Charter Fights Dirty to Kill Competition in Monticello

When Monticello, Minnesota, decided to build its community fiber network -- Fibernet Monticello -- it expected the incumbents to lower their prices and fight to keep subscribers. But Monticello had no idea the lengths to which they would go.

The telephone incumbent, TDS, delayed the project for a year with a frivolous lawsuit and then built its own fiber-optic network while dramatically lowering its prices. We have yet to find another community in North America with two citywide FTTH networks going head to head.

Because of the city's network, Monticello's residents and businesses have access to better connections than the biggest cities in Minnesota can get.

Now, Charter has weighed in by cutting its rates to what must be below cost to gain subscribers. It reminded us of a shoot-out, so we created this infographic to explore what is at stake.

The Good, the Bad, and the Ugly in Minnesota

Download a higher resolution PDF here.

Charter has taken a package for which it charges $145/month in Rochester, Duluth, Lakeville, and nearby Buffalo (MN) and is offering it for $60/month - price guaranteed for 2 years. A Monticello resident supplied us with this flyer, which this person had received multiple times at their home over the course of a month. (See below for the full flyer).

Charter's rate sheet

This is either predatory pricing or the cable industry is out of control with its rate increases. If that package costs Charter more than $60/month to supply, then it is engaging in predatory pricing to drive competitors out of the market. Consider that Charter may be taking a loss of $20/month ($240/year) from each household that takes this offer. They can do that by cross-subsidizing from nearby markets where they face very little competition.

If that package costs $60 or less per month to Charter, then it has an incredibly high profit margin and the fundamentals of the market have to be questioned.

Traditional economic theory tells us that very large profits anywhere will attract new market entrants. Yet the private sector refuses to provide competition aside from the common duopoly of DSL/cable. And these companies use their incredible lobbying power to push bills such as Minnesota HF 2695 that would ban communities from building their own networks.

Unfortunately, building their own networks is often the only way for communities to create real competition and investment in next-generation networks. But communities then have to face dirty tactics from these massive companies bent on maintaining their marketshare using any means necessary.

The aggregate benefit to Monticello is very large right now. Prices for telephone, cable, and broadband have all dropped, keeping millions of dollars in the local economy. But Fibernet Monticello has missed its revenue targets because TDS and Charter care more about driving competition out of town than a fair fight.

The question is whether dirty tactics will successfully run Fibernet Monticello out of business, allowing TDS and Charter to resume gouging subscribers with their ordinarily high rates. If they do, it will be ironic that FiberNet Monticello, which brought the fastest residential speeds in the nation to a small Minnesota town while lowering the prices everyone pays for telephone, broadband, and cable, will be regarded as a failure.

Comments

Town should fight back

More legitimately: pass a bylaw that says a service provider cannot offer local-only cut-throat rates. If they want to offer a lower price, it has to be offered to "everyone" (perhaps state-wide). Make them bleed or charge a fair price.

 

Less legitimately: start cutting Charters cables in Monticello. How's the service now, bitch?

Keep Fighting!

Thanks for fighting the good fight.  The only way you will win is to get the word out.  These huge telecoms take have only one goal, to drive out competion so they can overcharge.  They have no interest in providing a service at a reasonable price.  Hope you can keep the pressure on by generating publicity on this important subject.

Fake Ad

That "Ad" you provide is a pre-printed channel lineup that ANYONE could have wrote that deal on there. Until it is on something professionaly printed people should not believe the rates listed.

Not Fake

This is not a fake ad, Charter is offering these prices.  I agree that it would be suspicious in the absence of first hand knowledge that these deals are real.  

Get the word out

The best way to fight this is to get the work out to Charter customers in the areas paying the higher rates.  Enough customers calling in to demand like pricing in their towns could have an effect.

10 miles away

I live ten miles away from Monticello and have really crappy internet options.
I would like to see Monticello roll out this fiber to surrounding communities. I would gladly purchase service and remain loyal.

Fiber is cool!

Thanks for writing this! It is good to see some good press finally... I have always been in support of the little business or local business. Even though Fibernet is run by the city, they are a local company. TDS and Charter are NOT local and certainly are NOT little. 

As a customer of Fibernet, I am willing to be patient with their growth and the pains that come of that growth. I also like the fact that WHEN Fibernet does turn a profit, the money will go back into the community, and it already does. Just look at the Swan Cam. Most if not all of the Fibernet employees live in Monti or the neighboring communities, and they spend money in the local area. Also, Fibernet offers way more than the incumbent providers can: better, stable pricing; marketing with morals; faster internet speeds; top-notch talent; an awesome and up-to-date infrastructure that will be able to expand with the future.

It's about time we see some good press...

 

We warned you!

Sorry, Fibernet, but you brought this on yourself.

When you licensed telco and the MSO years ago, you gave them exclusive franchises.

You can't now decide to compete with them using the very tax money you collect from them.

 

It is Fibernet who is price-fixing, while the city is guilty of violating the Illegal Takings clause.

 

Charter has every right to fight back, and the customers win.

 

 

Ignorant

I approved this comment as teachable moment. This comment is wrong on many levels.

The city approved a non-exclusive franchise with Charter. Exclusive franchises have been illegal for 20 years in the United States. Monticello has practically no authority over TDS, the telephone company. Both companies are regulated by other levels of government for the vast majority of their operations.

The City is not using tax money it collects from Charter or TDS to compete against them. In fact, I would be surprised if the taxes paid by Charter or TDS amount to any significant amount (excluding the franchise fees, which are not a tax so much as a user-fee for being in the ROW).

Charter should compete, not violate antitrust law by engaging in predatory pricing.

Charter

Just FYI. Charter is national. By that I mean I am in southern California and Charter has a monopoly on the community in which I live. Charter's pricing here would knock you socks off. Apparently and understandably from a business perspective Charter's pricing is predicated on economics of scale. That means that Charter probably charges the pricing that will float and be acceptable according to the economics of scale applicable to the region. The conventional principles of costs ratioed against revenue renders profit applies in telecom just as in any and every other business. Therefore Charter in highest likelihood (this is expressed without the benefit of examination of Charter's books) has the economic resources to collateralize costs across regions in the effort to establish pricing. FYI.

Yes...

Yes - that is the point.  Charter can use its monopoly power in some communities to cross-subsidize predatory pricing (charging less than the cost of the service) to run competitors out of business in competitive areas.

@#$% Charter & TDS, too!

I'm also a FiberNet customer. When Charter's reps came through my neighborhood and harassed my wife about their service with claims of being the fastest available in Monticello (not true, I can get up to 100 Mbps vs. ~30 with Charter) we called them to ask what was up with that? The rep said that basically the guy was wrong and they needed to get ahold of them and tell them to stop saying that. Yeah, I'm sure they got right on that.

Also, if I recall correctly (I looked for it online but can't find it) when this FTTH network was first proposed, both the phone company and the cable company (among others) were asked to submit RFP to build it. The phone company (TDS) said not worth it (they have since built their own) and the cable company gave no response. I think the city didn't want to run a FTTH network so much as have one available to make our community more attractive to propective businesses and residents (we're a far outlying suburb of the Twin Cities). When in-place utilities balked, we built our own and now they act like this? Disgraceful.