Frontier Forces FUD on Cities in Sibley: Sibley Responds

The fiber-to-the-farm initiative in Sibley County, Minnesota, has completed the feasibility study and the towns involved are discussing a Joint Powers Agreement. One of the impacted incumbent providers -- Frontier Communications, a rural telco famous for slow DSL) -- has started to spread the usual FUD (fear, uncertainty, and doubt) that is common whenever a massive company is about to face competition.

Though I am tempted to comment directly on Frontier's letter, I'll let the community's response stand on its own. The way they misrepresent the record of Windom should be instructive - this same misinformation strategy is used around the country.  We believe publishing these scare tactics and responses to them is helpful to everyone -- so if your project has received one, please let us know.

Frontier's Letter:

Dear Commissioners:

As a provider of telephone, internet, and video services to our customers in the Green Isle, Arlington, and Henderson areas, Frontier Communications is obviously interested in the "fiber to the home" proposal that has been presented. As a nationwide provider, Frontier is aware of other efforts by municipalities of various types to build and operate their own telecommunications network. While these proposals are always painted in rosy tones, it is important for officials to carefully review the underlying assumptions and projections that consultants make when presenting these projects. Unfortunately, history tells us that the actual performance of most of these projects is significantly less positive than the promises. Often times, these projects end up costing municipalities huge amounts of money, and negatively impact their financial status and credit ratings.

A nearby example would be WindomNet, the city-owned network in Windom, Minnesota. That network, which provides telephone, internet, and video service, began in 2005. The financial results to date have been poor; operating losses of $662,000 in 2006, $1,257,000 in 2007, $326,000 in 2008, and $93,000 in 2009. Additional borrowing by the city was required to make up those losses.

Another example is the city-owned network in Burlington, Vermont. Burlington Telecom was begun with high hopes in 2003, to offer telephone, internet, and video services. By the fall of 2010, the network was in trouble. A Vermont Public Service Board investigation found that it had violated its license to serve. The network cannot pay its debt, which has resulted in a downgrading of the city of Burlington's credit rating. This essentially makes borrowing more expensive for the city for all its operations. Indeed, a blue ribbon panel charged with investigating the situation concluded that the network is not viable at this time.

Reviewing the presentations on the "fiber to the home" proposal available on the County's website raises several questions regarding the reliability of the cost study and projections. The Sibley Renville Fiber Project Executive Summary says that to make the project work, it "requires a 70% penetration rate of customers buying two services (or more)". The November 15, 2010 Consultant Report assumes monthly prices of $19 for telephone service, $42 per month for Expanded Basic video, and $42 per month for 20 Mbps internet service, A customer taking all three services (phone, video, and internet) would pay about $100 per month; a customer taking only two services would pay something less.

However, the November 15, 2010 Consultant Report seems to tell a different story as far as the assumed penetration rates.

In the Consultant Report, the cost study results for City-Rural plan show $9.6M in revenue in Year 5. A customer taking all three services would generate revenue of about $100 per month, or $1200 per year. Thus, the $9.6M of projected revenues equates to 8,000 customers taking all three services (phone, video, internet) or more than 8,000 customers taking two services. According to the County's webpage, the 2010 population of Sibley County is 16,000, Apparently, the cost study assumes that every other citizen of the County will subscribe to all three services, at $100 per month. Not every other household; every other citizen, Since the average household size is approximately 2, the cost study implies that every Sibley County household will subscribe to this network (at $100 per month) for the projections to be accurate.

The Consultant Report assumes a "Total Investment per Passing" of $5600. The projected investment for the City-Rural plan is $44.6M by Year 3. This equates to roughly 8000 units passed. According to the US Census, with a 2000 population of 15,356, there were there were fewer than 6000 households in the county. Since the 2010 population of Sibley County is 16,000, there may be a few more households now. Evidently, the cost study is assuming that every household in the county (and then some) will be passed by Year 3, and that every household will subscribe to the network.

Frontier offers these thoughts not as a full review of the proposal, but simply as an initial caution to the county, to carefully examine the particulars of this project before proceeding. Frontier looks forward to participating in future discussions on this proposal.

Mark Erickson, the Winthrop City Administrator who has spear-headed this project, responded with the following letter (which is not in a blockquote style due to its length).

A response to Frontier Communications letter to Sibley County Commissioners on Dec. 14, 2010 regarding the proposed county-wide fiber network

Sibley logoAs residents, businessmen and elected officials study and learn more about the possibilities of constructing a county-wide fiber to the home/farm/business network in Sibley County, Fairfax and the rural exchange around Fairfax, it is important that everyone is presented with facts.

On December 14th of last year Frontier Communications presented a letter to the Sibley County Board of Commissioners expressing their concerns and opposition to the proposed network.

The letter is an example of how the telecommunications industry has typically responded to the threat of competition; confuse everyone with half truths and lies, point to a bleak future and remind everyone their taxes are going to increase if the project goes forward.

Nothing could be further from the truth.

In their letter, Frontier says that “these proposals (for community fiber networks) are always painted in rosy tones.” That is not true in our case. Our consultant, Doug Dawson, and the city staff involved in the project have gone out of their way to remind elected officials and the several hundred people who attended the two rounds of presentations regarding the project there are inherent risks in the project and a significant amount of hard work required to make the project successful.

Frontier goes on to say that “history tells us that the actual performance of most of these projects is significantly less positive than promises.” That also is not true. There are approximately 75 municipally based fiber projects currently operating in the country. A case can be made that perhaps three or four of those projects have under performed. Four out of 75 projects is a far cry from “most of these projects.”

The letter further goes on to point to WindomNet in Windom, Minnesota as an example of a municipally based program that is not doing well. Again, the accusation is absolutely false. WindomNet was built by the city of Windom about five years ago and stumbled out of the block because of overwhelming support for the project. Their original business plan estimated that 20% of the residents would subscribe to digital television service which requires a set top box that back then cost about $400 each. Instead, 80% of residents signed up for digital service and Windom was required to borrow more money to meet the demand. Since then Windom has been a model of success. They have met their financial projections and continue to add customers. In a conversation with their general manager a few weeks ago he admitted they could do better financially if they charged more money. Instead they choose to provide outstanding service to their customers as a price that allows them to pay their bills and put a little in the bank.

This past year the WindomNet Board voted to work with eight area communities (Jackson, Lakefield, Round Lake, Brewster, Heron Lake, Okabena, Wilder and Bingham Lake) to build fiber to the home networks in each of those communities. Does that sound like an operation that is not doing well?

Minnesota phone companies, under the direction of the Minnesota Telecommunications Alliance, have been telling “The Windom Lie” for the past five years. In a way it is good that Frontier’s letter mentioned Windom as an example of a municipal venture that is failing, because it gives us the opportunity to tell the truth. WindomNet is doing just fine. A municipal venture measures success by generating more cash than is needed to pay for expenses, pay for assets and pay for debt. Windomnet is cash positive and the City considers the project a total success.

The letter also mentioned the community of Burlington, Vermont as an example of a municipal network that is not doing well. Frontier is accurate in that description. Burlington made several big mistakes. Burlington stands as an example of what not to do for municipal networks and the lessons learned from Burlington have been heard in many city halls and county courthouses across the country.

The Frontier letter then goes on to raise “several questions regarding the reliability of the cost study and projections” of the feasibility study authored by CCG Consulting. I must admit that reading their concerns certainly seems to point to problems. Fortunately, they have taken simple financial assumptions and twisted them in a way that points to failure instead of success. The numbers presented in the feasibility study are sound. CCG Consulting has authored hundreds of similar studies for cities, counties and phone companies and has never had a failure. In fact, CCG is recognized as one of the top fiber-to-the-home consulting firms in the nation. We are ready to defend the projections in the study with anyone at any time.

The Frontier letter went on to talk about the “Total investment per passing of $5,660” in Sibley County, using the 2000 census figure. We worked directly with all of the cities and the two counties to estimate the total number of passings (homes, farms and businesses). Frontier’s assumptions are incorrect because they don’t include the passings in Fairfax and Renville County. They admit there “may be a few more households now” in Sibley County but conveniently left out the folks in Renville County. Again, we feel very confident of our numbers in the study.

According to a December 16th, 2010 article in the Arlington Enterprise about Frontier’s presentation of their letter to the Sibley County Commissioners, Frontier Regional Manager Todd Van Epps made the following statement” “What we can do is provide the same speed of service as fiber can provide.” We are fairly confident that people recognize the absurdity of that statement. If the Sibley/Renville fiber optic network is eventually constructed it will provide at least 20 megabits of symmetrical Internet service (same download and upload speed) to every home, farm and business for less than $50 a month. It will be capable of providing up to a 100 megabit of symmetrical Internet connection to everyone using standard hardware and can be upgraded relatively easily to provide one gigabit of bandwidth if a customer needs that much.

Frontier’s copper network simply cannot match those speeds. If they could, large companies would still be building copper networks, which none of them are doing. The superior bandwidth of fiber optics not only allows for ultra high speed Internet connections, it also means that video over fiber is absolutely crystal clear and high definition television (HDTV) is far superior in quality that some cable networks and all satellite networks.

The bottom line is that Frontier Communications does not want this network to be built because they don’t want the competition. We understand that. That’s why we have said from the beginning of this project that if the phone or cable companies want to build this network we will stand back and welcome them with open arms.

Sibley County MapWe have even gone as far to say that if the phone or cable companies are interested in building a fiber to the home network in Sibley and Renville Counties we will help them find a way to finance the project, allowing them to operate the network and eventually own the network for little or nothing when the bonds are paid off. Unfortunately the phone and cable companies we have talked to are not interested in such a partnership.

Almost everyone in Sibley and Renville counties we have talked about this project in the last eight months recognize the benefits that a fiber optics network would bring to their lives, businesses, schools and communities. A lot of people have offered their support to try to figure out a way to make this happen. The construction of a fiber to the home/farm/business network in Sibley and Renville Counties would bring us into the 21st Century and put us far ahead of our big city cousins with respect to access to technology.

Again, we understand why the phone and cable companies take such a dim view of this project. But instead of spreading lies and half truths wouldn’t it be more constructive if they sat down with us and tried to figure out a way to make this happen that benefits them as well of the residents of Sibley and Renville counties.

On January 13th, representatives from the eight communities and two counties involved in the planning stages for this fiber network got together to learn more about the project and possibly agree on a way forward. Cities and counties will have until the end of February to decide whether to form the joint powers board and move ahead or end the project now.

If enough communities decide to form a joint powers board to manage the project to a point where we have all of the questions asked and answered to everyone’s satisfaction, the process could easily include discussions with not only Frontier Communications but any phone or cable company willing to sit down and talk logically and constructively about how we can bring benefit to everyone in Sibley and Renville County for generations to come instead of settling for copper and coaxial technology that has already become outdated.

As we have said many times in presentations and meetings regarding this project, this is not an anti-phone or cable company project. This is a pro Sibley and Renville County project.

In the “Telegraph and Telephone” section of the Gaylord History book, the following information appears: “Before the telephone was introduced in Gaylord in 1897, there were some who thought it was just a fad and would prove impractical. They thought the telegraph, which originated at the same time as the railroad, had served the community adequately for many years.”

It is an ironic twist of fate today that phone companies like Frontier who oppose these kinds of project represent the naysayers of 100 years ago who didn’t think it was necessary to upgrade telegraphs to the new telephone.

This fiber project represents those folks 100 years ago would knew that Sibley County would be better served by investing in technology.

If the folks in Sibley and Renville counties can find a way to build a fiber to the home/farm/business network it will become an invaluable and necessary tool future generations can use to meet the challenges that will most certainly confront them.

Respectfully submitted,
Mark Erickson
Winthrop City Administrator
EDA Director