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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.)

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Lee Drake
Guest
Lee Drake

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.

preventCAPS
Guest
preventCAPS

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
Member

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… Read more »

Rob
Guest
Rob

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
Guest
Uncle Ken

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… Read more »

Rob
Guest
Rob

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

preventCAPS
Guest
preventCAPS

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
Guest
KP

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… Read more »

preventCAPS
Guest
preventCAPS

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… Read more »

KP
Guest
KP

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… Read more »

Uncle Ken
Guest
Uncle Ken

“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… Read more »

Dan Lapoint
Guest
Dan Lapoint

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… Read more »

Dane Hettrick
Guest
Dane Hettrick

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

preventCAPS
Guest
preventCAPS
Richard
Guest
Richard

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… Read more »

Ron Dafoe
Guest
Ron Dafoe

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
Guest
DM

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… Read more »

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