The PEC Board and I understand that high speed internet is more important today than ever. The pandemic has changed the way we live and work and also the way our children learn. There are many things we are considering: the cost, new technologies, competition, legal issues, financial concerns, and the knowledge that it will take years to build out.
One of the biggest hurdles is how to fund the project. Our latest estimate to build a fiber to the home network is $65 million dollars. If you have seen any of my previous statements or heard my annual meeting speeches, you have heard me say that we cannot use electric system funds or borrow money against electric system assets to fund a broadband buildout. Think about that for a minute, PEC doesn’t have any funds that aren’t electric system funds. We also do not have assets that aren’t electric system assets. These restrictions come from our wholesale power contract with the Tennessee Valley Authority, and from Tennessee State Law. The following language is a part of our wholesale power contract, and also Tennessee Code Annotated 65-25-134:
(b)(1) A cooperative providing any of the services authorized by subsection (a) shall not provide subsidies for such services and shall administer, operate, and maintain the electric system separately in all respects, including establishing and maintaining a separate fund for the revenues from electric operations, and shall not directly or indirectly mingle electric system funds or accounts, or otherwise consolidate or combine the financing of the electric system, with those of any other of its operations.
Tennessee Code Annotated 65-25-104 includes this language:
(d) Notwithstanding any other provision of this chapter, a cooperative having a primary purpose shall not, in pursuance of one (1) or more secondary purposes, burden, obstruct, prevent, interfere with, jeopardize, impair, delay, or lower the quality, reliability or adequacy, or increase the cost of, the pursuance and achievement of a primary purpose.
At PEC our primary purpose is delivering electricity to you, our members. State law defines broadband as a secondary purpose.
Consider the broadband grants from the state, these grants are matching grants. If you receive a grant for $2 million dollars, you have to provide $2 million dollars in matching funds. PEC cannot use electric system funds or borrow the funds against electric system assets. We don’t have any way to fund the match.
TVA has found that several Local Power Companies are out of compliance at the federal level due to loans they have given to their broadband subsidiaries. This was announced publicly at the August 2020 TVA Board meeting.
What about our potential competition? One of the most promising new technologies is low earth orbit satellite broadband. These systems promise to solve one of the biggest problems with current satellite broadband systems, latency. Starlink, Oneweb, and Amazon’s Project Kuiper are the most prominent of these systems. Starlink is currently in a private beta testing phase and is expected to offer retail service by the end of the year. Starlink’s tests with military aircraft have shown speeds of 600 megabits per second. Recent reports from beta testing show latencies as low as 20 milliseconds, and speeds up to 100 megabits per second. Starlink is a division of SpaceX. They have had a string of successes lately. Most notably being the first private company to send astronauts to the International Space Station and bring them home safely. SpaceX opened a funding call in late July asking for $1 billion dollars. They quickly doubled that amount. Starlink currently has about 700 satellites in their constellation. They are manufacturing 120 satellites per month and expect to be able to offer broadband worldwide when they have approximately 1500 satellites in orbit. At the rate they are launching satellites they need about 7 months to reach that number.
Another new development over the past few months is low band 5G. I had always thought that 5G would never work in the rural areas due to the high carrier frequencies. The signal strength drops off quickly and cannot penetrate buildings and tree cover. Low band 5G has carrier frequencies under 1 gigahertz. These signals can carry for miles and can penetrate buildings and tree cover quite well. T-Mobile and AT&T are both currently operating low band 5G systems in our area and are expected to offer home service from these systems in the near future.
If PEC could borrow money against electric system assets, we would need at least 25 years of strong broadband revenue to pay off the loans required to build a fiber to the home network. One thing we have learned from our feasibility studies is that the electronic equipment has to be changed out every 5 to 7 years. This is a business that changes rapidly. Think about how cell phones made landline telephones obsolete in a very short span of time. Fiber to the home is tethered to a physical location just like a landline telephone circuit. Both of the technologies discussed above are wireless systems and have the ability to go where you go, or where a piece of equipment goes, just like a cell phone can. If systems like those are successful, they could quickly render our fiber obsolete. This would leave our electric ratepayers to pay off the millions spent on fiber. This is the risk we face today if we move into fiber too quickly.
What is the answer to all of this? Think about what the Rural Electrification Administration did to help electric coops get started in the 1930’s. They loaned money to startup companies to build electric distribution systems. It is important to understand that no one will loan millions of dollars to a startup broadband company. If a loan program like this existed today for broadband then electric coops could form subsidiaries and the subsidiaries could borrow the money to build fiber for broadband. This would allow the electric cooperative business to be kept separate from the broadband business. That separation is what Federal and State Law both require.
Pickwick Electric Cooperative