As towns near completion of building our networks, we must consider how we’re going to manage operating them, and what to charge customers in order to meet expenses. Often the focus is on hiring an Internet Service Provider (ISP) with the lowest price. But the ISP cost turns out to be only a small part of the overall cost of operating a network, and ISPs vary as to what combination of services they provide. There are also infrastructure related costs such as: repair/maintenance, pole license fees, insurance, managing cash reserves to meet insurance deductibles, etc. Also, administrative costs such as hiring a manager to oversee operations, accounting, auditing, and legal services. Prices must be set to bring in enough revenue to cover all these costs, and all of the various pieces must be organized into a functioning whole. The number of customers and population density strongly affect the prices that must be charged.
It’s important to understand that WiredWest is not an ISP. Rather, it is a Coop of towns working together to manage our town-owned networks efficiently and cost-effectively, including hiring and overseeing an ISP for member towns. Sparsely populated towns would have to charge high prices to meet costs. The Coop allows us to spread the administrative costs and burden over a larger number of customers and keeps our prices as low as possible. Also, WiredWest is not a company looking to make a profit. It is governed by the member towns and any profits will be distributed back to the towns. By consolidating the administrative costs and burden of managing our networks, we are able to draw on a larger pool of expertise in member towns and save money through efficiency.
As an example, let’s compare two towns that currently operate town-owned networks: Leverett and Alford (see Berkshire Eagle, Alford Just About Up-to-Speed …). Leverett is able to offer gigabit internet service for $74/mo ( $23.40 for ISP plus $50.49 MLP fee) whereas Alford must charge $110/mo to meet expenses. Why the difference? There are a couple of reasons. Leverett has a large volunteer broadband team with in-house expertise to help plan and oversee their network. Moreover, the primary driver of operating costs is population density. Towns with higher density can distribute the infrastructure related costs of operating a network, such as pole license fees, insurance, maintenance/repair, etc., among a larger number of customers. Cable companies, such as Comcast and Charter, typically want to see at least 25 potential customers per mile before they will build. Leverett has 21 households per mile, whereas Alford has only 13, so Alford must charge more to meet those fixed costs. Most WiredWest towns have between 10 and 15 households per mile, so on their own, would have to charge very high prices to meet costs.
By working together in WiredWest, we gain several advantages. To start with, instead of each town having only one or two volunteers with expertise, we can collaborate with a larger team in WiredWest. This has been extraordinarily helpful in planning our network and operations. As we approach going operational with our networks, we have to think about how they will be managed. It would be very inefficient and expensive for each small town to hire its own Manager, Auditor, Accountant, etc.. By consolidating these administrative costs at the Coop level, we reduce overhead by spreading those costs over a larger base of customers. This will allow small towns to enjoy prices closer to Leverett’s even though we may be individually closer in size to Alford.
The prices have been set based on educated guesses of how many towns will participate in WiredWest, how many customers will sign up, and expected repair and other costs. If we get a very high take rate and repair costs are low, we may be able to lower prices. Conversely, if fewer than expected customers sign up or maintenance/repair costs are high, then we may have to raise prices. Whatever happens, WiredWest will be able to offer the best prices possible and return any excess revenue to the member towns.