The following transcript has been edited for length and readability. Listen to the entire discussion here on The Broadband Bunch. The Broadband Bunch is sponsored by ETI Software.
Pete Pizzutillo:
Hello and welcome to another episode of the Broadband Bunch, my name is Pete Pizzutillo, and I am joined by two guests today. I have Jeff Reiman, he’s the president of The Broadband Group. Welcome, Jeff.
Jeff Reiman:
Great to be here.
Pete Pizzutillo:
And Sam Pratt, he’s the CEO of Render Networks. Thank you, Sam, for joining us.
Sam Pratt:
Great to see you, Pete.
Pete Pizzutillo:
Yeah, great for joining us. Before we get into it, we got a lot to kind of dig into what we’re seeing in the marketplace. Maybe just help us understand a little bit about Render Networks and The Broadband Group. Sam.
Sam Pratt:
Certainly. Render Networks was originally founded in Australia, but the vast majority of our businesses are now here in the continental US. We are a network construction platform. We’re focused on streamlining the deployment of fiber outside plants and effectively keeping the guys and girls in the field busy so they can deliver an optimal experience and customer experience for operators and general contractors.
Pete Pizzutillo:
Jeff.
Jeff Reiman:
President of The Broadband Group, we are a consultant advisory firm based here in Las Vegas, just down the street from the Calix ConneXions Conference here. Founded in 1997, my father, Tom Reiman started The Broadband Group.
Pete Pizzutillo:
Yeah.
Jeff Reiman:
Core focus, working with large-scale development projects, developers of master plan communities, or turning green fields into new cities in many ways, thousands of new homes and businesses. And the thesis of The Broadband Group was developers of master plan communities would master plan every component of those new development projects, typically except for connectivity.
Pete Pizzutillo:
Right.
Jeff Reiman:
And there were a few reasons for that. One is because technology just seems to move too fast for the land development industry. They’re planning for 5, 10, or 20 years, and by the time they pick a technology, that technology is all seemingly obsolete. Well, the other reason is that connectivity is just outside the area of expertise of most in the land development arena. So as a thesis of Tom Reiman, developers should take control of that planning aspect as well because connectivity is so critical to the way in which those communities live, the way they learn, the way they work, and the way they socialize.
A few leading developers really leaned into that thesis, and through our work at The Broadband Group, we were able to design Verizon’s first fiber-to-the-home project, which was in 2001 at a master plan community in Northern Virginia, Loudoun County called Brambleton.
Pete Pizzutillo:
Okay.
Jeff Reiman:
We did Qwest, which is now CenturyLink’s first fiber to the home community in 2005 at RidgeGate just south of Denver, Colorado in Lone Tree. And we were in the Wall Street Journal when the first major MSO announced a symmetric gigabit fabric network in the Tampa region Metro Development Group, which was Bright House now Charter Spectrum. I tell that story because it’s interesting about the history when looking to essentially change the math on traditional network build economics, the same thesis that we worked on with the master plan community now applies to cities and electric utilities. How can we identify opportunities for investment in ways that would not or could not occur on its own, allowing for cities, utilities, and developers to take control of their connectivity future?
Pete Pizzutillo:
Thank you for that. And I know you guys have a lot of different projects and relationships, but can you explain a little bit about how you both are working together?
Jeff Reiman:
Certainly. Our work with utilities has expanded. We originally started working with Huntsville, Alabama, the electric utility that came to The Broadband Group recognizing that they need to put more fiber optic infrastructure for their own internal operational needs, a platform to support everything that falls under the grid modernization thesis. At the same time, the mayor of Huntsville, Alabama, Tommy Battle announced that he wants Huntsville to become a gig city. This was in 2013, and 2014 era, right when Google Fiber was getting the excitement of connectivity, Huntsville didn’t really have a plan of how they were going to become a gig city, but the utility recognized we were putting this fiber in our network for our own internal operational needs, it has to happen.
Is there an opportunity for us to be more strategic about how we design and build that network? A way in which allows us to meet our operational priorities, but also helps to advance the mayor’s platform to become a gig city. We did a lot of work with the utility and designed a network that met those internal operational needs with excess capacity. At that time, Google Fiber came along and said, “You know what? The opportunity for us to enter a market utilizing somebody else’s infrastructure makes a lot of sense.” They signed on to the anchor tenant, a 1000-mile fiber network passing some 100,000 homes. That network was successfully completed two years ago.
Our second network was in Springfield, Missouri with a city owned-electric utility that also said, the same thesis, “We need more fiber. Can we deploy in a way in which it turns a cost center into a revenue-generating asset by having someone lease access to it, also advancing the connectivity capabilities of the city in which we serve?” That time is when we met Render Networks and their construction management software which had helped make that build much more efficient. That network, 1100 miles passing, some 105,000 homes is being completed later this year, about five months ahead of schedule in many ways thanks to the support of the Render solution.
Pete Pizzutillo:
Sam, do you want to add anything to that?
Sam Pratt:
Certainly. Our work in Springfield, Missouri has then spawned a lot of awareness around an end-to-end digital approach. And I think it’s also some of the momenta that are seen in Springfield, Missouri in a number of our other case studies here across the continental US, which leaves us in a situation now as an industry where adopting a digital end-to-end approach, stepping away from paper, insisting on an optimal technology-enabled methodology for deploying this infrastructure as efficiently and as cost effectively as possible is no longer a risk, it’s actually a reality. And it’s a case study that we’re seeing play out across our 20-plus concurrent networks here across the US.
Pete Pizzutillo:
So, Jeff, you mentioned… Thank you for that, Sam. You mentioned kind of the outline of your model and there are a couple of other models in the marketplace on how co-ops, electricity, and utilities can move forward. Why the model that you prefer now and what are some of the misunderstandings that you see in the marketplace?
Jeff Reiman:
Well, first and foremost, we always say there’s no off-the-shelf solution, every market’s going to be different. What we refer to as the utility lease model where the utility builds out the infrastructure for their own internal operational needs with excess capacity for a service provider to lease access was the right model for Huntsville, it was the right model for Springfield, Missouri, and it’s the right model for Colorado Springs, Colorado where we were just getting ready to commence construction on a 2000 plus mile citywide fiber network in that area. I think some of the misconceptions are just around the fact that the benefits of broadband justify those types of investments in every case, and that’s not necessarily true.
We say this at The Broadband Group, we’re often accused of being too negative, and there are far greater opportunities for challenges than there are for being successful. So, the importance of really understanding the planning that goes into the network design, the financial aspect, the business plan, and the operating responsibilities. When we worked that approach with those electric utilities, they recognized that they did not want to become a service provider. They understand that there could be some benefits in capturing more revenue, but while there were synergies, it was far outside of their core competency. So, if they could build infrastructure and then find a qualified provider to come on lease access and take the responsibility, the execution risk, the marketing risk, and the customer service risk that comes with being a broadband service provider, then that was their preferred approach.
Pete Pizzutillo:
Sam, anything you want to add to that?
Sam Pratt:
I think that makes perfect sense and we’re seeing that model play out successfully, but as Jeff says, it’s not one size fits all and there’s a multitude of options for providers out there. And it really depends on the competitive dynamics of the local environment that they’re participating in.
Pete Pizzutillo:
Is there a sweet spot for the lease model that you’re proposing or is it more like you said, kind of around the mission of the utility?
Jeff Reiman:
Well, you certainly have to have enough customer base to attract a provider to come on, lease access and have enough potential revenue there to then serve the financial interests up to providers. It often may make sense for the utility to lean in and actually become that broadband service provider if the revenues are limited to the point where it’s going to be challenging to find a provider to come on, lease access, and deliver those services. Even if you remove the capital obligation, the operating expenses of serving rural markets can be prohibitive in many cases.
So, understanding what the operational requirements are, the sales and marketing, and the technician’s support will then help to understand whether there’s an opportunity for a utility lease model approach, which is more risk averse, passing those responsibilities onto an anchor tenant or if the economics are going to justify the utility themselves becoming that broadband service provider. And it’s not to say that the risks are insurmountable, but they should absolutely be understood and addressed upfront, which will lead to more confidence in terms of the utility, the co-op, its members, and lending financial institutions in terms of supporting that approach.
Pete Pizzutillo:
What about sustainability? Sam, we talked about the design phase, there’s a lot of designing for affordability. So, what are some of the best practices that you guys are seeing in this market?
Sam Pratt:
In terms of sustainability specifically?
Pete Pizzutillo:
Yeah.
Sam Pratt:
Well, I think if we just think about the economics of deployment and of delivering infrastructure and the number of cents in every dollar that’s invested in the construction phase, I think it’s very important to consider what’s the optimal build sequence and what’s the best way that we can get infrastructure deployed as efficiently as possible? And to think about that really at the start of the planning process as it’s a completely different topic to what we’re discussing around the right model, but it’s further downstream and it’s also a necessary consideration.
Pete Pizzutillo:
I mean, one of the concerns I have is just over time, there’s a lot of market belief that there’s going to be a lot of quick startups and then there’s going to be a lot of consolidation, and there’s also a lot of, I think, waiting for failure and that failure being amplified over the thousands other successful deployments. So, how are you helping your customers make sure that we’re building sustainable, affordable, lasting systems?
Jeff Reiman:
Well, it’s interesting. We’re definitely proponents of the industry, but we have to acknowledge we’re in a bit of a frothy industry right now. There’s a lot of dough being put in both from the government side and a lot of interest in digital infrastructure by private monies. What we say at The Broadband Group is you have to respect the metrics of the industry, and we can be disruptive in terms of new models as we’ve achieved with the utility lease model in Huntsville, Springfield, Colorado Springs, and other markets. We like to say we’re orderly and disruptive, we respect the metrics of the industry and that’s how we were able to get the anchor tenants such as Google Fiber in Huntsville, and then CenturyLink Lumen in Springfield, Missouri.
I’ll share with you, we sat down with the leadership of CenturyLink, we introduced the opportunity in Springfield, Missouri, and the leadership looked at us and said, “That’s not the way we build networks, that’s not the way we operate networks.” Three months later, they signed on as the anchor tenant of that citywide build, which for the first time was them moving outside of their core incumbent territory to compete for head to head against AT&A and AT&A’s incumbent monumentally significant, and it was achieved because it was an orderly disruptive approach to the market. It wasn’t this overly exciting innovative thought process, it respects the metrics of the industry but helps them make an investment that would not or could not occur on its own.
Pete Pizzutillo:
Yeah. It’s interesting because there is a lot of disruption and there’s a lot of money flowing, and that’s the concern is that what’s going to happen in five years when some of these things just don’t add up?
Jeff Reiman:
Well, when there’s this much investment, these many new projects, there will inevitably be failures, but hopefully, there’s a lot more success. And the challenge is that the failures are going to be amplified by those investments disrupting their agenda. So, we just have to be prepared for that. As we say at The Broadband Group, a structured and disciplined approach that respects the metrics of the industry respects the fact that there are far greater opportunities for challenges and there are for success.
As we say, when we look at new markets, we don’t encourage looking at all the benefits that can be achieved, we’re looking for all the reasons that the project could fail. And like any good investor, once you can then feel comfortable that you’ve controlled all of those predictable challenges, that’s when you move forward with confidence. Now, you’re going to be faced with new challenges, but we’re not going to make the same mistake twice and that’s the benefit of the perspective that The Broadband Group brings over our 27 years of helping to guide these types of deployments.
Pete Pizzutillo:
So Sam, talking to the management or directors of utilities and co-ops, what should they be thinking about today as they’re considering this Broadband journey?
Sam Pratt:
Yeah, fantastic question. And look, I think traditionally, there has been a logical separation between feasibility and business plan, which I think Jeff has spoken to really well today. And then the design phase right into construction. Generally speaking, there is a logical disconnect between design construction and then ultimately handover and network operations. I think operators are very well advised to not only think about some of the challenges that are making headlines in the industry today around mapping and around data but to actually look further down the project lifecycle into construction and ultimately into a customer experience type challenge.
So, in a more competitive environment, when there are multiple operators all targeting a 30% take rate, it’s going to come down to customer experience. And it’s not only symmetrical speeds that they’re going to look at, they’re going to be looking at their connection experience and everything that you can bring in in a long-term customer lifetime. And to start thinking about that early in the journey is absolutely necessary and it really does begin not only with design but with construction activities. When our customers across the US start building, that’s when they start taking signups. And so all of those experiences in managing those communications effectively, understanding durations when a customer can be connected is imperative.
Pete Pizzutillo:
Yeah.
Sam Pratt:
First impressions count.
Pete Pizzutillo:
So, managing expectations and thinking customer-centric first, right?
Sam Pratt:
Absolutely. And just thinking beyond some of the headlines that we’re seeing in the industry. We’ve got this confluence of events where there’s a significant amount of private funding matched up with public purse funding both at the federal and the state level. I agree, it’s a buoyant industry is one way of putting it, let’s hope it’s not a bubble, but there’s certainly an abundance of opportunity. When there’s a set of circumstances like this, we have the ability to collaborate really effectively and that’s a great thing, but thinking beyond some of the mapping challenges, but how are we going to optimize that customer connection experience? How are we going to digitize not only the workflow but ongoing, and deliver world-class services?
Pete Pizzutillo:
So, Jeff, I want to come back to the utility lease model that you introduced. I think there is some confusion around how it relates or is it an open access-like model?
Jeff Reiman:
Sure.
Pete Pizzutillo:
What’s your perspective on that?
Jeff Reiman:
Open access is a term that’s been around now for probably a couple of decades here. I understand it has good success in European markets. The regulatory market here in the US is much different than it is over in Europe, naturally. I understand there are some successful open-access model deployments. Here in the US, we’re not necessarily proponents of it in the markets in which we serve, but not to say that it’s not the right model in some markets. When folks look at the utility lease model, it does have some parallels to open access in that it’s the utility building out the underlying infrastructure and then a tenant or tenants leasing access to it. I think the difference between an open access network and a utility lease model is that the network, again, is being built first and foremost for the utility core operation and they’re putting in an appropriate amount of excess capacity that allows for a tenant to lease access on that infrastructure.
Now, when you look at Huntsville and in Springfield, they are adding tenants as that network is built out and its entirety. But at the beginning, they didn’t put unlimited amounts of investment in to support any service provider that’s interested in writing that infrastructure. They had a structured approach to building out the network for their grid modernization thesis with the appropriate amount of investment that allowed for an anchor tenant to come on and lease access, once again turning a cost center into a revenue-generating asset and then meeting the connectivity requirements of the city’s residents and businesses. What’s also important about our model is the service providers that it attracts. In Huntsville, Google Fiber. In Springfield, CenturyLink Lumen. In Colorado Springs, Ting whose parent company is Tucows and is publicly traded on the Toronto Stock Exchange is the anchor tenant.
Why is that relevant? Well, first and foremost, those companies have the balance sheets to be able to weather any changes in the economy. Of course, any pro forma never translates to in reality how successful you like it to be modeled up. So, there are always going to challenge knowing that a service provider anchor tenant has the ability to weather those types of economic disruptions. But also when you look at financing, when you’re looking at building out these networks and suddenly you have an anchor tenant sign on with committed lease payments over the course of a term of that agreement, suddenly you are much more attractive from a financial perspective when you have the balance sheet of a CenturyLink, the balance sheet of a Google, the balance sheet of a Tucows, essentially billing out the network that you’re looking to raise monies on, monumentally relevant when it comes to attracting financing for these projects.
Pete Pizzutillo:
A lot of the cases for open access are around choice and affordability. And so I think one means is to create open competition and that’ll drive that and keep the cost down. And I think what you’re suggesting is there’s another way to have cost containment.
Jeff Reiman:
Well, there’s another way to have competition, and in Economics 101, we are taught that the more competition, the better that is for the consumer. But of course, like any class you take, there’s always that with one exception. And the one exception is in the case of what is sometimes referred to as natural monopolies, when you have large capital investment requirements, those often do not fare well for multiple providers to come in and compete for what is essentially a limited pie of revenue. So, when thinking about introducing competition, you want to introduce healthy competition. You look in Huntsville, Alabama, is it unlimited competition there? No, but Google Fiber came to town and it led to Comcast and AT&A making investments like they never had before in that market.
Huntsville was ranked as one of the cities with the most improved available speeds to the residents citywide. The same thing happened in Springfield, Missouri. When CenturyLink came to town, you saw the cable company and the phone company immediately starting to make competitive investments so you’re having a new competition with healthy competitive investments being achieved through the introduction of another service provider partner. You could argue that when you introduce unlimited competition, the driver of making more investments goes away when you look at the bell curve because there’s just not enough revenue to justify what those additional investments might be because there are too many companies going after what is a limited potential revenue pool.
Pete Pizzutillo:
So, in some ways preventing a race to the bottom, right? So when you talk about healthy, if you’re always differentiating on cost, then you got to cut costs somewhere.
Jeff Reiman:
That’s the criticism of open access. And again, there are open-access approaches that are proven to be successful. A number have been challenged, but it’s not to say that it shouldn’t be considered in certain markets. Again, in the markets where we work, the utility lease model has been the preferred approach. We represent co-ops throughout the Carolinas where the co-op themselves are becoming the broadband service provider because as I mentioned, just the amount of customers doesn’t allow for a second provider to come on, utilize that infrastructure, and then share the revenues in a way in which it would be sustainable for both.
Pete Pizzutillo:
Yeah. So we’ve mentioned Springfield a couple of times here. Maybe can give us a little background on what’s going on there.
Jeff Reiman:
Yeah, no, please. We’re very excited to talk about Springfield. That’s a network that, again, 1100 miles passing some 105,000 homes and that network is scheduled to be complete in the fourth quarter of this year. Actually in the November timeframe, which is about five or six months ahead of schedule. Here at this conference and throughout the industry, you hear a lot of excitement about projects getting started, which is great, but obviously, it’s more exciting to hear when a project is successfully completed, especially ahead of schedule. Now, how do you have success like that? It takes a lot of great talent on the ground. It takes a lot of great partners. The Broadband Group, we have no formal alignment with any service provider or any technology vendor, but we do have an alignment in that case and in other markets with Render. And I say when you have a market as successful as Springfield has been, it is a sum of the parts and Render is absolutely a part of that equation.
Pete Pizzutillo:
So Sam, what’s the secret of success to Springfield there?
Sam Pratt:
Aside from The Broadband Group and SpringNet and the City of Springfield, certainly, we’ve been delighted to play a role in that success. Isn’t it refreshing to hear about a project finishing ahead of schedule and a project finishing below budget as well? I don’t think you called that out, Jeff, but just in terms of the investment, it’s a solid six, seven, eight, nine-figure investment in the City of Springfield. It’s not only connecting 105,000 homes and businesses, it’s also connecting all of their utility infrastructure for the City of Springfield, which SpringNet is there to augment. We’ve been delighted to be involved at Render from day one along with a number of others. Our technology is effectively there to improve visibility and control, not only for the benefit of the general contractor but for the benefit of the utility and the service provider in that instance.
What does that do with improved visibility and control? Really down to real-time insights on what’s happening in terms of the deployment of the infrastructure in the field, better decisions can be made. Now, you still need great minds and people in order to make those better decisions and so that’s a testament to everyone that’s involved on the project. This is not a one-person outcome, it’s not a one-organization outcome, it’s really a group of forward-thinking folks that have got together and are delivering for their community. I think it’s representative of the opportunity for all of us in the industry right now where there’s a unique set of circumstances where funding isn’t a problem, where there’s enough to go around, where we’ve got enough capacity in the industry to collaborate really effectively and to deliver outstanding outcomes for communities. And I’m very pleased to say that that’s taking place in Springfield, Missouri.
Pete Pizzutillo:
Yeah, that’s really exciting. I would love to get Springfield on the show and kind of get their view on the whole thing if that’s an opportunity. Just a last question. So, we’ve talked about a lot and there’s a lot of uncertainty and a lot of excitement in the marketplace. A year from now, is the market uncertainty going to slow us down? Are we going to accelerate some of these projects? Are there going to be more successes than losses? What are your thoughts on that, Jeff?
Jeff Reiman:
So, the challenge of this industry is that it takes some time for some of the challenges to really emerge. So no, we’ve got a couple of years of runway before some of those challenges will really be introduced and made more evident. And again, I don’t want to come across too negative, but we do need to again, respect the metrics of the industry, appreciate the challenges that can be predicted, and then put forth a strategy that addresses those challenges positioning the projects for success. As we always say at The Broadband Group, respecting the core metrics of the industry. We cheer innovation, but when innovation comes across of completely trying to change the paradigm, then it’s going to be a challenge of seeing those types of approaches be successful. So, a structured and disciplined approach, respecting the challenges that can be predicted and then moving forward with confidence on a path that incorporates lessons learned and best practices of those projects that have proven successful.
Pete Pizzutillo:
Sam, your thoughts on where we are a year from now?
Sam Pratt:
A year from now, in terms of capacity for the industry, there’s a lot that’s been said about the funding. That said, we’re already at a point right now where supply chain constraints are a real factor, and labor constraints are a real factor. I was at a conference in New York last week where Greg Maffei from Liberty Media was speaking, they have an interesting perspective through Charter Communications. And the observation was that at the moment, in terms of home passings, the industry’s delivering around 450,000 home passings a quarter. And is that going to grow by three x along with funding? Probably not. So, the funding is certainly coming, but we’re already at a point where we are delivering at or near capacity and so I think that really means that it’s incumbent on all of us to do everything that we can with the resources that we have. I think all opportunities to be more efficient, to deliver cost savings, to deliver schedule savings, need to be taken really seriously. And we’re thrilled at Render to be part of that solution over these coming years.
Pete Pizzutillo:
And I appreciate that. And I think a lot can be said about the unique partnerships that are forming. I think it’s a lot different than it was 10 years ago, or 5 years ago, and you guys are a good example of that and sharing those use cases with people that have figured it out. I mean, that’s the great thing about these conferences is, it’s such a tight community, and the opportunity to help everybody learn from each other I think, is invaluable. So, we’ve been listening to Jeff Reiman from The Broadband Group and Sam Pratt from Render Networks. Gentlemen, I appreciate your insight. I look forward to maybe we get Springfield up here and some other customers that you’re dealing with but thank you for your time.
Jeff Reiman:
Tremendous. Thanks so much.
Sam Pratt:
Thank you.
