Client Success Story: South Valley Internet
South Valley Internet (SVI) is a regional internet service provider with thousands of customers in south Santa Clara County and north San Benito County. SVI has a decades long history in the area as a multi-generational, family-owned business. Over the years, SVI has steadily grown revenue through targeted wireless and fiber-optic network builds. The population in their area, and beyond, has grown quickly due to overflow from the Silicon Valley. SVI plans to significantly grow the business both inside and outside their existing service area. This requires large network build-outs and capital expenditures.
$20B in Federal Funds Up for Grabs
In early 2020, the federal government announced $20B in infrastructure build-out grants to internet service providers to deliver high-speed internet service to rural and underserved communities. SVI was uniquely positioned to capitalize on these grants, as a large portion of their local population did not have access the latest high-speed internet services.
“We knew we could grow both inside and outside our region. Government funded builds can be an excellent path to that end. However, federal grants aren’t free. They come with commitments and risk. The biggest question for me was, will SVI get a sufficient ROI, in the right amount of time, for any bid we won? I wanted to know this clearly before the bidding started. That’s why we brought in Rolando Locci Consultants. We needed financial expertise to marry with our industry expertise.”
To Bid or Not to Bid?
Each parcel up for bid required up front building costs, labor, and on-going maintenance. Given the process was a blind reverse auction, SVI would have to commit to a bid, hoping to be the lowest, but without knowing their competition.
“Even with the government offering 75% of the build cost, if the build costs were underestimated and/or revenue estimates were too low, we could put the company at serious financial risk.”
The Conclusion was Liberating
Rolando Locci Consultants and the SVI team performed an extensive analysis of ROI, revenue break-even, and investment recapture horizons to vet each parcel against each other, and individually. The findings, although surprising, were very clear, the auction had too little benefit to outweigh the risk.
“It became clear that what seemed like a great opportunity on the surface was less and less interesting. Given we would have to finance most of the builds, the debt service on top of the build costs would make the ROI too low and the time to recapture our investment too long. This conclusion was liberating. It allowed my team and me to focus on other more opportunistic builds and partnerships as opposed to investing everything into the grants. I could not have done this without Rolando.”
Elise Brentnall – President & COO