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[I wrote the below description of the Reedsburg, Wisconsin FTTH Network in January, 2010 when I was Senior Advisor to the FCC's National Broadband Plan. It is one of a series of narrative reports that I prepared for the FCC to substantiate observations of Michael Render, of Render Vanderslice Associates, who studies the growth of Fiber to the Home for the Fiber to the Home Council, that municipal fiber networks often achieve very high take rates, often over 60% of homes passed. While some of these municipal networks are effectively monopolies, others, with equivalent high take rates, have a telephone company offering phone, DSL and some form of TV and a cable company offering all three services. For comparison, Michael Render's most recent aggregate numbers, reported here, show that as of September 2010 fiber passed 17% of the 114 million US households and was connected to 6% of US households, for a mean take rate of 35%.

The networks that I documented in this way (Reedsburg Wi, Jackson TN, Bristol VA and Hiawatha in SE Minnesota) were not chosen randomly in any sense. Instead, they were chosen to be good examples of high FTTH take rates in the presence of vigorous competition from cable and telco incumbents. I'll eventually publish the other reports I wrote here as well.

I've made minor edits to the current document, but I have not changed the substance of this report since January 14, 2010. You may obtain the original by filing a FOIA request with the FCC.]

The Reedsburg, Wisconsin FTTH Network is of interest because of its extraordinarily high take rate (60%) despite vigorous competition from the incumbent cable and telephone company. This report was written in collaboration with David Mikonowicz, General Manager of the Reedsburg Utility Commission (RUC), which built the network and operates it today, and Catherine Rice, the RUC Director of Marketing and Sales.

Reedsburg is a city of about 9000 people. RUC has some 4200 electric meters. Reedsburg is about a 1:20 drive NW of Madison WI and about 2:20 by car NW of Milwaukee. It is on State Route 33 and a rail line.

Reedsburg Utility Commission dates back to the 1890s. Its initial impetus was a typhoid epidemic from drinking the local river water. Its first construction project was a well and a network of wooden water mains. Soon it was chartered with constructing a network of electric wires to run lights. For a time it had responsibility for waste water, but that is now run by Reedsburg’s Bureau of Public Works.

RUC is structured as an arm of Reedburg’s city government. It is governed by a commission composed of two members of the City Council and three citizens.

The incumbent telephone company in Reedsburg today is Verizon. The incumbent cable operator is Charter. Both have operated as monopolies from well before the 1990s up through the initial offering of RUC’s communications services.

RUC first entered the telecommunications business in 1998, when it constructed a ring to tie its wells, its five electrical substations together and to provide Internet access for its high school, middle school and its school administration building. In planning the ring, the city asked Verizon and Charter if they would build it, but they were not responsive. RUS built a partly aerial, partly buried 7-mile ring of 96-strand fiber at a cost of about $850,000. Internet access was provided by Genuine Telephone, a tiny subsidiary of LaValle Telephone Cooperative which ran a fiber from LaValle, about 8 miles NW of Reedsburg.

As the ring was under construction, local companies (such as a plastics manufacturer, a maker of seats for vehicles and a sawmill) asked RUC if it could provide Internet access. RUC proceeded to hook them up.

In 2000, RUC began planning to provide FTTH-based Internet access, telephony and TV to all of its customers, all of whom were within the city limits. It found a strong local partner in Twin Cities based Optical Solutions, Inc., which makes central office gear, network interface devices (NIDs) with phone, TV and data interface, and other ancillary gear, and was willing to work with RUC to provide a complete solution. After an evaluation period, during which costs models and business plans to pass every home in the city were developed, construction began in early 2003.

A local bank loaned the initial $5 million in bond anticipation notes for planning and construction. Then RUC issued an additional $8.5 million in bond anticipation notes to complete the project. These are instruments that are ultimately backed by the city’s taxpayers; they must be converted to asset-backed revenue bonds within five years.

Construction was subterranean. The main backbone was a joint construction project; new electrical main was laid with conduit for the fiber. In the process, most of the originally aerial 7 mile ring was buried. RUS worked closely with a directional boring company. Directional boring was used for backbone construction as well as for drops. Trenching was used only where necessary. Directional boring was especially advantageous for drops to individual homes because it could be completed without damage to lawns, driveways, etc.

The plan was not just to pass every household in town, but to run an actual fiber drop to every house. As fiber was built out, empty NID boxes were placed on each home with the fiber drop cable coiled inside; NID electronics were installed when service was turned on. Preceding construction there was a mail campaign followed by a door-to-door campaign to get permission agreements signed to construct the fiber on private lands. By Mr. Mikonowicz account, only about ten home owners refused to give permission to supply a drop and a NID box.

In early 2003 there was a pilot construction project involving about 20 homes. Construction then proceeded, and all homes in town were built out by 2006.

Take rates were initially projected to be 35%, but grew to 55% rapidly as construction proceeded. Today 2600 homes (60%) take at least one product. The most recent figures (year end 2009) supplied by Ms. Rice show that 1870 homes take TV, 1750 take Internet and 1675 take phone service.

RUC offers Internet symmetrical Internet connections of 1 mbit/s @$30/mo, 5 mbit/s @$40/mo and 10 mbit/s @$50/mo. Its basic TV plan is $18/mo, and its high-end plan is $62 a month. Its basic local telephone plan is $21/mo with per-minute charges for LD. Its unlimited phone plan is only available as part of its high-end triple play bundle @$160/mo.

Mr. Mikonowicz says RUC offers 100/100 mbit/s connections to business customers on an as-needed basis at a very competitive price.

The incumbent telco and cableco in Reedsburg are Verizon and Charter, respectively. It was not possible to find comparable Verizon offers on line in Reedsburg without a registration process. Mr. Mikonowicz reports that Verizon offers phone and DSL, but not FIOS, and it provides TV via partnership with a satellite dish provider. For Charter in Reedsburg, the high end TV plan is $94/mo. Internet is 1 mbit/s @20/mo, 10 mbit/s @$65/mo and 20 mbit/s @$80/mo. Unlimited telephone local and long distance costs $45/mo. All Charter prices are after introductory rates expire. It was not easy to determine post-introductory prices for Charter’s bundles from their Web site.

RUC benefits from about $360,000/year in Caller Access Billing Revenue. There are teleconferencing operations and a Lands End call center in town. It gets e-rate support for its library and schools at about $26,000/year.

The network turned EBIDTA-positive in 2007 and cash flow positive in 2008. Today, after debt service and other costs, including salaries, video content charges, Internet access, 911 contribution and other costs, there’s about $500,000 per year for network expansion. Expansion planning includes two small residential developments just outside of town.

Mr. Mikonowicz and Ms. Rice agree that one key reason for RUC’s high take rate is attention to customer service. They say that wait times for repair for Verizon and Charter are often 5 to 7 days, but RUC aims to roll the truck within an hour. Customer support calls during business hours are answered by RUC employees. After hours, calls are answered by two other local Minnesota telecoms response centers.

A second success factor is somebody who believes in the project, who can see through the apparent risk factors to convey the long term goals effectively to bankers, to city government, to customers and to other stakeholders. Certainly, Mr. Mikonowicz was effective in conveying his vision, and the practical steps towards its achievement, to me.

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