Six months after its launch, LUS Fiber is lagging behind its initial sales projections. But the public utility contends it is still on track to succeed. Matt Savoy found out LUS’ fiber-to-the-home phone, cable and Internet service was being offered in his neighborhood the ol’ fashioned way: word of mouth from a friend down the street. “They didn’t really do any advertising,” says Savoy. “I actually went and sought it out just because I wanted to see the difference.”
It took three weeks before LUS Fiber could make it out to his home, but he was eventually hooked up with the company’s most basic cable and Internet service: 20 channels and 10Mbps upload and download Internet for just under $50 a month.
Savoy says his monthly bill is exactly the same as it was with his former provider, Cox Communications. He now gets a few less channels on his TV but says that has been a worthy trade-off for the added speed of having his computer hooked onto a fiber network. “I’m paying the same price for 10 times the Internet [speed],” says Savoy, who often goes online to upload image files and download video and music. “It is the fastest and most reliable Internet I’ve ever had,” he says. “It’s insane.”
Savoy is one of the few Lafayette residents now able to buy LUS Fiber service. Six months after its February launch, business is admittedly slow. Monthly financial reports (see sidebar) obtained by The Independent Weekly through a public records request show revenue running significantly behind projections. LUS refuses to release its actual number of customers, or any information related to its “take” rate — the percentage of customers offered the service that have purchased it — citing the right to withhold competitively sensitive marketing information.
However, it isn’t hard to extrapolate from its revenues that LUS Fiber’s customer base may still be struggling to crack the 1,000 mark. According to its most recent financial report, LUS Fiber brought in $49,612.48 in cable, phone and Internet sales for the month of June. If you assume $85 — the price of the most basic ‘triple play’ or bundled service — as the average amount spent per household, it would mean LUS Fiber had just 584 customers as of June 31.
That’s far less than the 3,000 households it had originally projected to have signed up by July. In its feasibility study, originally completed in 2004 but then updated in 2007, LUS forecast its fiber business to launch in January and add 500 new households each month through its first year, ending ’09 with 6,000 customers. This year, LUS Fiber did not officially open for business and start signing up its first customers until February. It’s first billing cycle was March, for which revenue did not start coming in until April. Business is starting to pick up. May revenue was up 67 percent over April; June revenues represent a 41 percent increase from May.
LUS Director Terry Huval says the original goal of having 6,000 customers by the end of the year isn’t likely to be met, but he remains confident in the company’s overall time line and business plan. He says the feasibility study purposefully skewed first-year projections on the high side so the business wouldn’t run into early budget limitations.
Tiffany Schleuter is one of two door-to-door sales reps working for LUS Fiber.
Photo by Robin May
“Our plan was to do a very careful deliberate rollout to hopefully try to contain some of the anticipation in the market,” Huval says. “A lot of folks want us to provide the service today to them. It’s not all ready today, and so we’re trying to manage expectations.”
The engineer and public utility director has put a premium on making sure the system is running smoothly and is fully prepared to handle increased customer service and maintenance before making its big splash in the market. Despite public pressure to rev up the engine and roar passed the checkered flag, Huval and company have held their Ferrari fiber service back in first gear with the caution of a pace car driver.
The business is yet to do any major advertising; thus far, that’s been limited to some direct mail and door hangers in select service areas. And while the actual fiber lines are now installed and ready to go throughout practically all of the Phase 1 area of service, the company is currently only offering service from two of the four substations in Phase 1. One of the substations serves an area that runs from the Broadmoor neighborhood south past the Acadiana Mall to the city limits; the other substation services a section of North Lafayette that runs from the Louisiana Avenue and I-10 interchange south to Oakborne Country Club. Huval says the remaining areas of Phase I, which include the Saint streets and neighborhoods on the Western side of the city along Ambassador Caffery and north of Congress Street, can expect to see service being offered in the next few months.
According to Huval, the main delay in rolling out the service relates to the prolonged time it has taken to recruit and train staff. Other delays and glitches have added to the setback. Some customers have seen their cable set-top boxes unexpectedly freeze or automatically reboot — problems that have become top priority for LUS Fiber technicians. Working with Alcatel Lucent, their main hardware and software provider, LSU Fiber has already run several software upgrades on the system. But many times, problems have been sourced to the wiring in a customer’s home, in which case LUS Fiber has actually gone in and fixed malfunctioning relays and bad wires, free of charge, in order to get the system working properly. Frank Ledoux, LUS’ engineering power and communications manager, believes LUS Fiber now has a handle on all the glitches that have been occurring.
“Until you hook this system up to more than just a couple of customers,” he says, “and you load it up, then all of a sudden you run into different circumstances. But we’ve gotten really proficient at going into a house, doing a test, taking care of the problem. A lot of that has been related to wiring issues [in the house].”
“You’re going to have some things happen from time to time,” Huval adds. “That’s true of any utility type of service. Anything that we find that’s not exactly where we want it to be, we’re pursuing it pretty aggressively to get that rectified. It’s just the nature of that business to some extent. But people are very used to us having a high reliability of service, and we want them to feel that we have that same standard on the telecommunications side.”
“So what’s happened so far this year,” he continues, “is we’re not going to have 6,000 customers by the end of this year because we took this very deliberate approach, but when we start cranking into next year, we’ll be at a point where we can start opening up the gates. In fact it’s going to be happening soon.”
LUS Director Terry Huval
Photo by Robin May
In order to step up marketing efforts and pitch a fiber network touted as state-of-the-art “future proof” technology, LUS recently began enlisting yesteryear’s most tried and true marketing agent: the door to door salesman or, in the case of Tiffany Schleuter, the Avon lady.
LUS Fiber’s Schleuter is one of two full-time door-to-door sales people walking the streets for the past month now. A year ago Schleuter would never have thought she’d be knocking on doors making sales calls. “It’s been cool,” says the 26 year-old, who moved to Lafayette from Monroe 12 years ago. “We’ve gotten a pretty awesome response from it, partly I think because people probably aren’t expecting it.”
At her initial sales call, Schleuter sometimes sets up follow-up appointments and says she has spent up to two hours discussing the service with potential customers. “It’s the personal touch,” she says. “It goes back to that LUS-Lafayette customer service. Terry Huval, everybody, has been very involved and hands on, and I think that the people of Lafayette find that very important.”
Huval says that the idea for door-to-door sales came from discussions LUS had with other municipalities that launched municipal telecom businesses. “Their most effective marketing was the door to door,” he says. “When someone knocks on the door and says, ‘Hey, I can answer any question you have and we can talk about it,’ that goes over very well. That’s what those other towns have done, and we’re finding equally good success on our end, too.”
LUS will soon be adding two more full-time door-to-door salespeople to hit the streets. LUS Fiber is also welcoming longtime local radio exec Mary Galyean as the one of the newest members of its sales team. Galyean, who most recently served as General Manager of Citadel Broadcasting, is sales and marketing analyst for LUS Fiber.
“She’s going to be an important part of the sales side of this,” Huval says. “She’s going to be helping us direct our sales strategies and be involved with our field people that are selling and people taking calls as well.”
The feasibility study’s target of signing up 500 new customers a month is still the goal, one which Huval says he now expects the business to hit by the October 31 end of the fiscal year. LUS Fiber has only recently been begun building up its sales staff to full strength. While the business started with just four customer sales reps, it now has nine listed in its 2010 budget.
Spring 2010 is also the new projected opening date of LUS’ planned retail showroom. The grand opening for the retail space, located in the Acadian Village Shopping Center on West Pinhook Road, was originally slated to happen this year, but was pushed back when LUS re-evaluated plans for the space amid high renovation cost projections. The Independent reported earlier this year that LUS will have already spent more than $225,000 in rent on the space before it opens (“Occupational Hazard, 4/28/09). Huval contends the waiting has been beneficial because construction costs have dropped significantly.
Any lag in the rollout becomes critical with looming deadlines for bond repayments. LUS borrowed approximately $20 million more than it needed for the fiber project, which provided some cushion to paying off debt in the first two years as the business got ramped up. Debt payments are also scheduled to increase. Due Nov. 1, 2011, is a principle and interest payment of $8.6 million, up from the $5.5 million owed this year. LUS Fiber will also have to cover that 2011 payment solely from its operating revenue.
The advent of these hefty loan repayments, combined with the slower than expected rollout, has led to some alarming new projections in Lafayette Consolidated Government’s proposed 2010 budget. The budget — prepared by LCG’s finance department based on the most current financial reports from LUS Fiber — forecasts LUS Fiber will have a $1.3 million operating shortfall going into 2011. This is a stark contrast from last year’s projection; LCG’s ’09 budget predicted LUS Fiber’s 2011 retained earnings would be $8.6 million.
Huval stresses these new projections should be viewed as worst-case. “We have budgeted on the high end,” he says. “We want to give ourselves enough cushion so that if we do move at an aggressive pace, we get more customers signing on, that we’re not in a position where we have to stop. So the numbers I think are somewhat fluid. They’re fluid, but they fit within the business plan that we began with.”
LCG’s 2010 budget also projects that LUS Fiber will take out $11.4 million in new loans over the next three years. Huval points out that the source for this loan money is actually revenue from LUS Fiber. As part of the complicated financial terms mandated in the state’s Fair Competition Act, which regulated LUS’ entry into the telecommunications market, LUS Fiber is required to pay imputed taxes equal to that of private telecom companies. Huval says LUS Fiber is paying that money to the utilities system, which in turn will be loaning the money back to LUS Fiber as that money is needed. These loans are all regulated and approved by the state Public Service Commission, and LUS Fiber must pay the utility system back for the loans with a fair market interest rate.
In an ironic twist, Huval notes that rules put in place to prevent LUS from subsidizing LUS Fiber have actually resulted in LUS Fiber subsidizing LUS.
The 2010 budget also shows LUS Fiber cutting back on some expenses. The business is now cutting $464,177 previously budgeted to expand its wireless network. “Our priority is the fiber,” Huval says. “Once we get to some point where we’re not tying up all our technical expertise on that, then we’ll start to work on wireless.”
While some of these numbers may paint a somewhat daunting picture, Huval says they don’t tell the whole story. He points out that LUS Fiber has kept expenses in check and spent less than projected from its capital budget. It also recently re-affirmed its early projection of only needing to sign up 23 percent of the market to break even with the business. This amounts to a little more than 14,000 out of approximately 62,000 total potential customers in the city of Lafayette (approximately 51,000 of which are residential).
“This business is very different from a financial perspective than our utilities,” Huval says. “This business depends on a whole lot of variables. How fast we market it, how fast customers take it, certain things that come up on costs, equipment that we might need earlier in the year rather than later in the year. It’s very, very dynamic.”
“Everything’s staying within the limits of what the bond issue is,” he adds, “but the timing of what actually moves first can change numbers in an instant.”
In addition, Huval says that while staffing and technical delays have slowed expansion of LUS Fiber’s service area, the actual build-out and installation of the fiber network is running ahead of schedule. “We’re going to be ready to serve a lot of customers sooner than we said we were going to be able to serve them,” he says.
Concurring with Huval, City-Parish President Joey Durel emphasizes that people will start seeing more from LUS Fiber in the coming months. He adds the public should keep in mind all the factors involved in launching a new business, especially one of this scale.
“I think anybody,” he says, “who’s ever started a new business, you always open up anywhere from one to three months before the grand opening because you have training and you know you want to get the bugs out. So this is not any different other than it being a much more complex business. Obviously it’s not perfect, but to me there have been no great surprises and not anything that was completely unexpected.”