Affordable Broadband Internet for Everyone in Alaska
This past week, 18,000 pounds of Copper River Salmon arrived in Seattle on board Alaskan Airlines “Salmon-Thirty-Salmon” flight, much to the delight of chefs and foodies across the Pacific Northwest. It’s just one of many famous exports from Alaska, a state with about the same number of people that Seattle, the city, has, but with a whole lot more room to spread out. At twice the size of Texas, Alaska covers an area that’s equivalent to about one-fifth of the continental United States. This vast expanse hardly seems to be a place where you might find technological disruption, but that’s exactly what we found when we airdropped one of our MBAs into Anchorage to explore a project that just might change Alaska as we know it.
America seems to like trying to solve everyone’s problems except their own. Take the idea of “global internet” as an example. The Zuckerberg’s of the world know that there are 3 billion new Daily Active Users (DAUs) out there who don’t have access to the Internet and that represent future growth. That’s why many companies are trying to bring Internet online for everyone with Low Earth Orbit (LEO) satellite constellations. These projects get all the attention because the numbers are so big, but what about making sure everyone in the United States can access broadband first?
Incredibly, over 34% of people in Alaska do not have access to broadband Internet. Alaska’s unique position up north poses a challenge for anyone seeking satellite broadband since the availability of satellites this far north is limited. One company that understands this pain-point well is Microcom, an Alaskan firm that provides broadband services all over Alaska. We sat down to speak with Founder and Chief Operating Officer of Microcom, Chuck Schumann, to listen to his experiences providing broadband to rural Alaska over the past three decades.
Microcom – An Alaskan Company
Founded in 1984, Microcom is an Alaskan company that is the largest provider of satellite television and broadband services to rural Alaska. If you’re going to watch cat videos in the bush, you’ll need to talk to Microcom. The operating environment is extremely challenging for a number of reasons, the obvious one being that they’re supporting a customer base that’s really spread out. Alaska is not only large in size, but also sports the lowest population density of any state – just over one person per square mile. (Alaska has a population of just 734,000 people with 40% of them living in Anchorage, the state’s biggest city but not the state’s capital. That’s Juneau.)
This means 39% of Alaska’s population is under-served with broadband due to the many challenges that come up when trying to operate a telecom in Alaska. If you want to lay fiber optic wire, it’s not just about the vast distances you need to cover which drive prices up. It’s also a difficult regulatory environment to operate in. Mr. Schumann used the analogy of trying to build a railroad across the United States today if one didn’t already exist. Everyone wants a piece of your pie when you ask to cross their land, and everyone’s price is different. Some old-timers may ask for a ridiculous price and never budge. It was only just weeks ago that Alaska finally laid a 100-terabit fiber optic network to connect directly with the lower 48. That’s how difficult it is to stretch wires in Alaska. And that’s why the preferred method of broadband delivery around here is satellites.
If you want broadband in rural Alaska, you need to use satellites. This means that you need to buy a satellite dish which points to the sky and “talks to” a stationary satellite in the sky that stays in place using little thruster engines. That satellite needs to be quite high in the sky for the dishes to see it, and the type of satellites that Microcom uses are GEOstationary satellites (GEOs). (A major difference between GEO and LEO is the height at which the satellites are orbiting. GEO is high-orbit and LEO is low-orbit.) The more popular satellite projects you see in the news – SpaceX’s Starlink project or Amazon’s Project Kuiper – are LEO constellations, lower-orbiting satellites with high latency. In Alaska, a higher satellite is more beneficial because more people are able to see it, a function of how mountainous the region is. Today, not everyone in Alaska has line-of-sight with a satellite, and those who do pay a lot for that privilege.
Broadband in Rural Alaska Today
We walked into Microcom’s office in Anchorage and picked up a brochure on the counter to see what it’s like to be a rural Alaskan hunting for broadband. Right off the bat, we would need to buy a hardware package – antennae, modem, mount – which would set us back $1,500. Next, we need to pony up for the $389-per-month unlimited data plan which is good for “2-4 users with light to moderate connectivity needs” which would be fit for your average household. We’re now in for about $6,168 dollars if we go with the 12-month required commitment. In other words, decent broadband Internet access in Alaska costs more than $500 a month.
Mr. Schumann talked about how the emergence of reusable rockets, and NewSpace in general, mean that Alaska’s bandwidth problem can now be solved. Historically, his company has had difficulty securing bandwidth due to their geographical location and small customer base. Most large satellite companies don’t really see providing Internet to Alaskans as a business priority. That’s when Mr. Schumann decided to solve the problem himself with the goal of providing broadband across every single square mile of Alaska, even extending north of Prudhoe Bay into the sea. (Certain parts of Alaska which are very remote can’t actually see Microcom’s satellites today, so not all of Alaska can access broadband at any price point.) It seems like the State of Alaska ought to take more of an interest in this “broadband for everyone” initiative since it might affect the State’s future.
Broadband and Alaska’s Future
It’s not just about the residents of Alaska being able to stream all 7,420 Netflix shows on demand, it’s also about future investments being made to support the State of Alaska. Up until now, Alaska has a cash cow in her backyard – the Prudhoe Bay oil field. The largest oil field ever discovered on the North American continent, Prudhoe Bay oil field can be found at the end of America’s most desolate highway – The Dalton Highway. The operation is centered around a small, dry town – no alcohol – where the petrol costs $5.60 a gallon, there’s constant daylight, and it’s below freezing at noon in mid-July.
All those sober people keep Alaska’s cash cow alive, a cash cow that’s been paying dividends for decades, literally. Every year, every Alaskan resident gets a dividend which ranges from $1,000 to $2,000 per person, something that’s more commonly referred to as Alaska’s Permanent Fund Dividend (PFD). It’s been good times for Alaskans so far, but that income stream will eventually dry up. That’s when Alaska will need to draw upon her vast natural resources to expand the local tourism industry.
Chinese-mainlander tourists will be stoked to hear that Alaska has over 100,000 glaciers they can come and take selfies on – and give that poor Columbia Icefield near Banff some rest so it can melt in peace. If game hunting is your thing, Alaska is off the hook. Like fishing? Alaska has some of the best fishing on this planet. Motorcycling, overlanding, 4-wheeling, snowmobiling, the list goes on. The Alaska brand is an easy sell, but only if they can solve the bandwidth problem.
Let’s say you operate a $750-a-night fishing lodge in the Alaskan bush where your well-to-do clients fly in by water plane and spend a week checking their emails and fighting fires because “the battle never ends” and stuff. That means you need to purchase a broadband contract that will suffice for peak-occupancy because this clientele does not care that “you’re out of bandwidth.” The show must go on, and you’ll pay whatever bill happens as a result. These are the sorts of costs that developers need to think about when planning tomorrow’s tourist destinations in Alaska. They’re just one customer cohort that Microcom can sell to once they solve the bandwidth problem.
They often say that the best businesses are born from a genuine need that the founder couldn’t fulfill otherwise. That’s exactly what happened in 2017 when Mr. Schumann founded a new startup – Pacific Dataport – which plans to solve Alaska’s broadband problem once and for all. They’ve recently partnered with a startup called Astranis which emerged from stealth in early 2018 with $13.5 million in Series A funding, led by Andreessen Horowitz. Both companies are working to offer reasonably-priced broadband across the entire state of Alaska with three times as much satellite data bandwidth as it has today at one-third the cost to consumers. Technology is going to fix everything, and investors are going to make loads of money along the way. That’s the plan anyways. In our next article on this topic, we’ll look at the how and when.
Here at Nanalyze, we invest the majority of our savings in 30 dividend-paying stocks that increase our income every year and outperform during both bull and bear markets. Find out which ones in the Quantigence report freely available to Nanalyze subscribers.