ECFiber Seeks ‘Street’ Cred

Sunday, March 01, 2015
South Royalton — After nearly seven years and 200 miles of cable, a central Vermont community-owned fiber-optic network is hoping to accelerate its build-out by again seeking investment from Wall Street.

“We’re sort of on the cusp of being able to qualify to have the various things that … investors would be looking for,” said John Roy, of Vershire, treasurer of the South Royalton-based East Central Vermont Community Fiber Network, also known as ECFiber.

Once the network’s 2014 financial statements are audited this spring, ECFiber will have three years of financial documents available for potential investors to review, said Roy.

“The business is now producing cash, rather than gobbling up cash,” he said. “We feel that we have proven the case.”

To better ECFiber’s chances of attracting outside investors, it is seeking voter and legislative approval to restructure through March ballot votes and a legislative proposal this session.

Together the measures would transform ECFiber into a municipal utility district, which officials say is more familiar to investors outside the state than the current structure.

“We’re now organized as an ‘inter-local contract’ — not many people outside Vermont know what that is,” said Irv Thomae, of Norwich, the ECFiber Governing Board’s chairman.

The change in the business model would boost credibility by having the Legislature’s support, but it would not alter the way ECFiber is governed, nor would it result in taxes or liabilities for member towns, Thomae said.

ECFiber initially came into being following Town Meeting votes in 2008 which led to the creation of a contract among 24 municipalities in central Vermont — 16 in the Upper Valley.

To raise funds to finance the build-out of its fiber network, ECFiber created ECF Holding, a limited liability company. Through a contract with the New York-based Oppenheimer & Co., ECFiber was set to go to Wall Street and borrow $90 million in the fall of 2008.

“The whole thing was going to be built within three years,” said Roy of the 1,600-mile network intended to serve approximately 10,000 residents and businesses.

In early September 2008, Oppenheimer told ECFiber officials it had “precommitments” for 65 percent of the ask, said Roy.

But just weeks later, Lehman Brothers went bankrupt and the credit market all but collapsed shortly after.

In the altered conditions, Oppenheimer was unable to sell the ECFiber debt.

“That funding became totally unavailable,” Roy said. “It had nothing to do with us.”

ECFiber then turned to a grassroots fundraising strategy: It decided to borrow money in $2,500 increments from residents and business owners in the member communities.

In that way, the group so far has raised $6.3 million from approximately 430 individuals and constructed 200 miles of fiber-optic cable to serve nearly 1,000 subscribers.

ECFiber offers Internet speeds of up to 400 megabits per second and phone service, which it has touted as being much faster than alternatives available to most people in its service area.

Since 2008, ECFiber has ditched plans to include television in its package of offerings, reducing the overall cost of the build-out. Also, now that the business is established, Roy said, the investment is less risky, and he hopes ECFiber will not be required to borrow additional money to pay investors back while the project is under construction.

Such contingencies were included in the earlier $90 million financing bid.

Now the business is making a profit on its own, he said.

The delay has afforded ECFiber time to develop its business, but the extra time has also given FairPoint, an ECFiber competitor, a chance to make a dent in the market.

“The worst thing (about ECFiber’s delay) is a lot of the people who wanted to have it weren’t able to get it right away,” said Roy.

At this point, FairPoint, Northern New England’s provider of land-line service, is able to reach more rural areas than ECFiber with its high-speed Internet service. But, FairPoint’s speeds of up to 30 megabits per second are slower than the 400 megabits per second ECFiber’s cables can provide, said Roy.

“If we’re going to get this job done before the end of this decade, we need to step up the rate,” said Thomae.

At the current rate of construction, it would take another 17 to 18 years to complete the 1,600-mile goal, said Roy. He predicted it would take just three to five years to complete the network if ECFiber is able to raise the $40 million it aims to from Wall Street investors.

“Now that the economy has substantially recovered, (we’re) hoping we could go to the market to borrow money in much greater sums,” said state Rep. Jim Masland, D-Thetford, a delegate to the ECFiber board and the lead sponsor of legislation to create a municipal utility district.

ECFiber has yet to sign a contract with an investment firm and those it has been consulting have not yet given them a sense of how the interest rate on these investments might differ from the 5.3 percent they pay on money they’ve raised locally, said Roy.

He said 4 percent interest rates would be “wonderful” and 10 percent would be “too high.”

“Anything in-between — sharpen your pencil,” he said.

At least one analyst, who emphasized that he is unfamiliar with the particulars of ECFiber, predicts that ECFiber might have trouble finding investors through Wall Street because he is skeptical of the ability of municipal utilities to adequately construct and maintain fiber-optic networks.

Craig Moffett, an analyst who specializes in telecommunications with the New York City-based MoffettNathanson Research, said the public likes the concept of municipally owned networks that compete directly with cable companies and other private sector Internet service providers.

In practice, however, such networks “almost invariably have ended up being financial sinkholes,” he said.

For example, he said, such utilities tend to run over budget and are often ill-equipped to provide 24-hour maintenance and customer service, particularly in bad weather.

Roy, however, said the company — which hooked up its first customers in late August 2011, just days before Tropical Storm Irene — is aware of the importance of responding to maintenance needs and customers’ concerns in a timely fashion and does so with its small staff and contractors.

“So far we’ve dealt with it quite well,” he said.

The question of transforming ECFiber from an inter-local contract to a municipal utility district, similar to the Greater Upper Valley Solid Waste District, is set to appear on ballots in Norwich, Strafford, Sharon, Randolph and Woodstock this Town Meeting. The measure was approved from the floor in Thetford on Saturday. It will also be taken up from the floor in Vershire.

Two affirmative ballot votes, coupled with the Legislature’s approval of Masland’s measure, H.353, would create the new district.

Other towns could then join the changed entity by votes of their selectboards.

On Wednesday, reached by phone at the Statehouse, Masland said he is optimistic about the possibility of the bill’s passage this session.

“It shouldn’t be controversial,” he said.

Nora Doyle-Burr can be reached at or 603-727-3213.

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