SUCCESS – WHEN ALL ELSE FAILS
LESSONS FROM ECFIBER
Bringing a Community-Owned, SubscriberFunded, Universal, Open-Access FiberOptic Network to East Central Vermont
What is ECFiber?
 consortium of 24 towns organized as “interlocal contract”
 a legal municipality
 currently in process of re-organization into
“municipal utility district”
 governed by a board of representatives
appointed by town governments
ECFiber’s territory is one of the
most rural areas in one of the
most rural states in the USA
WHAT DO WE MEAN BY RURAL?
Population in Kansas towns is densely
clustered with large open spaces between
towns
Pop = 2685
ECFiber NOC, Royalton, VT. Pop = 2500
Population in Vermont “towns” is
widely scattered; town “centers”
are small
VERMONT CONDITIONS: NOT FOR THE FAINT
OF HEART
(TEMP = -10 DEG F)
A BRIEF HISTORY
2005-2007: A FEW TOWNS FORMED BB COMMITTEES;
SOLICITED PRIVATE SECTOR TO BUILD BB FAILURE
2007: 23 TOWNS ORGANIZED AS “INTER-LOCAL CONTRACT
2008: SOUGHT ISSUANCE OF DEBT INSTRUMENTS IN PUBLIC
CAPITAL MARKETS GLOBAL FINANCIAL COLLAPSE - FAILURE
2009 – 2010: SOUGHT RUS AND ARRA FINANCING [5
applications] ALL DENIED. FAILURE
A BRIEF HISTORY
2011 TO DATE: SELF-HELP BOOTSTRAP: RAISED OVER $6
MILLION VIA LOCAL “CROWD FUNDING” SUCCESS!
451 INDIVIDUAL LENDERS; minimum note = $2500; MEDIAN
NOTE PURCHASE = $5000
TODAY:
 200 MILES OF FIBER-OPTIC NETWORK IN 16 TOWNS
 1000 CUSTOMERS AND GROWING (1000th customer
3/31/15: First Congregational Church, Thetford Hill, VT, founded
1773)
 INTERNET AND TELEPHONE SERVICE TO 400 MBPS
SYMMETRICAL; 1 GBPS PLANNED FOR 2015
 2015 PLANNED EXPANSION TO 300 MILES OF
NETWORK IN 19 TOWNS, 1500 CUSTOMERS
 EBITDA POSITIVE AT END OF 2014; REACH CASH FLOW
POSITIVE BY 2016
HOW DID WE GET FROM THERE TO HERE?
Enterprises have typical financial life-cycles:
 PHASE I: Start-ups financed with equity
(stockholders) or grants
 PHASE II: Reliable revenue stream; Fixed assets
collateralized for secured loans
 PHASE III: At maturity: mix of equity, senior
debt, subordinated debt
TYPICAL LIFE-CYCLE DIFFICULT FOR MUNI TELECOM
PRIVATE EQUITY NOT RELEVANT; NO POTENTIAL FOR LARGE
UP-SIDE GAIN DEMANDED BY PE MARKET
BONDING/TAX BASE = POLITICAL CHALLENGE [prohibited in
Vermont except for municipal administration’s own
infrastructure]
CHARITABLE CONTRIBUTIONS CAN’T SCALE TO CAPITALINTENSIVE TELECOM PROJECTS
WHEN ALL ELSE FAILED – THE ECFIBER SOLUTION
(part i): BUILDING ON OUR STRENGTHS
 Communities felt an urgent need: 15% of households have
business in the home – endangered by lack of broadband;
communities in danger of decline
 Historic experience of doing things together without outside
help (libraries, fire and rescue services, etc.)
 Municipal status of organization: ability to issue tax-exempt
debt
WHEN ALL ELSE FAILED – THE ECFIBER SOLUTION
(part ii): THE FINANCING MECHANISM
ECF consortium formed wholly-owned LLC with status as
municipality; LLC issues unsecured “triple tax-exempt”
promissory notes via “private placement” – low regulatory
burden
interest rate (before tax benefit) of 7.5% over 15 years with 18
month holiday to allow for lag before revenue stream realized
[attractive option for people of modest means]
 citizens organize community meetings to explain process;
most notes bought by residents wanting service and to protect
their communities
WHEN ALL ELSE FAILED – THE ECFIBER SOLUTION
(part iii)
 subordination agreement required; becomes “quasi equity” on
balance sheet [to facilitate potential major financing in the future]
 minimum denomination = $2500 [reduce administrative burden
while enabling affordability]
 Offering Memorandum vetted by legal counsel; provided only on
request of potential lender
RESULT: $6.3 million raised to date; over 400 individual investors
(lenders); median investment = $5000
ADVANTAGES to LENDERS
 Community control – no dependence on volatile capital
markets; little risk of sale or foreclosure in adversity
 Lenders have stake in success of enterprise – their focus
is on delivery of BB services – oversight and discipline
 Generous return to lenders (but commensurate with
risk!); anchors community; increases home values and
sale-ability
ADVANTAGES to ENTERPRISE
 Enables timely and efficient deployment – no bureaucracy
 Patient capital
 Strong customer commitment; ECFiber has virtually zero
churn – no customers lost to competitors despite
increasingly competitive market
 Subordinated debt can become “quasi equity” in refinancing
DISADVANTAGES OF THIS SYSTEM
 It is slow. Funds are raised neighborhood by neighborhood
as the network expands. This constrains the rate of growth.
ECFiber is committed to serving 100% of its population;
with this system, and 1500 miles of road, that could take 17
more years
Result: frustration among those citizens who are not near
the existing parts of the network
 Requires continuous grass-roots organizing campaign with
large number of volunteers. ECFiber has been able to sustain
this because of dire need – many parts of many towns, today,
are still on dial-up or poor DSL.
WHEN ALL ELSE FAILED – THE ECFIBER SOLUTION
PROJECT DEVELOPMENT POLICIES
 AVOID MAJOR ROADS – “GO WHERE THEY AIN’T” TO ASSURE
GOOD TAKE RATES [incumbents present in town centers but not in
hinterland]
ECF GOVERNING BOARD SAID “NO PAY TO PLAY” – [wealthy
residents who sought to finance their own road had to organize
neighbors to assure adequate take rate]
NO GUARANTEE OF IMMEDIATE SERVICE FOR LENDERS – best
efforts only [able to satisfy about 85% of lenders]
LESSONS
 LOCAL
DEMAND MUST BE WELL-ESTABLISHED
 LOCAL SECURITIES LAWS MUST BE WELL-RESEARCHED
 START-UP FUNDING MUST BE SUFFICIENT TO COVER LEGAL
COSTS AS WELL AS INITIAL DESIGN AND CONSTRUCTION
 BUSINESS MODEL MUST BE THOROUGHLY DEVELOPED TO
ASSURE PAY-BACK OF INTEREST RATES COMMENSURATE
WITH RISK
CAN THIS MODEL BE REPLICATED?
B4RN: BROADBAND FOR THE RURAL NORTH
is using a similar model in Lancashire, UK
B4RN RESULTS HAVE BEEN MUCH THE SAME
AS ECFIBER’S
THE PATH FORWARD
3 ½ years after connecting it’s first customer, and having
achieved a stable revenue stream, positive EBITDA, and
accumulated three years of audited financial statements,
ECFiber is preparing to return to private municipal debt
market for sufficient funds to enable complete network
build-out over next 5-7 years.
COMMUNITY-BASED FUNDING IS LIKELY TO BE
MAINTAINED AS PART OF THE MIX
MAY THE FORCE BE WITH US!
? YOUR QUESTIONS
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