Can a Co-op Run a Telecom?
YES. There are more than 250 telecom cooperatives in the US. Together these are conservatively estimated to have $3.9B in revenue, provide 23,000 jobs, pay $1.3B in wages, and produce $1.8B in value-added income. As with food co-ops and electric co-ops (which also have good alignment of owner and customer interests) telecom co-ops are competitive and have high customer satisfaction. Importantly, the profits remain local; they are returned to the owners. Co-ops are a proven business model. Some telecom co-ops have been going strong since the 1920’s. Many have grown and acquired neighboring, private telecoms.
Here in Burlington, we know the cooperative model can work for a variety of businesses. We have 18 co-ops, including credit unions, housing co-ops, media and software co-ops, farm co-ops and, of course, groceries as evidenced by City Market, with over 12,000 members and annual revenue of over $41M (2016).
Here in Vermont, we know the cooperative model works for electric utilities, like Vermont Electric Cooperative, with 32,000 members and annual revenue of $77M (2015), insurance companies, like Cooperative Insurance Companies in Middlebury, with over $73M in premiums (2016) and 45,000 members, and credit unions, with over 340,000 members across the , State, and over $3B in assets. (2016).
That’s why, after a lot of thought, we’ve come to believe that a for-profit cooperative would deliver the best mix of sound business practice, willingness to make the necessary investments to develop Burlington Telecom, and responsiveness to subscriber needs.
Some important details…
Cooperatives inspire fierce customer loyalty
One of the things all co-ops have going for them is their ability to inspire fierce loyalty in their members. Telecom co-ops are no exception. That loyalty is a real asset in a market where companies are constantly trying to steal customers from one another.
Excess profits are returned to member owners
All businesses value loyal customers. It’s widely understood that people value what they pay for. Corporations try to tap into this with customer loyalty programs – “Pay $50/year and get free shipping and discounts!”, etc.. Co-op members pay a one-time amount to purchase a “share” of equity in the company. That share entitles the member to various benefits, like discounted prices on goods and services. Unlike the “membership” fee at the big retailers, however, a co-op member share is actually a piece of the company, like a share of stock. The money from the share is used by the co-op to fund capital expenses.
At City Market, for example, a share costs $200. It can be purchased all at once, or the payments spread over time (as little as $15.00/yr.). The share cost for a BT Cooperative would be a little more ($250), but once the share is fully paid for, there are no continuing charges. And the share is fully refundable. If the member leaves, she or he gets the money back.
Furthermore, when the co-op makes a profit, when income exceeds operating costs and capital needs, the excess is distributed to members as a “patronage refund”. In 2016, for example, City Market distributed over $650,000 in cash to its members. The 2016 average payment was over $57 /member. Try that at Costco or Amazon!
Cooperatives help each other
People like to talk about what they own. Especially if they feel like they’re getting a deal. This adds up to a lot of free advertising.
Speaking of advertising, co-ops typically help each other. Furthermore, people who have experienced the benefits of one type of cooperative are likely to be receptive to another. Burlington’s City Market currently has over 12,000 members, with about 80% of them residing in Burlington. Besides being an indicator that the Burlington area is fertile ground for cooperative ventures, those City Market members would be prime candidates for membership in a cooperatively-owned BT.
Telecom Co-ops are managed by telecom experts
When food co-ops became popular in the 1970’s, lots of idealistic folks started co-ops. In some of these, the board of directors, or even the members became so bogged down in the details of daily operation that the co-op eventually failed – a classic situation of “Too many cooks spoil the broth”. Serious cooperatives of any kind are not run that way anymore. A more practical model, called Policy Governance®, emerged that kept cooperative principles intact, while running smoothly. Under Policy Governance®, the Board of Directors is directly accountable to the organization’s owners. It sets policy, then hires or appoints management to carry out the policies. This is the model used by Burlington’s City Market, which has allowed it to flourish in the fiercely competitive retail grocery market. A BT co-op Board of Directors would hire management with telecom experience and expertise.
Customer-Centered Business Model
“Cooperatives are democratic organizations controlled by their members—those who buy the goods or use the services of the cooperative—who actively participate in setting policies and making decisions.”. This means that the members of a co-op are the ones who get to decide what level of services, including customer service and support, they will receive. If City Market is any guide, BT co-op members will demand – and receive – a very high standard of service.
The Power of Being Local
Hiawatha Broadband Communications (HBC), considered to be one of the nation’s best telecommunications companies, and a U.S. Ignite partner, is similar in size to BT, but has been much more successful than BT in a similarly competitive environment. They were brought to Burlington to study BT and recommend improvements.
One of the many strategies recommended in HBC’s report to the Blue Ribbon Commission was that BT “Leverage more effectively” our area’s “buy local” sentiment. This is a strategy that HBC itself follows, and one that is made-to-order for a cooperative. It doesn’t have to cost a lot, either.
Profits generated support locally chosen community priorities
Another way that HBC gains stature in its service area is by “giving back”, maintaining a deep, wide ranging commitment to community service. This is the kind of thing a cooperative naturally does. In fact, it’s encoded in the 7 Co-op Principles. For example, have a look at how City Market shows “Concern for Community”: In 2016, City Market donated over $308,000 to local non-profits, while it;s members did over 17,000 hours of volunteer work at 20 local, non-profit community partners.
So, we believe that a cooperative would be a competitive and superior ownership structure for BT. It would naturally inspire loyalty, while being responsive to the needs of its subscribers as well as fulfilling its potential to turbo-charge Burlington’s economy.
Keep BT Local co-op will keep BT locally owned and controlled
Since a BT Cooperative will be owned and controlled by and for the benefit of its subscribers, each with only one vote, there is strong incentive to keep it that way.
Now that the Citibank lawsuit has been settled, and the City of Burlington must relinquish ownership of BT, if we want to make sure that BT stays locally owned and controlled, the Keep BT Local Board must develop a financing plan and purchase offer acceptable to the City of Burlington and the Public Service Board. We must both be able to demonstrate strong community support for local ownership and have a competitive offer to present. Without both of these, we risk BT getting sold off to the highest corporate bidder.
Now…
- Help us advocate for a co-op BT!
- Help us buy BT!