- New Englanders are known for their independence, so it was natural for them to solve their rural broadband crisis on their own
- The Vermont state legislature allowed broadband groups to create communications union districts (CUDs)
- Since 2015, nine CUDs have been formed in Vermont to bring broadband to the unserved and underserved
A group in Vermont got so fed up with the lack of high-speed broadband in small towns and rural areas — and the complete lack of interest by incumbent telcos and cable cos — that it went to the Vermont legislature for permission to create a communications union district (CUD).
There are now nine CUDs successfully operating in Vermont, and these groups are poised to garner the lion’s share of Broadband Equity, Access and Deployment (BEAD) awards in the state.
The trailblazing CUD was ECFiber, which has been so successful that it doesn’t plan to apply for BEAD funds because it’s already reached all the unserved and underserved areas in the 31 towns that it covers. However, some of the other CUDs definitely do plan to apply for BEAD grants, and they’re likely to have friendly treatment from the state’s broadband office.
F. X. Flinn, chairman of the governing board for ECFiber, explained the evolution of the CUD phenomenon in Vermont.
He said that in the mid-2000s when most of the country was getting broadband service, it became clear in Vermont that Comcast, Charter and the incumbent telcos were not going to build broadband to the more remote areas of the state because they couldn’t find a good business model that would offer the returns their shareholders expect. So, a group of people formed a company called ValleyNet, which got some seed money from its founders along with some debt via private placement promissory notes. By 2011, ValleyNet had enough money to deploy a 25-mile fiber network.
After that, the company kept raising money and securing debt and expanding its network.
“It was basically wash, rinse and repeat for the next three years,” said Flinn. “At the end of each year there was an audit, and by 2014 we had three years of audits, 200 miles of network and 1,000 customers.”
With that proven financial track record, ValleyNet went to an investment banking house that specializes in tax-free municipal revenue bonds to try and secure additional funding through that financial vehicle.
There was a hitch, however, because the bankers didn’t know how to explain ValleyNet to investors. It was similar to a special assessment district, such as a water or sewer district, but it had no official sanction.
At this point, the leaders of ValleyNet — whom you have to admire for their tenacity — took on the Herculean task of getting the Vermont state legislature to pass a law allowing them to create the East Central Vermont Telecommunications District (doing business as ECFiber.)
“So, we basically took our bylaws and shaped it into a draft of a law and went to the Vermont legislature and asked them to pass this law,” Flinn said. “In 2015, we morphed from being an LLC to being the East Central Vermont Telecommunications District and issued our first bond in early 2016 for $7-$8 million.”
Essentially, ECFiber invented a new type of municipality, the CUD, which has no taxing power, only the ability to issue tax-exempt revenue bonds backed entirely by customer payments for broadband. Since the establishment of ECFiber, eight other groups have formed CUDs to deliver broadband in Vermont.
Asked if any of the CUDs have gotten any pushback from incumbent cable cos or telcos, Flinn said it’s been “total silence.” When ECFiber first started, it built broadband in a lot of towns where there was only the local phone company. But as years have progressed, it’s also built broadband in towns where there are incumbents.
Flinn suspects that Vermont remains completely uninteresting to the incumbents because there’s just not a good business model for their investors.
But if there’s not a good business model for public ISPs, how is there a good business model for the CUDs?
Flinn said tax-free municipal revenue bonds offer slow, but safe and reliable income. “Our investors are happy to take the bond payments. The bonds are tax free at the federal level, the risk is low, the payback is slow but certain.”
Status of CUDs and their BEAD ambitions
ECFiber completed its original mission to build a 23-town network in 2023. It has also added eight more towns, bringing its total to 31, and it plans to complete its entire network by the end of 2025. It currently serves about 9,500 subscribers. When the network is completed next year, it will pass about 35,000 locations. The CUD’s basic fiber optic broadband tier provides speeds of 100 Mbps, symmetrical, for $72 per month.
“We’re about to offer multi-gigabit symmetrical service. That’s in the wings,” Flinn said.
ECFiber has received $17 million in ARPA funding, but it doesn’t need to apply for BEAD funding because its build-out is essentially done.
Most of the other Vermont CUDs will probably apply for BEAD funds.
In summary, Flinn said, “Vermont’s attitude is: We’ve had a rural broadband crisis since the 2000s and kept talking to the big cable and phone companies and got nowhere and then this group figured out we could do it ourselves. With federal money it can all happen faster.”