Case Study: North Arkansas Electric Cooperative
North Arkansas Electric Cooperative – Opening a World of Opportunities
Of all the benefits North Arkansas Electric Cooperative’s (NAEC) broadband network will deliver, one rises to the top – opportunity.
Thanks to the co-op’s fiber-to-the-home network that will span more than 4,000 miles and be available to more than 29,000 members by 2024, there are newly imagined opportunities for rural schools and students, struggling communities and small businesses left behind by other providers.
“For us, it’s not about getting a return on investment,” said NAEC CEO Mel Coleman. “We want our co-op members to experience the improved quality of life that fiber internet brings. True broadband access helps our students, businesses and communities thrive in today’s competitive world, and we want to be our co-op members’ local source for reliable, affordable internet, TV and phone service.”
The availability of broadband has significant impact on NAEC’s communities, allowing workers to telecommute, increasing property values and boosting area businesses’ success. Best of all, every opportunity is underpinned by the cooperative’s spirit and mission of service.
“Many of our small businesses had only one choice for broadband for a long time,” recalled Jason Strong, NAEC’s vice president of engineering for NAEC. “When I told one business owner about our coming service, she just started crying. She had spent hours on the phone trying to work with her current communications provider because her business could no longer afford what she was being asked to pay. We were able to provide her a product with much faster speeds, while cutting her bill by about a third. That’s very gratifying.”
The Long Broadband Journey
North Arkansas Electric’s journey to broadband started more than 10 years ago when the cooperative was notified that the Federal Communications Commission (FCC) had sold the licensed frequency on which it operated a microwave communication infrastructure and that the equipment would have to be decommissioned. The co-op made the progressive decision to replace the equipment with fiber connecting its three offices and most of its substations. Over the next 10 years NAEC started selling point-to-point connections using the fiber’s extra capacity. These initial efforts gave the co-op team valuable experience and set the path for deploying fiber-to-the-home to all members.
The co-op formed its fiber subsidiary NEXT, Powered by NAEC in late 2015, and had connected its first subscriber by late 2016. NAEC had launched the first phase of its network as a pilot, and in mid-2018, the co-op’s board approved expansion of the fiber network to all of its membership.
From its earliest planning days, NAEC evaluated different equipment, vendors and partners by analyzing what had worked for other co-ops entering the broadband business. The co-op evaluated Missouri’s Co-Mo Electric Cooperative’s business model because it was one of the pioneers of FTTH for members and a co-op with similar miles of line, number of meters, meters per mile of line and competitive environment. The NAEC team also consulted with Conexon Partner Randy Klindt who was with Co-Mo at that time. He assisted NAEC with financial projections, cost evaluations, bulk material purchases and industry background knowledge.
“We want our co-op members to experience the improved quality of life that fiber internet brings. True broadband access helps our students, businesses and communities thrive in today’s competitive world, and we want to be our co-op members’ local source for reliable, affordable internet, TV and phone service.”
-Mel Coleman, CEO, NAEC
“Before our service was offered, one small business customer told us of spending hours on the phone trying to work with her communications provider because her business could no longer afford what she was being asked to pay. We were able to provide her a product with much faster speeds, while cutting her bill by about a third. That’s very gratifying.”
- Jason Strong, Vice President, Engineering, NAEC
CAF II: A Financial Boon
With a density of just 7.5 meters per mile, NAEC faced significant cost to keep its commitment of reaching 100 percent of its members. Breakeven was projected for year 9. In mid-2018, that financial picture was changed when the co-op joined the Conexon-led consortium of electric cooperatives bidding in the FCC’s 2018 Connect America Fund (CAF) II auction. North Arkansas Electric received nearly $23 million in federal funding to build out its network. With this CAF funding, the project is now expected to produce positive margins in year 1.
“Our original financials were very tight,” Strong said. “Jonathan and Randy were instrumental in working with our team to get that funding for our project, and it changed our financials dramatically. The $22.6 million gives us some breathing room. It helps our broadband subsidiary become profitable so much quicker, moving up our break-even point and positive cash flow.”
2019 milestones and looking ahead
By the end of 2019, NAEC had built between 800 and 900 miles of fiber, passed 10,000 meters and welcomed 2,100 new subscribers. Take-rates are hovering between 30 percent and 35 percent, meeting or exceeding projections. Amazingly, North Arkansas Electric completed the first phase of the deployment without hiring any extra employees all while ramping up the business. NEXT now has 11 employees.
“We are proud of NEXT and what we’ve accomplished in the past few years,” Strong said. “It was definitely a team effort that impacted every employee at NAEC. Building a telecommunication company from the ground up has been challenging, but it’s exciting to know that we will eventually be able to serve all of our members.” The co-op expects to build at least another 800 miles of fiber in 2020, bringing the benefits and opportunities of broadband to more members in all three of its service districts.