How Cooperatives from Disparate Industries Partnered to Achieve Broadband Success

September 2018 -

Lutsen, Minnesota-based Arrowhead Electric Cooperative called various telecommunications providers around Minnesota to ask for help in setting up a broadband venture. They eventually found an ideal partner in Consolidated Telephone Company (CTC). CTC was then questioned by its fellow telecommunications providers on why it would work with an electric co-op. The answer? CTC said it was simply doing what cooperatives do best: helping bring service to those that don’t have service.

Since CTC and Arrowhead joined forces, their broadband venture has blossomed into a model for cross-industry partnership that is reaping significant benefits for both entities. Mark Doyle, senior relationship manager in CoBank’s Fargo office, met with Jenny Kartes, finance and administration manager with Arrowhead and Kristi Westbrock, CEO and general manager of CTC, to better understand this non-traditional union and explore its benefits and challenges.

Mark Doyle: How did Arrowhead Electric Cooperative and Consolidated Telephone Company (CTC) cross paths and decide to work together?

Jenny Kartes: As an electric cooperative, we didn’t have any experience in the telecommunications industry and we quickly realized we needed to find some partners to help us out so that we weren’t reinventing the wheel. Not knowing where to begin, we started contacting telecommunications providers around Minnesota. Surprisingly, many were reluctant to talk to us until we found CTC.

When we learned of the Arrowhead project, we had a lot of interest in doing what I think co-ops do best—bringing services to those that don’t have service.
MD: Kristi, what was CTC’s interest in this project?

Kristi Westbrock: When we learned of the Arrowhead project, we had a lot of interest in doing what I think co-ops do best – bringing services to those that don’t have service. This project was just a shining example of an area that was in desperate need of broadband. We saw it as an opportunity to help a community in need and to diversify the services that we were able to offer to additional consumers.

It was interesting when we got into this, because there were plenty of people who weren’t thrilled with the idea of a telecommunications co-op helping out an electric co-op. The scrutiny came from investor-owned utilities and co-ops alike. They were really curious as to why we would partner with an electric co-op. But we saw it as an opportunity to provide service in an area no one else would ever build, and support a project fulfilling cooperative principles of concern for community while diversifying our revenue streams.

MD: Since this project, has anyone come back to you and said, “Hey, you guys did a good thing. We want to do something similar.”

KW: Yes. There has been increasingly interest from others that want to understand how we created this partnership as they consider replicating the model for similar projects.

MD: Tell us what CTC was able to bring to the partnership?

KW: We brought a level of expertise in the industry. Because we’re a 66-year-old telecommunications cooperative, we have many years of experience building networks. We found areas where things could be streamlined, or the network could operate more effectively.

Developing trust very early in the relationship allowed us to offer recommendations that were mutually beneficial. We were able to help with fiber construction, network development, customer service, sales, and provisioning, to name a few. Our bigger challenge was determining where the partnership would end, and each entity would stand alone.

JK: I agree. CTC brought a lot of expertise that proved extremely beneficial. At that time, we only had about 15 employees. There was a lot of knowledge that they shared with us. We had the local construction expertise, the operation and maintenance for the plant and billing, but CTC brought the telecommunications expertise that we lacked.

CTC was immediately able to host our phone switch and provided the Internet equipment to include us on the system they had already built. They didn’t hold back on sharing their knowledge or equipment.

MD: How did each of your entities benefit from the partnership?

JK: Our biggest benefit was finding a partner that understood our need for their expertise to deliver a much-needed service to our membership, while allowing us to retain the member relationship.

KW: Primarily, we see economies of scale. There are such efficiencies in us working together to spread costs across a broader membership base. There is also a great opportunity to share services. While CTC alone may not have enough work to hire for a specific specialty, we may be able to hire a shared full-time employee and split the cost with Arrowhead.

MD: Can you describe some of the details of the contracts that govern the partnership?

KW: We have many different contracts between us and each individual circumstance dictates the terms of the agreement. Certainly, just like any other contract, there’s early termination provisions and outs for both entities if there is ever unsatisfactory service. There are guidelines and measurements for service and timing, for example. It’s a contract like any other, but it’s completely negotiable. I don’t see that it can be a cookie-cutter contract.

JK: I would add that trust is a key element and something that we will never be able to put in a contract. The relationship that we have with CTC really enables us to do more than what our contract states. We’re constantly coming up with new services, new areas where we can partner that aren’t in the contract. And that trust in each other enables us to work through those quickly to develop solutions. It doesn’t have to be spelled out in a contract. While we update terms from time-to-time, it’s trust that enables us to respond quickly to changing needs.

MD: Were there any unanticipated benefits for each of your organizations?

JK: We continually find unexpected benefits. When we had our first conversation, we were just looking for a little help and guidance, and maybe a service provider. We quickly realized what we could do as partners far outweighed what either of us could do alone.

When we began, we thought we would be able to offer phone service and fast Internet. As partners, we now offer additional services such point-to-point circuits for businesses and managed Wi-Fi, to name just two. CTC has really helped on those and we didn’t even think they were a possibility at the outset.

KW: Definitely. First and foremost, this has been really exciting for our employees. This is an entirely different level of service and support than we were accustomed to providing.

When you’re a 66-year-old cooperative with people that have done the same thing the same way for 20-25 years and suddenly you’re supporting an electric cooperative, it brings a breath of fresh air into the work environment. It gave our people something new to embrace and be excited about.

When Arrowhead comes down for meetings, training, or even when we work on a new project or a new process, there isn’t any pushback. This is exciting for them because it’s a whole new opportunity for job growth and expansion. That certainly was unanticipated, but it’s been a great aspect of this project.

MD: Do you two compete in any aspect of the business?

JK: No, I don’t think you can be. In order to develop the level of trust that you need, it would be really difficult to also be competitors. We’re 200 miles away so that puts a little bit of distance between us that prevents competition.

MD: What makes this broadband partnership work? Is it location, competitive environment, demographics?

JK: Two things make this work extremely well: our values as companies and the partnership that has developed – understanding cooperative values and having the same mindset on how we run our businesses and that we work for our members. I think that’s what makes our relationship and partnership so easy. We’re able to work through small and large issues with the same mindset.

KW: One thing that makes this partnership work, is that we have similar platforms for delivering our respective services. When you look at their access gear or network equipment, we have that knowledge because it’s the same gear that we use at CTC. That’s also a great piece of our partnership because you’re not recreating the wheel for what people have to learn to troubleshoot or to make the actual technology work.

CTC provided considerable expertise in helping us know how to effectively sell this service to our membership.

 

Another factor is that for Arrowhead’s membership, it’s True North Broadband, Arrowhead’s branded broadband solution. Their members don’t see that the connection is being provided by CTC. When we answer the phone, it’s True North Broadband, or when we’re supporting them it’s under the True North Broadband name. I think that has been a great piece of this – making sure that the Arrowhead membership always has that identity, that this is theirs and that they have ownership of this project.
MD: You mentioned that there are 200 miles between the two of you. How do you connect, if CTC is offering your phone services? Is there a fiber connection between that stretch of 200 miles or do you use somebody else’s fiber?

JK: CTC really helped us figure out backhaul services – the best interconnection points, the best service providers and negotiating those contracts. Being complete novices to telecom, understanding that market was intimidating for an electric company.

But having CTC there was invaluable.

KW: I think that’s critical for people to understand, that you don’t have to be neighboring co-ops to make these projects work. We are 200 miles apart and we developed a financial plan that is beneficial for both entities. People seem to think it has to be a partnership with the closest co-op, but with well-priced interconnection agreements these projects can work at extremely long distances.

MD: What were the biggest challenges in working with one another?

JK: I would have to say it’s gone very smoothly from the beginning with CTC. If I had to pick one challenge, it comes from being 200 miles away and operating primarily in two different industries. Also, as with most partnerships, we sometimes struggle with communications. I don’t think that is anything unique to this partnership, though.

KW: I agree. Just like most organizations, your biggest challenge is always effective communication. Early on, we spoke different languages – they spoke using an electric provider’s language and we spoke one of a telco provider. When you assume that somebody knows something about one of those businesses that we don’t know, it can create miscommunications. Because we’ve lived in that world so long, we just think, “Oh, they would have to understand how that works,” when they may not.

But again, trust between the organizations resolves so many of the potential issues before they have an opportunity to turn into something bigger. Understanding and remembering that we are working toward the same goal gives you the perspective to step back and address concerns in a meaningful way.

MD: Is this a unique partnership, or has it been replicated elsewhere? Elaborate on what this project is and has become, and if you’re looking at replicating it somewhere else.

KW: It’s definitely a unique partnership because it was the first of its kind. I still haven’t met anybody who is doing this type of work with an electric cooperative and doing it the way we are.

I think it can be replicated. But, each project is going to be unique and the needs of each electric co-op are going to be different. You just get down to issues like, does the electric co-op want to own all the fiber? In that case, you just become a provider. But in other partnerships there might be joint ownership of the fiber. Is there any benefit of joint fiber ownership?

Each one is going to have its unique differences and challenges. For example, we started working with Mille Lacs Energy Cooperative in Aitkin, Minnesota. That project is different than the Arrowhead project in how much we do and how we do it. But, can some of the basic principles of working co-op to co-op be replicated elsewhere? Absolutely.

MD: Give us a high-level overview of the relationship with Mille Lacs?

KW: We entered into operating and construction agreements with Mille Lacs Energy two years ago. They received a Border to Border (B2B) grant from the state of Minnesota. The project was expected to pass 800 homes and the goal was to connect 400 of them, a 50% penetration rate.

Last summer we started building those passings. We turned on our first customer last November and they’ve already sold over 400 accounts today. We’re building drops and connecting services for them right now. We’ve also begun to determine how we can partner on additional projects in their service area.

That partnership also opened some really nice doors in how we work directly with Great River Energy, Mille Lacs’ generation and transmission (G&T) provider. Great River Energy provides power to 28 member cooperatives and is willing to assist those cooperatives who want to take a direct or indirect role in expanding rural broadband in their communities.

MD: Are there any other benefits of the partnership that either of you would like to highlight?

JK: CTC was a great partner in teaching us how to market our service. As an electric cooperative, we didn’t have much experience marketing a product to our membership. For our project to succeed, we needed a certain take-rate and we needed to get our members to buy the service. Although there was pent up demand and many members were eager to get the service as soon as it was available, we needed help to actively sell the product to other members. And CTC provided considerable expertise in helping us know how to effectively sell this service to our membership.

Jenny Kartes is finance and administration manager for Arrowhead Cooperative, an electric utility cooperative in the northeast corner of Minnesota that has built out a fiber-to-the-home network to its entire service territory as well as the local municipal service area. Ms. Kartes has been with Arrowhead for six years, since the start of the co-op’s broadband buildout. She earned her bachelor’s degree in accounting from Bradley University in Peoria, Illinois, and her master’s degree in accounting from Illinois State University in Normal, Illinois.

Kristi Westbrock was recently promoted to CEO/general manager at Consolidated Telephone Company and has been with the cooperative since 2007. She has over 21 years of experience in the telecommunications industry and has a strong background in human resources, sales and marketing and business operations, strategic planning and product development. Ms. Westbrock also has her SPHR (Senior Professional of Human Resources) and SCP (Senior Certified Professional) accreditations and was named the Lakes Area Human Resources Professional in 2006. Ms. Westbrock has been integral in the cooperative development and partnerships with new opportunities at CTC in the past seven years. Ms. Westbrock has served on numerous local and state committees and boards of directors within the industry and the Brainerd Lakes community, including the United Way of Cass and Crow Wing County, Lakes Area Human Resources Association, Past-Chair Brainerd Lakes Area Chambers of Commerce, Lakes Area Safety/Health Organization, Minnesota Telecom Alliance, Brainerd/Baxter Business Council, Society of Human Resources, and First Lutheran Church. She currently serves as a national Trustee for the Group Health Plan of the National Telecommunications Cooperative Association as well as a Trustee for the Initiative Foundation.

This interview was originally published in Broadband Partnerships: A Key to High-Speed Success for Rural Electric Co-Ops.