Study: CUD should partner to ensure viability

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The Southern Vermont Communications Union District will need to partner or merge with a neighboring district to succeed in bringing fiber-based broadband service to Bennington County, according to a consultant team hired by the district.

A network consisting only of the district's 12-town region and an enlisted internet service provider would not be financially viable, according to a presentation delivered by the team, which included the nonprofit operator ValleyNet and consultancy Rural Innovations Strategies, Inc., to the district's board at its Sept. 3 meeting.

Although constructing the network is technically feasible and there are enough households in the region for the district to secure thousands of customers, without a partnership the district's earnings would not be sufficient to access revenue bonds, a critical source of funding, the consultants found.

Further complicating the potential network's viability is the fact that most of the region's population already has cable service, the consultants said. It's more expensive to build in areas already served by cable, and adoption rates there are lower, too. An incumbent provider might also choose to drop its prices upon the arrival of a new competitor.

The increased cost of construction amid the coronavirus pandemic, with many American factories closed or operating at partial capacity, represents an additional challenge, according to the presentation.

Collaborating with an adjacent district — the also-nascent Deerfield Valley Communications Union District, which serves Windham County localities along with Stamford and Readsboro, was deemed the prime candidate — would present opportunities for cost savings through bulk purchasing, shared staffing, and other avenues, said Alex Kelley, an associate with RISI. Such a partnership, he added, could "tip the balance from a project that's not quite feasible now to one that we can prove is feasible moving forward."

The consultants' model assumed that 11 percent of prospective customers in areas already served by cable within the region and 22 percent of those in unserved areas would adopt the district's broadband service in its first year of operation, with those figures rising to 24.8 percent and 49.5 percent, respectively, by its fourth year. Building the network would cost $28,000 per mile in unserved areas and $38,000 in already-served areas, the consultants presumed, and the average revenue per user across multiple tiers of service would be $105 per month.

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To finance its efforts, the district has secured a $100,000 grant made available through the federal CARES Act, as well as a $10,000 grant from the Vermont Community Foundation. In addition to funding already obtained, the consultants incorporated potential sources of capital into their model, including a $4 million loan from the Vermont Economic Development Authority, $13 million in subordinated debt and $42 million in revenue bonds.

The results of a multibillion-dollar federal auction scheduled for October, which will make funding available for broadband deployment in underserved census blocks across the country, could also shape the district's future. The district has endorsed a bid by Tilson, a communications infrastructure firm based in Portland, Maine, in that competition. The outcome is not expected to be known until early next year.

The consultants considered an array of possible auction outcomes, deeming a Tilson victory — or the victory of an incumbent provider that is willing to partner with the district — as the most beneficial for the district.

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The Bennington County district eventually will need to submit a completed feasibility study to the Vermont Department of Public Service to access funding to develop a business plan. The consultants recommended not submitting the study for review until the district solidifies plans for a partnership or merger and the auction results become known.

That wouldn't substantially delay the development of the network because of the need to understand the auction results — and because "the winter's not a great time for construction," said Carole Moore, chief executive officer of ValleyNet.

"I really don't want it to feel like a setback," said Kelley, of RISI. "This should feel like a clarification, and it should be arming you with the information you need to make sure this is done right and is successful."

Tim Scoggins, the district's board chair, said it was "entirely reasonable to assume that a worldwide pandemic can affect your timeline," a point echoed by Kelley.

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"There's a reason why this stuff is hard to do in rural areas across the country, which is why the gap in service between rural and urban areas is so great," Kelley said. "What you all are doing is not easy in a normal circumstance, and it certainly is not easy now."

Although the Deerfield Valley district's own feasibility study indicated that its prospective broadband network would be viable without partnering with an adjacent district, a collaboration could help to mitigate its concerns about competition and construction cost fluctuations, according to Kelley. The Windham County district also has endorsed Tilson's bid in the federal auction, he said, so the neighboring districts will need to communicate anyway to prepare for the possibility of Tilson prevailing.

Conversations with Deerfield Valley, in fact, are already underway, according to Scoggins, who suggested a partnership with the entity "could all happen very naturally if Tilson wins."

An inquiry sent to the Deerfield Valley Communications Union District on Tuesday through its website about the possibility of partnering with its Bennington County counterpart didn't receive an immediate response.

The 12 towns currently represented in the Southern Vermont Communications Union District, which formed earlier this year, are Arlington, Bennington, Dorset, Landgrove, Manchester, Peru, Pownal, Rupert, Sandgate, Shaftsbury, Sunderland and Woodford.

Contact Luke Nathan at lnathan@benningtonbanner.com.


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