Glenn Zerbe: Wireless is going to be the big winner, it looks like. They’re projected to grow 20% annually throughout the decade. So we’re looking at wireless, we’re considering some emphasis on wireless to augment our fiber construction.
We’ve all seen fixed wireless for 20 years and it’s never really gotten a foothold. This time it clearly got a foothold and it’s moving towards considerable share. I believe that on an absolute basis, forget the percentages that fixed wireless is growing faster than fiber right now. That’s how successful that fixed wireless deployment has been and we just can’t ignore that.
Jeff Johnston: That was Glenn Zerbe, president and CEO of Nuvera Communications, about the increasing role fixed wireless networks will play in connecting Americans to the internet.
Hi, I’m Jeff Johnston and welcome to the All Day Digital podcast where we talk to industry executives and thought leaders to get their perspective on a wide range of factors shaping the digital infrastructure market. This podcast is brought to you by CoBank’s Knowledge Exchange group.
The broadband market is going through a transformation as our world become increasingly digital, and AI bleeds further into how we live and how we work. And the way broadband services are being delivered is also changing. There are new technologies and market players that are forcing incumbent operators to rethink their business strategy. I invited Glenn onto the podcast because he is living this reality every day. Glenn is a forward-thinking CEO that is laying the groundwork to ensure Nuvera is well positioned for future growth.
So, without any further ado, pitter patter, let’s see what Glenn has to say.
Glenn, welcome to the podcast. It’s a pleasure to have you on. How have you been?
Zerbe: I have been well. Thank you for having me.
Johnston: Great. Well, I’m super excited to to have you on today to get your perspective on, the latest and greatest thinking in the broadband industry. It seems like things are moving at a pace faster than anything we’d seen before, new competitors, new technologies. And so I definitely want to get into how you are navigating these market dynamics. But hey, Glenn, before we get into that, maybe you can just provide our listeners, you know, a little bit of background on who Nuvera is.
Zerbe: Yeah, we are 120-year-old company, actually. We started in 1905 as New Ulm Telephone right on Main Street, Minnesota Street, in New Ulm.
There’s some interesting, some interesting background to some of that is actually started at and at the Grand Hotel on Minnesota Street the same hotel, interesting enough that the Mayo brothers 42 years earlier started a temporary hospital to treat soldiers for gunshot wounds, so.
Johnston: Wow.
Zerbe: It turns out that these two English surgeons had an extraordinarily high survival rate. At the time, surgery was not a good outcome, but we now know they washed their hands and their contemporaries did not, and the rest is history.
So the same building also produced new home telephone company started by farmers. We’ve grown through the years. We now serve about two dozen communities across southern Minnesota and we think of ourselves as a technology and connection provider to residences and to businesses. So that’s just a little background on our company.
Johnston: Thanks for sharing that. So let’s get into it, Glenn. Well, this is sort of a big question—when you look back over the last five years or so, how did you navigate that post-COVID, transformational time we went through? And then as you look out the next five years or so, how do you see the market conditions changing and you know, what are the things you’re kind of thinking about? I recognize this is a big, broad, open-ended kind of question, so take it, any way you’d like, but maybe we can start with that.
Zerbe: Yeah. So what I, you know, I think for better or for worse, my background when I was when I got out of college, I was building mainframe computers in Poughkeepsie, New York for IBM. And so I had a lot of history in looking at performance of computers and computer networks and so I knew what performance curves and peak demand and the like look like.
And when COVID hit, I immediately started working with our network engineers and we were watching in real time the utilization, peak utilization. Every morning we look at the prior day broken down into 15-minute increments and we saw these flat tops appearing everywhere. And if your world is looking at performance curves, you know that flat tops on a performance curve means that there’s latent demand, meaning that demand has exceeded the ability to deliver. And we’d never seen those in our network before. You always had networks that were way too capable.
We very quickly surmised that the demand was going through the roof in real time and then at the same time we speculated that the reliance upon our network had never been higher. We had fairly high share at the time and I was a little bit panicked that if we failed to meet the customer’s needs in that moment that we’d lose them, not then, but when COVID cleared itself, cleared itself up.
Over nine months, during COVID, we doubled the backbone of our of our company, split segments. We did everything. We lifted caps on delivery of bandwidth to people. We did everything we could to meet their needs at least minimally, so that the customers didn’t notice. We were about 4% fiber to the home at the time. In the background, doubling the capacity of our network on a network that really just had seen its useful life, we started planning for fiber across our across our entire network.
In 2021 we started our first test networks. I think I mentioned we were 4% fiber. We added another 3% in that year, so we managed to get to 7% fiber. We started mass rollouts in 2022. Today we’re pushing 70% fiber on our way to 80% plus fiber. So we’ve made rapid, rapid progress in four years. This is our fourth full year of building. And we’re about 25% bigger, meaning at the same time we’ve overbuilt ourselves, we’ve also been edging out to look at new communities. When we started the process, we hired a firm to help us map demographically the entirety of southern Minnesota overlaid our fiber footprint, and drew five-mile circles around our fiber distribution and picked off towns that we thought were underserved or unserved that we could bring into the community, Nuvera community. And so that’s the work we’ve been doing.
We’ve brought about 90, maybe as much as 95% of our customers along with us in this transformation, which is, we’re very proud of. Through strategic intent, which I’ll talk about in a minute, we only face another fiber provider in one of our markets. So we’re 93% exclusively Nuvera fiber in the areas that we serve. And we did that by building broadly. So in our first year we built across the entirety of all of the communities we serve in small, small amounts. So if a community was 2,000 passings, maybe we built 400 passings in that community. And that was to send clear signals to the community that we were there to invest, clear signals to the customers to hold on, we’re coming, and clear signals to our competitors. We’re not, you know, we’re not giving up on the geography, we’re going to be building fiber in these areas.
And that was very successful for us. Now we’re seeing a little less discipline today. We have some concerns about some larger providers now not so willing to ignore where people have already built. So in some of our biggest communities we have some concerns that a Gigapower and others might be less disciplined, but that’s carried us this far and it’s allowed us to bring all those customers in the journey with us from a copper network, a DSL network, to a fiber network.
Johnston: That’s just amazing growth. I mean on fiber deployments because if I think back over that time period, labor was really tight for a number of years and expensive, right. There were supply chain bottlenecks and so despite all of those headwinds you guys were able to deploy that much fiber over your networks, that’s amazing. So kudos to you guys.
Zerbe: We have a great set of partnerships and contractors that we’ve worked with for years. We’ve been with the same construction companies from the beginning on this. They’ve done great work for us, and with us.
Johnston: Wonderful. Hey, Glenn, you, I want to just go back to something you touched on towards the end and it sounded like fiber overbuilding risks, right. I mean we often hear that that’s never going to happen. If you plant your fiber flag first, chances of somebody coming in overbuilding you with fiber in these markets is low, but it sounds like you might be thinking that may not be necessarily the case all the time. So we’d love to get some additional thoughts on that, please.
Zerbe: Yeah, I think some of the large, large current participants, new entrants into the fiber market, the wireless companies specifically, are less interested in maintaining that discipline. They’re more interested in reach than worrying about what the competition looks like for fiber in some of those markets. We see, T-Mobile building in some places that are already built through Metronet. We see Gigapower doing the same. These are, you know, late entrants to the large capex fiber deployments and they seem less disciplined. The existing participants had come to some type of understanding that there was enough to be done, it wasn’t worth over-building each other quite yet.
And so we have markets that we share with people in that we built half and then they they started at one end of town, we started at the other end, we met in the middle and we both just stopped, you know, because we knew we just didn’t want to get, you know, try and compete with the other person and split the market. Building fiber requires incredibly high share to make it, to make a payoff on it. We’ll talk a little bit about that I think today but splitting a market yet again with another fiber provider, I think is problematic for profitability and a return on capital.
Johnston: Yeah, no, that’s that that makes sense and it’s certainly something to watch out for. So I mean, it looks like you guys did a great job building this fiber network and it almost seems like you were able to look around the corner a little bit to see what was coming. But talk to me a little bit Glenn about your vision here for the next let’s just say five years as you look out over the landscape whether it’s overbuilding or new technologies like LEO satellites or fixed wireless. How do these sort of emerging competitive dynamics impact or shape your strategy going forward?
Zerbe: The strategy is really shifting right now that we it just so happens we this conversation, the pandemic, you know was in the beginning of the decade. Now we’re planning out towards the end of the decade. When we put our plan in place in 2021, we we said it was a five-year plan. We’re in year four. We kind of hoped we would just continue that through the end of the decade, but that’s not really the case. When we started, there were two viable technologies. There was coax and fiber. Now there are three viable competitors. Wireless is clearly a viable competitor in there.
And there’s a fourth one on its way in terms of LEO. We haven’t seen really any impact from Starlink, but we think that could change. We think better bundles, better pricing, maybe even lower low earth orbiting satellites, which I know they’re developing and trying to get approved. All these things could reduce latency, improve bandwidth, potentially reduce cost bundles into other products. All of these things, you know, give us some concern that we’ll see a fourth viable competitor by the end of the decade, maybe even sooner, sooner than that.
When we look at when we’re starting to build charts now across the decade and we think on a compounded basis, it looks like this coax is going to shrink 2% annually throughout the decade. Fiber is going to grow at about 10% compounded annually. The DSL companies are down about 10% a year. I would tell you the way to think about DSL is that every five years, it’s getting cut in half at this point and most of those customers are going to fiber, some are going to wireless, but if you add up copper and fiber and think of them as as largely the traditional wireline business outside of the cable companies, the compounded annual growth for that business is less than 2% per year over the decade. You know, it’s been a real struggle for the traditional ILEC community.
Wireless is going to be the big winner. It looks like they’re projected to grow 20% annually throughout the decade. So we’re looking at some wireless, we’re considering some emphasis on wireless to augment our fiber construction to meet the basic needs of customers. So some customers wireless I like to say is good enough, but that’s really not the right way to say it. It meets their needs. And to the extent that we can make an offering that meets their needs and compete in that, we think there’s room for us in there and there’s it’s clearly one of the faster growing segments.
We think it potentially moves more quickly to generating some revenue and it also allows us to build a bridge while we continue to put fiber in the ground for those customers. We’re thinking that the second half of this decade has a slight spin on a slightly different strategy. It’s certainly a different competitive position than the first half of this decade. And that when you said seeing around the corner, we all knew about fixed wireless. We’ve all seen fixed wireless for 20 years and it’s never really gotten a foothold. This time it clearly got a foothold and it’s moving towards considerable share. I believe that on an absolute basis, forget the percentages, that fixed wireless is growing faster than fiber right now. That’s how successful that fixed wireless deployment has been and we just can’t ignore that.
Johnston: Just so I’m curious Glenn, I mean if you’re an operator with a large percentage of your network or your plant being HFC, what does that future look like? I mean does— as you mentioned, the 2% annual reduction. I mean, does the ecosystem of vendors and software start to shrink and does that, you know, does that attrition rate even accelerate? Like what do you do if you’re, are in those shoes with a large percentage, I mean you just, I guess if you can you overbuild it right with fiber? But maybe that’s not an option.
Zerbe: Yeah, I mean that I’ve talked to a couple of coax providers and they don’t like it when I say this, but they don’t argue the point either. They were really successful. They were out there with best product for two decades and the DSL folks like our company, were out there harvesting the, you know, the environment, right and the business. We’re back to organic growth today. We’re not harvesting and buying new companies like we were.
But I think that coax is where DSL was 10, 15 years ago. They’re on the last turn of the crank of the technology with DOCSIS 4.0, likely. It will carry them for a little bit and they’ll be able to slow the rate of loss. I don’t think they’ll be able to reverse it. I don’t know when the right time is for them to get off the strategy of continuing to invest in that plant and look at it, the burning platform if you will, of coax was the burning platform of of copper, DSL implementation on copper. I don’t know what the right timing is. They have to decide that, but I think they’re exactly where we were 10,15 years ago. And so it’s an interesting business question.
I don’t know when the best time to have started fiber conversions for copper companies, but it was somewhere right around COVID. Companies who went 10 years early went too early. People who waited too many years after COVID went too late, they’re at the same kind of moment in time. Those companies seem to be consolidating and/or spinning out, Comcast spinning out, Cox getting consolidated, right. And I think they’re all gearing up for what their next act will be. I’m sure they’re thinking about this very conversation in the way that and maybe even in the way that we’re talking about it here, but it’s a technology I think that’s the last kind of iteration of it likely is what we’re seeing. They’re losing what, about 2 million subscriptions or a year right now, a little more. We just saw that affirmed through the recent quarterly results from Charter and Comcast. They make up the vast majority of all this.
Maybe it will slow as they increase the rate of deployment of DOCSIS 4.0, but honestly, I haven’t even seen them roll out DOCSIS 4.0 all that quickly, you know? So I think they’re, I don’t think they know exactly what the right timing is and right what the right move is. They’re all still thinking about it, but that that’s how I think about coax.
Johnston: Let’s move the conversation along here and talk about something that we want to hear a little bit more about lately and that’s open-access networks, right. So the idea of a company going in and building a fiber to the home network and then wholesaling that network out to other ISPs. How do you think about that I guess as either you know the wholesaler who’s building the network or the ISP who’s riding on the network, have you given that much thought as another prong to your five-year strategy?
Zerbe: Yeah, we’re really just starting to think about this. All year we’ve been talking about it. We’re starting to think about it more deeply now, right now and we’ll have to make a decision here in 2026 what we want to do. But open access has had some success globally, but not here in the U.S.
And we’ve seen network elements attempted to be sold before. We’ve never really had good business models to do that, but things are changing. Big money is moving into this space. We can see that some private equity with AT&T, but there there’s other groups out there that are that are building open-access networks.
Fiber to put in the ground is really expensive, and for us the balance sheet only goes so far. We’ve largely exhausted the balance sheet from our perspective from a leverage you know point of view, we don’t we’re not trying to put our company at risk to transform a company. And so that kind of leaves us with either build at the rate of cash flow generation or seek other equity investments, you know and one is slower and the other, you know, you’re willing to give up some of the future of your company. And so you know they’re both difficult tradeoffs on some of that. This is as far as we’ve gotten.
We think there’s two sides to open access, the sell side, meaning we let people onto our network, and the buy side, which is we buy access into Gigapower or some municipal build or whatever it might be. And on the buy side, which I think we’ll act on more quickly, that allows us with a reduced capex footprint to cover more customers. We think we want to participate in that. We’re actively speaking to a number of companies about what the offer and what the business arrangement might be.
The sell side is more complicated from a strategic standpoint, but it is faster to revenue. Right now we think when you build with fiber, it probably takes seven years to get a return on that initial cash outlay. It’s quite an extended run. I mean we’ve already been through the timeline. The stuff we built in 2021 still hasn’t, you know, offered a return on that original investment. We’re getting close now, but we haven’t quite gotten there. So the stuff we’re building in ‘25, we’re talking about next decade, the stuff we’re building this year. So this idea of opening maybe some of our markets where we’ve built might make that seven years look more like four or five years that might be quite attractive and allow us to build fiber more quickly in new markets. So that’s how we’re thinking about it. We’re thinking about it in terms of faster to revenue and reduced capex footprint.
There are strategic issues to consider as well, but first we’re trying to solve for those items before we really complicate the decision process with the strategic nature of it, but I it seems like to us it’s coming and maybe already here in some places and so we we don’t want to be behind the curve on that.
Johnston: That’s really interesting stuff, and I would guess if you were to, do the buy side model, what would be some of the considerations that I’m guessing you’d have to be or you’d want to be in an adjacent market or somewhere close where you’ve got some brand equity or recognition? What sort of considerations would you be looking at with that buy side model?
Zerbe: Yeah, that’s such an interesting thing. I we are, we’re really focused in southern Minnesota and we’ve watched other companies be more geographically agnostic. We think that that focus is really paid benefits for us. Communities know about us even if they’re the next community over.
And famously, Minnesota is built with a town every six miles because that’s about how far a railroad ran before it needed more wood and water to keep going. So we’ll build down corridors. All corridors, roads are basically old railroad corridors, there’s a town every six miles and as we build out, the next two towns are asking when are we coming to them. And so we’ve been really disciplined to kind of follow these corridors and be focused in southern Minnesota and build brand equity. We do think that if we were to contract in some of these towns on a buy side for an open network that we would have some brand equity coming in. So we wouldn’t be looking to necessarily move it two states over and contract for an open network on a buy side, we don’t think we have an advantage in that sense.
Johnston: Understood, understood. Well, hey, I can’t let you go here without asking you about MVNOs. How do you think about MVNO as a, you know, as a competitive or a defensive response to what you’re expecting to see here over the next several years?
Zerbe: Yeah, our interests remain in being a household and business connectivity company. We’re not a mobility company and we have very low churn rates already. So we just we don’t see the need to resell a cellular service to defend our business and household connectivity business. I think the very biggest companies like Comcast have had some success. Most modest companies have really struggled. I think they use them in large part to reduce their churn rate. And as I said, we just don’t need that. Our churn is way under 1%.
Johnston: Yeah, with that kind of a churn number, getting distracted by deploying a mobile MVNO, you know, MVNO with mobile service, makes a lot of sense. So yeah, I get that.
Zerbe: We spend all of our time and our money putting fiber in the ground. That’s kind of how we think about, we want to be a platform in southern Minnesota. And all of those things do seem to, you know, be a distraction as you started to allude to.
Johnston: Hey, well, this has been an incredible conversation, Glenn, but I always like to give my guests an opportunity to, share anything or say anything that you know that I didn’t ask or talk about.
Zerbe: Yeah, I, you know the thing that we’re spending a lot of time on now and really rethinking our marketing approach, you know we live in an industry that is infamous for selling feeds and speeds, right. It’s the old “we sell the drill, not the hole,” right, as they say. And we’ve been doing this for decades. We’re guilty of that as charged, especially as an ILEC, but certainly in the broadband business.
But that I think there’s a moment in time where that’s changing. Artificial intelligence and all of the work that’s going in and incredible amounts of investment and capabilities that are here today really allow us a moment where we can be positioning our service for AI. And I like to think of fiber and Nuvera as AI-ready now. Not five years from now, but ready now. I think IBM defines AI broadly as “narrow, general and super intelligent.” And you’ll hear the narrow kind of definition is where we are today. It’s the generative AI that’s not a huge participant in bandwidth or needy for latency, but as we move to general and super intelligence or cognitive AI as the layman might refer to that, then things like low latency and wire line aren’t just helpful, they’re critical to the process.
Now we don’t know if that’s a 5 or a 25 year journey to cognitive, the beginning of cognitive AI, but that’s what we’re starting to really think about and trying to position our marketing message and supporting our customers. We think a ready now, AI-ready now message is important. And so we’re starting to spend more time thinking about that. We’re not likely to be a fiber to the data center company. I know there are some companies who pass large amounts of electric grid or think they do and will be able to provide huge amounts of bandwidth. And so the buzzword is fiber to the data center, right? That’s not how we’re thinking about it. We’re thinking about the endpoints and we’re thinking about how to enable the endpoints with fiber starting now, but over the next decade. So that’s that would be the one area that we didn’t touch on that I think is an important conversation for our industry.
Johnston: Well, Glenn, this has been a real pleasure, a wonderful chatting with you. Really appreciate you making time for us today. So thank you so much for being on.
Zerbe: Pleasure has been all mine. Thank you, Jeff.
Johnston: A special thanks goes out to Glenn for being on the podcast today. After talking to Glenn, I think it’s pretty clear that operators need to think strategically now more than ever. There are deep-pocketed companies coming into the market with new technologies and business objectives, so planning for how they may impact the market is critically important. I also agree with Glenn that the surge we’ve seen in fixed wireless still has some legs. New network technologies from the likes of Tarana make fixed wireless an attractive option for certain use cases.
Hey thanks for joining me today, and a special thanks to my CoBank associates Christina Pope and Tyler Herron because without them there wouldn’t be an All Day Digital podcast. Watch out for our next episode.
