Yet Another Path to Rural Broadband: Other Peoples’ Money

The Pamunkey Indian Tribe… soon delivering broadband Internet from a wireless tower near you.

Speaking of bringing broadband Internet to rural Virginia (see previous post)… PamunkeyNet, a business entity of the Pamunkey Indian Tribe, has received approval from the GO Virginia State Board to develop a plan to bring broadband to Gloucester, Mathews, Middlesex and other rural counties along the Chesapeake Bay.

The newly awarded federal designation of the Pumunkeys as an officially recognized Indian tribe is key to the venture. According to a GO-Virginia document, the project would unfold over three years. GO-Virginia, a state-funded economic development initiative, would provide backing for two years. The Pamunkey-owned project would:

  • Create a network of existing and new wireless towers throughout the Middle Peninsula and George Washington region that will have a high-performance backbone between towers and local access radios on each tower to provide affordable business, residential, and institutional broadband Internet service, and will provide Gigbit fiber services on the Pamunkey reservation.
  • Create a fiber-based Technology Corridor on Route 33 between Rappahannock Community College, the planned Telework Center, and the Middle Peninsula Regional Airport.
  • Design for linkage with Hampton Roads, specifically for VIMS and Rappahannock Community College, and anticipate the benefits of linkages to the south with transoceanic destinations from the MAREA landing point, as well as to the north at Ashburn.

Key to making this happen is Pamunkey access to federal funds — “the sole federally designated tribe in Virginia and a conduit to currently untapped federal resources.”

The project also would involve the Middle Peninsula Planning District Commission, the Rappahannock and Germanna community colleges, ten localities, and two electric co-ops.

Bacon’s bottom line: I’ve just finished reading Nassim Nicholas Taleb’s brilliant and confounding new book, “Skin in the Game: Hidden Asymmetries in Daily Life.” Taleb doesn’t have much use for movers, shakers, and pundits (which would include people like me) who don’t have “skin in the game,” that is, people who, if their analysis proves unfounded, walk away unscathed. One commonly encountered group of skinless gamers is people who play with taxpayers’ money.

If you had to make a prediction, which would you pick to have a greater chance of economic success (that is, recovering the funds invested): Gary Wood’s plan (described in the previous post) for the Central Virginia Electric Cooperative to deliver broadband to its 36,000 customers, or the Pamunkey plan to deliver broadband to a geographic area of comparable size?

I would lay my money on Wood. In a word, Wood has put his ass on the line, and he reports directly to a board of directors, whose members represent the interests of the customer-members of the co-op. If the venture fails, co-op members will take a bath, board members will catch endless flack from their friends and neighbors, and Wood’s career likely will be ruined. I would feel even better if he had some of his own money at stake, but there is a clear line of accountability, and the people involved have a lot to gain or lose. Without knowing Wood personally, I feel reasonably assured that he will do everything within his power to make the project a success.

Conversely, it doesn’t appear that anybody has skin in the game in the Pamunkey deal. There is no indication that the Pamunkeys are putting up any of their own money or that they’ll suffer any loss if the project bombs. Basically, a bunch of bureaucrats are playing with other peoples’ money, and if the project fizzles, there is no discernible impact on any of the participating organizations. Furthermore, participation is so broad and so diffused, there won’t be anyone to hold accountable. The Pamunkeys might tap enough state, federal, and local money to get the broadband service built. But would the project be economical, in the sense of earning back its cost of capital? Who cares? It’s other peoples’ money.

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4 responses to “Yet Another Path to Rural Broadband: Other Peoples’ Money”

  1. I agree with your basic sentiment — this is a subsidized business with government money behind it, unfair competition for someone with entrepreneurial initiative.

    Except — the people of Mathews and Middlesex and Essex and King & Queen Counties have been waiting for those entrepreneurs to step forward for decades now. These eastern Virginia counties are NOT the low hanging fruit of internet customers; these people are not wealthy, the population density is low. They are at the end of the line; even DSL is highly limited; the only alternative readily available is satellite, with all its latency and weather-interference issues.

    And suddenly they have not one but two possible internet service providers? “Bring ’em on” is the local reaction! This is rural countryside the internet of Google and Amazon and Netflix has bypassed. “We’ve been waiting for you for decades!” Oh, one of those is a newly-empowered, newly-federally-subsidized Indian tribe? Well, people have heard promises from years from the cable companies and wished for someone, anyone, else like CVEC to step forward, but for all the talk the “entrepreneurs” haven’t done a “damned thing” but fight over their own government subsidies — their franchises — they had their chance.

    Think about how long a couple of decades is when talking about broadband! A whole generation has been raised without it, while Northern Virginia and Richmond and Hampton Roads has taken the internet for granted. Every one of those rural counties has a cable franchisee, but after 20 years where has the cable actually been laid? Don’t talk to me about the difficulty of serving low customer densities — these franchisees won their bids knowing exactly what the densities were there, then they sat on their rights; except in the densest-settled towns they have spent more of their resources fighting off potential competition than expanding internet and cable service. In Mathews County far more than half the County has no cable service. The local library stepped up to build a large computer lab for high schoolers to use to do their homework; it’s crowded every night. The “entrepreneurs” with their exclusive franchises had their chance.

  2. LarrytheG Avatar

    Here’s what I think. I think the cost to lay cable to serve broadband is entirely dependent on how many people per mile can/will pay for it and it really don’t matter who the provider is if they are a for-profit.

    If a provider is going to be a non-profit or a local cooperative (like we see with some rural telephone companies or a rural electric).. then – even then – the costs of providing the service cannot exceed the revenues coming in.

    There is no way a rural electric co-op is going to provide broadband – subsidized by the electric rate-payers.

    If it were true that there was a financially viable way to “wire” rural America – we would not still be waiting – it would have happened already.

    I’m NOT arguing against it. I’m all for it. I’m EVEN in favor of some limited subsidy – but I’m also saying to deal with the realities and the realities are that there are no silver bullets for rural broadband at this point in time.

    I’ll be the first to cheer when that changes.

    read this:

    1. No silver bullets for rural broadband.

      Depends on how you define “silver bullet.” Here’s the thing. The big broadband players all have a high return-on-investment hurdle for putting money into broadband investment — 25% to 30%, I’d wager. That translates into a three-year payback. Wood indicated that he figured CVEC could get an 11-year payback. That translates into an ROI hurdle of maybe 5% or 6%. That’s a whole lot lower. CVEC is willing to settle for a much lower ROI because its “investors” also happen to be its customers, and its customers might have very different ROI expectations than, say, ATT, Verizon, Comcast, or Google. One big reason they would be willing to settle for a lower ROI is that they, as customers of the broadband service, would be primary beneficiaries of the investment.

      As I mentioned in my post, there is still some risk associated with the investment. Wood “conservatively” projects that 35 percent of CVEC members and 20 percent of businesses would sign up for the service. That doesn’t sound outrageous, but it’s a pretty big nut to crack. Figure that metropolitan broadband penetration in 2015 ranged from 58% to 82%. Broadband penetration correlated with income — higher incomes mean higher penetration. Presumably, rural Fluvanna and neighboring counties tend to have lower incomes than in metropolitan areas. So, Wood’s assumption is not without risk. But it’s not unreasonable.

      1. LarrytheG Avatar

        We do have rural phone co-ops as well as rural electric co-ops and the problem as I see it is that unless the plan is to wire everyone who is a member – you’re going to have some members subsidizing others and that sounds like a big problem.

        with electricity – everyone gets it right away – even though it costs more to serve some members than others – they all pay about the same so there is some level of subsidization.

        If Broadband works that way – or on a timely schedule to hook up all – then it will work but if the idea is to provide it to some members and not others.. that’s going to be a problem.

        I know of no rural electric co-ops who have done broadband … there must be some reason why it has not been done.

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