Fibrant remains confident, though market share limited

Published 12:00 am Sunday, April 17, 2011

By Emily Ford
SALISBURY — At age 79, Nellie Taylor has the most cutting-edge telecommunications service available in Salisbury.
She has Fibrant.
“I’m thrilled the city is doing this,” Taylor said recently while two Fibrant technicians rewired her house and installed Internet, cable TV and phone service.
Taylor said she was frustrated with price increases from private providers and wanted to support the city’s new utility, which she views as a future source of revenue to keep city property taxes down.
Taylor is one of about 750 Fibrant customers.
The utility will need thousands more like her, as well as about a third of the local telecom market, to become profitable and pay back $33.5 million the city borrowed to build the fiber optic network.
The total 2008 bond package was $35.86 million, including money for renovations of several city buildings put up as collateral.
According to documents filed with the state, the city expects Fibrant to become cash-flow positive after four years and break even after 11 years.
The city will use Fibrant proceeds — not property taxes or water-sewer service fees — to pay back the debt, said John Sofley, the city’s management services director.
City officials declined requests for an interview, saying they were too busy preparing the 2011-12 budget. Sofley answered questions from the Post via email.
Fibrant will be financially successful because the service gives Salisbury an economic advantage over surrounding cities, he said. In part, the city built Fibrant to attract new businesses.
“Because of this and the market research performed, we are confident that after the initial customer installation build-out, the revenues from this investment will fully support all Fibrant’s debt,” Sofley said.
The city’s plan hinges on residents and businesses signing up for Fibrant. However, no current subscriber or revenue projections are available.
Although the city in 2008 and 2009 made detailed projections about Fibrant’s future, Sofley said those numbers are obsolete because the utility launched later than expected.
Despite the late start, Sofley said Fibrant will succeed, and the city will not miss a debt payment.
“Fibrant is like a lawyer with one case,” he said. “We will work as hard and as long as we have to in order to achieve the financial performance that we must have to be successful.”
Limited reach
So far, Salisbury has only a small portion of the telecommunications market.
The city’s penetration rates are estimated at 4.2 percent for TV, 4.4 percent for Internet and 3.5 percent for phone. The most recent billing, the city’s fifth, totaled $104,028.
The city has a small market share, but leaders have a big idea.
“Our goal is to be the dominant broadband provider in this area,” Sofley said.
Salisbury began competing against private cable companies after the city says they refused to install a fiber optic broadband system. Officials say fiber-to-the-home is crucial to the city’s future in economic development, public safety and education.
In 2008, the city sold $35.86 million in bonds, including $33.5 million to finance Fibrant and $2.3 million for the general fund.
Though voters didn’t have a say, the state gave its blessing after the city developed detailed plans to pay back the debt over 20 years with proceeds from the utility.
City officials used a 2006 feasibility study by Uptown Services to project how many people would sign up for the service, how much money the utility would generate and how much it would cost to run the system.
The city laid out these projections in two documents — an application in fall 2008 to the N.C. Local Government Commission for permission to take out debt, and a business plan created in spring 2009.
However, the city says comparing Fibrant’s performance today to numbers in the Local Government Commission application and the business plan would mislead the public.
“Trying to compare any results at this point to those contained in the initial LGC model or the one prepared last spring for the budget would be totally misleading,” Sofley said. “We are updating all inputs to reflect current market conditions.
“The inputs in the prior plans are outdated.”
Sofley said when he completes an updated business plan, he’s confident Fibrant will have met his new projections.
“With the soft launch in November 2010, we have been adding customers at what we believe will meet our updated model,” he said.
Early estimates
In the 2008 application to the Local Government Commission, the city anticipated having between 4,300 and 4,700 residential subscribers in 2012, or a 25 percent to 31 percent market share for in-home Internet, cable and phone service.
By the end of Fibrant’s fifth full year of operation, the city projected between 5,000 and 6,000 residential subscribers and 400 to 600 commercial customers.
The numbers are slightly lower in the 2009 business plan, after Fibrant’s launch was delayed. By the end of fiscal year 2012, the city projected having between 2,300 and 3,400 households, or a 14 percent to 26 percent market share.
By the end of the fifth full year, the business plan has Fibrant serving between 3,200 and 4,100 residential customers and 155 to 391 businesses.
Greenlight, a city-owned broadband service in Wilson with many parallels to Fibrant, has surpassed similar projections.
After launching in 2007, Greenlight now has more than 5,700 subscribers, said Dathan Shows, Wilson assistant city manager for broadband and technical services.
Greenlight has positive cash flow and is three to six months ahead of projections, Shows said.
Failure not an option?
What happens if Fibrant doesn’t make enough money to pay the debt?
Sofley declined to answer.
“Your basic assumption from your question is that Fibrant will fail and the city will be forced to pay its debt from other sources,” he said. “I am confident that it will not … and all debt payments will be made on time.”
According to a document from the Local Government Commission, in a worst-case scenario the city would raise property taxes to make debt payments on Fibrant.
The tax rate equivalent required to service the debt is about 10 cents per $100 of assessed value.
“The City Council by resolution has recognized this and does not consider such a required increase, if necessary, excessive,” according to the November 2008 agenda for the Local Government Commission.
Limited marketing
The 2008 bond package included $7 million to build the new Customer Service Center, which houses Fibrant operations and other city services. The construction of the facility and the 250-mile fiber optic network, as well as the purchase and installation of equipment all went well and quickly, Sofley said.
Though Fibrant’s launch was pushed back when the city changed software vendors, customers benefited because the delay allowed the city to implement cheaper software with more features, he said.
The city has limited marketing for Fibrant to make sure the product was top-quality and market-ready, he said.
“Since we were starting a new business from scratch, every process — from customer sign-up procedures, billing, installation and back office procedures — had to be designed and tested,” he said.
Many procedures have been updated and modified to become more efficient for customers and staff, he said.
Over the next month, the city will expand marketing for Fibrant, Sofley said.
Fibrant’s marketing director was laid off two weeks ago.
Happy customer
If she keeps Fibrant for at least a year, Nellie Taylor won’t have to pay the $360 installation fee. She said she plans to have Fibrant, and to support her city, for much longer than that.
Taylor talked and joked with the technicians who installed her service. They worked quickly and asked her preference on aesthetic choices, such as where she would prefer a cord to run or have the back-up battery installed.
Taylor said the city got a good deal on the $33.5 million pricetag for Fibrant.
“Every city should offer this,” she said.
Contact reporter Emily Ford at 704-797-4264.