Building a Bigger Box

Managed Broadband TV a Hot Topic

A picture of the Savannah City Hall at night.
A picture of the Savannah City Hall at night.

Growth was definitely the vibe of this week’s NTCA’s Southeast Regional meeting in Savannah. Operators and vendors provided examples and ideas for how to generate new revenue through the introduction of new products and services that complement the broadband infrastructure. Although one of the panels referenced the idea of “out-of-the-box” thinking, it is clear that operators want to build a bigger box by complement their broadband offering with services that help their customers and result in new revenue.

Video has always been a challenge and some operators and vendors demonstrated some out-of-box thinking in marrying web technologies with local expertise to come up with offerings that provide a win-win for the rural consumer, content providers and the operators’ efforts to promulgate broadband. NeoNova and Skitter discussed and demonstrated their solutions, while Star Communications explained why, even though they already are a provider of CATV and IPTV, they see Managed Broadband TV as a way to expand their video reach.

Local Management and People Are the Key to Making Broadband Relevant

Understanding the unique needs of customers is one of the advantages that local operators have, compared to conglomerates where management decisions are often made thousands of miles from the customer and/or the decisions that are made not tailored to a particular locale. Jimmy Blevins, CEO of SkyLine Membership Corporation provided several examples of how local knowledge can create broadband demand.

He and his staff noticed that people with second homes weren’t signing up for telecommunications’ services and were presumably bringing their wireless devices from their first homes to fulfill their telecommunications’ needs.

As they dug into it, Blevins and his staff found that people still wanted the reliability and speed of a terrestrial network, but they only wanted to pay for the network when they were at their respective get-away homes. SkyLine came up with what they call a “Weekender Plan” that provides a lower cost ($15 for 12 Mb/s solution with options for phone and unlimited long-distance) for those who are at their homes only on the weekends.

Unique Broadband Solution for Students in Low Income Households

Blevins described a unique way to reach low-income households without subsidies or devaluing their existing broadband plans. The local school superintendent had come to Blevins with the challenge of reaching students from low-income households who had been given tablets by the school district, but couldn’t do their home work on them because their families couldn’t afford broadband.

SkyLine and the school district devised a low-cost, monthly broadband plan, whereby SkyLine routes Internet traffic through the School’s Internet connection. This is an off-peak time for the school district, so it doesn’t add to its costs. At the same time, this technique lowers the cost of connecting to the Internet for SkyLine, which they can pass on to the low-income household.

The Video Exchange – A Dream Realized

Local content is a proven driver for broadband and video services. The challenge is producing content on a consistent and ongoing basis. As Jimmy Blevins suggested,

“It’s easy to produce several hours of local TV sports programming each week, but what do you do the rest of the time?”

A screenshot of website.
A screenshot of website.

SkyLine saw this challenge as an opportunity to help not only its own community, but the community of independent operators.  SkyLine has developed In a nutshell, this is exactly the sort of content exchange that has been promoted in various forms on these virtual pages for the past decade. They have done an impressive job with this web portal which allows content producers to upload and sell their content to local channels.

The objective of the video exchange  is to help an operator program their local content channel with content that complements what the operator is already producing and airing. The exchange collects the content, stores associated metadata and serves as the clearinghouse between sellers and buyers. With a fee of 15%, it is very affordable.

The fact that it was started by an independent operator to address their long-term need is an indication that they are in this for the long-term. Look for ViodiTV content to be on the site in the near-future.

[Note, there are four more chances to check out one of NTCA’s excellent regional meetings this summer and fall, including next week in Denver. For the full schedule, click here.]

Looking to the New Generation for Answers

Click to View Video Interview with Levi Maaia

Broadband and community were two recurring threads of a panel conversation at the 2011 Independent Show regarding ways that family run cable businesses can set themselves apart and remain relevant in the 21st century.

Three of the four panelists were 2nd or 3rd generation leaders and brought a younger generation’s perspective to the challenges that face businesses that, arguably, are mature.   NCTC president Rich Fickle, who moderated the panel, summed up his impressions of working with panelists and their companies when he said that , “These guys are entrepreneurial and [their companies] are built to last.”

Their businesses, like most small operators, had their roots in providing services where larger companies failed to serve. Geographically, the panelists serve small towns and rural areas.  They are family owned and operated, which, as the panelists agreed, provides a different mindset than an outside investor-owned company. This mindset helps both in the deployment and adoption of broadband and other ancillary technologies that will help their rural communities survive and thrive.

The panelists:

  • John Andrews – co-founder, president & CEO of US Sonet & Lightspeed Telecom.  US Sonet & Lightspeed Telecom is a Fiber to the Home over-builder, with 51% take-rate and 1,300+ subscribers, that formed when the incumbents refused to upgrade their services to the town of Salem, IL.
  • Levi Maaia, VP of Full Channel in Rhode Island.  He is a third generation leader of this independent,  Rhode Island broadband provider started by his Grandfather started in 1965.
  • Mark Walter, SVP, Service Electric Cablevision – the oldest cable system in the country (1948), founded by Walter’s grandfather in the rural mountainous part of PA. Walter pointed out that innovation and service were the drivers for the birth of Service Electric.
  • Kyle South, GM of West Alabama Cable TV – South’s great-grandfather started the cable television business in 1964 and serves 5,000 households.

Highlights from the panel are below.

What are the key traits for success?

  • Levi Maaia –  “Surround yourself with smart people.”
  • Kyle South – “Most important thing we can do is build relationships with their customers.”
  • Mark Walter – “Choose a leader with financial wherewithal and those who will make ethical decisions.
What do family-owned Operators provide that are unique or an advantage?
  • Mark Walter – “We are able to make decisions for the long-run and not for short-run games.  They [family owned operators] take the business seriously, because it  is about their family and the other families [in the business and community].”
  • Levi Maaia – “The community members identify with them as embracing the local culture.” He went on to explain that the business probably would not still be around in its current form if it was owned by investors.
  • John Andrews – The family is there, it is a local effort and everybody works together.
Trends in Media 
  • Levi Maaia – The growth is coming from broadband and online video will complement linear channels.
  • Mark Walter – “Choice, control is what people want.  Operators have to continue to invest in the network – a core asset – by deploying fiber deeper and deeper in the network.  They have to figure out a better way to deliver video.  We aren’t just a dumb pipe, but can’t forget about the value of the pipe.”
  • Kyle South explained that they have an older, less educated population that hasn’t traditionally embraced broadband.  Online video is driving growth opportunities for their broadband .
  • John Andrews – They are watching how the cable industry will mold its offering to include multiscreen video services (TV Everywhere).  One key question for them is whether they want to do the transcoding.
Grooming New Leaders for a Transition – What Does It Take?
  • Mark Walter – Imparting the value of legacy and instilling values are a key to developing new leaders.  He suggested that sound financial management is important and he would recommend an accounting degree.
  • Levi Maaia indicated that a particular degree wasn’t critical, point out that his mom was a school teacher before taking over the business when her father passed.  He said, “There was no blatant grooming, just modeling and that there is no way to force a previous generation to take over a business.”
  • John Andrews – Regarding the values he tries to impart to his sons is that, “It doesn’t matter what your position is, just work.” He tries to,  “Teach them (his sons) the caring characteristics so that some day they can step in his shoes.”
What are the challenges? 
  • Mark Walter – “The biggest challenge is growth; the big question is figuring out the best way to grow; organic or acquisition. If you don’t grow, you are dying.”
  • Kyle South – “Bandwidth issues are the big challenges”.
  • Levi Maaia – “That the Cable TV model being imposed on the Internet is his biggest concern [i.e., when cable programmers charge fees for all broadband subscribers in order for the broadband provider to offer the programmer’s programming].  Have to be careful with this, as it could affect the affordability of the Internet.”
  • John Andrews – “Getting bandwidth to their facility[e.g., the mid-mile from Internet Points of Presences to their location] is a challenge.  Need to start building fiber to towns around them and getting fiber closer to the Internet.”
What about Cord Cutting?  Is it a  panic situation?
  • Levi Maaca – “They are fortunate, because Netflix doesn’t circumvent the need for their core network.   The key is to provide the best possible service. Their future competitors need us, more than we need them.”
  • Mark Walter “2% of their customer base uses Netflix and [that 2%] Netflix uses 35% of their Peak Bandwidth.”  He pointed out that OTT services drive demand for their broadband platform.  Still, they are looking for the best way to manage bandwidth and have implemented bandwidth caps during peak times.  Walter said that, “Netflix is going to have both positive and negative effects on the industry and overall  its impact will probably will be neutral.”
  • Kyle South – “Metered billing might be the route they take in the future.  Right now, OTT services are sending people their way [in terms of increased broadband penetration].”
  • John Andrews – “We are the pipe to the home. and there is a symbiotic relationship between OTT providers and the cable operator’s broadband offering.  There is a, “Lot more money in the utility of Internet than the programming  of channels.”
What about DBS Competition?
  • Mark Walter – Continuing to drive the bundle into the home to compete with DBS.
  • Kyle South –  Customer service is a distinct advantage for his company
  • Levi Maaia – DBS is not really the major competitor for them, as a number of the DBS customers also subscribe to Full Channel’s broadband offering.  It is important to note, that Cox overbuilt Full Channel in the early 2000s.  Maaia’s grandfather describes the situation that led to the overbuild and what it meant in this 2003 letter to the editor.
  • John Andrews – 5% of their customers are also customers of DBS.  The local channel is a big part of why people subscribe to their video service.
What is needed
  • John Andrews – What we really need is a better experience.
  • Levi Maaia concurred with Andrews, when he said the set-top box interface needs to be updated, “Have to make it convenient for the customer.”
  • Mark Walter – TV Everywhere is the right direction – exciting to offer all of their video content on these different devices.
  • John Andrews –  eliminate MSAs and LATAs.  Have no use for them anymore.  He asked if we can we open syndication, so that the operator can create their own channel.
  • Levi Maaia – I would hold wireless licensees to their community obligation – not only for broadcasters, but to the wireless data and phone providers who are taking over the wireless industry.  The standards have been relaxed and won’t service the good of the public.

Maaia elaborates on this last point in an exclusive interview filmed right after the panel.  Click here to view.

More Personal Stories of Communications

Volcano Communications Group
Volcano Communications Group, Pine Grove, CA

The latest installment of the Save Rural Broadband video series from the WTA/NTCA/OPASTCO alliance tells the story of why broadband is important to folks served by Volcano Communications Group.  While professional and instilled with excellent production techniques, it only tells one slice of what could be many stories; probably the most important being that without Volcano, there would be no service at all.

I probably have a more personal connection with Volcano than with any other operator. Over the years, I have worked with them as a vendor and known them through industry events.  I also knew them through my parents who lived in their service territory and were their customers for more than two decades; more about my parent’s story with Volcano later.

As mentioned in the video, Volcano’s service territory is a rugged one, ranging from the hills made famous by the California gold rush to the soaring spine of the Sierra Nevada that reaches over 8,600 feet.  In some ways, the area served by Volcano reminds me of a mountainous version of parts of Florida, as there are many retirees, while many of the younger people work service jobs that support the retirees.  With the unemployment rate hovering around 12%, the importance of bringing a Silicon Valley company to their area, as mentioned in the video, is critical to spurring economic development.

A part of the story that deserves emphasis is that it is the people of the Volcano are driving regional economic development.  This leadership and focus on helping the community starts at the top with the ownership and management.  There are multiple examples where Volcano is the one in the community that is organizing fundraisers, providing their facilities, time and talent to make the place where they live a better one.  An entire column and video could be devoted to those efforts.

The story is also about two couples who, in 1949, invested their life savings to expand telephone service where Ma Bell dare not go.  Since that time, successive generations have transformed single open wire plant to one that utilizes a deep fiber architecture, which supports broadband as well as one of the nation’s first, 100% digital video cable offerings.

This is a story of innovation.   They are continually looking for new ways to provide the best and most cost-effective service possible to their customers.  As such, they are often a test bed for new ideas and technologies.   They are good at seeing through the Silicon Valley hype and bring a realism that is beneficial to any tech company looking to test their product.

One thing they recognize is that their service territory is not cookie cutter, which forces them to deploy a myriad of technologies to meet their customers’ needs.  That they are able to manage such a complex network is a testament to both their people and the management style that permits their people to do their jobs.

Another part of the story is how they have brought broadband to areas outside their incumbent service area.  If not for Volcano, there is a good chance these areas would not have broadband.  It is the story about drilling through miles and miles of mountain to bring telecom to small businesses and scattered residences that are in areas where wireless won’t necessarily penetrate and where utility poles could be crushed in an avalanche.

It is about deploying back-up power systems that would survive Y2K.  To this last point, lifeline power has always been a hallmark of the U.S. telephone network, which leads me back to the story of my parents.

In the mid-1990s, my parents faced the biggest snowstorm in their decade plus of living in the mountains.  Their house was one of 10 or so on a dirt road that was a good mile from where the pavement ended.  Given the relatively mild winters, my parents never saw the need for four-wheel drive.   Like so many other retirees, my parents had built a dream home that was ideal for a people in their 60s, but was a bit isolated for a couple in their 70s and 80s.

The snow started falling and by the time the electricity from the grid failed, they found the dirt road impassable.  They literally couldn’t leave their house.  I don’t recall how long their back-up generator lasted or when we could sense that my World War II veteran, calmly confident, step-father started to worry.  At around day five of the electric outage, with their wood supply diminishing, we decided to make the trek in my brother-in-law’s 4-wheel drive vehicle to rescue them from their snow prison.

None of this would have been possible without the working telephone.  We wouldn’t have known my parent’s status and they wouldn’t have been able to reach out to us.  Thanks to the robust design of the power back-up system, the telephone worked even when the electricity didn’t.

I have to believe that the reason there was such a robust communications infrastructure was due to the local leadership of Volcano.   These leaders, with their local presence, understand the operational considerations as well as the physical network configurations necessary to survive the heat of the California summer and the occasional harshness of the Sierra winter.   If they didn’t live in the community, it would be easy to cut corners to bolster profit margins. Those corners wouldn’t be missed until a tragedy.

The bottom line is whether it is broadband or multi-party voice of years past, the fundamental story of Volcano remains the same.  Without Volcano, communications’ service to the communities they serve would be non-existent or marginal at best.

Video Innovation in Iowa

Shot of the audience at the Iowa Telecom Association's Video SeminarIowa Independent Telcos have always been at the forefront of adding video and other services to their broadband offerings. It is appropriate then, that the Iowa Telecom Association would produce one of the best one-day programs on the topic of video. Topics ranged from over the top video, to local content to Emergency Alert Services at their event last week in Des Moines.

Brian Collins of Sky Angel explained how their family and Christian oriented service shifted from a satellite to a broadband, over-the-top solution. He explained that their target market represents less than 5% of households, but that the buy-rates are up to three movies per month for the on-demand content. I spoke of the philosophy of over the top, as it relates to independent telcos and couldn’t stay away from my favorite topic, local content.

John Kuykendall of JSI gave an excellent presentation on local content. He summarized different techniques telcos are using to create local content. One of the things he pointed out is the importance of using the web and television to reinforce local content efforts. Janelle Hansen of Marne & Elk Horn Telephone showed an excellent reel of local content examples she compiled from various telcos from around Iowa.

Finally, John Hemingway of Monroe Electronics talked of the nuances of Emergency Alert System. He talked of the future of EAS (EAS-CAP – Common Application Protocol), which is moving towards IP and XML. His prediction is that the earliest implementation for this new standard will be 2011, although FEMA would like to see it implemented as early as next year.

Positive Signs and Positive Cashflow from One Telco

Jeff Gardner, President and CEO of Windstream Communications, opened his keynote speech at U.S. Telecom’s Executive Business Forum with a note of appreciation to US Telecom for getting behind what he termed, “credit stabilization legislation.” These opening comments set the theme for his talk, which was primarily about the financial condition of his company. In doing so, he provided insight into Windstream’s thoughts on the basic business, but also on topics such as wireless and IPTV.

Gardner spoke of the transformation of Windstream Communications from a telephony-based to a broadband-centric company. As proof points, he cited metrics that showed growth in broadband customers from 81k to 934k from 2002 to present. Revenues have increased from $3.1 to $3.21 billion in that same period, which is remarkable given the ongoing voice line loss of approximately 5% per year.

Windstream was born out of a merger of Alltel’s wireline properties together with those of VALOR Communications and instantly became a top-ten telco. It is primarily a rural and suburban carrier with about 20 access lines per mile. Still, they are facing strong competition, particularly in their suburban areas, as evidenced by the fact that 50 to 55% of their markets have voice competitors and 80% of their markets have broadband competitors.

Despite this, OIBDA (Operating Income Before Depreciation and Amortization) is at 53% and Gardner indicated that the dividend was safe and, at the time of his speech, was yielding 9%. He indicated that only 15% of Windstream’s revenue results from regulation (e.g. High Cost Fund, Switched Access, etc.).

Gardner said that there are multiple secrets to Windstream’s success, including aggressive marketing at the local level. Windstream staffs at the local level and targets its marketing efforts to particular markets, as opposed to one-size-fits-all, national programs.

They are expanding distribution channels as well and are finding success in marketing to MDUs – some of Windstream’s college towns have 30 to 40% of their residences located in MDUs. Approximately 10% of their sales are coming from retail channels. Gardner suggested that they are making big investments in their save desk; they have saved some 50% of customers who were about to defect to a competitor.

He spoke of the importance of offering products that customers want. As an example, they created an offering called Greenstreak; which is targeted at those people who are wireless-only customers. Greenstreak is a broadband product which provides a metered voice line (primarily for emergencies). They have not seen cannibalization of revenue from higher priced tiers as they have carefully targeted this offering.

One of the offerings Windstream won’t be providing anytime soon is wireless, especially as an MVNO. Gardner, who has 20+ years of wireless experience, said that Windstream could not see a path to profitability for a wireless offering. He said it was very difficult, if not impossible, for a rural telco to be competitive in the wireless space.

He had similar thoughts about building out a traditional IPTV infrastructure and IPTV does not appear to be in their video plans in the near-term. With that in mind, he is very pleased with the performance of their digital video offering via their partnership with Echostar/DishTV and called it a long-term strategy. He said that they are paid in the millions of dollars per quarter in upfront commissions, plus ongoing fee for billing and collections for their 231k video subscribers.

When asked who owns the customer, he admitted that, at this point, the customer is pretty much DishTV’s. He hinted that this could change as the rollout of a hybrid satellite/on-demand via broadband offering (expected in Q1 2009) will allow much more customization of the product for Windstream.

This is consistent with their focus on enhancing the broadband experience of their customers. Approximately 85% of their customers can receive their 3 Mbs tier, 40% can receive 6 Mbs and 22 to 25% can receive 12 Mbs. To increase the value of this bandwidth, Windstream has is either offering or planning to offer services such as tech help, home network VOD and security services.

He suggested that one way to monetize its broadband infrastructure is through, “Consumer preference advertising.” This is the type of targeted advertising that has been at the center of controversy in Washington. Gardner pointed out that the industry has to figure out how to add this revenue stream to their portfolio. He believes that targeted advertising ultimately provides a better experience for the consumer, as they will receive advertisements they want to see and implied that the new advertising revenue streams will effectively subsidize consumers’ broadband subscriptions.

Finally, Gardner suggested that Windstream is well positioned for further merger and acquisitions with other telcos. He warned that the ability to enter into such transactions will be slowed somewhat by the credit markets and to not expect anything for 12 to 24 months.

Independent Telcos Understand the Value of Independent Telcos

Two recent acquisitions that did not make the headlines of the New York Times or even aSwisher Telephone's committment to the Communityny of the traditional telecom industry publications. The Telephone Acquisition Company, LLC’s pending purchase of Iowa’s Swisher Telephone and American Broadband’s purchase of TelAlaska may be small in terms of the number of subscribers involved, but these acquisitions are extremely important in terms of pointing to another way to operate the telecom infrastructure in rural America. 

In both cases, the purchasing companies see the value in having a local presence and local management that can run the business that makes sense for the community. That is, an independent telco’s influence goes beyond the telecommunications infrastructure. The independent telco is an integral part of a community and region’s economic development. At the same time, by bringing in owners with deeper pockets, it is possible for the independent telco to bring services, such as wireless, that might be impossible on its own.   

As Ron Laudner, CEO of OmniTel put it, “Independent telcos understand the value of independent telcos.”  

In the case of the Swisher Telephone acquisition, the acquiring entity is the Telephone Acquisition Company, which is a Limited Liability Company consisting of four independent, Iowa telephone companies; Schaller Telephone Company, Interstate 35 Communications, Breda Telephone Corp and the aforementioned OmniTel Communications. 

Purchase of an independent telco by a group of other independent telcos is somewhat common.  There was quite a bit of this cooperative purchase of exchanges in the late 1990s when independent telcos collaborated to purchase rural exchanges of the RBOCs. This was a good deal all around, as the RBOCs were able to unload properties that were difficult to manage, the independent telcos gained subscriber base and the customers received the benefit of local management. 

It will be interesting to see what the current trends of consolidation will take us, especially if the former RBOCs aggressively divest themselves of their rural properties.