Fulfilling a Vision of Small-Town Broadband

When they set out on their own in 2012 after more than two decades working for one of the most revered names in the cable industry — the late Bill Bresnan, founder of Bresnan Communications — Jeff DeMond and Andrew Kober had a clear vision of where their respective futures lay. Broadband was the key.

July 9, 2018

July 9, 2018

But not just any broadband. DeMond, CEO of Vyve Broadband, one of this year’s Independent Operators of the Year, said he and Kober, Vyve’s chief financial officer, specifically looked for rural markets, territories that were essentially being shunned by larger, more established operators.

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“We still thought upgraded broadband networks were the best delivery platform for all the advanced services that were known and seemed to be coming, and that rural markets were still attractive and obviously still are underserved,” DeMond said. “They have lower competition and, important to our investment, they had slower broadband adoption. That gave us a window to say, ‘Where could we go to do what we believe we do well, based on the experience of our core team and all that have joined since?’ We looked around for that kind of opportunity and we ended up finding two companies.”

Saw Opportunity From Trouble

Those two companies were Allegiance Communications, a small operator with systems in Oklahoma, Texas, Arkansas, Kansas and Missouri; and James Cable, with operations in Oklahoma, Texas, Louisiana, Tennessee, Georgia and Wyoming. Both companies had experienced some trouble. James had gone through a 2003 bankruptcy and several failed buyout attempts, and Allegiance was hampered by outdated plant.

“We looked at [the acquisitions] and said it’s the perfect opportunity for us to create a platform,” DeMond said. “And we think we have enough time to build a very advanced network throughout that footprint.”

While both companies were “capital-starved,” Kober said, Vyve (then called BCI Broadband) replaced set-top boxes and CMTS equipment; swapped old DOCISIS 1.0 and DOCSIS 2.0 units with DOCSIS 3.0 gear; and started construction on a 550-mile fiber ring network linking the systems and the surrounding communities.

Only about 30% of the former James Cable systems were 750 Megahertz or better when Vyve first closed the deal, Kober said. And though sinking large amounts of capital into a rural rebuild was something other companies looked at but found too costly to justify, DeMond and his team had been down this road before.

“In 30 or 40 years of doing this, we figured out what the hard parts are and we try to design solutions that are cost-effective to address those,” DeMond said. “These two companies had been hurting for a while. They were undercapitalized; their customer bases were underserved. It was a heavily, heavily video-centric customer base. … We have converted that entire customer base into a very heavily data-centric customer base of much higher credit quality. The whole business, including its customers and the network, has been turned upside down.”

The network rebuild was completed for the most part in 2016 and required about $150 million in additional capital investment. But a faster, higher-capacity backbone meant the company could provide faster internet speeds and stack more services on a thicker network. It also opened the door to a commercial services business that neither James nor Allegiance could offer before.

Vyve team members in Shawnee, Okla., celebrate their win as "Best Local Internet Provider." 

Vyve team members in Shawnee, Okla., celebrate their win as "Best Local Internet Provider." 

“That was our objective from the beginning, to position ourselves with data-hungry customers,” DeMond said. “Today, if you worry about losing video customers in the traditional sense, what you’re gaining are data customers that watch YouTube or video over the top. That’s the customer base we have today. We’re happy with that.”

That data-hungry base is growing. Vyve doesn’t release specific customer data, but it says it passed 300,000 homes and has about 70,000 total customers. Broadband subscribers outnumber video customers by a 2-to-1 margin.

In some of the markets where Vyve launched higher-speed data service first, it has seen an increase in service penetration of greater than 10 points, Kober said. Recently, in other markets where high-speed data is launched initially, DeMond said it is typical to see greater than 20% data penetration within a year.

Plus, with overall data penetration across the footprint at less than 30%, there is ample runway for growth.

Getting the Message Out

With the nuts and bolts of building the network finished, the emphasis now is on getting the message out. Vyve has evolved from “a construction company to a sales and marketing operation,” DeMond said, doubling its sales staff in the past year.

“It shows that we’re out there trying to optimize and monetize the investment that we’ve made,” he said, adding that in its 550-mile fiber ring, it currently only uses a fraction of the fiber lines available in the network.

“We only use four fibers out of a minimum of 48 around the ring, and it goes as high as double that or more,” DeMond said. “We’ve got tremendous capacity to sell and to use to extend service to customers, commercial and residential.”

Commercial services continue to be an untapped but growing opportunity, DeMond said. Such business currently represents 12% of total revenue and is growing at double-digit rates year-over-year on the back of Vyve’s 550-mile fiber network.

Vyve was recently certified by Verizon as a preferred provider, building a small-cell backhaul network for the phone company in Kansas, and it’s doing similar work for T-Mobile.

“We’re providing carrier-level products and services that none of the predecessors have thought about, let alone committed and invested enough to do it,” DeMond said.

Vyve is offering commercial service to mostly small and medium-sized customers — there are a large number of home-based businesses in its territories — but is also putting its foot forward with larger institutions like hospitals, government and education.

“We try to make sure we have every hospital, significant school system or college that we can legitimately serve well; we partner with them to make that happen,” DeMond said, adding that Vyve has had growing success transitioning from being the backup network for commercial customers to becoming the primary provider.

“It’s constant relationship-building and sales and marketing effort,” he said.

Broadband, with its higher margins, has been the focus for several operators for years. Beginning in 2015, large and small operators alike watched high-speed data customers outpace video subscribers, with broadband taking the lead for good in most operations in the following year.

Many smaller cable operators have focused on broadband for a simple reason: It costs less, Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said.

“They simply don’t have the scale, even when getting programming through the NCTC [National Cable Television Cooperative], to make a return offering video,” Wlodarczak said of small operators. “Given that content players are getting bigger through M&A and a big part of their ‘synergies’ is using their increased size to push through even greater price increases, it is inevitable the smaller players are going to focus mainly on data.”

Smaller operators like Vyve have led the way for broadband-only service. And as streaming video quickly gains steam — Netflix has 57 million domestic customers and Hulu claims 20 million — the need for speed is growing exponentially.

With the new fiber network, speeds are rising rapidly. Kober noted that when the James Cable and Allegiance systems were first bought, they offered speeds barely faster than DSL.

Earlier this month, Vyve announced that 300 Megabits-per-second service was available in 90% of its footprint, with plans to expand 1 Gigabit-per-second service across 70% of its service area.

Vyve hasn’t given up on video, which remains an important part of the business. But it has figured out different ways to package and present video that are more appealing to a growing number of younger customers.

For example, Vyve in the first quarter launched XStream TV, a hybrid video and data offering that allows customers to watch some traditional networks as well as streaming staples like Netflix, Hulu and YouTube. Powered by TiVo, the product already is having an impact.

Like Comcast's X1

The XStream TV service is a lot like Comcast’s X1, DeMond said. It has a state-of-the-art user interface (from TiVo), a universal search function and a voice remote due in early fall. That functionality, and its focus on streaming video, also means that customers need higher data speeds to accommodate it.

“It is really focusing the customer on taking 50- to 105-Mbps data service from us, because that’s who that customer is,” DeMond said. “They get this XStream box, and they enjoy that video experience, but what we’ve done is positioned, now almost more than any other speed, that 105-Mbps customer.”

That customer is one who can’t be served by the competition. According to Vyve, most of its rivals — AT&T, CenturyLink and Windstream — mainly offer digital subscriber line-like speeds (of up to 8 Mbps) in Vyve’s service areas.

Providing robust and reliable data streams are a key part of the customer equation, but Vyve believes what sets a small operator apart is its commitment to the local community. Whether it’s bringing the C-SPAN bus to local schools, honoring teachers in their respective communities each month or just passing out snow cones at a local splash park on a hot day, Vyve sees community involvement and commitment as an integral part of its success.

“The C-SPAN Cities Tour and C-SPAN’s Bus recently spent time in Oklahoma profiling the history and literary life of Shawnee and visited schools, universities and city hall,” C-SPAN’s Peter Kiley said. “Vyve’s dedication to serving small towns, particularly their support of local educators, is a testament to the good things cable offers in communities nationwide.”

Senior vice president of marketing and customer experience Diane Quennoz said that is particularly essential in smaller communities.

Vyve events can become a big deal in the towns it serves. Quennoz highlighted one such event: its annual Christmas Card Art contest, a partnership with Hallmark Business Connections in which preschool to junior high school students compete to have their art selected for Vyve’s official Christmas card, which is distributed to 200,000 homes. The party to announce the winner regularly gets hundreds of attendees.

“If you do this in New York City, it gets a ‘What, Who?’ [With] this, the mayor, the city, the council, the county, everyone comes out,” Quennoz said. “There are probably 700 people that come out to celebrate that winner and that town.”

The company regularly conducts other weekly events, Quennoz added, like “Friday Night Vyve Player of the Week,” where the company highlights an outstanding high school athlete; “Random Acts of Vyveness,” where employees do something nice for the community, like passing out doughnuts at city hall, buying lunches or handing out free snow cones at the local splash park; and “Guns and Hoses,” where local chiefs of police and fire chiefs speak to the community.

“It’s not stiff,” DeMond said. “It’s not some corporate suit coming in and giving them a big check. We do the big check thing for photo ops, more for their benefit than ours. It’s local people they see and talk to all the time.”

Sometimes those local communities can step up in other ways. DeMond remembered one local community that wanted Vyve’s Broadband service but was located too far outside its network for the company to offer it economically.

“They said, ‘Let’s not stop talking about it, let’s figure out what the community can contribute to the construction costs to get over the hurdle of getting here, because we want your service,’ ” DeMond said. “Through some extended negotiations around that to get all the constituencies on their side, to get it approved, it was successful. We did it and we’re building that market now.

“The short answer is we work harder,” De- Mond added. “It’s easy to not do things. It’s sometimes very hard to do things. But you can put your shoulder into it and work with smart people, of which there are many in these rural communities. They’ve got extremely vibrant, excited economic development people. They’re just trying to make it work. They’ve been living on 8-Meg DSL, and it’s killing them, and they’ve got to solve the problem. And they are motivated to do so.”