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

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.)

The spark that lit the inferno of customer rage against FairPoint

The Day the Wheels Officially Came Off.  Saturday, January 31, 2009 was Transition Day for FairPoint, finally making the long-delayed switch from Verizon to their own systems.  It was the equivalent of leaving a pile of ‘oily rags’ next to those overloaded electrical circuit breaker boxes in The Towering Inferno.  Only it was the customers who were on fire.  Must-see videos to follow!

“Asinine.”  That’s how one FairPoint customer summed up FairPoint’s transition to its own systems and finally cutting the last ties to Verizon.  Because when the last ties were cut, so went her Internet access… for days on end.  Company representatives wished her “good luck” talking to Technical Services, because they couldn’t even find her account.  She wasn’t alone.  Tens of thousands of customers across three states were left hanging out to dry when FairPoint’s transition and support services collapsed, leaving customers with no answers, busy signals, and online chat customer support queues that literally took hours to reach the front of the line, if you made it at all.  WMUR in Manchester, New Hampshire brought cameras into FairPoint and challenged company officials to use their own support systems to get answers.  On camera, the company official discovered she had managed, over the course of more than a dozen minutes, to finally achieve #516 in the online support queue.

[flv width=”480″ height=”360″]http://www.phillipdampier.com/video/WMUR Manchester FairPoint Says It’s Bringing In More Help 2-3-09.flv[/flv]

It wasn’t pretty over in Barre, Vermont either, where WCAX picks up the story of one businessman who not only lost his e-mail access, but all of his e-mail dating back weeks.  FairPoint claimed it was working “around the clock” to fix the problems they spent an extra half-year preparing for.  Patience is a virtue with FairPoint, because this customer was asked to wait for “one minute” for assistance, and was still waiting six hours later:

… Continue Reading

I’m a big cable or telephone company and I just caught the smell of broadband stimulus money… hundreds of millions of dollars worth of taxpayer dollars I want for myself and my investors.  Why spend their money when I can spend yours?  Stop the Cap! warned readers that parties with a vested interest in cashing in on taxpayer funds to construct broadband networks would be sniffing around the Broadband Stimulus package looking for their piece.  Broadband Reports, Public Knowledge, and The Wall Street Journal caught a big whiff of telecom trolling for your taxpayer dollars, this time to ostensibly “map” broadband penetration in the United States.

Using a group called Connected Nation, whose board is packed to the rafters with telecom employees and those serving them (including AT&T, Comcast, and Verizon), telecommunications special interests want the contract (worth $300+ million) to complete the national map.  In addition to collecting the nice tidy sum that represents, these companies have a vested interest in keeping broadband looking perky, fast, and available everywhere to forestall regulatory review, municipal broadband initiatives to serve the under served, and hide the fact broadband in the United States is not very competitive, and not very available outside of population centers.

The history of this group has demonstrated it has an interest in keeping specifics to a minimum, and inflating broadband penetration levels into the stratosphere.  As Broadband Reports wrote, a perfect example is in the state of Kentucky.  When independent mapping was completed, it exposed Kentucky had a problem — just 60% of the state had broadband available.  Those low numbers might prompt a review of why incumbent telecom companies are not spending some money to wire their less urban customers for service.  But with the magic of Connect Kentucky, a sort of regional chapter of Connected Nation, that number jumped to 95% in just five years in a study called dubious, if not outright “methodological malpractice” by Consumers Union.

Broadband Reports writes the 95% penetration rate is “hysterical” in their communications with Kentucky residents and Internet Service Providers.  But with a 95% penetration figure, why investigate if there “isn’t a problem?”  Of course, you could always pay us (AT&T, Comcast, Verizon, etc.) to improve those networks, also out of taxpayer funds.

Public Knowledge has its own bone to pick with the organization, claiming it demands to keep data general, and often proprietary:

State governments, working months before the stimulus package was conceived, are ramping up their own programs to map deployment of broadband, and are finding they are already increasingly running into conflicts over the type of data they will receive. Some states want comprehensive, granular data. However, they are finding that the telecommunications industry, often represented by Connected Nation (CN), doesn’t want to give it to them. The result is a clash of policy objectives and politics that’s taking place across the country, in states ranging from North Carolina to Alabama, Colorado and Minnesota. Connected Nation’s board of directors is dominated by representatives of large telecom carriers, as CN positions itself as the best choice for states and the Federal government to spend millions of stimulus dollars on broadband mapping.

In North Carolina, the dispute is being played out in a most public way, as Connected Nation, at the behest of a powerful state legislator, has set up a parallel mapping operation to that of the e-NC Authority, a state agency that has been working since 2001 to bring Internet connectivity to rural areas through mapping and through public-private partnerships with telephone companies. While normally Connected Nation can charge hundreds of thousands of dollars for mapping, it is doing the North Carolina map at no cost to the state after a move by the chairman of e-NC’s board to have that organization pay for part of the industry mapping cost failed.

As with all of its mapping, e-NC depends on information from incumbent providers. Through last year and this there was a struggle more prolonged than usual, and the end result was a non-disclosure agreement (NDA) that greatly restricted what the e-NC maps would be able to show.

Proprietary, non-specific data allows a group to suggest that any speed above dial-up is broadband, and as long as it passes near your neighborhood, you have broadband access (even if you don’t.)  That’s precisely the kind of access pointed to by elected officials like Sen. Sam Brownback (R-Kansas) who claim broadband is plentiful and will become more so if the government stays out of it.

To resolve broadband penetration problems, improve competition, and to prevent broadband backwaters served by companies doling out slow, heavily capped access at high prices and calling it a day, truly representative map data must be produced to allow everyone to understand what is currently available at what speeds.  Allowing a group like Connected Nation to swipe taxpayer dollars currently used by state officials for honest assessments is a travesty.  No company or organization with a vested interest in the outcome should ever be allowed to control a study of this importance.  If they do, they’ll find broadband under an anti competitive, slow, and expensive Cap ‘n Tier system is just wonderful for all of us, assuming you even have access to it.

Thanks to Thomas Hawk for the photograph of the fox and “comecloser” for the hen house photo.

Stop the Cap! reader Jeremy received a reply to a communication he sent to his senator, Sam Brownback (R-Kansas).  Brownback has signed on for big telecom’s “nickle, dime, and dollar subscribers” project and thinks it’s great news for an Internet controlled by profit leveraging corporations charging top dollar while promising to expand services later.

Full text of letter from Sen. Sam Brownback (R-Kansas) (click to enlarge)

As you may know, several groups have sought legislation to regulate or even prohibit fees that may be sought by broadband companies from content providers for the high-speed transmission of content over the Internet. I believe that this so-called ‘network neutrality’ legislation would be anything but neutral, punishing broadband access providers for innovation and competition.

In fact, it is due to the absence of heavy-handed government regulation that the Internet has grown and innovated freely and rapidly.

Moreover, broadband access providers – our nation’s telephone, cable television, and wireless companies – are spending billions of dollars to deploy broadband, and have plans to spend billions more on the next generation of broadband networks.

These investments include new technologies that will greatly improve everyone’s Internet experience, further empowering our ability to use it for entertainment, political, religious, and educational purposes. Given the investment by broadband providers in creating and maintaining Internet infrastructure, it is reasonable for them to request that content providers pay their fair share for the services they use.

Brownback is confusing the broader argument about Net Neutrality, allowing data equal access on a network, regardless of its source, affiliation, or potential competitiveness with a provider’s own products and services, with the bandwidth Cap ‘n Tier problem Jeremy wrote about.  But Net Neutrality and Cap ‘n Tier are effectively kissing cousins: they go hand in hand.  As we’ve seen in Time Warner Cable’s Subscriber Agreement, they exclude their own Digital Phone product from Cap ‘n Tier while subjecting other competitors to it, if/when implemented.  They also reserve the right to throttle speeds, limit consumption, or impose overlimit fees for exceeding usage allowances.

Sen. Brownback (R-Kansas)

We’ve also seen a direct link between the growth of online video, the cable industry’s concern they will lose cable TV subscriptions to online free video, and attempts to charge higher prices and/or limit use of the net as a way to address the online video “problem.”  Scaring subscribers away from watching online video without fear of overlimit fees is a fine way to “keep the lid on.”

What America has come to discover in the last year is that free market competition is fine, but the absence of common sense oversight and regulation means runaway profiteering and customer abuse, often in markets that lack competitive choice on equal terms.

Brownback may also not realize that cable companies often have an ownership interest in the content producers, and they have a vested interest in retaining control over that content. Unlike content producers like Hulu, who do not charge any fees to access their content, the broadband provider itself does, raking in billions in profits using today’s broadband model.  Consumption based billing with paltry tiers of service simply guarantees a Money Party of even higher profits, leaving consumers with unaffordable broadband, limited access to innovative online content, and vague, potentially empty promises to perform those revolutionary upgrades Brownback writes about, ‘sometime later.’

Brownback, despite events in the news showing telecom companies throwing rural customers under the bus (Verizon in particular), still believes the only way rural Kansans will obtain broadband is letting the providers do whatever they want:

We must keep the Internet free of unnecessary government regulations.  Our current approach of allowing market forces to operate has benefitted all Americans with rapid broadband deployment, and Internet speeds that were unimaginable just several years ago.  The Congress and the Federal Communications Commission should not harm progress by allowing the government, rather than the competitive market, to choose business models.  Keeping the Internet free of the heavy-hand of government promotes innovation and broadband deployment by giving our nation’s cable, telephone, and satellite companies much needed flexibility to invest in their networks and meet the demands of consumers.  It is this approach that will bring broadband to rural communities and will ensure that all Americans have the best online experience possible.

Kansas is hardly the cutting edge of America’s broadband.  In Brownback’s own state, broadband backwaters are common with very slow speeds, heavily capped and expensive providers like Sunflower in Lawrence, or an attitude in most of the state’s cities that “this is good enough, they don’t need more.”  Large swaths of the state remain stuck with dial-up.  If this is the broadband celebration Brownback is throwing for his own constituents, voters should just remember he spends most of his time in Washington, which does fine online, with several competitive choices and very fast speeds.

Perhaps at the next election, should he not revise his position, voters may want to see to it that Sen. Brownback spends a lot more time at home in Kansas with 1.5Mbps DSL for $44 a month, and find someone else to represent their interests.

Craig Moffett, cable and telecom analyst at Sanford C. Bernstein & Company, is back rallying for consumption based billing, dismissing accusations it represents a stealth rate increase.  Moffett characterized Time Warner Cable’s negative experience as only a temporary setback.

Moffett told The Wall Street Journal:

“Look, there’s a real argument for some form of consumption-based billing, and it’s going to happen,” he said. “Time Warner got the pricing wrong, it got the P.R. wrong, but this is not some kind of stealth price increase. They’ve been clear – they don’t want to discourage the use of the [broadband] product, but they have be able to manage the increased use of bandwidth that goes with Web-based video.”

In the same article, however, Moffett had nothing but praise for attempts to control web video so that only authenticated cable TV subscribers get access, for a price.  Bandwidth caps and limits help discourage online video consumption among subscribers concerned about exceeding monthly limits, particularly those set at paltry levels that virtually assure video watchers exceed them.

One topic addressed at the Bernstein conference was “TV Everywhere,” the initiative spearheaded by Time Warner Cable to make sure that online viewing of cable programs is only available to consumers who subscribe to video service provided by a cable, satellite or telephone company.

Cable operators say that if they’re going to pay millions of dollars in fees to film and TV studios in exchange for the right to air their programs, those studios shouldn’t turn around and offer the same shows over the Web for free.

Moffett says that while there “are a lot of specifics” to be worked out, including how to authenticate paid video subscribers on the Web without hassle, “TV Everywhere” is a “very positive step for operators and programmers, because it’s at least some attempt at a strategic alignment, rather than for each side to go it alone, which is what they’ve done traditionally.”

The broader scope of the Journal article was to measure Wall Street’s reaction to cable stocks in general.  Investors are looking for assurances of significant returns, something more difficult to achieve in a problematic economy.  Stop the Cap! contends that changing the business model of cable broadband with Cap ‘n Tier billing like Time Warner Cable tested, is precisely aimed at increasing those returns, particularly in markets where limited or insufficient competition holds customers virtually hostage to the cable provider.