.

• Broadband Newsletter. Cities often create a newsletter dedicated to broadband. These newsletters

are aimed at educating the public on topics related to broadband and also to keep the public

informed on the progress of the effort to get better broadband.

• Outreach Meetings. One of the most successful ways to reach the public is what CCG calls

outreach. This means sending a spokesperson to meetings of local organizations to talk about better

broadband. This can be any sorts of groups – PTAs, church groups, service organizations, youth

groups, etc. Most organizations will allow time for a short presentation. It’s vital to have a prepared

presentation to get across whatever message you want the public to know. These outreach meetings

are best done by those who are strong broadband proponents – this could be one of the tasks

assigned to a Broadband Task Force or given to willing volunteers.

Lobby for Larger State Broadband Grant Funding. It’s going to be a lot easier to fund rural broadband

projects in New Mexico if the State steps up and increases the annual amount of broadband funding. The

current awards of $5 million per year is one of the smallest state grant programs in the country. While

anybody getting grant money from this program will be thankful, it might take literally a century for a

grant program of that size to make a dent in the rural broadband gap in the state – which ranks near the

bottom among all states.

Increasing broadband grant funding means lobbying state legislators to the problems caused by lack of

broadband. Legislators are surely hearing a lot about this during the COVID-19 crisis, but the pressure

needs to be stay focused on the legislature to give rural broadband a higher priority and more funding.

State legislators must hear loudly and often that the current level of funding is not enough if they want to

pull the state up from the bottom in the country in broadband.

The State is involved in other initiatives that could benefit the broadband goals of Sierra County. This

includes:

• The Governor’s Broadband for Education

initiative. This effort has the goal of getting fast

broadband into every classroom in the state as well as to provide training and advice for securing

federal E-Rate funding to help pay for broadband for schools and libraries.

• The state has been coordinating with the New Mexico Telehealth Alliance

to leverage federal

grant dollars to help support rural healthcare facilities.

Be Prepared to Challenge the Lousy FCC Maps

One of the most effective ways Sierra County can help to close the availability gap is by challenging the

lousy FCC broadband maps. Much of Sierra County is not currently eligible for broadband grants due to

the errors in the FCC maps. There are also rural areas where the FCC awarded grant money to Viasat to

provide satellite broadband that are not eligible for other federal grants.

http://www.broadband4education.nm.gov/

http://www.nmtelehealth.org/

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The state government in New Mexico has done enough work in the last few years that they understand

that the FCC maps are terrible and that the maps are hurting funding of broadband in the state. It doesn’t

look like they’ve made much headway in helping counties develop your own broadband maps.

There are only two ways to challenge the broadband maps. One way is to have an experienced field

engineer look at existing broadband deployments around Sierra County. We undertook that effort as part

of this broadband study with Andy Heins of Finley Engineering. An experienced field engineer can drive

around and can identify every broadband asset in the field. They can precisely identify where the cable

TV networks end, down to the house. They can identify field DSLAMs that generate DSL signals out of

rural cabinets – and they can often precisely identify the flavor of DSL and know the maximum speed

capability of a given unit. They can identify the location and height of wireless transmitters and can map

out the likely wireless coverage areas. We used this effort to create what we think is a good broadband

map of Sierra County. This kind of engineering effort is also effective at identifying areas where there is

no broadband – there is no broadband where the incumbents have not built the needed infrastructure. Andy

and Finley have provided information in this report than can be used to challenge broadband coverage

claimed by the incumbents.

The only other effective way to challenge the FCC maps is with significant numbers of speed tests. As

part of this study we created a speed test site for Sierra County that you’ve added to your web site. In the

short time allotted to this study we obtained some speed test results, but not enough to mount challenges

to the FCC mapping data. We strongly recommend that the County build upon the effort we started and

continue to collect speed test data – you really can’t gather too much data in this case. You should use

whatever methods you have available to ask citizens to take the test – while making sure the understand

that this is an important step towards finding the funding needed to bring a broadband solution. We know

of counties and towns that have convinced a significant portion of their citizens to take the tests.

In continuing the speed tests there a few things to keep in mind. The incumbents might challenge your

speed test results, so you need to take steps to collect the data in way to reduce the chances of your data

being challenged. Here are a few aspects of administering speed tests that should be considered.

• A speed test needs to distinguish between cellular and landline connections. Rural folks with no

broadband connection or those using cellular for home broadband are going to take the test using

their cellphone. While these results are interesting, cellular speed tests shouldn’t be used in a

database used to challenge landline broadband coverage. This means asking those taking the speed

test to tell you if they are using a cellphone. However, over time it’s usually possible to identify

the cellphone test results by looking at the speeds and latency – they should have characteristics

that make them distinguishable from landline broadband speed tests.

• Everybody needs to use the identical speed test, because each test measures speed using a different

algorithm. We’ve established the speed test using Ookla and speedtest.net.

We think this is the

best test in your area. No matter what speed test site you use – all the speed tests should use the

same site. Never use the speed test from the incumbents – which might be baked to show good

results.

• It’s important to somehow get people with no broadband at their home to get into the database.

This allows you to map areas with zero broadband coverage. You need to find an easy for such

https://www.speedtest.net/

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homes to let you know their situation. Perhaps there can be a button on the speed test that asks

them to tell you that and then thanks them for “not” taking the rest of the speed test.

• You are going to want to periodically map the results. We’ve mapped the result from the speed

tests obtained during this study period, but these are not enough results to make a definitive map.

The map created by Andy Heins is far more accurate for now. But over time, with enough speed

test results you’ll paint a detailed picture of the real broadband coverage in Sierra County.

One of the challenges of mapping the results is to not be so accurate that you disclose the addresses

of every person that took the speed test. Such information can be the basis for an incumbent ISP

to challenge the test results. For example, they might find a few homes in the database that are not

their customers and then claim that all the results are invalid. Speed test results that are ultra-

precise also violate the privacy of the people taking the speed tests. There is nothing wrong in

knowing the results precisely, but when you map them, you’ll want to somehow embed the data

into pdf files to disguise the identify of each specific speed test. If you are concerned about having

the identity of citizens in the data, you could have the results collected by a third party that doesn’t

disclose the details to you. That’s worth considering anyhow since it’s a lot of work for county

employees to monitor and occasionally map the speed test results. We can suggest several solutions

if you want to continue to speed efforts and want to outsource the mapping effort.

• There is value in collecting speed tests even where there is broadband. It’s never a bad idea, for

example, to collect data on TDS’s performance in Truth or Consequences. Such data can tell you

if their broadband is fast as they are marketing. It can also identify if some neighborhoods have

worse broadband than others. And over time it can identify new problems in the network.

The last way to challenge the FCC maps is through lobbying of federal elected Representatives and

Senators to make sure they are aware of how the poor FCC mapping is specifically hurting Sierra County.

There has already been some pressure from Congress to force the FCC to fix the broadband maps, but

more pressure could make it happen faster and make sure it’s done right.

Get Creative in Seeking Grants

Any ISPs that are going to bring broadband to Sierra County are going to pursue the big federal broadband

grant programs to help fund the network.

However, Sierra County should pursue other kinds of grants that can help solve the various broadband

gaps. There are numerous grants available from government agencies and from private foundations that

could be used for such issues as getting more computers into homes with students, and technical assistance

for businesses to better use the broadband they have today and to take the best advantage if better

broadband is available.

These grant programs are not always obvious, and it often takes some creativity to turn an existing grant

program towards being used for purposes of improving broadband.

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Consider Providing Technical Assistance for Businesses

We encountered businesses that were having problems with issues for which there are likely workable

technical solutions today. As an example, we talked to several rural businesses that have problems with

consistently being able to process credit card payments. There are other businesses that would benefit by

having somebody help them maximize the use of the broadband that is available in Sierra County today.

The County might want to consider identifying local technical resources that could assist business with

broadband and connectivity issues. There are likely grants that could be used to help to fund such an effort,

although at least some of the costs should be borne by businesses that receive assistance.

Push the Incumbents to do Better

This sounds like a bit of a lame suggestion, but we’ve seen cases where this has worked. For example, it

might be possible to convince TDS to extend their network past the existing network boundaries to add

more households. It’s also possible that TDS could bring broadband to some other parts of Sierra County

if suitable middle-mile fiber is made available. These suggestions are generic and not intended to put TDS

on the spot – but rather to remind the County that one of the incumbents could become your best partner.

For example, we know of rural cities that helped the incumbent cable companies get grants to build to

lesser populated areas of the county. Grants can change the math and make building network to less

densely populated areas more attractive – and it might be something the incumbent haven’t considered.

Tackle the Affordability Gap

This is probably the hardest gap to solve. Broadband is priced too expensively for many homes, and

affordability efforts look for ways to bring less expensive broadband to the homes that most need it.

Inform the Public About Available Programs from Incumbents

Both local telcos – CenturyLink and Windstream - have programs that can reduce the price of broadband

for customers that qualify. Regardless of their press releases, these companies don’t widely advertise the

availability of the lower-price plans and many homes that qualify for these plans don’t know about them.

Sierra County could undertake an education campaign to notify citizens about these plans. This would

mean that the County needs to fully understand the details of each plan – who qualifies and what

documentation does a home need to enroll. Armed with that knowledge Sierra Cunty could mount an

education campaign to get more subsidized broadband into homes that need it.

TDS might have a similar program, and it not, the County should lobby them to create one. TDS supports

such programs where they are a telephone incumbent.

Find Broadband Solutions for Public Housing

Many communities have found ways to bring broadband to public housing. A common model is to buy

one high-speed connection to the public housing complex and then use WiFi to distribute broadband to

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individual living units. Such connections often include low-cost or even free connections from local ISPs

as a public service.

There is one national nonprofit that concentrates on this effort. ConnectHomeUSA

has helped

communities find broadband solutions for public housing across the country. This organization doesn’t

currently help any communities in New Mexico, but their stated aim is to help communities everywhere.

They work with another nonprofit, EveryoneOn to implement the solutions.

Support Local Affordability Efforts

There are nonprofit organizations around the country that are tackling the affordability issue. One of the

more ambitious such efforts is being done by Mobile Beacon.

This is a nonprofit that works nationwide

to bring low cost mobile broadband to nonprofits organization around the country, and through those local

nonprofits brings low cost broadband to low-income people.

There are numerous solutions being used by the nonprofits working with Mobile Beacon. One common

effort was discussed above which is to provide portable WiFi hotspots that are distributed from libraries.

Mobile Beacon has also negotiated a deal with Sprint to provide low-cost cellular broadband to students

and others that is priced as low as $10 per month for an uncapped cellular broadband connection.

An interesting study

was done looking at the impact of bringing broadband to low-income homes for the

first time in the Twin Cities in Minnesota through the Mobile Beacon effort.

• 94% of Mobile Beacon subscribers use the internet daily and 82% say they use the internet several

hours a day.

• The average home with Mobile Beacon used 41 GB of data per month. Students used an additional

25 GB per month. People looking for jobs used 14 GB more per month.

• The Mobile Beacon broadband had an immediate impact on students. Parents report that students

spend an average of more than 4 hours per week doing homework on the Internet.

• The new Internet connection allows adults in low-income homes to get training. 32% of adults in

the Mobile Beacon program were taking online courses.

Bridging the Broadband Skills Gap

Even if better broadband becomes available there are many residents of the county that don’t possess the

basic computer skills needed to take part in the modern digital world. The county should consider

finding ways to provide more computer training. This can be done in a wide variety of ways:

Allow the Schools to be Used After-Hours for Training Adults. A number of communities use computer

training centers that already exist in schools to hold after-hours training for adults.

https://connecthomeusa.org/

https://www.mobilebeacon.org/

Bridging the Gap. https://www.mobilebeacon.org/wp-

content/uploads/2017/05/MB_ResearchPaper_FINAL_WEB.pdf

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Develop Training Course in the Libraries. A number of communities have developed computer training

programs through their libraries.

Find Solutions for the Homework Gap and Computer Gap

It’s clear that Sierra County has a huge homework gap – homes with students without good broadband

or homes without computers. The COVID-19 crisis showed that the county needs to work on this

problem now and not wait for a fiber broadband solution. Possible solutions might include:

Take-Home Computers for all School Kids. The most common solution are schools that send computers

home with students. In some school systems these computers can only be used to connect to the school

system network, making them homework-only computers. But other school systems have recognized that

these might be the only computer in a home and let students and their family use the computer for other

purposes. The biggest problem with school-provided computers are students that don’t have a broadband

connection at home.

Lending Mobile Hot Spots. There are many communities that are lending mobile hot spots to citizens

through the libraries much the same way they lend books. A person can check out a hot spot for some

period like a week or 10 days, which will provide broadband that can be used with computers or tablets.

This program requires two things. First, Sierra County would need to buy mobile hot spots and be prepared

to continue to fund them into the future. You’d also need to partner with one of the big cellular companies

to provide free or inexpensive bulk cellular data to power the hot spots. Other communities have been

successful in creating such partnerships. It’s worth noting that these hot spots will only work where there

is cellular broadband available – so you should try to put together a map of where cellular works and

doesn’t work – much like mapping landline broadband as described above.

Get Computers into Homes that Need Them. Communities tackle this in two ways. One is to give or lend

laptops or tablets to students. Some school districts provide computers to every student while other provide

them selectively to students that need them.

The other alternative is to find a local nonprofit that is willing to tackle the computer issue. Most home

and business computers last 3-5 years and nonprofits have found that older computers can be upgraded

fairly inexpensively and then placed in homes that need them. Such an effort can be a lot of work, but

many communities have found groups willing to tackle the issue.

One such program is the nonprofit E2D

(End the Digital Divide) in Charlotte, North Carolina. The

organization refurbishes laptops contributed by businesses in the Charlotte area and gives them to students.

The organization has taken a several-prong approach to making this happen:

• They solicit used laptops from businesses in the Charlotte area. Most big businesses replace laptops

every few years and most of them have been ending up in the landfill. Now a number of businesses

send all their used laptops to E2D.

• Used laptops need to be refurbished and E2D started several computer labs in area high schools

where they hire students at a decent wage to refurbish the computers and install new software. The

https://www.e-2-d.org/

Sierra County Broadband Strategic Plan

Page 173

purpose of these labs is not only to get the laptops ready to distribute, but they are providing

technical training for kids that is helping them move on towards college or a technical career.

• Households that get a new computer also get a live tutorial and technical support to best take

advantage of the new laptops.

• Finally, the Charlotte area has a lot of homeless families and there are thousands of homeless kids

in the area. E2D has partnered with Sprint to provide mobile hot spots and data plans that are

providing broadband access to homeless students and others with no broadband.

The whole concept got started in 2012 when 12-year-old Franny Millen asked her father how kids without

computers can keep up with schoolwork. She wanted to know what could be done about the problem and

resolved to fix it. Her father, Pat Millen, founded E2D as a result of her challenge.

Another organization that works nationwide to fund computers is Minneapolis-based nonprofit PCs for

People

. They provide PCs to households that need them and work with other entities including Mobile

Beacon and E2D.

Sierra County, or some local nonprofit could connect with PCs for People to find ways to get computers

into the hands of the neediest households in the County. A local nonprofit could also mirror what’s been

done elsewhere.

Create More Public Hot Spots. Sierra County can fund more public hotspots. Outdoor hot spots are

particularly effective since students can sit in cars and use them any time of the day or night. Sierra County

can start this process by extending the WiFi at County buildings to the outside areas surrounding the

buildings. To the extent that County buildings already have decent broadband, the concept is to share it

with the public. It’s particularly easy to make bandwidth available to the public in the evenings when the

government offices are closed, and the bandwidth isn’t being used – sharing this bandwidth usually adds

no cost to what is paid for broadband.

A more aggressive plan would be to create public hotspots in each rural neighborhood that doesn’t have

good broadband – the places where citizens need it the most. However, it might be a challenge to find the

bandwidth needed to support such hot spots. You might be able to partner with the incumbent ISPs or

cellular carriers which might have broadband that isn’t otherwise available to the public.

Reward Businesses for Providing Public Hotspots. We’ve seen communities that reward businesses for

creating good public hot spots. The reward can be anything from public recognition and awards to some

sort of break on local taxes and fees.

Consider the Possibility of Providing Some County Funding

The financial analysis shows that any broadband solution is going to require significant grant funding.

Sierra County should consider contributing funding for the right opportunity. Even a small amount of

County-provided grant funding might impress other grant programs that the you are serious about finding

a broadband solution.

https://www.pcsforpeople.org/

Sierra County Broadband Strategic Plan

Page 174

We’ve also seen relatively small local grants make a huge difference when ISPs are seeking large federal

grants. For example, some federal grants award extra points for having local participation, and nothing

demonstrates local desire for broadband more than the local government providing some funding for a

project.

It’s worth noting that counties around the country are stepping up in trying to find a broadband solution.

Minnesota has had a state grant program for 5 years and many counties in the state are pledging local

grants to those that win state grants. These county grants range from a few hundred thousand dollars to as

much as six million dollars being offered by two counties in the state. These are not rich counties and they

will have to bond and borrow to support the grants. The citizens of these counties have made it clear that

they are willing to increase taxes to fund better broadband. It’s always a big challenge for a county to find

this kind of grant money – county governments tend to be relatively low in cash and borrowing capacity.

But when a county does this it can be extremely effective and give Sierra County an edge over other

counties in the state who are also competing for ISP partnerships and federal grants.

Be Persistent

It’s the rare county where one ISP comes forward and provides a broadband solution for the whole county.

That means that even if Sierra County finds a partial broadband solution that you’re not done, and you’ll

need to continue with the above tasks until everybody in Sierra County has broadband.

Sierra County Broadband Strategic Plan

Page 175

EXHIBIT I: SERVICE AREAS OF THE INCUMBENT TELEPHONE COMPANIES

Sierra County Broadband Strategic Plan

Page 176

EXHIBIT II: SUMMARY OF FINANCIAL RESULTS

Assets

Take Rate

Fiber

Passings

Debt

Equity

Grant

Total

Financing

Cash End of

Loan

Net Income

Positive

Cover

Debt

Rural County

No Grant

$25.57 M

70%

2,925

$25.43 M

$4.49 M

$29.91 M

-$24.46 M

Never

Breakeven Grant

$25.57 M

70%

2,925

$ 7.83 M

$1.38 M

$17.22 M

$26.42 M

$ 1.07 M

Never

Year 22

Breakeven + Bond Financing

$25.57 M

70%

2,925

$10.60 M

$17.22 M

$27.82 M

$ 1.03 M

Never

Year 24

No Equity

$25.57 M

70%

2,925

$ 9.53 M

$17.22 M

$26.74 M

N / A

Never

Higher Prices

$25.57 M

70%

2,925

$ 7.60 M

$1.34 M

$17.22 M

$26.16 M

$ 4.77 M

Never

Year 17

5% Higher Penetration

$25.81 M

75%

2,925

$ 7.85 M

$1.39 M

$17.22 M

$26.45 M

$ 3.98 M

Never

Year 18

Lower Interest Rate

$25.57 M

70%

2,925

$ 7.70 M

$1.36 M

$17.22 M

$26.27 M

$ 1.77 M

Never

Year 21

25-Year Loan Term

$25.57 M

70%

2,925

$ 7.73 M

$1.36 M

$17.22 M

$26.30 M

$ 0.79 M

Never

Year 24

5% Contingency

$26.71 M

70%

2,925

$ 8.75 M

$1.54 M

$17.22 M

$27.51 M

N / A

Never

10% Higher Penetration

$26.06 M

80%

2,925

$ 7.88 M

$1.39 M

$17.22 M

$26.48 M

$ 6.75 M

Never

Year 15

Breakeven Grant for Line 10

$26.06 M

80%

2,925

$10.48 M

$1.85 M

$14.67 M

$26.99 M

$ 2.25 M

Never

Year 22

Two Cities

Base

$18.44 M

50%

6,202

$16.88 M

$ 2.98 M

$19.85 M

$ 9.14 M

Year 5

Year 19

Higher Prices

$18.44 M

50%

6,202

$16.53 M

$ 2.92 M

$19.44 M

$13.06 M

Year 5

Year 17

Higher Interest Rate

$18.44 M

55%

6,202

$17.13 M

$ 3.02 M

$20.15 M

$ 8.07 M

Year 6

Year 20

15-Year Loan Term

$18.44 M

50%

6,202

$16.20 M

$ 2.86 M

$19.06 M

$ 8.61 M

Year 5

Year 19

5% Contingency

$18.97 M

50%

6,202

$17.43 M

$ 3.08 M

$20.50 M

$ 8.39 M

Year 5

Year 19

Breakeven Penetration

$18.04 M

45%

6,202

$16.65 M

$ 2.94 M

$19.59 M

$ 4.86 M

Year 6

Year 21

Sierra County Broadband Strategic Plan

Page 177

Total County

No Grant

$43.86 M

50% / 70%

9,127

$41.15 M

$ 7.26 M

$48.41 M

-$11.49 M

Never

Breakeven Grant

$43.86 M

50% / 70%

9,127

$27.80 M

$ 4.91 M

$13.07 M

$45.77 M

$ 8.28 M

Year 13

Year 22

Higher Prices

$43.86 M

50% / 70%

9,127

$27.23 M

$ 4.80 M

$13.07 M

$45.10 M

$16.56 M

Year 9

Year 19

Lower Interest Rate

$43.86 M

50% / 70%

9,127

$27.38 M

$ 4.83 M

$13.07 M

$45.27 M

$10.76 M

Year 13

Year 21

25-Year Loan Term

$43.86 M

50% / 70%

9,127

$27.48 M

$ 4.85 M

$13.07 M

$45.39 M

$ 7.19 M

Year 13

Year 23

5% Contingency

$45.29 M

50% / 70%

9,127

$29.25 M

$ 5.16 M

$13.07 M

$47.48 M

N/A

Never

5% Higher Penetration

$44.50 M

55% / 75%

9,127

$27.88 M

$ 4.92 M

$13.07 M

$45.86 M

$16.34 M

Year 9

Year 19

Breakeven Grant for Line

$44.50 M

55% / 75%

9,127

$32.53 M

$ 5.70 M

$ 8.73 M

$46.76 M

$ 9.62 M

Year 13

Year 22

10% Higher Penetration

$45.14 M

60% / 80%

9,127

$27.88 M

$ 4.92 M

$13.07 M

$45.86 M

$22.94 M

Year 6

Year 17

Breakeven Grant for Line

$45.14 M

60% / 80%

9,127

$36.58 M

$ 6.45 M

$ 4.57 M

$47.60 M

$10.30 M

Year 9

Year 22