ECFiber Turns To Grassroots Business Model

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Five years ago at Town Meeting, about two dozen towns from Montpelier to White River Junction voted to join ECFiber, a community based organization that promised to deliver high speed fiber optic broadband service to every household. 

Today ECFiber has been able to connect just a few hundred customers, and in the five years that have passed, its had to dramatically change its business model.

In March of 2008 on the heels of the town meeting votes, Tim Nulty, ECFiber’s project director, outlined an ambitious timeline for the network to be up and running.

"We hope to turn on the first customers at the end of 2009, and there would be a cable down every road, every street in this area around 2010." Nulty said.

It hasn’t worked out that way. Today ECFiber has connected roughly 300 of 25,000 potential subscribers in the 23 towns that now make up its service area. It has about 50 miles of active cable out of 1,600 miles of roads in its service area.

In part, ECFiber was derailed by events in the financial markets in 2008, which kept it from securing the capital it needed to get underway. Irv Thomae is ECFiber’s current chairman. 

"There are still a few people who seem aggrieved that we didn’t keep our promise of starting in 2009. Well, I’m sorry.  There are things that happen that are beyond a small organization’s ability to control," Thomae says.

ECFiber also hoped to tap into state and federal grants and loans for rural broadband. 

With the exception of one small grant five years ago, both the federal government and the Vermont Telecommunications Authority have passed on roughly a dozen of EC Fiber’s applications.

Failing to secure money from institutional lenders or the government, ECFiber has devised a new financial model.  

In 2010 it received a loan of $750,000 from three private investors, which enabled it to start construction. 

Since then, ECFiber has relied largely on small investments by people living in towns it plans to serve. The investments are made in the form of interest bearing unsecured promissory notes sold for $2,500 each. By the end of 2012, ECFiber had raised $3 million from the initial investments and the promissory notes.

The locally funded model has a downside:  ECFiber can only expand as quickly as the money comes in from investors and customers.  The model also favors wealthier communities, because the decision to go forward with service to a town is based on securing enough promissory notes from individuals in that community.

Nearly all of the existing customers are in the town of Barnard. 

Thomae says this year ECFiber hopes to add another 400 customers in other towns. That’s more than double the current number, but it’s still a small figure compared to the 25,000 customers ECFiber had hoped to be able to serve by now. So the pace of expansion is slow.

The locally funded approach has spawned evangelical support from some in the communities in ECFiber’s service area. 

"There’s a tremendous amount of enthusiasm that comes from the sense we’re not going to be at the mercy of some large corporation, nor of some huge government.  We’re going to do this ourselves,"he says.

Why ECFiber has failed to attract government grants or loans isn’t clear. The Vermont Telecommunications Authority, which awards state money for broadband, says it makes decisions based on general criteria established by the Legislature and the guidelines for specific grants.

Thomae says in the eyes of some people, ECFiber may suffer from comparisons with Burlington Telecom and its well publicized financial problems.

"That probably doesn’t help us, but there are significant differences between us and Burlington Telecom," says Thomae.

Burlington Telecom is a city-owned utility that provides broadband and other services to subscribers. But it hasn’t met revenue expectations and its financial problems led to the improper transfer of city funds. The city is also involved in legal squabbles with a large investment company that financed the utility’s network.

ECFiber is owned by its member towns, and like Burlington Telecom it isn’t permitted to use taxpayer money, but its relationship with town governments is more distant and not closely coupled.

It also has no major creditors with whom it could default.

There is another Burlington Telecom-connection.

ECFiber project manager Tim Nulty managed Burlington Telecom until his resignation in 2007. He was not there when city funds were used improperly, but his name came up in the fingerpointing over mismanagement that followed. 

Thomae praises Nulty’s work for ECFiber and he says he’s confident that despite the obstacles, the network will eventually reach all the customers it set out to serve.

"It will take several years and please don’t ask me exactly how many," he says. " I don’t know."

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