Organize Models to Deploy Broadband Infrastructure

Learning Objective

Understand how projects can facilitate the extension of broadband infrastructure to unserved areas by organizing stakeholders according to the project’s mix of regulatory barriers, partners, and regional challenges in incentivizing the deployment of or deploying infrastructure.

Overview

It’s important for broadband projects to be aware of the various models that communities have utilized elsewhere to successfully deploy broadband infrastructure. Organizational models vary according to how they assign broadband-related ownership of infrastructure and responsibility for operations. Most major cities rely on models that are entirely privately owned and operated. Urban and suburban areas near large population centers generally have the population density and proximity to existing infrastructure to induce expansion by private internet service providers (ISPs). Rural areas with low population density do not present the same opportunities for profit-motivated and risk-averse investors. Rural areas often need to rely on publicly funded or owned infrastructure to expand service to unserved areas. Organizational models that leverage public capital and private expertise split ownership and responsibilities for the construction, ownership, and operation of broadband infrastructure.

This guide categorizes broadband organizational models into five principal categories: municipal ownership, open access, public-private partnership, cooperative ownership, and private ownership, which is the typical model for broadband development. Some of these models rely on dividing ownership of infrastructure and delivery of internet service. Owners of broadband infrastructure do not need to be the sole provider of internet service on that network and can competitively lease access.

The Role of the Local Development District

Local Development Districts (LDD) can identify and adopt an organizational model for broadband development by determining the model that best aligns with their project goals, regional needs, mix of partners, and local and state regulations. LDDs leading a broadband development project can balance input from their Project Committee, Internet Service Providers and other stakeholders, and regulatory conditions to determine the model that will best achieve their regional goals.

While LDDs may not have direct experience with organizing a broadband development project, LDD staff have experience in project management and coordination that will help any project ensure all partners are held accountable and building towards success. LDDs responsibilities for any project will widely vary according to the chosen organizational model. Private and municipal models of development may only ask LDDs to serve as an information-provider or coordinator, while LDDs may be positioned to serve as the lead organization for any public-private partnership, responsible for managing a project’s fiscal resources and the activities of partners.

Getting Started

Leadership for any broadband project needs to understand that their organizational model will be dictated by your initiative’s partnerships, infrastructure assets, and available funding opportunities. No broadband project should plan on directly copying a model that another community has successfully employed in the past. A solid understanding of successful past strategies will provide project leaders with frameworks to identify the best solution for their own situation. Perusing publications that provide detailed information on the different types of broadband organizational models, such as US Ignite and Altman Solon’s Broadband Models for Unserved and Underserved Communities and the Benton Foundation’s The Emerging World of Broadband Public-Private Partnerships: A Business Strategy and Legal Guide is a good way to begin to understand potential organizational models.

Understanding Private Ownership Models

Private ownership models of involve investment by private internet service providers (ISP) into the development of broadband infrastructure. These providers often own and exclusively provide access on this infrastructure. Small providers may lease access so that large providers can expand or connect service areas. National ISPs focus service delivery on the most profitable areas — densely-populated urban and suburban communities in major cities. Smaller regional ISPs are more likely to deliver service to rural communities and can be more invested in community development. Regional ISPs rely on multiple streams of funding to sustain operations. In addition to subscription fees, regional ISPs earn income from Universal Service Fund programs, and major providers leasing access to their network. These ISPs often fund infrastructure development with federal or state funding. In this model of development, LDDs can help private ISPs expand into unserved areas, navigate regulations, and apply for public funding opportunities.

Understanding Municipal Ownership Models

Municipal ownership models of broadband development are a method for communities to provide broadband service to unserved areas without the cooperation of private internet service providers (ISP). In this model, the municipality owns the infrastructure and either operates or contracts operation of broadband service. The Electric Power Board, a Chattanooga, TN publicly owned electricity and telecommunications provider, created a municipal network which provides customers with some of the fastest broadband in the world.[1] Some experts have raised questions about municipally-owned networks’ financial sustainability in the wake of the well-publicized failure of several municipal broadband efforts.[2][3][4] A 2017 University of Pennsylvania study examined the income and cash flow statement and balance sheets of 20 publicly-owned broadband networks and found that only two generated enough profit to likely pay off the debt incurred from building the network.[5] While municipal ownership allows communities to develop a broadband network to their desired standards, without the cooperation of partners, this model may be the most risky for small or budget-limited communities.

Case Study: RS Fiber, Minnesota

RS Fiber founded a cooperative to build network infrastructure and partnered with a private internet service provider (ISP) to deliver service over the network. RS Fiber was founded in 2008 in Winthrop, MN after city administrator Mark Erickson explored the feasibility of constructing a municipal fiber network for the 1,400 person town.[6] Erickson approached ISPs about partnering with the city to improve service, but providers determined the city’s low population density made fiber infrastructure unfeasible. Without a private partner and aware that Winthrop alone could not support a municipal network, Winthrop partnered with neighboring municipalities to pursue broadband development regionally.

Participating municipalities formed the Joint Powers Board (JPB) to act on behalf of the municipalities and manage, oversee, and obtain funding for the project. By the end of 2011, the JPB included 10 cities and 17 townships among its members.[7] JPB leveraged Erickson’s connections with Hiawatha Broadband Communications (HBC), an ISP and his former employer, to design, build, and operate the network.

HBC was an ideal partner for the JPB: the firm had experience in wireline fiber deployment and had partnered with small municipalities in the past. The local United Farmers’ Cooperative (UFC), a 308B cooperative, agreed to provide seed money to form the RS Fiber cooperative.[8] To obtain funding, JPB would issue and loan general obligation bonds directly to RS Fiber, making those loans subordinate to any additional financing RS Fiber obtained from other sources. The funding provided by JPB could serve as the principal on related loans and mitigate the risk taken on by subsequent lenders.

In 2015, JPB governments raised $8.7 million to begin construction. The cooperative began laying fiber that same year.[9] The subscriber density in partnering cities offset higher construction and subscriber costs in rural areas. The revenue from urban fiber construction in turn financed expansion into rural townships. Today, RS Fiber offers fiber-to-the-home broadband service of up to gigabit speeds in all ten cities and fixed wireless connectivity of up to 50mbps to the rural townships. It currently offers internet access to over 6,200 potential consumers.[10]


[1] “Why Chattanooga Has the Fastest Internet in the US,” Tech.co, August 21, 2018, https://tech.co/news/chattanooga-fastest-internet-usa-2018-08

[2] https://thehill.com/opinion/technology/534437-municipal-broadband-is-a-bad-idea-for-cash-strapped-towns

[3] https://thehill.com/blogs/pundits-blog/technology/339232-the-false-promise-of-municipal-broadband-networks

[4] https://muninetworks.org/content/successes-and-failures

[5] Yoo, Christopher, Pfenninger, Timothy, Municipal Fiber in the United States: An Empirical Assessment of Financial Performance. University of Pennsylvania Law School, Center for Technology Innovation and Competition at the University of Pennsylvania, Pg 7, https://www.law.upenn.edu/live/files/6611-report-municipal-fiber-in-the-united-states-an

[6] ACS Demographics and Housing Estimates, American Community Survey, Table DP05, Census Bureau, https://data.census.gov/cedsci/table?g=1600000US2771122&tid=ACSDP5Y2019.DP05&hidePreview=false

[7] Carlson, Scott, Mitchell, Christopher, RS Fiber: Fertile Fields for New Rural Internet Cooperative. Institute for Local Self-Relance, Next Century Cities, April 2016, Pg 10, https://cdn.ilsr.org/wp-content/uploads/downloads/2016/05/RS-Fiber-Report-2016.pdf

[8] RS Fiber: Fertile Fields for New Rural Internet Cooperative, Pg 23

[9] RS Fiber: Fertile Fields for New Rural Internet Cooperative, Pg 26

[10] RS Fiber Cooperative, “What is RS Fiber”, Accessed March 18, 2021, https://www.rsfiber.coop/about-us/what-is-rs-fiber/

Understanding Cooperative Ownership Models

Cooperative ownership models of broadband development rely on existing non-profit, local electricity, or telecommunications providers to expand broadband service to rural areas. National internet service providers (ISP) are reluctant to invest in low population density areas with limited profitability. Local, member-owned electricity and telecommunications cooperatives are invested in their rural community and are more willing to take on the risk associate with expansion into lower profitability areas. Many of these cooperatives formed to provide rural communities with electricity and telephone service. According to a recent report, more than 109 rural electric cooperatives have started fiber optic broadband projects across the country.[1] In North Dakota, rural telecommunications cooperatives deployed over 40,000 miles of fiber optic cable across the state to equip 250 communities with broadband access.[2] Cooperative models have already appeared in ARC states like North Carolina. Recent changes in ARC state legislation will likely facilitate expansion of cooperative models. Georgia and Mississippi recently enacted legislation that explicitly allows electric cooperatives to apply for federal broadband grants and provide broadband service.[3] [4]

Case Study: North Dakota Carrier Network

North Dakota is a prime example of the success rural telephone cooperatives have experienced in providing rural communities with broadband internet. The story of North Dakota’s rural broadband success hinges on community, cooperation, and trust. In 1996, telephone company U.S. West (now Qwest) expressed an interest in selling their telephone exchanges and exiting the rural North Dakota market due to limited profitability. The local telephone cooperatives in the state became interested in purchasing these exchanges to expand their own service areas and organized amongst themselves to jointly bid on all of U.S. West’s exchanges.

Cooperatives and local companies jointly created the Dakota Carrier Network (DCN), a statewide, middle-mile fiber optic network that connects the 14 independent providers’ networks together. Banding together local cooperatives across the state created new opportunities. To ensure a network-sustaining return on investment, the owner companies identified an anchor tenant for DCN. This anchor tenant would provide DCN with a long-term, stable source of income that sustains operations and finances expansion. In 1999, DCN won the state contract to provide broadband service to every government building and school in the state. A notable feature of DCN is that all but two of the 14 owner companies have equity parity and equal voting rights at board meetings, no matter their size or level of investment in the network. Those at DCN stress that this arrangement fosters the trust and transparency necessary for such a large-scale collaboration between competitors. “I think collaboration is a huge component and in order to collaborate you have to have a lot of trust and transparency and so that’s what really has been important,” said DCN CEO Seth Arndorfer.[5]

While DCN serves North Dakota government establishments, schools, and large businesses directly, each independent provider offers broadband access to households and small businesses within their service areas. The providers leveraged the FCC’s Universal Service Fund to aggressively expand the fiber infrastructure in their local communities and offer wireline broadband access to even the most rural community members. Collectively, the owner companies have invested over $100 million a year for the last five years, and 90% of last mile connections are fiber-to-the-home.[6] [7]

This type of infrastructure investment reveals a key to North Dakota’s success: The independent providers are local entities that inextricably connected to their communities and share the goal of increased connectivity in their areas. Between them, the 14 companies employ over 1,000 North Dakotans.[8] “There can be a perception that ‘why don’t you just get rid of all these small co-ops and have DCN be the single PoC for the state?’ But that goes against why we’ve been so successful. It’s because all these small co-ops, they live in these small towns, over 1,000 employees across the state… We want to leverage their employees in the area and ensure long term viability for employership and giving back to their communities. They are really vested in their communities and their logo means something there and we want to maintain that,” said Seth Arndorfer.[9]


[1] Andrews, Michelle et al, Cooperatives Fiberize Rural America: A Trusted Model for the Internet Era, Institute for Local Self-Reliance, Pg 4, https://ilsr.org/wp-content/uploads/2020/05/2020_05_19_Rural-Co-op-Report.pdf

[2] “Dakota Carrier Network: Our Roots,” Dakota Carrier Network, https://dakotacarrier.com/about-us/history/

[3] “Is a ‘Broadband Revolution’ Brewing in Rural Mississippi?’, Government Technology, https://www.govtech.com/network/is-a-broadband-revolution-brewing-in-rural-mississippi.html

[4] “New Georgia Law Makes Clear that Electric Co-ops Can Enter the Broadband Space,” National Rural Electric Cooperative Association (NRECA), https://www.electric.coop/new-georgia-law-makes-clear-that-electric-co-ops-can-enter-the-broadband-space

[5] Seth Arndorfer (Chief Executive Officer, Dakota Carrier Network) interview with DDAA, February 10, 2021

[6] Seth Arndorfer (Chief Executive Officer, Dakota Carrier Network) interview with DDAA, February 10, 2021

[7] “History,” Dakota Carrier Network, Accessed March 22, 2021, https://dakotacarrier.com/about-us/history/

[8] Idib

[9] Seth Arndorfer (Chief Executive Officer, Dakota Carrier Network) interview with DDAA, February 10, 2021

Developing Open Access Models

Open access network models of broadband development rely on an infrastructure owner leasing bandwidth to outside internet service providers. The network operator (in most cases a local government, cooperative, or other public entity) leases access to its network to multiple internet service providers (ISP) that in turn provide internet service to consumers. The network operator builds, operates, and maintains the infrastructure, with operator-approved ISPs able to lease bandwidth at pre-determined rates. By splitting ownership of infrastructure and provision of service, open access networks facilitate competition in local broadband markets. Open access networks allow ISPs to utilize existing infrastructure to extend or provide service — private ISPs are often only willing to lease unlit fiber. Just like any market, competition among providers drives prices down, encourages high quality service, and provides community members with multiple options. Open access networks often ban providers that fail to provide service as advertised or offer low-quality service. Communities that have successfully implemented open access networks typically own their own fiber networks. Ammon, ID, a town of approximately 17,000, offers the most famous example of an open access network operating in a rural setting.

Case Study: Ammon, Idaho

Ammon Township organized its municipal broadband network as the City of Ammon Fiber Optics, a municipal utility that owns and operates the city’s broadband infrastructure. Four private ISPs lease access to and offer service through Ammon’s network, which also includes a public service option. Both ISPs and residents use an online portal to access the network and manage any service-plans, which includes details on service-plans and pricing. Ammon Fiber Optics uses the same portal to monitor download and upload speeds for every user, active modems/devices, and lifeline services. A digital networking platform enables ISPs to remotely connect with the network, and physically attach to neighboring networks. Rates to access the Ammon Fiber Optics network are set according to port size, with ISPs, businesses, and homeowners receiving identical rates.

Private ISPs that lease bandwidth from Ammon’s network include regional networks such as SUMO, which grew out of the Utah UTOPIA municipal network, Quicknet, an Idaho Falls and Ammon-based private ISP, and Fyber.com, an Eastern Idaho wireless private ISP, which has actually sold unused bandwidth to other providers on the Ammon network. Ammon Fiber Optics allows any ISP to offer service over its network and helps ensure service providers meet the expected level of service. The service site allows customers to rate and review service plans. By managing the infrastructure, Ammon Fiber Optics removes any cost associated with switching between service providers. This open and transparent market leads to lower prices and the absence of contract plans.

Forming Public-Private Partnerships

Public-private partnership (P3) models of broadband development typically involve a local government or group of governments partnering with a private sector internet service provider to construct infrastructure and deliver service. P3s can assign responsibility for infrastructure and service a variety of ways, with the public sector typically being responsible for financing and owning infrastructure, whereas the ISP typically is responsible for last mile service and improvements. This model is attractive to communities that lack the expertise to operate a network and ISPs that are unable to finance expansion into unserved areas. Communities and their private partners have implemented a number of models, all differentiated by assignment of ownership and responsibility. Westminster, MD partnered with ISP Ting to help build and operate its publicly-funded network in return for short-term monopoly rights. Other partnerships employ more of a hybrid ownership model, whereby the local government owns the middle-mile infrastructure, and the private partner builds the last mile infrastructure and offers internet service, as best evidenced by Lincoln, NE’s partnership with Allo Communications. The Institute for Local Self-Reliance has published a report, Successful Strategies for Broadband Public-Private Partnerships that compares similarities and differences of prominent P3 broadband models.

Best Practices

Explore successful P3 models from other communities to build your own model. Successful P3 models will depend on your partners and their capabilities. Be wary of prescribing a single organizational model to your effort when your community’s partners and circumstances are likely unique. Project leaders should examine the case studies and resources referenced throughout this toolkit while considering their own capabilities, resources, and limitations.

Look for partners with shared values and objectives. When exploring public-private partnerships, it is prudent to look for a partner that shares your community’s values and objectives for broadband development. Many national ISPs are driven by board decisions that prioritize profit and follow proprietary strategy. Regional ISPs are more flexible to capitalize on partnership opportunities and are invested in benefitting their community. Cooperative-owned broadband models have been successful because they are locally invested in successful community outcomes. If possible, look for a private partner whose values and goals align with the Broadband Committee’s values and goals.

For public-private partnerships, careful planning in the beginning can prevent problems during the project. P3s are attractive to communities because they leverage a community’s ability to access low-interest public financing and an ISPs’ ability to operate a broadband network. This allows smaller communities to make broadband entry and expansion a more affordable option for broadband providers that are not able to make the business case to expand into low population density areas. Additionally, P3s create a vehicle for non-profit and private financing to match any public funds. However, P3s require complex legal agreements involving millions of dollars in joint investment that make it necessary for communities to pre-define clear parameters and responsibilities.

Stipulating key contract items like objectives, progress reporting requirements, a breach and cure process, and an exit strategy should the project fail will help communities protect themselves if a private partner proves difficult to work with.