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Rural telecom's original investment

When some south central North Dakotans see a brightly colored Winnebago making its way to their high school or business, they make sure to look their best and always smile for the camera. BEK Communications, a rural telecom provider, has made a name for itself supplying local content to the six counties it covers. With a souped-up mobile production facility and professional-grade technology, the telco differentiates itself by going local and has made the investment to back it up.

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The 56 year-old BEK Communications Cooperative delivers TV over fiber or copper to half of its 5400 subscribers across 5800 square miles in North Dakota. The rural ILEC competes with both satellite and cable providers that already are chewing away at its membership. BEK knew there was a need to enter the television arena to maintain its customers, but that alone would not be enough.

CEO and general manager Derrick Bulawa took that one step further. “We also realized that if we didn't do something unique with our local content that we thought was really valuable in the local communities, we were going to lose anyway,” Bulowa said.

Considering that in its coverage area a lot of daily life revolves around the district's 10 schools and their sports teams, BEK bet its money here. So far, the investment has paid off. BEK has maintained a better than 50% take rate of homes passed for TV – and that is only after six months in operation. Two high profile local celebrities act as both the on-air personalities and behind-the-scenes expertise to deliver the local tapings, which include 30-minute shows on the history of a town, location or memorial. All these are just icing on the cake for BEK, however. The most valuable local content the telco produces is live local sports. With quality, graphics and professional-grade announcers, Bulowa said it is comparable to something you might see on your local broadcast station, and rural North Dakota has taken notice.

“People ask ‘What else do you do?’ It almost doesn't matter,” Bulowa said. “When you have a live, local high school basketball or football or volleyball game on, you'll get 40% viewership in that town, and there is nothing else you can produce that will give you that — not even the Super Bowl.”

Coming from a TV background himself, Bulowa knew a mobile broadcasting vehicle would be a key element for broadcasting live sporting events. And with no TV studio behind it, this one had to be particularly eye-catching.

“It was important for us to deliver the highest-quality professional broadcast with all the features you would find on any professional sports station,” he said. “That gears you to certain pieces of technology and equipment. It gears you to a vision. It gets your customers accustomed to a really high-produced finish on a local product that their kids are in.”

After only six months in operation, BEK has maintained a better than 50% take rate of homes passed for TV.

Calix provides both the fiber- and copper-based access equipment for BEK's delivery of Gigabit passive optical network, DSL and voice services throughout its customer base. The vendor already has a roster of 175 video customers, many of which are rural. Local content has been a natural first step for most of them entering the video market. A minimum of local weather is ubiquitous across the entire Calix customer base, and most are dabbling in more.

Geoff Burke, director of marketing for Calix, estimated that for a rural telco doing a basic package of just weather, the investment is around $5000. The basics for delivery of local video, in which you get a professional-grade camera and editing equipment, fall into the $25,000 to $35,000 range. On the scale of BEK, the investment is likely significantly more, he said.

“They have spent many times that amount in their deployment,” Burke said. “It has also paid off for them. They have tremendous penetration. I think that BEK might have the most advanced local broadcasting infrastructure in a local ILEC. They have really utilized it to their advantage tremendously from a penetration perspective in terms of sophistication and support around the community.”

Rural telcos have repeatedly stated that local content is not a real money-making scheme, but rather a loyalty play to increase stickiness among customers. Video-on-demand options, on the other hand, are where the money-making potential is going forward, said Ron Westfall, research director for Current Analysis. People will pay more to get the content on their own terms, especially if it's localized and personal — and the same goes for local content. Westfall identified Ringgold Telephone in Georgia, as well as GVTV Communications and XIT Communications, two rural Texas telcos, as other companies experiencing success with local content.

“It is a significant investment, and a lot of them aren't ready to make this transition,” Westfall said. “But part of conserving the investment is working with content aggregators like SES Americom. It would require an increased investment on the rural telco's part simply on the IP side. That is a capex decision that could impact the telco for years if they don't make the right choice.”

The primary advantage of IPTV is its ability to personalize content and customize it to individual users. Westfall said this should include local ad insertion to complement the local content, as well as local content available on-demand. Future money-making options include adding mobile tie-ins with content that will increase the attractiveness of the entire bundle.

“The typical consumer wouldn't flinch to pay an extra $5 or $10 a month to have something like that as part of their package,” Westfall said. “The question is, can money be made in addition to defending the customer base and increasing stickiness? And there is evidence that it can be done, but on the on-demand side. To have a price war is not a formula for success over the long term if you are just competing on price and nothing else.”

Bulowa knows that competing on price is a game BEK ultimately will lose. Despite common beliefs that being a local co-op representing local people gives a provider a significant advantage, he said that when the product is the same, providers ultimately end up flipping a coin for the customer. The winner is the provider that offers the cheapest price. However, combining a competitive price point with professional-grade local sports coverage — and, of course, a Scooby Doo-inspired Winnebago — has proved to be the one thing that has made the difference for this rural provider.

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© 2014 Penton Media Inc.

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