Maybe it’s time to rethink how we fund broadband

Last week’s announcement that a $200 million broadband investment fund is in play courtesy of Gigabit Squared is part of a quiet trend of communities searching for new ways to fund broadband.
Technologies such as desktop PCs, local area networks and mobile applications moved from their infancy to full-blown industries thanks to venture capitalists, investment firms and angel investors who drop big-to-huge bucks on promising startups. For better or worse, these investors drove industries to maturity. Expect the investment scenario for broadband to be different.
Few view broadband networks as startup businesses, but maybe more should. Many communities believe broadband is critical infrastructure, the same as water, electricity and highways. Enlightened communities also know these networks are business operations, even when in pursuit of the common good. The networks must generate revenue, though the financial goal for community-run and muni-run networks is more sustainability for the infrastructure rather than profit.
Gigabit Squared views broadband networks as technology ventures in need of investors and investments, but in a different vein than VCs. Gigabit Squared CEO Mark Ansboury explains that the company targeted private companies for investments that have a business stake in the growth of networks rather than aloof VCs only concerned with the IPO payday.
Gigabit Squared is similar to angel investors who value bringing their time and expertise into the thick of things to help startups. However, the amount of each investment in a broadband network is higher, and the experience the company brings is broader than what comes with typical angel investments.

Think different – more than a slogan.

These towns called on someone who cared about their broadband quality.

“Non-traditional” business  investments in broadband have been around for a while. Early in 2011, Corning, Inc. invested $10 million to three rural upstate New York countiesto build a fiber network, including the county from which Corning operates.  “We saw this as an investment not only in the community’s future, but in Corning’s future,” says Corning’s Dan Collins.
This “we win, the community wins” philosophy was showcased at last week’s Freedom to Connect conference in Washington, D.C., as a session panelist described how his software company is investing an undisclosed amount to build a fiber network throughout San Leandro, Calif,. Pat Kennedy, CEO of OSIsoft, says his company needs gigabit speed to continue to grow and compete effectively. Kennedy feels that, as a longtime resident, property owner and successful business in the city, he should give something back to the city. Lit San Leandro is his investment. How many communities could move their broadband projects forward by finding more such investors?
Here’s another example. Four friends in Emporia, Kan. who until several years ago held management roles in a successful small local telecom company, had become very unhappy with the poor quality of broadband in their town of 30,000. The large incumbent refused to upgrade its network to address the community’s needs. So the four started a new company – Valu-Net, LLC – with $500,000 of their own money. Then they proceeded to raise an additional $6.3 million from investors who had to put in at least $50,000 to participate.
This is more traditional tech startup fundraising. What wasn’t typical were the investors. Co-founder Rick Tidwell states, “The people who put money in … you wouldn’t expect to have this much to invest. There were small business owners, farmers who’d done well. Mostly average Emporia residents who invested because they believe in the founders and believe that it [the network] eventually helps the community.”
Issuing municipal bonds to fund networks is on the wane because of politics and the poor economy. But what if communities flip the script, take government out of the picture (directly), create a nonprofit corporation that is owned by local citizens and businesses, and replace bonds with promissory notes. You would have ECFiber in Vermont. To date the not for profit corporation has raised over $2 million for a fiber network selling $2,500-notes to rural residents who average two notes per purchase.

Make a deal for better broadband.

Flip the script again. IPOs are the stuff of legend in the tech industry. In England, Broadband for the Rural North, LTD (B4RN) sold enough shares of stock to finance its initial network buildout. The main fact is when communities think outside of the box, good things can happen.

Control vs capital.

While these are definitely winners, from the perspective of those who champion the public good, the level of success is directly dependent on control. As with traditional tech startups, whether you take investment money – and from which investors – often comes down to how much you give up in exchange for the money.
How much communities control and direct the use of the network depends on who calls the shots. As Ann Millspaugh, Online Community Manager for EdLab Group, said after listening to Ansboury last week, “It seems like Gigabit Squared’s comprehensive, integrated buildout will make the community dependent on its infrastructure. The lack of transparency and input towards management/governance easily could lead to characteristics that have been defining the digital divide, particularly fiber deployment to areas that will be most profitable, and unchecked pricing structures.”
The trick for building networks that maximize benefits for the public good seems to be to create a strong governing body for the organization that owns the network, whether a co-op, nonprofit, community foundation, even a public-private partnership. Community stakeholders can’t be so enamored with the technology that they don’t pay close attention to the design of the infrastructure and business practices. How communities respond to options such as Gigabit Squared likely will depend on how they resolve the issue of control.
Craig Settles is a consultant who helps organizations develop broadband strategies, host of radio talk show Gigabit Nation and a broadband industry analyst. Follow him on Twitter (@cjsettles) or via his blog.
Handshake image courtesy of Shutterstock and skyshak roman.