Episode 157

Partnership Helps Electric Cooperative Enter Broadband Business

November 26, 2019

Episode Summary

Appalachian Electric Cooperative in New Market, Tennessee, did its homework before deciding to enter the broadband business — what Director of Member Services Mitch Cain calls “the largest investment our cooperative had ever made.” In this episode, Mitch talks about what led to AEC’s decision to offer broadband, and how finding the right partner was key to making it happen.

Show Notes

Transcripts have been lightly edited for clarity and readability.

 

Stephen Smith: And thank you for listening to StoryConnect: The Podcast. This is your host today, Stephen Smith, and we are very excited to be coming to you live from the TVPPA Customer Experience Conference in Franklin, Tennessee. I have as my guest here today Mitch Cain. And Mitch, tell us a little bit about where you are, who you work with, and what your role is there.

Mitch Cain: Thank you, Stephen. It’s great to be here with you today. I have the opportunity to serve a rural co-op, Appalachian Electric Cooperative, in northeast Tennessee. It’s an electric cooperative of about 48,000 members, and I work in member services and communications. 

Stephen Smith: Excellent. Mitch was on a panel yesterday talking about the “fiber” word, talking about electric cooperatives getting into the fiber and broadband business. And you have an important milestone coming up in a couple of weeks, right?

Mitch Cain: November 18 will be our first live member for broadband, TV, and phone.

Stephen Smith: That’s exciting. And does that person know who they are yet?

Mitch Cain: They don’t. (laughs) But, they do. They do. We’ve made out notifications to our members in those particular areas and have been engaged with them. So these are folks who have signed up, and the service orders will be released starting November 18.

Stephen Smith: That’s exciting. So Appalachian Electric Cooperative is a broadband provider. But let’s go back in time a few years and talk about how we got here. I know that you mentioned yesterday — and I’ll get you to tell this story — about how some local communities were looking for broadband services, but the electric cooperatives weren’t able to get into that business according to Tennessee state laws. Talk us through that process.

Mitch Cain: Sure. We go back to about 2016, I guess. Three of our smaller towns in our service area came together and went to a neighboring municipal and said “you provide these services. Is there any way you can help us?” So that sparked a conversation between the municipal, the co-op, and those communities. And that’s really where we started the conversation. At that point in time, according to Tennessee state law, electric cooperatives were not allowed to be in the broadband business. So we were prohibited from that. But that really started our homework. We did a feasibility study. We started engaging and listening to the membership and meeting with key partners. And we overwhelmingly began to understand that for economic development, for education, for healthcare, for home and commercial business, even for the grandparents that wanted to FaceTime with their grandkids, this became a high priority.

Stephen Smith: One thing you mentioned yesterday was you were surprised at the number of home-based businesses you had in your service area. 

Mitch Cain: We really were. You think of the brick-and-mortar buildings up and down your roads and in your industrial parks. But the more we have gotten involved, I am amazed at the amount of folks we have working out of the home. And high-speed internet is critical to that business. It is their front door to the world.

Stephen Smith: So in 2017, the broadband act of Tennessee passed, allowing electric cooperatives to get into the business. I guess that’s when things started to ramp up at Appalachian.

Mitch Cain: Well, they really did. The Tennessee legislature passed the broadband law and Governor Haslam, who was governor at the time, signed that. And so that did open the door and it gave us the opportunity, not only to get into the business but to start applying for grants and other resources available to help us get to where we wanted to be. So, that was a key moment.

Stephen Smith: Now you mentioned something yesterday about your board being very conservative. They like to measure and manage. I think that categorizes a lot of boards of directors of electric cooperatives.

Mitch Cain: And, you know, you hope it does, because these are the men and women who are elected by their neighbors to make sure that they manage the resources. And when you come in with a project like broadband and you’re looking at a project like broadband with multi-million dollars over time, quite honestly, this was the largest investment that we’ve made since the 1940s when we became a co-op. So, it’s a big deal. We had to have our homework. We had to know what was the best option for us and how we could provide this service in the most economical way. I give a lot of credit to our board; they did not get in a hurry. And we’ve learned several things. We’ve learned not to get in a hurry. And I talked to you yesterday about doing it yourself. We have smart folks, and we probably could’ve done a stand-alone, but I’m so thankful we didn’t. We didn’t rush it, and we were open to folks who knew what they were doing. And that combination was really successful for us. 

Stephen Smith: Well, I believe you said that at the 2018 annual meeting in September that year is when you made the announcement that AEC was going to do this. But it was another year before you announced the partnership, right?

Mitch Cain: It really was. We felt strong enough that this was what we needed to do, so in 2018, we made the commitment. We spent the next year looking at the financial package for that, how we wanted to go about that. We were looking for a partner. For us, we decided to ultimately be the owners of the fiber backbone. So the cooperative itself owns the fiber, puts it on the pole, manages it, and drops the service to the home. And we went for a partner that would provide those retail services. So they meet us on the side of the home and go inside to provide those services. That was a labor, and we wanted to get to a position where we could get that fiber strung and where we could get a partner and the fiber ready. And this past September, we were able to say, “folks, it’s here.”

Stephen Smith: You touched on something I would like to spend a moment on. You said that it was important for you to own the network. You’re building the actual fiber itself as a backbone. There are reasons besides providing broadband service on a retail basis that an electric distributor needs that fiber. Talk a little bit about that.

Mitch Cain: Well sure, even if you go back into 2015-2016 and before, we were stringing fiber from substation to substation. And that gave us the ability to operate equipment, to manage the operations of the cooperative more accurately, and to help improve our reliability. So that’s the number one goal. We’re an electric utility. That’s what we do, so we leveraged that. And then we realized this fiber optic cable had some spare room, so that’s how this is a win-win.

Stephen Smith: So you’ve alluded to the partnership a couple of times there. Let’s go ahead and dive into that. You were talking yesterday about the importance of finding a partner that really understood that end of the business. And tell me about how you came to select that company and who you selected. Tell us a little bit about them.

Mitch Cain: Well, most like any business project or journey, we did the RFP and asked for some proposals back and studied those. We had several that we reviewed. We narrowed that down and ultimately made a decision. And we went with three telephone cooperatives in middle east Tennessee that had joined together to provide these services in many locations already in Tennessee. They got us; they were a co-op. They had the same business model, the same philosophies. They had a proven track record. And they were willing to come alongside us, invest with us, and build and grow. So we are very proud to have Trilight as a partner with us, and so that co-brand is who we are now. And it’s proving to be very fruitful.

Stephen Smith: What kind of response have you had from membership so far?

Mitch Cain: Our membership is elated, and like many of us — myself included — we wanted the service yesterday. It is a process; we’ve tried to help folks understand that. Our board made a commitment to build out to every member of the cooperative. And again, that’s about 48,000 homes and businesses. So it’s going to take a few years to get that accomplished. And you have to start somewhere. But we are working diligently day by day. And I think folks understand that, and they appreciate it. Of course, the number one question is “when will it be available where I live?” But overall they have been pleased with their co-op, and they are excited that we are moving in a direction to provide them with the new utility that they need, which is fiber services. 

Stephen Smith: Now you made three points yesterday that I thought really bears repeating here. You said get a partner, get a plan, and get a purpose. Unpack that a little bit for us.

Mitch Cain: I think in the scope of the thing, we had to know who we were. I told you earlier, we are an electric utility, so why go in this direction? And why, as a cooperative, is because we are owned by the people we serve. So when they come and overwhelmingly say “we need your help,” then there’s your purpose. Your purpose is always to have concern for your community and to respond to those you serve. And so that was our purpose. We did spend quite a bit of time with the plan. Again, a little over three years, putting this thing together. But we had to do it right. We couldn’t make mistakes along the line, so we wanted to be very comfortable with where we were going and the plan that we had so that we could be effective. So all of those things are roll in together to provide the service, and that’s what we’re after. 

Stephen Smith: Well speaking of service, you have decades of experience taking care of electricity needs. For those electric cooperatives who are listening to this program and who are thinking of getting into the broadband business, one thing that’s going to be different for them — that you mentioned yesterday — is now you’re trying to sell something.

Mitch Cain: Absolutely.  Just by the structure of the business, the electric utility has a service area and you’re a provider. You don’t have a lot of competition, whether you’re an electric cooperative or a municipal. You serve a certain area. Of course, all of us in the co-op family try to take great pride in that. You want to do that in the very best possible way. But fiber service is a different world. It’s now a competitive world, and it’s a sales market. Something that our member service representatives have not really known. And although we have a partner who is going to be doing those retail services, it’s a tremendous challenge to train your cooperative employees just with the basics so we can answer questions, share the vision, and help folks with the basics as we then learn how to transition that over in a warm fashion to somebody who is going to take an order, hook up a service, and provide a product. 

Stephen Smith: So someone is listening to this program and they just completed their feasibility study, let’s say. They find what they expected to find: a lot of demand. What are they going to learn between today and when they are about ready to turn on their first customer?

Mitch Cain: It is a journey. I would say to pay attention to your feasibility study. It’s going to tell you what’s expected out of you and what the need is in your community. You’re going to go through the financial process probably more than once. And you’re going to shake the numbers and shake the numbers. And you’re going to come to what your take rate needs to be and what your goals are. And that’s something you’re going to build into the model and into the plan. You’re going to have to decide where you are going to start. And are you going to use a model like CrowdFiber that’s available? Or are you going to go a different route? All of those are key questions as you begin to launch. 

But one of the things that I think is very critical to us and to anyone that’s going through this is the ability now to look at the grant side. When you go to the state of Tennessee or to any grant that is available to you, that really is a game-changer. Because they are looking at an unserved, under-served portion of your area that may not have been at the high top because it’s not densely populated or it’s at the edge of your system. And now all of a sudden, you’ve got the resources to tackle that community. So it’s really helpful in the overall process and in the immediate rollout. So those are the things you want to try to go after and be successful with.

Stephen Smith: What I heard from you on the presentation yesterday and what I keep hearing from you today is that while the numbers are important, the feasibility, the processes, the plans you’re going to put in place, all of that’s a consideration, but it’s really driven by the purpose that has been the mission of the cooperative since it was founded.

Mitch Cain: It really is. You’ve got those 7 business principles of a cooperative, and as we mentioned earlier, it’s to have concern for that community and to do all that you can there in all services: economic development, community development, added value. So all those things are important for a venture like this. And there are different models. Some utilities will have a vote, and some utilities will have different ways to do this. For us, we knew that fiber had to stand on its own. We couldn’t take retail electric rates and subsidize a new venture, so you have to plan for that. And realize you’re not only running an electric utility, but a fiber utility and those are independent of one another financially, and yet they consume and are the product that you provide to your community. And so, that’s been a challenge, but it’s also been a great joy to be able to come alongside, and now we’re doing that.

Stephen Smith: Mitch you sound excited to be getting into something new. 

Mitch Cain: Well, we are excited. I think I told you yesterday, you’re in all of it, and then nothing happens for a couple of months, and then all of a sudden, everything happens in a two-week span. So it’s got its ups and downs, but to be able to go live here in a couple of weeks, I think we’re all ready. And that’s the community, that’s the co-op, and we’re anxious to get up there. We’re in a testing phase. We’ve got a couple of services that are being tested. Our offices went live last week. So we’re testing, and we’re learning how to use that as well. So it’s a good day for AEC.

Stephen Smith: That’s exciting. Well, my guest has been Mitch Cain with Appalachian Electric Cooperative. Thanks so much for sharing with us Mitch.

Mitch Cain: Thank you for this opportunity, and I wish everybody success.

Stephen Smith: Great. Again this is your host, Stephen Smith. You’re listening to StoryConnect: The Podcast, coming to you live from the TVPPA Customer Experience Conference in Franklin, TN. And until we meet again, keep telling your story.

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