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Minnesota Court Rules Broadband is a “Utility,” Not Just Something ‘Nice to Have’

Phillip Dampier June 4, 2009 Community Networks, Public Policy & Gov't 20 Comments
Monticello, Minnesota

Monticello, Minnesota

A Minnesota Appeals Court panel ruled this week that Internet access is a “utility,” comparable to gas, electric, and telephone service, and not merely a convenience.  In a 2-1 decision, the Court ruled in favor of the city of Monticello, which proposed constructing an all-fiber broadband platform reaching every resident, financed by city-issued bonds.

The legislature has granted municipalities the express authority to own and operate telephone exchanges within their borders, as well as to operate public-cable communications systems. Minn. Stat. §§ 237.19, 238.08, subd. 3 (2008). Municipalities are not granted a similar authorization with regard to Internet service; however, the legislature has stated that it is a goal to “encourage economically efficient deployment of infrastructure for higher speed telecommunication services and greater capacity for voice, video, and data transmission.” Minn. Stat. § 237.011 (2008).

Bridgewater concedes that telephone services are utilities and that television services are a gray area, but steadfastly denies that Internet services qualify as a utility. Therefore, according to Bridgewater, the project in its entirety lacks statutory authority to be funded by revenue bonds because Monticello intends to provide Internet service. Based on the aforementioned statute, there appears to be minimal dispute that telephone and cable television are utilities. The crux of the issue is whether broadband Internet service is like a utility.

The definition of municipal public utilities appears broad enough to contemplate Internet service. Internet service could arguably be considered a utility under telecommunications related services. Bridgewater argues that related services means services related to providing cable television, such as on-demand movies.  However, cable-television companies often provide Internet services. Therefore, on-demand movies, digital video recorders, and Internet service could also be considered related services under the statute. Furthermore, Merriam Webster dictionary defines telecommunication as “communication at a distance (as by telephone).” Internet service seems to meet this definition. E-mail, instant messaging, and talking via web-cam are all ways to communicate at a distance utilizing Internet service. Based on the foregoing definition, the Fiber Project is arguably a utility.

Bridgewater argues that Internet service cannot be considered a utility because it does not have the near universal usage common to a utility. This argument is flawed. As noted by Monticello, ―[i]t would be absurd to conclude that the Minnesota Legislature [would allow revenue bonds] to be used only to fund the creation of systems that provide services that already are in universal or near-universal use. Rather, it seems that the reasoning behind allowing municipalities to issue these bonds is to provide utility-like services to people who otherwise would not be able to enjoy the benefits of the services offered. It is illogical to conclude that something is or is not a utility based on the number of people who have access to it.

Providing an entire community of people with access to telephone services, cable television, and high-speed Internet seems to qualify as a benefit to the public under the changing conditions of modern life. Thus, the Fiber Project is a public convenience that also serves a public purpose.

The Fiber Project qualifies as a public convenience, and therefore revenue bonds can be issued to finance its creation. Although Monticello cannot use the bond money to pay current expenses, the district court did not err in dismissing Bridgewater‘s complaint.

The Municipal-Owned Network

The Municipal-Owned Network

Monticello elected to construct the network after being repeatedly bypassed by private providers for state-of-the-art broadband access.  Stuck in a broadband backwater, the community of 11,000 decided to construct an advanced fiber network to reach every resident, and allow any company access to the network.  Bridgewater Telephone, the local telephone company owned by TDS, had steadfastly refused requests from city officials to move towards fiber on their own, and after 74% of local voters thought a municipal fiber network was their only hope of getting fiber into their community, the phone company sued to stop it.

TDS claimed the Internet was not a utility and, although the project does not rely on taxpayer funds, still involved a local municipality competing against a private business.

Since the lawsuit, and the threat of competition from Fibernet Monticello, the phone company announced it, too, would construct a fiber network.  Meanwhile, while it uses legal maneuvers to keep the municipal network at bay, the costs for the municipality mount.  The legal finding noted:

Monticello is losing a substantial amount of money each day that litigation delays installation of the Fiber Network. One estimate is $2,730,268 lost for an 11-month elay. Moreover, placing the bond proceeds in escrow required that the city pay the bond purchasers interest on the bonds until the escrow is released. As a result, Monticello will be required to pay the bondholders approximately $85,000 for every month the lawsuit continues.

Bridgewater’s current broadband DSL service is slow and expensive, after the promotions expire:

Up to 768kbps  $29.95
Up to 1.5Mbps $39.95
Up to 4Mbps $49.95
Up to 10Mbps $59.95

Now that the phone company is installing fiber, they are marketing a 25Mbps service for $69.95 a month, with a one year commitment.

Fibernet Monticello’s network has been stalled by the lawsuit, but the municipality suggests it will market residential broadband service at 10 to 100Mbps symmetrical speeds, as well as video and telephone service bundles, with no contract commitment at highly competitive prices.  No caps either.

TDS lamented the decision.  Drew Petersen, director of legislative affairs and corporate communications released a statement:

“TDS is a job-producing, tax-paying company with millions of dollars invested in the state of Minnesota and the community of Monticello. The Appeals Court decision sends a chilling message to the private business community operating in the state of Minnesota.  The decision will likely discourage other private enterprises from doing or expanding their business in Minnesota. Further, the decision endangers the appropriate relationship between municipalities and private enterprise; it also allows municipalities tax-free financing to enter into competition with tax-paying businesses.

“Throughout the legal debate, TDS has been honest in discussions with city leaders and the public. TDS has also invested millions of dollars and, in less than a year, placed 74 miles of fiber in protective conduit to build a complete fiber network covering the entire city. Every resident in the city can receive TDS’ Internet service, via fiber, at speeds of 25 Mbps at value-based prices. The neighboring townships also enjoy speeds above 10 Mbps.

Petersen called TDS’ broadband products in Monticello “blazing fast,” although whether those speeds would have been achieved without Monticello moving forward on its own fiber project is doubtful.

In the view of Stop the Cap!, Petersen has it entirely backwards.  Without the competitive threat the municipality represented with its own fiber network, TDS would have been content with the network they felt was good enough for the community for years.  TDS repeatedly denied local officials’ requests for fiber, something that we believe only became an option the moment competition was imminent.  In the end, with the reality of fiber looming, TDS was hardly discouraged from investing — they were encouraged, at the risk of losing customers in droves to a superior product offered at what likely would be substantially lower pricing.

Municipal broadband networks are often the only weapon communities have from being dumped into a broadband backwater, where speeds are kept slow, prices high, Cap ‘n Tier common, and infrastructure upgrades rare.  Be it in Minnesota or North Carolina, communities are told “no” to requests to deploy state-of-the-art networks.  That answer frequently changes to “yes” the moment competition threatens to arrive.  That’s why big telecommunications companies see fit to use the courts and legislative system to ban, stall, or limit the potential for municipalities to decide what’s best for their residents, limiting them to what one or two companies provide and claim is “good enough.”

(Thanks to Stop the Cap! reader Greg, who notified us of the court decision.)

Currently there are 20 comments on this Article:

  1. Lee Drake says:

    How do we start one here. Because after the VZ DSL/Frontier deal – they’ll probably never come to Rochester – I’m sure that was part of the negotiation over Frontier taking over the VZ DSL.

    • First, I doubt Rochester ever came up in these discussions, because I don’t think Frontier thinks a Verizon invasion is at all likely in the first place.

      IMHO, I think there are a bunch of different scenarios about Rochester. Assuming TWC comes back with Cap ‘n Tier, and Frontier just doesn’t prove to be an equivalent competitor, I think the move for municipal broadband for this community will begin, probably first in the city and a handful of suburbs. I’m a proponent of fiber at this point — I think wireless solutions are 3-4 years behind us now.

      Frontier, who up until now has been in no hurry for a broad fiber plan for this area, will probably resist any municipal solution, but if it looks to be serious, they’d probably spend the money and build a network themselves, especially if it meant trying to be rid of a municipal solution. We saw that happen with community wi-fi.

      Verizon is not going to arrive in Rochester because they don’t care about this market and opening the battleground to invade it. Frontier is repositioning itself as a “rural carrier” that is exactly anathema to Verizon’s business plan. If someone wanted to acquire the Rochester component of Frontier, the only truly urban service area Frontier has, could it be Verizon? Maybe, but it could also be another player.

      Another option worth advocating is getting Frontier to license FiOS as a virtual turnkey solution to fiber deployment. The vendors are a known quantity, the set top boxes have had enough time to get the bugs out, and the licensing agreements for the video component are in place. They are going to be working with FiOS buildouts in a few Verizon territories they are acquiring as-is, so they are going to get their hands wet anyway.

      What will it take? Political will and a groundswell of support from residents who identify the broadband disparity being built all around Rochester. Business leaders will see the disparity as well, especially if TWC decides Business Class service deserves Cap ‘n Tier as well.

      • Mike says:

        Isn’t Ontario County building a fiber “ring”? I don’t know all the details, but I believe the plan is to build out the infrastructure and lease it to any company willing to provide service on it. If so, that would be a great way to reduce the barrier to entry for prospective broadband providers and bring in some much-needed competition.

        They also seem to be planning ahead for possible expansion of the network into neighboring counties, so maybe getting a municipal network set up isn’t quite the daunting endeavor it appears to be.

        • Lee Drake says:

          Ontario county = forward thinking and technology oriented
          Monroe county = backward thinking politically controlled, constantly battling with the City and beholden to large companies such as TWC and Frontier. MC will never put up a competitive alternative to big companies.

  2. preventCAPS says:

    I don’t believe municiple broadband is necessairly the perfect answer. Just think about municiple water… there are times where there are water restrictions. I’m sure there could be times, especially as the infrasturcture ages, there there may be bandwith restrictions, the very thing we are trying to prevent. In addition, think of the municiple wifi and library acess problems with tax payers not wanting certain content to be accessable on an infrastructure supported by tax dollars.

    • Michael Chaney says:

      1) Water restrictions occur because of shortages of water. Water truly is a finite resource……there’s only so much of it available at any given time and sources must be maintained at sustainable levels. Power is the same way. the electric grid can only supply so much at any given time.

      The same is not true for Internet bits. There’s no content supply shortages and as such there will be no usage restrictions or “rolling blackouts” of Internet service.

      2) Read up on Wilson N.C. and the 9th paragraph of this story, “…the project does not rely on taxpayer funds…

      Municipal services are rarely subsidized by tax payers. Instead they rely on bonds to raise the startup cash, and subscription revenue for continued operation.

  3. Rob says:

    We need municipal broadband now! We shouldn’t be waiting for Time Warner to strike again with their cap and tier plan.

    I have been praying we get FIOS. Phillip is correct. It is highly unlikely it will ever happen.

    Why wait for Time Warner to screw us?

    Monroe County should be moving forward with their own plan. Faster Internet service is what we need not cap and tier.

    • Uncle Ken says:

      Rob: There is an informational question I would like to ask about your thoughts. “You say Monroe County should be moving forward with their own plans” Were you talking about fiber or something else? Has any good size city and county ever done this or tried to do it? If you’re not talking about fiber that would mean Monroe county would have to basically take over TWC’s wires. Another approach would be the county tells TWS to get their foot off the brakes and forget the cap ideas. Both would be in the courts for years. If you were talking fiber does the county have the ability to put in this structure with no real experience in the field? No doubt there are plenty of LOCAL people with the skills to do the job but would take some massive training to bring them up to speed. Even the service people working on the poles do such a fine job because of the experience and little tricks they have honed over the years. Some of these installations can get very dicey. And because this is Rochester every politician and their brother is going to want some of the action even if they had nothing to do with the project. I like your forward thinking and we could sure use the jobs.

  4. Rob says:

    Water restrictions? I can’t remember the last time I dealt with water restrictions.

    • preventCAPS says:

      It happened all the time in the summer where I grew up in NYS. There were also times where consumers were asked to be considerate of their Air Conditioner useage to not strain the electric supplies also.

      • KP says:

        The idea of municipal ownership as a cause of restrictions is spurious. Water and electrical supply are subject to extremes in nature and if you think private ownership guarantees full electrical power during times of excessive demand, e.g., during an extreme heat wave, I have a bridge to sell you. Come to think of it, electrical power in the United States is largely supplied by investor-owned utilities. I agree with the Minnesota court that broadband is a public utility. The ideal set-up is a genuine competition that would keep providers on their toes, but whenever a private monopoly or near-monopoly establishes itself, the municipality – that’s you and me, folks – has the right to enter the market and compete. If you want to pick isolated cases to make your point, I can remind you of what happened to electricity on the west coast a few years back when the private suppliers led by Enron conspired to restrict the supply in order to make prices got through the roof.

        • preventCAPS says:

          I fully agree that municiple broadband will initially cause a great competition for the private companies. I’m just fearful that the broadband utility will deterioriate to someone elses definition of “good enough” or “sufficent” and not necessairly something excellent. I envision scenarios where a municipality creates a broadband initiative, and it intially rocks and causes good copetition with another private provider. The private provider then deploys a new technology and producess an even better broadband service. Then the municipality asks for tax dollars or crazy rate hikes and the citizens go, “why pay for technology we already have from “private company”?” and the municiple broadband falls behind the times and slowly becomes irrelevant and here come the “water restrictions” to hobble along.

          I guess my main question now is where is the incentive for municiple broadband to compete with private companies if the private companies are providing better services?

          Are we going to create a cycle of “we need municiple broadband” to “private sector is doing better” to “private sector is doing us a disservice” to “we need municiple broadband” over and over again?

  5. KP says:

    Quote: “Are we going to create a cycle of “we need municipal broadband” to “private sector is doing better” to “private sector is doing us a disservice” to “we need municipal broadband” over and over again?”

    And the problem with such a cycle is…..? Why so fearful? Life’s like that, it goes in cycles. We used to be a pragmatic people who usually did whatever worked and ditched what didn’t. If we are simply going to stop change at an arbitrary point in the cycle, who’s to say where that point should be? Apparently, many of us are so hung up on the ideology that “government isn’t the solution, it’s the problem” that we ignore any evidence to the contrary.

    Try balancing your fear of what might happen against what’s actually happening before your very eyes.

  6. Uncle Ken says:

    “Verizon is not going to arrive in Rochester because they don’t care about this market and opening the battleground to invade it.” I don’t know maybe I would make a bad CEO but if I ran Verizon this is exactly the kind of fight I would love to fight. There is always going to be someone else willing to pick up the rural business. Fairpoint did. As CEO I would love another dense population area that has money. This is such backward thinking. Once Frontier or fairpoint buys a section it becomes their problem not Verizon’s. And frontier can not even come close to the money and power Verizon has. It’s an old worn out phone company. Rochester telephone anyone.

  7. Dan Lapoint says:

    I have lived in Jackson, TN for the past three years. We have municipal fiber broadband here via the energy authority, JEA (www.jaxenergy.com)

    They provide speeds up to 10mbps in packages, with higher speeds available upon request. They also provide digital cable / HD television. The service is amazing, never slow, excellent pricing, no port blocking, no caps, no equipment to rent (direct from pole -> ONT -> RJ45 jack in your wall)

    JEA’s internet service is not tax-funded at all, it’s 100% paid for by the subscription cost. The interesting thing is that Charter and ATT (formerly Bellsouth) have not done anything to try to compete with it. They still have the same high prices and rubbish service which they have always had, and they still get a fair amount of business. So, the notion that a municipal ISP would drive out private sector ISPs is complete nonsense, JEA has been providing fiber internet here in Jackson for some time now, and this has not happened.

    Incidentally, I lived in Rochester before I moved to Jackson. Yes, Time Warner and Frontier are both nothing more than bad jokes as far as Internet service is concerned. Some tough competition from a proper service provider would, I’m sure, be more than welcomed by the residents of Monroe County.

    The big telco’s whining regarding municipal broadband is proof positive that they do not care one bit about the consumers paying for their services. All they are concerned with is maximum profit via minimum effort, to hell with the consumer.

    As for FiOS in Rochester, it really will never happen. Frontier has some sort of buyout/whatever deal with Verizon DSL to end any competition, so you can bet your salary that this also precludes FiOS from ever arriving there. A shame, really, I had FiOS when I lived in Dallas, and it is absolutely amazing.

  8. Dane Hettrick says:

    I think it is best for the public if broadband internent is considered a utility, even if it bankrupts private companies.

  9. Richard says:

    You must understand that once the internet is considered a public utility it can then be controlled and taxed by the government. If this is how you want your internet then support this type of behavior by governments. Obama has declared the internet a public utility, Obama, Sunstien and Pelosi have already advocated for net neutrality. If you want the internet regulated and if you want to be told what you can an cannot or can watch, listen or look on the net then go along with the current administration. If you want to regulate the internet on your own then do not accept this premise!

    • Ron Dafoe says:

      Your going to have to explain this more on what you mean. I think most of these arguments like your saying is nothing but trying to make people frightened. Do you want to know what is really scary? All of those same things, only in the hands of corporations.

      You act like net nuetrality is a bad word. I suggest you look up it’s meaning.

    • DM says:

      Richard,

      Why did you comment on an old article? If you want to discuss the concept of Net Neutrality, then there are plenty of more recent articles to choose from.

      By the way, your argument lacks teeth, mainly because it is based on fear-mongering and not established facts. Why would it be so bad for broadband internet to become a utility? You do realize that we use utilities everyday and that everything seems to be fine, right? Under your logic, Obama would look up the voter registration histories of American citizens and would cut off the power of those who are registered as Republicans.

      And I don’t know if you are aware of this, but Comcast has already “told people” what they can and cannot do with their internet connections. That is the point of Net Neutrality, to prevent them from doing so on a discriminatory basis.

      Finally, here is a conspiracy theory for you to consider: Comcast is currently in the process of purchasing NBC Universal. NBC Universal owns part of msnbc.com (not to be confused with the TV network MSNBC). Once this transaction is complete, don’t you think it would make good business sense for Comcast to block FoxNews.com and CNN.com over their internet network? I think that would make good business sense because Comcast would want “news searchers” to go to the web site that they partially own.

      But is that fair? No, I do not believe that is fair. However, that would be perfectly legal to do so since Net Neutrality doesn’t exist. I urge you to please read more articles on Stop the Cap! and educate yourself as to what Net Neutrality actually is instead of getting talking points from political pundits.

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