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Transcript: Community Broadband Bits Episode 33
Thanks to Jeff Hoel for providing the transcript for Episode 33 of the Community Broadband Bits podcast with Billy Ray, CEO of Glasgow Electric Power Board, on the fight with the incumbent provider. Listen to this episode here.
Lisa Gonzalez: Welcome once again to the Community Broadband Bits Podcast, a production of the Institute for Local Self-Reliance. This is Lisa Gonzalez. This is Episode 33. And Christopher interviews Billy Ray, CEO of the Glasgow Electric Power Board in Glasgow, Kentucky. Glasgow has the distinction of being the first community that created a municipal telecommunications network. Billy Ray tells us about the community and the story behind the network. He also discusses the fight the community had with the incumbent providers, and the long journey from an idea to a successful new utility. Here are Billy Ray and Chris.
Chris Mitchell: I'm here with Billy Ray, the CEO of the Glasgow Electric Power Board, and probably the father of municipal broadband. Thank you for joining us on Community Broadband Bits.
Billy Ray: OK, Chris. Glad to be here.
Chris: Glasgow, Kentucky, has long been a place people go to learn more about municipal broadband. You did it before anyone else. And so, I'm hoping we can start by learning a little bit about Glasgow.
Billy: Yeah. Glasgow is community of about 15,000 people, in a generally agricultural portion of the state of Kentucky -- the south-central part of Kentucky. Which means that it's -- if you drew a line between Louisville, KY, and Nashville, TN, you'd find Glasgow along that line, halfway in between. So we're roughly 100 miles from either one, to our north and south. The only other real distinguishing thing about Glasgow -- and why this happened here -- is that it is one of the 2,000 or so municipally-owned electric systems. Which means that the city happened to already own an electric utility. Which means it had the poles and bucket trucks and billing systems -- all that sort of stuff. And that was -- and continues to be -- the real kernel, or seed, of the reasoning for why we got into the broadband business.
Chris: Right. We've actually seen -- We've actually seen that most of the communities that have been involved with building broadband networks have been municipal power utilities. Or have been cities that have those. But it seems that you were intimately involved with this idea from the beginning. And I'm curious if you can take us back to that time. It wasn't something that someone else came up with and dumped it in your lap. It seemed like you were inspired to start building this infrastructure.
Billy: That's right. I came back to my home town -- Glasgow was my home town. I came back in 1983 as a 28-year-old CEO, that a board had taken a chance on a really young guy. And I really appreciate that more all the time, when I look at 28-year-olds, and I ...
Billy: ... kind of figure, what were they thinking? But I -- that's only important in that I came back with a real clean sheet of paper and fresh outlook on how municipal utilities ought to operate. And the other part of the DNA was that the utility that I had left -- I was the Chief Engineer there -- had just experienced the installation of a cable TV system in that community for the first time. This was 1981, and there were still communities that didn't have cable TV. And Bowling Green, KY, was one of those. And I was there to witness the installation of a cable system, and learned a little bit about what a broadband network was. And when I combined that piece of DNA with what I had learned -- because, also, having a minicomputer was a new thing in those days. And when I thought about how we operate electric utilities -- and by that, I'm talking about how the humans functioned to make decisions about how we operate the electric system, utilizing the crude data that we got, largely from people calling in and saying, hey, my lights are off, or, I saw a giant flash on a pole, and we would use those tidbits of data, accumulated in a very analog fashion, to make decisions about how we operated the electric utilities.
And all those pieces began to come together in about 1986, when I began to talk to my board about this vision that, you know, we could probably operate electric utilities a lot better if we had better telemetry, instead of just people calling in and telling us what they had seen. If we could actually measure quantities at our substations -- and, someday, even deeper, closer to the home than substations -- we could really be in a position to change the way energy is delivered, and shaped -- for communities. And, you know, boards are made up of laypeople. And they appreciated that -- or they accommodated me talking about that. But when I began to say, AND it might be possible to start building this network, to do this telemetry on, by first putting competitive cable television on it. Now that was something that immediately, I learned, resonated with everyone. You know, people weren't that crazy about having energy usage patterns shaped -- especially back in the '80s, before everybody -- anybody -- had heard the words "smart grid." Nobody had even heard the words "broadband," really.
Chris: I knew that you were an engineer. And just as you were describing that, and the way that you began thinking about it, it reminds me in many ways of the way Harold DePriest thinks about it and describes it in Chattanooga, which is, ...
Billy: Um hum.
Chris: ... you know, now probably the most cited municipal network, because they've been so aggressive, in terms of offering the highest speed services. But do you think that that -- that you being an engineer, and having an engineer at the top level of a municipal power utility -- makes a difference in that regard?
Billy: Well, I think it did back in those days. Because -- once you recognize how software works, and the hunger for data, and that the way we were gathering data back in those days was, you know, archaic -- 100 years old. And that systems were beginning to evolve that would allow you to gather this data and make a lot of these decisions that were made by a team poring over maps and, you know, pieces of paper with notes jotted on them, that you could do a lot better, and you could turn a lot of decision-making over to a piece of -- an operating system instead of a human system. I think that was important.
Now, today, you know, it seems like so many communities now focus on just that they want faster Internet service, or they want -- they hate their cable operator. And that's been common, ever since the first talk I made on this subject, back in '88. The common thing in 10,000 cities across the United States is that they hate their cable operator. And that seems to become the more common nucleus of a community broadband effort today than what I still contend, from an engineering perspective, to be the REAL reason to do it. And that's that we want to build fewer coal-fired power plants -- or any kind of power plant, for that matter. You know, we think that we can use a combination of technology and telecommunications to shape electric demand to live well within the capacity that we've already built for the foreseeable future. And make a much smaller impact on our environment by the production of our electric power.
Chris: So, you -- you saw all this coming, back in the late '80s. And you made the pitch that you thought the best thing to do was to start building this, and offering the television services as well. I'm curious how others reacted, including the existing cable provider in your community.
Billy: Well, yeah, that's pretty well documented. The -- Luckily, my -- the board that operates the utility was cooperative, and wanted to give me plenty of room to try new things. And the local City Council, not as immediately cooperative, but cooperative enough, really. And I can answer the question more expansively this way: that the incumbent cable operator at the time was so incensed at this that, you know, they began shipping all kinds of high-powered attorneys to little Glasgow, to meet with every group they could, to talk about how crazy this idea was. And it was probably their reaction to the idea, being so offensive, and telling the decision-makers, or the elected officials, in a small, south-central Kentucky community that they were too stupid to build this network that probably put the finishing touches on the decision to go ahead and do it. You know. They -- while they weren't sure they trusted Billy Ray, they were damned sure they didn't trust these suits from New York telling them they were too stupid to do this. So they pretty well galvanized it themselves.
Chris: Right. It sounds like a very similar dynamic to Lafayette, in the Cajun country, where, once, there as well, the suits were telling them that, you know, you Cajuns just aren't smart enough to do this.
Billy: Right. Yeah.
Chris: And they had the same rebellious attitude. And it's ...
Billy: Not a great bu- -- not a great strategic plan.
Chris: No, it's not.
Chris: But it does make me proud to be an American. 'Cause, you know, it's one of those traits that we have, that I think not every -- I've traveled the world a bit, and I've always been surprised at how not everyone sort of rebels at that sort of situation.
Billy: Well, there's probably a reason why we chose to overthrow the king.
Chris: Absolutely. So, you had a big fight. Can you sort of describe the contours of it? I think it ended up lasting multiple years, didn't it?
Billy: Oh, yeah. It -- First of all -- the first battle line was in the court system. And they filed a multi-count federal complaint against us, alleging everything under the sun. From the fact that the city granted them a cable franchise in 1961, and didn't suggest that they -- that that franchise might not be exclusive. And so they were alleging that the city was in breach of contract. All the way through to claiming that the wiring in every home and business in Glasgow belonged to them, and that there was no way that somebody else could come in and use the wiring, even, you know, wiring stapled to the wall in somebody's bedroom closet.
Chris: Well, you know, they have made that case successfully in apartment buildings. And, still, they can block competition across the nation in many apartment buildings by claiming ownership to that wiring.
Billy: The '92 Cable Act pretty well opened it up for residential stuff. And any wiring that's not contractually stated to belong to one entity, other than the building owner. I mean, I know, because we -- that was one of my first trips to Washington, was to beg then-Senator Wendell Ford to help us with this problem we were slugging it out with in Glasgow. And I was surprised to find that he was willing to do that. And got the language inserted in there to make it easier.
But then, also, we helped ourselves, because, not just the federal complaint, but they also filed a state law complaint based on real estate law, on that very issue, that as we began to actually complete the construction of our network, and start to hook people up, we would ask the homeowner or business owner, do you own this wiring? And if they said yes, then we would use it. Disconnect the incumbent from the outside of the building, and plug our network into their wiring. And they tried to, you know, stop us from doing that. And it went to a full-blown jury trial, right here in District Court -- Circuit Court, I mean. And the jury came back and said that the wiring was a fixture of the real estate, and the owner could do with it as they pleased. And it was that defeat that caused Telescripts Cable Company -- the incumbent at the time -- to come to us and ask to settle the federal complaint as well. Of course, in that, we encountered -- since they also, as one of the features of their competitive efforts, went street to street, as we were building out network, and canvassed the area, and lowered -- offered people five-dollar-a-month cable TV if they would stick with them for the next year. And so that caused us to file a Sherman Antitrust counterclaim against them, which, had we been victorious -- I'm pretty sure we would have been -- that we could have gotten treble damages against them.
And so they finally settled all the litigation, and decided to just slug it out in the streets in a competitive battle that -- It was waged from 1988 until 2000, when they -- when we had acquired about 70 percent of the market. Always more expensive than them -- they continued to undercut us on rates -- but we were able to convince people -- as people are convinced every day -- that price is not the only consideration. You know, when you got an option to buy these high-tech services from a local company -- from your neighbors -- and go to board meetings, and participate in decisions about what programming is going to be on, and rates are going to be charged, we were able to take about 70 percent of the market by 2000. And Comcast, who had acquired the system by then, came to us and said, we're tired of slugging it out in Glasgow, and charging these low rates. Make us an offer, and we'll sell you the rest of our stuff and get out of town. And that happened.
Chris: The Sherman Antitrust complaint -- what was the basis of that? Was it that they were offering a service for below the cost of providing it?
Billy: Yeah. A design to not just make customers happy but to cripple a competitor. Especially one in a David-and-Goliath situation, where they had market power. And we were a new competitor. And they were willing to charge rates that were -- that were completely unsupportable as being valuable to their stockholders. And just designed to damage a new entrant.
Chris: Who -- we do still see that from time to time. Most recently, we saw it here in Monticello, where the incumbent took a package that had every single channel on the system, that they sell for $145 in every other town, and began offering it for $60 per month -- guaranteed rate for two years. And, talking with people who are familiar with those contracts, there's almost no way that they were able to pay for that. Between the Internet package and the television package, their costs had to be above $80 -- maybe even $90 or $100 -- per month.
Billy: Sure. Yeah.
Chris: And I'm just -- it's interesting that I haven't seen anyone else file a Sherman Antitrust complaint. That's why I wanted to follow up a little bit on it. Um, and so ...
Billy: Yeah. It might be interesting. I don't know if Randy is still alive. I haven't heard from him in a number of years. But Randy Young, an attorney in DC -- who's retired now -- ...
Chris: Um hum.
Billy: ... writing a novel, the last I heard -- came up with that response. And it scared -- apparently -- the counsel for Telescripts, at the time, enough that they decided they'd rather settle than pursue that.
Chris: And so, then, ultimately, Comcast decided that they wanted to leave town. And --- What is the value of their system, when you already have a system right next to it? Is it just that they're gone?
Billy: Well, they also -- to avoid competing with us, they had spent capital to build farther and farther out into the county, away from our footprint. So, there was some value in expanding our footprint. And -- But the value of the actual plant that we acquired was zero, really. It freed up space on our poles. But the main thing was just to consolidate the market and not have the confusion of transfer- -- and the expense of people going from system to system, and having to roll trucks out and move people over, and, if they'd get mad next month, want to move back. So -- And the comparative price, you know, the price to build in those days was probably something like $3,000 per subscriber. And we were able to buy the -- at a [chuckles] -- at a fire-sale price.
Chris: If Comcast was the sole provider, and you had abandoned your efforts, you know that Comcast would have turned around and raised their prices substantially. I'm curious how EPB dealt with being the only provider. Did you then start jacking up the rates every year?
Billy: Oh, no. I mean, we've operated it as a nonprofit business, just as our charter from the state requires, the whole time. The only time we've ever raised our rates has been because the programmers have raised theirs. I was just looking at a graphic I prepared for the board meeting the other day. In 1988, when we first started, our cost of programming -- buying the rights to the programming for the basic tier -- which, in the early days, was probably 40 or 50 channels -- now, it's up to about 100 channels -- but -- the price for the programming in the early days was less than $3 per subscriber. And we charged -- our basic cable rate that we started off with was $14 a month. Actually, $13.50. So, $2 of that was -- almost $3 of it was programming, out of the $13.50 charge. Today, we're all the way up to $33 for that 100-channel basic package. But the programming cost now is about $29. So, you know, it's almost all programming. And the only way we can do that is that the Internet came along. And once we added Internet service to our broadband network, it was more profitable -- has always been more profitable than cable TV, because you don't have the programming to pay for. And that pretty much subsidizes the cable rates. So when we add our Internet revenue and our cable TV revenue together, along with our expenses -- the two added together -- our goal is to break even. And -- because all we really want to do is provide those services to make our customers happy while were getting bandwidth to every single electric meter, so we can begin to do the REAL work, which is changing the shape of their electric demand.
Chris: The question I have, in describing the margin from those earlier years, is: would you be able to make that work today? I mean, even with the extra revenue from the Internet services, I have to guess that the fact that you were able to amortize your costs over a longer period of time, when there was more of a substantial margin was an advantage.
Billy: It is. But -- one of the -- and you're really getting at the heart of this matter. In many states, the legislatures have -- at the behest of the cable and phone companies -- created these business models, or business plan requirements where a city is only allowed to do this if they guarantee, you know, that they've got this business plan in place, and that they're going to make money, you know, immediately. Which is pretty much the incumbent's dream. It means that there's no way for the consumer. Unless they're just determined to buy these entertainment products from someone else, not really to save any money. Now those laws guarantee -- passed by state legislatures -- guarantee that their citizens are not going to enjoy the benefits of competition. If you -- now, you know, what you need to be able to do is to recognize that these products are kind of lost leaders anyway, and that the real objective is to not build another $5 billion nuclear unit somewhere in the state because you need to supplement your electric power generating capacity for four hours a day, during peak times, you know. That's the target, you know. It will become -- I contend that high-speed Internet service may become just a throw-away thing. It's provided like oxygen -- it's free, in order to get people to allow you to reshape -- to talk to their appliances and, you know, begin to reshape electric demand, so that we reduce what we're doing to acquire energy.
Chris: In fact, some people -- Bill St. Arnaud, up in Canada, and others -- have been making this case as well. And only recently -- I only recently learned just how large the electric power system is, in terms of investment. I mean, there's -- to my understanding, there's no other industry that's invested anywhere near the amount of money. And so, when you look at ...
Billy: Absolutely true ...
Chris: ... the savings ...
Billy: ... There's no other industry that's also, you know, having the same impact on our environment as that is. You know. But this is the big target. Everybody wants to get down there and talk about, yeah, but I want to talk about cheaper HBO. Well, you know, that's OK. It's interesting. But it's so minor compared to the big issue of changing the way we provide electric power that it becomes infinitesimally small.
Chris: In the final few minutes, I want to sort of steer away from that a little bit, because I think some of the other benefits that you've demonstrated in Glasgow would be valuable for communities that don't even own their own municipal power system. You know, you mentioned that you operate on a nonprofit basis. But you've also calculated some of the figures as to how much your community's benefited and saved by the lower prices, and by having some of that money recycled in the economy.
Chris: I'd love to hear a little bit more about how that's benefited Glasgow.
Billy: Well, you know, it's pretty easy to look at the community of an island -- you know, small community, our economy, or our treasure -- that we can accumulate, and all the wages and goods that are generated in a small economy. Obviously, if you want to have choices in local restaurants and local grocery stores and what have you, owned by local people, you need to have local money circulating around that can be spent there. And if you do a simple exploration -- or comparison -- of the delta between what the average cost of cable TV is in the United States to what we charge in Glasgow, or many other communities that are operating these systems on a not-for-profit basis, you -- the calculation is pretty straightforward, you know. We can see that is easily $2.5 million to $3 million a year. And this is in a community of only 15,000 people. $2.5 million to $3 million a year is getting trapped in the local economy instead of being siphoned off to the stockholders of an MSO -- a big cable company. And when you take 15,000 people, and drop an extra $3 million in the street, and tell those people they can spend it however they wish, a lot of it gets spent at local mom-and-pop-owned stores. And it helps the community flourish, and to -- as we call it -- eat our own dogfood. You know.
We also talk a lot, and participate in sustainability efforts. And promote localism as the way to make our economy more durable and more resistant to the kind of buffeting that we all got in 2008, as everything fell apart. We use that same frontier spirit that caused us to say we're smart enough to build our own cable system. Now we're saying, you know, we're smart enough to figure out how to source what we need here from locally-owned merchants, so that some distant board can't also decide if our unemployment here is going to go through the roof. It's all part of the same DNA.
Chris: Thank you so much.
Chris: I look forward to talking again. And I hope that those who are new to community broadband take a few moments. Your Glasgow website has a great history on it. And there's a lot of valuable lessons for people to learn. And so many of the same questions are still being asked. And you got a lot of the answers up there already.
Billy: That's right. Yeah. Never think that the status quo is your only choice. There's always a way to get around it.
Chris: Thank you so much.
Billy: OK. Thank you, Chris.
Lisa: We want to thank Billy Ray for taking some time to visit with us about Glasgow's network. You can learn more about the network at glasgowepb.net . You can also learn more at muninetworks.org . Follow the "Glasgow" tag for a variety of resources on the network and the people who built it. If you have any questions or comments, please send us a note. E-mail us at firstname.lastname@example.org . Our handle on Twitter is @communitynets . This show was released on February 12th, 2013. Thanks to the mojo monkeys for the music, licensed using Creative Commons. The song is called, "Bodacious."
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