Three years ago, small towns like Fairfax, Gaylord or Winthrop, Minn., were in backwater country as far as internet was concerned. For the same prices paid for much faster internet in the Twin Cities, Fairfax residents spent more time watching Netflix download than they did watching Netflix movies. When a local bank’s internet couldn’t handle uploading a transaction file, the best options was to “dial for megabits,” as one banker put it. That meant calling the outstate call center of a nationwide cable company to bother them until they turned up the speed.
All of that has changed for the towns of Renville and Sibley Counties, which sit about an hour west and southwest of Eden Prairie, respectively. Residents had 10-megabit download speeds before, now they have access to download speeds that can reach 10 gigabits, that’s up to 10,000 times faster than their previous internet options. At that speed, an entire movie will download nearly instantaneously.
What brought about such significant change? It wasn’t newfound favor from the nationwide cable companies. It is RS Fiber, a local broadband cooperative formed by community leaders in Renville and Sibley, that has so improved the area’s digital prospects. And, at the center, as any ICBM member would expect, is the expertise, the local dedication, and the capital of community bankers.
While slow internet might seem a small nuisance, it is a significant economic deterrent. In 2010, The First National Bank of Fairfax’s operations were hampered by its 5-megabits of download speed. It could take hours, rather than minutes, for the $30 million bank’s staff to get simple tasks done like uploading transaction files to an online server.
In neighboring Sibley county, commercial businesses could start a data backup in the evening and it would still be running in the morning. Even bank customers who lived in town could forget downloading e-statements in a timely manner, said Sue Keithahn, President and COO of the $120 million ProGrowth Bank, Nicollet. “For our bank, if we wanted to utilize a more secure, remote data center, it was just out of the question,” she said.
Community leaders began to see that without proper internet service Renville and Sibley counties would soon become what an RS Fiber board member called a “reverse economic oasis.” Residents would tire of driving their kids to the library just to get decent internet access, their inability to work remotely, or of their inability to video call with family. Local entrepreneurs who might otherwise have preferred to start a business in their hometown would go elsewhere to gain dependable access to the rest of the world.
“Internet really is the fifth utility,” Keithahn explained. “We were beginning to be like a desert rather than an oasis. With the Twin Cities so close by, the flow of people and businesses was away from our area to places that have connectivity. We just weren’t going to get economic development, or growth in housing and healthcare, without modern internet. Everything is delivered electronically today.”
Community leaders saw clearly that Renville and Sibley were not priorities for the nationwide internet providers. Robert Dickson, CEO and owner of The First National Bank of Fairfax, wrote the bank’s internet provider often to demand improved service. After he suggested in a letter that their neglect could become a class action lawsuit, they promised to make infrastructure investments. But, when they finally did, “the installers informed us that the ‘new infrastructure’ was just used equipment from other places,” Dickson said. “It was time to try for something better.”
In 2010, community leaders from the economic development authority in Winthrop and government leaders in the counties’ 12 cities and 21 townships, began to gather support to build their own television, phone and internet provider. The price tag, though, was $70 million.
The counties first attempted to raise enough to pay for the project through a joint Renville-Sibley powers board. The plan had a significant flaw. If the two counties obtained financing by issuing a joint revenue bond, then one county could be left on the hook if the other couldn’t support the payments. The model just didn’t work as a two-county strategy.
“Then the idea of a cooperative took hold,” said ProGrowth Bank Chairman and CEO Phil Keithahn. “Rural Minnesotans understand the idea of community members coming together to form something that no single person or company could afford alone. That’s where RS Fiber came from, people in Renville and Sibley coming together.”
In 2013, Phil Keithahn joined the board of RS Fiber as a representative of Gaylord on the condition that he could access all the consultants’ reports and financial models. After two months’ analysis, Keithahn didn’t believe the $70 million plan was viable. He suggested RS Fiber hire him to put together a deal that would work. They accepted at the end of 2013. For the next nine months, Keithahn worked with government leaders, outside consultant, and a Winona-based fiber-optic network called Hiawatha Broadband Communications to put the deal together.
With its experience on similar projects in the southern parts of the state, HBC developed a strategy to significantly reduce fiber-optic broadband’s price tag. Rather than installing a new video headend in Winthrop to receive the television signal, HBC suggested utilizing its headend in Winona. This change alone brought the price down by around $8 million.
Next, HBC suggested splitting construction into two phases. “They recommended that RS Fiber build out and connect the cities first while using air broadband towers to provide faster internet to the farms,” Keithahn said. “The second phase would be to bring fiber to the townships, and to every farm, once RS Fiber had sufficient subscriber revenue from the first phase.”
By 2015, the plan pulled together by HBC had decreased startup costs by as much as $55 million. RS Fiber brought the following proposal to the cities and townships: In phase one, the cities would run fiber to every home. Those outside town would also get an internet upgrade though air broadband transmitted from towers. To finance phase one, the city would issue a general obligation bond, as members of a joint powers board. The cities would then use the bond proceeds to lend $8 million to RS Fiber to build the required infrastructure. RS Fiber would also borrow $9 million from banks and other sources.
In phase two, the townships would issue the next round of bonds to connect households directly to the network, replacing air broadband with fiber to the homes. RS Fiber would then use its cash flow to secure other government and private financing to connect fiber to each farm and agribusiness. By April 2015, 10 cities and 17 townships agreed to the plan.
RS Fiber could not borrow without an equity investment. The First National Bank of Fairfax invested $50,000 in 2016 to purchase member stock in the company. Its investment, along with that of several other community members and companies, was a catalyst for the entire financial plan.
First National Bank of Fairfax’s investment was historic. There is no previous example of an OCC-regulated community bank investing in a rural broadband cooperative. The bank had to work with the OCC to set a new precedent under its public welfare investment authority to invest in RS Fiber.
Dickson wrote a letter to the OCC in 2015 inquiring about investing in RS Fiber. It arrived on the desk of Tim Herwig, a rural Minnesota native and District Community Affairs Officer for the OCC in Chicago, who knew of the importance of broadband upgrades for rural areas.
“When Tim contacted me, he provided us the steps we needed to take to get approval to invest,” Dickson said. “When Tim heard that our bank didn’t have the resources for that kind of project, he took it upon himself to pull the documentation together.”
With Herwig’s help, the OCC approved First National Bank’s investment under the public welfare investment authority. “Government and the private sector can partner to make good things happen in the community. It was an honor to be a part of it,” Herwig said. “This project illustrates how important rural community banks are in securing the future of their communities.”
Once the cities committed, RS Fiber needed only to find lenders to begin construction. Three community banks – the $164 million Cornerstone State Bank, Montgomery, ProGrowth Bank, and The First National Bank of Fairfax – provided $7.5 million in loans in partnership with local investors who bought participations. Another $1 million came from a USDA loan through the Renville-Sibley Cooperative Power Association. The Rural Electric Economic Development Fund provided $1.5 million.
RS Fiber, which is headquartered in Gaylord, completed its third full year of construction on July 1.
Residents in the cities are now connected and people outside the cities have access to air broadband. RS Fiber already has over 2,000 of the 6,600 households it plans to serve. Two years from now, if it continues its current trajectory, it will reach a critical mass at 65 percent market penetration.
Customers are flocking to the new provider in town at a rate of 80 to 100 per month. They come for great internet at a great price. ProGrowth Bank has been able to remove one data line that cost $400 a month that offered only 100-megabit download speeds. In its place, the bank signed up for a $300 a month plan with RS Fiber that provides 500-megabit download and upload. “You can get 1-gigibit service for $100 per month,” Phil Keithahn said. “The combination of fast, reliable, and affordable internet speed is much greater than the impact on the cities from principal and interest payments on the general obligation bonds. In fact, the average cost per homeowner for the debt service is much less than the value received from better internet service at much lower prices. And, we can use our internet to recruit businesses and homeowners. This was truly a win-win-win scenario for citizens, cities, and our local economy.”
Modern internet is also a quality of life upgrade for Renville and Sibley counties. It means access to digital education tools, and greater participation in the state, national and international economies. It also promises opportunities for other community enhancements, such as Phil Keithahn’s other big project, a proposed osteopathic medical school in Gaylord.
Far from becoming a reverse economic oasis, community leaders and community bankers now turn their attention to setting a very attractive offer before individuals and businesses in other parts of the state: Come live in Renville or Sibley counties, you’ll get a low cost of living, rural lifestyle, no commute, and one of the best internet providers in Minnesota.