After ECFiber’s formation in 2008, ValleyNet (a non-profit ISP contracted to design, build, and operate ECFiber’s network) spearheaded an effort to raise capital to build out the entire project at once. A major investment bank was selected and had secured commitments for the majority of the $90M required in September 2008 when the financial markets collapsed and the offering was pulled (see History).
ECFiber/ValleyNet then submitted several stimulus funding proposals, but we were edged out by more established telecommunications providers.
In 2011, after several years “in the wilderness,” ECFiber raised $1M of deeply subordinated debt from three members of the ValleyNet management team and several local investors to fund a 20-mile pilot project in Barnard.
After abutting neighbors sought to connect to the pilot, ECFiber/ValleyNet developed an innovative “crowd finance” program of issuing private placement promissory notes. The notes were offered in $2500 units and neighborhoods that were able to raise $30,000 of capital and five subscribers per mile were built. These 15-year notes had an 18-month interest and principal ‘holiday‘ and then returned interest at the rate of 6.65% and amortized over 13 ½ years.
By the end of 2015, nearly 500 investors had invested an additional $6 million. The state provided over 100 miles of dark fiber (which allowed us to connect many of our hubs located in the centers of each town) as well as several grants totaling over $500,000 as part of its connectivity initiative. This allowed us to achieve critical economies of scale, building a network of over 300 miles and 1,200 subscribers that was cash flow (EBITDA) positive in 2015.
Starting in 2016 — and again in 2017 and 2018 — we have been able to access the broader capital markets, raising $32M in revenue bonds because we had three years of audited financials, a strong operating history, and had become a communications district – a structure with which outside investors were familiar. These 23-year bonds are interest-only (5-6%) for 3 years then amortize over the next 20 years – a significant and necessary extension of our original debt’s 15 year amortization period. By 2017, all of our original investors were repaid, including prepayment penalties.
We will need to raise approximately $17M total in 2019 and 2020 to cover all of the 1400 unserved miles of network in our District (we covered 685 at YE 2018,) which would bring the total amount of private investment to $49M – not a bad return for the state’s $2.5M contribution.
Under VT state law, municipalities may not use taxpayer funds to provide or subsidize telecommunications services. The notes and bonds issued by ECFiber are “non-recourse” to its member towns – that is, in the event of default, investors only recourse is to the cash flow provided by the network. But since the debt is issued by municipalities, interest income is tax-free to the investors.
ECFiber’s metrics are impressive by industry standards. Our construction and design costs are low – a necessity in our sparsely populated rural territory. Our total build cost per mile is ~$30,000, our cost per customer is ~$6,000 and our cost per passing is ~$2,000. Our “churn” is also very low — in over 7 years of operations, there are only 114 premises in our district that we once serviced that are no longer taking our service for various reasons.
December 2010 – ECFiber raises $1M in startup funding
March 2014 – ECFiber produces positive EBITDA
April 2016 – ECFiber raises $14.5M in revenue bonds
April 2017 – ECFiber raises $9M in revenue bonds – original investors repaid
August 2018 – ECFiber raises $8.5M in revenue bonds