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Incumbent telco one-ups Cox

Gonzales, La.-based independent telco Eatel has a history of taking calculated risks on new lines of business. Over the years, the company has ventured into the long-distance, directory publishing and unbundled network element-platform (UNE-P) markets. It also has the distinction of being one of the few C Block wireless auction winners that made payments on the licenses it won (although the company ultimately returned the licenses when the government offered auction winners that option).

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Eatel's most ambitious venture by far is its current initiative to bring fiber to the home (FTTH) to the majority of its serving territory. “We increased our network expenditures about 40%,” said Robert Burgess, president and CEO of Eatel. “For a company this size, that's betting the farm.”

As the Scanlon family, who owns Eatel saw it, the company had no alternative but to one-up cable giant Cox Communications, which began offering triple-play services to the area in 2005 using hybrid fiber/coax infrastructure.

“It's the standard David versus Goliath story,” Burgess said. “They've got deep pockets, and sometimes they're meaner than yeller yard dogs. They can play the price game, and they can afford to do a lot more than we can.”

Gonzales was a rural community at the time Eatel — then known as Gonzales Telephone Exchange — first began serving it in 1935. But over time, the area has become a bedroom community to both New Orleans and Baton Rouge, with exactly the kind of demographic that appeals to a company like Cox: upwardly mobile. Fortunately, that also makes it an excellent market for the broad package of triple-play services that Eatel offers.

These include high-speed Internet, with download speeds up to 15 Mb/s and 1 Mb/s upstream, and 300 channels of video, including 13 high-definition channels and on-demand movies. The on-demand offering is full-blown switched video.

“You hit Channel 1, and it gives you a menu of over 100 movies,” Burgess said. Five seconds after a viewer makes a selection, the movie comes on. You can watch it as many times as you like for 24 hours, and you can fast-forward and rewind it, he said.

As a member of the National Cable Television Co-op, Eatel procures content from major providers at manageable rates and doesn't have to negotiate with each content provider directly. Not all rural telcos are so lucky. The NCTC put a moratorium on new members in January 2005, forcing telcos to look elsewhere for content.

Eatel charges between $27 and $56 per month for high-speed Internet, depending on bandwidth. Video costs between $46 and $51 per month. “With bundling, you can save between $6 and $17, depending on the bundle,” Burgess added. On-demand movies run about $4 each.

Although the company envisions eventually converting to voice over IP (VoIP), voice service is currently supplied using circuit switching at a price between $30 and $65 per month. Underlying the company's voice offering is a MetaSwitch softswitch, which was chosen, in part, because it could be upgraded to support VoIP in the future. Eatel also uses the softswitch and a converged service delivery platform from Integra5 to provide advanced features, such as on-screen caller ID.

Customers like being able to know who's calling while watching television, eliminating the need to get up from their seat, Burgess said, adding that there is no extra charge for the service.

“We can't play the pricing game, but we can play the cutting-edge technology game,” he said. “We can make decisions quickly and put things into place quickly.”

While declining to provide specifics, Burgess said the company is planning “a slew of new features” that it hopes will further differentiate its offering.

About 75% of Eatel's traditional customer base today can be reached by the company's FTTH infrastructure, which is based on equipment from Alcatel. “Anything new in our territory automatically goes fiber,” Burgess said.

He added, though, that some outlying areas may simply be too expensive to serve via FTTH. “As you build out, the law of diminishing returns kicks in pretty quickly,” Burgess said. “In some places, it would be two times or three times the cost of building a greenfield installation.”

Eatel has about 35,000 lines in its traditional voice serving territory. Burgess declined to reveal what percentage of that base has subscribed to video or data services but said the response is “far exceeding the business case.”

Burgess said Eatel invested about $40 million in its FTTH network. One factor that made the project feasible was the willingness of Colorado's CoBank — Eatel's lead bank — to accept a relatively long payback period. “They understand the rural landscape,” Burgess said. “They stick with their rural customers, and they understood this is a gamble to save the franchise.”

Although Eatel has been more aggressive than some other independent telcos in its fiber deployment plans, it is not alone. “Independents are being very aggressive about deploying fiber, and quite a few are going all the way to the home,” said Ken Pyle, a consultant with The Viodi View, which focuses on independent telcos.

Like Eatel, many independents are driven to the decision to deploy fiber by cable competitors, Pyle said, noting that 48% of respondents to a recent Viodi View survey of independent telcos said they faced competition from cable operators.

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© 2014 Penton Media Inc.

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