In March, the deal was on the horizon, but the discovery of inaccurate financial modeling for Lamoille caused Google Fiber to pull out.
FRANKLIN COUNTY — Back in March, Northwest Fiberworx and Lamoille Fibernet were in “advanced discussions” with Google Fiber to provide internet service on the communication union districts’ planned infrastructure.
Today, the deal is off the table and the agreement that was once on the horizon is no more.
In an Aug. 25 update sent to all member towns, NWFX executive director Sean Kio said the CUDs were close to signing a deal with Google Fiber when they were notified that the financial viability of Lamoille Fibernet was “of concern.”
The discovery of inaccurate financial modeling for Lamoille caused Google Fiber to pull out of the deal.
A key point in the pending agreement was a minimum number of addresses to be connected. Without Lamoille’s 13,000 addresses, NWFX’s 30,000 households in Franklin and Grand Isle counties and Milton were not enough to keep the ISP on board.
In March, the possible deal had Google Fiber providing the CUDs over the next 30 years with a minimum of $45.8 million in guaranteed revenue, according to a March Messenger article.
The money would be used to build the network at an approximated cost of $109 million. The rest of the money for construction was going to come from state grants
NWFX and Lamoille had signed a Memorandum of Understanding, essentially tying the two organizations operationally and financially, Kio said in an Aug. 23 interview. That MOU is no longer, though the CUDs are now seeking a new MOU that is based on more general collaboration and communication.
How it unraveled
On July 29, Lamoille Fibernet notified Kio of a problem with its financial model. The CUD had lost faith in the company that had initially provided it.
“Initially, our modeling…indicated that though it wasn’t financially wonderful, that it teetered on the possibility of being viable with the advent of bringing in commercial entities,” said Val Davis, Lamoille Fibernet’s executive director, in an Aug. 24 board meeting.
With new data, Davis realized Lamoille’s involvement in the Google deal had the potential to turn the whole thing upside down.
Davis said in an Aug. 25 interview that prior to him coming on, the CUD existed as a volunteer-only board for over a year. The financial modeling Lamoille was using in discussions with Google Fiber was from a company that was hired during that volunteer period.
But Davis said the CUD’s faith in that company slowly dwindled when the potential deal prompted them to go back and do more financial modeling. As drafts kept coming in from the company, the board realized they were often filled with mistakes, Davis said.
After three rounds of data that were riddled with big errors and problems, the board opted to look elsewhere, and Davis negotiated a reduced payoff on their contract. Lamoille signed on with the National Rural Telecommunications Cooperative instead. The new financial models and data painted a different picture than previously seen.
To start, the previous company had overcounted the amount of addresses Lamoille’s infrastructure would cover by 1,300. Where it was previously thought Lamoille would cover 14,114 addresses, it is now 12,780 addresses, Davis said.
This, however, was not enough to flip the deal, as the combined CUDs address count still reached Google Fiber’s minimum provision.
The deal wasn’t viable for Lamoille for a number of reasons including that the $16 million in revenue, which Davis hoped to reach with Google, was to be paid over the next 30 years and actually represented $10 million when inflation and the consumer price index were taken into account.
In addition, the previous company had greatly undercounted the amount of underground infrastructure Lamoille would have to build.
Previous modeling had estimated underground infrastructure would make up about 5% of the CUDs’ total fiber infrastructure; in reality it is closer to 12%, representing an $8 million difference in construction costs, Davis said.
Both a model created by the NRTC and a model created by a Lamoille board member showed that the Google Fiber deal would not work. The CUD had thought its construction would cost around $40 million; the new number showed it was pushing closer to $50 million, Davis said.
“They both showed that there was no way the deal that Google had put on the table for us, would be viable for us in the long term,” he said. “It put us in a very bad financial situation. In the first year, we were upside down and it continued that way, for about 10 years.”
Davis said Stowe specifically makes up a large portion of the underground construction with subdivisions there not allowing for overhead construction. He said the new models show the CUD would need to borrow money every year in order to stay cash flow positive.
So at an Aug. 3 special governing meeting, the board members of Lamoille had to make a decision: do they pull out of the talks with Google Fiber altogether or do they share the data with Google Fiber and let it make the decision?
Davis said the board opted to share the data with Google in the hopes that the ISP might be able to come back with a deal that would be viable but Google pulled out.
Davis said he views the discovery as a win — the CUD doing due diligence and preventing signing onto a bad situation for a long period of time. He also said that Google was a great partner to work with that was going to deliver on what they promised.
“It just wasn’t enough for us,” he said.
What now?
Looking to the future, both NWFX and Lamoille said they are moving forward with their individual missions in mind.
Davis said Lamoille has just ordered its first batch of fiber, 50 miles of it, and expects 500 customers to be connected by the end of 2023. Kio said NWFX is continuing its engineering and execution planning as well as continuing its ISP search.
When asked if all future ISP agreements will hinge on two CUDs coming together to aggregate demand, Christine Hallquist, executive director of the Vermont Community Broadband Board, said the CUDs work fine independently as well.
“Other states try to do this town by town, which really becomes problematic,” she said. “But we’ve got a nice balance, because it [CUDs] allows the regions to provide for the uniqueness of their region, but at the same time provides enough aggregation to make a business model work.”
As of right now, NWFX alone was not enough for Google Fiber.
Kio said that agreements are always going to have provisions that both sides are going to have to meet.
“We understood from the beginning that an entity like Google Fiber was seeking a minimum location count and that we needed to work together with another CUD,” Kio said. “We, in a sense, tied the two organizations together to try to make this happen … We knew there was a risk.”
But NWFX is still moving forward.
“We feel that our business model has a lot of merit, that we’re on the right track for availability, access, affordability,” Kio said. “We think our model will best serve our communities. We just need to find that first tenant to really make this work.”
